On June 17, New York’s state attorney general announced a $14 million settlement to resolve claims of illegal “jamming” sales practices from 2010 to 2014 with Paragon Honda, Paragon Acura, and White Plains Honda, three New York City-area dealerships owned by the same individuals. The state’s press release defines jamming as “unlawfully charging consumers for hidden purchases by car dealerships.”
The investigation centered on the “alleged unlawful sale of credit repair and identity theft prevention services, and other ‘after-sale’ items to 15,000 consumers,” most significantly sales of contracts with Credit Forget It, a company recently shut down by New York’s Consumer Frauds Bureau. Under federal and state law, car dealerships are prohibited from charging upfront fees for credit repair services, rendering any such contracts void. In many instances, the state alleged the dealerships were charging consumers for the services without their knowledge or consent, even those with excellent credit.
The settlement includes $13.5 million in restitution to consumers, including a $6 million restitution fund and $500 “settlement cards” to consumers for use at Paragon dealerships. The dealerships also agreed to $325,000 in penalties, fees, and costs to the state government.
New York reached a smaller settlement on similar grounds with Generation Kia in Suffolk County, and served notices of intent to file lawsuits against eleven additional dealerships in the New York City and Long Island areas. Investigations of other New York dealerships are also ongoing.
This is not the first time auto dealerships have been in the New York attorney general’s crosshairs, nor is New York the only one monitoring the industry. In March 2014, New York reached settlements with six dealerships for allegedly engaging in deceptive advertising practices as to discounts and/or rebates unavailable to most customers. From late 2013 to early 2014, a dozen dealerships nationwide settled Federal Trade Commission charges also relating to allegedly misrepresented discounts and deceptive advertising.