​The Federal Trade Commission (FTC) reached a $3.38 million settlement with Passport Automotive Group (Passport) and two of its officers over allegations that the automotive group violated the Equal Credit Opportunity Act and the FTC Act by adding “junk fees” onto the cost of its vehicles and discriminating against Black and Latino consumers by charging them higher financing costs and fees than non-Latino white consumers. In addition to the fine, the proposed settlement order includes a remediation plan, changing how Passport, which operates nine car dealerships in the Washington, D.C. metropolitan area, will operate going forward. Specifically, those provisions include (1) a broad prohibition on misrepresenting the costs or terms to buy, lease, or finance a car; (2) a requirement that the dealerships get consumers’ express, informed consent before charging them any fees; (3) a prohibition on dealerships charging different groups different markups; and (4) a requirement that all employees involved in the extension, renewal, or continuation of credit receive fair lending training.

The FTC complaint included allegations that:

  • In numerous instances, when consumers attempted to purchase particular vehicles for the prices advertised, Passport charged them hundreds to thousands of additional dollars in fees;
  • Passport’s discretionary markup rate practice resulted in Passport charging, on average, Black and Latino consumers higher markups. These disparities were statistically significant. Passport charged Black consumers, on average, approximately 28 basis points (approximately $291) and Latino consumers, on average, approximately 26 basis points (approximately $235) more in finance charges than non-Latino white consumers. Black consumers received the maximum Passport-allowed markup approximately 47% more often and Latino consumers approximately 38% more often than non-Latino white consumers did.
  • In addition to charging minority consumers higher interest rate markups, Passport charged Black and Latino consumers extra inspection, reconditioning, vehicle preparation, and certification fees more frequently and in higher amounts than similarly situated non-Latino white consumers. The FTC alleged that Black consumers paid, on average, approximately $82 more and Latino consumers approximately $81 more in fees.

This is not the first time the FTC has filed an action against Passport. In 2018, a settlement was reached between the two parties over allegations that Passport mailed more than 21,000 fake “urgent recall” notices to consumers in an attempt to lure them to visit Passport dealerships.

The FTC has been laser-focused on eliminating what it characterizes as “junk fees.” As we previously posted earlier this summer, the FTC released a proposed Motor Vehicle Dealers Trade Regulation Rule. This new rule could allow the FTC to regulate dealers exempt from the Consumer Financial Protection Bureau’s jurisdiction under Section 1029(a) of the Dodd-Frank Act and would impose significant limits on how dealers advertise, impose upfront price disclosure requirements, require new paperwork for any optional “add-on” products, and prohibit a laundry list of specific kinds of misrepresentations in the sales process. The deadline for comments expired on September 12.

Troutman Pepper will continue to monitor important developments involving the FTC and the proposed rules regarding motor vehicle dealers, and we will provide further updates as they become available.