On October 24, the Federal Trade Commission (FTC) and the Wisconsin Department of Justice announced a settlement with Wisconsin auto dealer group Rhinelander Auto Center, Inc. (Rhinelander), its current and former owners, and general manager. The lawsuit was brought under the FTC Act, the Equal Credit Opportunity Act (ECOA), the Wisconsin Deceptive Trade Practices Act, and the Wisconsin Consumer Act.
The complaint alleged, among other things, that Rhinelander:
- Charged for “add-on” products or services without consumers’ consent.
- Specifically, 53% of surveyed customers reported that they did not know about or did not agree to buy one or more add-on products — mainly GAP insurance and vehicle service contracts — for which they were charged or were falsely told that they needed to buy at least one add-on that was actually optional.
- Engaged in a policy or practice of unlawful discrimination by imposing higher borrowing costs on American Indian customers relative to non-Latino White customers, including by charging them higher interest rates on purchases financed by companies that allow discretionary mark-ups and charging them more for unwanted add-on products.
- In total, American Indians paid on average approximately $1,362 more for add-ons than non-Latino White customers since 2016.
- On average, American Indian customers were charged approximately 34 basis points (approximately $401 per customer) more in interest rate mark-ups than similarly situated non-Latino White customers. That disparity increased following an ownership transfer, with American Indian customers being charged on average approximately 50 basis points more in interest rate mark-ups than similarly situated non-Latino White customers since March 2019.
- According to a recent census, American Indians are the largest minority group in the City of Rhinelander.
As part of the stipulated order, Rhinelander, its current owners, and general manager will pay a total of $1,000,000 to resolve the claims, which will be used to provide restitution to customers. Rhinelander and its owners also are enjoined from engaging in similar conduct in the future and must obtain a consumer’s express, informed consent for all charges. Rhinelander, its owners, and all those acting in concert with them are further enjoined from discriminating against any credit applicant on a prohibited basis. The settlement also requires the defendants to establish a comprehensive fair lending program that will, among other things, allow consumers to seek outside financing and cap the additional interest markup Rhinelander can charge consumers. The fair lending program must be overseen by a compliance officer and all Rhinelander employees must receive annual ECOA and Regulation B compliance training. Rhinelander’s former owners, Rhinelander Auto Center, Inc. and Rhinelander Motor Company, entered into a separate settlement agreement under which they will pay an additional $100,000 in restitution.
In announcing the settlement, the FTC’s Bureau of Consumer Protection Director Samuel Levine stated, “[a] vehicle is one of the most expensive purchases families make, and we are fully committed to ensuring that all consumers navigating the car-buying process can do so without facing unlawful discrimination or paying for products and services they do not want.”
This is not the first time the FTC has shone a light on discrimination by auto dealerships in charging protected class group members more for add-on products and vehicle financing. As discussed here, in 2020, the FTC took action against an auto dealer for, among other things, allegedly charging minority consumers more finance charges than similarly situated non-Latino white consumers. Then, in 2022, the FTC’s ground-breaking proposed Motor Vehicle Trade Regulation Rule, discussed here, would require additional paperwork for add-on products and prohibit such products that provide “no benefit.”
It is clear the FTC is continuing to target motor vehicle sales and financing practices. Troutman Pepper will continue to monitor any new developments in the space.