By Jody Coultas, J.D.
African-American and Hispanic consumers were allegedly charged more in interest than similarly-situated white customers. Democratic commissioners make case for more FTC involvement in market.
A New York City car dealership and its general manager have agreed to pay $1.5 million to settle FTC charges they discriminated against African-American and Hispanic car buyers and engaged in numerous other illegal business practices in violation of the FTC Act, the Truth in Lending Act (TILA), and the Equal Credit Opportunity Act (ECOA), the FTC announced today. This is the FTC’s first ECOA action since the passage of the Dodd-Frank Act (FTC v. Liberty Chevrolet, Inc., FTC File No. 162 3238, Civil Action No. 1:20-cv-03945-PAE).
The FTC alleged that Liberty Chevrolet, Inc. d/b/a Bronx Honda told sales people to charge higher financing markups and fees to African-American and Hispanic customers because of these groups "limited education,"and not to attempt the same practices with non-Hispanic white consumers. African-American consumers were allegedly charged about $163 more in interest than similarly situated non-Hispanic white consumers, while Hispanic consumers were allegedly charged about $211 more in interest.
In addition to the alleged racial discrimination, the dealership allegedly (1) failed to honor advertised sale prices, inflating the cost through a variety of methods; (2) changed the sales price on paperwork in the middle of the sale without telling the consumer, a practice the defendants internally referred to as adding "air money" to the contract; (3) double-charged consumers for taxes and fees without their knowledge; and (4) told consumers that they had to pay thousands of dollars in unnecessary fees to purchase "certified pre-owned" cars that were not required by that program.
Bronx Honda and the general manager have agreed to pay $1.5 million to settle the claims, which will be used to provide redress to consumers. The settlements also prohibit Bronx Honda and the individual from misrepresenting the cost or terms to buy, lease, or finance a car, or whether a fee or charge is optional. They will also be required to establish a fair lending program that will, among other components, cap the amount of additional interest markup they can charge consumers.
Commissioners’ concurring statements, calls for rulemaking. The Commission’s two Democratic commissioners issued separate statements, calling for an FTC rulemaking to address unfair and deceptive consumer abuses by auto dealerships. The Dodd-Frank Act exempts auto dealers from the jurisdiction of the Consumer Financial Protection Bureau.
A statement from Commissioner Rebecca Kelly Slaughter advocated for far-reaching structural reform to the automobile-financing and sales markets. Slaughter argued that the FTC should initiate a rulemaking, under the Dodd-Frank Act, to regulate dealer markup. This is true especially given the FTC’s current enforcement authority was unlikely to effectuate mass changes and required an enormous amount of staff time just to investigate one dealership. Thus, rulemaking would be a more effective and efficient approach, Slaughter said.
Commissioner Rohit Chopra also stated that the FTC should initiate a rulemaking process, as directed by Congress, and work with other federal regulators on auto market abuses, particularly those directed at members of the military. He said that disparate impact analysis is critical for detecting potentially unlawful discrimination, especially given how rare it is to uncover direct evidence of racist intent. Also, Chopra stated that the FTC should make use of its unfairness authority to tackle discriminatory algorithms and practices in the economy.
Companies: Liberty Chevrolet, Inc.
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