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For the Record

The editor is forced to make a clarification after getting stung by curious phrasing in the FTC’s press release announcing Operation Ruse Control. He concludes that the agency has F&I in its sights.

May 1, 2015

The Federal Trade Commission (FTC) certainly made a big splash with its Operation Ruse Control, described as a cross-border, multiagency crackdown on the industry that resulted in 252 enforcement actions — 187 of which occurred here in the United States.

What caught my attention was this line in the FTC’s press release: “For the first time since receiving expanded authority over auto dealers under the Dodd-Frank Act, the FTC has taken two auto enforcement actions involving add-ons ...” I even used that little nugget to tease our coverage of the sweep in our March 26 enewsletter. It wasn’t until the news item landed on our website’s Most Viewed stories list that I realized something wasn’t right.

See, while it may be true that the FTC took its first action against dealer add-ons since the passage of the Dodd-Frank Act in July 2010, the agency already had the enforcement authority before and after Dodd-Frank to charge biweekly payment provider National Payment Network and one of its dealers with violating the FTC Act for allegedly claiming the program saved consumers money.

The FTC’s press people are pretty crafty, because they didn’t necessarily get it wrong. But that line sure does seem to imply that Dodd-Frank saved the day. What the law did do was give the agency expedited rulemaking authority with respect to dealers, but that didn’t come into play here. That authority was granted by Section 1029(c) of the Dodd-Frank Act, the same section containing the dealer exemption. It gave the FTC the ability to write rules addressing unfair or deceptive acts or practices by dealers under the much-less laborious Administrative Procedures Act (APA) instead of the 1975-enacted Magnuson-Moss Warranty – FTC Improvement Act.

See, back in the ’70s, the FTC went on a rulemaking spree. And when Congress sought to regulate warranties on consumer products under the Magnuson-Moss Act, it also amended the FTC Act by providing, among other things, strict guidelines for when the FTC attempts to implement policy through rulemaking. And these guidelines, 18 steps in all, went further than the APA by requiring the agency to publicize and present its reasoning for a specific rule, as well as allow stakeholders to file written reports or opinions with the FTC.

I thought you might find that interesting given that a bipartisan bill that would add a few steps to the Consumer Financial Protection Bureau (CFPB)’s guidance-writing process is currently making its way through Congress.

Anyway, my realization made me wonder if there were any other questionable implications in the FTC’s press release. That’s when I discovered the agency’s 34-page chart on all the actions it took. By the second page I noticed the FTC mixed into its chart actions against loan-modification companies, title lenders, vehicle OEMs and even a Japanese parts maker.

I even found the lawsuit Minnesota Attorney General Lori Swanson filed against Texas-based EFG Companies last September for the way it handled cancellations and refunds on service contracts sold through third-party sellers. I guess someone forgot to tell the FTC that the lawsuit was dismissed 90 days after it was filed.

I counted 144 actions involving dealers, but I’m being generous. See, also mixed in were actions involving individuals who bought used cars, swapped out or rolled back the odometers and then tried to sell them posing as a dealer. In fact, I counted 22 actions involving unlicensed dealers and salespeople, which was second only to the 81 dealer-related advertising violations I counted.

I also found six actions involving dealers who failed to provide valid titles, one action involving a dealer who failed to pay off trades, two related to spot deliveries, five involving document and processing fees, and 14 related to deceptive sales.

As for F&I, there were eight actions involving dealership personnel inflating customer incomes to secure finance approvals. All eight cases were filed against employees of Birmingham, Ala.-based Serra Nissan. I also found three cases of payment packing, two of which involved Indiana dealerships listing the cost of “etch insurance” as a doc fee. I also discovered a loan discrimination case filed against two North Carolina-based buy-here, pay-here dealerships and their owner for allegedly charging African Americans higher vehicle prices and higher interest rates on “predatory” loans.

My take is the consumer protections in place before and after Dodd-Frank worked. I just wonder why the FTC didn’t come to the same conclusion in its press release. Instead, it offered up that ambiguous line that now has me clarifying my reporting. Regardless, it’s clear F&I is in the FTC’s sights. You’ve been warned.

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