‘Operation Ruse Control’ Announcement Highlights Importance of Auto Finance Compliance

The Federal Trade Commission—and numerous other federal, state, and local law enforcement agencies in the United States and Canada—recently announced that an enforcement initiative dubbed “Operation Ruse Control” has resulted in 252 enforcement actions involving various types of alleged fraudulent and deceptive conduct related to motor vehicle sales, financing, and leasing. These actions included both civil and criminal charges of deceptive advertising, credit application fraud, odometer fraud, deceptive advertising of an ancillary product, and deceptive marketing of title loans. The announcement focused on six FTC enforcement actions that led to more than $2.6 million in monetary judgments, including the FTC’s first post-Dodd-Frank enforcement actions involving the marketing and sale of an ancillary auto product.

Two of the FTC enforcement actions concerned a biweekly payment plan that was marketed as a way for consumers to reduce finance charges under their auto finance contracts by accelerating the amortization of the amount financed. Offered online and through a network of authorized dealerships, the plan allegedly included large fees (averaging $775) that offset the promised finance charge savings. The FTC alleged violations of Section 5 of the FTC Act against a California company that advertised the program online and through a dealership network, and (in a separate action) against certain New Jersey dealerships through which the ancillary product had been sold. The dealership cases noted that the dealerships received commissions for program enrollments. Illustrating the public relations consequences of these alleged actions, an FTC blog post published along with the press release was titled “‘Add-on’ auto finance plan gets a ‘D’ for deception.”

In addition to significant monetary relief, the proposed consent orders prohibit the California company and the New Jersey dealerships from misrepresenting that a payment program will generate savings for consumers unless the savings amount is greater than the total fees and costs. Additionally, the proposed consent orders prohibit the respondents from misrepresenting that the payment programs or the associated fees will improve, repair, or otherwise affect the consumer’s credit history. The proposed consent orders, which also contain other injunctive relief components, are available here and here.

The FTC also brought three administrative enforcement actions against motor vehicle dealerships in Florida, Alabama, and California for a variety of allegedly deceptive and unlawful advertisements. According to the FTC press release, the advertisements “touted sales, lease, or financing options that seemed attractive but were cancelled out by fine-print disclaimers. In other instances, the disclaimers did not disclose relevant terms, such as required down payments.” The FTC alleged various violations of Section 5 of the FTC Act, and the advertising provisions of the Truth in Lending Act and the Consumer Leasing Act.

Among other things, the proposed consent orders prohibit the respondents from misrepresenting the purchase cost or any other material fact about the price, sale, financing, or leasing of a vehicle. The FTC press release further indicates that two of the proposed consent orders prohibit the respondents “from representing that a discount, rebate, bonus, incentive, or price is available unless it is available to all consumers or all qualifications and restrictions are clearly and conspicuously disclosed.”

The final enforcement action highlighted was an auto finance modification case. Specifically, the FTC brought a civil enforcement action against a Florida company and its principal and CEO alleging that the company charged substantial up-front fees for obtaining contract modifications that would prevent vehicle repossession and substantially reduce finance charge rates and monthly payments. The company allegedly failed to obtain such modifications and, despite allegedly promising to refund the up-front fees if no modification was secured, it made no refunds. The complaint alleges violations of Section 5 of the FTC Act and the Telemarketing Sales Rule. This case is ongoing and seeks a permanent injunction concerning the allegedly unlawful practices as well as consumer redress.

Operation Ruse Control follows another recent enforcement campaign by the FTC against auto dealerships—“Operation Steer Clear”— which alleged a variety of deceptive advertising violations relating to auto sales, leasing, and financing.  Our prior alert about “Operation Steer Clear” is available here. A statement issued by the National Automobile Dealers Association (NADA) in response to the FTC announcement is available here. Needless to say, these cases illustrate that federal and state regulators remain focused on how consumer financial services products are marketed and sold, and that they will find “small print” disclaimers to be insufficient to avoid liability.

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