The FTC charged the dealers with running ads that duped unsuspecting consumers into thinking the outstanding balances on their car loans were being paid off. Instead, the dealerships were rolling over the old car loan balances into the new car balance. In effect, the duped buyers were paying for two cars at once when they thought they were only paying for one.
The dealers named in the FTC's complaints are:
1) Billion Auto, Inc., in Sioux Falls, South Dakota;
2) Frank Myers AutoMaxx, LLC, in Winston-Salem, North Carolina;
3) Key Hyundai of Manchester, LLC and Hyundai of Milford LLC, in Vernon and Milford, Connecticut, respectively, and which advertise jointly; and,
4) Ramey Motors, Inc., in Princeton, West Virginia.
The proposed settlements, reached as part of the FTC's ongoing efforts to protect consumers in financial distress, bar all of the dealers from making similar deceptive representations in the future. The cases are the first of their kind brought by the FTC. The Commission also issued a new consumer education publication titled "Negative Equity Ads and Auto-Trade-ins" to help consumers understand these types of ads.
"Buying a new car or truck is a major financial commitment, and the last thing consumers need is to be tricked into thinking that a dealer will 'pay off' what they owe on their current vehicle, when they really won't," said David Vladeck, Director of the FTC's Bureau of Consumer Protection, in a news release. "The Federal Trade Commission is constantly on the lookout for potentially deceptive ads, and brings actions to stop them when appropriate."
In addition, the complaints in three of the cases allege violations of the Truth in Lending Act (TILA) and its implementing Regulation Z for failing to disclose certain credit-related terms, and the complaints in two of the cases allege violations of the Consumer Leasing Act (CLA) and its implementing Regulation M for failing to disclose certain lease related terms.
The proposed orders settling the FTC's charges against the dealers are designed to prevent them from engaging in similar deceptive advertising practices in the future. First, each order prohibits the dealer from misrepresenting that it will pay the remaining loan balance on a consumer's trade-in, so the consumer will have no further obligation for any amount of that loan. It also prohibits the dealer from misrepresenting any other facts related to leasing or financing a vehicle.
That's all basic consumer car loan 101. Never roll over a loan into another loan when it comes to new car buying. It puts you in a financial hole that can be difficult to dig out of.
The proposed orders against Billion Auto, Key Hyundai, Hyundai of Milford, and Ramey Motors require these dealers to comply with TILA and Regulation Z, and to make clear and conspicuous disclosures when advertising certain terms related to issuing consumer credit. It also requires that if any finance charge is advertised, the rate must be stated as an "annual percentage rate" or as the "APR." In addition, the proposed orders against Billion Auto, Key Hyundai, and Hyundai of Milford require these dealers to clearly and conspicuously make all lease related disclosures required by the CLA and Regulation M, including the monthly lease payment.
The proposed orders also require each of the dealers to keep copies of relevant advertisements and materials substantiating claims made in their advertisements, and to provide copies of the order to certain employees. Finally, the dealers are required to file compliance reports with the FTC to show they are meeting the terms of the orders, which will expire in 20 years.