In a significant enforcement action, the Federal Trade Commission (FTC) and the Illinois Attorney General have reached a $20 million settlement with Leader Automotive Group and its Canadian parent company, AutoCanada, over allegations of widespread consumer fraud. If entered, this settlement will be the largest monetary judgment the FTC has secured against an auto dealer.
The complaint detailed several alleged violations of state and federal laws, including deceptive advertising, unauthorized add-on charges, fake online reviews, and the sale of gray market vehicles. Specifically, the FTC and Illinois Attorney General charged Leader Automotive with violating Section 5(a) of the FTC Act, the FTC’s Used Car Rule, the Illinois Consumer Fraud and Deceptive Business Practices Act, the Illinois Uniform Deceptive Trade Practices Act, the Illinois Prizes and Gifts Act, and the Illinois Motor Vehicle Advertising Regulations.
Key allegations in the complaint against Leader Automotive Group, which operates ten dealerships in Illinois, and AutoCanada, include:
- Deceptive Advertising and Bait-and-Switch Tactics: Leader Automotive allegedly advertised vehicles at enticingly low prices to lure consumers into their dealerships. However, once consumers arrived, they were informed that the vehicles had pre-installed add-ons such as protective coatings (Xzilon) and theft protection (LoJack), which were not included in the advertised price and were falsely claimed to be mandatory.
- Leader also allegedly advertised cars as being “certified pre-owned,” and available at a specific price but would then charge consumers hundreds or even thousands of dollars in additional “certification fees.” Despite the additional fees, Leader still allegedly failed to actually do the certification work required by the manufacturer of the car, leaving consumers without the extended warranty.
- Unauthorized Add-On Charges: The complaint alleged that nearly 80% of Leader’s customers were charged for at least one add-on without their authorization or because they were falsely told the add-on was required. These add-ons included items like GAP coverage and service contracts, which were often added during the financing process without consumer consent.
- Purportedly, the add-ons were wildly profitable for Leader, with dealerships reporting more than 99% profit on them at one time. Also, Leader salespeople were allegedly paid a commission for the add-on products, in many cases making more from the sale of the add-ons than the commission they were paid for selling the car.
- Fake Online Reviews: Leader Automotive allegedly required employees to post fake positive reviews on platforms like Google to bolster their reputation. Employees were threatened with withheld bonuses if they did not comply and were sometimes paid bonuses for posting fake reviews. Consumers were also purportedly pressured to leave positive reviews under duress. The complaint cites one example in which a dealership refused to give a consumer the keys to a car she purchased until she posted a positive review.
- Sale of Gray Market Vehicles: Leader Automotive allegedly sold vehicles manufactured for the Canadian market without disclosing that importing these vehicles into the U.S. typically voids the manufacturer’s original warranty. These vehicles were deceptively advertised as being covered by warranties.
Settlement Terms
The proposed settlement requires Leader Automotive and AutoCanada to pay $20 million, which will be used to refund harmed consumers. Additionally, the companies must clearly disclose the offering price of vehicles in all advertisements and communications, excluding only required government charges. They are also required to obtain express informed consent from consumers before charging them for any add-ons or fees.
Conclusion
The FTC and state attorneys general are closely monitoring business practices in the automotive industry, particularly those related to advertising, add-on charges, and consumer reviews. While the challenge to the CARS Rule remains active, enforcement actions such as this one suggest that regulators still intend to target many of the objectives outlined in the Rule.
