On August 15, 2024, the Federal Trade Commission (“FTC”) and Arizona Attorney General announced a proposed settlement with an Arizona-based vehicle dealership to resolve allegations that the dealership misrepresented prices in online advertisements, engaged in unfair and deceptive practices related to the sale of add-on products, and discriminated against Latino consumers by charging higher interest rates and more expensive add-on charges.
The complaint against Coulter Motor Company (which operates Coulter Cadillac Tempe and Tempe Buick GMC) and its former general manager (together, “Coulter Motors”) alleges violations of Section 5 of the FTC Act and the Arizona Consumer Fraud Act related to misrepresentations regarding advertised prices, misrepresentations about charges, and unfairly charging consumers without their consent.
Specifically, the complaint asserts Coulter Motors advertised cars online at prices significantly lower than the suggested retail price—leading consumers to believe that they could purchase vehicles at that price. Consumers complained that when they arrived at the dealership, they were told that the advertised price was not available. Instead, the dealership added hundreds or thousands of dollars more than the advertised price in a “market adjustment” on the vehicles and other fees and charges.
According to the complaint:
“Defendants’ advertisements on third-party websites do not mention the additional charges. And Defendants obscure any reference to these charges on their websites at the bottom of the page, only visible if consumers scroll, or behind small gray hyperlinks appended to its advertisements. Even if a consumer were to find this information, it does not indicate whether the listed charges are part of, or in addition to, the advertised price.”
The complaint also alleges that Coulter Motors misrepresented the cost of add-on products, led consumers to believe they were not optional, and charged consumers without their consent. According to the complaint, a survey of consumers who purchased or leased cars from Coulter Motors found that 92% of the consumers said they were charged for at least one add-on, without their authorization or that they thought was required. These add-on products included vehicle identification number etching, window tinting, theft recovery services and nitrogen-filled tires—items that the complaint alleged consumers were told were required to purchase the vehicle. In some cases, the complaint alleges consumers were double-charged for the same add-ons.
The complaint also alleges that Coulter Motors discriminated against Latino consumers in violation of the Equal Credit Opportunity Act (“ECOA”) and its implementing regulation, Regulation B, Section 5 of the FTC Act, and the Arizona Consumer Fraud Act. According to the complaint, Latino customers were charged almost $1,200 more in interest and add-on charges than their non-Latino White counterparts. This included a higher markup by the dealer on the buy rate approved to purchase the retail installment sales contracts by third-party financing entities and higher charges for add-ons than was charged to similarly situated non-Latino White borrowers.
While the FTC Commissioners voted unanimously to approve the filing of the complaint and the stipulated order, Commissioner Melissa Holyoak issued a dissenting and concurring statement to dissent from use of Section 5 of the FTC Act as a basis for “unfair discrimination” on the grounds that it is not an anti-discrimination statute and exceeds the Commission’s authority. Similarly, Commissioner Andrew Ferguson stated in a dissenting and concurring statement that he supported the ECOA claim with reservation as he does not believe disparate impact is legally cognizable, and dissented from the use of Section 5 of the FTC Act for anti-discrimination purposes. Both dissenting commissioners noted the dissent of Commissioner Joshua Phillips in the Passport Automotive Group action in 2022, which was the first time the FTC used its UDAP authority under Section 5 of the FTC Act to address discrimination as an unfair practice. We discussed that action here, noting the evolution of the FTC’s treatment of discrimination as an unfair practice, first raised in a dissenting statement by Commissioner (and current CFPB Director) Rohit Chopra in a 2020 action against Liberty Chevrolet and in a joint statement by FTC Chair Lina Khan and Commissioner Rebecca Kelly Slaughter regarding a 2022 action against Napleton Automotive Group. Similar allegations about discriminatory pricing were made in actions brought by the Massachusetts Attorney General against Hometown Auto and the FTC and Wisconsin Attorney General against a group of auto dealerships in 2023.
As we have reported, the CFPB currently is involved in litigation regarding whether it was appropriate for it to revise its unfair, deceptive and abusive acts or practices (UDAAP) examination manual to provide that UDAAP covers discrimination under the unfair prong, even in areas not reached by specific federal fair lending laws.
Under the terms of the proposed settlement, Coulter Motors would pay $2.6 million, which includes $2.35 million to the FTC to provide redress to impacted consumers and a $250,000 civil money penalty to the State of Arizona’s Consumer Protection—Consumer Fraud Revolving Fund.
The proposed settlement also would require Coulter to establish a fair lending program, including the appointment of a fair lending officer, conducting employee training, and adopting policies for charging fees and markups.
The Coulter Motors action is another example of the FTC exercising its UDAP authority against a motor vehicle dealer under Section 5 of the FTC Act involving allegations that would be specifically prohibited under the FTC’s Combating Auto Retail Scams Rule (“CARS Rule”) (currently stayed due to a court challenge), including the need to get a consumer’s express informed consent for any charges that they pay as part of a vehicle purchase.
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