Feds crack down on misleading car ads

Jan. 9, 2014, 7:05 PM UTC

By Paul A. Eisenstein

Buying a car can be one of the most expensive and complicated purchases a consumer ever makes – and some unscrupulous dealers are making it more complicated and far more expensive than buyers might realize, according to federal authorities who announced results Thursday of a nationwide crackdown.

Working with local authorities, the Federal Trade Commission won consent decrees from nine dealers – with a tenth facing a court challenge – alleging that they engaged in a variety of deceptive practices that could, in some instances, inflate the price of a vehicle by as much as a third more than advertised.

The FTC cracked down on car ads like this one, saying they mislead consumers and can cost them extra.Federal Trade Commission

A senior FTC official warned such fraud is far more widespread and “could very well” cost American car buyers billions of dollars in higher vehicle prices and illegal fees.

“We’ve alleged these dealers used a variety of misleading ads … to get people into their showrooms,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection, at a news conference in Los Angeles announcing “Operation Steer Clear.”

With more than 20,000 new-car franchised dealers in the U.S., finding fraud involving 10 retailers might seem minor, but Rich stressed that while there are plenty of car dealers who want to do the right thing, the problem of deceptive automotive advertising is “all over the country.” The FTC received about 75,000 complaints regarding car dealers during the most recent year it tracked, making that the “eighth-largest category” for the agency.

Operation Steer Clear identified a variety of fraudulent practices:

Fake sweepstakes meant to draw buyers into the showroom to see if they won a big discount on a new car. But in one case the FTC targeted, Rich said, “not a single consumer, not one, won any of the listed prizes.”
Hidden financing and other charges that could inflate the price of a car advertised at $15,000 by as much as another $5,000.
Advertised teaser prices that didn’t make clear that payments would balloon substantially after a few months.

Such practices are “a bad way to do business and (are) against the law,” said Rich.

The nine dealers that signed consent decrees are in California, Georgia, Illinois, North Carolina, Michigan and Texas, while the 10th dealer is in Massachusetts. FTC officials said they are continuing their investigation, though it is unclear if additional dealers might be charged.

Under the law, the agency couldn’t levy any initial fines, though in some cases, consumers can get redress on illegal charges. And as part of the consent decrees, the nine dealers face “significant” penalties if they violate the rules again – fines that could run up to $16,000 a day.

Meanwhile, such illegal practices could lead to further consequences at the state and local level. Some states, such as California, could move to have a dealer’s operating license revoked.

“Operation Steer Clear sends a clear message this type of behavior will not be tolerated,” said Brian Steiger, director of the Los Angeles County Consumer Affairs Division.