Auto Dealership in $1.5 Million Discrimination Settlement with FTC

The FTC recently reached a $1.5 million settlement with a Bronx-based auto dealership accused of racially discriminating against customers, deceptive advertising practices, and price inflation.

The FTC filed a complaint against the dealership along with a stipulated proposed permanent injunction on May 21, 2020, alleged that the dealership maintained policies and practices in violation of the FTC Act, TILA and ECOA.  In particular, the FTC alleged that sales personnel were permitted to add additional finance charges at their discretion and instructed to “charge African-American and Hispanic consumers higher markups and additional fees, leading to higher prices for vehicles.”  Sales personnel were also allegedly instructed to perform these markup practices with African-American and Hispanic consumers only, and not to attempt to these practices with non-Hispanic white consumers, based upon a purported education differential between these groups that would make it difficult to charge white consumers higher rates.

Additionally, the FTC alleged that the dealership engaged in deceptive advertising practices, such as promoting vehicles for sale at a specific price, but then failing to honor the advertised price.  The dealership would also inflate a car’s price without the consumer’s knowledge by transferring numbers from one form to another throughout the sale process in a practice known as “air money.”  This unilateral altering of the terms of the sale without informing consumers would conclude with the dealership recording a higher-than-agreed upon sales price on the retail installment contract or finance agreement, resulting in a higher monthly payment than that required by the financing company’s terms.

The court entered the stipulated order for permanent injunction on May 27, 2020.  In addition to the monetary judgment, the settlement requires the dealership to establish a fair lending program and to cap the additional interest markup that consumers can be charged to prevent future abuse of discretion by sales personnel.