Volkswagen made a $14.7 billion deal with the Federal Trade Commission, the Department of Justice, and the California Attorney General over charges that the auto manufacturer deceived consumers with claims about emissions standards for its cars.
Last year it was revealed that the German-based automaker used "defeat devices" to cheat emissions tests. In a lawsuit filed on behalf of the Environmental Protection Agency by the Department of Justice, the government alleged certain vehicles were equipped with software that could detect when the car was being tested for compliance with emissions standards. When a test was being conducted, the software activated the emission control system.
The DOJ alleged that during normal driving conditions, the software would render the emission control system inoperative, thereby greatly increasing emissions up to 40 times EPA-compliance levels.
In the FTC's March federal complaint, the agency asserted that Volkswagen's advertising campaign in support of its "clean diesel" cars was false and deceptive in violation of Section 5 of the Federal Trade Commission Act. The automaker touted the vehicles as low-emission and environmentally friendly despite the presence of the defeat devices, the FTC said.
The California Attorney General's Office and California Air Resources Board (CARB) added claims under the state's Health and Safety Code and Unfair Competition law.
In what the regulators characterized as a partial settlement with the DOJ, FTC, and California AG—that resolved allegations involving Volkswagen TDI diesel Jettas, Passats, TDI Audi A3, Golfs, and Beetles for model years 2009 through 2015—VW agreed to a multipart deal involving restitution for consumers and efforts the automaker could take to mitigate environmental harm.
The company will offer consumers a buyback and lease-termination program that will cover roughly 500,000 2.0 liter diesel vehicles sold or leased in the United States. Up to $10.03 billion will also be put aside to compensate consumers under the program.
The buyback option could net consumers between $12,500 and $44,000 depending on the car's model, year, mileage, trim, and geographic location, the FTC said. For lessees, the option requires Volkswagen to pay off the loan up to 130 percent of the amount a consumer would be entitled to under the buyback program ($26,000 for a loan payoff that would cost VW $20,000 on an owner buyback, for example). Those vehicle owners who sold their cars after the issue became public may be eligible for partial compensation.
In lieu of a buyback, owners and lessees will also be given the option—if approved by the EPA—for VW to propose an emissions modification plan. However, consumers who elect this option could still recover money from VW as redress for deceptive advertising.
Volkswagen must achieve an overall recall rate of at least 85 percent of the affected 2.0 liter vehicles or pay an additional amount into the mitigation trust fund. The FTC noted that consumer payments will not be available until the settlements are approved by the court and take effect.
In addition, $4.7 billion will be allocated towards mitigating pollution and investing in green vehicle technology. Projects across the country focused on reducing emissions where 2.0 liter vehicles are located will receive $2.7 billion. The money will be placed into trust and potential beneficiaries (such as states, Indian tribes, and the District of Columbia) will be able to apply for funds.
The remaining $2 billion will be directed into technology investments over the next decade. A national EPA-approved investment plan will receive $1.2 billion, with $800 million funneled into a California-specific investment plan to be approved by CARB. To develop the plan, Volkswagen will solicit and consider input from interested parties (such as federal agencies, cities, and states) with the goal of addressing the environmental impact of the 2.0 liter vehicles.
Finally, Volkswagen agreed to injunctive relief with the FTC. Included in the proposed consent order with the agency are prohibitions on future misrepresentations that would deceive consumers about the environmental benefits or value of its vehicles or services, as well as a prohibition on the use of any device that could be used to cheat on emissions tests.
To read the proposed order with the FTC, click here.
To read the partial consent decree with the DOJ, click here.
Why it matters: The largest false advertising case in FTC history may only be the beginning for Volkswagen. The settlements do not resolve pending claims concerning VW's 3.0 liter diesel vehicles and do not address criminal liability and the many putative class action lawsuits filed across the country. "Today's announcement shows the high cost of violating our consumer protection and environmental laws," FTC Chairwoman Edith Ramirez said in a statement. "Just as importantly, consumers who were cheated by Volkswagen's deceptive advertising campaign will be able to get full and fair compensation, not only for the lost or diminished value of their car but also for the other harms that VW caused them." Deputy AG Sally Q. Yates added that the settlement "is by no means the last" from regulators concerning VW's actions. "We will continue to follow the facts wherever they go."