Think again before you simplify your message to sell more cars. A $3 million fine levied in a case from the New York Department of Consumer Affairs (DCA) tells us why.
The dealership, one of the largest used car dealers in New York City, allegedly preyed on unsophisticated and non-English speaking consumers.
What happened
In 2017, the DCA filed suit against the auto dealership, charging it with wrongly profiting from vulnerable, low-income and non-English speaking consumers while saddling them with “outrageously overpriced subprime auto loans.”
The dealership allegedly committed “tens of thousands” of violations of the applicable state and local rules enforced by the DCA. For example, it purportedly falsified consumers’ income and/or monthly rent obligations on credit applications, concealed the finance terms of deals from consumers, falsely advertised the financial terms of deals in print ads and on its websites, and misled consumers about their legal rights as well as the history, condition and quality of the used cars they purchased.
We have all seen ads touting “$0 down financing available” and “You can drive me for as little as $99 per month.” This dealer used these ads, which were nonetheless deemed deceptive because the dealership did not properly disclose the material terms of the offer, including, especially, proper rate disclosures.
Ruling on the charges, the City’s Office of Administrative Trials and Hearings found the dealership guilty of the bulk of the allegations and imposed more than $3 million in fines.
To ensure that consumers received restitution for the harm they suffered in a timely manner, the DCA entered into a settlement agreement with the dealership in 2018 that requires it to pay approximately $142,000 to 40 consumers and another $68,000 to cover outstanding loans incurred as a result of its actions. The dealership also agreed to refund consumers for out-of-pocket expenses for repairs.
“We are pleased that the judge recognized [the dealership’s] egregious conduct and ordered that they pay a [multimillion-dollar] fine,” DCA Commissioner Lorelei Salas said in a statement. “[T]he decision puts [the dealership] and other used car dealership[s] on alert: DCA will not tolerate this conduct.”
Salas vowed that the agency’s “work here is far from done,” stating that the DCA will “continue to closely monitor [the dealership’s] practices.”
The dealership denies the charges. “The findings that constitute the vast majority of the fines are based on an incorrect interpretation of the law,” said Eric Keltz, an attorney for the dealership. He added that “the consumer[-]related charges were based upon less than one-tenth of one percent of the customers served by Major World during the relevant period.”
Why it matters
Meaningful and fulsome disclosures matter, including in the fine print. Auto dealers should take pains to employ competent outside counsel to review and approve all advertising, include that which may be presented to non-English language speakers. State laws vary, and the Manatt team maintains a qualified team of lawyers who regularly review and approve advertising copy, including those with financial disclosures. This action serves as an important reminder that state regulators possess and regularly employ their own powers to bring enforcement actions in the auto dealership industry.
The fact that this significant a penalty was levied in a single state should give dealers pause even if they have little otherwise to fear from federal regulators. (Of course, the Consumer Financial Protection Bureau (CFPB) lacks oversight of auto dealers, and even its attempted forays into the fair lending practices arena took a hit when its guidance to indirect auto financing companies was overturned by the Congressional Review Act repeal of the Bureau’s Bulletin 2013-02.)