By Hao Nguyen
Senior Product and Regulatory Counsel
In December of last year, the Federal Trade Commission (FTC) and the Illinois Attorney General brought a lawsuit against a large dealership group for allegedly duping customers with undisclosed junk fees, sending illegal prize mailers, and publishing fake online reviews to counter honest ones. The group and its parent company settled with the FTC for $20 million and admitted no wrongdoing. However, the vice president of US operations, who was named individually, was not part of that settlement, and the lawsuit continued against him personally. In February of this year, he moved to dismiss the case on various grounds, and this week, an Illinois federal judge refused to toss the lawsuit.
According to the complaint, starting in 2021, the dealer group struggled with profitability. It hired the Defendant as vice president of U.S operations. The group ended up with record revenues in the first quarter of 2022. However, the FTC and the Attorney General alleged that the increased profitability was due to the systematic defrauding of customers and a culture that “prioritized squeezing as much money as possible from customers.” They filed a lawsuit against the dealership group and named the former dealership executive personally as a defendant.
Alleged Fraudulent Practices
The Illinois AG and the FTC alleged, among other claims, that the dealership employee was responsible for the alleged deceptive practices of dealership employees, including:
- Deceptive Add-ons: Falsely telling customers that optional add-on products were mandatory, charging for add-ons that customers never agreed to buy, and charging for add-ons that were never actually installed in the vehicle.
- Bait-and-Switch Tactics: Advertising cars at below-market prices to lure customers to the dealerships, then adding undisclosed fees and charges when the customer arrives.
- False Advertising: Advertising cars that weren’t actually available for sale and then steering customers to more expensive vehicles.
- Deceptive Prize Mailings: Sending promotional mailers that didn’t properly disclose required information about contests and financing offers.
- Hiding Imported Vehicles: Selling vehicles manufactured for the geographical market without disclosing that importation voided the vehicle warranties.
- Fake Reviews: Forcing employees to write fake positive reviews to counter negative customer feedback.
Arguments for Dismissal and the Court’s Decision
In addition to procedural grounds, the Defendant argued that the FTC could not pursue the lawsuit because he was no longer in the car business; the complaint lacked specific allegations against him personally; and that they did not meet specific legal standards for claims of fraud.
The judge denied the Defendant’s motion to dismiss earlier this month. The judge found that the court still has jurisdiction over claims against the Defendant despite the settlement with the dealerships; the FTC Act allows suits against former executives for past violations; the complaint had detailed allegations about the Defendant’s personal involvement in the scheme; and the fraud allegations were specific enough to meet legal requirements. In its discussion about the Defendant’s involvement, the judge stated, “while certain allegations might not directly reference [the Defendant], plaintiffs have alleged facts indicating [the Defendant] was responsible for setting challenged policies and practices even if he did not carry out each alleged act.” The case against the Defendant will proceed.
Takeaways
Dealers across the country should closely monitor their activity in all facets of the sales process. Both the FTC and state agencies are routinely naming individuals in enforcement actions of all kinds. Dealer managers and leaders need to ensure the practices at their stores are compliant to avoid potential personal liability.
ComplyAuto Can Help
ComplyAuto offers the tools and guidance dealerships need to stay compliant in shifting regulatory environments. From real-time ad review and policy vetting to deal jacket completion, accuracy and audits, as well as staff education and training, we help you stay out of trouble while focusing on your bottom line.
With compliance automation, policy insights, and cutting-edge risk detection, like Guardian and DealCheck AI, ComplyAuto provides the most powerful tools and comprehensive expertise in the industry – just what you need to stay on top of what is happening at your store. Reach out today to learn more.