Feds Could Force Honesty Out of Dealerships’ Finance Wings

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Thanks largely to the Internet, prospective car buyers are now able to walk into dealerships with better information and more bargaining power than ever before. For customers, that’s a great thing, but for dealerships, it hasn’t been so good. The traditional dealership model is struggling to stay afloat, with sales prices on new cars often only a few hundred dollars above dealer cost. Servicing vehicles is still very profitable, but in order to make more money on a sale, dealers usually rely on their Finance and Insurance team to pump up the total transaction price.

F&I managers are the people responsible for walking customers through the paperwork, encouraging additional purchases, and often trying to squeeze every last penny out of the people who come through their doors. It usually depends on the price, but some of what they sell is a good idea, or at least nice to have. Other items are completely useless, but still probably fairly harmless. As long as the F&I manager is generally honest with customers, the process is more of a hassle than anything else, but when a manager isn’t, signing paperwork can become a nightmare.

The Federal Trade Commission is fed up with dishonest F&I managers creating nightmares for car buyers, and according to Automotive News, it’s using a program called “Operation Ruse Control” to put a stop to it. The program is mostly focused on issues like deceptive marketing and advertising, odometer fraud, and similar crimes, but the FTC is also going after dealerships for deceptive add-on practices. In fact, it just recently brought cases against two businesses specifically for that purpose.

In these cases, Matt Blatt Inc. and Glassboro Imports, as well as an F&I vendor, National Payment Netork Inc., are being held responsible for failing to disclose the fees associated with a biweekly payment schedule. They claimed that the program would save customers money, but the steep fees offset any savings that the program might have offered. Now National Payment Network has agreed to pay approximately $2.5 million in refunds and waived fees, while the dealerships agreed to pay $184,000 for refunds.

“The cases we brought today were the first two — but not the last,” said Jessica Rich, director of the FTC Bureau of Consumer Protection.

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While the dealerships in question failed to disclose the high fees associated with the program, a biweekly payment schedule isn’t dishonest on its face. The more frequent payments allow customers to save money on interest over the course of their loan. The problem comes when customers aren’t told about the fee to sign up for the program, or deceived into believing that they will save more money than they actually can.

In May of last year, after noticing that the FTC was looking into biweekly payments, the National Automobile Dealers Association sent its members a memo warning that they should “accurately and adequately disclose all fees and costs, and not to overstate any potential benefits.” While the two dealers in question say they stopped offering the biweekly payment program in 2013, the damage was already done.

Biweekly payment programs are not the only deceptive dealer practice that concerns the FTC. It also takes issue with customers being charged for add-ons without being informed that the purchase of those products was optional. In some cases, customers were told that they were receiving something for free, while other times, those products are incorrectly labeled as “documentation fees.” Most of these cases involved used car dealerships, but new car buyers are not entirely immune from deceptive add-ons.

Accoding to Rich, an add-on is labeled deceptive when “products and services in the package deal that didn’t come from the manufacturer … typically installed by the dealer — like undercoating, rustproofing, things like that.” How often this sort of practice occurs is unknown, but if the federal government is getting involved, it’s likely happening far too frequently.

Source: Thinkstock

While it’s understandable that dealerships are trying to find ways to stay in business in the face of lower profit margins on car sales, there’s a big difference between padding the price of an extended warranty and adding charges to a deal without the customer knowing. That’s the sort of practice that’s not just going to get dealerships in legal trouble, but it also serves to undermine the argument that dealerships exist to protect consumers like many of them have been claiming lately.

If the overwhelming number of dealerships across the country were shining examples of ethical business practices, they might have an argument against Tesla’s direct sales model, but until then, protests are going to ring hollow. It’s not like Elon Musk is lobbying to get rid of dealerships altogether. He just wants to be able to sell his company’s cars directly to consumers, and he doesn’t want to have to worry about those customers having a bad experience because one dealer got greedy and tacked on a few thousand dollars worth of charges for “anti-theft etching,” “windshield rustproofing,” and “ultra-low viscosity blinker fluid.”

Since these sorts of practices are what car buyers in America have to expect to encounter, it’s great to see the federal government taking an interest in putting a stop to them. Enforcing laws and stopping criminal activity is about as basic as governmental responsibilities get, and dealers clearly can’t be trusted to monitor themselves. Yes, it would be great if customers didn’t have to go through unnecessary middlemen to purchase a car, but until then, it’s great to see shady dealers have to answer for their dishonesty.

Maybe another string of cases will be enough to encourage other dishonest dealerships to clean up their acts. If not, more affordable Teslas are coming, and customers may change their buying habits accordingly.

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