Wisconsin - FTC and WI-DOJ sue Auto Dealer Group under the Equal Credit Opportunity Act (ECOA)

Case Summary

October 24, 2023 --The Federal Trade Commission or FTC and the Wisconsin Department of Justice (DOJ) entered into a $1.1 million settlement with a group of Wisconsin auto dealers for allegedly charging customers illegal junk fees and unlawfully discriminating against American Indian customers.

The complaint was pursued under the FTC Act, the Equal Credit Opportunity Act (ECOA), the Wisconsin Deceptive Trade Practices Act, and the Wisconsin Consumer Act alleging that the defendants deceived customers into paying junk fees by charging for additional "add-on" services and products without customers' consent. The complaint further alleges that the defendants misled customers into thinking the add-on services were mandatory. The defendants also engaged in unlawful discrimination by charging American Indian customers higher fees and financing costs. American Indian customers were charged junk fees at a higher rate than non-Latino White customers.

On average American Indian customers paid approximately $1,362 more in junk fees since 2016, and $1,374 since ownership changed in 2019. The defendants additionally charged American Indian customers approximately $401 more on average in interest rate markups. The disparity has increased since new ownership took over in 2019.

The requires the defendants to stop their unlawful practices and pay $1 million to be used to refund affected consumers. Specifically, the defendants will be enjoined from misleading customers into purchasing add-ons and must obtain consumers' express informed consent before charging them for any add-on services or products.

The settlement also requires the defendants to establish a comprehensive fair lending program that will allow consumers to seek outside financing and cap the additional interest markup charged to the defendants' consumers. The former owners have agreed to a that requires them to pay $100,000 and permanently wind down their businesses. The settlement funds will go toward refunding affected consumers.

In light of this latest settlement, auto dealers should expect that the FTC and the DOJ are likely to intensify their scrutiny of auto dealers that allegedly engage in excessive and discriminatory interest rate markups. In addition, auto finance companies should remain cognizant of potential state-level enforcement action, notwithstanding the CFPB's diminished capacity to bring similar actions under Dodd-Frank following the rescission of the above-mentioned 2013 compliance bulletin.

The content of this article is intended to offer general guidance on the subject matter. Specialist advice should be sought about your specific circumstances.
 

Complaint
DOJ News Release

Case Information

Case Name: Federal Trade Commission et al v. Rhinelander Auto Center, Inc. et al

William M. Conley, presiding.

Case No.: 3:23-CV-00737

Court Name: Western District of Wisconsin
Court's Address: 120 North Henry Street, Madison, Wisconsin 53703
Phone: (866) 241-7123

Court's Email: wiwd_ecfhelp@wiwd.uscourts.gov 

Hours: 8:00 A.M. - 4:30 P.M. EST

Date Filed: 10/24/2023.

Case Status: Closed 11/06/2023.

The Law

Commerce and Trade § 57b. Civil actions for violations of rules and cease and desist orders respecting unfair or deceptive acts or practices.

15 U.S.C. §§ 53(b) and 57b

This section governs civil actions for violations of rules and cease and desist orders respecting unfair or deceptive acts or practices.

Equal Credit Opportunity Act

15 U.S.C. §§ 1691–1691f
This Act (Title VII of the Consumer Credit Protection Act) prohibits discrimination on the basis of race, color, religion, national origin, sex, marital status, age, receipt of public assistance, or good faith exercise of any rights under the Consumer Credit Protection Act. The Act also requires creditors to provide applicants, upon request, with the reasons underlying decisions to deny credit. The Dodd-Frank Act added, among other things, a requirement that creditors provide to applicants a copy of all appraisals and other written valuations used in connection with the applicant’s application for first lien loans secured by a dwelling.

Wisconsin Deceptive Trade Practices Act, and the Wisconsin Consumer Act

The State of Wisconsin brought this action under Wis. Stat. §§ 100.18(11)(d), 100.26(4), 426.109, and 426.301 to obtain temporary and/or permanent injunctive relief, civil forfeitures, consumer restitution, and additional forms of relief, for violations of the Wisconsin Deceptive Trade Practices Act, Wis. Stat. § 100.18, and the Wisconsin Consumer Act, Wis. Stat. §§ 421.101–427.105.

The FTC Act

The Federal Trade Commission Act is the primary statute of the Commission. Under this Act, as amended, the Commission is empowered, among other things, to (a) prevent unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce; (b) seek monetary redress and other relief for conduct injurious to consumers; (c) prescribe rules defining with specificity acts or practices that are unfair or deceptive, and establishing requirements designed to prevent such acts or practices; (d) gather and compile information and conduct investigations relating to the organization, business, practices, and management of entities engaged in commerce; and (e) make reports and legislative recommendations to Congress and the public. 

Dodd–Frank Act

Dodd–Frank enacted on July 21, 2010, reorganized the financial regulatory system, eliminating the Office of Thrift Supervision, assigning new responsibilities to existing agencies like the Federal Deposit Insurance Corporation, and creating new agencies like the Consumer Financial Protection Bureau (CFPB). The CFPB was charged with protecting consumers against abuses related to credit cards, mortgages, and other financial products. The act also created the Financial Stability Oversight Council and the Office of Financial Research to identify threats to the financial stability of the United States and gave the Federal Reserve new powers to regulate systemically important institutions. To handle the liquidation of large companies, the act created the Orderly Liquidation Authority. One provision, the Volcker Rule, restricts banks from making certain kinds of speculative investments. The act also repealed the exemption from regulation for security-based swaps, requiring credit-default swaps and other transactions to be cleared through either exchanges or clearinghouses. Other provisions affect issues such as corporate governance, 1256 Contracts, and credit rating agencies.