FEDERAL TRADE COMMISSION

1. FEDERAL TRADE COMMISSION Overview of the Division of Financial Practice’s Auto Program September 2013 Division of Financial Practices Bureau of Consumer Protection Teresa Chen Kosmidis Staff Attorney

2. The FTC’s Role • The FTC enforces various consumer protection laws, including the FTC Act, which prohibits unfair and deceptive trade practices • The FTC has jurisdiction over most non-bank entities

3. FTC Act Fundamentals • Section 5 of the FTC Act broadly prohibits “unfair and deceptive acts or practices in or affecting commerce.” • Deception: a material representation or omission that is likely to mislead consumers acting reasonably under the circumstances • Unfairness: practices that cause or are likely to cause substantial injury to consumers that are not outweighed by countervailing benefits to consumers or competition and are not reasonably avoidable by consumers • Flexible law that can applied to many different situations, entities and technologies

4. FTC Act Fundamentals • Examples of Other Laws/Regulations/Rules that Impact Auto: • Truth-in-Lending Act (“TILA”) and “Regulation Z” • Fair Credit Reporting Act (“FCRA”), as amended by Fair and Accurate Credit Transactions Act (“FACTA”) • Fair Debt Collections Practices Act (“FDCPA”) • Consumer Leasing Act (“CLA”) and Regulation M • Holder in Due Course Rule • Used Car Rule

5. FTC and DFP Auto Overview • Auto dealers are an increasingly important area for the FTC and for consumers • Second biggest financial transaction some consumers will make • Dodd-Frank (July 2011) made the FTC the primary federal enforcement agency for auto dealers and gave the agency new authority to issue rules in this area • In response, DFP launched a new auto program

6. FTC v. CFPB Jurisdiction • The FTC has broad jurisdiction over “persons,” “partnerships,” or “corporations” acting in interstate commerce, except for banks and certain other entities (15 USC § 45(a)(2)) • Per the Dodd-Frank Act, the FTC has: • Exclusive jurisdiction over many dealers (“predominantly engaged” in sales or leases and servicing, “routinely” assigns financing to third parties) • Concurrent jurisdiction with CFPB over (non-bank) lenders and “buy here, pay here” dealers • APA rulemaking authority in auto finance area

7. Law Enforcement – Negative Equity Cases • Negative Equity Cases • “We’ll pay off your trade no matter what you owe.” • Dealer websites and youtube.com • In fact, dealers included the amount of the negative equity in the loan package for the new vehicle. • Administrative complaints filed against five dealerships April – May 2012

8. Law Enforcement – Negative Equity Cases • Section 5 Deception Allegations: • “we’ll pay off your trade, no matter what you owe” is false and misleading • Alleged TILA (three cases): • Used “trigger terms” (specific payment, rate) • No disclosure of APR, balloon payments, etc. • Alleged CLA (two cases) • Failure to disclose certain lease related terms

9. Law Enforcement – Negative Equity Cases • Consent Orders • Cease the representations and comply with TILA and CLA • Maintain and produce records upon request (5 years) • Initial compliance report and follow-up reports upon request • Notify the FTC about changes in business (dissolution, sale, merger, etc.) • Order effective for 20 years

10. Law Enforcement – Auto Loan Mod Cases • Hope for Car Owners and NAFSO VLM (Auto Debt Consulting) • Charged hundreds of dollars in up-front fees • Based on bogus promises to help consumers reduce monthly loan payments and avoid repossessions • Once up-front fees were collected, did nothing to obtain promised loan modifications • Denied refunds • Judgments entered against companies and individual defendants: • Ban defendants from marketing auto loan modifications and other debt relief services • Prohibit misreps about other products or services

11. Law Enforcement – Auto Loan Mod Cases • Hope for Car Owners • Stipulated judgment against individual defendant • Default judgment entered against corporate defendant • Monetary relief: $362,388 (suspended as to the individual) • NAFSO VLM (Auto Debt Consulting): • Stipulated order with two corporate and two individual defendants • Monetary relief: $279,728 (suspended as to the individual)

12. Law Enforcement – Deceptive Auto Ad Cases • Two car dealers from Maryland and Ohio • Agreed to settle charges that they falsely advertised the cost or available discounts for their vehicles • Don White’s Timonium Chrysler: • Charged with advertising dealer discounts that were not available to the typical consumer • Consumers actually needed to qualify for rebates to get price • GanleyFord: • Charged with misrepresenting vehicles were available at discount • In fact, discounts applied only to specific, and the more expensive models

13. Law Enforcement – Deceptive Auto Ad Cases Don White’s Timonium Example: 2013 Chrysler 200 Limited Sedan was advertised as: MSRP $27,320 Dealer Discount - $7,499 Internet Price $19, 821 But the “Dealer Discount” depended on qualifications and restrictions not adequately disclosed

14. Law Enforcement – Deceptive Auto Ad Cases Ganley Ford Example: NEW 2013 FORD F-150 $12,000 OFF MSRP! But deal only available for 2013 Ford F-150 (MSRP $47,000); not for less expensive, like base model F-150 (MSRP $23,670)

15. Law Enforcement – Deceptive Auto Ad Cases • Complaints Alleged: • Don White’s Timonium – violated Section 5 by misrepresenting that a specific discount and price are generally available to consumers • Ganley Ford – violated Section 5 by representing that vehicles are available at a specific dealer discount, but failing to disclose that this discount is only available for some but not all of the vehicles advertised.

16. Law Enforcement – Deceptive Auto Ad Cases • Orders prohibit: • Advertising discounts unless they are accompanied by clear and conspicuous disclosures of any material qualifications or restrictions • Misrepresenting: • Existence or amount of any discount, rebate, bonus, incentive or price • Existence, price, value, coverage or features of any product or service associated with the motor vehicle purchase • Number of vehicles available at particular price • Any other material fact about the price, sale, financing or leasing of motor vehicles

17. Law Enforcement – P2P Network Access Case • FTC v. Franklin’s Budget Car Sales: • Peer-to-Peer (P2P) network accesses dealer’s computer network, publishes info (name, DOB, SSN, etc.) for approx. 95,000 customers • Administrative Complaint alleged: • Sec 5 misrep that dealer took reasonable and appropriate measure to protect data • Failure to take steps required by Safeguards Rule to protect data • Failure to provide annual privacy notices and an “opt-out” provision on sharing info with third parties (Privacy Rule) • Consent Order: cease alleged misreps and implement comprehensive security program per Safeguards Rule

18. Holder Rule • Holder Rule (FTC Trade Reg. Rule): • “Holder Rule” (16 CFR § 433):subsequent holder of consumer debt contract is subject to consumer’s claims and defenses against original seller • Some courts held that consumer can only get affirmative recovery (get money back, not just defend against action) from holder if the seller’s breach warranted rescission, or goods were worthless • Advisory Opinion (May 2012): plain language of rule means consumer can get affirmative recovery even if complete rescission not warranted

19. Used Car Rule • Used Car Rule • Issued in 1984 • Intended to prevent oral misreps and omissions by used car dealers concerning warranty coverage • Requires various disclosures through a window sticker, called the “Buyers ‘Guide” and in sales contracts • Recently amended to make technical changes and edits to the Spanish version of the Buyers ‘Guide • Recent proposed changes to encourage consumers to seek information about vehicle history (period for comments closed and currently under review)

20. Used Car Rule • Used Car Rule • After conducting inspections, the FTC sent warning letters to 11 used car dealerships in Arkansas • Warning the dealers to display the Buyers’ Guides in a clear and conspicuous location on all used cars • The FTC has brought more than 80 actions since the Rule took effect, with civil penalties exceeding $1 million

21. Auto Roundtables • Purpose was to gather information on auto finance and leasing issues and consider possible initiatives, such as areas for enforcement, business and consumer education, or other appropriate measures • Roundtables held in Detroit (April 2011), San Antonio (August 2011), and D.C. (November 2011)

22. Auto Roundtables • Examples of Attendees at Roundtables • Consumer protection agencies (FTC, CFPB, state consumer protection offices) • Consumer advocacy groups (CRL, NCLC) • Industry groups (NADA, NIADA, NAFA) • Lending companies • Dealers • Private law firms (business and consumer) • Auto finance news • Other interested groups

23. Auto Roundtables • Several areas of concern emerged: • Basic misrepresentations by some dealers • Product add-ons that are not disclosed • Dealer “markups” in which the dealer marks up the buy rate from the lender before offering the rate to consumers • “yo-yo” financing, in which a consumer buys a car with one rate but is later told the rate went up

24. Press • Recent Press: • Brian Ross – yo-yo financing segment

25. More info – ftc.gov Additional Info about Roundtables • Other issues raised at roundtables • Interest rate markups • Yo-yo financing • Misrepresentations • Interest rates • No down payment • Product add-ons

26. FTC resources for car buyers

27. consumer.ftc.gov

30. FTC resources for auto dealers

31. business.ftc.gov

33. Using FTC resources Order free materials from bulkorder.ftc.gov Visit ftc.gov/subscribe to sign up for Consumer and Business Blog updates. Visit consumer.ftc.gov and business.ftc.gov and bookmark auto resource pages Link, post, tweet, blog, adapt. All FTC materials are in the public domain.

34. FEDERAL TRADE COMMISSION Overview of the Division of Financial Practice’s Auto Program September 2013 Division of Financial Practices Bureau of Consumer Protection Teresa Chen Kosmidis Staff Attorney