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Reprint from FTC Web Site August 20, 2024
Recent law enforcement and regulatory developments demonstrate the FTC’s efforts to put the brakes on deceptive add-ons in the car buying process. According to an FTC complaint, how pervasive has the problem been at a Texas dealership? A group of consumers who were charged for at least one add-on. A study shows that 58% and 75% were charged for at least one add-on they didn’t agree to buy or were falsely told was a required purchase. These unwanted add-ons, the complaint alleges, can cost consumers hundreds or even thousands of dollars per transaction. What’s more, the FTC says that the respondents discriminated against Black and Latino consumers by charging them more for those add-ons than other consumers.
The complaint outlines the sales practices the FTC alleges violate the FTC Act and the Equal Credit Opportunity Act. According to the lawsuit, the respondents have tacked on an array of unauthorized add-ons – for example, charges for chemical coatings, maintenance plans, extended warranties, and dent protection – to the purchase price of vehicles. The FTC says that in many cases, the respondents simply sneak the add-ons past buyers without their consent.
FTC calls particular attention to a practice allegedly inflicted on unsuspecting car buyers called “payment packing.” Here’s how it works:
<i>“One tactic Respondents use is getting a consumer to agree to a monthly payment that exceeds what they need to pay under the contract to purchase a vehicle, and then ‘packing’ the sales contract with add-on charges to make up the difference. For example, a salesperson might represent that a consumer qualifies for financing with a monthly payment of $400, when the monthly payment for the vehicle under the contract is actually $350. The salesperson then includes, or ‘packs,’ the contract with add-ons to make up some or all of the difference between the two monthly payments, so that it appears the consumer is receiving a similar or smaller monthly payment.”</i><br><br>
The complaint also cites the example of a consumer who was reportedly shown on an electronic device only the places on the sales contract he needed to sign. It wasn’t until three weeks later that he learned the finance manager had added a $1,750 maintenance package and $609 key replacement package without his consent. Other consumers allege that sales people changed the terms of their loans from a 72-month to an 84-month term, masking hidden add-on charges and even increases in the sales price.
According to the FTC, in other instances, the respondents falsely represented optional add-ons as mandatory purchases. As the complaint alleges, one sales person told a consumer that to finance the purchase of a truck, “he had to purchase a bundle of add-ons – including a maintenance plan, chemical protection and warranty, windshield, extended vehicle warranty, and key replacement service” – add-ons that added up to <b>more than $9,500</b>.
<br><br>The FTC also alleges the respondents have violated the Equal Credit Opportunity Act in their financing practices by discriminating against Black and Latino applicants and imposing higher costs on them than on similarly situated non-Latino White applicants. According to the complaint:
On average, approximately $169 to $298 more for the same add-ons than non-Latino White consumers.</font>
FTC calls particular attention to a practice allegedly inflicted on unsuspecting car buyers called “payment packing.” Here’s how it works:
One tactic Respondents use is getting a consumer to agree to a monthly payment that exceeds what they need to pay under the contract to purchase a vehicle, and then ‘packing’ the sales contract with add-on charges to make up the difference. For example, a salesperson might represent that a consumer qualifies for financing with a monthly payment of $400, when the monthly payment for the vehicle under the contract is actually $350. The salesperson then includes, or ‘packs,’ the contract with add-ons to make up some or all of the difference between the two monthly payments, so that it appears the consumer is receiving a similar or smaller monthly payment.”
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