--> could impact sales on next few months...
Auto dealers and lenders in the US and Canada have been hit with 252 enforcement actions over the past year for deceptive advertising, loan application fraud and misleading add-on fees in a broad crackdown by authorities, including the US Federal Trade Commission.
The charges, announced on Thursday, are part of a wider crackdown on auto sales and lending practices that have also ensnared big banks and the world’s largest auto manufacturers. One focus is on the securitisation of auto loans, which is smaller than the subprime mortgage market that sparked the 2008 financial crisis but is vulnerable to similar abuses.
The financing arms of GM, Toyota and Honda, in addition to JPMorgan Chase, Ally Financial and Santander Consumer USA have disclosed probes by the Department of Justice, the Securities and Exchange Commission and other authorities for alleged auto loan abuses.
In the crackdown, dubbed “Operation Ruse Control”, civil and criminal charges have been filed as part of the 187 enforcement actions in the US and 65 similar cases in Canada.
The FTC’s actions, related to the practice of add-ons for products and services such as extended warranties or payment programmes, are the first since receiving expanded authority over auto dealers under the Dodd-Frank financial reform legislation of 2010.
In the probe, California-based National Payment Network agreed to refund more than $1.5m to consumers and waive another $949,000 in fees for pitching a payment programme that it claimed would save customers money. The FTC says the company had failed to disclose that the charges for that programme often cancelled out any savings.
The National Payment Network did not respond to a request for comment.
“For most people, buying a car is one of the largest purchases they’ll make,” said Jessica Rich, director of the FTC’s consumer protection bureau. “Car ads must be truthful, loan terms must be clear, and dealer practices must be honest.”
Auto dealers in Florida, Alabama and California settled charges for deceptive ads, which touted the benefits of sales, lease or financing options that were actually cancelled out by fine-print disclaimers, which sometimes did not disclose terms such as downpayments.
“Growing fraud and other deceptive practices in auto sales and financing are important issues affecting consumers when they are buying a vehicle,” said Joyce White Vance, US attorney for the northern district of Alabama.
Auto dealers would face more scrutiny under a proposal by the US Consumer Financial Protection Bureau, which wants to supervise large nonbank auto lenders that make, acquire or refinance at least 10,000 loans or leases a year.
The agency estimates that about 38 auto lenders, which originate 90 per cent of nonbank auto loans and leases, would fall under the proposal. The auto finance arms of the largest car manufacturers, like Ford Motor, would also fall under CFPB oversight
Auto dealers are opposed to the plan. However officials say it would help ensure that nonbank auto lenders do not use deceptive tactics to market loans or leases and that consumers understand the terms of such financing.