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In the automotive world they’re called “add-ons.” But for many consumers, they really amount to junk fees on wheels that add to the cost of a car while subtracting from the transparency of the transaction. $1.1 million FTC and State of Wisconsin proposed settlements with Wisconsin dealership group Rhinelander Auto Center, its current and former owners, and its general manager allege the defendants deceptively tacked illegal junk fees onto what consumers had to pay and also discriminated against American Indian customers by charging them higher financing costs and fees.

According to the complaint, about half of Rhinelander’s customers were charged for add-on products and services without their consent or through deceptive practices. The lawsuit alleges that taking its customers for hundreds or even thousands of dollars in junk fees was a big-time money maker for the business. As the FTC and Wisconsin allege, “Add-on products and services have been a major source of profit for Rhinelander Auto Dealerships because these products and services have been sold far above cost and have increased the total amount financed, leading to higher principal and interest payments on auto contracts.” What’s more, the defendants allegedly “incentivized senior staff to maximize markups and add-ons by tying their compensation to dealership profits.”

You’ll want to read the complaint for specifics about the tactics the FTC and Wisconsin say Rhinelander used to hide the truth from its customers, but it often involved either slipping add-ons into lengthy and complicated contracts without consumers’ knowledge or consent or falsely representing add-ons as mandatory purchases. For example, according to one car buyer, she was told she had to buy a $2,500 vehicle service contract – an amount equal to almost 15% of the vehicle’s purchase price. As the complaint alleges, “Overall, Defendants’ misrepresentation that the vehicle service contract was required led the customer to bear nearly $4,000 in unwanted costs.” Another consumer says she was told that Guaranteed Asset Protection (GAP) insurance was mandatory for her transaction – a falsehood that cost her more than $1,000 in fees and additional interest.

In addition to alleging that Rhinelander’s practice of charging for add-ons without consumers’ express, informed consent violated the FTC Act and Wisconsin law, the complaint charges that the defendants discriminated against American Indian customers by imposing higher borrowing costs on them when compared to non-Latino White customers, in violation of the Equal Credit Opportunity Act, the FTC Act, and state law. The complaint includes key facts about how auto financing generally works and the substantial discretion Rhinelander gave its salespeople to – among other things – jack up the interest rate on certain consumers’ auto loans. 

According to the complaint, the defendants’ practices resulted in American Indian customers paying much more in interest rate mark-ups and unwanted add-ons than other consumers. As the lawsuit alleges, the defendants’ discriminatory conduct “has resulted in American Indian customers paying on average approximately $1,362 more in credit transactions than similarly situated non-Latino White customers. Since March 2019, moreover, American Indian customers have paid on average approximately $1,374 more than similarly situated non-Latino White customers.”

The proposed settlement with Rhinelander’s current owners and general manager Daniel Towne imposes a $1 million financial remedy, requires them to get consumers’ express informed consent before charging them for add-ons, and mandates that they establish a comprehensive fair lending program that will require Rhinelander to offer consumers discounted and zero-markup financing before resorting to markup. A separate proposed settlement with former owners Rhinelander Auto Center, Inc., and Rhinelander Motor Company includes an additional $100,000 financial remedy and requires them to wind down the businesses permanently.

What can other companies take from the FTC-Wisconsin action in this case?

Be clear – and truthful – about what consumers are buying and how much it will cost. Whether people are shopping for widgets, gadgets, or cars, don’t claim that consumers have to buy something when it’s not true. And don’t slip stuff into the transaction without getting consumers’ express, informed consent. In other words, be crystal clear about the nature of the product or service and how much it costs. Also consider the additional burdens on consumers that deceptive practices impose. For example, many of Rhinelander’s customers lived in rural areas where a trip to the car dealer can take several hours. Even in large cities, the bumper-to-bumper trek to a dealership involves a substantial time commitment. After consumers have browsed, test-driven, and negotiated, changing the deal at the last minute adds to the underlying injury.

Law enforcers take discriminatory credit practices very seriously. It should go without saying – but we’ll say it anyway – that discriminating against consumers in credit transactions on the basis of race, color, national origin, or certain other criteria violates the law. If you haven’t conducted an Equal Credit Opportunity Act compliance check at your business, now is the time.

Individuals may be liable under the FTC Act and state law for illegal conduct. Depending on the facts, federal and state consumer protection actions may name business executives in their corporate capacities and as individuals. Consider that fact as you make business decisions.

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