- May 1, 2005
- 4,567
- 1,838
- Awards
- 12
- First Name
- Jeff
A 10-store dealer group agreed to pay $20 million settlement to the FTC and Illinois Attorney General’s Fund in connection to an ongoing lawsuit. A settlement may not be an admission of wrong-doing BUT it’s clear the FTC is pursuing claims of deceptive practices with or without the CARS Rule.
Full Article
A group of 10 car dealerships doing business as Leader Automotive Group and their parent company, AutoCanada, will be required to pay $20 million to settle allegations they systematically defrauded consumers looking to buy vehicles as a result of a lawsuit by the Federal Trade Commission and state of Illinois.
In addition to paying $20 million, which will be used to refund harmed consumers, the proposed settlement also would require the companies to make clear disclosures of a car’s offering price—the actual price any consumer can pay to get the car, excluding only required government charges—and get consent from buyers for any charges. The $20 million proposed monetary judgment is the largest the FTC has secured against an auto dealer.
“Working closely with the Illinois Attorney General, we are holding these dealerships accountable for unlawfully extracting millions of dollars from consumers through a textbook bait-and-switch scheme, and bolstering their poor reputation with fake reviews,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “We will continue our work to ensure that consumers are not being overcharged for cars, and that honest dealers do not need to compete with firms that cheat.”
“This dealership network engaged in bait-and-switch tactics by luring consumers into their dealerships with lower prices only to either require consumers to purchase allegedly pre-installed add-on products or charge consumers for those products without their knowledge or permission,” said Illinois Attorney General Kwame Raoul. “I appreciate the collaboration with the Federal Trade Commission to ensure bad actors are held accountable and our consumers are protected from deceptive business practices.”
In a complaint filed by the FTC and the Illinois Attorney General, the agencies charge the companies, along with former vice president of U.S. operations James Douvas with violating federal and state laws. The complaint alleges the defendants have deceived consumers about the price and availability of vehicles, charged them for expensive add-ons without consent, tacked on unwanted junk fees to purchases, posted fake reviews, and failed to disclose that U.S. customers were buying cars imported from Canada, along with other unlawful conduct.
Leader has frequently advertised new and used cars online with low prices designed to entice consumers into their dealerships, but those prices are often false, according to the complaint. When consumers arrive at a Leader dealership, salespeople often tell them the car has preinstalled add-ons like protective coatings (often under the name Xzilon) and theft protection (under the name LoJack) that cost thousands of dollars, and that these add-ons are required despite not being included in the advertised price of the car.
According to the complaint, the add-ons have been wildly profitable for Leader, with dealerships at one point reporting more than 99% profit on them. Leader salespeople have been paid a commission for these add-on products, in many cases making more from the sale of the add-ons than the commission they are paid for selling the car itself.
A survey of Leader customers showed that nearly 80% of them were charged for at least one add-on without authorization or because they were falsely told the add-on was required. The unwanted add-ons also included items tacked on in the financing process like guaranteed asset protection (GAP) coverage and service contracts.
The complaint charges that, even after learning that the FTC was investigating, Leader kept tacking on add-on charges, resulting in consumers paying thousands more than the advertised price. Leader allegedly required the Xzilon add-on for all new and used cars they sold starting in 2021. According to the complaint, Leader has also regularly failed to actually install or apply the add-on products for which they charged consumers without their consent.
Leader’s low-price advertising was designed to “get [customers] through the door,” according to a message from Douvas cited in the complaint. In many cases, however, Leader has advertised cars that have already been sold. When consumers arrived at the dealership, they were directed to more expensive cars, often ones with junk fees and surprise “market adjustments” added to the price. The complaint cites another message Douvas sent to employees saying that once consumers get to the store, “they’re not leaving” without buying a car.
Leader has also regularly advertised cars as being “certified pre-owned,” and available at a specific price but then charge consumers hundreds or even thousands of dollars in additional “certification fees.” In many cases, despite advertising the cars as being certified and charging consumers undisclosed fees for that certification, Leader has failed to actually do the certification work required by the manufacturer of the car, leaving consumers without the extended warranty that makes certified pre-owned cars attractive in the first place.
Even on non-certified used cars, Leader has charged exorbitant “reconditioning” fees, which one former sales manager described as “fake fees,” according to the complaint.
Leader also has sold cars in its U.S. dealerships that were manufactured for the Canadian market without disclosing that to consumers, according to the complaint. Even when done legally, importing these cars into the U.S. typically voids their manufacturer’s original warranty. Leader still deceptively advertised many of these cars as being covered by those warranties.
In addition, the complaint alleges that employees were required by management to post fake positive reviews about their dealerships on Google and other review sites. Managers have threatened to withhold bonuses and other compensation from employees who don’t post fake reviews, and have paid employees bonuses for posting fake reviews, according to the complaint. One email from Douvas encouraging more reviews said: “Those of you with a low review score and low volume of reviews its [sic] an easy fix. If you have 10 employees and they have 5 family members or friends you can have 50 reviews right away.” The complaint also alleges that dealerships have bullied and pressured consumers into posting five-star reviews, citing one instance in which a dealership refused to give a consumer the keys to a car she purchased until she posted a positive review.
The proposed settlement with Leader and AutoCanada would require them to pay $20 million to be used to provide refunds to consumers. In addition, they would be required to disclose the offering price for vehicles in advertising and other communications, as well as provide the total cost of the vehicle when discussing leases or financing with consumers. The settlement would also require the company to have consumers’ express informed consent before charging them for add-ons and other fees. The case against Douvas is still ongoing.
Leader operates North City Honda; Crystal Lake Chrysler Dodge Jeep Ram; Hyundai of Lincolnwood; Kia of Lincolnwood; Bloomington Normal Auto Mall (Mercedes-Benz of Bloomington, Lincoln of Normal, Volkswagen of Bloomington Normal, Volvo Cars Normal, Subaru of Bloomington Normal, and Audi Bloomington Normal); Autohaus Motors (Mercedes-Benz of Peoria, Porsche Peoria, Volkswagen of Peoria, and Audi Peoria); Chevrolet of Palatine; Hyundai of Palatine; Toyota of Lincoln Park; and Toyota of Lincolnwood.
The Commission vote authorizing the staff to file the complaint and stipulated final order was 5-0. The FTC filed the complaint and final order in the U.S. District Court for the Northern District of Illinois.
NOTE: The Commission files a complaint when it has “reason to believe” that the named defendants are violating or are about to violate the law and it appears to the Commission that a proceeding is in the public interest. Stipulated final injunctions/orders have the force of law when approved and signed by the District Court judge.
The staff attorneys on this matter are James Davis, Rachel Sifuentes, and Rachel Granetz of the FTC’s Midwest Region.
Full Article
FTC, Illinois Take Action Against Leader Automotive Group for Overcharging and Deceiving Consumers Through Add-Ons, Junk Fees, Bogus Reviews
Proposed settlement requires Leader and its Canadian parent company, AutoCanada, to turn over $20 million, include full offering price in ads, and get consent for all chargesA group of 10 car dealerships doing business as Leader Automotive Group and their parent company, AutoCanada, will be required to pay $20 million to settle allegations they systematically defrauded consumers looking to buy vehicles as a result of a lawsuit by the Federal Trade Commission and state of Illinois.
In addition to paying $20 million, which will be used to refund harmed consumers, the proposed settlement also would require the companies to make clear disclosures of a car’s offering price—the actual price any consumer can pay to get the car, excluding only required government charges—and get consent from buyers for any charges. The $20 million proposed monetary judgment is the largest the FTC has secured against an auto dealer.
“Working closely with the Illinois Attorney General, we are holding these dealerships accountable for unlawfully extracting millions of dollars from consumers through a textbook bait-and-switch scheme, and bolstering their poor reputation with fake reviews,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “We will continue our work to ensure that consumers are not being overcharged for cars, and that honest dealers do not need to compete with firms that cheat.”
“This dealership network engaged in bait-and-switch tactics by luring consumers into their dealerships with lower prices only to either require consumers to purchase allegedly pre-installed add-on products or charge consumers for those products without their knowledge or permission,” said Illinois Attorney General Kwame Raoul. “I appreciate the collaboration with the Federal Trade Commission to ensure bad actors are held accountable and our consumers are protected from deceptive business practices.”
In a complaint filed by the FTC and the Illinois Attorney General, the agencies charge the companies, along with former vice president of U.S. operations James Douvas with violating federal and state laws. The complaint alleges the defendants have deceived consumers about the price and availability of vehicles, charged them for expensive add-ons without consent, tacked on unwanted junk fees to purchases, posted fake reviews, and failed to disclose that U.S. customers were buying cars imported from Canada, along with other unlawful conduct.
Leader has frequently advertised new and used cars online with low prices designed to entice consumers into their dealerships, but those prices are often false, according to the complaint. When consumers arrive at a Leader dealership, salespeople often tell them the car has preinstalled add-ons like protective coatings (often under the name Xzilon) and theft protection (under the name LoJack) that cost thousands of dollars, and that these add-ons are required despite not being included in the advertised price of the car.
According to the complaint, the add-ons have been wildly profitable for Leader, with dealerships at one point reporting more than 99% profit on them. Leader salespeople have been paid a commission for these add-on products, in many cases making more from the sale of the add-ons than the commission they are paid for selling the car itself.
A survey of Leader customers showed that nearly 80% of them were charged for at least one add-on without authorization or because they were falsely told the add-on was required. The unwanted add-ons also included items tacked on in the financing process like guaranteed asset protection (GAP) coverage and service contracts.
The complaint charges that, even after learning that the FTC was investigating, Leader kept tacking on add-on charges, resulting in consumers paying thousands more than the advertised price. Leader allegedly required the Xzilon add-on for all new and used cars they sold starting in 2021. According to the complaint, Leader has also regularly failed to actually install or apply the add-on products for which they charged consumers without their consent.
Leader’s low-price advertising was designed to “get [customers] through the door,” according to a message from Douvas cited in the complaint. In many cases, however, Leader has advertised cars that have already been sold. When consumers arrived at the dealership, they were directed to more expensive cars, often ones with junk fees and surprise “market adjustments” added to the price. The complaint cites another message Douvas sent to employees saying that once consumers get to the store, “they’re not leaving” without buying a car.
Leader has also regularly advertised cars as being “certified pre-owned,” and available at a specific price but then charge consumers hundreds or even thousands of dollars in additional “certification fees.” In many cases, despite advertising the cars as being certified and charging consumers undisclosed fees for that certification, Leader has failed to actually do the certification work required by the manufacturer of the car, leaving consumers without the extended warranty that makes certified pre-owned cars attractive in the first place.
Even on non-certified used cars, Leader has charged exorbitant “reconditioning” fees, which one former sales manager described as “fake fees,” according to the complaint.
Leader also has sold cars in its U.S. dealerships that were manufactured for the Canadian market without disclosing that to consumers, according to the complaint. Even when done legally, importing these cars into the U.S. typically voids their manufacturer’s original warranty. Leader still deceptively advertised many of these cars as being covered by those warranties.
In addition, the complaint alleges that employees were required by management to post fake positive reviews about their dealerships on Google and other review sites. Managers have threatened to withhold bonuses and other compensation from employees who don’t post fake reviews, and have paid employees bonuses for posting fake reviews, according to the complaint. One email from Douvas encouraging more reviews said: “Those of you with a low review score and low volume of reviews its [sic] an easy fix. If you have 10 employees and they have 5 family members or friends you can have 50 reviews right away.” The complaint also alleges that dealerships have bullied and pressured consumers into posting five-star reviews, citing one instance in which a dealership refused to give a consumer the keys to a car she purchased until she posted a positive review.
The proposed settlement with Leader and AutoCanada would require them to pay $20 million to be used to provide refunds to consumers. In addition, they would be required to disclose the offering price for vehicles in advertising and other communications, as well as provide the total cost of the vehicle when discussing leases or financing with consumers. The settlement would also require the company to have consumers’ express informed consent before charging them for add-ons and other fees. The case against Douvas is still ongoing.
Leader operates North City Honda; Crystal Lake Chrysler Dodge Jeep Ram; Hyundai of Lincolnwood; Kia of Lincolnwood; Bloomington Normal Auto Mall (Mercedes-Benz of Bloomington, Lincoln of Normal, Volkswagen of Bloomington Normal, Volvo Cars Normal, Subaru of Bloomington Normal, and Audi Bloomington Normal); Autohaus Motors (Mercedes-Benz of Peoria, Porsche Peoria, Volkswagen of Peoria, and Audi Peoria); Chevrolet of Palatine; Hyundai of Palatine; Toyota of Lincoln Park; and Toyota of Lincolnwood.
The Commission vote authorizing the staff to file the complaint and stipulated final order was 5-0. The FTC filed the complaint and final order in the U.S. District Court for the Northern District of Illinois.
NOTE: The Commission files a complaint when it has “reason to believe” that the named defendants are violating or are about to violate the law and it appears to the Commission that a proceeding is in the public interest. Stipulated final injunctions/orders have the force of law when approved and signed by the District Court judge.
The staff attorneys on this matter are James Davis, Rachel Sifuentes, and Rachel Granetz of the FTC’s Midwest Region.
