Like most people, I shudder at the thought of having to go to dealerships to shop for a used car. Two agencies have joined to go after some bad actors.
A group of 10 car dealerships in Illinois doing business as Leader Automotive Group and their parent company, AutoCanada, will be required to pay $20 million to settle charges they defrauded consumers looking to buy vehicles, following an investigation by the Federal Trade Commission and state of Illinois, according to a settlement announced Thursday
In addition to paying $20 million, which will be used to refund money to 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 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,” Samuel Levine, director of the FTC’s Bureau of Consumer Protection, said in a statement.
In a lawsuit 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 lawsuit 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.
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 lawsuit. When consumers arrive at a Leader dealership, salespeople often tell them the car has preinstalled add-ons such as 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.
The lawsuit also charges the add-ons have been wildly profitable for Leader. 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're paid for selling the car.
A survey of Leader customers showed that nearly 80 percent 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 such as guaranteed asset protection or 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 lawsuit, 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 quoted in the lawsuit. 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.
Leader has also regularly advertised cars as being “certified pre-owned,” and available at a specific price but then charge consumers hundreds or 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.
Even on non-certified used cars, Leader has charged exorbitant “reconditioning” fees, which one former sales manager described as “fake fees,” according to the lawsuit.
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 lawsuit. Even when done legally, importing these cars into the U.S. usually 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.
The case against Douvas is still ongoing.
The take-away from this action is, in addition to looking for and resisting the usual high-pressure sales at most auto dealerships, be on the lookout for bait-and-switch tactics, add-ons, hidden fees, and other devious actions.
