The Federal Trade Commission has clamped down on a number of car dealerships recently in an effort to curb deceptive car ads. Customers at these dealerships were misled by ads that claimed dealerships would pay off loan balances on trade-in vehicles.
First case of its kind
Many hold car salesmen and dealerships in the kind of contempt reserved for lawyers and politicians. Among the usual complaints are trying to saddle car buyers with interest rates no one would pay in their right mind and grossly under-valuing trade-in vehicles.
A group of five unrelated car dealerships in four states, according to ABC, have been sued by the Federal Trade Commission for deceptive ads regarding trade-in vehicles that customers were still making payments on. It isn’t the first time car dealerships have been penalized by the FTC, but is the first action of its kind.
The five dealerships were found rolling negative equity into new car loans. One also forced customers to pay off their old car loan before the car the customer purchased would be released to them.
Negative equity means a person owes more for an asset than it is worth, also called being under water. This is especially acute for homeowners and the amount of underwater mortgages has been a national news item for some time.
For car buyers, negative equity is a fact of life, as certain as death and taxes; the second a person drives a car off the lot, a car is worth less than it cost.
The five car dealerships involved in the FTC action, according to the Huffington Post, were advertising that they would pay off the customer’s loans on their trade-in. In reality, they would roll debt from the existing debt into the new car loan. In order to keep monthly payments low and disguise the addition of the old debt, the loan terms would be extended to 60 or 72 months.
One of the dealerships, Frank Myers Auto Maxx of Winston-Salem, N.C., contractually forced customers to pay off their old loans before the dealership would release the new cars to buyers. Advertising for the dealership, including videos posted to YouTube, said “Uncle Frank wants you to pay off your old car loan,” rather than “Uncle Frank requires you,” which the FTC views as deceptive.
Penalties haven’t been finalized, according to the Atlanta Journal Constitution, though the case is currently open to a 30-day “comment period” when the public can suggest to the FTC what further penalties should be assessed.
For now, Frank Myers Auto Maxx as well as Key Hyundai of Manchester, Conn. and Hyundai of Milford, Conn., which jointly advertise; Billion Auto Inc. of Sioux Falls, S.D.; and Ramey Motors Inc. of Princeton, W. Va., have to stop advertising that they will pay off debts for customers.