Alleging Discrimination, FTC and Wisconsin Settle With Auto Dealer Over Junk Fees

The Federal Trade Commission and the State of Wisconsin recently entered into a $1.1 million settlement with Rhinelander Auto Center, resolving allegations that the auto dealer deceived consumers by charging consumers illegal “junk fees” and discriminated against American Indian consumers by charging them higher financing costs.  

In announcing the settlement, Samuel Levine, the Director of the FTC's Bureau of Consumer Protection, said, “Working closely with the State of Wisconsin, we are holding these dealerships accountable for discriminating against American Indian customers and sneaking junk fees onto consumers' bills.”   

The FTC and Wisconsin alleged that Rhinelander charged many customers for additional products and services without getting their authorization or or misleading them into believing that those add-ons were mandatory.  The FTC alleged that, “In multiple instances, Defendants have failed to provide customers with a copy of their contracts, have provided misleading explanations of add-on products and services, or have pressured them to buy add-ons, preventing customers from understanding what exactly they are purchasing.”  The FTC further alleged that, “Even when customers have had an opportunity to review all of the paperwork associated with the transaction, the unauthorized add-on charged have been difficult to identify and dispute because they have been buried in dense contracts, not clearly explained, packaged together, misleadingly labeled, or rolled into the financed price.” 

The regulators also charged Rhinelander with discriminating against American Indian customers by charging them higher interest rates on their financing transactions.  The FTC explained, “As a result, American Indian customers with financed auto purchases from Rhinelander Auto Dealerships have paid more add-on charges that similarly situated non-Latino White customers, as well as additional interest thereon.”  

As part of the settlement, Rhinelander agreed not to make make misrepresentations in the future about additional costs to engage in credit discrimination.  Rhinelander also agreed to obtain “Express, Informed Consent” before charging consumers, which is defined as, “an affirmative act communicating unambiguous assent to be charged, made after receiving, and in close proximity to, a Clear and Conspicuous disclosure, in writing and also orally for in-person transactions,” of the following:  (1) what the charge is for, (2) the amount of the charges, and (3) whether the charge is optional or whether the consumer must agree to the charge to proceed with the with the transaction. 

While this may seem like an extreme case, all advertisers should take seriously the concern that the FTC is expressing over junk fees.  A little over a year ago, President Biden said he was taking on the issue of junk fees, and the FTC (as well as other federal agencies) have followed through on that promise.  Just last month, the FTC proposed a rule prohibiting junk fees (and California has already passed a law prohibiting them).  As this case (and the case the FTC finalized last month) shows, the FTC isn't going to wait until it has a rule in place to bring enforcement actions when it believes that marketers are engaging in improper pricing practices.