CHICAGO—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 the state of Illinois, the FTC announced.
The $20-million proposed monetary judgment is the largest the FTC has secured against an auto dealer.
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 FTC said.
“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.”
Bait-And Switch Tactics
“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.
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, the FTC said.
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, the FTC said.