The FTC issued a release on October 18, 2022, to announce that it has initiated an enforcement action in Maryland against a Washington, D.C.-area auto dealer group, Passport Automotive Group, as well as two of its executives, Everett Hellmuth and Jay Klein. In the same release, the FTC announced that Passport, Hellmuth, and Klein have agreed to a stipulated order for a permanent injunction, monetary relief of $3.3 million, and other relief.
The FTC’s action against Passport and its executives was brought under both the FTC Act and the Equal Credit Opportunity Act (ECOA). In short, the FTC’s enforcement action alleged that Passport and its individual dealerships deceived consumers by tacking hundreds to thousands of dollars in illegal junk fees onto car prices and for discriminating against Black and Latino consumers with higher financing costs and fees. This is not the first time the FTC has taken action against Passport: In 2018, the FTC also brought an action against Passport and the same two executives alleging that the company mailed more than 21,000 fake “urgent recall” notices to consumers in order to lure them to visit dealerships.
What is perhaps most noteworthy about this enforcement action, though, is not the mere fact that a settlement was reached with Passport and its executives. Instead, in addition to alleging that Passport’s discriminatory finance practices violate the ECOA — which is not particularly novel — the FTC alleged that the same discriminatory practices were “unfair” under the FTC Act. This appears to be the first time the FTC has filed an enforcement action treating discrimination as an unfair practice under the FTC Act, and in many ways, this treatment mirrors the way in which the CFPB has stated it will treat discrimination on a going-forward basis. To that end, the CFPB announced in March that it would more closely scrutinize discriminatory practices and treat those practices as a UDAAP – and notably, that it would view discriminatory practices in a more expansive way than is limited by the scope of ECOA.
The FTC’s blog post related to this enforcement action announcement explains its rationale for treating discriminatory conduct in this way. Per the FTC, “Passport’s discriminatory conduct injured Black and Latino consumers’ wallets: They paid more than White consumers to finance their car. They couldn’t reasonably avoid being charged more by Passport. The FTC says Passport didn’t disclose the markups and didn’t tell the truth about the fees. And the practice of charging those consumers more doesn’t yield countervailing benefits.”
The FTC’s blog post goes on to provide some meaningful guidance to industry, and makes the following takeaway suggestions of note:
Companies should conduct regular ECOA compliance checks. In the words of the FTC, businesses have “no excuse” for violating the ECOA, particularly now, 50 years after its enactment.
Corporate officers will be held accountable. The FTC took action against Passport’s executives because it found that those executives were deeply involved in the illegal conduct at issue, and because those executives did not take action when possible violations of law were brought to their attention. The executives were alleged to have ignored a number of email and text messages that informed them about the bogus nature of certain fees.
It is also interesting to note that the FTC took issue with the fact that Passport had received letters from finance companies raising “statistically significant differences in the markup rates charged to Black borrowers at two separate Passport dealerships,” and yet Passport “took no steps to modify its discretionary markup policy or practice.”
Practices, not written policies, are critical. The FTC found that Passport had written policies in place to monitor and audit discriminatory practices. While those policies were a good start, they were not enough in the FTC’s eyes. Per the FTC, Passport’s policies sounded “good on paper,” but “Passport didn’t walk the walk.” In other words, a document alone does not prevent illegal sales practices.
Discriminatory practices can be “unfair” under the FTC Act. As discussed above, the FTC believed that Passport committed discriminatory conduct and, therefore, unfairly treated certain consumers. This logic is likely to be deployed again when the FTC brings its next enforcement action related to discriminatory conduct.
It appears that the FTC and CFPB will continue to take action to redress what they view as discriminatory conduct. Given the consequences associated with having been found to commit an “unfair” practice under either the FTC Act or the Consumer Financial Protection Act, businesses should take note of the FTC’s guidance here, and should continue to take measures to prevent and to remedy possible discrimination against consumers.