FTC accuses dealership group of inflating income, down payment on credit apps

A dealership group with stores in Arizona and New Mexico has been charged by the Federal Trade Commission with income falsification among other illegal activities.

The allegations involve how the dealership handled the financial information of its customers, many of whom are members of the Navajo Nation.

The FTC charged Tate's Auto Group, which operates near the border of the Navajo Nation Reservation, with falsifying consumers' income and down payment information on vehicle financing applications and misrepresenting financial terms in vehicle advertisements, the commission said in a statement Wednesday. This is the FTC's first action alleging income falsification by auto dealerships, according to the statement.

Tate's Auto denied the claims and has rejected a settlement with the FTC. The group released a statement Wednesday saying that it plans to fight the allegations in federal court.

A 31-page complaint filed in the U.S. District Court for the District of Arizona alleges that, since at least 2014, Tate's Auto has falsified consumers' monthly income and down payments on financing applications and contracts submitted to third-party financing companies to improve customers' chances of qualifying for loans and thus increase the dealerships' monthly sales.

The FTC says Tate's Auto altered the monthly income and down payment information of its customers without their knowledge to submit to financing companies. Dealership personnel are accused of preventing consumers from reviewing this information on the forms by rushing consumers through the process of reviewing and signing the applications, having consumers fill out the forms over the phone and failing to show customers the income and down payment portion of the application before they signed.

One customer listed in the complaint reported a fixed monthly income of $1,200. Without her knowledge, a Tate's Auto representative allegedly listed her income as $5,200 on the financing documents, the FTC said.

When customers noticed false information, the complaint says, Tate's Auto assured them the information would be corrected.

"As a result, financing companies extended credit to consumers who defaulted at a higher rate than qualified buyers," the FTC said in the statement.

Dealership owner responds

The dealerships' owner and manager, Richard Berry, is listed as a defendant.

"We were stunned by the legal complaint presented to our company by the Federal Trade Commission earlier this year," Berry said in a statement. "We feel compelled to let the public know our side of the story."

Berry's wife, Linda Tate, is listed as a relief defendant, meaning she is not accused of wrongdoing but is charged with having received "hundreds of thousands of dollars from the other defendants, including funds directly connected to the alleged unlawful conduct," according to the complaint.

Four of the group's five locations -- Tate's Auto Center of Winslow, Ariz.; Tate's Automotive, which also does business as Tate's Nissan-Pontiac-GMC-Buick in Show Low, Ariz.; Tate Ford-Lincoln in Holbrook, Ariz.; and Tate's Auto Center of Gallup, N.M. -- are mentioned in the complaint.

The Navajo Nation Human Rights Commission aided in the investigation, collecting written complaints filed by Navajo consumers, which were analyzed and shared with FTC for further review, according to Varvara Phillips, human rights investigator for the Navajo Nation Human Rights Commission. The FTC acknowledged that assistance in its statement.

"At the time NNHRC was conducting its investigation, there were approximately 50 individuals who came forward to share their auto purchase experience," Phillips wrote in an email to Automotive News.

Navajo Nation

According to the complaint, Tate's Auto has a customer service center on the Navajo Nation Reservation in Window Rock, Ariz., and frequently sponsors Navajo Nation events and advertises in Navajo media sources in an effort to attract customers.

The complaint also outlines how in December 2015, an unnamed financing company with which Tate's Auto regularly does business conducted fraud reviews on financing agreements submitted by the dealership group.

The fraud review allegedly discovered inflated incomes listed in 44.83 percent of applications submitted from Tate's Auto Center of Winslow, 38.71 percent from Tate's Automotive, 37.5 percent from Tate's Auto Center and 17.9 percent from Tate's Auto Center of Gallup.

The financing company terminated business with Tate's Auto in January 2016 after incurring "staggering" losses on credit originated by the dealership, the complaint says.

Additional illegal activities alleged in the complaint include advertising that deceived consumers about the nature and terms of financing or leasing offers, and failure to disclose required terms on social media ads.

Tate's Auto Group sells new and used Buick, Chrysler, Dodge, Ford, GMC, Jeep, Lincoln, Nissan and Ram vehicles with five locations throughout Eastern Arizona and New Mexico.

You can reach Jackie Charniga at jcharniga@crain.com -- Follow Jackie on Twitter: @jccharniga

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