Feds put add-on products in their cross hairs

The Federal Trade Commission has set its sights on what it calls add-on products: F&I products sold at dealerships such as anti-theft etching or biweekly payments.

“The cases we brought today were the first two -- but not the last,” Jessica Rich, director of the FTC Bureau of Consumer Protection, said during a conference call on March 26. She was discussing a crackdown, dubbed “Operation Ruse Control,” on fraudulent dealership practices by authorities in the U.S. and Canada.

Most of the crackdown focused on deceptive marketing and advertising, odometer fraud and other crimes. But Rich made a point of noting the agency’s first-ever enforcement actions related to add-on products.

The FTC said that in related cases, Matt Blatt Inc. and Glassboro Imports, the owners of two New Jersey dealerships, and an F&I vendor, National Payment Network Inc., of San Mateo, Calif., were responsible for failing to adequately disclose that signup fees for a biweekly payment program could offset any savings.

Paying a price

In separate consent orders, neither business admitted nor denied the allegations in the complaints against them. NPN agreed to pay almost $2.5 million in refunds and waived fees. The dealership group agreed to pay $184,000 for customer refunds.

The consent orders are subject to public comment though April 27. At that time, they are expected to take effect. In separate comments last week to Automotive News, both businesses said they stopped offering the biweekly payment program in 2013.

In theory, consumers making biweekly auto payments save money on interest by making 13 monthly payments per year, instead of 12, via automatic money transfers every two weeks. Consumers pay to join the program and set up the automatic payments.

In May 2014, the National Automobile Dealers Association warned its members in a memo that the FTC was looking into biweekly payments. The NADA memo warned that dealership employees should be careful to “accurately and adequately disclose all fees and costs, and not to overstate any potential benefits.”

Hidden fees

In addition to biweekly payments, the FTC last week cited more than half a dozen older cases, including some from last year, in which dealerships charged customers for add-on products without disclosing that the customer was tacking an optional purchase onto their vehicle purchase. Most cases appeared to involve independent, used-car dealerships.

Two cases said the dealerships hid fees for anti-theft etching by calling the fees a “documentation fee” and in some instances told customers they were getting etching for free.

Several other cases also involved dealerships disguising add-on products as “doc” fees.

More to come

The FTC’s Rich said the commission isn’t through with add-on products.

“Deceptive add-ons means including products and services in the package deal that didn’t come from the manufacturer and they’re typically installed by the dealer -- like undercoating, rustproofing, things like that,” Rich said.

“In any event, the consumer doesn’t know this is a part of the price, hidden in fine print and added at the end,” she said. “We have heard this goes on a lot.”

Jamie LaReau contributed to this report.