N.Y. targets dealerships' sale of credit-repair, identity-theft products

High-volume New York dealership Paragon Honda and its two sister stores have agreed to a $13.5 million settlement with the New York attorney general’s office over the alleged unlawful sale of credit-repair and identity-theft prevention products.

The Paragon settlement, announced today, is part of a wider investigation by Attorney General Eric T. Schneiderman into product vendor Credit Forget It and the many New York dealerships that sold its products over the past several years.

Also today, the attorney general’s office: announced a smaller but similar settlement with Generation Kia in Bohemia, N.Y.; said it has served notice of intent to sue 11 dealerships that allegedly engaged in similar practices; and revealed a consent order previously reached with Credit Forget It curtailing its activities.

The office is continuing to investigate other New York auto dealers that sold or sell after-sale services, including Manfredi Auto Central on Staten Island, which allegedly sold more than 1,400 CFI contracts.  The attorney general’s office filed a motion to compel documents from Manfredi, after it refused to comply with an investigatory subpoena.

State, federal laws

The attorney general’s office said its investigation of Paragon found that the dealerships used deceptive sales tactics from 2010 through 2014, including charging consumers for credit-repair services and other aftermarket items without their knowledge or by misrepresenting that the services were free.

By charging consumers for the Credit Forget It services, Paragon violated state and federal laws banning upfront fees for these services, the attorney general’s office said.

Under a consent order agreement signed by the company, the three Paragon dealerships will also pay $325,000 in penalties, fees and costs to the state of New York. In a statement, Schneiderman said the Paragon dealerships in some cases added more than $2,000 in hidden costs and fees onto the sale or lease price of a single vehicle.

“When consumers shop for a car, they deserve to be dealt with honestly and fairly – and not to be misled by auto dealers who use deceptive tactics to fleece their own customers,” Schneiderman said.

 “New York consumers must beware: Car dealerships sometimes pad their pockets by charging for worthless after-sale items, which inflate the price of their car. These items are often ones that consumers don’t need, did not ask for and often are not even told about. Businesses need to make a profit to survive, but it’s illegal to do so by duping consumers.”

No admission of wrongdoing

In a statement provided late Tuesday by Paragon’s lawyer, the company said the settlement with the attorney general acknowledges no admission of wrongdoing or liability. Paragon representatives said the dealerships -- one Acura and two Honda stores -- pulled the Credit Forget It products as soon as managers learned the products could be problematic.

“Our dealerships stopped offering [Credit Forget It] credit services to our customers in early 2014,” Brian Benstock, general manager of Paragon Honda and Paragon Acura, said in the statement. “We appreciate the attorney general’s office bringing the matter to our attention and working with us to create a positive outcome for our customers. We thank our employees and our customers for their ongoing support. It is because of your trust in us that we are able to serve this market as we do.”

While Benstock has been the highly visible face of the Paragon dealerships, they are owned by Edith Singer.

 Restitution fund

 The attorney general’s announcement notes that the Paragon stores claim to sell or lease 1,000 new and used vehicles a month and also claim “to be the largest combined Honda dealership in the country.”

About 15,000 Paragon customers bought the Credit Forget It products for an average of about $1,000, according to the attorney general’s office. The restitution settlement covers a portion of that but not the full amount. The parties declined to tell Automotive News what percentage the settlement covers.

But the settlement requires Paragon to pay $6 million into a restitution fund to be distributed by a third-party administrator to consumers who bought the Credit Forget It contracts. That fund would provide an average refund of $400 to each customer.

In addition to that, the settlement requires Paragon to provide each of the 15,000 consumers with a $500 “settlement card” that can be applied to future vehicle purchases or leases at Paragon, accessories purchases or certain services or maintenance such as oil changes and tire rotations.

Vendor crackdown

The Paragon settlement follows an earlier crackdown on the product vendor. A consent order reached earlier this year with Credit Forget It and its two principals, Damien Bullard and Michael E. Morgan, dissolved the company, the attorney general’s office said. That order, which was not announced until today, imposed an immediate payment of $50,000 in addition to the possibility of a $2 million fine if the principals do not comply with the terms.

Those terms prohibit Credit Forget It, Bullard and Morgan from participating in the “credit services business.” It also requires them to instruct all dealerships to which they distributed contracts for credit-repair services to stop selling those services and remove all promotional materials and contracts from their dealerships.

Generation Kia

The attorney general’s office also announced a much smaller settlement with another dealership, Generation Kia in Bohemia, N.Y., related in part to its sale of Credit Forget It products. As part of that agreement, reached earlier this year, Generation Kia made $16,000 in payments reimbursing 24 customers in relation to Credit Forget It products.

In addition, Generation Kia also paid more than $20,000 in restitution to a dozen other customers who were subjected to deceptive business tactics, the attorney general’s office said. The dealership also paid a $5,000 penalty.

In addition to the settlements announced, the attorney general’s office said it has served notice of intent to sue 11 dealerships that allegedly engaged in similar practices. They are:

• Westchester Autoplex Inc. d/b/a Honda of New Rochelle, 25 East Main Street, New Rochelle;
• G. Hylan Motors Corp. d/b/a Staten Island Honda and Staten Island Nissan, 1232 and 1220 Hylan Boulevard, Staten Island;
• Huntington Honda Inc., 1055 E. Jericho Turnpike, Huntington;
• GPB 8 LLC d/b/a Nissan of Huntington, 850 East Jericho Turnpike, Huntington Station;
• GPB 9 LLC d/b/a Volkswagen of Huntington, 838 East Jericho Turnpike, Huntington Station;
• Plaza Motors of Brooklyn Inc. d/b/a Plaza Honda, 2740 Nostrand Avenue, Brooklyn;
• Plaza Hyundai Ltd., 2740 Nostrand Avenue, Brooklyn;
• Plaza Oldsmobile Ltd. d/b/a Plaza Toyota, 2733 Nostrand Avenue, Brooklyn;
• Louzoun Enterprises Inc. d/b/a/ Queensboro Toyota, 62-10 Northern Blvd, Woodside; and
• Potamkin New York, LP d/b/a Potamkin Hyundai, 2495 2nd Ave., Manhattan.