FTC orders D.C.-area dealership group to stop deceptive recall scheme

WASHINGTON -- The Passport group of auto dealerships in the Washington, D.C., suburbs and a California marketing firm have settled claims they deceptively mailed more than 21,000 fake "urgent recall" notices to consumers, the Federal Trade Commission said Wednesday.

According to the agency, most of the vehicles covered by the notices did not have open recalls for defects. The faux notices were an attempt to lure customers in for repairs and increase business for the service departments, the agency said.

When automakers issue recalls, repairs are free.

Court orders settling the FTC's charges bar the defendants from such conduct in the future.

"Many vehicles currently on the road are subject to open safety recalls. Legitimate recall notices sent by manufacturers and auto dealers are essential to getting those vehicles fixed quickly," Andrew Smith, director of the FTC's Bureau of Consumer Protection, said in a statement.

"However, deceptive fake recall notices may not only trick consumers into visiting a dealership, but also may cause them to ignore legitimate recall notices in the future, risking their safety."

The dealerships involved were Passport Toyota, Suitland, Md.; Passport Nissan, Alexandria, Va.; and Passport Nissan of Marlow Heights, in Maryland. President Everett Helmuth III and Vice President Jay Klein are also parties to the court order, as is Temecula Equity Group, which does business as OverflowWorks.com, and CEO Jeffrey Bush.

The FTC said OverflowWorks.com designed the fake recall notices and worked closely with the defendants to send them.

In a statement provided to Automotive News, Passport said it disagreed with the findings and wording in the FTC’s announcement and that “it was not our intention to mislead anyone.

“The advertisements were sent only because Passport was having serious problems identifying and fixing open recalls. This was largely because the manufacturer lists of unrepaired, open recalls were unavailable to Passport or other dealerships of those brands," the statement said.

"The verbiage of the advertisements that the FTC considers improper was not created by Passport -- it was originated by a California company unrelated to our business. Open manufacturer recalls are a huge problem for our industry, and this advertisement actually did allow us to reach many owners and repair many vehicles with open recalls at no cost to the owners. Many of those who responded to the advertisement did in fact have unrepaired recalls.

“Nevertheless, we agreed to a settlement with the FTC to avoid the considerable expense and disruption of defending ourselves in court. As stated in the agreed order, we admit no wrongdoing, and there has been no finding by any court that we violated the law. The settlement states certain actions we must take, and we have already done so. The settlement does not provide for any fines or penalties, nor are we aware of a single customer complaint about the advertisement in question.”

According to the FTC's complaint, in early 2015, the defendants mailed fake recall notice postcards to nearly 7,000 Toyota owners without any effort to limit the notices to consumers whose vehicles were subject to open recalls.

Despite numerous complaints, the dealership officers sent virtually identical "urgent recall" notices to more than 14,000 Nissan owners in June 2017. Hundreds of vehicle owners who contacted Passport by phone were told they had to go to the dealerships to learn whether their vehicle was actually subject to a recall.

The FTC doesn't have authority to seek a civil penalty on a first violation of the FTC Act, but the defendants are now warned and may be liable for significant penalties if they violate terms of the order in the future, spokesman Mitchell Katz said.