The Federal Trade Commission completed its first case alleging income falsification by an auto dealership last month, closing the loop on a three-year legal battle that bankrupted the dealership group and set a new standard for the types of practices the federal agency believes it has jurisdiction to pursue.
The owner of now-defunct Tate's Auto Group agreed July 26 to a $450,000 settlement to resolve allegations the dealership group falsified consumers' income and down payment information on vehicle financing applications, and misrepresented financial terms in vehicle advertisements. Tate's had locations in Arizona and New Mexico, on the fringes of the Navajo Nation.
A standout feature of the case is the confidence through which the agency pursued the challenging scenario of income falsification, said Jean Noonan, a partner at Hudson Cook. Instances of income misrepresentation are hard to prove, as both dealership employees and customers may claim the other party is at fault, she said.
"The FTC seems to have caught and been able to prove — or at least claim that they would be able to prove — that it was the dealership that was falsifying information, not the consumers that were falsifying information," she said. "Not all creditors verify the income."
The recent case with AMG Capital Management, in which the Supreme Court determined the FTC lacks authority to go directly to federal court to seek monetary redress for consumers impacted by unfair acts or practices, could take some wind out of the verdict's sails.
Jim Ganther, CEO of Mosaic Compliance Services in Tampa, Fla., said Tate's tale is much less worrisome for dealerships because of it — for the time being. Congress is already in the process of restoring those powers.
"I believe that Congress will ultimately amend the FTC Act to permit monetary damages in the first instance, but I don't know if it'll be anytime soon," he said. "It's hard to imagine this is a really high legislative priority. You've got bigger fish to fry out there."
Still, the FTC secured nearly a half-million dollars to distribute among consumers or give to the U.S. Treasury, Noonan said. That shows some hard bargaining on the part of the FTC staff and its persistence to obtain relief.
Tate's saga reveals there can be serious repercussions for a car dealership to misrepresent a consumer's credit worthiness to finance sources, defrauding banks and causing consumers to obtain and lose vehicles they couldn't have afforded in the first place.
"That is a very shady sales practice," Noonan said. "And anyone and any salesperson or dealership that engages in it would be well advised to change its ways."