2 FTC commissioners call dealership discrimination claim by agency an overreach

The Coulter Motor Co. case last week saw a debate among the Federal Trade Commission over the validity of the agency bringing a dealership discrimination claim using the FTC Act's unfair practices language.

The FTC and Arizona attorney general's office had accused the group, which owns Coulter Cadillac Tempe and Coulter Buick GMC Tempe, and former general manager Gregory Depaola of bait-and-switch advertising, price discrimination against Latinos and improperly charging for additions such as VIN etching. The defendants admitted no guilt but agreed to a $2.6 million settlement that also required them to charge the same margin — which could not exceed 1 percentage point of interest — universally on loans and leases arranged by the group.

Coulter Buick GMC Tempe wrote in a news release it "respectfully disagrees" with the allegations made but opted to take the settlement and fine "rather than spend a great deal more defending itself in court and could realistically take years to get through the court system."

Depaola's attorney Steven Wernikoff, a partner at the Honigman law firm who operates out of its Chicago office, wrote in an email his client "disputes the claims and agreed to a settlement to avoid protracted litigation with the government."

The FTC also alleged price discrimination in its Aug. 16 administrative complaint against complaint against Asbury Automotive Group.  Asbury CEO David Hult vowed to fight the FTC, and the group denied discrimination had occurred at the three Texas Asbury dealerships in question. However, in contrast with the Coulter case, the agency did not accuse Asbury of violating the FTC Act through discrimination.

The agencies had accused both the group and Depaola of misrepresentations in advertised prices, misrepresenting charges, unfairly charging without consumer consent, violating the Arizona Consumer Fraud Act, unfair discrimination and discriminatory financing in violation of the Equal Credit Opportunity Act and the related Regulation B.

Coulter and Depaola discriminated against Latinos by charging them "nearly $1,200" more combined in interest rate and add-on margin compared with white consumers, according to a complaint shared Aug. 15 by the two agencies.

Charging Latinos more than comparable white consumers allegedly caused or was likely to "cause substantial injury to consumers that consumers cannot reasonably avoid themselves and that is not outweighed by countervailing benefits to consumers or competition," the complaint stated, calling it a violation of the FTC Act's unfair competition ban and referencing the three-part unfairness threshold found in the law.

Coulter Buick GMC Tempe wrote that it especially disagreed with the allegations of discrimination, calling them "erroneous and based on unreliable statistics, unfortunately the company was not given an opportunity to review the FTC statistics." It called diversity a priority and described the store's workforce as 37 percent Hispanic, a larger proportion than the city of Tempe, which according to the 2020 Census was 22 percent Hispanic.

"Unfair pricing or racial bias for short term gain is not only wrong, but it's bad for business," Coulter Buick GMC Tempe management said in a statement. "This company is deeply invested in the community. Much of our customer base is generational. It stays in business because of loyalty, trust, and positive word of mouth. The dealership respects the mission of the FTC to protect consumers. Hopefully this settlement furthers that mission while enabling us to improve our already stellar record of customer satisfaction."

FTC Commissioners Andrew Ferguson and Melissa Holyoak supported pursuing the rest of the federal claims, including the accusation that the group and general manager had discriminated against Latinos in a way that violated the Equal Credit Opportunity Act. But they dissented from bringing the FTC Act discrimination claim, arguing the law wasn't an antidiscrimination measure.

"This theory [from the majority commissioners] rests on the premise that Congress adopted the broadest anti-discrimination law in American history in 1938, but that we failed to notice it had done so until 2022," Ferguson wrote. "The Supreme Court has more than once chastised agencies for claiming to discover new and extraordinarily broad powers in old statutes, and that is precisely what the Commission has done."

Ferguson was referencing a similar allegation the agency brought against Passport Automotive Group in 2022. Commissioners were divided 3-2 on that as well. Passport said in a statement at the time it refuted that case's discrimination allegations "in the strongest possible terms" but settled to save effort and money.

Holyoak also said the unfair discrimination claim under the FTC Act involved the same alleged behavior as the accusation of unfair discrimination under the Equal Credit Opportunity Act, "yet provides no additional relief. There is simply no reason to include this superfluous count."

The majority commission opinion by Chair Lina Khan and Commissioners Alvaro Bedoya and Rebecca Slaughter argued Holyoak and Ferguson's interpretation meant "lawbreakers would enjoy effective immunity under Section 5 if their conduct also violated a separate anti-discrimination law. There is no basis for this reading of the law, here or anywhere else in law enforcement. Law violators are charged, every day, for separate statutory violations stemming from a single line of conduct. Rather than assume that discriminatory business practices enjoy a safe harbor under unfairness, we should make our determinations on a case-by-case basis, according to the specific facts and law at hand."

The day after the Coulter settlement was announced, the FTC filed an Equal Credit Opportunity Act case against Asbury Automotive Group and accused three of its dealerships of charging Black customers $298 more than white customers and charging Latinos $214 more than white consumers for the same items added to auto deals. But the agency didn’t levy an FTC Act unfair practices claim over the alleged discrimination the way it did in the Coulter case – a difference  Ferguson highlighted.

"Asbury intends to litigate against the Commission," Ferguson wrote. "Coulter, by contrast, settled with the Commission. That means that the claims against Coulter — including the majority’s novel discrimination theory — will not be subject to judicial review. The claims against Asbury, however, could wind up in front of the U.S. Court of Appeals of Asbury’s choosing.

"The reader can do the math. The majority has advanced its novel theory in a case no court will decide but omitted it from a proceeding that could very well go to court. The only inference to draw is that the majority does not want a court to look under the hood of its new Section 5 theory," Ferguson said.

Ferguson and Holyoak are Republicans; the other three commissioners are Democrats, according to Reuters.