The Federal Trade Commission announced on Tuesday that the Sage Automotive Group — which includes nine Los Angeles-based dealerships, its holding and management companies and two individuals — has agreed to pay more than $3.6 million in order to settle charges that it used deceptive and unfair sales and financing practices, deceptive advertising and deceptive online reviews.
Officials said the proposed settlement order, which will be filed in the U.S. District Court for the Central District of California for approval, will prohibit the defendants from making misrepresentations relating to their advertising, add-on products, financing, and endorsements or testimonials.
The proposed order will also bar the defendants from engaging in other unlawful conduct when a sale is cancelled, such as failing to return any down payment or trade-in or seeking legal action, arrest, repossession or debt collection unless the action is lawful and the defendants intend to take such action. It also prohibits them from violating the Truth In Lending Act and Regulation Z, and the Consumer Leasing Act and Regulation M.
In a statement sent to SubPrime Auto Finance News, Sage Automotive Group said it fully cooperated with the FTC over the course of “many” years and the review of “thousands” of pages of advertising and other documents.
“Though Sage considered the FTC’s allegations to be without merit and overreaching, to avoid the overwhelming cost of protracted litigation, Sage agreed to settle the action with an agreement to stand by the company's commitment to follow the law and to pay, to consumers and not to the government, approximately $276,000 per named entity, which amount is consistent with FTC settlements reached with other targeted auto sector enterprises throughout the country,” the dealer group said.
“Despite the FTC's allegations, Sage Automotive Group believes that it has always met its regulatory responsibilities and looks forward to continuing to provide outstanding sales and service to its customers,” the group went on to say.
The matter first surfaced publicly last September when the FTC filed its court action. It turned out to be FTC’s first charge against a dealer for “yo-yo” financing tactics: Using deception or other unlawful pressure tactics to coerce consumers who have signed contracts and driven off the dealership lots into accepting a different deal.
The FTC also alleged that the defendants packed extra, unauthorized charges for “add-ons,” or aftermarket products and services, into car deals financed by consumers.
According to the FTC’s complaint, the defendants enticed consumers, particularly financially distressed and non-English speaking consumers, into their dealerships with print, internet, radio and television ads that make an array of misleading claims, including that vehicles are generally available for the advertised terms and that consumers can buy vehicles for low prices, finance with low monthly payments, or make low down payments. Other allegedly misleading claims include that consumers can finance the purchase of vehicles — when in fact they are lease offers — and that the defendants will pay off consumers’ trade-in vehicles, despite the fact that consumers ultimately are responsible for paying off any amount owed on the trade-in.
The FTC also alleged that the defendants use phony online reviews to tout their dealerships and discredit negative reviews that highlighted their unlawful practices. They and their employees or agents allegedly posted positive, five-star online reviews that purport to be from objective or independent reviewers without disclosing their relationship to the dealerships.
The corporate defendants are Universal City Nissan, Inc., also d/b/a Universal Nissan; Sage Downtown, Inc., also d/b/a Kia of Downtown Los Angeles; Glendale Nissan/Infiniti, Inc., also d/b/a Glendale Infiniti and Glendale Nissan; Valencia Holding Co., LLC, also d/b/a Mercedes-Benz of Valencia; West Covina Auto Group, LLC, also d/b/a West Covina Toyota and West Covina Toyota/Scion; West Covina Nissan, LLC; Covina MJL, LLC, also d/b/a Sage Covina Chevrolet; Sage North Hollywood, LLC, also d/b/a Sage Pre-Owned; Sage Vermont, LLC, also d/b/a Sage Hyundai; Sage Holding Company Inc. and Sage Management Company Inc.
The individual defendants are Joseph Schrage and Michael Schrage.
The commission vote approving the stipulated final order was 2-1, with acting chairman Maureen Ohlhausen dissenting.