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FTC Targets Deceptive Promises of Auto Loan Payoffs
by Auto News on March 17, 2012
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In an unprecedented move, the Federal Trade Commission (FTC) has stepped in to protect unsuspecting consumers from being ripped off by deceitful auto ads that pledge to pay off vehicle loans upon trade-in.
The five targeted car dealerships in four states have agreed to a settlement that includes pulling all misleading ads from television, YouTube, and their company websites. The settlement, which does not include any fines, must receive final approval from a special commission, which is accepting public comments for the next 30 days.
Charges were filed against the Frank Myers AutoMaxx dealership in Winston-Salem, N.C. for requiring customers to pay the remaining balance before releasing the newly purchased car. The FTC also accused Key Hyundai of Manchester in Vernon, Conn.; Billion Auto in Sioux Falls, S.D.; as well as Hyundai of Milford in Milford, Conn., and Ramey Motors in Princeton, W.Va., which shared advertising campaigns, of rolling old car loans into new loans, despite written and verbal promises to completely pay off the previous debt.
The FTC notes that selling customers on monthly payments rather than on the final price is a common strategy in the auto industry. While the practice is not illegal, the recent FTC charges sent a clear message that it will no longer tolerate dealerships duping customers by burying the loan extension in paperwork. Customers must be clearly notified that their loan is being lengthened due to the previous debt.
This common scam ends up costing Americans millions in higher interest rates and fees because the loans are often extended past the average four or five years to six or seven years. This is causing more Americans to drive around town with negative equity. Because the owner will always owe more than the car is worth, it creates a never-ending cycle of debt.
Consumer advocacy groups recommend paying off a car loan before jumping into a new one because cars depreciate at such a rapid pace that it is difficult to recapture any money from the investment.