The Federal Trade Commission is taking action against auto dealer Passport Automotive Group for deceiving consumers by tacking hundreds to thousands of dollars in illegal junk fees onto car prices and for discriminating against Black and Latino consumers with higher financing costs and fees. Passport, its president, Everett Hellmuth, and its vice president, Jay Klein, will pay more than $3.3 million to settle the FTC’s lawsuit, which will be used to refund consumers harmed by Passport’s conduct.
“With this action against Passport and its top executives, the Commission is continuing its crackdown on junk fees and discriminatory practices that harm Black and Latino consumers,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “As families struggle with rising prices, companies that think they can hit consumers with hidden fees should think again.”
Passport, based in Maryland, owns car dealerships around the Washington, D.C., metropolitan area. In 2018, the FTC brought action against Passport, its president, and vice president, alleging the company mailed more than 21,000 fake “urgent recall” notices to consumers in 2015 and 2017, to lure them to visit dealerships.
In its complaint announced today, the FTC alleges that Passport regularly advertises certified, reconditioned, or inspected cars at specific prices, but then adds extra certification, reconditioning, or inspection fees that it falsely claims consumers are required to pay. The FTC also alleges that Passport charges Black and Latino consumers hundreds of dollars more in financing costs and fees, on average, than white consumers. In its complaint against Passport, the FTC alleges that the company has for years violated the FTC Act and the Equal Credit Opportunity Act by:
- Charging illegal junk fees: Passport advertises cars as “certified,” “inspected,” or “reconditioned” at specific prices, but the FTC alleges that when customers try to pay the amount advertised for those vehicles, Passport adds hundreds or thousands of dollars in fees. These fees either increase the price over what was advertised or negate any discounts the consumers negotiated. The complaint cites one case in which a vehicle advertised for $24,050 was in fact sold for $26,440 due to illegal add-on fees. Passport frequently describes the extra fees it charges to customers for inspection, reconditioning, or certification as required when in many instances, auto manufacturers specifically prohibit dealers from charging separately for certification costs.
- Discriminating against Black and Latino customers: The complaint alleges that Passport regularly charges Black and Latino customers more in financing costs and fees than they charge non-Latino white customers. Although Passport claimed that it had a policy to prevent discrimination, the complaint alleges that Passport did not even enforce or monitor the policy.
The FTC’s complaint alleges that Black and Latino consumers paid on average about $291 and $235, respectively, more in interest than non-Latino white consumers did. It also alleges that Black and Latino consumers paid on average an extra fee 24 percent and 42 percent more often, respectively, than non-Latino White consumers.
Passport, its president, and its vice president have agreed to a proposed federal court order that would:
- Prohibit them from charging different groups different markups: The order would require Passport to establish a fair lending program to ensure it does not discriminate going forward, including a provision that will require each Passport dealership location to either charge no financing markup or charge the same markup rate to all consumers.
- Prohibit them from deceiving consumers about prices and fees: The order would prohibit Passport from misrepresenting the cost or terms to buy, lease, or finance a car, or whether a fee or charge is optional. It would also require them to only charge consumers fees with their express, informed consent.
- Require them to pay money to refund consumers: The order would require Passport to pay the FTC $3.38 million to refund consumers harmed by Passport’s unlawful actions.
The FTC has taken significant action to protect consumers across the automotive marketplace in recent years, most recently by announcing a proposed rule that would ban many of the junk add-on fees and bait-and-switch tactics plaguing car buyers. In the last ten years alone, the FTC has brought more than 50 law enforcement actions related to automobiles and helped lead two nationwide law enforcement sweeps that included 181 state-level enforcement actions in these areas.
The Commission vote authorizing the staff to file the complaint and stipulated final order was 4-1. Then-Commissioner Noah Joshua Phillips voted no on the motion to authorize staff to file the complaint and stipulated final order before he left the Commission. Chair Lina M. Khan, Commissioner Rebecca Kelly Slaughter, and Commissioner Alvaro M. Bedoya issued a majority statement. Commissioner Christine S. Wilson issued a statement. Commissioner Phillips issued a dissenting statement. The complaint and stipulated final order were filed in the U.S. District Court for the District of Maryland.
NOTE: The Commission files a complaint when it has “reason to believe” that the named defendants are violating or are about to violate the law and it appears to the Commission that a proceeding is in the public interest. Stipulated final orders have the force of law when approved and signed by the District Court judge.