FTC examines car sales, financing abuses targeting U.S. troops

Introduction

A young Navy sailor walks into a car dealership and buys a Camaro.

Sounds simple. But is it?

Advocates for military consumers say financing a car or truck is often a confusing transaction fraught with the potential for fraud, including hidden fees and bait-and-switch salesmanship.

Car dealers and their advocates counter that the transaction is usually a straightforward process. Rip-offs, they say, are rare.

Those competing views clashed Tuesday in San Antonio during a Federal Trade Commission hearing on the problems that sailors, Marines and other U.S. service members encounter when they try to buy and finance cars.

As the iWatch News reported last month, the FTC hearing is an indication of the increasing attention being paid to the consumer problems faced by members of the U.S. military.

Shawn Mercer, a Raleigh, N.C., attorney who represents car dealers, told FTC officials that critics of the car industry are painting with “too broad a brush,” using examples of “isolated bad players” or citing incidents from “bygone years.”

“To the extent there is an abuse somewhere, that’s an exception, not the norm,” Mercer said. He said car dealers aren’t looking for quick sales; they want to create a “customer for life.”

Other panelists described examples of practices targeted at service members, such as manipulating them into buying nearly expired repair warranties or charging them for overpriced add-ons.

U.S. Navy Capt. Dwain Alexander II, an attorney with the Navy Legal Service Office in Norfolk, Va., described one case in which a dealership hid the costs of financing the car by preparing two sets of paperwork and charging the service member $2,700 for a GPS mapping system that retailed for only about $200.

Holly Petraeus, the assistant director for the Office of Servicemember Affairs at the new federal Consumer Financial Protection Bureau (CFPB), noted instances in which dealers have ensnared service members by offering them free rides to distant sales lots. But the van “disappears” when the service members need a ride back, and to avoid being AWOL, they have little choice “except to buy something to get back to base,” she said.

Young members of the armed forces are sometimes targeted by car dealers, Petraeus said, because “their salary is absolutely rock-solid and it will be paid twice a month.”

Mercer, the dealership lawyer, said more laws aren’t needed. The best way to address any abuses, he said, is to enforce existing state and federal laws and to provide more consumer education to young enlisted men and women.

Under last year’s Dodd-Frank financial reform law, the CFPB has authority over auto lenders, but it generally won’t have authority over car dealers. Under the law, the FTC has increased rulemaking authority over car dealers.

An FTC spokesman told iWatch News that the agency doesn’t know yet how prevalent abuses are against service members, and that the hearing is part of the process of exploring the question.

The spokesman added that the FTC is working to coordinate its efforts with the CFPB, including discussions about sharing complaints.