New York City-based auto dealer Bronx Honda and its general manager, Carlo Fittanto, are set to pay $1.5 million to settle allegations that the dealership was involved in numerous instances of unfair or deceptive lending practices against minorities, according to the Federal Trade Commission (FTC). In addition to the payment, Bronx Honda must also establish a fair lending program to limit any further interest markups.
Specifically, Bronx Honda under Fittanto’s direction charged African American and Hispanic borrowers higher interest rates than similarly-situated Caucasian borrowers. The dealership charged African American and Hispanic borrowers 19 and 24 basis points more in interest, respectively, than Caucasian borrowers, according to the FTC complaint filed with the Southern District of New York. Bronx Honda also charged both ethnic groups the maximum allowable markup “50% more often than non-Hispanic white borrowers,” according to the complaint.
In addition, the Honda dealership often offered deceptive sales by advertising discounts it did not honor, doubled fees and taxes, and inflated vehicle prices without the borrower’s knowledge. For instance, the defendants used an advertising agency to issue targeted commercials to African American and Hispanic communities that promoted discounts, only to “fail to honor those prices,” according to the complaint.
Fittanto also encouraged employees to specifically charge higher interest rates and did not discipline employees who used derogatory racial terms, according to the complaint.
Evidence of such practices is not always easy to uncover, said FTC Commissioner Rohit Chopra in a statement.
“In addition to evidence gathered regarding Fittanto’s racist staff directives,” Chopra said, “the Commission’s loan data analysis also confirmed that these pricing practices resulted in a disparate impact on African American and Hispanic borrowers, who paid significantly more in fees and finance charges than similarly situated white borrowers.”
Consumers were required to pay specific fees, including certification fees, “dealer prep fees”, reconditioning fees, shop fees and documentation fees in excess of $75.
The company also changed sale prices in the middle of processing the transaction without informing the borrowers. In one instance, an employee told a customer the cost with fees would total $17,931, but the final retail installment contract had a $20,713 price tag. This difference of $3,322 is what “the defendants internally referred to as adding ‘air money’ to the contract,” according to the complaint.
While these complaints were filed in 2019, before the COVID-19 pandemic spurred a national lockdown, fraud cases in general are on the rise as a result of the coronavirus. Maryland law firm Whitney LLP said it has seen “an increase in the number of car buyers calling us and needing help with car dealership fraud claims,” since the lockdowns began.
“Auto fraud is often business as usual at car dealerships,” according to Whitey LLP’s website. “But the fraudulent practices are magnified during this unprecedented time when customers are losing their jobs, and traffic into dealerships has dried up.”
The law firm also noted that the increase in fraud comes when fewer customers are buying cars and, for dealerships, this means every customer counts. “For the dishonest dealerships, of which there are many, that means every customer gets financed and leaves with a car, whether they qualify or not.”
Originally published on Auto Finance News