On January 31, 2023, the Massachusetts Attorney General’s Office (“Mass AG”) announced a settlement with Hometown Auto Framingham, Inc. (“Hometown Auto”), resolving allegations that the auto dealership had engaged in unfair, deceptive, and discriminatory pricing of add-on products sold to Black and Hispanic consumers.  Under the terms of the settlement, Hometown Auto will pay $350,000, which includes $200,000 in restitution and a $150,000 civil penalty.

The action was brought pursuant to the Massachusetts Consumer Protection Act, General Laws chapter 93A, which prohibits unfair or deceptive acts or practices.  According to the Assurance of Discontinuance signed by the parties and filed in the case on January 17, 2023, the Mass AG alleged that Hometown Auto gave its staff broad discretion to modify the price the dealer charged for add-on products, such as vehicle service contracts, extended warranty products, guaranteed asset protection (“GAP”), and other ancillary products.  It further alleged that staff were not provided with any guidance, training, auditing, or supervision to prevent discriminatory disparities in these consumer transactions. 

Based on its review of sales records from January 1, 2016 through March 31, 2018, the Mass AG found Black and Hispanic consumers paid more, on average, than White consumers when purchasing add-on products, in violation of Chapter 93A, § 2 (unfair practices).  (Specific data and detail regarding these disparities was not included in the Assurance of Discontinuance or otherwise filed in the action.)  Hometown Auto denied these allegations and disputed the methodology used by the Mass AG to analyze its sales of add-on products, but agreed to the settlement to avoid litigation.

Hometown Auto has agreed to provide mandatory anti-discrimination and anti-bias training to its management and staff, including training on implicit bias and their duty not to discriminate in the pricing of add-on products.  They have also agreed to implement and maintain a standard retail price or standard margin for add-on products, and to only deviate from that standard on a good faith basis.  The Mass AG has agreed that Hometown Auto can comply with the add-on pricing provisions of the settlement by implementing the National Automotive Dealers Association (“NADA”) Voluntary Protection Products Model Dealership Policy (“NADA Model VP Policy.”) 

Under the NADA Model VPP Policy and the Assurance of Discontinuance, Hometown Auto can only deviate from the standard retail price for add-on products based on: (1) a pricing or payment cap imposed by law or by a company providing financing for the purchase, (2) a customer’s stated monthly payment constraint, (3) a more competitive offer for the same or similar add-on product, (4) promotional pricing for which the customer qualifies, and/or (5) employee pricing for which the customer qualifies.  Any deviation from one of these authorized bases must be documented on a written deviation certification form included as an Appendix to the NADA Model VPP Policy.  The acceptance of the NADA Model VPP Policy by the Mass AG as a way to ensure compliance is notable.  The model policy was published by NADA in 2019 to assist dealerships in selling add-on products in a fair, ethical, and legally compliant manner.

This settlement is the latest enforcement action by state attorneys general or the Federal Trade Commission (“FTC”) alleging discrimination and unfair or deceptive practices in connection with add-on products and the financing of vehicle purchases.  In April 2022, the FTC and Illinois Attorney General settled a lawsuit with Napleton Automotive Group alleging that consumers were charged for add-on products without their consent and that the dealership’s discretionary pricing policy violated the Equal Credit Opportunity Act.  In September 2022, the Mass AG filed a complaint against an auto dealership, Jaffarian’s Service, Inc., alleging that discretionary pricing of add-on products resulted in Black and Hispanic customers paying on average $510 and $429 more, respectively, for add-on products than similarly situated white customers.  As with the instant action, the Mass AG claimed the dealer’s compensation structure incentivized markups by its employees on add-on products, and that the dealership failed to provide training or supervision to prevent pricing discrimination based on unlawful factors like race, ethnicity, or gender.  In October 2022, the FTC settled an action against Passport Automotive Group, a DC-area auto dealer, where it had alleged that Passport deceived consumers by adding illegal “junk” fees onto car prices and charging Black and Latino consumers higher financing costs and fees. 

While the Jaffarian complaint included a cause of action under the state Public Accommodations Act (G.L. c. 272, § 98) for distinguishing between and discriminating against consumers on account of their race, color, and/or national origin, all of the cases take the position that the discriminatory acts alleged constitute an unfair or deceptive practice.  We have discussed this evolving theory of treating discrimination as an unfair act, and expect to see additional actions by state attorneys general under this theory. 

The CFPB announced last year that it would exercise its supervisory authority under the Consumer Financial Protection Act to scrutinize discriminatory conduct as an unfair practice independent of federal fair lending laws.  The U.S. Chamber of Commerce and other trade groups have filed a lawsuit challenging this action in which they allege that the CFPB’s UDAAP authority does not cover discriminatory conduct and that the CFPB violated the Administrative Procedure Act  by bypassing the rulemaking process in amending its UDAAP exam manual to include discrimination.  The trade groups have filed a motion for summary judgment and the CFPB has filed a motion to dismiss, or, in the alternative, for partial summary judgment.  The motions are fully briefed and currently pending a decision by the court.