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A $1.5 Million F&I Chargeback

Who’s to Blame? Who Are the Victims?

The FTC announced in May that “New York City car dealer Bronx Honda and its general manager, Carlo Fittanto, will pay $1.5 million to settle Federal Trade Commission charges they discriminated against African-American and Hispanic car buyers and engaged in numerous illegal business practices.

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“According to the FTC’s complaint, the defendants told sales people to charge higher financing markups and fees to African-American and Hispanic customers. The defendants told employees that these groups should be targeted due to their limited education, and not to attempt the same practices with non-Hispanic white customers. … The complaint alleges that the defendants violated the FTC Act, the Truth in Lending Act (TILA) and the Equal Credit Opportunity Act (ECOA).”

Who’s to blame? Certainly Fittanto and the sales and F&I personnel — the perpetrators of the illegal acts — and anyone who knew what was going on and looked the other way. However, the ultimate responsibility lies with the individual listed as the dealer principal on the Honda franchise agreement. Of the $1.5 million, the dealer should be liable for the lion’s share.

It’s the dealer’s responsibility to check the references of applicants for top management positions. A dealership employee predisposed to criminal behavior will take advantage of every opportunity. These bad actors typically carry whatever nefarious scheme they employ with them from one store to the next. They’re betting their successive employers will be so wowed by unrealistically high performance numbers that they fail to confirm how the results were achieved. Or will choose to be willfully ignorant.

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Ultimately, the owner is responsible for establishing a corporate culture founded in equitable, legal and compliant dealings. The corporate culture of Bronx Honda advocated systematic abuse of fellow human beings through unethical, deceptive and illegal practices. A malignancy that encompassed the instigator of the bad acts, the individuals who perpetrated them and the people who knew about them and did nothing.

The assertion that the dealer was unaware of the malicious activity is ludicrous. In the highly detailed digital world of performance metrics, a glance at a routine printout would have identified an area of abnormally high performance. Whether the dealer failed to read — or heed — the data is moot. 

Who are the victims? Without a doubt, the violated car buyers. They deserve whatever financial enrichment comes their way. 

But the egregious violations also impact the entire industry. News reports of fraudulent vehicle sales practices cast a pall on all of us in the F&I trade — and the car business in general. They cause prospective car buyers to be unduly suspicious and fearful. And auto sales violations serve as a tinder box for state and federal regulators.

The timing couldn’t be worse; more bad news in the midst of the pandemic. The good news? The system is working to our benefit when the bad guys get caught and are summarily punished.

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Most important, the fallout from the Bronx Honda incident spotlights a common — but alarming — misperception of dealer-arranged financing. As referenced here last month, FTC Commissioner Rohit Chopra referred to dealer markup as a “secret kickback,” and Commissioner Kelly Slaughter’s statements were even more disparaging.

These are the words of lawyers employed by one of the most powerful federal agencies in the United States government. Their words resonate in the halls of Congress — and with candidates in an election year, industry-specific associations, the dealer community and the car-buying public.

Granted, their statements were fueled by a worst-case scenario violation. But they reflect a dire lack of knowledge about an established business practice — an issue I addressed in detail here last month in “The Truth about Dealer Markup.”

You can help put an end to the negative misperception about dealer-assisted financing — and hopefully prevent more shackling legislation — by sharing an educational handout with your legislators and everyone within your circle of influence. We need to get the word out now. Time is of the essence.

A handout containing a plain language explanation of dealer-arranged financing, supported by graphic aids, is available at bit.ly/AFIP-DAF.

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