Auto dealer group accused of racial discrimination agrees to $1.1M settlement

The Federal Trade Commission (FTC) and the Wisconsin Department of Justice have taken action against local auto dealer group Rhinelander Auto Center, its current and former owners, and general manager Daniel Towne for “deceiving consumers by tacking hundreds or even thousands of dollars in illegal junk fees onto car prices and for discriminating against American Indian customers by charging them higher financing costs and fees,” the agencies announced in a press release issued Tuesday.

According to the release, the defendants have agreed to proposed court orders that will require the current owners of the business, and Towne, to stop their unlawful practices and provide $1.1 million to be used for refunds to consumers.

“Working closely with the State of Wisconsin, we are holding these dealerships accountable for discriminating against American Indian customers and sneaking junk fees onto consumers’ bills,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “A vehicle is one of the most expensive purchases families make, and we are fully committed to ensuring that all consumers navigating the car-buying process can do so without facing unlawful discrimination or paying for products and services they do not want.”

“Companies must not be permitted to engage in discriminatory practices or improperly charge customers for ‘add-on’ products or services,” noted Wisconsin Attorney General Josh Kaul. “Thank you to those at Wisconsin DOJ, the FTC, and other agencies whose work led to the filing of this complaint.”

The auto dealer group issued its own statement following the announcement of the voluntary agreement.

“Rhinelander Auto Group respects all of its customers, and we are committed to treating all customers with dignity,” the statement reads. “We totally reject that our people — many of whom are long-term members of the local community — would engage in the practices alleged. That’s not who we are, and there is a great deal of evidence to reinforce the fact that Rhinelander Auto Group and its employees are ethical, decent, and very good people. Nonetheless, to avoid lengthy and costly litigation, we reluctantly agreed to a voluntary resolution to conclude the matter. The agreement includes no admission of wrong-doing, and it requires the company to pay a forfeiture; upgrade its compliance, credit, and other administrative policies; and expand its employee training efforts.”

“Rhinelander Auto Group is glad to put this matter behind us and focus on serving our customers,” the statement concludes. “We have been a part of the Rhinelander area for nearly 20 years, and we take pride in doing things the right way and treating everyone fairly. Our commitment is to continue on that path going forward.”

In their complaint, the FTC and Wisconsin DOJ alleged that Rhinelander Auto Group and Towne regularly charged many of their customers junk fees for “add-on” products or services without their consent. The complaint cites one survey of Rhinelander customers that shows half of the dealer’s customers said they were charged for add-ons without authorization or through deception. 

“One consumer was told — deceptively — that Guaranteed Asset Protection (commonly referred to as “GAP,” or “GAP insurance”) was required for her car purchase, even though she didn’t want to buy it; it cost her more than $1,000 in fees and additional interest on her loan,” the release states.

Rhinelander and Towne discriminated against American Indian customers in the cost of financing by adding more “markup” to their interest rates, according to the FTC’s complaint. This additional markup cost American Indian customers $401 more on average compared to non-Latino white customers. The complaint also notes that, since Rhinelander changed ownership in 2019, the disparity has only increased.

In addition, the complaint alleges that American Indian customers were charged for unwanted add-ons at a higher rate than non-Latino white customers. These additional junk fees can significantly drive up the amount that customers finance when they purchase their vehicle, which in turn leads to higher cost over the life of the loan, according to the release.

 In total, American Indians paid on average approximately $1,362 more for add-ons in credit transactions than non-Latino White customers since 2016, and $1,374 more since the new ownership took over, according to the complaint.

“The proposed settlement with Rhinelander’s current owners and Towne will require the company to stop deceiving consumers about whether add-ons are required for a purchase and obtain consumers’ express informed consent before charging them for add-ons,” the release states. “The settlement will also require the defendants to establish a comprehensive fair lending program that, among other components, will allow consumers to seek outside financing for a purchase and cap the additional interest markup Rhinelander can charge consumers. The current owners and Towne will also be required to pay $1 million to be used to refund affected consumers. The former owners, Rhinelander Auto Center, Inc. and Rhinelander Motor Company, have agreed to a separate settlement that would require the companies to permanently wind down the businesses and pay $100,000 to be used to refund affected consumers.”

 The complaint and proposed final orders were filed in the U.S. District Court for the Western District of Wisconsin.

The FTC, Wisconsin DOJ, Wisconsin’s Department of Transportation; Department of Financial Institutions; and Department of Agriculture, Trade and Consumer Protection, as well as the Better Business Bureau of Wisconsin, all assisted with this matter, according to the release.

The settlement with the State of Wisconsin is dependent on approval by Wisconsin’s Joint Committee on Finance per the requirements of 2017 Wisconsin Act 369.

Heather Schaefer may be reached at [email protected].