UDAP vs. UDAAP: What Dealerships Must Know
- Michael Dean Aufmuth
- Jun 26
- 4 min read
UDAP (Unfair or Deceptive Acts or Practices)
• What it covers: Prohibits practices like false advertising, bait-and-switch tactics, surcharge schemes, hidden fees, and misleading trade-in details.
• Enforcement: Governed by state consumer protection laws and Section 5 of the FTC Act. UDAP is a broad “catch-all” that probes any unfair or dishonest conduct.
UDAAP (Unfair, Deceptive, or Abusive Acts or Practices)
• Additional “Abusive”: Prohibits taking advantage of consumers’ vulnerability or lack of understanding. Includes overly complex disclosures, pressuring tactics, or predatory lending.
• Enforcement: Federal oversight by CFPB and FTC under Dodd‑Frank, with serious legal and financial consequences.
Deep Dive into High‑Profile Dealer Enforcement Actions
1. $20 Million – Illinois Auto Group Settlement (Dec 2024)
• Issues: False low-price ads, mandatory add‑ons without consent, junk fees, missing Buyers Guides, faked online reviews—even destruction of documents .
• Resolution: $19.8M to FTC + $200K to state AG; nationwide permanent injunction requiring transparent pricing, no deceptive add-ons, and accurate disclosures .
• Takeaway: Complex schemes involving ads, F&I, and document manipulation led to historic penalties.
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2. $2.6 Million – Coulter Motor Company (Arizona, Aug 2024)
• Issues: Misleading online pricing with hidden “market adjustment” fees; unauthorized add‑ons; higher interest and add‑on costs for Latino customers .
• Resolution: $2.6M settlement; consumer refunds, plus training on fair lending and transparency .
• Takeaway: Racial disparities, deceptive pricing, and pre‑installed products can trigger joint federal–state action.
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3. $350 Thousand – Hometown Auto (Massachusetts, Jan 2023)
• Issues: Higher add-on charges for Black/Hispanic customers (e.g., paint protection, remote starters) .
• Resolution: $200K in restitution, $150K penalties, mandatory bias training mandate .
• Takeaway: Even small-scale discriminatory practices can result in substantial penalties and compliance mandates.
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4. $159 Thousand + Shutdown – iDeal Enterprises (Kansas, Aug 2024)
• Issues: Selling scrap vehicles; misrepresenting salvage status; open-safety recalls; withheld titles; unlicensed sales personnel .
• Resolution: Ceased operations and fined ~$159K; license permanently revoked .
• Takeaway: Safety non-disclosure and title violations can result in license loss and hefty fines.
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5. Maryland AG Action – DARCARS Honda (2024)
• Issues: “Adjusted Market Value” fees, hidden protection plans, non‑itemized commission; advertising inclusive of undisclosed fees .
• Resolution: Potential fines over $10,000 per vehicle, pending court hearings .
• Takeaway: State consumer acts backstop UDAP/UDAAP enforcement through per-unit fines.
Key Compliance Focus Areas with Recommended Actions
Focus Area Risk Recommended Actions
Advertising & Pricing UDAP charges for bait‑and‑switch tactics, hidden fees • Match online & lot prices exactly.• Avoid vague terms like “market adjustment.”• Include required fees only; optional products must be opt‑in with signatures.
Add‑On Products UDAAP/UDAP risk from pressuring for GAP, warranties • Present add‑ons as optional with separate consent.• Provide full benefit/value info.• Timestamped digital menus with explicit opt‑ins.
F&I & Lending Practices Abusive lending, disparate impact, non-transparent deals • Analyze dealer/lender approval data by demographic.• Standardize interest rate disclosure.• Document negotiations and rate quotes.
Trade‑In & Negative Equity Hidden negative equity roll-ins violate UDAP • Clearly disclose trade-in value and negative equity.• Create transparent worksheets for customer review.
Document Retention Destruction/alteration of documents = deceptive • Establish email backup of deal jackets.• Regular audits.• Strict no‑shredding policy until post‑deal cleanup.
Deal Structure Transparency Misleading payments or failure to disclose fees • Display base payment vs. loaded payment.• Require initials/signatures on all product lines.• Monthly compliance reviews of deals.
Discriminatory Practices UDAAP violations for racial disparities • Conduct audits for demographic discrepancies in pricing/offers.• Train staff on fair lending.• Maintain documentation explaining product recommendations.
Safety & Title Disclosures Safety recall concealment, title delays • Disclose open recalls; provide repair timelines.• Track and report title delivery status.• Comply fully with state title regulations.
Examples of Irreversible Harm (Abusive Practices)
• Overwhelming Fine Print: Using long, dense disclosures to confuse rather than inform.
• Targeting Vulnerable Groups: Seniors, non-native English speakers, and first-time buyers pressured into unnecessary products.
• Bundling Protection Plans: Forcing GAP or extended warranty where LTV is low—adds no value to honest consumers.
• Manipulating Credit Data: Steering consumers toward subprime financing without justification.
Compliance Roadmap: Build Culture, Not Just Policies
1. Monthly F&I & Advertising Audits
• Include random ads, deal jackets, menus, worksheets, and scorecards.
2. Continuous Staff Training
• With real enforcement examples and role-play scenarios on non-coercive upselling and disclosure.
3. Customer Feedback Loops
• Post-sale compliance surveys; log and address concerns tied to specific deals.
4. Automate & Document Everything
• Digital consent forms with timestamps; audit trails on promotions and pricing.
5. Avoid Retaliation/Document Destruction
• Enforce strict retention policies to avoid the appearance of hiding wrongdoing.
6. Regular Fair‑Lending Reviews
• Compare APRs and add‑on purchases across demographics; investigate anomalies immediately.
Final Takeaway
Regulatory scrutiny of dealership practices—advertising, F&I, pricing, customer targeting—has intensified. Recent multi-million dollar settlements in Illinois and Arizona clearly show that both UDAP and UDAAP carry steep penalties, reputational damage, and compliance mandates.
To protect your dealership:
• Make transparent pricing, optional product consent, and fair lending non-negotiable.
• Train your team constantly with real examples.
• Monitor, audit, and correct proactively.
Compliance isn’t a checkbox; it’s embedded in how your dealership operates and communicates. By taking deliberate steps now, you can build trust, avoid financial and legal consequences, and ensure long-term success.
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