FTC accuses L.A. auto dealer group of using illegal, deceptive ‘yo-yo’ sales tactics

A big auto dealer group in Los Angeles has been doing the “yo-yo” on car customers for years, according to the U.S. Federal Trade Commission.

The yo-yo is an illegal dealer tactic that preys on people with bad credit. After being lured in by advertisements pitching low prices and low financing costs, customers are allowed to take the vehicle home before financing is complete. Then they’re pulled back to the dealership and told their credit is bad, so they’ll have to pay more to keep their new ride.

A lawsuit filed by the FTC in U.S. District Court on Thursday also accuses the Sage Auto Group of several other “deceptive and unfair sales and finance practices.” The group includes Universal City Nissan, Kia of Downtown Los Angeles, Mercedes-Benz of Valencia, Sage Hyundai and Sage Covina Chevrolet. The suit also includes West Covina Toyota.

In response, Michael Sage, co-owner of the dealer group, told The Times that his business is “very aware of our requirements and responsibilities” with the FTC, the state and the auto manufacturers.

“We look forward to vigorously defending ourselves. We will fight this,” he said. “When you’re on top of the pyramid, you’re going to get attacked by everybody. We’re No. 1. We keep kicking it.”

Beyond the yo-yo, the FTC said, dealerships use “phony online reviews” posted by employees posing as customers, charge some customers for dealer add-ons such as extended warranties without their consent and fail to disclose required credit and lease information in their advertising, according to the complaint.

One of multiple examples detailed in the filing: A customer is drawn in by an ad for a Nissan Versa available for “$38 down.” The fine print shows the amount required at signing is $2,695.

The tactics, according to the complaint, are aimed “particularly at financially distressed and non-English-speaking customers.”

In response, Michael Sage said: “We’ve met all of our regulatory responsibilities with all of our advertising. It’s all legal and clearly written down.”

The complaint seeks an injunction to “prevent future violations” and restitution, refunds and “disgorgement of ill-gotten monies” in unspecified amounts.

Named in the lawsuit are the dealerships as well as Sage Holding Company, Sage Management Company, Michael Sage, Leonard Sage, and Joseph Schrage, “a/k/a Joseph Sage.”

One Sage dealership was not named: Sage Lotus in West Covina.

The FTC gained new enforcement power over car dealers in the federal Dodd-Frank legislation of 2010 and the agency has been flexing it.

In 2014, it reached settlements with nine car dealerships after charging them with deceptive advertising under what it called Operation Steer Clear. The dealerships – including Norm Reeves Honda Superstore in Cerritos and Honda of Hollywood in Los Angeles – agreed to avoid deceptive advertising for 20 years or face fines up to $16,000 a day.

In 2015, the FTC expanded beyond advertising into loan application fraud and deceptive add-on practices, such as charging for undercoating without the buyer’s consent.

The Sage case marks the first time that the FTC has addressed yo-yo finance tactics.

The tactics are unscrupulous but have been standard practice at some dealers for a long time, said Michael Semanie, who represents auto dealers as a partner at the Killgore Pearlman law firm in Orlando, Fla.

In a typical yo-yo, Semanie said, a dealer will “de-horse” a customer: take a trade-in, let the customer drive the new car home, and later tell them, in effect, you’ll have to pay more or be without a car.

Far more common, he said, is what’s called “conditional sales,” where the customer wants a car right away and is clearly told that if the loan is not approved, they’ll have to return the car. That, he said, is perfectly legal and, in his opinion, a respectable arrangement.

However, “it’s had to tell the difference between that, and knowing they won’t be approved and letting them take the car anyway, and then telling them to pay more money,” Semanie said. It will be interesting to see how the FTC approaches the case, he said.

The FTC, like the Securities and Exchange Commission, often reaches out-of-court settlements with defendants. Some dealers have complained that fighting a suit isn’t worth the expense.

The Sage Group was founded in 1969 by family patriarch Morrie Sage, whose father immigrated to Cuba from Poland during the Hitler era. After Fidel Castro’s revolution in Cuba, Morrie immigrated to the United States.

The company’s website said his sons — Michael, Joseph and Leonard — have run the company since Morrie’s death in 2011.

The website noted that Morrie Sage “became well known for his maverick and revolutionary approach to automobile advertising.”

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Twitter: @russ1mitchell

UPDATES:

12:40 p.m: This story was updated to include comments from auto dealer and defendant Michael Sage.

3:20 p.m.: This story was updated with background on FTC enforcement and comments from a lawyer who represents auto dealers.

This story was originally published at 8:50 a.m.