AG sues dealership over excessive fees for black and Hispanic customers for add-ons
The attorney general’s office said it based its findings on an analysis of dealer records for 2016 through 2018.
“Jaffarian has consistently engaged in the same or substantially similar policies and practices since at least 2016,” reads the lawsuit, which was filed in Essex Superior Court.
In a statement released in response to the lawsuit, an attorney for Jaffarian said, “We strongly deny the allegations in this lawsuit … Jaffarian stands firmly against discrimination in any form.”
Jaffarian said it “never received a complaint from a customer alleging discrimination” and plans to “vigorously defend itself against the lawsuit … in court.”
Add-ons are usually sold after a customer has done it Negotiated a price to buy or lease a car and arrange financing if needed. At this point, the finance manager typically quotes prices for various add-ons — such as paint protection, key replacements, service contracts, and wheel and tire contracts — but customers “may not understand that these prices are negotiable,” the lawsuit states. Financial managers actually have “unlimited discretion” over add-on pricing.
“As a result, two consumers can be charged very different mark-ups for the same thing [add-on] product,” is written on the suit.
Auto dealerships generally make more money selling ancillary products than selling the car itself, the attorney general’s office said in the release. In addition, Jaffarian structures its compensation for finance managers to reward them for selling products at the highest prices, and calls on managers to “encourage consumers to buy more ancillary products and put higher premiums on those products.” , according to the lawsuit.
“The higher the premiums, the more a finance manager earns,” the suit reads.
“In these circumstances, Jaffarian is seeking disproportionately higher profits from Black and Hispanic consumers,” the lawsuit states.
“A highly unfair phenomenon in today’s market is price differentials based on the ethnicity of the buyer,” the lawsuit states. “Numerous studies show that these disparities are caused by allowing sellers discretion in pricing.”
The attorney general’s office says it investigated more than 2,000 add-on sales at Jaffarian. By analyzing customers’ first names, last names, and addresses, along with census data, the attorney general’s office was able to “determine the predicted race and ethnicity of each consumer,” the lawsuit states.
When selling add-ons to white customers, Jaffarian averaged about $1,000 in markup. But it was $1,500 for black customers and $1,380 for Hispanic customers.
The lawsuit alleges that Jaffarian “failed to provide guidance or audits to ensure fair, non-discriminatory treatment of its customers.”
“It has long been known that discretionary pricing policies, uncoupled with regular audits, training and other controls to prevent conscious or unconscious bias from influencing pricing decisions, lead to discrimination, particularly against consumers of color,” states in the lawsuit.
“Jaffarian knew or should have known that its pricing and remuneration policies, alone and in combination, were likely to result in unfair and discriminatory pricing that harmed consumers,” the lawsuit states.
The attorney general’s office says Jaffarian’s practices violate the state Consumer Protection Act and the Public Accommodations Act, which prohibit discrimination based on race, color and national origin in public places. In the lawsuit, Healey’s office is seeking an injunction blocking these practices, along with restitution and civil penalties.
“We applaud the Massachusetts Attorney General’s Office for taking action to stop these troubling abuses,” said John Van Alst, prosecutor for the National Consumer Law Center, according to the press release. “NCLC research shows that discrimination in auto sales is widespread financial industry.”
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