Oregon AG, SELCO Community CU-Owned Auto Brokerage Reach $239,000 Settlement Agreement for Misleading Auto Advertising

SALEM, Ore. – Acting on a tip it received and after investigating for 10 months, Oregon Attorney General Hardy Myers on July 1 filed a $239,000 settlement with an auto buying brokerage operated by a CUSO owned by SELCO Community CU, Eugene, Ore. requiring the CUSO to immediately stop advertising that its service is free when it’s not. Named in an Assurance of Voluntary Compliance filed in Marion County Circuit Court was SELCO Group, Inc., a wholly-owned CUSO of SELCO Community CU that operates SELCO Auto Resource (SAR). As part of the AVC, SAR agreed to return $119,556 in restitution to 184 Oregon consumers who paid from $100 to $1,853 for the so-called “free service.” SELCO Group also paid the Department of Justice $119,556 for its Consumer Protection and Education Fund. “Buying an automobile is stressful enough for consumers without being deceived about services and fees. For almost a year, customers trusted this company to assist them in making a good buy on a car, but ended up paying an undisclosed profit, ” said Attorney General Hardy Myers. According to a release from the Oregon Department of Justice, investigators “ working from a tip,” found that SELCO Auto Resource “misled consumers by touting its program was `free’ or that it didn’t charge anything for consumers to use its auto buying service when in fact, the company charged an average of $650. SAR also told consumers that the dealers paid a marketing fee to participate in the program when in fact, they did not.” SAR must make changes in its advertising of services and conspicuously disclose fees charged for services before concluding any car transaction. Department of Justice spokesperson Jan Margosian could not name who notified the agency of the tip in October 2003, but she said “it basically included that SAR was operating an auto buying service and was misleading people about what they were paying for.” When asked if the Department of Justice received additional similar complaints from consumers, Margosian said it hadn’t, adding that, “We acted from one tip because if it was true then it was a big violation of the law.” She added that, “We get tips all the time. We’re looking for specific violations of the Consumer Protection Law. Depending on what you’re looking at, you’re either looking at a clear violation of the law or we’re having to build a pattern. If this situation with SAR was true, then it was a bad thing, so we acted on the tip.” Starting Oct. 21, 2003 and continuing for six months, the Department of Justice did a “short investigation.” The agency served SAR on April 15 with a Civil Investigative Demand, “at which time we asked SAR for a lot of information,” said Margosian. “When we served them with the CID, they knew exactly what we were looking for. They cooperated very well and readily provided us with information we asked for,” she said. The AVC filed in the civil court admits to no law violation. Margosian said it’s really a “plea bargain” in a civil court, explaining that, “In civil law enforcement, we say we have a violation of laws, we want you to stop what you’re doing, pay back victims, promise not to do it again, and you’re going to be punished by putting a designated amount of money in the Consumer Education Fund. If you do that, then you don’t have to admit to any violation. “However, if you violate that agreement, then we will go back to the court, and the court can actually put you in jail for six months, plus force you to pay up to $25,000 per civil violation,” Margosian explained. She pointed out that offering an AVC is not a standard procedure. When we’re working with an Oregon business that’s been in the state for a long time like SELCO Community CU has been, we usually offer it, she said, again emphasizing that “SELCO was very cooperative.” The Oregon Department of Justice keeps a record of consumer complaints it receives, broken down by various categories. Margosian said in 2003, complaints against financial institutions ranked second in the top complaint list of the year. In 2003, it was in the third place slot. Compared to banks, Margosian said complaints involving credit unions “have been very few.” In 2003, for example, the agency received 1,395 complaints against financial institutions, but only seven of those were against credit unions. Selco Group President David Kennedy admitted he was “a bit surprised” when he first heard from the Department of Justice, “but we pretty much handed over all our transaction records right away.” Kennedy said the agency’s main complaint was that the CUSO used the word “free” in its advertising and Web site for the auto brokerage. “A brokerage service entails the broker negotiating on behalf of the buyer for a price. Within that price there’s a dollar amount of compensation that varies depending on how much profit there is for the dealership that they can share with us. With some deals there’s no compensation,” he explained. “At the time we felt and we still feel that we’ve been upfront with what we tell members. We have a written disclosure that we’ve used since day one that states we’re a broker for the member and that we only receive broker compensation if there’s a sale. We’ve always been upfront with the members,” Kennedy stressed, adding that, “The Department of Justice believes any service should not be marketed as free if there is any revenue associated with the transaction. “The Department of Justice’s argument was that any person who comes into the credit union and uses its services could go to the dealership and get the same price for a vehicle. So that means the service isn’t free if SAR earns any brokerage compensation,” he explained. “We disagreed strenuously with that. As a broker we’re going to the fleet buyer who’s selling directly to us. We’ve got 70,000 members and can negotiate scale on their behalf. The Department of Justice doesn’t agree that we can get a better price than the member can get on their own.” Kennedy said SELCO Group has already changed its Web site to comply with the AVC and removed the word “free” from all its advertising. He stressed that because the CUSO has a separate balance sheet from SELCO Community CU, the incident won’t affect the CU’s business. In addition, SELCO Community CU wasn’t named in the AVC. Kennedy said since the Department of Justice issued the AVC, the CUSO has heard from some members and their comments have been “very positive and supportive. They said they understood the brokerage concept and had no problem with it.” “The Department of Justice painted us as saving people just a couple of hundred dollar sometimes. They don’t understand that on one deal, for example, we saved a member $5,700 and someone else $8,100. We’ve got plenty of examples like that,” he said. SELCO Group’s attorney Hal Scoggins said, “It was in our best interest to negotiate this so we can move on with what we do best, serve our members. If it was negotiated on the side of Department of Justice, then it was also in their best interest not to go to court over this.” -