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FCPA Blog Daily News

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Tuesday
Jun282016

VW's $14.7 billion compliance failure: Deal announced to settle U.S. civil emission claims

German car maker Volkswagen AG and related companies agreed Tuesday to spend up to $14.7 billion to resolve federal and state civil allegations of cheating on emissions tests and lying to customers.

Volkswagen will spend up to $10.03 billion for a consumer buyback and lease termination program. The program covers nearly 500,000 model year 2009-2015 2.0 liter diesel vehicles sold or leased in the United States.

The settlements don't resolve federal criminal liability, the DOJ said

Deputy Attorney General Sally Yates said the DOJ's criminal investigation "remains active and ongoing."

VW will also spend $4.7 billion to mitigate pollution from the cars and invest in green vehicle technology.

The settlements resolve claims that Volkswagen violated the Federal Trade Commission Act through deceptive and unfair ads for “clean diesel” vehicles. Similar claims by California were also part of the settlement.

The companies named in the DOJ consent decree are Volkswagen AG, Volkswagen Group of America, Inc., Volkswagen Group of America Chattanooga Operations, LLC, Audi AG, Dr. Ing. h.c. F. Porsche AG, and Porsche Cars North America.

The vehicles involved include 2009 through 2015 Volkswagen TDI diesel models of Jettas, Passats, Golfs and Beetles as well as the TDI Audi A3.

The settlements didn't resolve any claims for 3.0 liter diesel vehicles.

Deputy AG Yates said VW duped regulators and turned "nearly half a million American drivers into unwitting accomplices in an unprecedented assault on our environment."

Tuesday's deal is "an important step forward," Yates said. But "let me be clear, it is by no means the last. We will continue to follow the facts wherever they go.”

According to the DOJ's civil complaint against Volkswagen filed in January on behalf of the EPA,

Volkswagen allegedly equipped its 2.0 liter diesel vehicles with illegal software that detects when the car is being tested for compliance with EPA or California emissions standards and turns on full emissions controls only during that testing process.

"During normal driving conditions," the DOJ said, "the software renders certain emission control systems inoperative, greatly increasing emissions."

The so-called "defeat device" resulted in cars that met emissions standards in the laboratory but during normal driving conditions emitted up to 40 times EPA-compliant levels. 

The FTC sued Volkswagen in March. It charged the company with deceiving consumers with ads promoting “clean diesel” VWs and Audis. The ads claimed the cars were low-emission, environmentally friendly, met emissions standards, and would maintain a high resale value.

Car owners who choose the buyback option under the settlements will receive between $12,500 and $44,000, depending on their car’s model, year, mileage, and trim of the car, as well as the region of the country where they bought it.

Owners who owe Volkswagen more than their car is worth due to rapid depreciation will have an option for VW to forgive their loans.

Owners with third party loans have the option of Volkswagen paying off those loans -- up to 130 percent of the amount an owner would be entitled to under the buyback. For example, if the owner is entitled to a $20,000 buyback, VW would pay off his or her loans up to a cap of $26,000.

Those who leased the cars will have the option of terminating their leases (with no termination fee) or having their vehicles fixed if possible. In either case, they'll receive additional compensation from Volkswagen for the harm caused by VW’s deceptive advertising. 

Owners who sold their TDI vehicles after the VW defeat device issue became public may be eligible for partial compensation, split between them and those who bought their cars.

Consumer payments will be available after the federal court approves the settlements -- maybe as early as October 2016, the DOJ said.

*     *      *

The DOJ's partial consent decree with VW is here (pdf).

The FTC's proposed order is here.

A consumer fact sheet is here.

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Richard L. Cassin is the publisher and editor of the FCPA Blog. He'll be the keynote speaker at the FCPA Blog NYC Conference 2016.