United States: A Dozen Auto Dealers Settle FTC'S Deceptive Advertising Charges

The Bottom Line

The FTC is not alone in its focus on automobile dealership advertising practices. New York prosecutors recently reached settlements with six auto dealers that allegedly engaged in deceptive and misleading advertising practices under the state's advertising guidelines for auto dealers, including by using footnotes or asterisks that "contradict[ed], confuse[d] or materially modif[ied] a principal message of an ad" and by using a print size "so small as to not be easily readable." While the FTC focused on dealers this time around, a closer look at automobile manufacturing advertising may not be far behind. It may be time for both dealers and manufacturers to take their ads in for an advertising law tune-up.

In recent months, a dozen automobile dealers across the country have settled deceptive advertising charges brought by the Federal Trade Commission (FTC), highlighting the FTC's increasing focus on motor vehicle advertising, including on the accuracy, size, and the volume and cadence of the disclosures used in ads.

Background

Last September, an automobile dealer in Maryland settled charges brought by the FTC that it had violated the FTC Act by advertising discounts and prices that were not available to a typical consumer. In addition, a dealer in Cleveland settled charges that it had misrepresented that vehicles were available at a specific dealer discount when, in fact, the discounts only applied to specific, and more expensive, models of the advertised vehicles. Then, in January, the FTC announced it had brought deceptive advertising charges against ten other auto dealerships in what it stated was a "nationwide sweep focusing on the sale, financing, and leasing of motor vehicles." According to the FTC, the dealers made a variety of misrepresentations in advertisements, which falsely lead consumers to believe they could purchase vehicles for low prices, finance vehicles with very low monthly payments, or lease a vehicle with no upfront payment whatsoever. According to the FTC, one dealer even falsely represented that consumers had won prizes, which they could collect by visiting the dealership. The FTC asserted that ads were deceptive because, among other things, they:

• Stated that consumers could pay $0 up-front to lease a vehicle when, in fact, the advertised amounts excluded substantial fees and other amounts;
• Stated that consumers could finance a vehicle purchase with low monthly payments when, in fact, the payments were temporary "teasers" after which consumers would owe a different amount;
• Stated that consumers could purchase a vehicle for specific low monthly payments when, in fact, consumers would owe a final balloon payment of over $10,000;
• Stated that consumers could drive home a vehicle for specific low up-front amounts and low monthly payments when, in fact, the deal was a lease and they would owe substantially more up-front;
• Failed to disclose certain lease-related terms, in violation of the Consumer Leasing Act (and Regulation M); and
• Failed to disclose certain credit-related terms, in violation of the Truth in Lending Act (and Regulation Z).

Nine of the dealers agreed to settle immediately. Currently, the tenth dealer – Courtesy Auto Group, Inc. – has also agreed to settle with the FTC. Courtesy's settlement provides an insight as to which kinds of automobile advertising practices the FTC is objecting, and the conditions it may seek to impose when it believes a dealer's marketing materials are violating the law. COURTESY SETTLEMENT Under its FTC settlement, Courtesy primarily agreed that it – and its officers, agents, representatives, and employees – would not misrepresent the cost to consumers of acquiring a vehicle. This includes the misrepresenting cost of leasing a vehicle by not adequately stating the total amount due at lease inception, the downpayment, amount down, acquisition fee, capitalized cost reduction, any other amount required to be paid at lease inception, and the amounts of all monthly or other periodic payments. Or the cost of purchasing a vehicle through financing by misrepresenting the amount or percentage of the downpayment, the number of payments or period of repayment, the amount of any payment, and the repayment obligation over the full term of the loan, including any balloon payment. Courtesy also agreed that it would not misrepresent any other "material fact" regarding the price, sale, financing, or leasing of any vehicle. In addition, the settlement agreement reiterates the requirement that all marketing materials must include the federally mandated lease and financing advertising disclosures. For example, Courtesy agreed that it in any future advertisements for consumer leases that include the amount of any payment or that any or no initial payment is required at lease inception, it must also clearly and conspicuously disclose the following terms:

• That the transaction advertised is a lease;
• The total amount due at lease signing or delivery;
• Whether or not a security deposit is required;
• The number, amounts, and timing of scheduled payments; and
• That an extra charge may be imposed at the end of the lease term in a lease in which the liability of the consumer at the end of the lease term is based on the anticipated residual value of the vehicle.

The agreement – which governs Courtesy for the next 20 years – also contains a number of other provisions, including certain recordkeeping and notification requirements.

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