Auto dealers beware – the FTC is watching your ads

This month the Federal Trade Commission (“FTC”) announced proposed settlements with car dealers across the country to settle investigations into the dealers’ advertising practices.  The FTC focused this particular round of investigations on claims to “pay off” the customer’s debt on the vehicle they traded in.  Examples of the allegedly deceptive advertisements provided by the FTC include:

·         "Credit upside down? Need a new car? Go to Billionpayoff.com. We want to pay off your car." The advertisement depicts a car moving, inverts the video to depict it upside down, and then turns it right-side up again. (Billion Auto)

·         "Uncle Frank wants to pay [your trade] off in full, no matter how much you owe." (Frank Myers AutoMaxx)

·         "I want your trade no matter how much you owe or what you're driving. In fact I'll pay off your trade when you upgrade to a nicer, newer vehicle." (Key Hyundai and Hyundai of Milford)

·         "Ramey will pay off your trade no matter what you owe . . . even if you're upside down, Ramey will pay off your trade." (Ramey Motors)

The FTC asserted that such advertisements (which included ads run on the dealers’ websites and on YouTube) mislead consumers into believing that the dealership was going to pay off the debt in full.  The actual practice employed by the dealerships was to roll in the negative equity (the debt balance that exceeded the value of the trade in) into the new loan the customer entered into to purchase a newer or different vehicle.

In addition to alleging deceptive advertising, the FTC alleged violations of the Truth in Lending Act and the Consumer Leasing Act.  As a result of the investigations, the five dealerships that agreed to settle must, among other things, change their advertising practices, retain copies of all advertisements for five years or more, maintain substantiation files for the claims made in each advertisement, and file compliance reports with the FTC. 

How do you avoid an FTC investigation and the resulting burdens?  Here are some compliance tips:

·         Ensure all advertisements, in any medium or in any form, do not contain any misrepresentations or misleading statements.  A statement that is misleading cannot be cured by a disclosure that contains conflicting information.

·         Comply with the Truth in Lending Act and the Consumer Leasing Act and the regulations issued under these Acts.  This includes, for instance, making clear and conspicuous disclosures when advertising certain terms related to issuing consumer credit.

·         Ensure your disclosures are clear and conspicuous.  The FTC provides guidance that to be clear and conspicuous, “the disclosure shall be in understandable language and syntax. Nothing contrary to, inconsistent with, or in mitigation of the disclosure shall be used in any advertisement or promotion.”  The FTC also provides the following examples:

o   Print: the disclosure should be in a type size, location, and in print that contrasts with the background against which it appears, sufficient for an ordinary consumer to notice, read, and comprehend it.

o   TV or Video: an audio disclosure should be delivered in a volume and cadence sufficient for an ordinary consumer to hear and comprehend it. A video disclosure shall be of a size and shade and appear on the screen for a duration and in a location sufficient for an ordinary consumer to read and comprehend it.

o   Radio: the disclosure should be delivered in a volume and cadence sufficient for an ordinary consumer to hear and comprehend it.

There is a comment period before the proposed settlements become effective.  Once effective, they will be persuasive evidence of the standards car dealerships must abide by for future FTC investigations.  Next up may be the $$ down and $$ per month claims.

Authors:

Mike Schulman	Jason Mueller

The Lorax and the Mazda CX-5: Greenwashing in a movie tie-in advertising campaign?

Are we in the midst of another case of a “citizen’s arrest” for alleged Greenwashing?  In the case of a Mazda advertising campaign tied in to the release of the movie adaptation of Dr. Suess’ The Lorax, the answer might be yes.  

As blog readers with young ones at home probably know, the Lorax movie was this past weekend’s box office champ here in the United States, grossing nearly $40 million.  And theatergoers were not the only ones attracted to this family-friendly fare with a sustainability-positive message.  Mazda, seeking to promote its CX-5 compact SUV, and in particular its Skyactiv technology, jumped in with a piece of movie tie-in marketing.  One place to see the ad is on Youtube, where Mazda touts that it “cares an awful lot”, and that the CX-5 with Skyactiv technology has received the “Truffula Tree Seal of Approval”.   Before going further, I should note that I currently own a Mazda, and have had a number of other Mazda cars over the years.  So I respect the product as a consumer, and in no way intend for this post to “pile on” the criticism this particular ad has received.

What seemed like a good opportunity to Mazda, however, now stands as yet another cautionary tale for companies looking to advertise the sustainability of products and services.   Mazda’s ad, touting the environmental friendliness of the CX-5 via Skyactiv’s fuel economy-promoting benefits against a Lorax-inspired tableau, has quickly come under fire from the “green” media and the public.  Take another look at that Youtube link, where the comments are overwhelmingly negative – along the lines of “Epic fail Mazda” – and the ad has generated 1,341 “dislikes” against 173 “likes." One commenter takes Mazda to task for “using an environmental movie to advertise an SUV” and analogizes it to using “Ghandi to advertise a gun club." 

But the toughest criticism has come from the Guardian’s “Environment blog” which savages the ad for its “crass chicanery” and holds it out as an example of greenwashing at its worst – and in the case of the Lorax himself “character assassination."  This Guardian blogger even uses the ad as a jumping-off point to explore Mazda’s entire green strategy in a critical way.  One can safely assume that this is probably not what Mazda intended with this ad.  

Perhaps most troubling for companies that have a legitimate desire to advertise sustainable products and services is the absolute speed at which a well-intended campaign can fall into critique for alleged greenwashing offenses.  And in today’s marketplace, that criticism can come from all sides, including government agencies, media, and the general public. Further, not only does the criticism emanate from several sources, its sting affects both the sponsor (Mazda) and the co-branded product (Universal's The Lorax film). Now both Mazda and Universal have to deal with the fallout. These unintended consequences are the types of contingencies that a well-informed advertising counsel can help a client consider, prior to the ads' publication.

While policing of greenwashing claims is warranted, there is a risk that such policing will have a chilling effect on advertising of sustainable products and services generally.  Any resultant drop in innovative activity on the part of companies  or missed opportunities to inform consumers of more sustainable choices would be a shame.  For now though, companies must proceed cautiously with such advertising efforts.  Mazda may be the latest to have learned this lesson, but they won’t be the last.

Author: Gaston Kroub