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.