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FTC cracks down on deceptive advertising practices

January 19, 2016

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Advertising is the main tool dealerships use to draw customers into the showroom. And dealerships must follow strict guidelines to ensure their advertising practices aren’t considered untruthful or deceptive.

The Federal Trade Commission (FTC) recently concluded a major initiative designed to protect automobile buyers from deceptive advertising practices. The initiative. Dubbed Operation Ruse Control, this was a joint operation conducted in the United States and Canada that brought about a number of state and federal enforcement actions in both countries.

The cost of FTC violations

In announcing the results of the initiative, the FTC noted that, “if auto dealers make advertising claims in headlines, they can’t take them away in the fine print. These actions show there’s a financial cost for violating FTC orders.” Operation Ruse Control resulted in a total of $2.6 million in judgments and consumer refunds.

The FTC’s enforcement actions included civil and criminal charges against both dealerships and finance companies. The charges cover a wide range of violations that include not only deceptive advertising, but also dealer vehicle loan application fraud, odometer fraud, deceptive add-on fees and deceptive marketing of vehicle title loans.

In fact, this was the first time the agency used its authority under the FTC Act to take enforcement action in cases of deceptive add-on fees. These are charges (often buried in contracts) added to the vehicle sale or lease price for other products or services customers aren’t aware of — such as emergency road service, theft protection and extended warranties.

Illegal practices

However, most of the enforcement actions that sprang from the operation focused on what the FTC deemed to be deceptive advertising practices in violation of the Truth in Lending Act and the FTC Act. These practices included:

  • Running ads that promised sales, lease or financing options that were actually canceled in the fine-print disclaimers,
  • Failing to clearly and conspicuously disclose all of the relevant terms that applied to the sales, lease or financing options (such as how much down payment was required), and
  • Using rapid-fire audio delivery, distracting visuals and barely readable fine print to conceal important terms of the offer.

In one case, the FTC filed a complaint against a dealership to stop running deceptive ads in which it promised to get customers out of their current auto loan or lease for just $1. The fine print — also called “mouse print” — that ran at the bottom of print ads and TV commercials explained that, if the customer had any negative equity, it would be applied to the new loan. So, in effect, customers would be merely rolling over their loan or lease balance to a new loan or lease. In addition, the ads failed to note that a lease termination fee probably would apply to customers with auto leases.

Advertising tips and guidelines

Here are a few guidelines to consider — when creating print, online and all other ads ­— that can help you avoid running afoul of the FTC’s advertising regulations:

  • Look at your ads from the point of view of a “reasonable consumer” or “typical person” and honestly ask yourself whether the ads could be construed as untruthful or deceptive.
  • Make sure that all disclosures contained in your ads are legible and comprehensible, and try to avoid using fine print if you can.
  • Include all required disclosures if your ad includes any so-called trigger terms — such as the amount of monthly payment, number of payments required and finance charge amount.

Also remember the FTC’s three primary rules as they relate to truth in advertising:

  1. Ads must be truthful and nondeceptive.
  2. You must have evidence to back up your advertising claims.
  3. Ads can’t be unfair.

If you follow these rules, you’ll go a long way toward avoiding FTC “truth in advertising” issues and compliance problems.

What laws govern dealership advertising?

Automobile dealership ads are subject to the Truth in Lending Act (TILA), a federal law enacted in 1968 to protect consumers in their dealings with lenders and creditors. TILA requires that proper disclosures of key information be included in advertisements, including the annual percentage rate for interest, term of the vehicle loan and total cost of the loan to the borrower.

The Consumer Leasing Act (CLA) and the Federal Trade Commission (FTC) Act also contain regulations and disclosures dealerships must observe in their advertising. The CLA regulates personal property leases that exceed four months, including vehicle leases. It requires dealerships to disclose certain lease costs and terms, among other disclosures, in lease advertising.

Meanwhile, the FTC Act gives the FTC the power to prevent unfair or deceptive acts or practices affecting commerce, including the sale of automobiles. It also allows the FTC to conduct investigations into consumer complaints about such alleged, illegal practices. Last, it lets the agency seek monetary redress and other relief for consumers who are harmed by such practices.

Especially important now

Dealerships always need to be careful when it comes to avoiding untruthful or deceptive advertising practices. However, given increased FTC enforcement actions like those described here, vigilance is especially important now.

© 2016

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

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