On January 9, 2013 the Federal Trade Commission (“FTC”) announced enforcement actions against nine automobile dealerships over allegations of deceptive and unfair trade practices. The FTC alleged that these dealers violated the FTC Act, which prohibits businesses from making false or misleading statements regarding products and services. The complaints filed by the FTC also included allegations that the dealers violated the Consumer Leasing Act and the Truth in Lending Act by failing to disclose fees, interest rates, and other credit related terms.
Of particular interest is the FTC’s complaint involving a dealer’s advertisement of a purchase price reduced by a down payment. For example, the dealership advertised a 2008 Chevrolet Tahoe for $17,995 and included in the disclosure that the price was “after $5000 down.” Even though the advertisement disclosed that the price was conditioned upon the consumer making a down payment of $5000, the FTC alleged that the advertisement was deceptive because the vehicles “are not available for purchase at the prices prominently advertised” since consumers “must pay an additional $5000 to purchase the advertised vehicle.” Based on anecdotal observation, this practice is far more common than many dealers may believe.
Dealers should closely review their own advertisements to see whether they may be deemed deceptive. If you have advertisements that show a price contingent upon making a down payment, you should avoid making these kinds of offers. If you advertise lease or installment payments, you must make sure that you properly disclose any “trigger terms,” such as APR, duration of the loan, and any additional fees associated with the purchase or lease. Payments that are “No Money Down” must really be no money down. If the consumer must pay more to obtain the advertised payment or price, then the offer may be deceptive.
I recently wrote about the Federal Trade Commission’s (“FTC”) vigorous enforcement of consumer protection and privacy laws against automobile dealers. In these previous enforcement actions targeting dealers, the FTC found that advertisements related to negative equity were deceptive and unfair, and that dealers failed to take adequate steps to safeguard consumers’ nonpublic personal information from tampering via Peer to Peer (“P2P”) networks. Now, two dealers entered into consent agreements with the FTC to settle claims of unfair and deceptive trade practices related to advertisements placed by the dealerships online and in print.
The FTC charged that dealers in Maryland and Ohio “violated the FTC Act by advertising discounts and prices that were not available to a typical consumer…[and] misrepresenting 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.” The Maryland dealer’s website “touted specific “dealer discounts” and “internet prices,” but allegedly failed to disclose adequately that consumers would need to qualify for a series of smaller rebates not generally available to them.” The Ohio dealer “allegedly failed to disclose that its advertised discounts generally only applied to more expensive versions of the vehicles advertised.” To settle these actions, the dealers agreed to comply with the FTC’s order for twenty years, and maintain records of advertisements and promotional materials for the FTC’s inspection, upon request, for five years.
Once again the FTC demonstrated its willingness to extend protections offered by the FTC Act against deceptive and unfair practices to online advertisements placed by dealers. The FTC’s scrutiny of dealers’ advertisements clearly is not limited to “traditional” media, such as television and newspaper. Furthermore, the Maryland and Ohio dealer used advertising methods (combining rebates and stating a percentage discount from MSRP) that dealers use frequently. Therefore, dealers must endeavor to curtail the use of terms and methods that the FTC has determined are deceptive and unfair.
If you have not done so, you should download the FTC’s “.com disclosures,” which offer guidance on what you must disclose in your online advertisements. Your state’s Attorney General’s office may provide similar guidance. For example, New York’s Attorney General publishes advertising guidelines for New York dealers. While your state’s Attorney General may not have issued guidance regarding online advertising, you should not interpret this absence as carte blanch to advertise however you wish. Each state has enacted its own version of the FTC Act, and many state Attorney General’s closely watch the FTC and adopt it’s posture related to enforcement of consumer protection laws. So, even if your state’s Attorney General has yet to act, chances are that advertisements like the ones cited above may be deemed deceptive and unfair under your state’s law should a consumer or the Attorney General challenge the advertisements.
Earlier this month the Federal Trade Commission amended its “Green Guides,” which address claims made by marketers of products’ environmental attributes. Since dealerships fall within the types of businesses regulated by the FTC, it is important that you are aware of the Green Guides and take them into consideration when creating and placing your advertisements. The Green Guides are not new laws or rules created by the FTC. Rather, the Green Guides outline what kinds of additional trade practices the FTC considers deceptive and/or unfair under Section 5 of the FTC Act.
Advertisements that fall within the Green Guides include claims made about products’ environmental attributes or claims made regarding your dealership’s sustainable business practices or certifications such as “LEED” (or Leadership in Engineering and Environmental Design). Sustainable business practices include recycling initiatives, reductions in water and energy consumption, and utilizing renewable energy like solar and wind. Generally, the FTC considers broad, unqualified general environmental claims like “green” or “eco friendly” unfair and deceptive trade practices. To avoid claims that an advertisement is unfair or deceptive, advertisements claiming a vehicle is “eco friendly,” for example, will need further disclosure of specific environmental benefits that are clear, prominent and specific. Statements made regarding your dealership’s sustainability practices or certifications also trigger compliance with the Green Guides. If your dealership has received certifications or “seals of approval” for sustainable practices or for the property, and you chose to advertise such certifications or seals of approval, the FTC may consider such advertisements endorsements, thus requiring additional disclosure. Dealerships will need to disclose any material relationship between the business and the organizations granting the certifications or seals, and disclose the basis for the certifications.
The FTC has demonstrated it is willing to actively pursue claims under Section 5 of the FTC Act against businesses that engage in unfair and deceptive trade practices even when consumers do not initiate complaints against the businesses. The FTC’s recent enforcement action against dealerships advertising negative equity claims is one example of this trend. You should consult the Green Guides to see whether the FTC may consider your current advertisements unfair or deceptive.