FTC’s “Operation Steer Clear” Targets Auto Dealers’ Deceptive Trade Practices

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.

FTC Continues Crackdown On Dealers

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.

FTC Enforcement Action Targets Dealership

This month the FTC issued a press release regarding recent enforcement actions against businesses for breaches in their processes to safeguard consumers’ information.  The press release is located here.  You may recall that the Gramm-Leach-Bliley Act (“GLB”) mandates businesses that collect nonpublic personal information, like social security numbers, implement processes to safeguard this information.  Your obligations under GLB include designating a person responsible for GLB implementation at the dealership, creating a written policy compliant with GLB requirements and continuous monitoring of your practices to detect safeguard breaches.  You are then obligated to record these breaches and adapt your processes to avert such breaches in the future. 

In this enforcement action, a dealership was found in breach of its obligations mandated under GLB because it failed to monitor its processes, thereby placing the information of 95,000 customers at risk of theft.  One claim of the dealership’s safeguards breach arose from the installation of a Peer-to-Peer (“P2P”) application on one of the dealership’s computers, which allowed a party to transfer nonpublic personal information from the dealership’s computers to an outside computer.  P2P applications range from music and photo sharing software to communication applications such as instant messaging clients (think America Online’s “AIM”) and Skype. 

Enforcement actions such as the one mentioned above are good reminders of why it is important to implement sound processes that comply with GLB, which include continuous monitoring and auditing by your personnel to detect security breaches.  Your GLB compliance efforts must also include review of what kinds of applications your employees install on your computers.  Some dealerships use these kinds of applications to communicate with customers in a more efficient manner, so an outright ban on installing these kinds of P2P applications may be impractical. Periodic audits of work computers may detect unauthorized applications, used either for benign purposes or for more illicit activities.  Expand your processes to include what kinds of safeguards you will put in place to detect safeguard breaches if you permit your employees to use P2P applications on work computers.