On January 9, 2014, the Federal Trade Commission (“FTC”) announced settlements with nine automobile dealers relating to the advertising of auto sales and leases, one of the largest actions taken by the FTC against automobile dealers: http://www.ftc.gov/news-events/press-releases/2014/01/ftc-announces-sweep-against-10-auto-dealers.
The settlements included one or more of the following issues related to the advertising of auto financing or leases. All consumer products or services companies that offer consumer financing for their products, either directly or through resellers, should pay close attention. The FTC found all of these advertising practices to violate Section 5 of the FTC Act:
- Down payments. Dealers advertised various claims of low or zero down payment options to consumers; however, consumers were actually required to pay a substantial amount at lease signing.
- “0% APR.” Even though dealers disclosed in the fine print that the claim of “0% APR” advertised did not apply for financing above a certain threshold (i.e., “[i]f more than $12,000 is financed, then the 0% goes to .9% on approved tier one credit.”), the FTC found that the advertisements failed to clearly state that if consumers financed more than a certain amount of money, they would be charged a higher APR and that was a deceptive practice.
- Purchase Price. Again, even though dealers disclosed in the fine print that the price included a down payment, the FTC found that the advertisement of a purchase price without the inclusion of the down payment amount was a deceptive practice.
- Low Monthly Payment. The FTC found advertisements suggesting to consumers that they could lease a car for $99 per month to be deceptive when that payment amount was available only for two months and the advertisement did not clearly disclose the payments for the remainder of the term.
- “Match and Win.” A match and win game presented three winning numbers and a series of boxes that potentially matched the winning numbers; however no consumer has been able to claim a prize from this contest. This contest was considered to be a deceptive practice by the FTC.
In addition to the above, the dealers were often found to have failed to provide appropriate disclosures for claims that included “trigger terms” under the Truth in Lending Act or the Consumer Leasing Act.
This sweeping settlement should put dealers and manufacturers offering consumer financing on notice that the FTC is monitoring their advertising practices, including practices at a local level, and taking a harsh view of what is disclosed in the fine print, as we have blogged about previously.