The Federal Trade Commission is using enhanced powers and funding from the Dodd-Frank financial regulation legislation to increase scrutiny of car dealers. One area of heightened focus is advertising. A dealer with an ad that appears on the FTC’s radar screen will probably regret it.
Violations can lead to a cease-and-desist order. Non-compliance with an order can be enforced by civil penalties of $16,000 per violation per day as well as federal court action and consumer redress.
Moreover, a dealer put under an FTC order will be closely monitored for up to 20 years to ensure continuing compliance with the law.
So what should a dealer do?
For one thing, make sure your managers and advertising agency review the rules.
Many dealers rely on managers and ad agencies to prepare copy. Dealers expect them to know what is legal and what is not. But is that a correct assumption?
Emphasize the importance of understanding what the FTC is looking for. A plain language document to help your managers and ad agency understand the requirements was developed by the Federal Trade Commission in conjunction with the Better Business Bureau.
It is entitled, “How to Advertise Consumer Credit and Lease Terms.” It is available at http://www.bbb.org/us/article/ftc--how-to-advertise-consumer-credit-and-lease-terms-4432.
The FTC is concerned that advertised claims are truthful and disclosures are clear and conspicuous. Those concepts can sometimes be subjective. However an area that is frequently involved in FTC dealer investigations that is not subjective is compliance with Truth in Lending Act advertising provisions.
Those rules are clear and straightforward. Here are tips to ensure you do not run afoul of those obligations.
Know the trigger terms in credit advertising. When advertising a vehicle, it is easy to stumble into using a trigger term. When you do, you then must make further disclosures under TILA. In advertising credit in connection with a vehicle, any of the following is a trigger term:
- The amount of the down payment (expressed as either a percentage or dollar amount).
- The amount of any payment (expressed as either a percentage or dollar amount).
- The number of payments or the period of repayment.
- The amount of any finance charge.
If you use a trigger term, you then must disclose:
- The amount or percentage of the down payment.
- The terms of repayment.
- The annual percentage rate, using that term or the abbreviation APR. If the annual percentage rate may increase after consummation of the credit transaction, that fact must be stated.
Be careful of hidden trigger terms. You will notice that the annual percentage rate is not a trigger term. Consequently, you can advertise rate, but if availability of the rate is somehow qualified, that disclosure may be a trigger term.
For example, the phrase “0.9% APR available” is not a trigger term under TILA. However, when that is qualified (as it should be under state statutes on unfair and deceptive acts and practices) to disclose limited availability, such as “0.9% APR available for up to 36 months,” the duration is a trigger term that requires full disclosures under TILA.
It is not just newspapers anymore. The FTC recognizes that dealers are moving their advertising from traditional media to the Internet.
As a result, the agency is giving special attention to online advertising, and so should you. Make sure Internet advertising follows all the rules of compliance applicable to print media.
If, like many dealers, you are using the Internet to deliver video messages, make sure your disclosures are as clear and conspicuous as they would need to be in any broadcast advertising.
Michael Charapp is a lawyer who represents auto dealers. Based in McLean, VA, he is at 703- 564-0220 and firstname.lastname@example.org