FTC Goes After Misleading Dealer Ads

The Federal Trade Commission is aggressively pursuing car dealers who allegedly run deceptive ads.

The agency has taken 17 enforcement actions in the past 18 months resulting in consent decrees lasting 20 years, which is like being on parole for two decades.

This year, the regulator launched a national campaign called Operation Steer Clear described as a “coast-to-coast law enforcement sweep focusing on deceptive TV, newspaper and online claims about sales, financing and leasing.”

The FTC also has filed 10 lawsuits against dealers in seven states. The agency vows more action is to come with fines of up to $16,000 per advertising piece sent or conceivably the number of online views.

“It’s an unprecedented number of enforcement actions,” says Randy Henrick, associate general counsel for DealerTrack, an information and technology-services company. “The FTC believes deceptive dealer advertising is a significant problem.”

The regulator considers deceptive ads as containing representations or omissions that are likely to mislead a “reasonable” consumer, meaning not the smartest and not the dumbest, Henrick says.

“The basic question is whether the act or practice is likely to affect the consumer’s conduct or decision,” he says during a DealerTrack webinar entitled “The FTC’s Impact on Dealer Advertising and How Dealers Can Avoid Deceptive Ad Practices.”

The FTC has identified several practices it considers taboo. Those include deceptive pricing, deceptive teaser payments, undisclosed balloon payments and lease terms, false no-money-upfront leasing claims, hidden rates and bogus contests in which consumers must go to the dealership to see what they might have won, if anything.

“One dealer ran a mail sweepstakes, and nearly every piece contained a ‘winning entry,’ but no prizes were awarded to any consumer,” Henrick says.

That dealer ended up on the losing end when the FTC took action.

Also on the commission’s hit list are ads that claim a dealership will pay off a trade-in’s outstanding loan, regardless of how much is owed.

Common sense would dictate no dealer who plans to stay in business would do that. And none do. In reality, the claim involves rolling a trade-in’s loan balance into a new loan that includes financing for a purchased vehicle. It becomes two loans in one.

Included in deceptive pricing are advertised discounts that in fact only apply to a limited number of high-priced fully loaded models in stock.

A dealership got in trouble for advertising $99 a month payments on a new Kia and failing to make clear the attractive rate only was for two months, followed by 70 monthly payments of $521.

Another ad that came under fire offered a used Ford Focus for 25% off the manufacturer’s suggested retail price. But used car prices are determined by residual values, not new-vehicle MSRPs, Henrick notes.

He cites another egregious ad that touts $17,995 for a fully loaded used Chevrolet Tahoe, but didn’t mention the need for an additional $5,000 as a downpayment. Including that, the real price was $22,995.               

Dealers should take care in their use of ad-copy footnotes, Henrick says. “The FTC hates footnotes. It heavily scrutinizes them and is very skeptical of them. Footnotes can explain but never contradict the main text.”

Unacceptable is small print that requires a magnifying glass to read or is otherwise difficult to read. He points to an ad disclosure that consisted of white print on off-white background.

Disclosures the FTC considers acceptable are in readable-type size and located close to the advertised terms they refer to. “Having disclosures in small print at the bottom of the page may not be acceptable and having disclosures on another page of a brochure is not acceptable,” Henrick says.

Also likely to get a dealer in trouble is the liberal use of the word “free” in ads and running a stock photo of, say, a 13-year old car when it was new and shiny rather than a picture showing how it looks now as a used vehicle on the lot.

The Internet may have ushered in a brave new world, but the same rules apply to online advertising as elsewhere, Henrick says. “The FTC staff trolls the Internet looking for deceptive ads, especially on social-media sites such as Facebook, Twitter and YouTube.”

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