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| Agency: Federal Trade Commission
Date: 23 January 1997 |
These cases follow on the heels of five other recent FTC actions involving lease ads announced in November against major automobile manufacturers.
“We are monitoring automobile ads very closely to ensure that the terms they offer for financing and leasing deals are accurate, readable, and understandable,” said Jodie Bernstein, Director of the FTC’s Bureau of Consumer Protection. “It’s against the law to bury cost terms in unreadable fine print and certainly to misrepresent the APR or other key terms. We intend to continue our efforts to eliminate these problems in car ads because they prevent consumers from comparison shopping for affordable deals.”
These cases involve federal laws and regulations that govern advertising for financed purchase plans and for leasing plans and require advertisements containing certain “triggering” terms -- such as down payments or monthly payments -- to disclose accurately, clearly and conspicuously certain other major terms of the deal. The Truth In Lending Act (TILA) and its implementing Regulation Z require that ads for financed purchase plans using a triggering term also state the amount or percentage of the down payment, the terms of repayment, and the APR, which measures the true cost of the financed purchase. The Consumer Leasing Act (CLA) and its implementing Regulation M require that ads for leasing plans that contain a triggering term also state certain major terms of the offer, including the fact that the deal is a lease; the total amount of any payment required at lease inception; and the number, amount and timing of scheduled payments. These laws are designed to help consumers easily compare the various finance and lease plans being advertised before they head out for the dealerships.
The FTC alleged in the cases announced today that many challenged ads also misrep resented certain terms or their availability to consumers, in violation of the Federal Trade Commission Act (FTC Act), which prohibits unfair and deceptive practices.
The settlement in this case challenges advertising by Herb Gordon Auto World, Inc. and the seven dealerships where it sells Dodge, Mercedes-Benz, Nissan, Oldsmobile, and Volvo new cars as well as used cars in Maryland. According to the FTC complaint detailing the charges, Herb Gordon’s "Gold Key Plus" advertisements, which ran in The Washington Post, touted low monthly payments and, in extremely fine print that was virtually unreadable and incomprehen sible, described a fee of several thousand dollars as a "purchase option." In fact, the FTC alleged, the "purchase option" was a mandatory balloon payment due at the end of the initial payment term. Misrepresenting the steep final payment violated the FTC Act, the agency charged. Moreover, under the TILA and Regulation Z, such a payment should have been clearly and conspicuously disclosed. In addition, the FTC charged, the Gold Key Plus ads failed to disclose the APR for the financing, another violation of the TILA.
Another series of ads challenged by the FTC in this case promoted Herb Gordon’s "Drive for 95" campaign for a financing plan that involved lower monthly payments for an initial period and higher payments for the balance of the payback period. These ads allegedly misrepresented and failed to accurately disclose the amount of the higher, second series of installment payments, in violation of the FTC Act and the TILA. In addition, the FTC charged, a disclaimer regarding the second series of payments was buried in fine print or aired so quickly that it was virtually incomprehensible. The ads also failed to include all of the cost disclosures required under TILA, the FTC charged.
The FTC also took issue with Herb Gordon leasing ads, alleging that they included triggering terms but not all the required disclosures of lease costs and terms under the CLA.
Under the proposed consent agreement Herb Gordon Auto World and the dealerships have signed to settle the FTC charges, they would be barred from obscuring important cost information in a blur of fine or otherwise unreadable print and from advertising financed purchase or leasing terms that are not available to consumers. The order specifically would require that the respondents make all the disclosures mandated by the TILA, Regulation Z, CLA and Regulation M, and that those disclosures be readily noticeable, readable (hearable for radio ads), and comprehensible to an ordinary consumer. The settlement also would bar the respon dents from misrepresenting the terms of financing or leasing any vehicle, and the existence or amount of any balloon payment or the existence, number or amount of payments for financed purchases. If an APR may be increased after consummation of the financed purchase deal, the ad would be required to state that fact.
In this case, handled by the FTC’s Seattle Regional Office, the settlement with Huling Bros. Chevrolet, Inc., Huling Buick, Inc., and Huling Bros. Chrysler/Plymouth, Inc. would resolve charges that the respondents’ advertising understated the true APR for their financed purchase deals or failed to state the APR at all, even though a triggering term appeared in the ads, defeating the purpose of the APR as a means for assisting consumers in comparison shopping. In addition, the FTC challenged Huling Bros.' advertisements that allegedly included conflicting monthly payment amounts for the same transaction and that touted terms of repayment or APRs that actually were not available to consumers. The FTC also challenged ads that offered “Col lege Graduate” or “1st Time Buyer” rebates in conjunction with a payment plan that involved low payments for an initial term and payments approximately double that amount thereafter. In fact, the FTC charged, the rebates were not available to purchasers who chose this “Half Payment Program.”
The proposed consent agreement in this case would bar the respondents from making misrepresentations of the type detailed in the complaint, including misrepresentations about the terms of financed deals, the APR, the amount of any periodic payment, the availability of any advertised credit terms, the sale price or the availability of any rebate. The settlement also would require them to calculate the APR in accordance with Regulation Z and to include in a clear and conspicuous manner all the disclosures required by law when a triggering term is used.
The Commission votes to announce these two proposed consent agreements for public comments were 5-0. A summary of the agreements will be published in the Federal Register shortly. They then will be subject to public comments for 60 days, after which the Commission will determine whether to make the order final and binding on the respondents.
NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.
Two FTC consumer pieces offer tips for consumers in the market for a new car. "Look Before You Lease" is an alert that explains some of the common terms used of leasing, and discusses the various costs involved in a lease, some of which may be unfamiliar to many consumers. It also includes a form that consumers can take to a dealership to get detailed information about these costs. The FTC’s "New Car Buying Guide" offers tips on service contracts and credit insurance, and discusses terms such as "invoice price," "base price," and "Monroney sticker price" to assist consumers in getting the best deal.
Copies of these consumer pieces, as well as the complaints, proposed consent agreements and analyses of the agreements to assist the public in commenting in the Herb Gordon and Huling Bros. cases are available on the FTC’s web site at http://www.ftc.gov and also from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 202- 326-2502. Consent agreements subject to public comment also can be obtained by calling 202-326-3627. To find out the latest FTC news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
(FTC File Nos.: Herb Gordon--942 3114; Huling Bros.--952 3009)