8 advertising potholes auto dealers should avoid

In a drive to encourage truth in auto advertising, the FTC has announced Operation Steer Clear – a coast-to-coast law enforcement sweep focusing on deceptive TV, newspaper, and online claims about sales, financing, and leasing.  If you have clients in the auto industry, the lessons of Operation Steer Clear can help keep them on the right track.

The companies named in the 10 lawsuits include four California dealers:  Casino Auto Sales in La Puente, Rainbow Auto Sales in South Gate, Honda of Hollywood in Los Angeles, and Norm Reeves Honda in Cerritos.  Also the subject of law enforcement action are Fowlerville Ford in Fowlerville, Michigan; Nissan of South Atlanta in Morrow, Georgia; Infiniti of Clarendon Hills in Clarendon Hills, Illinois; and Paramount Kia in Hickory, North Carolina.  In addition, the FTC took action against Texas-based Southwest Kia companies, including New World Auto Imports in Dallas, New World Auto Imports in Rockwall, and Hampton Two Auto Corporations in Mesquite.  A lawsuit against Courtesy Auto Group in Attleboro, Massachusetts is heading to trial before an Administrative Law Judge.

You’ll want to review the complaints to see the allegations in each particular case, but busy dealers can supplement their TO DO lists with these TO DON’TS, ad-related practices the FTC challenged as illegal in one of more of the cases:

Deceptive pricing.  Some dealers lured prospective buyers onto the lot by advertising vehicles at a specific low price.  But the real price was $5,000 more.  (The complaint mentions that some of these ads involved a mix of English and Spanish.)

Deceptive teaser payments.  In some cases, dealers advertised attention-grabbing low monthly payments.  What they didn’t explain up front was that those were temporary teaser payments that would get jacked up after a short period.  The FTC says dealers didn’t state the number of payments and how much they would be after those first few low monthly payments.  

Undisclosed balloon payments.  Another dealer advertised low monthly payments without clearly disclosing that buyers would owe a final balloon payment.  What’s more, the FTC says the dealer didn’t disclose the amount of that balloon – in this case, over $10,000.

False $0 up-front leasing claims.  Some companies advertised that consumers wouldn’t have to pay anything up front to lease a car.  Not true, says the FTC.  In fact, lurking behind those goose eggs were hefty fees and other amounts due up front.

Undisclosed lease terms.  The FTC says some companies touted low up-front amounts and low monthly payments in their ads without clearly explaining that the transaction was actually a lease and involved substantial hidden fees.

Hidden rates.  In one case, the FTC charged that the dealer claimed to offer 0% for 60 months.  But as it turned out, the rate applied only if people bought a new car for up to a certain dollar amount – in one instance $12,000.  If the car of a consumer’s dreams was, say, $18,000, the buyer would have to pay a higher rate, and that rate wasn’t clearly stated.

Bogus prize promotions.  One dealership used a mailer to get folks in the door, falsely claiming the consumer had won a sweepstakes prize.

Credit and leasing violations.  In many of the cases, the FTC charged that companies violated the Truth in Lending Act (TILA), Reg Z, the Consumer Leasing Act, and Reg M – long-standing laws that any dealer should be familiar with.  One common thread:  the failure to disclose key credit- or lease-related terms in ads.

To settle the FTC lawsuits, the companies have signed proposed orders that will change how they do business in the future.  Notable terms in these legally binding settlements:  a ban on ads that misrepresent the cost to buy, lease, or finance a vehicle and a prohibition on other deceptive claims about pricing, sale, leasing, or financing.  When charged in the complaint, the orders mandate that dealers abide by TILA and the Consumer Leasing Act.  Also forbidden:  bogus claims about sweepstakes, prizes, or other incentives.

The FTC is accepting comments about the proposed settlements by the February 10, 2014, deadline.

Time for a compliance tune-up?  Bookmark the Business Center’s Automobiles page for guidance on steering clear of deceptive practices.