Mazda to Pay $5.25 Million for Violating FTC and State Orders Regarding Lease Advertisements

Mazda Motor of America of Irvine, California, has agreed to pay a total of $5.25 million for alleged violations of a Federal Trade Commission order and state orders related to lease advertising for its cars and trucks. Under the agreement, Mazda will pay $4.05 million in civil penalties for allegedly violating a February 1997 FTC order, making this the largest civil penalty ever obtained by the Commission's Bureau of Consumer Protection. The 1997 order required Mazda to disclose important leasing terms clearly and conspicuously. The FTC found, however, that Mazda's television leasing ads continued making disclosures that were in small and unreadable print, offset by distracting images or sounds, or that appeared on the screen for too short a time. Mazda has also agreed to pay a total of $1.2 million in fines and costs to 24 states as part of the settlement.

"This substantial penalty should not only deter future violations of the Commission's order by Mazda, but send a strong signal to everyone in the automobile industry - manufacturers, dealers and advertising agencies - that important leasing information cannot be buried in fine print," Bureau of Consumer Protection Director Jodie Bernstein said when today's penalty was announced. "This information is vital to consumers who are thinking about leasing or purchasing a vehicle."

The 1997 FTC order required Mazda's print and television lease ads to "clearly and conspicuously" inform consumers of important leasing terms such as the amount due at lease inception, and prohibited the company from highlighting only the most attractive lease terms such as low monthly payments.

Under the 1997 FTC order, Mazda was prohibited in its lease advertising from:

1) misrepresenting the total amount due at lease inception; 2) disclosing any of the individual fees due at inception, except the monthly payment, more prominently than the disclosure of the total amount due at lease inception; and 3) stating the amount of any payment (or that no initial payment is required at lease inception) unless all of the following items are disclosed clearly and conspicuously, as applicable:

• that the transaction advertised is a lease;

• the total amount due at lease inception;

• that a security deposit is required;

• the number, amount, and timing of scheduled payments; and

• that an extra charge may be imposed at the end of the lease term in a lease in which the liability of the consumer at the end of the lease term is based on the anticipated residual value of the vehicle.

According to the FTC, even after agreeing to the 1997 settlement, Mazda continued to run lease advertisements that allegedly violated the order. Mazda has also agreed to settle similar allegations made by 24 states.

In addition to the civil penalty announced today, the FTC settlement prohibits Mazda from violating the Consumer Leasing Act and Regulation M. The Consumer Leasing Act contains statutory disclosure requirements established by Congress that govern consumer lease transactions and lease advertising, and Regulation M contains regulations developed by the Federal Reserve Board to implement the CLA.

The agreement also requires Mazda to provide its dealers with a consumer education brochure on vehicle leasing for distribution to consumers for one year, and to distribute copies of leasing and credit regulations and a business education pamphlet -- "Advertising Consumer Leases" -- to each of its dealers.

CONSUMER EDUCATION INFORMATION ON VEHICLE LEASING

With the announcement of the action in this matter, the FTC also reminds consumers of its educational material available on the subject of vehicle leasing, all of which is available on its web site at www.ftc.gov or by calling the Consumer Response Center at 1-877-FTC-HELP. This material includes the Consumer Alert "Look Before You Lease," that contains detailed information on the difference between leasing and buying a vehicle, factors to consider when deciding whether leasing is the right option for you, and tips to follow during the leasing process. Among these tips are:

• Shop as if you are buying a vehicle. Negotiate all the lease terms, including the price of the vehicle. Lowering the lease price will help reduce your monthly payments. In addition, get all the terms in writing;

• Learn the language of leasing. The Alert contains the definition of a wide range of terms, including: open- and closed-end lease, lease inception fee, capitalized cost, and capitalized cost reduction;

• Ask whether extra charges will be assessed for excessive mileage, wear and tear, disposition, or early lease termination, and find out the amount of these charges. Check out penalties for an early return, and expect to pay a substantial charge if you give up the vehicle before the end of your lease;

• Make sure the manufacturer's warranty covers the entire lease term and the number of miles you are likely to drive;

• Consider "gap insurance" to cover the difference between what you owe on the lease and what the car is worth if it is stolen or totaled in an accident; and

• Before you sign the deal, take a copy of the contract home and review it carefully - away from any dealer pressure. Be alert for any charges that were not disclosed at the dealership, such as conveyance, disposition and preparation fees.

In addition, the Alert contains a worksheet on Consumer Leasing Act disclosures to help consumers understand what their total costs are likely to be with regard to a particular lease arrangement. It also reminds consumers that federal law requires lessors to provide lease cost information before the lease is signed.

The Commission vote to approve the complaint seeking civil penalties and the settlement was 4-0.

The complaint and consent decree were filed in the United States District Court for the Central District of California on September 30, 1999.

NOTE: This consent decree is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent decrees have the force of law when signed by the judge.

Copies of the news release and legal documents related to this matter are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC Matter No. C-3714)