Auto Dealers Settle FTC Charges that Internet Ads Hid True Costs of Leasing

Auto dealerships in Colorado, New York and Pennsylvania and their individual owners have signed agreements with the Federal Trade Commission to settle charges that they ran deceptive lease advertisements on the Internet and failed to disclose the true costs of vehicle leasing, in violation of federal laws. The proposed settlement agreements signed by the dealerships and their principals -- the first FTC cases to focus primarily on Internet lease advertisements -- require clear and accurate cost information in lease ads to avoid misleading offers and to assist consumers in comparison shopping and making informed vehicle decisions.

R.N. Motors, Inc., Red Noland Cadillac, Inc., and their owner, Nelson B. Noland (together "Red Noland") -- of Colorado -- and Simmons Rockwell Ford Mercury, Inc., Simmons Rockwell Autoplaza, Inc., Don Simmons, Inc., and their owners, Donald M. Simmons II and Richard L. Rockwell (together "Simmons Rockwell") -- of New York and Pennsylvania -- advertised auto lease costs on Internet Web sites. According to the FTC, the ads either failed to reveal the true lease costs, including costs due at lease inception, or buried key cost information in inconspicuous or unreadable fine print, depriving consumers of essential terms of the deal. The FTC charged that such advertising practices were misleading, in violation of the FTC Act, and also violated the Consumer Leasing Act (CLA).

Internet vehicle advertising is surging. "More and more auto dealers are providing information to consumers on the Internet," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "Internet vehicle advertising can be very useful to consumers -- allowing them to comparison shop among many offers without leaving home. But the advertised terms must not be misleading, and the key costs must be clearly disclosed. Otherwise, vehicle advertisers are breaking the law, and these violations will not be tolerated."

According to the FTC complaints detailing the charges against Red Noland and Simmons Rockwell, both companies advertised low monthly costs for auto leasing. But, the ads failed completely to disclose, or hid in fine or unreadable print, significant costs in addition to the monthly costs -- such as amounts due at lease inception that could be $2,000 or more.

Specifically, the FTC alleged that Red Noland and Simmons Rockwell failed to disclose or failed to disclose adequately, additional costs in its lease offers, such as the total amount due before lease inception, including that additional costs of taxes, licenses or registration fees are required, and/or that a security deposit is required for the lease. In addition -- and in the FTC's first case concerning lease rates -- the complaint against Red Noland also alleged that their ads offered lease rates to consumers, but failed to state, in violation of federal law, that those rates may not measure the overall cost of financing the lease. Further, the FTC charged that Simmons Rockwell promoted credit terms in its print ads, but omitted altogether other important finance terms, such as the monthly payments, or stated them in blurry, unreadable print, in violation of the Truth in Lending Act (TILA).

The proposed consent orders would bar Red Noland and Simmons Rockwell from misrepresenting the costs or terms of vehicle leasing, including the amount due at lease inception. The orders also would bar the companies and their owners from disseminating lease promotions that state payment amounts, or state that any or no initial payment is required at lease signing or delivery, unless the ads also clearly and conspicuously disclose other key lease information, such as the total amount due at lease inception. Red Noland also would be barred from promoting a lease rate without also stating that the rate may not measure the overall cost of financing the lease. The orders would also require the dealerships and their owners to comply with all requirements of the CLA and its implementing Regulation M. In addition, Simmons Rockwell would also be prohibited from making certain credit offers in advertisements, without providing consumers with other key cost disclosures, such as the terms of repayment and the Annual Percentage Rate, and would also be required to comply with all requirements of the TILA and its implementing Regulation Z.

The Commission vote to approve the consent agreements for public comment was 5-0.

An announcement regarding the proposed consent agreements will be published in the Federal Register shortly. The agreements will be subject to public comment for 30 days, until May 30, after which the Commission will decide whether to make them final. Comments should be addressed to the FTC, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.

NOTE: These consent agreements are for settlement purposes only and do 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.

Copies of the complaints and consent agreements and an analysis to aid public comment, 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; toll free at 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.

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(FTC File Nos. 992 3237 (Simmons Rockwell), and 992 3246 (Red Noland)