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Three northern Virginia automobile dealerships and their CEO and president, Jerry C. Cohen, have agreed to settle Federal Trade Commission charges that they deceptively adver- tised their "optional payment" financing plan and engaged in other lease and credit advertising violations. Among other things, the FTC charged that many ads promoted low initial, monthly payments without adequately revealing the existence of mandatory balloon payments of thousands of dollars at the end of the payment term. The settlement would prohibit Cohen and the named dealerships -- Jerry's Ford Sales, Inc., John's Ford, Inc. (which does business as Jerry's Leesburg Ford), and Jerry's Chevrolet Geo Oldsmobile, Inc. -- from misrepresenting the terms of financing and require them to comply with federal credit- and lease-disclosure laws in advertising and in other aspects of their business.

The challenged advertising campaign appeared in The Washington Post, The Washington Times and The Loudoun Times Mirror, as well as in other area newspapers and media outlets in 1993 and 1994, the FTC said. According to the FTC complaint detailing the charges in the case, the ads failed to adequately disclose the existence and amount of balloon payments and misrepresented in fine print that such payments were optional. Some ads failed completely to disclose that the financing required a substantial, final balloon payment, the FTC alleged. According to the FTC staff, some balloon payments exceeded $12,000.

Challenged ads also inaccurately or inadequately disclosed the annual percentage rate (APR--the total cost of the credit) or other credit or lease terms associated with the financing or leasing plans they promoted, the FTC alleged. According to the FTC staff, some advertised rates understated the true APR by up to three percentage points. Additionally, the complaint states, some credit ads included terms such as the amount of the required downpayment, but did not also state the required disclosures, including the duration of the repayment period and the APR. In addition, the FTC alleged, some leasing ads stated the monthly payment amount but failed to state the required lease disclosures, including the amount of any downpayment or security deposit and whether the lessee has the option to buy the car and when.

The challenged ads violate one or more of the federal credit- and lease-disclosure laws -- the Truth In Lending Act (TILA) and the Consumer Leasing Act (CLA), and their imple- menting regulations -- and/or the Federal Trade Commission Act, the FTC alleged.

The proposed consent agreement announced today to settle these charges would prohibit the dealerships and Cohen from misrepresenting in any manner the terms of financing the purchase of a vehicle. It also sets out detailed requirements for the respondents to comply with these federal credit- and lease-disclosure laws and regulations. Among those requirements:

  • credit ads that state a rate of finance charge must disclose that rate as an APR and must accurately calculate that rate;
  • credit ads that state any number or amount of payments, the amount or percentage of downpayment, or the amount of any finance charge must also accurately, clearly and conspicuously state the amount or percentage of the downpayment, the terms of repayment (including any balloon payment), and the APR;
  • the respondents must actually arrange or offer any specific credit terms included in an advertisement;
  • lease ads that state the amount of any payment, the number of payments, or that any or no payment is required at the consummation of the lease must also state, clearly and conspicuously, that the transaction is a lease; the total amount of any payment required at consummation; the number, amounts, due dates or periods of scheduled pay- ments and the total of such payments; a statement as to whether the lessee can buy the leased property and when, and the price or method of determining the purchase price; and a statement regarding the amount or method of deter- mining any liabilities the lease imposes on the lessee at the end of the term; and
  • the respondents must make leases available at advertised terms.

Finally, the settlement contains various reporting and notification provisions.

The Commission vote to accept the proposed settlement for public comment was 5-0. It will be published in the Federal Register shortly and will be subject to public comment for 60 days, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.

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 viola- tion of such an order may result in a civil penalty of $10,000.

Copies of the complaint and proposed consent agreement, as well as an analysis of them to assist the public in commenting, are available 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 1-866-653-4261.

(FTC File No. 932 3340)

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