What Types of Ads Does the FTC Find Most Problematic
While “regulation by enforcement” essentially enables the FTC to claim that any advertisement is unfair or deceptive—even if no consumer has complained of any injury or harm—the FTC has certain hot buttons that seem to be present in many of their enforcement actions and consent decrees. Here are some that you may want to consider.
- Ads That Only Tell Part of the Story - If you make an unqualified statement in an ad but the terms only apply to higher-end models of the vehicle, a limited number of customers, or a small part of the credit period, the FTC will take notice. “Rebate stacking” falls in this category. Rebate stacking is when you combine multiple rebates (recent college grad, veteran, returning lessee, first time car buyer) that few, if any, customers can meet. If rebates are not universally available (e.g., a factory rebate on all sales of a vehicle model), you have to itemize and explain them so customers know what rebates they do and do not qualify for rather than assuming the combined rebate amount is available to them. Be transparent with credit terms too. One ad advertised a vehicle for $99 per month. An unreadable fine print disclaimer that blended into the background apparently disclosed that the $99 was only for the first two payments, after which the monthly payments rose to $529 for the remaining 70 months. Headlines that are contradicted by fine print disclosures are also considered to be deceptive by the FTC.
- Ads That Omit Truth in Lending or Consumer Leasing Act Triggered Terms - For a credit sale, if you advertise payment amount, down payment, number of payments or term, or finance charge, you have to include all of these terms plus the APR. Advertising the APR alone is not a triggering term. The other terms must be clearly and conspicuously disclosed in close proximity, not buried in a footnote. For leases, if you advertise the lease payment amount, term, the capitalized cost reduction or amount due at lese signing, then you must include the fact that the transaction is a lease, give the full amount due at lease signing or by delivery, the lease term and amount of all payments, whether a security deposit is required, and any back-end liability of the consumer. Many states also require you to include mileage and excess mileage fees. Whether or not triggered terms are clearly and conspicuously included in the ad (not buried in a footnote) are among the first things the FTC looks at in evaluating dealer advertisements. What gets dealers in trouble most often is advertising only the payment amount without the other terms or burying them in a mouse-type disclosure.
- $0 Down Headlines - A number of recent consent decrees have included bold headlines of $0 down, $0 drive-off or similar attention-grabbing claims below which are pictures of vehicles with attractive monthly payments. The problem is that the $0 down doesn’t apply to those vehicles displayed in close proximity but to some other vehicles not hi-lited in the ad. This may be buried in a small type footnote which is not sufficient because the FTC looks at the totality of the ad which leaves the customer with the impression that they can get the low vehicle payments with $0 down where the low payment vehicles typically require thousands in a down payment. By the way, $0 down is a triggering term for leases but not for credit sales.
- Internet Scroll Disclosures or Click Throughs - Consumers don’t read long flowing Internet scrolling disclosures. Required disclaimers should be made at the very top of the scroll and the scroll should be limited. Click throughs are allowed but not for material terms such as TILA or CLA triggered terms or terms that give the full story on advertised vehicles and terms. And the click through must go right to the disclosures, not to an inventory page or other dealer promotion. Pop ups are disfavored because many people block them. If you want to use a pop up, clearly state that the customer should click on the pop up for key disclosure terms relating to the ad, but be careful. Use pop ups only when the disclosures are too long to be included in the ad which should rarely happen.
- Poorly Presented Disclosures - Disclosures must be: i) Prominent (large enough and contrasting with the background so that the average consumer will see and read it—figure 8 point type as a minimum). Asterisks next to qualified terms should be at least 50% of the size of the qualified term; ii) Proximate (located close to the terms being qualified, never on a separate page and not in a small footnote at the bottom of the page or in the middle of a scrolling Internet disclosure); iii) Placement (in a location where an ordinary consumer will see it.) Avoid ‘See dealer for details.’; and iv) Presentation (language should be simple, concise and not long-running. Unambiguous short phrases. Audio disclosures must be in a volume or cadence that an ordinary consumer can hear and understand it). Plain English, not dealer-speak.
- Deceptive Pricing or Financing Ads - Ads that deceptively state price (one dealer advertised s vehicle with an attractive price but added an additional $5,000 down payment in a miniscule footnote); fail to disclose balloon payments at the end of a term of low payment amounts (a balloon payment is any payment more than twice the amount of the regularly-scheduled payment); bogus promotions or sweepstakes to lure consumers into the dealership ( one dealer mailed out scratch-off cards indicating everyone was a winner where no one was awarded a prize); or prescreening ads where a dealer is required to make the customer a “firm offer of credit” if the customer continues to meet the prescreen criteria given to a credit bureau (one dealer mailed out ads indicating everyone was pre-approved but did not follow specific procedures for prescreening and approved less than half of the customers for credit). Be careful with ads that are intended to lure customers into the dealership with false expectations like deceptive clearance or mark-down sales, promises to finance everyone, or other claims that consumers will find too attractive to resist until they get to the dealership and find it’s not true. The FTC considers these ads to be deceptive and legally actionable.
The FTC has imposed 20-year consent decrees on numerous dealers and fined two dealers sums of close to $100,000 and $200,000 for violating the consent decrees with what the FTC considered to be unfair and deceptive ads completely different from the ones that caused the original consent decrees. This occurred before the current penalty of up to $40,654 per day was implemented. Other FTC consent decrees have imposed six figure fines for other types of wrongful behavior.
Now is not the time to take chances with your advertising. Again, from what I am hearing from reliable sources, the FTC is being very aggressive right now in looking for the next round of dealer advertising. Have all your ads approved by attorneys or compliance professionals. Don’t rely on ad agencies, brokers, or other third party leads providers. The diligence you take now will be well worth it if you can avoid the FTC scrutiny that is going on nationwide.
Because of the general nature of this subject matter, this article does not constitute legal or compliance advice to any person but raises issues you may want to discuss with your