On Thursday, the Federal Trade Commission (FTC) announced settlements with various automobile dealers in “Operation Steer Clear,” which the FTC touts as a nationwide sweep of false advertising claims against dealers.
What standards did these auto dealers collide with?
The FTC alleged various misrepresentations in its complaints against the dealers (“alleged” because these cases were voluntarily settled, not adjudicated). These alleged misrepresentations, inaccuracies, and false statements were found in print, Internet, and video advertisements. Wherever you advertise, accuracy and compliance with various consumer protection regulations are advisable.
Many of the alleged violations were for statements that were obviously false, like advertising the vehicle for $5,000 less than the offering price or falsely asserting that consumers had won sweepstakes prizes they could collect at the dealership. Assuming the allegations are true, these merchants had to know their statements were untrue. I’m sure none of my readers commit that type of obvious misrepresentation, so I’ll focus on the advertising violations that are perhaps a bit more subtle.
The more subtle (alleged) violations involved requirements found in federal leasing and financing laws – i.e., the Truth in Lending Act and its implementing regulations (Regulation M for consumer leasing and Regulation Z for consumer lending). Under these laws, when certain terms are contained in advertising (so-called “triggering terms”), other terms must necessarily also be included in the ad.
Standards for Advertising Credit-Related Terms
For advertising related to consumer credit, Reg. Z requires that, if ANY of the following “triggering” terms are advertised:
- amount or percentage of down payment;
- number or period of payments;
- amount of any payment; or
- amount of finance charge . . .
. . . then ALL of the following “triggered” terms must also be included in the advertisement:
- amount or percentage of down payment;
- terms of repayment; and
- annual percentage rate (“APR) (and, if the rate may be increased after consummation, that fact).
Many of the automobile dealers caught up in Operation Steer Clear had triggering terms in their ads, but failed to include the triggered terms. This included dealers (allegedly) failing to disclose that the low monthly payments they advertised were temporary “teaser” payments that would go up quickly after purchase and dealers advertising reasonable monthly payment amounts without disclosing a $10,000 balloon payment at the end of the financing term.
Lessons for B2C Businesses
You may not be an automobile dealer, but this FTC enforcement action illustrates an important point for any B2C endeavor: those providing goods and services to consumers need to be aware of and compliant with the laws that apply to your particular industry, including laws relating to advertising, or risk costly enforcement actions from regulators or consumers.
Many businesses – from financial institutions to home improvement contractors – are subject to specific regulations that impact their advertising. It’s usually less costly to figure out how to comply with the law ahead of time than to defend against an alleged violation after the fact. Compliance requires both knowing which laws apply to what you do and doing what those laws require.
This is one of the primary services I provide my clients – determining which laws apply, then applying them to my clients’ specific facts to provide guidance on how my clients can avoid the headaches that come with non-compliance (I also defend them when non-compliance is alleged). That said . . . .
Covering my bases: There is no legal advice contained in this post. Legal advice entails applying the law to specific facts. I don’t know what your facts are and any resemblance to them here is purely coincidental. Instead, this post is meant to provide general information, which may or may not be complete and accurate. If you need legal guidance, please feel free to contact me using the contact information on my firm’s web site – www.westbendlaw.com.