NADA Urges Dealerships to Get a Lawyer: FTC’s “Operation Steer Clear” is a Wake-Up Call for Auto Dealership Advertising

The Federal Trade Commission (FTC) was established to be a watchdog against businesses that may not have consumer-friendly business practices. In particular, it attempts to corral businesses that may not be entirely truthful or are misleading the average consumer, intentionally or otherwise. One of the FTC’s more recent projects is “Operation Steer Clear,” announced January 9, 2014, which focuses on automobile dealer advertising. The FTC describes the program as, “a coast-to-coast law enforcement sweep focusing on deceptive TV, newspaper, and online claims about sales, financing, and leasing.”

In order to sell vehicles, every dealership knows that you have to get the customer to the dealer. Generally, automotive dealerships do that by advertising their vehicles, providing special financing offers, giving incentives, or generally lowering prices. While all of these methods may seem acceptable, the FTC recently investigated and will potentially fine (in one case, up to $16,000 a day) ten dealerships who overstepped their bounds in advertising.* Those dealerships are not only involved in settlement negotiations with the FTC, but they are listed on the FTC’s website where FTC solicits public comments. Therefore, in addition to having a legal headache, the dealership’s reputation is permanently tarnished.

The dealerships involved in the investigation had locations across the country, including California, Georgia, Illinois, North Carolina, Michigan, and Texas. Violations ranged from failing to disclose lease terms (a violation of the Consumer Leasing Act and Regulation M) to failure to disclose credit-related requirements (a violation of the Truth in Lending Act and Regulation Z). At least one of these dealerships is also involved in a lawsuit at the state level.

One dealership advertised pricing that did not include the down payment. Another dealership advertised no down payment, but there were actually a substantial amount of one-time fees that the customer had to pay to acquire the vehicle. Still another dealer failed to disclose that their low monthly payments would eventually go up. One used a mailed “sweepstakes” to get customers in the door, but the customer did not actually “win” anything even though their mailer said otherwise. You can see samples of these advertisements here.

It is sometimes difficult to balance persuasive and effective advertising with advertising that complies with state and federal law. The FTC provides a list of “potholes” to avoid when considering your advertising and financing campaigns. They suggest avoiding deceptive pricing, including misleading “teaser” payments, undisclosed balloon payments, or hidden financing rates. While real prizes can be a great promotion, fake prizes are probably not a good idea. The FTC also suggests advertising should be upfront about lease terms and rates, thereby avoiding violations of the Consumer Leasing Act and the Truth in Lending Act.

The NADA stated that the FTC’s efforts “highlight the need for diligence by all auto retailers . . . [to] ensur[e] that their legal counsel review all advertising.” While the average dealership may know some of the nuances of these complicated federal laws, only experienced legal counsel will be able to ascertain whether your advertising conforms to both state and federal laws. Arenson Law Group, PC, plans to provide a “BrakeDown” of the need-to-know advertising laws that affect Iowa dealerships in its upcoming newsletter. If you are not already a subscriber, you can sign up here. You can also e-mail jarenson@arensonlaw.com or call 319-363-8199 for more information.

*The FTC and nine dealerships have settled these charges. You can find more information about their settlement here.