The promise of increased regulatiAutomotive Complianceon in the auto industry by Uncle Sam is coming true in 2014. The Federal Trade Commission’s (FTC) Operation Steer Clear is in full effect and the result of their first sweep has netted them 10 auto dealers charged with deceptive advertising practices in the first month of the year. If you weren’t listening before, now is the time to perk up, as a warning has been issued from Jessica Rich, the FTC’s director of the Bureau of Consumer Protection, that many more are to come.

 

In a press conference on January 9th of this year, Operation Steer Clear was announced. “Buying or leasing a car is a big deal, and car ads are an important source of information for serious shoppers,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “Dealers’ ads need to spell out costs and other important terms customers can count on. If they don’t, dealers can count on the FTC to take action.”

UNCLE SAM IS WATCHING YOUR EVERY MOVE

Auto dealers are under a lot of scrutiny to ensure they are compliant with all letters of the law. It all starts with the advertising that brings customers in the virtual or physical door, but also spans the range to include price quoting practices as they relate to credit information and the storage of customer’s private data. Issues regarding Privacy, FTC Safeguards Rule (dealer’s privacy, data protection, and data destruction practices), the Fair Credit Reporting Act, Equal Credit Opportunity Act (ECOA), Truth in Lending Act (TILA), Prohibition of Unfair and Deceptive Acts and Practices, and other federal and state laws are all at play and auto dealers need to be knowledgeable about them as well as institute best practices that they continuously train, monitor and audit their dealership on.

HOW TO MAKE SURE YOU ARE IN COMPLIANCE

Fortunately the FTC does provide some resources for guidance on automotive compliance that can be found on their Bureau of Consumer Protection Business website.  It’s a good starting point for staying up to date on laws as they pertain to the auto dealer in all their many forms.

Also worth bookmarking, a recently published list of the “DON’Ts” of ad-related practices that the FTC challenged as illegal in one or more of the cases in Operation Steer Clear as listed on the FTC’s blog, 8 Advertising Potholes Auto Dealers Should Avoid:

Deceptive pricing.  Some dealers lured prospective buyers onto the lot by advertising vehicles at a specific low price.  But the real price was $5,000 more.  (The complaint mentions that some of these ads involved a mix of English and Spanish.)

Deceptive teaser payments.  In some cases, dealers advertised attention-grabbing low monthly payments.  What they didn’t explain up front was that those were temporary teaser payments that would get jacked up after a short period.  The FTC says dealers didn’t state the number of payments and how much they would be after those first few low monthly payments.

Undisclosed balloon payments.  Another dealer advertised low monthly payments without clearly disclosing that buyers would owe a final balloon payment.  What’s more, the FTC says the dealer didn’t disclose the amount of that balloon – in this case, over $10,000.

False $0 up-front leasing claims.  Some companies advertised that consumers wouldn’t have to pay anything up front to lease a car.  Not true, says the FTC.  In fact, lurking behind those goose eggs were hefty fees and other amounts due up front.

Undisclosed lease terms.  The FTC says some companies touted low up-front amounts and low monthly payments in their ads without clearly explaining that the transaction was actually a lease and involved substantial hidden fees.

Hidden rates.  In one case, the FTC charged that the dealer claimed to offer 0% for 60 months.  But as it turned out, the rate applied only if people bought a new car for up to a certain dollar amount – in one instance $12,000.  If the car of a consumer’s dreams was, say, $18,000, the buyer would have to pay a higher rate, and that rate wasn’t clearly stated.

Bogus prize promotions.  One dealership used a mailer to get folks in the door, falsely claiming the consumer had won a sweepstakes prize.

Credit and leasing violations.  In many of the cases, the FTC charged that companies violated the Truth in Lending Act (TILA), Reg Z, the Consumer Leasing Act, and Reg M – long-standing laws that any dealer should be familiar with.  One common thread:  the failure to disclose key credit- or lease-related terms in ads.

To settle the FTC lawsuits, the companies have signed proposed orders that will change how they do business in the future.  Notable terms in these legally binding settlements:  a ban on ads that misrepresent the cost to buy, lease, or finance a vehicle and a prohibition on other deceptive claims about pricing, sale, leasing, or financing.  When charged in the complaint, the orders mandate that dealers abide by TILA and the Consumer Leasing Act.  Also forbidden:  bogus claims about sweepstakes, prizes, or other incentives.

TO SUM IT UP

It is important to evaluate your dealer advertising in all its formats; including internet, radio, social media, television, print, and mailers.  Dealer advertising should be based on guidelines for truthful, accurate, and verifiable claims that include proper disclosures, compliance with truth in lending and leasing, avoidance of deceptive trade practices, and other applicable regulations. If you are unsure about whether an advertisement is in compliance, it may be best to seek legal counsel or the assistance of an automotive compliance company with general counsel to advise you. At the penalty rate of $16,000 per incident for non-compliance, it seems well worth the investment.

Marketing agencies and other vendors can give the auto dealer advice and guidance on how to create compliant advertising programs, but at the end of the day, the dealer will be the one on the hook if something isn’t right. Here at Endless Resources, we stay up on the latest compliance guidelines and issues facing our industry and we advise clients on how to mitigate the risk of exposure, however, our advice and guidance does not replace that of legal counsel.

In a related case in California, a lender settled a credit discrimination action with the Department of Justice (DOJ).  The DOJ then identified the dealers that had originated the discriminatory contracts and brought an Equal Credit Opportunity Act (ECOA) credit discrimination violation against the dealer as well. The dealer did not receive any protection from the fact that the lender had settled.

As the saying sort of goes, “Crap rolls downhill”, so it would be wise to make sure all dealer advertising is in full compliance with all letters of the law.