Deception! FTC Steps Up Advertising Enforcement

Recently, the Federal Trade Commission settled enforcement with five car dealers that ran ads in which they promised to pay off a consumer’s trade-in vehicle no matter what the consumer owes on the vehicle. The enforcement actions represent the first time the FTC has pursued dealers for such violations. Consumer advocates raised the misrepresentation alleged in these cases at the FTC’s 2011 public roundtables regarding consumer protection issues that may arise in the sale, financing or lease of motor vehicles.

The FTC charged that the ads, which the dealers ran on their Web sites and YouTube.com, deceived consumers into thinking they would not have to pay off the balance on their trade-in, even if it exceeded the trade-in’s value. Instead, the dealers rolled the negative equity into the consumer’s new vehicle financing or, in the case of one dealer, required consumers to pay it out of pocket.

Though no formal charges were ever brought against the dealers, nor any criminal proceedings, the FTC’s agreement with the retailers bar all of the dealers from making similar deceptive representations in the future. The cases are the first of their kind brought by the FTC. The Commission also issued a new consumer education publication titled “Negative Equity Ads and Auto-Trade-ins” to help consumers understand these types of ads.

The FTC pursued complaints against Billion Auto, Inc., in Sioux Falls, South Dakota; Frank Myers AutoMaxx, LLC, in Winston-Salem, North Carolina; Key Hyundai of Manchester, LLC and Hyundai of Milford LLC, in Vernon and Milford, Connecticut, respectively, and which advertise jointly; and Ramey Motors, Inc., in Princeton, West Virginia.

The FTC charged that the dealers’ representations that they will “pay off” what the consumers owe violate the FTC Act as false and misleading. Examples of the allegedly deceptive advertisements include:

“Credit upside down? Need a new car? Go to Billionpayoff.com. We want to pay off your car.” The advertisement depicts a car moving, inverts the video to depict it upside down, and then turns it right-side up again. (Billion Auto)

“Uncle Frank wants to pay [your trade] off in full, no matter how much you owe.” (Frank Myers AutoMaxx)

“I want your trade no matter how much you owe or what you’re driving. In fact I’ll pay off your trade when you upgrade to a nicer, newer vehicle.” (Key Hyundai and Hyundai of Milford)

“Ramey will pay off your trade no matter what you owe . . . even if you’re upside down, Ramey will pay off your trade.” (Ramey Motors)

In addition, three of the cases alleged violations of the Truth in Lending Act (“TILA”) and its implementing Regulation Z for failing to disclose certain credit-related terms, two of the cases alleged violations of the Consumer Leasing Act (“CLA”) and its implementing Regulation M for failing to disclose certain lease related terms.

The proposed orders settling the FTC’s charges against the dealers will prevent them from engaging in similar alleged deceptive advertising practices in the future. First, each order prohibits the dealer from misrepresenting that it will pay the remaining loan balance on a consumer’s trade-in, so the consumer will have no further obligation for any amount of that loan. The order also prohibits the dealer from misrepresenting any other facts related to leasing or financing a vehicle.

The proposed orders against these dealers require them to comply with TILA and Regulation Z, and to make clear and conspicuous disclosures when advertising certain terms related to issuing consumer credit. It also requires that dealers state any advertised finance charge as an “annual percentage rate” or as the “APR.” In addition, the proposed orders against Billion Auto, Key Hyundai, and Hyundai of Milford require these dealers to clearly and conspicuously make all lease related disclosures required by the CLA and Regulation M, including the monthly lease payment.