The FTC’s 7 Deadly Sins of Dealer Advertising
If you thought 2015 was active with the FTC’s “Operation Steer Clear” and “Operation Ruse Control” sweep of dealerships, this year promises more of the same: more 20-year consent decrees for misrepresentations, omissions, inconspicuous and contradictory qualifications to advertised terms, as well as for advertised terms not being available on all of the advertised vehicles – or to any but a few qualified consumers. With the FTC indicating that deceptive dealer advertising is a substantial problem, you can count on the fact that more enforcement actions are surely in the works. Keep the FTC’s seven deadly sins of dealer advertising in mind – now and in the future in order to protect your dealership.
1. Deceptive Pricing and Teaser Payments
One dealer advertised a vehicle for a price of $17,995, but disclosed elsewhere – and in a footnote – that a $5,000 down payment was also required. Another dealer advertised “$99 per month” but included in an unreadable footnote that after the first two payments, the amount for the remaining 70 payments jumped to $521 per month.
2. Undisclosed Balloon Payments
Low monthly payments that do not fully amortize the credit and require a large final payment, usually hidden at the bottom of a dealer ad.
3. False $0 Up-front Leasing Claims
“Lease for $0 down” is deceptive when fees and charges other than tax, title, and registration are due at lease signing.
4. Undisclosed Lease Terms
Many states also require disclosure of the mileage limits and overage charges and any back-end purchase option.
5. Hidden Rates
When a low APR is advertised, but the rate changes over time — and the changed rate is not clearly disclosed, or the low rate is not available to most consumers.
6. Bogus Prize Promotions and Sweepstakes
When used as a means to induce customers into the store. In one case, a mailing contained a winning scratch-off prize entry on every piece mailed, but no one was awarded any prizes. State laws govern sweepstakes and, as a general rule, you can’t make consumers come to the dealership to enter.
7. Violation of Federal Truth in Lending Terms
Mandatory “triggered” terms must be included in an ad when other “triggering” terms are listed, both for credit sales and leases. The leading triggering term is payment amount. For credit sales, the triggered terms are APR, payment amounts, down payment, and number of payments. For leases, triggered terms are the amount due at lease signing (all-in, except a notation that tax, title and registration are extra), the lease term, the payment amounts, whether or not a security deposit is required, and any back-end charges. All of the triggered terms except APR are also triggering terms requiring disclosure of all the rest of them.
In addition to these seven rules, note that the FTC is going to focus on digital and social media ads, in which the required disclosures are not clear and conspicuous on all capable mobile devices, such as smartphones. The FTC wants the disclosures to be in close proximity to the claims, disfavors scrolling, and does not consider pop-ups or hover-over disclosures to be clear and conspicuous.
For more about this topic and other F&I Compliance trends, order your free 2016 Compliance Guide.
Tags: F&I Compliance
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