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Advertising, Marketing & Promotions Alert >> Auto Dealers Settle Deception and Fraud Claims as FTC Continues Its Focus on the Industry

April 9, 2015

The Federal Trade Commission (FTC) has reached settlements involving vehicle purchase add-ons and allegedly deceptive advertising by a number of automobile dealerships and an automatic payment company, highlighting the FTC’s continuing interest in the automobile industry and its focus on appropriate disclosures in advertising.

Add-On Cases
The federal Dodd-Frank Act grants the FTC authority over the business practices of automobile dealers, and now for the first time, the FTC has brought enforcement actions involving add-ons in the auto industry.

In one case, the FTC charged National Payment Network, Inc. (NPN) with violating the FTC Act by deceptively pitching, both online and through a network of authorized vehicle dealers, a biweekly auto-pay program that it claimed would save consumers money. However, according to the FTC, NPN failed to disclose the program fees, which in many cases negated any savings under the program, as well as the total amount of those fees.

Under the settlement, NPN may not advertise, among other things, that a payment program or add-on product or service will save consumers money, including interest, unless the amount of savings is greater than the total amount of fees associated with the product or service, or the qualifying information is “clearly and conspicuously” disclosed. In addition, NPN must substantiate any claims about the benefits, performance, or efficacy of any add-on product or service or any payment program. NPN agreed to not collect cancellation fees from consumers who have finished paying off their financing contract through NPN’s plan, and agreed to refund customers $1,526,000 and to waive an additional $949,000 in fees for current customers.

In a related case, the FTC alleged that Matt Blatt auto dealerships in New Jersey received a commission for each of the 1,000 plus consumers that they enrolled in NPN’s add-on service. The FTC alleged that the dealerships violated the FTC Act by failing to disclose or adequately disclose the fees associated with the NPN program, and that many consumers would not save money overall due to the program’s fees.

As part of the settlement, the Matt Blatt dealerships agreed to not advertise that a payment program or add-on product or service will save consumers specific amounts of money, including interest, unless the specified amount is the amount of savings after deducting any fees, or any qualifying information relating to savings is clearly and conspicuously disclosed. Like NPN, the Matt Blatt dealerships also agreed to not make any misrepresentations related to any add-on products or services, and that they would substantiate any claims about the benefits, performance, or efficacy of any add-on product or service or any payment program.

Deceptive Advertising Claims
Three auto dealers – Cory Fairbanks Mazda of Longwood, Florida; Jim Burke Nissan of Birmingham, Alabama; and Ross Nissan of El Monte, California – settled FTC charges that they ran deceptive ads in violation of the FTC Act, the Truth in Lending Act (TILA) and the Consumer Leasing Act (CLA). According to the FTC complaints, the dealers’ ads touted sales, lease, or financing options that seemed attractive, but the ads failed to disclose relevant terms, such as required down payments, or buried information that cancelled out many of the advertised benefits in fine-print disclaimers.

The FTC alleged, for example, that Cory Fairbanks Mazda had falsely advertised:

  1. Vehicle purchase prices;
  2. That advertised prices, discounts, rebates, bonuses, and incentives were available to all consumers;
  3. The prices for added features such as spoilers and sunroofs;
  4. That vehicles were available for sale or lease for zero down, zero payments, or zero interest;
  5. That vehicles were available for $99;
  6. and That consumers could pay $0 at the inception of a lease to lease the advertised vehicle for the advertised monthly payment amount.

The settlements that the dealers reached with the FTC bar them from falsely advertising the purchase cost or any other material fact about the price, sale, financing, or leasing of a vehicle. In addition, the settlements address the alleged TILA and CLA violations by requiring the dealerships to clearly and conspicuously disclose terms required by these rules.

Bottom Line

As pointed out last year (click here for more information), the FTC is focusing on motor vehicle advertising, including the accuracy, size, and the volume and cadence of disclosures used in ads. The newest actions clearly demon­strate that the FTC’s crackdown is continuing and that auto advertising remains an area of scrutiny.