Careful Out There, Feds Increase Ad Oversight

The Federal Trade Commission’s mission is far-reaching. Here are answers to dealers’ questions.

Michael Charapp

December 18, 2012

3 Min Read
Careful Out There, Feds Increase Ad Oversight

The Dodd-Frank financial-reform legislation created the Consumer Financial Protection Bureau, but exempted franchised dealers from its direct oversight, except under limited circumstances.

That doesn’t mean dealers walk away free. As a trade-off for exempting dealers from the bureau’s regulation, Dodd-Frank expanded the powers of the Federal Trade Commission and directed that agency to intensify its oversight of dealer activities.

In March, the FTC issued administrative complaints and consent orders involving five dealers who had used some variation on the advertising claim of paying off customer trades-ins no matter how much was owed.

The FTC said these dealerships led consumers to believe they were free of obligations, even negative equity on their trade-in vehicles.

The FTC charged these claims were unfair and deceptive because deficiency balances were actually rolled into new loans. These cases signal the FTC will use its expanded authority to more closely scrutinize dealer advertising.

The FTC’s consumer-protection mission is wide-ranging. It likely will look at any number of advertising claims.

Those include offers that seem too good to be true; use of Truth in Lending Act or Consumer Leasing Act “trigger terms” without required disclosures; aggressive offers where conditions are not clearly and conspicuously disclosed; and bait-and-switch tactics.

Here are questions and answers involving what dealers should be doing.

Q: I have always carefully reviewed every newspaper ad I place. What should I change?

A: Historically, dealers have concentrated on compliance of their newspaper ads. However, the FTC is as aware of the changing advertising environment as anyone. Newspapers no longer are the dominant advertising medium. Look at all your advertising.

Q: We have cancelled most of our print advertising since we provide so much information over the Internet. Why should we be concerned?

A: Many dealers do not recognize that the Internet is an advertising medium. All advertising requirements apply to Internet postings. Internet ads must be truthful and substantiated, and disclosure of conditions on offers must be clear and conspicuous. 

Q: We do radio advertising during expected busy sales periods.  How can those ads come to the attention of the FTC?

A: Complaints usually provide the basis for investigations. Most complaints to regulators come from dealership competitors, not customers. The FTC has always been concerned with radio advertising that fails to disclose terms and conditions at a spoken pace that will allow a reasonable consumer to understand what is being said. If it receives a complaint, the FTC may subpoena radio stations that carry your ads.

Q: We always make sure our TV ads contain written disclaimers. Will we be OK?

A: It depends. TV ad disclosures should be in type large enough to be seen, in a contrasting color to the background and visible for a sufficient time so that a viewer can reasonably read them.

Q: We use vendors to do our direct mail advertising. If there is a problem, isn’t it their concern and not ours?

A: Because of a previous lack of direct-mail oversight, don’t be surprised if the FTC starts looking at this area of marketing. And don’t expect to escape because you use a third-party direct-mail company. Your dealership is the advertiser against whom the FTC will take action.

Michael Charapp is a lawyer who represents auto dealers. Based in McLean, VA, he is at (703) 564-0220 and [email protected].

Read more about:

Subscribe to a WardsAuto newsletter today!
Get the latest automotive news delivered daily or weekly. With 5 newsletters to choose from, each curated by our Editors, you can decide what matters to you most.

You May Also Like