FTC comes down on auto dealers, reminding dealers of the rules of on-line advertising

Published on

In a press release issued earlier this week (September 3, 2013), the Federal Trade Commission (FTC) stated that it has entered into a proposed consent decree with two franchised automobile dealerships for allegedly deceptive online advertising; one in the Cleveland area and the other in the Baltimore area.

The FTC’s lawsuit against Cleveland-based Ganley Ford West addresses claims the company made on its website and in local newspapers touting sizable discounts off the manufacturer’s suggested retail price — for example:

NEW 2013 FORD F-150
$12,000
OFF MSRP!

But the FTC says that when people tried to get the advertised discount, they learned the “$12,000 OFF MSRP!” deal was available only for a particular version of the vehicle, usually a pricey, tricked-out model. As the complaint explains, the only 2013 Ford F-150 available for $12,000 off the MSRP was the Ford F-150 Lariat, with an MSRP of $47,000. The deal wasn’t available for the less expensive ones — for example, the base model F-150 with an MSRP of $23,670.

The FTC’s complaint against Timonium Chrysler in Cockeysville, Maryland, also challenges allegedly deceptive online advertising. The dealership’s website featured specific “Dealer Discounts” or “Internet Prices.” For example, a 2013 Chrysler 200 Limited Sedan was advertised like this:

MSRP $27,320
Dealer Discount -$7,499
Internet Price $19,821

But the FTC states that this discount came with several restrictions that were not adequately set forth on the advertisement and was aggregated by adding a series of smaller discounts with unique and undisclosed qualifiers together. In particular, the FTC alleged: “In numerous instances, the advertised discount and price are subject to various qualifications and restrictions… for example, being a member of the military, being a recent college graduate, possessing a bank account at a particular bank, or owning a vehicle that has a lien on it. In numerous instances, even if consumers meet all of these qualifications or restrictions, they cannot obtain the advertised discount and price.”

Both companies have agreed to change how they do business and have signed proposed orders to make those promises legally binding. The orders prohibit them from claiming that a discount, rebate, bonus, incentive or price is available unless they clearly and conspicuously disclose all material qualifications or restrictions. That includes strings on who can get the deal and the cars or trucks it applies to.

The orders also ban misrepresentations about the existence or amount of any discount, rebate, bonus, incentive or price; the existence, price, value, coverage, or features of any product or service; how many vehicles are available at particular prices; or any other material fact about the price, sale, financing, or leasing of vehicles. The deadline for commenting about the proposed settlements is October 3, 2013.

This represents the FTC's most recent effort to crackdown on dealer online advertising. In California, District Attorneys have also been cracking down on dealer advertising. Auto Advisory reports that the Riverside District Attorney’s office has issued letters to every dealer in Riverside county regarding allegedly deceptive advertising.

The crux of the DA’s concerns are related to rebate advertising. The DA alleges that some dealers include limited rebates in advertisements to reduce the “net cost” of the vehicle. In their view, this is deceptive insofar as all consumers will not qualify for all rebates.

Some have reported that the Orange County and Los Angeles County DAs may soon be conducting similar investigations.

In light of these recent enforcement efforts, here is a quick reminder of your obligations in advertising vehicles for sale online.

Disclose the details of the deal. If the disclosure of information is necessary to prevent an ad claim from being deceptive, it has to be clear and conspicuous. When in doubt, use the same methods you employ to grab the attention of prospective customers. Here are some tips from the FTC:

  1. In a print advertisement, the disclosure shall be in a type size, location, and in print that contrasts with the background against which it appears, sufficient for an ordinary consumer to notice, read, and comprehend it.
  2. In an electronic medium, an audio disclosure shall be delivered in a volume and cadence sufficient for an ordinary consumer to hear and comprehend it. A video disclosure shall be of a size and shade and appear on the screen for a duration and in a location sufficient for an ordinary consumer to read and comprehend it.
  3. In a television or video advertisement, an audio disclosure shall be delivered in a volume and cadence sufficient for an ordinary consumer to hear and comprehend it. A video disclosure shall be of a size and shade, and appear on the screen for a duration, and in a location, sufficient for an ordinary consumer to read and comprehend it.
  4. In a radio advertisement, the disclosure shall be delivered in a volume and cadence sufficient for an ordinary consumer to hear and comprehend it.
  5. In all advertisements, the disclosure shall be in understandable language and syntax. Nothing contrary to, inconsistent with, or in mitigation of the disclosure shall be used in any advertisement or promotion.

In addition to the above, when discussing the “fine print” and the clear and conspicuous standard, FTC staff often refer to the “Four Ps”:

Prominence: Is the fine print big enough for people to notice and read?

Presentation: Is the wording and format easy for people to understand?

Placement: Is the fine print where people will look?

Proximity: Is the fine print near the claim it qualifies?

Best-case-scenario advertising can lead to a worst-case-scenario outcome for your business. As a general rule, when consumers see an advertised offer, it’s reasonable for them to conclude that’s what they’ll pay. If there are strings attached — either about who qualifies for the deal, how much they’ll pay, or what exactly is for sale — the advertiser has the obligation to explain that information in a way consumers will notice and understand. Failing to be upfront can earn you the ire of prospective customers and the unwanted attention of law enforcers.

Asterisks. Making an ad claim and then attempting to modify it by sending consumers elsewhere for the full story is risky business. Also iffy: fine print footnotes, dense blocks of text, and vague hyperlinks. The wiser practice is to put the explanatory info as close as possible to the triggering claim. The FTC issued additional comprehensive guidance in its .com Disclosures: How to Make Effective Disclosures in Digital Advertising.

Rebate advertising. Regarding rebate advertising, Auto Advisory recently reiterated the rules in California concerning good rebate advertising practices, as follows:

  • Advertising a dealer rebate is prohibited. And, technically speaking, so is advertising any rebate from any source other than a manufacturer and/or distributor. Only rebates offered by the manufacturer or distributor should be advertised. (Vehicle Code § 11713.1(j))
  • Rebates must be “expressed in a specific dollar amount.” This means phrases such as “Rebates up to $4,000” should be avoided. Instead, use phrases such as “Rebates such as $4,000 on all 2013 Chevy Volts.” (Vehicle Code § 11713.1(j))
  • Dealers may advertise the effect that one or more rebates may have on a selling price; however, dealers should follow these guidelines:
    1. The selling price of the vehicle must be shown and identified as the “selling price.”
    2. Each rebate must be listed and specifically identified.
    3. The phrase “Net Cost” or “Net Cost to You” should be stated next to the final price resulting from the equation.

Example:

2013chevy

[Reference: Vehicle Code § 11713.16(e)]

  • Advertising one price alone, qualified by a phrase such as “after rebate,” “includes rebate,” or similar words, is prohibited. (Vehicle Code § 11713.16(e))
  • Dealers should only include in the “net cost” formula those rebates that are available to all purchasers. Special and/or limited manufacturer rebates, such as “commercial rebates,” “owner loyalty rebates,” “college grad rebates,” “first time buyer rebates,” “active duty military rebates,” etc., should not appear in the “net cost” formula. Although this practice is not specifically prohibited by statute or regulation, AAS and others recommend against including limited rebates in the net cost formula in order to avoid possible consumer confusion.

It is perfectly acceptable to advertise these types of limited rebates outside of the “net cost” formula. In other words, limited rebates can be mentioned as being available in a section of an advertisement, just not in a formula used to reduce the net cost of a vehicle. But, if you do advertise limited rebates, be sure to follow these guidelines:

    1. The limited rebate must be clearly and conspicuously identified by a name that is reasonably likely to notify eligible consumers. In other words, using a label such as “Active Duty Military Rebate” is good. However, using an acronym such as “ADMR” may not be.
    2. The limited rebate must be “expressed in a specific dollar amount.”
    3. Be sure to include all qualifying criteria in the disclaimer (i.e., state how customers qualify for the limited rebate). As with all disclaimers, special rebate disclaimers should be “clear and conspicuous.”