The FTC has new power under the Dodd Frank financial reform law to regulate car dealers. It is about to host its third, and final, workshop this month in an attempt to determine whether it wishes to propose greater regulation of the industry. However, it has also announced that it is not going to wait to ramp up its efforts to take enforcement action involving deceptive dealer advertising, especially on the internet. And it is probably most interested in dealer advertising of financing and leasing under the Truth in Lending Act.
The FTC has for some time had certain objectives for its advertising compliance efforts. These are: (1) the advertising must be truthful and not misleading; (2) advertisers must have evidence to substantiate (i.e., back up) their claims; and (3) advertisements may not be unfair. Under Regulation Z (which governs consumer credit sales) and Regulation M (which governs consumer leases) of the Truth in Lending Act (“TILA”), dealers’ advertisements must provide additional mandated disclosures for vehicle financing and leasing that contain “trigger terms”. Advertising on the internet is treated no differently than ads in print, radio, or television media.
“TRIGGER TERMS” FOR SALES AND LEASES
- In vehicle sale advertisements, a Regulation Z “trigger term” is:
- The amount or percentage of a down payment, (i.e., “10% down”, $1,000 down”, “90% financing”, trade-in with $1,000 appraised value required”); OR
- The amount or percentage of any payment, (i.e., “Monthly payments less than $250 on all our loan plans”, “Pay $23.44 per $1,000 amount borrowed”, “$210.95 per month”); OR
- The number of payments; OR
- The period of repayment, (i.e., “up to four years to pay”, “48 months to pay”); OR
- The amount of any finance charge, (i.e., “financing costs less than $300 per year”; “Less than $1,200 interest”).
If any Regulation Z “trigger term” is in a vehicle sales advertisement, then the following disclosures must appear “clearly and conspicuously” and in proximity to the trigger term in the advertisement.
- The amount or percentage of the down payment; AND
- The terms of repayment (i.e., the number amount and timing of payments); AND
- The “annual percentage rate,” which may be abbreviated as “APR”. Dealers also must disclose if an APR can be increased after the credit transaction is complete.
In vehicle lease advertisements, a Regulation M “trigger term” is:
- A statement of any capitalized cost reduction or other payment required before or at lease consummation, or by delivery if delivery takes place after consummation, or that no payment is required; OR
- The amount of any payment.
If any of the above Regulation M trigger terms appear in a vehicle lease advertisement, then the following disclosures must appear “clearly and conspicuously” and in proximity to the trigger term in the advertisement.
- A statement that the transaction advertised is a lease; AND
- The total amount of any payment (such as security deposit or capitalized cost reduction) required before or at the consummation of the lease, or by delivery if delivery takes place after consummation, or a statement that no such payment is required; AND
- The number, amounts, and due dates or periods of scheduled payments under the lease; AND
- Whether or not a security deposit is required; AND
- In leases where the consumer’s liability is based on the difference between the vehicle’s residual and its realized value at the need of the lease term, that an extra charge may be imposed at the end of the lease term.
“CLEAR AND CONSPICUOUS” DISCLOSURES
In traditional media, disclosures must be placed near the trigger term. Technological advancements provide options for placement of disclosures that are unique to internet advertising. Whether disclosures in vehicle advertisements meet the standard of “clear and conspicuous” depends on whether consumers actually perceive and understand the disclosure in the overall context of the vehicle advertisement.
What is Clear and Conspicuous?
With no set formula prescribed to determine whether a disclosure is clear and conspicuous, the FTC recommends that the following be considered:
- The placement of the disclosure in an advertisement and its proximity to the “trigger” term.
- The prominence of the disclosure.
- Whether there are items that distract and draw attention away from the disclosure in other parts of the advertisement.
- Whether disclosures in audio messages are presented in an adequate volume and cadence.
- Whether visual disclosures in televised messages appear for a sufficient duration.
- If the disclosure is understandable to the intended audience.
Proximity And Placement Of Disclosures
Although disclosures in traditional media must be placed in close proximity to the trigger term, internet advertising provides options that are not available in print media such as hyperlinks and scrolling (pop-ups and banners are additional options).
A hyperlink that leads to the disclosure when the cursor is placed on the trigger term is useful if the disclosure is lengthy or is repeated because multiple vehicles use the same disclosures. If hyperlinks are used to display disclosures within an advertisement, consider the following:
- The hyperlink’s label should make it not only obvious to consumers to click on it for more information, but it should also show the consumer that the hyperlinked information relates to the vehicle being advertised.
- Since different web sites use different signals for hyperlinks, dealers should use similar text, graphics, format and color throughout a single web page to for easier identification of hyperlinks by consumers.
- If you use a click-through page, it should display the complete disclosure prominently. It should not provide distracting visuals or extraneous information. Any “close” or “click-away” opportunities should be displayed discreetly and not blocking the disclosure information.
Remember to test any hyperlinks to be sure that they work properly.
If a consumer has to scroll to view a disclosure in its entirety, use text and visual design cues to indicate that scrolling is required. Text prompts such as explicit instructions should be used to alert the consumer that more information is available. Avoid placing disclosures at the bottom of the screen with blank space between the disclosure and the product because consumers may not continue reading or may not scroll to the bottom.