Hidden Triggers

As if more evidence is needed that dealers must give attention to FTC requirements to avoid a consent order, a company with three Kia dealerships in the southwest just agreed to an $85,000 civil penalty for violations of a consent order it signed just two years ago.

The dealers agreed in 2014 to the consent orders because of advertising violations. In the words of the agency:ftc-clr

But according to the FTC, Southwest Kia violated that consent agreement by: 1) running deceptive ads, showcasing eye-catching deals in the headlines that consumers couldn’t actually get, burying key terms in hard-to-read fine print, or, in some instances, not disclosing material conditions at all; 2) failing to include required TILA and CLA disclosures in a clear and conspicuous fashion; and 3) failing to maintain documents required by the original order, including complete versions of ads.

As we have noted before, do not engage in practices that will lead to an FTC complaint and resulting consent order. That will keep you under the FTC microscope for ten years and can lead to civil penalty demands of up to $40,000 per violation per day if you do not strictly comply.   Almost every advertising consent order that the FTC has signed with dealers includes requirements for complying with the Truth in Lending Act and the Consumer Leasing Act.  Dealers, their staff members in charge of advertising, and their advertising agencies must understand the advertising requirements of these two acts.

TILA and the CLA are federal statutes uncharacteristically straightforward in their provisions on advertising. Under each Act, if an advertiser uses a trigger term, then it must provide follow on disclosures.

Under the Truth in Lending Act, a trigger term is the amount of a downpayment; the amount of an installment payment; the number of installments (term); or the amount of any finance charge. If any is used, the dealer must then disclose the amount of the installment payment; the amount or percentage of the downpayment; the number of installments (term); and the annual percentage rate. If an annual percentage rate is advertised, it must be accompanied by “APR” or “annual percentage rate”.

Under the Consumer Leasing Act, trigger terms are the amount of any payment; the amount of any upfront payment; or that no downpayment is required. If any is used, that must be followed by the fact that the transaction is a lease; the total amount due at lease signing; if a security deposit is required the amount of the deposit or if no security deposit is required the statement “no security deposit is required”; and the number amounts, due dates or periods of scheduled payments.

While those requirements are clear, the fact that a trigger term has been used may not be. Often, dealers provide in advertisements information, disclosures, or descriptions without realizing they are trigger terms. We call those hidden triggers. What are some hidden triggers?

  • Buy a new car for as low as $99 a month. You may feel this is just general, standard information that you have vehicles available for payment buyers on a budget. Maybe, but the monthly payment is also a trigger term that requires follow on disclosures.
  • 9% APR financing available for up to 60 months. You may feel that “up to 60 months” is a disclosure to let customers know that if they want longer financing the lower rate may not be available. However, “up to 60 months” is the number of credit installments and is a trigger requiring follow on disclosures.
  • Buy a new car for as little as $99 down. You may feel this is a general, standard example of how little cash is required to buy a vehicle. However, the amount of the downpayment in a credit advertisement triggers the need for follow on disclosures.
  • 9% financing available. You have studied the TILA trigger terms closely. You understand that advertising a finance rate is not a trigger term. However, when you advertise a finance rate, that must be accompanied by “APR” or “annual percentage rate”.
  • No downpayment leases available. You may see this as an informational item to attract customers who don’t want to put cash down to drive a new vehicle. However, the fact that no downpayment is required is a trigger term requiring follow on lease disclosures. Also, if there is a reference to the amount due at lease signing, the total amount due at lease signing must be equally prominent in same type size and color and be immediately adjacent to the amount being qualified.

You may ask how to disclose the terms when several vehicles may be available at the advertised offer. You can use an example with the terms you are advertising. In fact, on monthly payment advertisements, some state laws require an example or the number of vehicles that may be available at that price.

The FTC has been hitting dealers hard on Truth in Lending and Consumer Leasing Act requirements. Beware of the hidden trigger terms that can get you on the wrong side of an FTC inquiry.