May 2022
By Michael G. Charapp
Charapp & Weiss LLP
Heightened regulatory scrutiny has many dealers legitimately concerned about enforcement actions against them for advertising violations. Advertising motor vehicles is more regulated than advertising for any other consumer product. There are many advertising requirements to which a dealer must give attention. Federal and state enforcement actions, however, have shown the areas in which regulators are most interested in enforcing the laws on motor vehicle dealer advertising. For dealers who wish to avoid regulatory attention to their advertising, here are the top five blunders that can lead a regulator to take an interest in a dealer’s advertising
- Violation of the Truth in Lending Act or the Consumer Leasing Act.
While there are many requirements to which a dealer must give attention, there is really only one area in which cut and dry requirements are fully set out in the law -- advertising credit sales and leases. TILA and CLA prescribe specific rules. If you advertise a trigger term you must make the follow-on disclosures.
A dealer’s failure to follow these rules is puzzling for regulators. They see it as a lack of concern about following the law. The dealership staff or the dealer’s advertising agency personnel can easily refer to the requirements of what must be disclosed and when. The problem is that when personnel do not give attention to these requirements, the FTC has “gotcha”.
Once the FTC (or other regulator enforcing the TILA and CLA rules) has a dealer on a clear-cut TILA or CLA advertising violation, it has leverage. It can then pressure a dealer to accept its more esoteric theories about what a motor vehicle dealer should not do in advertising. A perfect example is a recent consent order with a midwest dealer group. The group agreed to pay approximately $10 million in consumer relief and civil penalties. It had been charged with a variety of wrongful practices in selling financing and voluntary protection products. While those allegations were the headlines about the case, it also included charges that the dealer had TILA advertising violations. Since the amendment of the Federal Trade Commission’s enabling statute when the CFPB was created, the majority of consent orders involving motor vehicle dealers have included allegations of violation of the TILA or CLA advertising requirements.
We once again offer our federal advertising checklist. It provides a summary listing of the hot button issues federal regulators will look for in advertising by motor vehicle dealers. Use it as a reminder of what constitutes a trigger term and what follow-on disclosures must be made if you use one.
- Do not advertise a price you do not plan to honor.
For the FTC, offering a product at a price at which the retailer does not intend to sell it is the cardinal sin – bait and switch. That a dealer should not advertise a price at which it will not sell a vehicle may seem basic, but we are in unusual times. New car dealers are squeezed between franchisor co-op policies which require them to advertise MSRP if they are advertising a price and market values for certain vehicles which some buyers will use to buy a vehicle at MSRP and sell it for thousands of dollars in profit outside the dealer’s market. This has led a few dealers to advertise MSRP as the franchisor requires but to sell the vehicle at a higher price to a user in its market.
A dealer cannot do that. Once you list the MSRP as the price in the ad, the vehicle must be sold for that. Advertising a higher price may contravene franchisor coop policies, but the solution is not to advertise a price at which you do not intend to deliver the vehicle. Advertising the true selling price, or advertising the availability of the vehicle without listing the price, are two alternatives.
Some dealers believe that the problem may be solved with a disclaimer that they will not sell the vehicle for the advertised price. That is not a solution. A disclosure is used to explain an advertised term, not to negate it. Advertising a price and including a disclaimer that the buyer cannot purchase the vehicle for that price will be seen by a regulator as proof that the dealer was engaged in bait and switch tactics.
- Do not add fees not specifically allowed by law to the advertised price of a vehicle.
Most states allow certain specific fees that may be added to the price of a vehicle, usually a processing or doc fee and a pass through of the electronic titling fee. Any other fees, including the creative ones that emerge from 20 Group meetings, such as a salesperson commission fee, a dealer reconditioning fee, a record creation fee, or any other fee not specifically allowed by law is simply an invitation to a legal action for charging excessive fees.
Even when you may add to an advertised vehicle price, make sure that you will not be charged with double dipping. A perfect example is the addition of freight. Many states allow freight to be separately disclosed from the advertised price for a vehicle, but only if the advertised price does not include freight. If you advertise a vehicle at MSRP, that includes freight, so adding freight is double dipping (even if you discount the price of the vehicle). If you will advertise freight separately, do not advertise the MSRP of the vehicle as the offered price.
- Do not reduce a vehicle price with the benefits available under manufacturer programs unless the programs are available and the qualifications are disclosed.
Advertising a price reduced by manufacturer programs and using the disclaimer that “not all buyers will qualify” is a sure-fired way to tempt a regulator to act. The FTC has been emphatic that the requirements a buyer must meet to qualify for program benefits must be disclosed. Also, benefits from programs advertised together must be available together. For example, you cannot have first time buyer program savings combined with customer loyalty program savings to reduce the price of a vehicle.
- Properly describe and market used vehicles.
Be clear that a used vehicle is just that by calling it used or pre-owned. Correctly list its year, make, model and level of equipment. Be especially careful if you are selling a used vehicle with an open recall because a part or a fix is not available. According to the FTC, a vehicle with an open recall cannot be advertised with safety representations. You cannot certify it. You cannot claim it has passed a multi-point inspection. You cannot claim it is safe and reliable.
We once again call your attention to the federal advertising checklist. Use it to train your staff members in charge of your advertising, and make sure personnel at any advertising agency you may use have a similar resource.