The Federal Trade Commission seems to be cracking down on false or exaggerated advertising, as it recently called into question ads from a group of five dealerships around the country. And Tom Hudson, of Hudson Cook, believes other dealers should take heed.

The FTC charged that the ads — which ran on the dealers’ websites, as well as on sites such as YouTube.com — “deceived consumers into thinking  they would no longer be responsible for paying off the loan balance on their trade-in, even if it exceeded the trade-in’s value.”

“Instead, the dealers rolled the negative equity into the consumer’s new vehicle loan or, in the case of one dealer, required consumers to pay it out of pocket,” FTC officials continued.

Basically, the FTC contends that in these ads, the dealerships promised to pay off a consumer’s trade-in no matter what the consumer owed on that particular unit.

And the story that evolved can perhaps serve as a cautionary tale to rooftops all over the U.S.

The dealers named in the FTC’s complaints, Billion Auto, Inc., in Sioux Falls, S.D.; Frank Myers AutoMaxx, LLC, in Winston-Salem, N.C.; Key Hyundai of Manchester, LLC and Hyundai of Milford LLC, in Vernon and Milford, Conn. , respectively, and which advertise jointly; and Ramey Motors, Inc., in Princeton, W.Va., all agreed to the FTC’s orders that require them to stop running ads.

"Buying a new car or truck is a major financial commitment, and the last thing consumers need is to be tricked into thinking that a dealer will ‘pay off’ what they owe on their current vehicle, when they really won’t," said David Vladeck, director of the FTC’s Bureau of Consumer Protection.

"The Federal Trade Commission is constantly on the lookout for potentially deceptive ads, and brings actions to stop them when appropriate,” he further stressed.

Violations

The FTC noted that the proposed settlements, reached as part of the FTC’s ongoing efforts to protect consumers in financial distress, “bar all of the dealers from making similar deceptive representations in the future.”

Interestingly, these cases are the first of their kind brought by the FTC, the organization noted.

In response to the case, the FTC also issued a new consumer education publication titled "Negative Equity Ads and Auto-Trade-ins" in an effort to help consumers understand these types of ads.

Delving into the specifics of the dealers alleged violations, the FTC stressed that “despite the dealers’ claims, consumers still end up being responsible for paying the difference between the trade-in loan balance and the vehicle’s value.”

Moreover, the complaints charge that the dealers’ representations that they will "pay off" what the consumers owe are false and misleading, and violate the FTC Act.

And that’s not all. Complaints in three of the cases “allege violations of the Truth in Lending Act (TILA) and its implementing Regulation Z for failing to disclose certain credit-related terms, and the complaints in two of the cases allege violations of the Consumer Leasing Act (CLA) and its implementing Regulation M for failing to disclose certain lease related terms,” officials explained.

The commission also provided the following examples of the allegedly deceptive ads:

•    "Credit upside down? Need a new car?  Go to Billionpayoff.com.  We want to pay off your car."  The advertisement depicts a car moving, inverts the video to depict it upside down, and then turns it right-side up again.  (Billion Auto)

•    "Uncle Frank wants to pay [your trade] off in full, no matter how much you owe." (Frank Myers AutoMaxx)

•    "I want your trade no matter how much you owe or what you’re driving.  In fact I’ll pay off your trade when you upgrade to a nicer, newer vehicle."  (Key Hyundai and Hyundai of Milford)

•    "Ramey will pay off your trade no matter what you owe . . . even if you’re upside down, Ramey will pay off your trade."  (Ramey Motors)

Proposed Orders

The FTC then went on to highlight what could potentially be required of the charged dealerships.

Officials explained that the commission’s actions are designed to prevent the dealers from engaging in “similar deceptive advertising practices in the future.”

The first proposed order prohibits the dealer from misrepresenting that it will pay the remaining loan balance on a consumer’s trade-in, so the consumer will have no further obligation for any amount of that loan.

Moreover, it also prohibits the dealer from misrepresenting any other facts related to leasing or financing a vehicle, the FTC explained.

Next, the proposed orders require each of the dealers to  keep copies of relevant advertisements and materials substantiating claims made in their advertisements, and to provide copies of the order to certain employees.

And per the proposed orders, each of the rooftops are required to file compliance reports with the FTC to show they are meeting the terms of the orders, which will expire in 20 years.

And for Billion Auto, Key Hyundai, Hyundai of Milford, and Ramey Motors, they will also be  required to comply with TILA and Regulation Z, and to make clear and conspicuous disclosures when advertising certain terms related to issuing consumer credit.

“It also requires that if any finance charge is advertised, the rate must be stated as an "annual percentage rate" or as the ‘APR’,” officials added. “In addition, the proposed orders against Billion Auto, Key Hyundai, and Hyundai of Milford require these dealers to clearly and conspicuously make all lease related disclosures required by the CLA and Regulation M, including the monthly lease payment.”

FTC will publish a description of the consent agreement packages in the Federal Register shortly, officials noted.

“The agreements will be subject to public comment for 30 days, beginning today and continuing through April 16, after which the commission will decide whether to make the proposed consent orders final,” they added.

And this issue seems to be a hot topic of discussion for the commission.

The misrepresentation alleged in these cases was one of the topics raised at the FTC’s 2011 public roundtables regarding consumer protection issues that may arise in the sale, financing or lease of motor vehicles .

“For many consumers, buying or leasing a car is their most expensive financial transaction aside from owning a home.  As the nation’s consumer protection agency, the Commission is committed to protecting consumers in connection with these financial transactions,” officials asserted.

Avoiding this Growing Issue

And in light of this growing issue, Auto Remarketing contacted Tom Hudson, partner at law firm Hudson Cook, regarding how dealers can avoid this situation, as well as gain awareness of the logistics involved.

When asked how dealers can avoid the FTC’s scrutiny, Hudson responded that educating a rooftops’s staff is the first step.

"My first suggestion is that a dealer should supply a copy of the FTC’s press release and the enforcement documents to his or her lawyer and ask the lawyer to review all the dealer’s current ads to make sure that they don’t contain the sorts of statements that the FTC has found objectionable," Hudson stressed.

He then went on to explain that the FTC is not a dealerships’ only concern when it comes to advertising, especially in light of the Consumer Financial Protection Bureau’s recent organization.

"As for tips, dealers should be aware that the FTC isn’t the only concern that they should have when it comes to advertising – state attorneys general have dealer ads squarely in their sights, as well," Hudson noted.

"Dealers subject to the jurisdiction of the new Consumer Financial Protection Bureau can expect the Bureau to be interested in this topic, too," he added.

And though the aformentioned case dealt with dealerships misleading consumers to think they would pay off their vehicle loans, this is not the only thing to watch out for.

"And it isn’t just negative equity misrepresentations – any ad that is misleading is a potential enforcement target," Hudson asserted.

He also stressed the fact that anything a dealership puts out there, whether it be in print or online, is being regulated.

"Dealers need to understand that ads (all ads, including anything on the Internet or put out using social media) are regulated by the feds and by the state.  If a dealer can’t afford to have a lawyer review every ad, the dealer should at least request the lawyer to draw up guidelines for ad content and to review the guidelines occasionally to keep them current," Hudson concluded.