The Federal Trade Commission penalized a pair of dealership groups for violations of a previous consent order regarding advertising the cost of buying or leasing a vehicle.

Part of the consent orders established in March 2012 indicated FTC officials could inspect any advertising material distributed by Billion Auto — a chain of 20 family-owned dealerships in Iowa, Montana and South Dakota, and a family-controlled advertising company, Nichols Media — as well as Ramey Motors and three affiliated dealerships in Virginia and West Virginia.

Last week, the agency announced that Billion Auto and Ramey Motors violated of those FTC administrative orders, which prohibit the dealerships from “deceptively” marketing elements to making a vehicle purchase such as down payments and annual percentage rates.

FTC officials said Billion Auto and Nichols Media have agreed to settle charges that they violated a 2012 FTC administrative order. That order prohibits Billion Auto, and any companies in active participation with it, from misrepresenting material costs and terms of vehicle finance and lease offers and requires specific disclosures, mandated by the Truth in Lending Act (TILA) and Regulation Z, and the Consumer Leasing Act (CLA) and Regulation M.

The Billion Auto defendants agreed to pay $360,000 in civil penalties to settle the FTC’s charges.

According to the complaint against Billion and Nichols, the dealerships and advertising company violated the 2012 FTC administrative order by frequently focusing on only a few attractive terms in their ads while hiding others in fine print, through distracting visuals, or with rapid-fire audio delivery.

“For example, some dealership ads promoted low monthly payments or attractive annual percentage rates and finance periods, while concealing other material items, such as low payments were for leases, not sales,” FTC officials said. “Major limits existed on who could qualify for discounts, and offers often included significant added costs.”

In a separate action seeking civil penalties, the FTC charged Ramey Motors with violating a similar 2012 FTC administrative order.

Among other things, the FTC contends Ramey Motors’ ads allegedly misrepresented the costs of financing or leasing a vehicle by concealing important terms of the offer, such as a requirement to make a substantial down payment.

The complaint also charges Ramey Motors with failing to make credit disclosures clearly and conspicuously, as required by the TILA. The FTC also alleges that the dealer group failed to retain and produce appropriate records to the commission to substantiate its offers.

Ramey Motors and its affiliates are subject to $16,000 in civil penalties for each alleged violation of the FTC administrative order.

The FTC vote to refer the Billion complaint and proposed stipulated order to the Department of Justice for filing was 5-0. The Justice Department filed the complaint and proposed stipulated order on behalf of the FTC in the U.S. District Court for the Northern District of Iowa last Thursday.

The FTC vote to authorize filing the complaint against Ramey Motors was 5-0. It was filed in the U.S. District Court for the Southern District of West Virginia last Thursday.

“If auto dealers make advertising claims in headlines, they can’t take them away in fine print,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “These actions show there is a financial cost for violating FTC orders.”

Consent Order Background

Back in March 2012, Billion Auto and Ramey Motors and three other dealerships agreed to FTC settlement orders that require them to stop running ads in which they promise to pay off a consumer's trade-in no matter what the consumer owes on the vehicle.

The consent order associated with both Billion Auto and Ramey Motors indicated an “advertisement” shall mean a commercial message in any medium that directly or indirectly promotes a consumer transaction.

The FTC insisted that those ads contain “clearly and conspicuously” elements, with five associated mandates:

— 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.

— 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.

— 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.

— In a radio advertisement, the disclosure shall be delivered in a volume and cadence sufficient for an ordinary consumer to hear and comprehend it.

— 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.

Furthermore, the consent order mandated the stores stop two other practices regarding trades, including:

— Misrepresent that when a consumer trades in a used vehicle in order to purchase another vehicle, the dealer will pay any remaining loan balance on the trade-in vehicle such that the consumer will have no remaining obligation for any amount of that loan.

— Misrepresent any material fact regarding the cost and terms of financing or leasing any newly purchased vehicle.