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April 2, 2015
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Dealer Advertising: No More Excuses

There are no more excuses. Dealers have seen all the ongoing and very recent announcements from the Federal Trade Commission (“FTC”) imposing millions of dollars in fines, cease and desist orders, and promises by dealers not to violate the FTC’s advertising laws going into the future for as long as 20 years! Since 2012, the FTC has initiated 5 rounds of enforcement actions against 18 dealers in 12 states for an array of alleged advertising violations.  Two such rounds occurred this past December, one of which involved allegations of repeat violations (i.e., allegations that a defendant that previously entered into a consent order with the FTC to resolve alleged advertising violations engaged in subsequent violations) and resulted in, among other provisions, the payment by a dealership group defendant of a $360,000 civil penalty.

Even more recently, in late March, the FTC and 32 law enforcement agencies announced the results of Operation Ruse Control, which the FTC describes as a “nationwide and cross-border crackdown to protect consumers when purchasing or leasing a car.” According to the FTC, since January 2014, federal, state and local law enforcement agencies have collectively brought 187 enforcement actions in the United States and 65 enforcement actions in Canada against dealers (both licensed and unlicensed), dealer employees, service providers, auto lenders, auto title lending companies, auto loan modification companies, and others for a variety of civil and criminal charges. The charges include claims of deceptive advertising, automobile loan application fraud, odometer fraud, deceptive add-on fees, and deceptive marketing of car title loans.

While these FTC actions are not new found powers, for the last 25 years or more, the FTC has usually allowed the state Attorney General Offices to handle the enforcement of the FTC’s advertising laws and regulations. This would usually be based as part of their local enforcement of state consumer protection and advertising laws against businesses, including dealers. But not anymore. As the Internet has expanded the reach of dealerships across state lines, the FTC has found a renewed interest in teaming with state Attorney General Office’s to cite, and fine dealers for improper activity that is not only occurring locally, but being transported to consumers across state lines.

Free NADA Advertising Guide Issued

As a result of the FTC’s nationwide activities of intensified scrutiny of dealer compliance with federal advertising standards, in January 2015 NADA issued a new publication that would assist dealers in complying with federal advertising requirements on the sale, financing and leasing of vehicle products and services. To help assist dealers, dealer attorneys, ad agencies, and others involved in dealer advertising in understanding the wide range of federal requirements that apply to dealer ads, NADA recently released its latest compliance publication entitled A Dealer Guide to Federal Advertising Requirements.  This guide, which is available as a PDF, can be found on the home page of NADA, at www.nada.org. The user-friendly guide contains examples of “bad” and “good” ads, and includes short chapters on 41 federal advertising topics, such as the use of discount claims, email advertising, green marketing claims, internet advertising, satisfaction guarantees, and “trigger terms.”  A dealer can quickly access content on any topic by clicking on a hyperlink in the Table of Contents. The guide is a valuable resource for the entire auto industry. NADA is encouraging dealers to provide the free PDF publication to their advertising agencies, manufacturers, finance companies and others involved in advertising operations.

There are no excuses for not ensuring that a dealer’s advertising is in compliance with the FTC’s federal advertising laws and regulations. But it is important to note that while the guide addresses an array of federal advertising requirements, it does not address additional advertising requirements that are imposed at the Pennsylvania state level and need to be fully addressed when dealer ads are created and reviewed for legal compliance.

Also Available Free:  PAA Advertising Guide

The Pennsylvania Automotive Association (“PAA”) also has a second edition of its PAA Advertising Guide book for dealers, which is available to download free of charge from PAA’s “Members Only” section of its website at www.paa.org.  PAA worked in conjunction with the Office of the Attorney General to prepare its dealer advertising guide book, focusing on the law and its practical applications. This advertising guide is designed to provide dealers and their advertising agencies with guidelines for proper advertising practices. Samples of correct and incorrect advertisements are designed as building blocks to be used together to design an advertisement that meets the state and federal requirements regarding the corresponding issue or section.

No Excuses On Areas To Follow In Both Guides

Some of the issues that need to be applied from both the state and federal level include:

1. “Mouse Type” – Required disclosures may be made in smaller type than the main headline but must be clear and conspicuous. A dealer should base print disclosures on the size of the advertisement. For example, a difference of 30-point type for a headline and 6-point type for disclosures would be unacceptable.
2. Television and Radio – On television, disclosures must be large enough and remain on the screen long enough to be read by the average person. Television advertisements must be composed for normal rather than speed-reading. The radio equivalent of “mouse type” is “fast-talking.” The disclosures must be audible and understandable.
3. Internet Sales – All of the advertising requirements and recommendations apply to dealer promotions over the Internet, but new issues arise almost as fast as technology develops. The Internet combines aspects of print, television, and radio advertising in an interactive environment. When it comes to online advertising, the basic principles of advertising law apply: 1) advertising must be truthful and not misleading; 2) advertisers must have evidence to back up their claims; and 3) advertisements cannot be unfair. The dealer is responsible for the clarity and accuracy of the information presented, even if the website is designed and maintained by a third party. Advertising rules that apply to print advertising also apply to Internet advertisements. A dealer must be aware of all advertising rules when designing and advertising on a website.
4. Price Reductions – If an advertised price has been reduced in anticipation of a trade-in allowance, rebate or cash down, this fact must be disclosed within the advertisement. The advertised price cannot represent less than the total cash price to be paid by the customer. A set-off, discount, trade-in allowance or other such price reduction must be shown as a specific dollar reduction from the advertised price. The advertisement must also clearly disclose any cash or trade-in required from the customer.
5. Pay-Off Trade – Some dealer advertisements reflect that a trade-in vehicle amount will be paid off when a vehicle is purchased. The FTC clearly frowns upon such representations. A dealer may not advertise to a customer that a trade-in will be paid off as part of the current sale process, when that amount is actually added to the cash price or amount financed on the next purchase.

Keep in mind, a dealer is ultimately responsible for the content and presentation of its own advertising. The primary responsibility is to ensure that customers are provided with the necessary information to make an educated buying decision. The dealer, not the advertising agency or media provider, will be held accountable should a customer complaint arise. A dealer employee should always review a final draft of the advertisement for compliance with the law.

McNees Attorneys Are Available To Assist, So No Excuses

Dealers are strongly encouraged to provide the free, NADA PDF and PAA download publications to its staff overseeing the dealer’s advertising activities, any outside advertising agencies, and others involved in its advertising operations. Both of these guides are very comprehensive and emphasize the need to disclose the terms in a clear and understandable fashion. However, no guide can answer all advertising-related questions, so we are available here at McNees Wallace & Nurick, with our decades of advertising experience, to assist any dealer who has further questions on the requirements, ad structure and layout of dealer advertisements.

© 2015 McNees Wallace & Nurick LLC
AUTO NOTES is presented with the understanding that the publisher does not render specific legal, accounting or other professional service to the reader. Due to the rapidly changing nature of the law, information contained in this publication may become outdated. Anyone using this material must always research original sources of authority and update this information to ensure accuracy and applicability to specific legal matters. In no event will the authors, the reviewers or the publisher be liable for any damage, whether direct, indirect or consequential, claimed to result from the use of this material.