With quarantines, closures, remote deliveries, fluctuating inventory levels, and the like, dealers have had to weather many storms during these past few months. As part of their adaptation, we have observed a change in the normal ebb and flow of dealer advertising.
During this same time, the FTC has also launched two different enforcement actions that involved advertising violation claims. In May, we alerted readers about the FTC announcing a settlement against a New York-based dealership and its general manager. Among the many claims were allegations of selling vehicles above advertised price, misidentifying vehicles as CPOs in advertisements, and failing to abide by the Reg Z disclosure requirements in advertisements. You can read more about this FTC action here.
In June, we wrote about the FTC action taken against a dealer marketing firm. The firm purportedly sent out mailers that led consumers to believe they would be able to obtain CARES Act stimulus relief in person at a certain designated site. The mailers also claimed that an “Economic Automotive Stimulus Program Relief Program” was approved by the U.S. government and included simulated checks inferring they were COVID-19 stimulus relief.
The FTC has now announced additional charges against that same marketing firm. The firm allegedly sent flyers to consumers containing matching numbers indicating that consumers won valuable prizes and that the consumers had to go to a car dealership to “claim” the prizes. However, there was only a 1-in-52,000 chance the consumer had actually won the valuable prize specified. You can read more about the additional charges here, and in the FTC Complaint.
In what I suspect is no coincidence, considering the totality of these circumstances, there has been quite an uptick in Hotline calls about advertising compliance. Accordingly, here are ten advertising tips based on some of the most frequently asked questions from these Hotline calls.
1. Expiration Dates
Always remember to have an expiration date on your ad. If there is no date stated, a customer can argue that he or she has the right to purchase the vehicle at the advertised price (at least within a reasonable time period after you run the advertisement). When it comes to advertising on your dealership website, consider having a disclaimer at the bottom of the webpage informing customers that advertisements expire at midnight.
2. No Untrue or Misleading Statements
If something isn’t true, or if it can be construed as misleading in any way, do not say it in your advertisements. Also, remember that reliance by a consumer and/or actual damages resulting from the false advertisement are unnecessary to prove an advertising violation. Here are some potentially problematic statements seen in advertisements by dealers in the past:
- Invoice price
- Dealer’s invoice
- Liquidation sale
- Wholesale price
- Easy financing
- Credit relief sale
- No credit? No problem
It is true that subjective claims, or puffery, are generally allowed in advertisements. However, claims that are quantifiable and verifiable (i.e., “the best gas mileage in its class” or “the faster car”) need to be true in order to be presented in the ad.
3. The Advertisement Cannot Be Misleading as a Whole
The “net impression” of the advertisement must not be misleading. Sometimes, the advertised statement may be literally true, but the general impression of the ad is misleading. In this connection, many attempt to combat this by having disclaimers/disclosures on their advertisements. However, any such disclaimer must be clear and conspicuous. When creating a visual disclaimer on an advertisement, remember the four Ps:
- Prominence (i.e., is the disclosure big enough to read?);
- Presentation (i.e., is the disclosure easy to understand?);
- Placement (i.e., is the disclosure in a place where people would look for it?); and
- Proximity (i.e., is the disclosure near the claim?).
4. No Guaranteed Trade-In Allowance
Dealers cannot advertise guaranteed trade-in allowance. Advertisements must not say things such as “we’ll pay off your trade no matter how much you owe” or “$1,000 guaranteed for your trade.” [Vehicle Code § 11713.1(l)].
5. Do Not Rebate Stack
Dealers should avoid “rebate stacking.” For those who are not familiar with the phrase, rebate stacking is when limited rebates are used in general offers that artificially lower the price or monthly payment of a vehicle for which very few, if any, consumers would qualify because they do not qualify for all the rebates or the rebates conflict with one another.
6. Remember Reg Z and Reg M Requirements
Remember to include all of the required finance and lease disclosures on advertisements. Regarding finance disclosures, Reg Z requires that if the downpayment, number of payments, amount of any payment, or the amount of any finance charge is advertised, then the advertisement must disclose all of the following: 1) the amount or percentage of the downpayment; 2) the terms of repayment (i.e., XX monthly payments of $XXXX per month per $1,000 financed); and 3) the annual percentage rate (APR). [12 CFR § 226.24(c); Vehicle Code § 11713.16(d)].
Regarding lease disclosures, Reg M and California Civil Code § 2985.71 require that if an advertisement of a closed-end lease states either 1) the amount of a payment, or 2) a statement of capitalized cost reduction (or other payment) required when the lease starts (or that no payment is required), then the ad must also state:
- That the transaction is a lease;
- The total amount due at signing;
- The total number of payments;
- Whether or not a security deposit is required;
- The total miles included during the lease term and the penalty per excess mile; and
- The statement “plus tax” after the monthly payment amount.
Be careful about using abbreviations, as there are certain statutory requirements that forbid using them. For example, when a price is advertised on a vehicle, you should use the standardized price disclaimer language in Vehicle Code § 11713.1(c)(2), which expressly states that the language must be without any abbreviations. Similarly, you must not abbreviate “on approved credit” or similar terms, as they must be stated clearly and conspicuously. Accordingly, abbreviations such as “OAC” cannot be used. [Vehicle Code § 11713.16(b)].
8. Downpayment Advertising
Scrutinize your downpayment advertising. A dealer cannot advertise that “no downpayment is required” or “$0 downpayment” unless it is actually true. This may be easier said than done, however, as it means that the dealer must ensure that nothing will be collected from the customer for the downpayment (i.e., no dealer document processing charge, tax, license, etc.). Similarly, we have seen advertisements offering both “$0 down” and a factory rebate. This could be construed as misleading if the customer is required to use the rebate in place of the downpayment.
9. No Free Goods or Services
Although many of you may know this already, dealers must not advertise or offer free goods or services conditioned upon the purchase of a vehicle. [Vehicle Code § 11713.1(h)]. Note that this prohibition does not apply to free goods or services as an incentive to visit the dealer. The prohibition also does not apply where goods or services are “included with the purchase” of a vehicle so long as these items are reasonably related to a vehicle sale (i.e., they should not be a free iPhone or a trip to Hawaii).
10. A Word on Open Recalls
Watch for open recalls that pop up on your new vehicle inventory. Many of you are already aware of the federal Motor Vehicle Safety Act prohibition against delivering a new vehicle with an open safety recall. Be aware, though, that California law prohibits advertising vehicles that are not for sale, and so a dealership must withdraw an advertisement within 48 hours of withdrawing a vehicle for sale. What this means is that if you have a new vehicle on your lot with an open safety recall, you must withdraw it from sale and must withdraw any advertisement for the vehicle until the recall is completed. [49 U.S.C. § 30120(i); Vehicle Code §§ 11713(b), (c), (i)].
We know that these times are hard, and everyone everywhere has been affected by this global pandemic. We are all in this together, and this too shall pass. Hotline clients are invited to contact us at (800) 785-2880 (then press “4” for hotline) or [email protected]. We are here to answer any questions you may have.