Saturday, March 17, 2012

Why is the FTC Messing With Dealers?

Since the news broke earlier this week about the FTC citing 5 auto dealers for deceptive advertising, I’ve been asked a number of questions by folks in the industry. Here’s my take on the situation:

What’s the big deal about advertising that the dealership will pay off a trade-in no matter what the customer owes? It’s a true statement.

The problem is not so much what the ads say, but what they don’t say. As far as regulators are concerned, if an ad doesn’t explicitly state that any negative equity will be added to the loan balance, it’s deceptive. While it may seem obvious to us that the customer is responsible for negative equity, some consumers (and lawmakers) apparently think that these advertisements imply that the dealer will buy the trade for the amount the customer owes, regardless of its real value.

Some basic principles that regulatory agencies consider are 1) advertising is considered deceptive if the advertisement has a “tendency or capacity to mislead the public”; 2) if an ad is deemed deceptive, an advertiser has liability regardless of whether there was intent to deceive and; 3) statements susceptible to both a misleading and a truthful interpretation will likely be construed to be deceptive.

We always fully disclose negative equity on our contracts and leases, why isn’t that good enough?

If regulators feel that the first contact with a consumer is secured by deception, a violation may occur even though the true facts are made known to the buyer before he or she enters into a purchase or lease. Since statements and representations in advertisements are evaluated based on their tendency to deceive, no actual harm to consumers need occur for there to be a violation.

Dealers have been using this type of advertising for years – did the FTC recently change the rules?

No, these types of incomplete statements about paying off trade-ins have been considered deceptive for a long time by both federal and state regulators, so this is nothing new. Bear in mind that the fact that others were, or are, engaged in like practices is not considered a defense.

As to why the Feds decided to take action against dealers now - your guess is as good as mine. The FTC has been threatening to step up enforcement against dealers for the last year or so, but to be honest; I’ve been a bit skeptical. The Feds have traditionally gone after bigger fish and left car dealers to state regulators. So, while this action may just be a flash in the pan, it can also be a major game changer.

How do we avoid this happening to us? I mean, if the regulators decide to go on a witch hunt, they’re going to get you one way or another.

I disagree. Again, the violations the FTC cited are not new or surprising to anyone who understands advertising regulations. If you have ever read or listened to my ramblings in the past you know that I have a tendency to harp on two issues - Education and Due Diligence.  Please forgive me for once again repeating myself, but this is important:

Protect yourself by doing the following:

·         Ensure that any member of your staff involved with advertising is properly trained in all applicable regulations.
·         Never assume that your ad agencies or vendors know, or are following, the rules. If you write the check, you’re responsible.
·         If you’re not sure, don’t guess! Have your advertisements reviewed, and edited if necessary, by someone knowledge before publication (this should done for all of your advertising including websites, YouTube, social media, etc.). It may cost a few bucks, but it’s a small price to pay.