MOTOR
VEHICLE ADVERTISING: GETTING BACK TO THE BASICS
By: Keith E. Whann
I recently wrote an article titled “A Quick Review of Direct Mail Advertisements
Can Prevent Unwanted Liability While Still Generating Dealership Traffic.”
It included a broad-brush look at issues that motor vehicle dealers should
be aware of before sending direct mailers to a list of “prescreened”
customers. One of the issues we briefly touched on was that any advertisement
that deals with the extension of credit, regardless of whether it appears
in the newspaper, on television, in a letter to a potential customer,
or on the dealerships’ store window, must comply with the Federal “Consumer
Credit Protection Act” and “Consumer Leasing Act” and their implementing
Regulations Z and M, more commonly known as the Truth in Lending and
Leasing Acts, and Ohio’s Consumer Sales Practices Act (CSPA). Given the
increasing number of motor vehicle dealers advertising that no down payments
are required and low interest rates or 0% financing are available and
the recent enforcement actions taken by the Ohio Attorney’s General Office,
this is a good time to get back to the basics and remind dealers about
their disclosure requirements.
The Federal Truth in Lending and Leasing
Acts are similar in nature to the extent that they list certain “triggering
terms” which create an
obligation on the advertiser to make additional mandated disclosures
in the advertisement. The disclosures are designed to insure that consumers
are provided with sufficient information to make an informed decision
when weighing the options of obtaining an item by cash, credit or through
a leasing arrangement. They must be clear and conspicuous and in close
proximity to the offer of credit.
Regulation Z governs advertisements
promoting a closed-end credit transaction (i.e. installment loans).
The triggering terms include:
1. The amount of the down payment;
2. The amount of any payment;
3. The number of payments;
4. The period of repayment; and
5. The amount of any finance charge.
If any of the above-listed triggering
terms are used in a closed-end credit advertisement, then the following
three disclosures must also
be included
in that advertisement:
1. The total down payment as a dollar amount
or percentage;
2. The terms of repayment/payment schedule; and
3. The “annual percentage rate,” using that term spelled out in full.
If the annual percentage rate may be increased after consummation of
the credit
transaction,
then that fact must also be disclosed.
The triggering terms defined
in Regulation M apply if an advertisement offers a product through
a leasing arrangement. The triggering terms
are:
1. The amount of any payment;
2. The number of required payments; and
3. A statement of any capitalized cost reduction or other payment
due (or that no down payment is required) at the beginning of the
lease.
If any of the above-listed triggering terms are used in a
consumer lease advertisement, then the following five disclosures
must also
be included
in that advertisement:
1. A statement that the transaction
advertised is a lease;
2. The total amount of any payment (such as security deposit
or capitalized cost reduction) required at the beginning of
the lease
or a statement
that no such payment is required;
3. The number, amounts, due dates, or periods of scheduled
payments, and the total of such payments under the lease;
4. A statement of whether the consumer has the option to purchase
the leased property and at what time and price (the method
of determining the price
may be substituted for disclosure of the specific price); and
5. A statement of the amount (or method of determining the
amount) of any liabilities the lease imposes upon the customer
at the
end of the
term
and, if the customer
has such liability, a statement that the customer shall be
liable for any difference between the estimated value of the
leased
property and
its realized
value at
the end of the lease term.
The triggering terms traditionally
utilized most often by the motor vehicle industry include payment
information and the
amount of
the down payment
or capitalized cost reduction. An advertisement should not
state that a specific
amount of credit, installment payment or down payment can be
arranged unless the dealership can, in fact, make those arrangements
for
consumers with
approved credit. Similarly, if a security deposit, first monthly
payment or any other
payment is required at the time of purchase or at lease inception,
the vehicle cannot be advertised as being available with “no
money down.”
With so many lenders offering low interest rates
and 0% financing for motor vehicle transactions, more dealers are advertising
the annual
percentage rate to attract customers to their dealerships.
While the annual percentage
rate
is not a triggering term under the Federal Acts, additional
disclosures may be necessary in order to comply with State
UDAP Statutes
and any Rules
promulgated
thereunder. State UDAP Rules dealing with Exclusions and
Limitations in Advertisements and the Advertisement and Sale of Motor
Vehicles
generally require that any
material limitations and exclusions that apply with respect
to the consumer’s ability to obtain credit must be stated
in close
proximity
to the words
stating the offer. For example, if a dealer has to pay a
fee to obtain a particular
financing rate, the advertisement should include a statement
such as “Dealer
contribution may affect consumer cost.”
According to State
UDAP Statute Substantiation Rules, motor vehicle dealers should also
be able to substantiate claims
set forth
in their advertisements
and should be prepared to present appropriate evidence
to a regulatory agency. Remember, when interpreting any representations
or claims
made in an advertisement
a reasonable consumer standard will apply. Dealer’s should
avoid using any type, style, size, layout or illustration
that
may
obscure any
fact or cause
an erroneous impression. Dealers should also be careful
not
to create, in the reasonable consumer’s mind, a false impression
about the quality,
usability,
or prior use of the vehicle. Finally, the State UDAP Statutes
and Advertisement and Sale of Motor Vehicles Rules require
that
any
material statements
made to a consumer in connection with a motor vehicle purchase
or lease transaction
must be integrated into the Retail Purchase Agreement or
Retail Lease Agreement, as appropriate.
On a final note,
dealers should remember that any direct mailers must comply with the
above described legal requirements
and,
if the mailers
are sent
to a list of “prescreened” customers, there are numerous
other laws a dealer should
consider, including the Fair Credit Reporting Act, the
Federal Privacy Laws and the Driver’s Privacy Protection
Act. For
example, the Driver’s
Privacy
Protection Act restricts the release of personal information
by the Bureau of Motor Vehicles (BMV) to those individuals
or entities
that
can demonstrate
they are obtaining the information for one of the fourteen
specified exceptions under which the information may
be used. Dealers who
obtain, disclose or
use personal information, either directly or indirectly,
for a purpose not permitted
under the Act could face a civil action and remedies
such as the payment of actual damages, not less than liquidated
damages
of
$2,500, punitive
damages, attorneys’ fees and litigation costs. It has
long been the law under most
State
UDAP Statutes that a statutory duty imposed on supplier
cannot be delegated to a third party. No matter what
type of third
party the
dealer uses
for assistance with advertising, the bottom line is that
it’s the dealer’s obligation to ensure
that the content and distribution of the dealership’s
advertisements comply
with the law.
The information contained herein has been
provided by Keith E. Whann of the Law Firm Whann & Associates,
LLC, and is for general information purposes only. You
should contact legal counsel for specific application.
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