FTC Agreements Prohibit Agencies from Misrepresenting Leasing Costs in Future Ads
Three national advertising agencies have signed agreements with the Federal Trade Commission to resolve charges that they violated federal laws through certain car lease advertising. The settlement agreements are part of the FTC's continuing law enforcement and consumer education effort aimed at lease advertising in the automobile industry. Previously, the Commission announced settlements with seven major auto manufacturers and a number of dealerships for misrepresenting, hiding, and failing to disclose adequately the true terms of their advertised automobile lease and credit deals. The ad agencies involved in the settlements today -- Grey Advertising, Inc. (Grey); Rubin Postaer and Associates, Inc. (Rubin Postaer); and Foote, Cone & Belding, Inc. (FCB) -- developed and disseminated allegedly deceptive "zero down" and "penny down" lease advertisements for Mitsubishi Motor Sales of America, Inc. (Mitsubishi); American Honda Motor Corporation (Honda); and Mazda Motor of America, Inc. (Mazda), respectively. These agencies have agreed to disclose adequately critical leasing information in future ads.
"Our previous law enforcement efforts produced important, substantial results for consumers wishing to lease a car," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "Communicating this critical but complex leasing information, however, requires just the kind of creativity ad agencies are great at -- that community will now be commited to carrying out its independent legal responsibilities apart from its clients to ensure that consumers are provided with readable and understandable disclosures of essential lease terms."
The FTC's prior cases against auto manufacturers and dealers, and today’s cases against the advertising agencies, allege violations of federal laws and regulations that require lease and credit advertising containing certain "triggering" terms -- such as downpayments or monthly payments -- to disclose clearly and conspicuously certain other essential "triggered" terms of the deal. The Consumer Leasing Act (CLA) and its implementing Regulation M, which govern lease transactions, require that ads for lease transactions that contain a triggering term also state clearly and conspicuously additional terms of the offer, including that the transaction advertised is a lease; the total amount of any payments required at lease inception, such as a security deposit or capitalized cost reduction; and the number, amount, and timing of scheduled payments. The Truth in Lending Act (TILA) and its implementing Regulation Z require that ads for financing that use a triggering term also state clearly and conspicuously the amount or percentage of the downpayment, the terms of repayment, and the Annual Percentage Rate (APR), which is a measure of the true cost of the financed purchase. These laws and regulations are designed to ensure that consumers are provided full, accurate, and understandable information about lease and credit offers. The cases announced today are the first law enforcement actions against advertising agencies brought by the Commission under the CLA.
The FTC's complaints against Grey, Rubin Postaer, and FCB allege that the ad agencies violated Section 5 of the FTC Act, the CLA, and Regulation M when they created and disseminated the deceptive lease advertising for Mitsubishi, Honda, and Mazda, respectively, in the Commission's recent cases. According to the FTC, the ad agencies knew or should have known that the prominent representations of "zero down," "penny down," or other low amounts required at lease inception were deceptive. The Commission alleged that the lease ads misrepresented the true amounts that consumers were required to pay at lease inception and did not adequately provide material cost information necessary to prevent misleading consumers who in fact had to pay significant fees. The ads presented information about these additional fees only in unreadable print that appeared: (1) in type too small; (2) for too short a duration; (3) in quick "scrolling" text; (4) against moving or distracting backgrounds; and/or (5) in a location far removed from the more prominent representations, the FTC said.
The complaint against Grey also alleges that Grey violated Section 5 of the FTC Act, the TILA, and Regulation Z by creating and disseminating deceptive balloon payment credit ads for Mitsubishi. The Commission alleges that these ads misrepresented that consumers could buy a car by making low monthly payments and paying low amounts "down," and did not adequately disclose the existence and amount of a several thousand dollar final balloon payment, the APR, and other terms of repayment. The credit ads at issue place this critical cost information in unreadable fine print disclosures.
The FTC complaints cite numerous lease and credit advertisements that contain misrepresentations and inadequate disclosures of the required information. For example:
- A Honda television ad (Rubin Postaer Exhibit A) shows an odometer scrolling backwards to $0000 and states: "the zero down short-term lease from your Honda dealer. $0 Down and $289 a month for 30 months." The unreadable fine print, however, discloses that the consumer must pay approximately $600 and taxes, title, and registration fees at lease signing, plus a disposition fee of up to $400 at lease end and other lease costs.
- A Mitsubishi credit television ad (Grey Exhibit D) promotes that consumers can buy a vehicle for $750 down and $199 a month. Buried in the middle of a mass of unreadable fine print disclosures is the only reference that consumers must pay a final balloon payment of $7,320 at the end of the term.
- A Mazda television ad (FCB Exhibit A) promotes lease offers on four Mazda vehicles that feature low monthly payments and "one penny down," along with images of consumers clutching floating pennies. The four unreadable screens of fine print, flashed briefly on the bottom of the screen, disclose that at least $900 is due at lease inception (along with taxes, title, license, and registration fees) and detail other important lease costs for each offer.
The proposed settlements would prohibit the ad agencies, in any motor vehicle lease advertisement, from misrepresenting the total amount due at lease signing or delivery, the amount down, and/or the down payment, capitalized cost reduction, or other amount that reduces the capitalized cost of the vehicle (or that no such amount is required). Any ad that highlights an amount "down" or mentions certain other amounts due at lease inception (or states that there is no such charge) would have to give an equally prominent statement of the total amount due at lease inception. In addition, the settlements would require car lease ads referencing any initial payment, or that no initial payment is due, to disclose clearly and conspicuously that: (1) the offer is for a lease; (2) the total amount due at lease signing; (3) whether or not a security deposit is required; (4) the number, amount, and timing of scheduled payments; and (5) for open-end leases, the fact that an extra charge may be imposed at the end of the lease based on the residual value of the car.
The settlement with Grey also would prohibit any misrepresentation as to the existence and amount of any balloon payment or the annual percentage rate in a closed-end credit advertisement involving motor vehicles. It also would require credit ads stating the amount of any payment to disclose prominently the amount of any balloon payment in close proximity to the most prominent of the payment statements. In addition, any credit ad that states the downpayment, the amount of any periodic payments, the period of repayment, or the amount of any finance charge would have to disclose clearly and conspicuously the amount or percentage of the downpayment, the terms of repayment, the amount of any balloon payment, and the correct annual percentage rate for the loan. Pursuant to the agreement, all disclosures must be clear and conspicuous.
All three settlements also contain various record keeping and reporting requirements that are designed to assist the FTC in monitoring the companies' compliance. Grey is a Delaware corporation with its principal place of business in New York City. Rubin Postaer is a California corporation with its headquarters located in Santa Monica. FCB is a Delaware corporation, headquartered in Chicago, Illinois.
The Commission vote to announce the proposed consent agreements for public comment was 3-0 with Commissioners Mozelle W. Thompson and Orson Swindle not participating. An announcement of the agreements will be published in the Federal Register shortly. They will be subject to public comment for 60 days, after which the Commission will decide whether to make them final. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.
NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.
Copies of the complaints, consent agreements, analysis of the agreements to assist the public in commenting, FTC brochures for consumers in the market for a new car -- "Keys To Vehicle Leasing," "Look Before You Lease," and "New Car Buying Guide" -- FTC brochures for businesses --"Advertising Consumer Leases" -- as well as information about prior FTC cases involving lease and finance advertising issues are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326- 3128; TTY for the hearing impaired 1-866-653-4261. Consent agreements subject to public comment also are available by calling 202-326-3627. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
(FTC File Nos. 972 3190, 972 3191, 972 3192)
Office of Public Affairs
Bureau of Consumer Protection