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If you have clients in the auto industry, you’ve seen the ads:  “We’ll pay off your trade no matter what you owe . . . even if you’re upside down.” It’s an attractive claim to people struggling with their finances. But law enforcement settlements announced by the FTC with five dealers from around the country demonstrate the importance of giving people the straight story when making promises about trade-ins where negative equity is involved.

The cases are the first of their kind brought by the FTC. According to the agency, the dealers misrepresented to consumers that they would no longer be responsible for paying off the loan balance on their trade-in, even if it was greater than the car’s actual trade-in value. How did they convey that claim? Through statements like:

  • “Uncle Frank wants to pay [your trade] off in full, no matter how much you owe." (Frank Myers AutoMaxx)
  • “I want your trade no matter how much you owe or what you’re driving. In fact I’ll pay off your trade when you upgrade to a nicer, newer vehicle."  (Key Hyundai and Hyundai of Milford)
  • “Ramey will pay off your trade no matter what you owe . . . even if you're upside down."  (Ramey Motors)
  • “Credit upside down? Need a new car? Go to We want to pay off your car.”  (Billion Auto —  That ad drove the point home by showing a car moving forward, turning it upside down, and then flipping it right-side up again.)

So what was really going on?  According to the FTC, the dealers rolled the negative equity into the consumer’s new vehicle loan or, in the case of one dealer, required buyers to pay it out of pocket.

The complaints allege that despite the dealers’ claims, consumers still ended up responsible for paying the difference between the trade-in loan balance and the vehicle’s value. Thus, said the FTC, representations that the dealers would “pay off” what consumers owed were false and misleading. In addition, complaints in three of the cases allege violations of the Truth in Lending Act and Reg Z for failing to disclose certain credit-related terms. Two complaints charge violations of the Consumer Leasing Act and Reg M.

The proposed orders prohibit the five dealers from misrepresenting that they’ll pay the remaining loan balance on a consumers’ trade-in so the consumer will have no further obligation for any amount of that loan. The orders also ban misrepresentations about any other fact related to financing or leasing a vehicle.

For the companies charged with violating the Truth in Lending Act and Reg Z, those orders mandate future compliance with the law, including clear and conspicuous disclosures when advertising certain terms related to consumer credit. The orders also require that if any finance charge is advertised, the rate must be stated as an “annual percentage rate” or “APR.”

What about the dealers charged with Consumer Leasing Act and Reg M violations? They’ll have to clearly and conspicuously make all lease-related disclosures the law requires, including the monthly lease payment.

For those who follow what’s going on at the FTC regarding the motor vehicle industry, this isn’t the first they’ve heard of these practices. Negative equity financing was discussed at The Road Ahead, the FTC’s public roundtables about consumer protection issues that may arise in the sale, financing or lease of motor vehicles.

In conjunction with the case announcements, the FTC released a new publication, Negative Equity Ads and Auto-Trade-ins, to help consumers understand ads like this.


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