According to the Sinatra standard, "Love is lovelier the second time around.” But the same can’t be said when a car dealership that has already settled an FTC law enforcement action for deceptively advertising financing and leasing terms engages in further misrepresentations.
As part of Operation Steer Clear in 2014, the FTC settled charges with New World Auto Imports, New World Auto Imports of Rockwall, and Hampton Two Auto Corporation – three related Dallas-area dealers that consumers may know as Southwest Kia. The order in that case prohibited material misrepresentations about financing or leasing and mandated that the companies include clear and conspicuous disclosures when ads contain triggering terms under the Truth in Lending Act (TILA) and Consumer Leasing Act (CLA).
But according to the FTC, Southwest Kia violated that consent agreement by: 1) running deceptive ads, showcasing eye-catching deals in the headlines that consumers couldn’t actually get, burying key terms in hard-to-read fine print, or, in some instances, not disclosing material conditions at all; 2) failing to include required TILA and CLA disclosures in a clear and conspicuous fashion; and 3) failing to maintain documents required by the original order, including complete versions of ads.
For example, one TV ad promised that consumers could “get up to $7,000 off new Kias in stock” and offered “two vehicles for under $200 per month.” What followed were visuals of Kias prominently advertised for $179 or $189 per month. Such a deal? Not so fast – because buried in a dense 13-line block of all-caps text flashed on the screen for just two seconds was the fact that the advertised terms were for a lease, not a sale. What’s more, that offer required consumers to cough up $1,999 at lease signing. Southwest Kia used similar tactics in a direct mail piece that touted a $179 monthly payment for a Kia Rio. Only in print so small that it was illegible without magnification did the company “disclose” (and we’re using the term loosely) that consumers would have to pay $1,999 upfront and an additional $8,271 at the end of the 38-month financing term.
The complaint also cites a banner ad that featured a Kia Soul for “$179 per month for 36 months.” So was the advertised monthly payment for a sale or a lease? Consumers were left guessing because the visible portion of the ad failed to give them that fundamental piece of information. And if it was a sale, what’s the down payment and APR? If it was a lease, what’s the total due at lease signing and was a security deposit required? By choosing to tout the monthly payment in its ad, Southwest Kia was obliged to disclose that information clearly and conspicuously both under the terms of the 2014 order and under TILA or the CLA.
Another TV ad that targeted consumers facing “repos or foreclosures” advertised cars for $250 down and $250 per month. The fine print specified that those payments were based on a 4.25% annual percentage rate – an APR few (if any) borrowers facing repossession or foreclosure would qualify for.
The FTC says the defendants used similar illegal tactics in Spanish-language ads. For example, one TV ad claimed “por solo $500 de enganche puedes salir manejando” (“for only $500 down, you can leave driving”). But nowhere in the ad did the company disclose key terms consumers would need to evaluate the offer – for example, even whether it was a sale or a lease.
The just-announced settlement includes an $85,000 civil penalty for violating the 2014 order. It should also serve as a reminder to car dealers that the FTC is looking closely at auto ads.