Does your business advertise? Do you pay close attention to the Federal Trade Commission (FTC) rules? Two car dealerships were recent victims of the FTC's push to curb deceptive advertising.
If there are strings attached to a particular sale, those material terms and conditions need to be clearly and conspicuously disclosed in all TV, radio and print ads, whether through direct mail or online. Two motor vehicle dealers from Maryland and Ohio learned the ramifications of violating this rule the hard way, agreeing to settle charges brought by the FTC that they falsely advertised the cost or available discounts for their vehicles.
Under the Federal Trade Commission Act (FTC), advertising must be truthful and non-deceptive. An advertisement is deceptive if it contains a statement or omits information that is (i ) likely to mislead consumers acting reasonably under the circumstances and (ii) material, that is, important to a consumer’s decision to buy or use the product.
The FTC has a right to issue administrative complaints when it has “reason to believe” that the law has been or is being violated and it appears to the FTC that a proceeding is in the public interest.
The deceptive advertising practices
Here, the FTC had reason to believe Timonium Chrysler, Inc., of Cockeysville, Md., violated the FTC Act by advertising discounts and prices that were not available to a typical consumer. Ganley Ford West, Inc., in Cleveland, was similarly charged with misrepresenting that vehicles were available at a specific dealer discount, when in fact the discounts only applied to specific, and more expensive, models of the advertised vehicles.
According to the FTC’s complaint, Timonium Chrysler’s website advertised specific “dealer discounts” and “internet prices,” but failed to disclose adequately that consumers would need to qualify for a series of smaller rebates not generally available to them. The complaint further alleges that, in many instances, even if a consumer qualified for all the rebates, the cost of the vehicle was still greater than the advertised price.
According to the complaint against Ganley Ford, the dealership failed to disclose its advertised discounts on its website and the local newspaper advertisements generally only applied to more expensive versions of the vehicles.
Penalties imposed against the dealerships for running false or deceptive ads
The proposed settlement orders, which are designed to prevent the dealerships from engaging in similar deceptive advertising practices in the future, prohibit the auto dealers from advertising prices or discounts unless accompanied by clear disclosures of any required qualifications or restrictions. The auto dealers are also barred from misrepresenting:
- The existence or amount of any discount, rebate, bonus, incentive, or price
- The existence, price, value, coverage, or features of any product or service associated with the motor vehicle purchase
- The number of vehicles available at particular prices
- Any other material facts about the price, sale, financing, or leasing of motor vehicles
Finally, the dealerships must maintain and make available copies of all advertisements and promotional materials to the FTC for inspection upon request for the next five years, and they are required to comply with the FTC’s order for 20 years.
If there are strings attached, either about who qualifies for the deal, how much they will pay, what exactly is for sale, or representations about a product’s performance, features, safety, price, or effectiveness, the advertiser has the obligation to explain that information in a way consumers will notice and understand. An asterisk is not always the answer. Fine print disclosures at the bottom of a print ad, disclaimers buried in the body of text unrelated to the claim being qualified, and disclaimers that can be easily missed on a website are ineffective and not likely to pass muster with the FTC.