Terrence J. O'Loughlin
There is simply no way a short column could address every issue. However, advertising isn't that complex and conscientious dealers can certainly understand the basics and apply them. I would never discourage dealers from using their attorneys or advertising firms for assistance in these matters. But, understanding advertising basics will help dealers converse with their attorneys and third parties about effective and legally competent advertisements. Regardless of whom a dealer utilizes for advertising advice, ultimately, the dealer bears the risk and liability for the advertisement.
What is an Advertisement?
Simply stated, it is notice given in a manner designed to attract public attention. It is information communicated to the public, or to an individual concerned, as by handbills, newspapers, signs, bill boards, sound trucks, radio, websites, internet applications, television, telephone, fax, mail, prices posted on windshields, social media, or any other imaginable media.
Advertising can be powerful as the old saying illustrates: "There are twenty-five peaks higher than Pikes Peak in Colorado. Name one."
Why Should Dealers be Motivated to Examine Their Advertising?
Dealers should be motivated to reevaluate their advertising protocols. There has been a recent spate of advertising cases by state attorneys general and the Federal Trade Commission (FTC) in the past several years. For example, the FTC's "Operation Steer Clear" took action against dealers in California, Georgia, Illinois, Massachusetts, Michigan, North Carolina, and Texas.
State attorneys general have also pursued advertising cases against dealers and assessed substantial fines in these states: Arizona ($195,000), Missouri ($540,000), Massachusetts ($225,000), New York ($800,000), Vermont ($16,000) and Washington ($55,000).
What these cases all have in common is the violation of the basic consumer protection law: the Unfair and Deceptive Trade Practices Act, fondly called UDAP (i.e., the FTC Act or, in the states, the Little FTC Act).
Basic Advertising Test
The basic test, as applied to advertising, is:
Does the advertising have the tendency or capacity to mislead the consumer?
That consumer would be a person of reasonable intelligence and perception. Once upon a time, it was the "reasonable man" standard, but in this politically correct and gender-neutral era, it is now the "reasonable person" standard.
My Personal Advertising Operations and Experiences
In the many years B.I., (before internet), on Monday mornings, at just about every state Attorney General's Office, (this columnist worked at the Florida AG's Office) regulators would peruse the advertising sections of the Sunday papers identifying dealer advertisement violations. These cases were easy to make and padded regulators' performance statistics. One of the criteria for success in an attorney general's office is how much money a regulator brings in. As the UDAP statute allows for handsome statutory penalties a quick advertising case, in many states, could bring in between $10,000 to $25,000 per cited advertisement. This practice continues to this day, however, now all forms of media are being reviewed.
I was never enamored by advertising cases. Most of the consumers I spoke with didn't trust dealer ads.
My favorite undercover advertising case was visiting a dealer, who had published an ad for a Cressida several thousand dollars below invoice. It was not possible to sell that vehicle for that price. When I visited the store the salesman showed me the various Cressidas for sale and their sticker prices were all ten thousand dollars above this advertised price. When I showed him the advertisement, he responded to it, without hesitation, and said, "We couldn't possibly sell this car for that price. We publish these ads just to get people to come in."
I also received complaints from various dealers, who remained anonymous, and would send disreputable advertisements to me for attorney general action. I would recommend that all honest dealers do the same as a form of self-policing. Honest dealers shouldn't be disadvantaged for following the law.
A very small percentage of dealers told me that they make a calculated risk and intentionally advertise misleading terms to increase sales traffic. I would not recommend this approach to advertising.
Who Should Oversee Advertising at the Store?
The obvious answer is the compliance officer. Every store should have one.
The basic rules are quite straightforward and easily applied. Every dealer should understand the basics.
All automobile advertising should be in plain language and it should be "clear and conspicuous." In other words, it should be written for someone who has a tenth grade education. There are tests for how complex the language might be (e.g., the Flesch test). If a dealer wishes to evaluate its advertising text for plain language it could do so at this website:
"Clear and conspicuous" or "clearly and conspicuously" means that the language or visual representation is readily apparent and understood by the person to whom it is being addressed. Factors to be considered for this purpose include size, color contrast, length and crawl time.
Advertising shouldn't be deceptive. This is a subjective element and it means advertising should not mislead consumers by use of inferences, disclaimers, limitations, conditions, restrictions, exclusions, confusion, contradiction, portrayals, diagrams, charts, pictures, et cetera and so forth.
There is both federal and state advertising law. Under the Truth-in Lending Act, and its regulations, Reg M (leasing) and Reg Z (retail), it addresses leasing and credit advertising. In some states, adverting is addressed in both statutes and regulations. In other states, it may even merit its own "false advertising" statute. Generally, advertising is outlined in the UDAP statute.
If dealers wish to engage in credit sales advertising they must adhere to the Truth-in Lending Act (TILA), 15 USC §1601 et seq., and Regulation Z, 12 C.F.R. §1026.
If dealers wish to engage in lease advertising they must observe the applicable provisions of the Truth-in-Lending Act, 15 U.S.C. §1601 et seq., the Truth-in-Leasing Act, 15 U.S.C. §1667 et seq., and Regulations Z and M (12 CFR §1013 et seq.), as amended, to the extent that each applies to lease advertising.
These are simple rules and should be applied in every advertisement.
Objectionable Advertising Practices
There are many examples of what a dealer shouldn't do in his advertising. The following list contains the top twenty of the most common infractions but there are many more. Dealers should take special note of these common errors.
Asterisks and Footnotes
By either contradicting or confusing the major message with asterisks and footnotes the ad can be made deceptive.
Using print size to hide important information, such that it is illegible, could deceive consumers.
Utilization of color contrasts can prevent a consumer from seeing and understanding the advertisement.
Photographs and Illustrations
Portraying a different model or vehicle in the ad, than the one that is being sold, is clearly deceptive.
The use of abbreviations such as WAC or CCR, as though the average consumer can understand what is being presented, is misleading (WAC means "with approved credit" and CCR stands for "Capitalized Cost Reduction"). Or the use of dealer jargon may be deceptive.
Advertised Selling Price
The use of the sales price is, understandably, acceptable if it represents the complete price except for the tag, title, and taxes. The reference to the tag, title, and taxes should be indicated in the advertisement close to the selling price.
If the vehicle is not in stock it should be so indicated. If the number of vehicles is limited, and will probably not satisfy the anticipated demand, the number of available vehicles should, in some fashion, be so indicated.
Advertising that the Dealer is Selling Vehicles below Market Prices
Using terms such as "low prices," "lowest prices," and "guaranteed prices" are dangerous terms to use unless the dealer knows, and can demonstrate, that his vehicles are being sold at these comparative prices.
Terms such as "we won't be undersold" or "meet your best offer" can be utilized under certain advertized conditions. They must be explained clearly and must not burden the consumer too much to qualify for them. For example, requiring a consumer to have a signed buyer's order, may violate the law since it may be impossible for the consumer to get such a signed document.
Disclosure of Basis for Price Comparison
Using terms such as "30% off" or "Save $1,500" are illusory if the realistic starting price isn't disclosed. Using the term "$1,000 off list price," when the list price isn't established, is construed to be deceptive.
Use of words which would imply that the consumer is actually saving money, when he is not, such as "discount," "price cut," "bargain," "reduced," or even "on sale," for that matter, would be unlawful. If the dealer can establish that this new offered price is materially lower than what he offered recently he may avoid a violation of advertising law.
"Tent sale" is another term that must be used cautiously as it may have a state-specific definition. The same is true of the term "Liquidation Sale" or "Public Sale" implying a going out of business sale.
Advertising that the dealer is selling vehicles at "Dealer Cost" is usually deceptive unless it's true. Other similar terms, which could present problems, are "factory invoice" or "inventory price."
Duration of Sale
If the sale is scheduled for a certain limited time period it should be indicated.
Ads which advise a consumer to "Drag it in, pull it in, push it in, we don't care, your trade-in is worth $7,000 this weekend!" where the new vehicle's price will be increased by that amount, is clearly actionable. Or, if this offer fails to disclose onerous conditions required to merit the trade-in amount, the advertisement would be concluded to be deceptive.
Statements implying that the dealer, due to its size or its volume, sells vehicles at a lower cost from the manufacturer, are generally unlawful unless it can be substantiated.
Using fallacious terms such as "Factory Outlet" or "Factory Authorized Sale" is deceptive when not true.
"No Money Down"
"No Money Down" may be acceptable if the consumer is informed that the tag, title, and taxes must be paid in cash.
Gifts and "Free" Merchandise
If dealers wish to use the term "free," or its alternatives, such as "without charge" or "bonus," they should recognize that there should not be conditions for receiving whatever is being offered as "free." Dealers should consult their state law and the FTC's Guide Concerning Use of the Word "Free."
Advertising of Repurchased or Specialty Vehicles
When advertising program cars, repurchased vehicles, brass hats, or executive cars those terms need to be explained in the ad such that the previous use of the vehicle can be understood as well as other material facts. State law may have specific requirements regarding these advertisements.
Bait and Switch Advertising
Bait and switch advertising is universally unlawful and easy to prove by regulators. There are numerous versions of this tactic all of which violate the law.
Free Legal Advice
There is, indeed, free legal advice concerning advertising. Dealers should visit these websites for some direction.
The Federal Trade Commission has an excellent website which all dealers should include in their website favorites. It addresses advertising especially well.
A number of years ago the Federal Reserve convened a panel of experts and observers, regarding consumer leasing, and the panel produced a superb publication, Keys to Vehicle Leasing, website, and training materials. Under the tab "Guide for Educators," on the website, advertising leases is portrayed pursuant to TILA and Reg M. Just about any issue regarding leasing is addressed on this website as well.
Most Attorneys General address vehicle sales and advertising on their websites. Dealers should go to their state's Attorney General website for this information.
I conclude this column by offering this sage epigram:
Deceptis non decipientibus, jura subveniunt
"The laws help persons who are deceived, not those deceiving."
In other words, dealers should observe the laws of advertising or suffer the legal consequences. It's not hard to do.
GOVERN YOURSELVES ACCORDINGLY.
As seen on P&A Magazine.