Dealer Advertising: New Federal Compliance Mandates

Dealer Advertising: New Federal Compliance Mandates Randy Henrick Associate General Counsel Dealertrack, Inc. Lake Success, NY randy.henrick@dealertrack.com 516-734-3644

The views and opinions presented in this educational program and any accompanying handout material are those of the speakers, and do not necessarily represent the views or opinions of NADA. The speakers are not NADA representatives, and their presence on the program is not a NADA endorsement or sponsorship of the speaker or the speaker s company, product, or services. Nothing that is presented during this educational program is intended as legal advice, and this program may not address all federal, state, or local regulatory or other legal issues raised by the subject matter it addresses. The purpose of the program is to help dealers improve the effectiveness of their business practices. The information presented is also not intended to urge or suggest that dealers adopt any specific practices or policies for their dealerships, nor is it intended to encourage concerted action among competitors or any other action on the part of dealers that would in any manner fix or stabilize the price or any element of the price of any good or service.

Learning Objectives 1. Get updated on recent FTC and CFPB actions that impact your business, and how to be prepared, compliant, and effective at advertising. 2. Work through the maze of mandates, actions, and rulings from the FTC. 3. Explore advertising compliance, such as disclaimers, teaser APRs, and proximity standards. 4. Review and learn about the latest changes impacting new media advertising. Three Takeaways: New Media, New Rules, New Enforcement 1. The FTC has tightened up auto dealer advertising requirements in all media with numerous enforcement actions. How can I avoid being the next 20-year consent decree? 2. What are the key issues with which the FTC is concerned, and how can I deal with them to make my advertising bullet-proof? 3. How does advertising on the Internet and social media differ from traditional advertising, and what are best practices for this new media?

Part One: Deceptive Advertising The FTC has been very aggressive in policing dealer advertising, with 17 enforcement actions in the last three years resulting in 20-year consent decrees for dealers. 2012 Five actions against dealers who advertised that they would pay off the buyer s trade-in balance no matter what the buyer owed on the trade. 2013 Two actions against dealers who advertised vehicle prices, and discounts, that were not available to the typical consumer. 2014 FTC announces Operation Steer Clear A coast-to-coast law enforcement sweep focusing on deceptive TV, newspaper, and online claims about auto sales, financing, and leasing. The FTC filed ten lawsuits against dealers in seven states across the country, each resulting in 20-year consent decrees.

Part One: Deceptive Advertising Deceptive Acts and Practices A representation, omission, or practice that is likely to mislead a consumer acting reasonably under the circumstances. The representation, omission, or practice must be material, i.e., affecting the consumer s decision on financing. An ad may be deceptive if the advertiser does not have a reasonable basis to support the claim. FTC looks at the overall impression of the ad. All expressed or implied claims must be truthful and substantiated. Unfair Acts and Practices The act or practice causes, or is likely to cause, substantial injury to consumers. The injury cannot reasonably be avoided by consumers. Such substantial injury is not outweighed by benefits to consumers or to competition. Reasonable consumer standard not the smartest or the dumbest person.

Part One: Deceptive Advertising Attitude and Approach of the FTC to Dealer Advertising The FTC believes that deceptive dealer advertising is a significant problem. In many cases, no consumers complained about the ads. The FTC found deceptive ads by trolling the Internet. The FTC also gets complaints and referrals from the Consumer Financial Protection Bureau and other regulators. What Specific Advertising is the FTC Targeting? Eight specific practices identified by the FTC as TO-DON Ts : 1. Deceptive pricing 2. Deceptive teaser payments 3. Undisclosed balloon payments 4. False $0 up-front leasing claims 5. Undisclosed lease terms 6. Hidden rates 7. Bogus prize promotions and sweepstakes 8. Credit and leasing violations under Truth in Lending, Regulation Z, the Consumer Leasing Act, and Regulation M

Part One: Deceptive Advertising The Four Ps: FTC standards for clear and conspicuous. Prominence Type size and readability of any disclosures or qualifications. Many states require minimum type size of eight or ten points. Color of print cannot bleed into a similarly colored background. Proximity Must be located closely to the advertised terms to which it relates. Small print at the bottom of the page may not be acceptable. Having the disclosures on another page of a brochure is not acceptable. Placement Location in the ad would a reasonable consumer s attention be likely to go there immediately from the qualified term? Presentation Is the language clear and simple enough to be understood by a reasonable consumer? Avoid industry jargon and alphabetic shorthand (e.g., VVT, PTU, 948TE). Key is the net overall impression of the ad.

Part One: Deceptive Advertising Truth in Lending and Consumer Leasing Act Triggering Terms For credit sales: For leases: If you advertise: down payment; period of repayment; payment amount, or finance charge. Then you must also disclose: the APR (using that term); down payment; period of repayment; payment amount. State Attorneys General have other advertising requirements. If you advertise the amount of any up-front payments due, you must also disclose: The fact that the transaction is a lease. The total amount due at lease signing. The number and amount of scheduled payments. Whether a security deposit is required. Whether the customer has any obligations at the back end of the lease (e.g., open-ended lease). Many states require you also to disclose the mileage limitations and the cost per excess mile.

Part One: Deceptive Advertising What the Ad Didn t Say But the FTC DID. Among the language included in a scrolling video disclaimer on a YouTube ad was the following: Only a limited number of customers will qualify for the advertised APR. Down payment will vary depending on APR and credit. The rates described are for estimation purposes only; you may not be able to finance at this rate. Consumers cannot pay $0 down to lease because they also have to pay significant up-front fees, including an acquisition fee of $595. Other Disclosure Requirements Stated by the FTC Advertising disclosures in media must be delivered in a volume or cadence sufficient for an ordinary consumer to hear and comprehend. Print or scrolling disclosures must be sufficient for an ordinary consumer to notice, read, and comprehend. The language must be in plain English, not dealer-speak.

Part One: Deceptive Advertising Additional Dealer Advertising Violations Advertised attention-grabbing low monthly payments that were increased after a short period of time. Didn t state the number of payments and how much they would be after the teaser period expired. Disclosures in an unreadable white footnote against a white background.

Part One: Deceptive Advertising Deceptive Lease Advertising, Promotions, and More False $0 up-front leasing claims Must clearly explain that the transaction is a lease with all fees and amounts due up front conspicuously disclosed. $0 up-front is a triggering term requiring disclosure of other Consumer Leasing Act advertisement disclosures. Undisclosed lease terms Customer should understand what a lease is and what up-front, periodic, and back-end payments are. No surprises.

Part One: Deceptive Advertising Sweepstakes, Prizes, and Free Offers Bogus prize promotions States have specific laws governing sweepstakes. Must provide an alternate means of free entry (enter by sending in a postcard). Some states (NY, RI, FL) may require bonding of consumer sweepstakes. Offers of free items FTC s position is that nothing is free when the price of the associated item such as a vehicle is negotiable. Dealers should not use free in promotional materials.

Part One: Deceptive Advertising Penalties for Violations Under Federal and State Law $16,000 per violation under Section 5 of FTC Act. New York permits a private plaintiff to recover $1,000 per willful violation plus attorney s fees. NY Attorney General can also seek penalties of $5,000 per violation. 2012 NY Attorney General recovered in excess of $500,000 from a Brooklyn, NY dealership for deceptive acts and practices. Other states have similar or higher penalties E.g., New Jersey - $10,000 for first offense; $20,000 for subsequent offenses. Customer can recover triple damages plus attorney s fees. False advertising is also a Class A criminal misdemeanor in New York.

Part Two: Digital Advertising Compliance Rules of the Road Digital media (websites, social media, and email) along with mobile technology have added new opportunities as well as complications to traditional advertising. It s simply where consumers spend most of their time. In fact, according to the J.D. Power 2014 U.S. Automotive Media and Marketing Report Summer, more than half (52 percent) of new vehicle drivers have read newspaper content online and 36 percent of new vehicle drivers have read a newspaper through a mobile app. As always, regulatory guidance lags market development. This workshop will describe the differences in media, the FTC s position on digital advertising, and provide risks and best practices as you assess your advertising-spend and consider shifting more toward digital media. A Note about Privacy Effective digital advertising allows for greater advertising reach and arguably can result in a more-interactive experience between consumer and advertiser. From banner units to Facebook ads, the approach to digital media is driven by data insights that help advertisers do a more-effective job of reaching their intended audience. That sort of power, however, comes with concerns about privacy. The FTC has indicated concerns about tracking consumers without their knowledge or consent but has not, as of November 1, 2014, issued any proposed rules or consent orders that limit anonymized tracking.

Part Two: Digital Advertising Internet and Social Media Advertising All legal disclosures required in print are required in any other media as well, including Facebook, Twitter, and YouTube. The FTC staff trolls the Internet looking for deceptive ads, especially in social media. Postings on Facebook may not be shown to all your Facebook "likes." Purchased Facebook advertising will be shown. No privacy in Facebook postings. Direct consumers to your website to encourage credit inquiries or applications. Understand that 80 percent of consumers access social media from cell phones or tablets, not PCs. Are your ads clear and conspicuous in those channels? Internet ads are often picked up by other sites so it may be hard to change an ad online once you ve posted it Consumers will find the version most favorable to them and argue that you advertised terms that were not available, a Truth in Lending violation. Best practice: Put an expiration date on each Internet ad.

Part Two: Digital Advertising Advertising Using Text Messages Text messages are governed by the TCPA and require the consumer s written consent prior to marketing by text message Don t include marketing messages in service texts to consumers notifying them that their serviced vehicle is ready A large dealer group paid $2.5 million to settle a class action for TCPA violations from mass text messaging to cell phones because they did not have specific consent to send the texts.

Part Two: Digital Advertising The FTC s Online Advertising Guidelines The same consumer protection laws that apply in other media apply online, including in the mobile marketplace and recognize that nonmarketing messages still require prior express consent. Advertisers should put limitations and qualifications into the claim rather than having a separate disclosure qualifying the claim. Required disclosures must be clear and conspicuous. 80 percent of consumers view online material on mobile devices. Is your advertising clear and conspicuous when viewed in these devices? Okay to use a hyperlink, but it must be obvious, placed close to the information it qualifies, clearly and conspicuously labeled, and take consumers directly to the disclosures. Give a reason to click on it. Design ads so that scrolling is not necessary to view disclosures When not possible to make disclosures in a space-constrained ad, the platform should not be used to make ads requiring disclosures. Think about how the ad will appear in all potential devices on which it may be seen. Will it be clear and conspicuous?

Part Two: Digital Advertising Takeaways: The Nature of Digital Media 1. Treat your Facebook page seriously. Read the privacy options and publish house rules for your page. Consider purchasing advertising instead of using your page to advertise, leaving your page for helpful content that engages with fans and advocates. 2. Treat digital advertising as carefully as you would a full-page color print ad. Proof it and be sure to adhere to existing compliance guidelines. Digital content is the same as all types of content: once published, it s out there forever. 3. Think mobile in all aspects of digital media. Chances are, most of your intended audience will consume your content and advertising via a smartphone or tablet prior to seeing it on a laptop. FTC Guidance on Digital Advertising 1. Placing disclosures under hyperlinks may be acceptable as long as they are noticeable and clearly understood. Simply using Disclaimer or "Terms of Use" as a link may not be acceptable. 2. Ensure that technology methods do not impede the proximity or placement of a disclosure. 3. Digital advertising may be viewed through multiple screen sizes and channels, and disclosures should be viewable on all.

Part Three: Summary Best Practices 1. Have your lawyer or compliance advisor review every ad prior to running it. 2. Follow TILA ad rules for triggering terms. The FTC always looks for this. 3. Get your State AG s Advertising Guidelines and follow them as well. 4. Be mindful of the media and devices on which your advertising will appear and be seen. Make sure it is clear and conspicuous in all. 5. Put the FTC Used Car Buyer s Guide on every used car in the lot. The FTC has brought enforcement actions for not doing so. 6. Be aware of social media constraints and restrictions. If the social media will not support clear and conspicuous disclosures in all cases, don't use it. 7. Consider using focus groups to review your ad campaigns to make sure the average consumer will not be misled.

Part Three: Summary Be Prepared, Be Compliant and Effective The FTC s Operation Steer Clear has made unfair and deceptive dealer advertising a priority for the FTC. More enforcement actions will follow. Consumer complaints are not required as the FTC will troll the Internet looking for web and social media deceptive ads. Note the eight issues the FTC has targeted (the Do-Nots ). Do not contradict or qualify headlines with small-print type. Use words that a reasonable consumer can understand. Make sure ads are fully accurate and don t omit material terms. Don t give with one hand and take away with the other (giving a minimum trade-in allowance and making it up by increasing the price of vehicles over that offered to customers without a trade-in). Eight specific practices identified by the FTC as TO-DON Ts Deceptive pricing Deceptive teaser payments Undisclosed balloon payments False $0 up-front leasing claims Undisclosed lease terms Hidden rates Bogus prize promotions and sweepstakes

Credit and leasing violations under Truth in Lending, Regulation Z, the Consumer Leasing Act, and Regulation M.