Motor Vehicle Advertising: Getting Back To The Basics

By: Keith Whann
Whann & Associates, LLC

Advertising.  It is a something all motor vehicle dealers engage in, but few truly understand what is required to make an advertisement legally correct.  Making it even more difficult is the number of overlapping federal and state laws that regulate it.  Let’s get back to the basics and see if we can’t clear up some of the confusion about this subject.

Any advertisement that deals with the extension of credit, regardless of whether it appears in the newspaper, on television, in a letter to a potential customer, or on the dealerships’ website, must comply with the Federal “Consumer Credit Protection Act” and “Consumer Leasing Act” and their implementing Regulations Z and M, more commonly known as the Truth in Lending and Leasing Acts, and State Unfair and Deceptive Acts and Practices (UDAP) Statutes.

The Federal Truth in Lending and Leasing Acts are similar in nature to the extent that they list certain “triggering terms” which create an obligation on the advertiser to make additional mandated disclosures in the advertisement. The disclosures are designed to insure that consumers are provided with sufficient information to make an informed decision when weighing the options of obtaining an item by cash, credit or through a leasing arrangement. They must be clear and conspicuous and in close proximity to the offer of credit.

Regulation Z governs advertisements promoting a closed-end credit (purchase/sale) transaction. The triggering terms are:

1. The amount of the down payment;
2. The amount of any payment;
3. The number of payments;
4. The period of repayment; and
5. The amount of any finance charge.

If any of the above-listed triggering terms are used in a closed-end credit advertisement, then the following three disclosures must also be included in that advertisement:

1. The total down payment as a dollar amount or percentage;
2. The terms of repayment/payment schedule; and
3. The “annual percentage rate,” using that term spelled out in full. If the annual percentage rate may be increased after consummation of the credit transaction, then that fact must also be disclosed.

The triggering terms defined in Regulation M apply if an advertisement offers a product through a leasing arrangement. The triggering terms are:

1. The amount of any payment;
2. The number of required payments; and
3. A statement of any capitalized cost reduction or other payment due (or that no down payment is required) at the beginning of the lease.

If any of the above-listed triggering terms are used in a consumer lease advertisement, then the following five disclosures must also be included in that advertisement:

1. A statement that the transaction advertised is a lease;
2. The total amount of any payment (such as security deposit or capitalized cost reduction) required at the beginning of the lease or a statement that no such payment is required;
3. The number, amounts, due dates, or periods of scheduled payments, and the total of such payments under the lease;
4. A statement of whether the consumer has the option to purchase the leased property and at what time and price (the method of determining the price may be substituted for disclosure of the specific price); and
5. A statement of the amount (or method of determining the amount) of any liabilities the lease imposes upon the customer at the end of the term and, if the customer has such liability, a statement that the customer shall be liable for any difference between the estimated value of the leased property and its realized value at the end of the lease term.

The triggering terms traditionally utilized most often by the motor vehicle industry include payment information and the amount of the down payment or capitalized cost reduction. An advertisement should not state that a specific amount of credit, installment payment or down payment can be arranged unless the dealership can, in fact, make those arrangements for consumers with approved credit. Similarly, if a security deposit, first monthly payment or any other payment is required at the time of purchase or at lease inception, the vehicle cannot be advertised as being available with “no money down.”

With so many lenders offering low interest rates and 0% financing for motor vehicle transactions, more dealers are advertising the annual percentage rate to attract customers to their dealerships. While the annual percentage rate is not a triggering term under the Federal Acts, additional disclosures may be necessary in order to comply with State UDAP Statutes and any Rules promulgated thereunder. State UDAP Rules dealing with Exclusions and Limitations in Advertisements and the Advertisement and Sale of Motor Vehicles generally require that any material limitations and exclusions that apply with respect to the consumer’s ability to obtain credit must be stated in close proximity to the words stating the offer. For example, if a dealer has to pay a fee to obtain a particular financing rate, the advertisement should include a statement such as “Dealer contribution may affect consumer cost.”

According to State UDAP Statute Substantiation Rules, motor vehicle dealers should also be able to substantiate claims set forth in their advertisements and should be prepared to present appropriate evidence to a regulatory agency. Remember, when interpreting any representations or claims made in an advertisement a reasonable consumer standard will apply. Dealer’s should avoid using any type, style, size, layout or illustration that may obscure any fact or cause an erroneous impression. Dealers should also be careful not to create, in the reasonable consumer’s mind, a false impression about the quality, usability, or prior use of the vehicle. Finally, the State UDAP Statutes and Advertisement and Sale of Motor Vehicles Rules require that any material statements made to a consumer in connection with a motor vehicle purchase or lease transaction must be integrated into the Retail Purchase Agreement or Retail Lease Agreement, as appropriate.

On a final note, dealers should remember that any direct mail pieces must comply with the above described legal requirements and, if the mailers are sent to a list of “prescreened” customers, there are numerous other laws a dealer should consider, including the Fair Credit Reporting Act, the Federal Privacy Laws and the Driver’s Privacy Protection Act. It has long been the law under most State UDAP Statutes that a statutory duty imposed on supplier cannot be delegated to a third party. No matter what type of third party the dealer uses for assistance with advertising, the bottom line is that it’s the dealer’s obligation to ensure that the content and distribution of the dealership’s advertisements comply with the law.

Visit the Car Counselor section of this website for answers to a variety of questions about advertising  issues that affect your dealership.

The information contained herein has been provided by Keith Whann of the law firm Whann & Associates, LLC, and is for general information purposes only. You should contact legal counsel for specific application.