Dealers wrestle with ad regulations

Ramey Motors Inc. has been in the Federal Trade Commission's crosshairs twice over deceptive or misleading advertisements. It doesn't want to be there again.

The dealership group, with five stores in West Virginia and Virginia, has implemented repeated advertising training and legal ad review, and is taking a more conservative approach to advertising, said Johnnie Brown, a lawyer for Ramey Motors.

The changes follow a 2012 consent agreement with the FTC in which Ramey committed to avoid misrepresenting any costs or terms in vehicle advertising and to include the annual percentage rate — or APR — if a payment is advertised.

In 2015, Ramey agreed to an $80,000 civil penalty payment to settle a subsequent FTC lawsuit that claimed Ramey's ads violated the 2012 consent agreement for concealing terms such as down payments, failing to provide credit disclosures clearly and conspicuously and neglecting to maintain required records.

"We have centralized advertising, whereas before maybe certain store managers had authority to place an ad or run an ad," Brown, a lawyer with Pullin, Fowler, Flanagan, Brown & Poe, told Automotive News. "We've centralized that to one person, so that one person maintains that type of consistent control of quality, and they consult with legal counsel quite often."

The FTC and many state-level regulators (see stories, Page 20) have made auto finance practices and dealership advertising priority enforcement areas. The FTC says the rules are straightforward, but some dealers wish they were clearer.

In the past five years, the FTC filed about 40 enforcement actions related to auto dealerships, said Nikhil Singhvi, a staff attorney in the FTC's Division of Financial Practices. Singhvi said enforcement areas include deceptive advertising, deceptive and unfair finance practices, title loan fraud, debt collection, privacy and data breaches and credit reporting violations.

The FTC also increasingly seeks to hold individuals accountable and is including them in its enforcement actions when it can show that they knew of deceptive practices, Singhvi said.

The FTC receives dealership complaints through consumers, other law enforcement or state partners, consumer advocacy groups and even former employees, he said. The FTC in its 2018 report tallied more than 100,000 auto-related complaints.

Singhvi said the FTC's rules are easy to follow for dealerships.

"The baseline that we enforce at the FTC is don't deceive consumers. That's a pretty easy one," he said. "That covers things like advertising for incentives that are not actually available or that have such onerous limitations that they're effectively not available to anyone."

The FTC also scrutinizes bait-and-switch advertising for vehicle offers that don't exist but are used to draw people into the dealership.

"The specific rules for financing advertising have not changed dramatically in a long time, the specific financing terms that must be disclosed," Singhvi said. "These aren't very complicated matters, and they are things that compliant dealerships should be able to handle."

The FTC also monitors social media advertising, where it can be difficult in limited space for a dealership to make the required disclosures, Singhvi said. As part of the FTC's 2018 litigation against Tate's Auto Group, a dealership group in Arizona and New Mexico that in late April closed its four stores after a bankruptcy filing, the FTC alleged a number of Tate's Facebook posts and ads violated federal law by failing to include required financial disclosures and terms, he said.

Some dealership groups have been repeat offenders in deceptive advertising. Ramey and Billion Auto were sued again by the FTC after they violated 20-year consent orders.

Billion Auto, a dealership group with 21 locations in Iowa, Montana and South Dakota, agreed to pay $360,000 in civil penalties as part of its December 2014 settlement. The settlement also included an advertising firm, Nichols Media Inc. The FTC alleged many ads after its 2012 consent agreement focused only on "a few attractive terms," while other terms were hidden in fine print, "through distracting visuals or with rapid-fire audio delivery."

A corporate representative from Billion Auto did not return a call for comment.

Michael Johnson, vice president of Sterling eMarketing in Sioux Falls, S.D., said the ad agency started working with Billion Auto about eight months after the group's civil penalty settlement with the FTC. The ad firm created software that integrates with CDK Global dealer software, so that when ads are created, it ensures accurate pricing, and includes all disclaimers, Johnson said. The ads are also archived for future audits.
Robert Ramey, president of the Ramey dealership group, wrote in an email that dealership deceptive advertising regulations should be reviewed by the National Automobile Dealers Association and federal and state regulators.

"It needs to be better defined because there are several areas with no clear-cut rules," Ramey told Automotive News.

NADA has provided guidance for advertising. In 2015, the association created a guide for dealers, manufacturers, finance companies and dealership ad agencies on ad compliance that covers 41 topics and provides examples of good vs. bad ads, NADA spokesman Jared Allen wrote in an email.

The association also shares FTC enforcement actions when they are announced, hosted an advertising webinar and presented ad compliance seminars across the country. Allen said FTC enforcement actions are based on a "vague" deception standard and NADA has "urged the FTC to clarify enforcement expectations."

"NADA is fully committed to seeking clear advertising standards from the FTC as well as ensuring our members are aware of their compliance responsibilities," Allen wrote in an email.

Randy Henrick, compliance counsel at Mosaic Compliance Services, reviews ads for dealerships including some under 20-year consent decrees with the FTC. Of all dealership ads he sees, he estimates no more than 10 percent are compliant.

"Most of them have disclosures in type you can't read. That's not clear and conspicuous," Henrick said.

Dealership ads need to disclose triggering terms required by the Truth in Lending Act and the Consumer Leasing Act, he said. Leasing also requires many additional disclosures such as the number of payments and security deposit, and some states require excess mileage or allowed mileage disclosures or the cost to buy at the end of the lease term, Henrick said.

"What gets dealers in trouble is advertising the payment amount, or advertising a low APR for a certain number of months and not saying anything else," he said.

"Or putting it in mass type in color that bleeds into the background that's not clear and conspicuous."

Other problem areas, according to Mosaic Compliance, are teaser terms, undisclosed balloon payments, false $0 upfront leases, undisclosed lease terms, hidden rates, fake prize promotions and credit and leasing violations.

Gil Van Over, president of sales and F&I training company gvo3 & Associates in Crown Point, Ind., said other investigation targets include payment packing, or inflating a monthly vehicle payment to offset the cost of an aftermarket product; yo-yo financing, which happens when a dealership notifies a customer days or weeks later that their original deal has fallen through and they must surrender their vehicle or accept less-attractive financial terms; and spot delivery, the practice of allowing a consumer to take possession of a vehicle before financing is complete.

For clients under a consent decree with the FTC, compliance is serious. Dealerships face potential fines of more than $42,500 per day per violation for unfair and deceptive ads, Henrick said.

"If it's close to the wire, you can't take the chance," he said. "The FTC will fine you six figures."

In addition to the FTC, dealerships need to know their state regulations covering deceptive and unfair advertising. Henrick said states including Pennsylvania, New Jersey, Indiana and Massachusetts have been aggressive with dealers who violate state laws.

Van Over suggests dealerships review federal and state compliance laws and create a store policy and procedures manual.

Most dealers are trying to be transparent, he said. "They're concerned about their customers and their [customer satisfaction] scores, and they want to do right by their customers. So there are just a few bad apples that continue to use potentially deceptive practices."

Henrick's advice is simple: Have an expert look at all ads.

He said, "I think any dealer that doesn't have an attorney or compliance expert review each ad is playing Russian roulette."