When creating your next ad campaign, consider the average consumer’s intelligence – better yet, consider the dumbest consumer’s intelligence to avoid the wrath of the Federal Trade Commission’s (FTC) advertising regulations.  According to the FTC, an ad should be viewed from the “point of view of the ‘reasonable consumer’ – the typical person looking at the ad.”

Know the Rules

The FTC cites three major rules in truth-in-advertising. 

  • Advertising must be truthful and non-deceptive.
  • Advertisers must have evidence to back up their claims.
  • Advertisements cannot be unfair.

If you play by these three rules, your dealership should be safe from nasty FTC compliance issues.

It sounds fairly simple, right?  Unfortunately, in reality, it’s not that simple.  The problem is deciphering how the FTC defines these rules and applies them to your advertisements. 

Be Truthful and Non-Deceptive

Defining the truth in the first rule is not the difficult task.  The truth is cut and dry.  Make sure you tell the whole truth, not a half-truth or a slighted version to make an ad look more appealing.  For example, don’t include in your ad in big, bold letters, “Financing Guaranteed” if you think 99 percent of the customers that walk through your doors will qualify for financing – unless, of course, you plan on financing every deal your finance sources deny. 

What’s considered deceptive, however, is the gray area.  In the late 90s, certain fine print in advertisements was ruled deceptive.  All information that is equally important to the consumer’s buying or leasing decision must be given equal prominence in any ad. 

An example of deceptive advertising would be offering customers an amazing deal on a 24 month lease with “No money down” in 18-point font, while below in “mouse” print the ad reads, “$500 security deposit required the day of signing.”  All disclosures need to be legible and comprehendible, and fine print should be avoided if possible.  In this particular example the FTC requires a down payment amount and the total amount due at lease signing to be disclosed with equal prominence in an ad.

It doesn’t matter if it’s your weekly Sunday ad or a direct mail piece advertising a one-time sale; don’t leave out details that are important to a customer’s buying decision.  A great resource on FTC advertising compliance for dealers to have on hand is the NADA bulletin entitled “Advertising Update:  The Rules Have Changed”.  It is available online and is free to NADA members at NADA.org. 

When an advertisement involves leasing, leaving key information out can be seen as deceptive according to Truth in Leasing laws.  If your ad includes what the FTC calls “trigger terms,” there are other disclosures that must be included and presented with equal prominence.  Consumer lease trigger terms include the amount of payment, the number of required payments and the mention of any down payment amount.  According to the FTC, the disclosures required in a consumer lease ad when a trigger term is used include:

  • Define the transaction as a lease. 
  • Include the total amount due at the beginning of the lease term.
  • dentify whether or not a security deposit is required.
  • List the number, amount and due dates of scheduled payments.
  • Alert consumers if an extra charge may be imposed at the end of a lease term.

There is a different set of trigger terms when advertising credit.  These trigger terms include a down payment amount, payment amounts, number of payments or period of repayment, and the amount of any finance charge.  If any of these terms exist in your ad the following disclosures are required:

  • Include the amount or percentage of the down payment. 
  • List terms of repayment.
  • Identify the annual percentage rate, or APR – the abbreviation is acceptable.


For credit advertisements, the FTC cites particular phrases that are not considered trigger terms to help eliminate some confusion. 
This list includes:

1.  "No down payment"
2.  "Easy monthly payments"
3.  "Loans available at 5% below our standard APR"
4.  "Low down payments accepted"
5.  "Pay weekly"
6.  "Terms to fit your budget"
7. "Financing available"


Consequences of a Violation

What’s the worst that could happen if the FTC decides you’ve run a deceptive ad?  A multi-million dollar civil penalty is the worst that could happen.  According to the FTC, “Civil penalties range from thousands of dollars to millions of dollars, depending on the nature of the violation.” 

In 1999, two dealerships, both owned by one dealer, in St. Louis were ordered to pay a $40,000 civil penalty for misleading advertisements.  Their consumer lease ads failed to make the amount due at lease signing as prominent as the pitch that said zero money down.  The amount due at signing was buried in “mouse print”. 

Another ad by the same dealer that the FTC referenced failed to include disclosures that should have been included because of the use of a required down payment statement – which is a trigger term.  This dealer also had to make available brochures entitled, “Keys to Vehicle Leasing” available to all consumers that visited his dealership for two years.

Another penalty the FTC issues is mandatory corrective statements in the form of advertisements, disclosures and other informational remedies.  Some advertisers are required to pay for another ad to correct the deceit communicated in the original ad, while others must inform purchasers or consumers of the deceptive claims in ads.  Other advertisers have been mandated to make particular disclosures in future advertisements.

Probably the mildest penalty the FTC hands out is the cease and desist order, which is legally binding.   This type of order requires a dealer to discontinue the deceptive ad and have substantiation for future claims in advertisements.  A dealer would also have to periodically report to the FTC.  If caught running another deceptive ad, a company is slapped with an $11,000 fine per day per ad run. 

The fines and penalties imposed by the state AGs often overshadow those of the FTC.  A recent example involves a large fine that will most likely be imposed on nine Alaska Lithia dealerships.  In a case filed by the state, the proposed settlement includes a civil penalty of $500,000 and $200 refunds given out to every customer that bought a vehicle from one of those nine locations since Oct. 1, 2004.  The refunds will cover doc fees the dealership charged because in Alaska, doc fees are illegal.

The court must approve the settlement to finalize it, which could mean 2,000 to 3,000 Alaskans are entitled to a $200 refund.  That is an additional $400,000 to $600,000 tacked on to the civil penalty, meaning the group will have to pay around $1 million.  Imagine the damage that fine could do to your pocket book – not to mention all the time it’s going to take that dealer to write out thousands of $200 checks.

Protect Yourself and Your Dealership

The commission has built an abundance of Web sites to help advertisers comply with regulations.  The best part, other than the fact that they are free, is that you don’t have to register to utilize the site.  Most of the informational content is even available in a PDF, so you can save them to your computer or print them out and reference them any time you have a question.  Your state attorney general’s office may also have advertising guidelines available online.

Another way to protect your dealership is by keeping an advertising compliance checklist.  This checklist should be tested against every advertisement that will run with your name or your dealership’s name attached to it. It will help you answer compliance questions you might normally overlook.  
If your dealership ads are created by an ad agency or other marketing firm, request a written statement from the agency that states the ad meets all FTC requirements and state advertising guidelines.  Even better is a written statement that the agency or direct mail company who creates your ad indemnifies you for any fines levied by the FTC if the ad is not in compliance with all FTC guidelines.

Don’t rule out having a lawyer on speed dial that specializes in advertising law to review your ads to ensure compliance.  It might seem expensive, but the fee will seem miniscule if the FTC or the state attorney general slaps your dealership with a civil penalty. 

Processes you can implement today to start protecting your ads

  • Maintain evidence of any claims made.
  • Retain copies your ads. 
  • Evaluate all ads against your compliance checklist.
  • Research credible agency or association Web sites for additional information on advertising compliance.

Always remember, the burden of proof lies with you, the dealer.  The more important a purchase is, the more influential an ad can potentially be.  Purchasing a vehicle is a large investment for consumers to make, which could be why the automotive industry has been a focus of the FTC since its inception 92 years ago. 


 Vol 4, Issue 2