Thomas B. Hudson

Thomas B. Hudson

If you are a dealer, and you have not heard that federal and state authorities are in a serious crackdown on advertising violations, you must be living under a rock. For the last several years, there has been a steady increase in ad violation claims, with the most recent and most attention-getting initiatives being the Federal Trade Commission (FTC)’s “Operation Steer Clear” and “Operation Ruse Control.”

With all the publicity about regulatory scrutiny of dealership ads, I find it hard to work up much sympathy for a dealer who hasn’t gotten the word and is playing “ad roulette.” That was certainly my reaction when I read the latest report of one of these enforcement actions.

The Office of the Attorney General of Tennessee announced on April 20th that it had reached a settlement with a Tennessee auto dealer that the AG and the Tennessee Division of Consumer Affairs had charged with using deceptive business practices to target military families. The dealer, Wholesale Inc., agreed to immediately change its advertising practices and pay the state $50,000.

A county court approved the settlement between Wholesale Inc., the Tennessee Attorney General’s Office, and the Tennessee Division of Consumer Affairs. The settlement agreement centered around two advertising mailers sent to would-be customers. One mailer specifically targeted servicemembers living near Fort Campbell.

After reviewing a servicemember’s complaint, the state alleged that the defendant made numerous false representations in violation of the Tennessee Consumer Protection Act. According to the state, a fictitious lender called “CreditAble Auto Funding” claiming to be “by military, for military” was offering “a limited amount of loans to military personnel.”

Under the settlement, Wholesale Inc. must maintain proof to support all ad claims and will be required to include the company name on all ads sent to consumers. Wholesale Inc. also must develop written policies and procedures for reviewing and approving its ads.

Nothing in the settlement agreement mentioned an ad agency, but I’ll bet my favorite bass lure that this dealer didn’t dream up this ad campaign, and that some ad agency has come up with an ad program it sells to dealers located near military bases. Some ad agencies seem to believe that it’s OK to say anything in an ad that will bring potential car buyers in the door — I’ve seen ad packages offered to dealers that seem to have absolutely no regard for the truth of the statements the ads make. If the dealer bites and buys the ad package, those statements, of course, become the dealer’s statements.

If my suspicions are correct, one lesson from this Tennessee action is clear. The authorities will hold the dealer accountable for every ad, and every claim in every ad, the dealer uses. They will require that the dealer “substantiate” each claim made in the ad. So if an ad describes a creditor company as “by military, for military,” it is the dealer’s responsibility to determine whether that statement is true. If a creditor named in an ad turns out not to exist, the authorities will hold the dealership responsible for implying or stating in its ad that the creditor is real.

Another lesson is equally clear: Not only must dealerships pay attention to federal laws like the Truth in Lending Act and the Consumer Leasing Act, they must contend with the Federal Trade Commission and state attorneys general — enforcers of prohibitions against unfair acts and practices.

So what should a dealership do to avoid being in the crosshairs of the ad police? I can think of a few things.

First, it a dealership’s ads come from an ad agency, the dealership should do a “due diligence” review of the agency to determine whether its ads have ever created problems for dealers. The agency should be questioned about the level of dealer compliance training, if any, its personnel have received, and should agree to stand behind the compliance of its ads.

Then the dealer should read the ads and confirm that the statements in them are accurate and complete. If the statements make claims, the dealer should assume that those claims may, at some point, be challenged, so all such claims should be substantiated in writing before the ads are used.

Finally, the dealer should confirm that the ads meet the requirements of federal and state law, including, where applicable, laws regulating merchants generally, dealers specifically and, where applicable, any ad involving a lottery, a game of chance or other regulated activity. That sort of confirmation may require the advice of counsel, but there are many helpful ad compliance materials available on the FTC’s website and on the websites of organizations such as state auto dealer associations.

Your entire ad review process should be in writing and reviewed by counsel and should be updated periodically. All of these chores should be the responsibility of the dealership’s compliance officer.

Your dealership doesn’t have a compliance officer? Oh my!

We need to talk.

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