The Federal Trade Commission announced last week that it had entered into proposed consent orders with nine auto dealers in six states that were charged with deceptive advertising in violation of Section 5 of the FTC Act. Many of the dealers also were charged with violations of the Truth in Lending Act (TILA) and Regulation Z, as well as with violations of the Consumer Leasing Act (CLA) and Regulation M. The settlements, which are subject to public comment through February 10, serve as a reminder of the importance of reviewing advertisements for consumer credit and leases for factual accuracy as well as regulatory compliance.

Under “Operation Steer Clear,” the FTC targeted dealers nationwide, entering into settlements with dealers in California, Georgia, Illinois, North Carolina, Michigan, and Texas. It alleged that all of the dealers had violated Section 5 in their print or electronic advertising. The alleged violations, which varied, consisted of advertising stating that:

  • Consumers could pay $0 or a low up-front amount to lease a vehicle. In fact, the advertised amounts excluded substantial fees and other amounts.

  • Consumers could finance a vehicle purchase with low monthly payments. The payments were actually temporary “teasers,” after which consumers would owe higher payments.

  • Consumers had won a sweepstakes prize, when, in fact, they had not.

  • Consumers could finance a vehicle purchase with specific low monthly payments. Instead, consumers would actually owe a large final balloon payment.

  • Consumers could purchase a vehicle at a specific price; the real price was substantially more.

  • Consumers who financed a vehicle purchase would be charged 0 percent APR. In reality, consumers who financed more than a certain amount would be charged a higher rate.

Regulations Z and M require the disclosure of certain additional information in an advertisement if the advertisement contains certain “trigger” terms, such as the amount of any payment. Many of the dealers were alleged to have violated such regulations by including trigger terms in their advertisements without making the required additional disclosures.

The proposed settlements, as relevant, prohibit the dealers from misrepresenting in any advertisement for the purchase, financing, or lease of a motor vehicle:

  • The cost of leasing or financing the purchase of a vehicle

  • Any other material fact about the price, sale financing, or leasing of a vehicle

  • The material terms of any prize, sweepstakes, giveaway, or other incentive

The settlements address the alleged TILA and CLA violations by requiring the dealerships to clearly and conspicuously disclose the terms required by Regulations Z and M.

Somewhat surprisingly, at least one other dealer that was targeted under “Operation Steer Clear” has apparently chosen to litigate with the FTC. While settling charges with the nine dealers, the FTC also issued an administrative complaint against a 10th dealer in Massachusetts. The complaint alleged similar Section 5 and Regulation M violations related to advertisements offering $0 down payments and specific monthly payments.

When the Dodd-Frank Act was enacted, auto dealers successfully obtained an exemption from the Consumer Financial Protection Bureau’s regulatory, supervisory, and enforcement authority. The rigorous enforcement approach the FTC is now taking against auto dealers may be the price of that success.

Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance.

For more information, please contact CFS Practice Leader Alan S. Kaplinsky at 215.864.8544 or, CFS Practice Leader Jeremy T. Rosenblum at 215.864.8505 or, or John L. Culhane, Jr., at 215.864.8535 or

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