A recent Federal Trade Commission (FTC) consent order with two Ohio auto dealers creates uncertainty not only for auto dealers, but also for all other businesses advertising credit or lease offers. The order settled allegations that the dealers' lease advertisements violated Section 5 of the FTC Act by creating a deceptive impression that a typical consumer could qualify for the advertised lease terms. The uncertainty created by the order was the focus of a comment letter sent to the FTC by the National Automobile Dealers Association (NADA), which the FTC responded to the day before it announced that it had approved the consent order following the public comment period.

The FTC’s complaint alleged that advertisements were deceptive because they failed to adequately disclose "a material condition to obtaining" the advertised monthly lease payment. The dealers' advertisements indicated that the monthly lease payment was available with no down payment and noted that the offer was subject to an 800 Beacon score or higher with approved credit. (The complaint also alleged that the dealers' advertisements contained a "triggering term" without disclosing (and/or without clearly and conspicuously disclosing) the additional information required by the Consumer Leasing Act and Regulation M.)

According to the FTC, fewer than 20 percent of consumers have an 800 Beacon score or higher, and the typical consumer does not understand what a Beacon score is. The FTC alleged that the failure to disclose in the advertisements, or the failure to disclose adequately, that few consumers would qualify for the offers was deceptive because such information would be material to consumers in deciding whether to visit the dealers and/or to lease an automobile from them.

To address the FTC's Section 5 allegations, the consent order prohibits the dealers from advertising the amount of any monthly payment, periodic payment, initial payment, or down payment, or the length of any payment term, "unless the representation is non-misleading, and the advertisement clearly and conspicuously discloses all qualifications or restrictions on the consumer's ability to obtain the represented terms, including but not limited to qualifications or restrictions based on the consumer's credit score. Provided, further, that, if a majority of consumers likely will not be able to meet a stated credit score qualification or restriction, the advertisement must clearly and conspicuously disclose that fact."

In its comment letter, NADA expressed concern that the consent order created "ambiguity with respect to the advertisement of credit or lease offers" and sought clarification from the FTC as to why the dealers' credit score disclaimer was inadequate. In its response, the FTC indicated that the disclaimer was not, "taken alone, deceptive," but "was insufficient to correct the deceptive net impression that consumers can lease the advertised vehicles at the down payment and monthly payment amounts prominently stated in the advertisements" because it was not understandable by consumers.

The FTC did not take the position that the consent order means an advertiser can only advertise a credit offer for which a "majority" of consumers would typically qualify. (NADA suggested in its letter that this was a possible reading of the consent order.) Instead, the FTC indicated that the consent order allows the advertisement of a credit offer even if "few" or "a minority" of consumers are likely to qualify, as long as the restrictions and qualifications are clearly and conspicuously stated.

The FTC did not explain its rationale for requiring additional disclosures when the advertised terms are "non-misleading" and when a majority of consumers would be unlikely to qualify for an offer. Nor did it provide other guidance requested by NADA. For example, NADA asked the FTC to clarify how an advertiser can make the required disclosures adequately, such as what information would have to be disclosed regarding a qualification based on the consumer's credit score. The FTC responded only by stating that "whether particular restrictions and qualifications are clearly and conspicuously disclosed in a particular advertisement will depend on the overall net impression of the advertisement and is therefore fact specific." It also stated that the consent order "reflects the fact that, frequently, Commission orders contain more definite language so as to ensure that particular respondents do not deceive consumers in the future."

In requiring the credit score disclosure, the FTC could be seen as introducing a new standard, namely, that a majority of consumers must be able to meet any credit score restriction or qualification. If they could not, the offer will be considered deceptive unless it includes an appropriate disclosure. That standard would be similar to the one the FTC has created for "up to" savings claims in advertisements. The FTC has indicated that Section 5 of the FTC Act requires advertisers using such claims to be able to demonstrate that a consumer is "likely" to achieve the maximum claimed savings under normal circumstances.

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