Auto Dealer Advertising Workshop at the Carolinas Independent Automobile Dealers Association - August 2nd, 2013

1. Auto Dealer Advertising
Compliance
Getting Customers on the Lot Without Crossing the Line

2. There’s no doubt that the right advertising program can make you
plenty of money. But as they say, it’s not how much money you make
but how much you get to keep that counts. You have to get customers
on the lot, but if you cross the line you may face bad publicity and
lawsuits. Auto dealers are a favorite target of both state and federal
regulators hunting for advertising violations and are often blindsided
by expensive fines, lawsuits and bad publicity. While the various laws
and regulations covering automotive advertising can be confusing, it
can be helpful to understand how lawmakers view advertising in
general and what triggers their wrath.

3. 5 Reasons Why Advertising Compliance is Challenging
1. Regulators frequently cite dealers for advertising violations even though
there are no customer complaints. Since statements and representations
in advertisements are evaluated based on their tendency to deceive, no
actual harm to consumers need occur for there to be a violation.
2. Despite your best intentions, you may be held accountable for advertising
errors. If an ad is deemed deceptive, an advertiser has liability regardless
of whether there was intent to deceive.
3. If the first contact with a consumer is secured by deception, a violation may
occur even though the true facts are made known to the buyer before he
or she enters into the contract of purchase or lease. In the infamous “we’ll
pay off your trade no matter how much you owe” ads, the dealers were
found to be in violation even though they disclosed that negative equity is
added to the amount financed at the time of sale.
4. Advertising violations are easy to find and difficult to defend against.
Often, all the proof a regulator or attorney needs is the ad itself.
5. The rules aren’t always clear & new technologies bring new challenges - It’s
easy to get blindsided!

4.  The Dodd-Frank Consumer Protection Act enhanced the FTC’s
existing authority over motor vehicle advertising, sales and lease
practices .
 State AGs can now enforce FTC Act. Violations can bring fines of up
to $16,000 per violation, or per day of a continuing violation.
 Said David Vladeck, Director of the FTC's Bureau of Consumer
Protection. "The Federal Trade Commission is constantly on the
lookout for potentially deceptive ads, and brings actions to stop
them when appropriate."
The Feds have traditionally gone after bigger fish and
left car dealers to state regulators. But the game
has changed - last year’s advertising cases were the
first of their kind brought by the FTC.
Federal enforcement leads to more local
enforcement. Attorneys general in many
states identify accusations against dealerships
as being their #1 concern, and recognize the
political capital in going after dealers.

5. The Rest of The Story…
Besides federal and state regulatory agencies, consumer law firms
that specialize in auto dealer-related legal issues continue to
flourish. Car dealerships are a prime target for these type of firms due
to very complicated consumer-based laws. Many legal action against
dealers these days is the result of mistakes or omissions in the way
vehicles are advertised, or the statements made by dealership staff.
Even more disturbing is the fact that many lawsuits by plaintiff's
attorneys frequently have the ability to be rolled into a class action,
and may prove very costly to the defending dealer. Attorneys are
generating massive settlements and legal fees from class action
lawsuits for seemingly minor issues.

7. In addition, the dealer had to sign a Consent Decree with the
Attorney General that stated among other things: “Any violation
committed after the date of entry of this Consent Decree of any of
the injunctive terms of this Consent Decree shall constitute a
violation of an injunction for which civil penalties of up to $25,000
per violation may be sought by the Attorney General”. In other
words, any advertising missteps this dealer makes will cost it dearly.
This injunction is permanent by the way. How would you like your
state’s attorney general breathing down your neck?
This same marketing company
was busted by the state of
Washington back in 2007. In
that case, the dealer ended up
paying almost twice the amount
in penalties and legal fees as
the marketing company did.

9. Per North Carolina DOT Regulations…
 The Division may deny, suspend or revoke a license issued
under this Article for knowingly advertising by any means, any
assertion, representation or statement of fact which is untrue,
misleading or deceptive in any particular relating to the
conduct of the business.
 A motor vehicle dealer shall not charge an administrative,
origination, documentary, procurement, or other similar
administrative fee related to the sale or lease of a motor vehicle,
unless the fact that the dealer charges a fee regulated by this
section and the amount of the fee is disclosed whenever the
dealer engages in the price advertising of vehicles.

11. KEY POINTS
Advertisements Must:
 Comply with Federal Truth in Lending Act and Regulation Z
when making credit advertisements.
Advertisements Must Not:
 Be false, deceptive, misleading, or misrepresent a vehicle.
 Use statements that guarantee the value or range of value
for trade-in vehicles.
 Use the term “free” when the purchase or other
consideration is required to obtain the supposed “free” item
or service.

14. Even if it’s not written in the law, you can get
stung…
Advertising Concepts Every Dealer Employee Should Know
While regulations and “hot buttons” vary by
state, keep in mind that attorneys general
frequently compare notes with their peers, and
follow the lead of the federal regulatory
agencies, so you never know when your state’s
AG is going to get a bee in his or her bonnet
about a new issue…

15. Even though the meaning of statements in an ad seems obvious to
you, it may still be considered deceptive. Statements susceptible to
both a misleading and a truthful interpretation are typically
considered to be misleading by regulators. A good example is
when the FTC cited a number of dealers for ads stating “we’ll pay off
your trade no matter how much you owe”. While this statement may
be technically true, lawmakers are of the opinion that these ads
imply that the dealer will buy the trade for the amount the customer
owes, regardless of its real value.
It’s all about the big picture. An
advertisement as a whole may be
misleading although every sentence
separately considered is literally
true. The key is to make sure your
message is clear, truthful, easy to
understand, and not subject to
multiple interpretations.

16.  Deception can result
from direct statements in
the advertisement or
from reasonable
inferences that may be
drawn from an ad, or
from disclaimers that
contradict, confuse,
unreasonably limit or
materially modify a
principle message of the
advertisement.
Deception may also
result from the failure to
clearly and conspicuously
disclose any material
facts, including
limitations, disclaimers,
qualifications, conditions,
exclusions or restrictions.
Advertising is considered deceptive if
the ad has a “tendency or capacity
to mislead the public” or from
“reasonable inferences that may be
drawn from an ad”. A VERY LOW BAR.

17. Let’s use an example of a 5 year-old car with 75,000 miles
that had an original MSRP of $20,000. According to the
disclaimer calculations, this car would have a trade value of
anywhere between -$6,250 (at 35 cents/mile) and -$36,250
(at 75 cents/mile).
What’s Wrong With This Picture?

18.  Your disclosures must be made in a clear and conspicuous
manner to minimize the possibility of misunderstanding by the
consumer public. It’s vital to clearly and conspicuously disclose any
material facts, including
limitations, disclaimers, qualifications, conditions, exclusions or
restrictions.
 Be sure that all disclaimers are clearly and conspicuously displayed
and not buried away in difficult-to-read fine print or a difficult-
to-find links on websites. In general, the “clear and conspicuous
standard” means that the disclosures in any media must be
reasonably understandable. NOTE: South Carolina requires a
minimum type-size of 8 points.
Disclaimers in themselves won’t always protect
against advertising violations. A disclaimer must
not contradict, confuse, unreasonably limit,
materially modify a principle message, or
substantially change the meaning of any
advertised statements.

19. The FTC has developed what it refers to as “THE FOUR Ps” to describe
what the clear and conspicuous standard requires:
 Prominence. The type size should be big enough to read easily.
There should be a sharp contrast between the disclosure and the
background. The should be a clear type face. For TV (and video)
ads, the consumer must have enough time to read the disclosure.
 Presentation. The wording must be easy to understand. The
format should not discourage careful reading. The advertisement
should be free of distractions that compete for consumer attention.
Consumers are more likely to understand the disclosure or
qualifiers if it is in the same mode (visual and/or audio) as the
advertising to which it relates.
 Placement and Proximity. The disclosure or qualifier should be
in a place where consumers will read it. The disclosure or qualifier
should be near the advertising to which it relates.

20.  The words “No Credit Rejected“, “Guaranteed Financing” or
words of similar import should not be used unless true, since they
imply that consumer credit will be extended to anyone regardless
of the person's credit worthiness or financial ability to pay.
 A dealer should not offer any free goods or services
conditioned on the purchase of a vehicle. However, free goods
or services may be offered as incentive to take a test drive or visit
the dealership. According to FTC guidelines, “If a product or
service usually is sold at a price arrived at through bargaining,
rather than at a regular price, it is improper to represent that
another product or service is being offered “Free” with the sale”.
There’s no safety net in the “but everybody
does it this way” mindset. Regulators have
made it clear that the fact that others were, are,
or will be engaged in like practices will not be
considered a defense in a legal action.

21. TRUTH IN LENDING DISCLOSURES
If payments are advertised, the following disclosures must be stated in
the advertisement:
a) The amount or percentage of the downpayment
b) The terms of repayment
c) The “annual percentage rate” using that term or the
abbreviation “APR”, and if the rate may be increased after
consummation, that fact.
For example, it would be deceptive to
advertise a low monthly payment based on
84 month financing on an amount financed of
$5,000 if all of the financial institutions that
you normally assigns contracts to require a
minimum amount financed of $10,000 for 84
month terms.
 Only offer credit terms that are actually available to a reasonable
amount of consumers. Per federal Regulation Z, if an advertisement
for credit states specific credit terms, it must state only those terms
that actually are or will be arranged or offered by the dealer.

22.  No customer should be encouraged to not purchase the
advertised vehicle, nor should there be any acts attempted by the
sales staff to prevent the sale.
 Ensure that vehicles are promptly removed from the websites
after they have been sold.
If a car has already been sold when a customer calls or emails, your
staff should tell the customer it’s sold!
Regulators have taken action against businesses for having a sales
compensation plan designed to penalize salespersons who sell the
advertised merchandise or service.
Bait & Switch advertising is a hot
button with lawmakers and must be
avoided. It’s unlawful to advertise for
sale any vehicle that the dealer does
not intend to sell because the true
intention is to switch the customer to
another vehicle.

23. The unqualified term “Sale"
should not be used in advertising
unless there is a significant
reduction from the advertiser's
usual and customary price of the
vehicle offered and the sale is for
a limited period of time.
“Was” – “Now” claims - The former price should be
the actual price at which the advertiser has been
currently offering the vehicle immediately preceding
the sale for a reasonably substantial period of time.
Former prices must not be “made up” or
“inflated” prices.
 Avoid advertising which deceptively or falsely disparages a
competitor or competing products or services.

24.  Don't forget your digital marketing. Websites, videos, email,
and even social media are considered advertising mediums and
may be targeted by regulators. Don’t assume that your website
provider is utilizing language that is acceptable in your particular
state and including all of the required disclosures. BOTTOM LINE
– They don’t care where you advertise, you’d better do it right!
 Never assume that advertising agencies or vendors know all the
laws and regulations governing advertising compliance. This is
particularly true of companies based in other states, such as
internet and direct mail providers. The primary responsibility
for compliance lies with the dealership, not the advertising
agency or vendor. According to the law, a dealer has the duty to
investigate the accuracy of any statements made in advertising.
Advertising laws apply to all forms of
advertising, including
radio, television, print, electronic, direct
mail, flyers, billboards, showroom and other
dealership displays. Even Oral statements can
be considered advertising.

25. Other Advertising Hot-Buttons
• Falsely representing that vehicles are from sources such as rental car
company bankruptcies, bank repossessions, or fleet liquidations when the
vehicles sold came from the dealers’ usual inventories.
• Falsely representing that a sale is being sponsored or conducted by a bank,
lending institution, fleet, repossession, or liquidation company.
• Using deceptive promotions, including mailers that state “Urgent Recall-
Official Notice” or otherwise imply it is from a government agency.
• Ads that guarantee a minimum trade-in value.
• Failing to state the odds of a winning a prize, the value of that prize, and all
material conditions required to obtain a prize.
• Making statements that the dealer could not substantiate through its
business records.

26.  Advertising compliance isn’t rocket science. The rules for good
advertising are mostly common sense. It’s all about being
truthful and easy to understand. A good practice is to have a
friend or family member not involved in the car business look at
your ads. If they don’t get it, your customers probably won’t
either!
 Depending on the dealership, advertising may be handled by any
number of people such as sales managers, internet staff, or a
marketing department. Any employee or vendor involved in
advertising should be properly trained on federal and state
advertising regulations.
If you’re not sure about an advertisement, don’t
guess! It’s a good idea to have your advertising
reviewed by a qualified professional – it may end
up costing quite a bit less than a legal action.

27.  Getting “caught” is no longer a
just a fine and slap on the wrist.
Regulators have begun using the
media to penalize those dealers
caught in order to intimidate
others. Regulators want press,
and the tougher the press is on
the offending dealers the better
it is for the regulators in charge.
 The severity of the offenses is
often exaggerated.
 • The social media age brings
more long-term consequences
and public humiliation than
businesses have ever seen
before.
 Do you want your customers
seeing YOUR dealership on the 6
o’clock news?

29. Thanks For Attending!
Please feel free to call or drop an me a line if
you ever have any questions…
Jim Radogna
(858) 722-2726
Email: jim@dealercomplianceconsultants.com
Facebook: http://www.facebook.com/jimradogna
Twitter: @jradogna
LinkedIn: www.linkedin.com/in/jimradogna/
Compliance Blog: http://dealercomplianceconsultants.blogspot.com
www.DealerComply.com