[Federal Register Volume 63, Number 204 (Thursday, October 22, 1998)]
[Notices]
[Pages 56649-56652]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-28400]
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FEDERAL TRADE COMMISSION
[File Nos. 9823162, 9823528, & 9723267]
Chrysler Corporation, Bozell Worldwide, Inc., & Martin
Advertising, Inc.; Analysis to Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed Consent Agreements.
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SUMMARY: The three consent agreements in these matters settle alleged
violations of federal law prohibiting unfair or deceptive acts or
practices or unfair methods of competition. The attached Analysis to
Aid Public Comment describes both the allegations in the draft
complaints that accompany the consent agreements and the terms of the
consent orders--embodied in the consent agreements--that would settle
these allegations.
DATES: Comments must be received on or before December 21, 1998.
ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,
Room 159, 6th St. and Pa. Ave., NW., Washington, DC 20580.
FOR FURTHER INFORMATION CONTACT:
Rolando Berrelez or Sally Pitofsky, FTC/S-4429, Washington, DC 20580.
(202) 326-3211 or 326-3318.
SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Section 2.34 of
the Commission's Rules of Practice (16 CFR 2.34), notice is hereby
given that the above-captioned consent agreements containing consent
orders to cease and desist, having been filed with and accepted,
subject to final approval, by the Commission, have been placed on the
public record for a period of sixty (60) days. The following Analysis
to Aid Public Comment describes the terms of the consent agreements,
and the allegations in the complaints. An electronic copy of the full
text of the consent agreement packages can be obtained from the FTC
Home Page (for October 15, 1998), on the World Wide Web, at ``http://
www.ftc.gov/os/actions97.htm.'' A paper copy can be obtained from the
FTC Public Reference Room, Room H-130, Sixth Street and Pennsylvania
Avenue, NW., Washington, DC 20580, either in person or by calling (202)
326-3627. Public comment is invited. Such comments or views will be
considered by the Commission and will be available for inspection and
copying at its principal office in accordance with Section
4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR
4.9(b)(6)(ii)).
Analysis of Proposed Consent Order To Aid Public Comment
Summary
The Federal Trade Commission has accepted separate agreements,
subject to final approval, from Chrysler Corporation (``Chrysler'') and
two advertising agencies, Bozell Worldwide, Inc. (``Bozell'') and
Martin Advertising, Inc., (``Martin'') (collectively referred to as
``respondents''). Bozell is the advertising agency for Chrysler, and
Martin is an advertising agency for numerous automobile dealers and
dealer marketing groups.
The proposed consent orders have been placed on the public record
for sixty (60) days for receipt of comments by interested persons.
Comments received during this period will become part of the public
record. After sixty (60) days, the Commission will again review the
agreements and the comments received and will decide whether it should
withdraw from the agreements or make final the agreements' proposed
orders.
The complaints allege that respondents created and disseminated
autombile lease advertisements that violate the Federal Trade
Commission Act (``FTC Act''), the Consumer Leasing Act (``CLA''), and
Regulation M. The complaint against Martin also alleges that respondent
Martin's automobile
[[Page 56650]]
credit advertisements violated the FTC Act, the Truth in Lending Act
(``TILA''), and Regulation Z. One of Martin's advertisements was a
balloon payment credit advertisement at issue in the Federal Trade
Commission's enforcement action against General Motors Corporation
(``GM''), Dkt. No. C-3710.
Section 5 of the FTC Act prohibits false, misleading, or deceptive
representations or omissions of material information in advertisements.
In addition, Congress established statutory disclosure requirements for
lease and credit advertising under the CLA and TILA, respectively, and
directed the Federal Reserve Board (``Board'') to promulgate
regulations implementing such statutes--Regulations M and Z. See 15
U.S.C. Secs. 1667-1667e; 12 C.F.R. Part 213; 12 C.F.R. Part 226.
I. Chrysler and Bozell
A. FTC Act Violations--Lease Advertising
1. Misrepresentation of Model Availability
The complaints against Chrysler and Bozell allege that these
companies misrepresent the vehicle models available at the advertised
lease terms. According to the complaints, these respondents represent
that consumers can lease the Chrysler vehicles featured in respondents'
advertisements at the lease terms prominently stated in the
advertisements. This representation is false, according to the
complaints, because the lease terms apply to Chrysler models of lesser
value than the Chrysler vehicles featured in the advertisements. The
complaints allege that the fine print disclosures in Chrysler and
Bozell's lease advertisements, including but not limited to ``Limited
model shown, higher'' are inadequate to disclaim or modify the
representation. The Bozell complaint also alleges that Bozell, the
advertising agency, knew or should have known that this representation
was false and misleading. These practices, according to the complaint,
constitute deceptive acts or practices in violation of Section 5(a) of
the FTC Act.
2. Failure to Provide Adequate Disclosures in Lease Advertising
The Chrysler and Bozell complaints also allege that respondents'
lease advertisements represent that consumers can lease the advertised
vehicles at the terms prominently stated in the advertisements,
including but not limited to the monthly payment amount. These
advertisements allegedly do not adequately disclose additional terms
pertaining to the lease offers, such as the total amount of any
payments due at lease inception. The existence of these additional
terms would be material to consumers in deciding whether to lease the
advertised vehicles, according to the complaints. The Bozell complaint
alleges that Bozell knew or should have known that the failure to
disclosure adequately material terms was deceptive. These practices,
according to the complaints, constitute deceptive acts or practices in
violation of Section 5(a) of the FTC Act.
B. CLA and Regulation M Violations
Chrysler and Bozell's lease advertisements also allegely violate
the CLA and Regulation M. According to the complaints, these
respondents' lease advertisements state a monthly payment amount but
fail to disclose clearly and conspicuously certain additional terms
required by the CLA and Regulation M, including one or more of the
following terms: that the transaction advertised is a lease; the total
amount due prior to or at consummation or by delivery, if delivery
occurs after consummation, and that such amount: (1) excludes third-
party fees, such as taxes, licenses, and registration fees, and
discloses that fact or (2) includes third-party fees based on a
particular state or locality and discloses that fact and the fact that
such fees may vary by state or locality; whether or not a security
deposit is required; and the number, amount, and timing of scheduled
payments.
According to the complaints, respondents' television lease
disclosures are not clear and conspicuous because they appear on the
screen in very small type, for a very short duration, and/or
accompanied by background sounds and images. The Chrysler and Bozell
complaints, therefore, allege that these practices violate Section 184
of the CLA, 15 U.S.C. Sec. 1667c, as amended, and Section 213.7 of
Regulation M, 12 C.F.R. Sec. 213.7, as amended.
II. Martin
A. FTC Act Violations--Lease Advertising
1. Misrepresentation of Advertised Transaction
Count I of the Martin complaint alleges that respondent's
automobile lease advertisements represent that consumers can purchase
the advertised vehicles by financing the vehicles though credit at the
monthly payment amounts prominently stated in the advertisements. This
representation is false, according to the complaint, because the
monthly payment amounts stated in respondent's lease advertisements are
components of lease offers and not credit offers. Count I, therefore,
alleges that respondent's practices constitute deceptive acts or
practices in violation of Section 5(a) of the FTC Act.
2. Misrepresentation of Inception Fees
Count II of the Martin complaint alleges that Martin's automobile
lease advertisements represent that a particular amount stated as
``down'' or ``cash or trade down'' is the total amount consumers must
pay at lease inception to lease the advertised vehicles. According to
the complaint, this representation is false because consumers must pay
additional fees at lease inception beyond the amount stated as ``down''
or ``cash or trade down,'' such as a security deposit, first month's
payment, and/or an acquisition fee, to lease the advertised vehicles.
Count II alleges that these practices constitute deceptive acts or
practices in violation of Section 5(a) of the FTC Act.
3. Failure to Disclose Adequately that Transaction Advertised in a
Lease
Count III of the Martin complaint further alleges that respondent,
in lease advertisements, represents that consumers can purchase the
advertised vehicles for the monthly payment amounts prominently stated
in the advertisements. The advertisements allegedly do not adequately
disclose that each advertised monthly payment amount is a component of
a lease offer. The complaint alleges that the existence of this
additional information would be material to consumers in deciding
whether to visit the dealership named in the advertisements and/or
whether to lease or purchase an automobile from the dealership. Count
III, therefore, alleges that the failure to disclose adequately this
additional information, in light of the representation made, was, and
is, a deceptive practice in violation of Section 5 of the FTC Act.
4. Failure to Disclose Adequately Inception Fees
Count IV of the Martin complaint alleges that Martin represents in
lease advertisements that consumers can lease the advertised vehicles
at the terms prominently stated in the advertisements, including but
not necessarily limited to the monthly payment amount and/or amount
stated as ``down'' or ``cash or trade down.'' Like the Chrysler and
Bozell complaints, the Martin complaint alleges that Martin's lease
advertisements do not adequately disclose additional material terms
pertaining to the lease, such as the total
[[Page 56651]]
amount due at lease inception. The failure to disclose these additional
terms, according to the complaint, was, and is, a deceptive practice in
violation of the FTC Act.
The complaint alleges that Martin knew or should have known that
the alleged misrepresentations and failure to disclose adequately
material terms was, and is deceptive. These practices, according to the
complaint, constitute deceptive acts or practices in violation of
Section 5(a) of the FTC Act.
B. CLA and Regulation M Violations
Count V of the Martin complaint alleges that respondent Martin's
lease advertisements state a monthly payment amount, the number of
required payments, and/or an amount ``down.'' Respondent Martin's
advertisements, however, allegedly omit or fail to clearly and
conspicuously disclose certain additional terms required by the CLA and
Regulation M. Martin's radio lease advertisements, for example,
allegedly contain none of the required lease disclosures or rapidly
state the disclosures at the end of the advertisements. The complaint,
therefore, alleges that respondent Martin's failure to disclose lease
terms in a clear and conspicuous manner violates the CLA and Regulation
M.
C. FTC Act Violations--Credit Advertising
1. Misrepresentation in Credit Advertising
Count VI of the Martin complaint further alleges that respondent
Martin's credit advertisements represent that consumers can purchase
the advertised vehicles at the terms prominently stated in the ad, such
as a low monthly payment and/or a low amount ``down.'' This
representation is false, according to the complaint, because consumers
must also pay a final balloon payment of several thousand dollars, in
addition to the monthly payment and/or amount down, to purchase the
advertised vehicles. The complaint alleges that Martin knew or should
have known that this representation was false or misleading.
Accordingly, Count VI alleges that these practices dilate Section 5(a)
of the FTC Act.
2. Failure to Disclose Adequately in Credit Advertising
Count VII of the Martin complaint alleges that Martin knew or
should have known that the failure to disclose adequately in its credit
advertisements additional terms pertaining to the credit offer,
including the existence of a final ballon payment of several thousand
dollars and the annual percentage rate, was deceptive. These practices,
according to the complaint, constitute deceptive acts or practices in
violation of Section 5(a) of the FTC Act.
D. TILA and Regulation Z Violations
1. Failure to State Rate of Finance Charge as Annual Percentage Rate
The Martin complaint alleges in Count VIII that respondent Martin's
credit advertisements state a rate of finance charge without stating
the rate as an ``annual percentage rate,'' using that term or the
abbreviation ``APR.'' According to the complaint, these practices
constitute a violation of Section 144 and 107 of the TILA, 15 U.S.C.
Secs. 1664 and 1606, respectively, and Sections 226.24(b) and 226.22 of
Regulation Z, 12 C.F.R. Sec. 226.24(b) and 226.22, respectively.
2. Failure to Disclose Required Information Clearly and Conspicuously
The complaint further alleges in Count IX that Martin's credit
advertisements fail to disclose required credit terms in a clear and
conspicuous manner, as required by the TILA and Regulation Z. According
to the complaint, respondent's televeision advertisements contain
credit disclosures that are not clear and conspicuous because they
appear on the screen in small type, against a background of similar
shade, for a very short duration, and/or over a moving background. The
complaint, therefore, alleges that these practices violate Section 144
of the TILA, 15 U.S.C. Sec. 1664, as amended, and Section 226.24(c) of
Regulation Z, 12 C.F.R. Sec. 226.24(c), as amended.
III. Proposed Consent Orders
The proposed consent orders contain provisions designed to remedy
the violations charged and to prevent respondents from engaging in
similar acts and practices in the future. Specifically, subparagraph
I.A. of the Chrysler and Bozell proposed orders prohibits these
respondents form misrepresenting the vehicle model(s) available to
consumers in connection with any advertised lease offer. Subparagraph
I.A. of the proposed Martin order prohibits Martin, in any motor
vehicle lease advertisement, from misrepresenting that any advertised
lease terms pertain to a cash or credit offer.
Subparagraph I.B. of the proposed orders prohibits respondents from
misrepresenting the total amount due at lease signing or delivery, the
amount down, and/or the downpayment, capitalized cost reduction, or
other amount that reduces the capitalized cost of the vehicle (or that
no such amount is required). Additionally, subparagraph I.C. of the
proposed orders prohibits respondents, in any motor vehicle lease
advertisement, from making any reference to any charge that is part of
the total amount due at lease signing or delivery or that no such
amount is due, not including a statement of the periodic payment, more
prominently than the disclosure of the total amount due at lease
inception. The ``prominence'' requirement prohibits respondents from
running deceptive advertisements that highlight low amounts ``down,''
with inadequate disclosures of actual total inception fees. This
``prominence'' requirement for lease inception fees also is found in
Regulation M.
Moreover, subparagraph I.D. of the proposed orders prohibits
respondents, in any motor vehicle lease advertisement, form stating the
amount of any payment, or that any or not initial payment is required
at consummation of the lease, unless the advertisement also states,
clearly and conspicuously, all of the terms required by Regulation M,
as follows: (1) that the transaction advertised is a lease; (2) the
total amount due at lease signing or delivery; (3) whether or not a
security deposit is required; (4) the number, amount, and timing of
scheduled payments; and (5) that an extra charge may be imposed at the
end of the lease term where the liability of the consumer at lease end
is based on the anticipated residual value of the vehicle.
Subparagraph II.A of the proposed Martin order prohibits respondent
Martin, in any closed-end credit advertisement involving motor
vehicles, from misrepresenting the existence and amount of any balloon
payment or the annual percentage rate; subparagraph II.B also prohibits
respondent Martin from stating the amount of any payment, including but
not limited to any monthly payment, in any motor vehicle closed-end
credit advertisement unless the amount of any balloon payment is
disclosed prominently and in close proximity to the most prominent of
the above statements.
Furthermore, subparagraph II.C of the proposed Martin order also
enjoins respondent from stating a rate of finance charge without
stating the rate as an ``annual percentage rate'' or using the
abbreviation ``APR''. Additionally, subparagraph II.D of the proposed
Martin order enjoins respondent from disseminating motor vehicle
closed-end credit advertisements that state the amount or percentage of
any downpayment, the number of payments or period of repayment, the
amount of
[[Page 56652]]
any periodic payment, including but not limited to the monthly payment,
or the amount of any finance charge without disclosing, clearly and
conspicuously, all of the terms required by Regulation Z, as follows:
(1) the amount or percentage of the downpayment; (2) the terms of
repayment, including but not limited to the amount of any balloon
payment; and (3) the correct annual percentage rate, using that term or
the abbreviation ``APR,'' as defined in Regulation Z and the Official
Staff Commentary to Regulation Z. If the annual percentage rate may be
increased after consummation of the credit transaction, that fact must
also be clearly and conspicuously disclosed.
The information required by subparagraphs I.D. (lease
advertisements) and II.D (credit advertisements) of the proposed orders
must be disclosed ``clearly and conspicuously'' as defined in the
proposed orders. The ``clear and conspicuous'' definition requires
respondents to present such lease or credit information,as applicable,
within the advertisement in a manner that is readable (or audible) and
understandable to a reasonable consumer. This definition is consistent
with the ``clear and conspicuous'' requirement for advertising
disclosures in Regulation M and Regulation Z that require disclosure
that consumers can see and read (or hear) and comprehend. Is is also
consistent with prior Commission orders and statements interpreting
Section 5 to require that advertising disclosures be readable (or
audible) and understandable to reasonable consumers.
The purpose of this analysis is to facilitate public comment on the
proposed orders. It is not intended to constitute an official
interpretation of the agreements and proposed orders or to modify in
any way their terms.
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 98-28400 Filed 10-21-98; 8:45 am]
BILLING CODE 6750-01-M
