Heed these warnings from the FTC and NH Attorney General about Down Payments and Drip Pricing in Advertising.
Unless looking to get a coal-filled stocking, dealers need to watch how they advertise vehicle prices. The Federal Trade Commission (FTC) and the NH Attorney General are warning those who might be naughty, not nice, by issuing two advertising warnings. Though dealing with different types of advertising, both warnings follow the same thread: it is a violation to prominently advertise a price without the intention of selling the vehicle for that price.
The state warning deals with advertising a vehicle price with a disclaimer that assumes a down payment. The FTC issue deals with "drip pricing" where a business provides a deceptively low estimate that consumers would expect to pay.
By the way, the Attorney General's office is looking to put several million dollars into a newly created fraud unit. As such, dealers need to ensure their business practices are in line with the law!
NHADA's gift this season to you is one of advice: closely review your advertising!
Federal Trade Commission Warning further below.
NH Attorney General to Enforce Violations in Deceptive Advertising Practices
There has been a growing trend in advertising to list the price of a vehicle with a disclaimer found elsewhere in the ad that the price assumes a down payment or a trade-in worth a certain dollar amount. The NH Attorney General's office has notified NHADA that such a practice constitutes an unfair or deceptive act or practice under the NH Consumer Protection Act. Each violation of the act includes an administrative fine of up to $10,000 by the way.
The NHADA strongly urges all dealers to cease this practice regardless of the advertising medium (print, TV, internet or radio). The Attorney General letter gave this specific example:
Illustrative of this practice is where a dealer lists the price of a vehicle in an advertising box as being $1,095.00. A small asterisk appears next to the price, which links to a box on the back page of the advertisement. The box contains fine-print disclosures which, among other things, inform the consumer that the advertised price of the vehicle includes a down payment of $3,000, thereby making the actual selling price of the vehicle $4,095.00, or $3,000 greater than is shown in the ad box.
When advertising a price that factors in a down payment or trade-in, "the dealer has no intention of selling the vehicles for the price that appears in the ad box" according to the letter. The letter continues, "[t]his practice also creates a likelihood of confusions, as even after the consumer diligently searches the entire advertisement for the effective disclosures, the consumer is likely to be confused about the actual selling price of the vehicle."
The NHADA strongly recommends that dealers cease such advertising, regardless of medium, as soon as possible. Failure to do so may result in stiff sanctions for an individual business and, more significantly, increased industry scrutiny by the Attorney General and a blow to the general reputation of automobile dealers.
It is appropriate to advertise a payment with an assumed down payment, however, several other truth-in-lending criteria must be satisfied: When advertising retail installment sale terms, the ad must generally include four separate disclosures:
- The amount of or percentage of any downpayment;
- The number of or periods of repayment;
- The amount of the monthly payment; and
- The annual percentage rate (APR).
If any of the first three disclosures is advertised alone, then that "triggers" the disclosure of the remaining three. Note, however, that the fourth term, the annual percentage rate (APR) may be advertised without triggering the other three.
FTC Issues Warnings about "Drip Pricing"
The Federal Trade Commission has issued warning letters to 22 hotel operators stating that the way they advertise prices on their websites "may violate the law by providing a deceptively low estimate of what consumers can expect to pay for their hotel rooms." As explained below, the letters warn against several practices, including the exclusion of mandatory surcharges in prices that are quoted to consumers. This admonition, although directed at hotel operators, is relevant to all industries regulated by the FTC, including motor vehicle dealers.
The FTC defines drip pricing as "a pricing technique in which firms advertise only part of a product's price and reveal other charges later as the customer goes through the buying process. The additional charges can be mandatory charges, such as hotel resort fees, or fees for optional upgrades and add-ons. Drip pricing is used by many types of firms, including internet sellers, automobile dealers, financial institutions, and rental car companies." In its model letter to the hotel operators, the FTC stated, in part:
FTC staff has reviewed a number of online hotel reservation sites, and has confirmed that some hotels exclude resort fees from the quoted reservation price. Instead, the "total price" or "estimated price" quoted to consumers includes only the room rate and applicable taxes. At some of these sites, the applicable resort fee is listed nearby, but separate from, the quoted price. In others, the quoted price is accompanied by an asterisk that leads consumers to another location at the site – sometimes on the same page, sometimes not – where the applicable resort fee is disclosed, typically in fine print. A few sites fail to identify applicable resort fees anywhere, and instead inform consumers that other undefined fees may apply.
These practices may violate the law by misrepresenting the price consumers can expect to pay for their hotel rooms. We believe that online hotel reservation sites should include in the quoted total price any unavoidable and mandatory fees, such as resort fees, that consumers will be charged to stay at the hotel. While a hotel reservation site may breakdown the components of the reservation estimate (e.g., room rate, estimated taxes, and any mandatory, unavoidable fees), the most prominent figure for consumers should be the total inclusive estimate…. We strongly encourage you to review your company's website to ensure you are not misrepresenting the total price consumers can expect to pay when making a reservation to stay in your hotel. Please be advised that the FTC may take action to enforce and seek redress for any violations of the FTC Act as the public interest may require.
When dealer ads are reviewed for legal compliance, the reviewer must ensure that, in addition to adhering to any state requirements, the ads do not run afoul of the FTC's deception or unfairness standards.