The Subprime Auto Report

Attorney Mark Meckler: The FTC Is Watching The Automotive Industry

As an attorney, I specialize in marketing issues and legal compliance for the web marketing industry. Because of this, I’m constantly on the lookout for marketers in various verticals who haven’t yet caught on to the role of the FTC in regulating marketing on the web. Because of my professional association with Jim Wagner of TheSubprimeReport, I’ve recently started paying particular attention to the automotive vertical, and like so many industries, I’ve seen a lot of examples of people and companies who aren’t aware that they are marching right into the path of an ugly potential confrontation with the FTC.

Auto dealers and finance companies don’t generally see their primary role as that of “marketers,” but let’s face it; without marketing of some kind, no one comes to you to buy or finance a car. Marketing is an important part of the auto sales cycle, and the industry is becoming more and more marketing savvy when it comes to the internet.

In order to assist dealers in getting their feet under them in regard to the laws, rules and regulations they must follow when advertising on the web, I’ve put together this post regarding the things which are most likely to be in the sights of the FTC. If you’re serious about not finding yourself or your company in the crosshairs of an FTC enforcement action, you should familiarize yourself with this material. The FTC definitely doesn’t believe in ignorance as a defense. In fact, uttering the phrase “I didn’t realize” will likely make things much worse for you. If you make a mistake, they want to know that you are aware of the legal environment in which you operate, and that you do have a compliance program in place to be sure you are operating within their guidelines.

So what is the FTC looking for? The big, general category that the FTC is monitoring is “unfair or deceptive advertising.” This means that your goal must be to make sure that all advertising is truthful and non-deceptive.

The FTC’s site (www.ftc.gov) does a very good job of generally addressing these issues, and then allowing you to drill down for more detail. Make sure you know the rules and don’t get caught in the idea that what you don’t know can’t hurt you. The FTC is here to help, but their primary mission is to protect consumers, and if you don’t play by the rules, they definitely have the power to hurt your business.

The following will give you a good general outline to make sure that your advertising practices are neither deceptive nor unfair. Be aware, most states prohibit this sort of behavior in their state statutes, so following these guidelines will also help you to remain in the good graces of 50 Attorneys General as well.

General Advertising Policies

What truth-in-advertising rules apply to advertisers?

Under the Federal Trade Commission Act:

• advertising must be truthful and non-deceptive;
• advertisers must have evidence to back up their claims; and
• advertisements cannot be unfair.

Additional laws apply to ads for specialized products like consumer leases, credit, 900 telephone numbers, and products sold through mail order or telephone sales. And every state has consumer protection laws that govern ads running in that state.

What makes an advertisement deceptive?

According to the FTC’s Deception Policy Statement, an ad is deceptive if it contains a statement - or omits information - that:

• is likely to mislead consumers acting reasonably under the circumstances; and
• is “material” - that is, important to a consumer’s decision to buy or use the product.

What makes an advertisement unfair?

According to the Federal Trade Commission Act and the FTC’s Unfairness Policy Statement, an ad or business practice is unfair if:

• it causes or is likely to cause substantial consumer injury which a consumer could not reasonably avoid; and
• it is not outweighed by the benefit to consumers.

How does the FTC determine if an ad is deceptive?

A typical inquiry follows these steps:

• The FTC looks at the ad from the point of view of the “reasonable consumer” - the typical person looking at the ad. Rather than focusing on certain words, the FTC looks at the ad in context - words, phrases, and pictures -to determine what it conveys to consumers.
• The FTC looks at both “express” and “implied” claims. An express claim is literally made in the ad. For example, “ABC Mouthwash prevents colds” is an express claim that the product will prevent colds. An implied claim is one made indirectly or by inference. “ABC Mouthwash kills the germs that cause colds” contains an implied claim that the product will prevent colds. Although the ad doesn’t literally say that the product prevents colds, it would be reasonable for a consumer to conclude from the statement “kills the germs that cause colds” that the product will prevent colds. Under the law, advertisers must have proof to back up express and implied claims that consumers take from an ad.
• The FTC looks at what the ad does not say - that is, if the failure to include information leaves consumers with a misimpression about the product. For example, if a company advertised a collection of books, the ad would be deceptive if it did not disclose that consumers actually would receive abridged versions of the books.
• The FTC looks at whether the claim would be “material” - that is, important to a consumer’s decision to buy or use the product. Examples of material claims are representations about a product’s performance, features, safety, price, or effectiveness.
• The FTC looks at whether the advertiser has sufficient evidence to support the claims in the ad. The law requires that advertisers have proof before the ad runs.

Because of consumer complaints, the FTC regularly investigates auto dealerships and their sales and marketing tactics. Make sure you’re aware, compliant, and ready for the call from the FTC if it ever comes.

In closing, please forgive me for using a cliché to sum up my feelings about this area: “An ounce of prevention is worth a pound of cure.” Translation; it’s much easier and much less expensive to comply in advance than to deal with an enforcement action by the FTC or a state Attorney General.

Legal Disclaimer: Information conveyed in this column is provided for informational purposes only and does not constitute legal advice. These materials do not necessarily reflect the opinions of Digital Moses or The Subprime Report, and is not guaranteed to be complete, correct, or up-to-date. The column is provided for “information purposes” only and should not be relied upon as “legal advice.” This information is not intended to substitute for obtaining legal advice from an attorney. No person should act or rely on any information in this column without seeking the advice of an attorney.

Mark Meckler is the General Counsel and Chief Operating Officer for UniqueLeads.com, Inc., and Unique Lists, Inc., providers of web marketing and list management services across a variety of industries, including the automotive industry. Mark may be contacted about leads, web traffic and list management services at Mark@uniqueleads.com. You may also view more of Mark’s articles on legal issues surrounding web advertising at http://www.dmconfidential.com/Digital-Moses-Confidential.php

Copyright 2007 Mark J Meckler