[Federal Register Volume 61, Number 235 (Thursday, December 5, 1996)]
[Notices]
[Pages 64524-64526]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-30945]


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FEDERAL TRADE COMMISSION
[File Nos. 952 3093, 952 3094, 952 3095, 952 3450, and 952 3096


General Motors Corp., American Honda Motor Co., Inc., American 
Isuzu Motors, Inc., Mazda Motor of America, Inc., and Mitsubishi Motor 
Sales of America, Inc., Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreements.

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SUMMARY: In settlement of alleged violations of federal law prohibiting 
unfair or deceptive acts or practices and unfair methods of 
competition, these five consent agreements, accepted subject to final 
Commission approval, would require, among other things, five major 
automobile manufacturers to provide consumers with clear, readable, and 
understandable cost information in their car lease and financed 
purchase advertising. The agreements prohibit the manufacturers from 
featuring low monthly payments or low amounts ``down'' in large, bold 
print, while hiding additional costs and sometimes contradictory 
information in ``mouse print'' that is difficult or impossible to read.

DATES: Comments must be received on or before February 3, 1997.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 6th St. and Pa. Ave., N.W., Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT: David Medine, Federal Trade 
Commission, S-4429, 6th and Pennsylvania Ave., NW, Washington, DC 
20580. (202) 326-3224.

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 five consent 
agreements, and the allegations in the accompanying complaints. 
Electronic copies of the full text of the five consent agreement 
packages can be obtained from the Commission Actions section of the FTC 
Home Page (for November 21, 1996), on the World Wide Web, at ``http://
www.ftc.gov/os/actions/htm.'' Paper copies can be obtained from the FTC 
Public Reference Room, Room H-130, Sixth Street and Pennsylvania 
Avenue, N.W., Washington, D.C. 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 Orders To Aid Public Comment

    The Federal Trade Commission has accepted separate agreements, 
subject to final approval, to proposed consent orders from General 
Motors Corporation (``General Motors''), American Honda Motor 
Corporation, Inc. (``Honda''), American Isuzu Motors Inc. (``Isuzu''), 
Mazda Motor of America, Inc. (``Mazda''), and Mitsubishi Motor Sales of 
America, Inc. (``Mitsubishi'') (collectively referred to as 
``respondents'').
    The proposed consent orders have been placed on the public record 
for sixty (60) days for reception 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 each of the respondents' automobile 
lease advertisements violated the Federal Trade Commission Act (``FTC 
Act''), the Consumer Leasing Act (``CLA''), and Regulation M. The 
complaints also allege that General Motors and Mitsubishi's automobile 
credit advertisements violated the FTC Act, the Truth in Lending Act 
(``TILA''), and Regulation Z. 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 the 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. 1601-1667e; 12 
C.F.R. Part 213; 12 C.F.R. Part 226. On September 30, 1996, Congress 
passed revisions to the CLA that will be implemented by the Board 
through future changes to Regulation M and will become optionally 
effective immediately. See Title II, Section 2605 of the Omnibus 
Consolidated Appropriations Act for Fiscal Year 1997, Pub. L. No. 104-
208, 110 Stat. 3009, ________ (Sept. 30, 1996)(``revised CLA''), as 
amended, and Section 213.7(d)(2) of revised Regulation M, 61 Fed. Reg. 
at 52,261 (to be codified at 12 C.F.R. Sec. 213.7(d)(2)), as amended.
    The complaints against General Motors, Honda, Isuzu, Mazda, and 
Mitsubishi allege that respondents' automobile lease advertisements 
represented that a particular amount stated as ``down'' is the total 
amount consumers must pay at the initiation of a lease agreement to 
lease the advertised vehicles. This representation is false, according 
to the complaints, because consumers must pay additional fees beyond 
the amount stated as ``down,'' such as the security deposit and first 
month's payment, to lease the advertised vehicles. The complaints also 
allege that respondents failed to disclose adequately these additional 
fees in their advertisements. These practices, according to the 
complaints, constitute deceptive acts or practices in violation of 
Section 5(a) of the FTC Act.
    The complaints further allege that respondents' lease 
advertisements failed to disclose the terms of the offered lease

[[Page 64525]]

in a clear and conspicuous manner, as required by the CLA and 
Regulation M. According to the complaints, respondents' television 
lease disclosures were not clear and conspicuous because they appeared 
on the screen in small type, against a background of similar shade, for 
a very short duration, and/or over a moving background. The General 
Motors, Honda, Mazda, and Mitsubishi complaints also allege that these 
respondents' fine print disclosures of lease terms in print 
advertisements were not clear and conspicuous. The complaints, 
therefore, allege that respondents' failure to disclose lease terms in 
a clear and conspicuous manner violates the CLA and Regulation M.
    The General Motors and Mitsubishi complaints also allege that these 
respondents' credit advertisements represented 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 complaints, because consumers 
must also pay a final balloon payment of several thousand dollars, in 
addition to the low monthly payment and/or amount down, to purchase the 
advertised vehicles. The complaints further allege that respondents 
General Motors and Mitsubishi failed to disclose adequately in their 
credit advertisements additional terms pertaining to the credit offer, 
including the existence of a final balloon payment of several thousand 
dollars and the annual percentage rate. These practices, according to 
the complaints, constitute deceptive acts or practices in violation of 
Section 5(a) of the FTC Act.
    The General Motors and Mitsubishi complaints further allege that 
these respondents' credit advertisements failed to disclose required 
credit terms in a clear and conspicuous manner, as required by the TILA 
and Regulation Z. According to the complaints, respondents' television 
advertisements contained credit disclosures that were not clear and 
conspicuous because they appeared on the screen in small type, against 
a background of similar shade, for a very short duration, and/or over a 
moving background. The complaints also allege that these respondents' 
fine print disclosures of credit terms in print advertisements were not 
clear and conspicuous. The complaints, therefore, allege that General 
Motors and Mitsubishi's failure to disclose credit terms in a clear and 
conspicuous manner violates the TILA and Regulation Z.
    The proposed consent orders contain provisions designed to remedy 
the violations charged and to prevent the respondents from engaging in 
similar acts and practices in the future. Specifically, subparagraph 
I.A. of the proposed orders prohibits respondents, in any lease 
advertisement, from misrepresenting the total amount due at lease 
inception, 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). Subparagraph I.B. of the 
proposed orders also prohibits respondents, in any lease advertisement, 
from making any reference to any charge that is part of the total 
amount due at lease inception 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 the companies from running 
deceptive advertisements that highlight zero dollars or other low 
amounts ``down,'' with inadequate disclosures of actual total inception 
fees. This ``prominence'' requirement for lease inception fees also is 
found in the revised Regulation M recently adopted by the Board.
    Moreover, subparagraph I.C. of the proposed orders prohibits 
respondents, in any lease advertisement, from stating the amount of any 
payment or that any or no initial payment is required at consummation 
of the lease, unless the ad also states: (1) that the transaction 
advertised is a lease; (2) the total amount due at lease inception; (3) 
that 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. The 
information enumerated above must be displayed in the lease 
advertisement in a clear and conspicuous manner. This approach is 
consistent with the lease advertising disclosure requirements of the 
revised CLA.
    Paragraph II of the proposed orders provides that lease 
advertisements that comply with the disclosure requirements of 
subparagraph I.C. of the orders shall be deemed to comply with Section 
184(a) of the CLA, as amended, or Section 213.7(d)(2) of the revised 
Regulation M, as amended.
    Paragraph III of the proposed orders provides that certain future 
changes to the CLA or Regulation M will be incorporated into the 
orders. Specifically, subparagraphs I.B. and I.C. will be amended to 
incorporate future CLA or Regulation M required advertising disclosures 
that differ from those required by the above order paragraphs. In 
addition, the definition of ``total amount due at lease inception,'' as 
it applies to subparagraphs I.B. and I.C. only, will be amended in the 
same manner. The orders provide that all other order requirements, 
including the definition of ``clearly and conspicuously,'' will survive 
any such revisions.
    Subparagraph IV.A. of the proposed General Motors and Mitsubishi 
orders prohibits these respondents, in any credit advertisement, from 
misrepresenting the existence and amount of any balloon payment or the 
annual percentage rate; subparagraph IV.B. also prohibits these 
respondents from stating the amount of any payment, including but not 
limited to any monthly payment, in any credit advertisement unless the 
amount of any balloon payment is disclosed prominently and in close 
proximity to the most prominent of the above statements.
    Subparagraph IV.C. of the proposed General Motors and Mitsubishi 
orders also enjoins these respondents from disseminating credit 
advertisements that state the amount or percentage of any downpayment, 
the number of payments or period of repayment, the amount of any 
periodic payment, including but not limited to the monthly payment, or 
the amount of any finance charge without disclosing, clearly and 
conspicuously, the following items of information: (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.C. (lease 
advertisements) and IV.C. (credit advertisements) must be disclosed 
``clearly and conspicuously'' as defined in the proposed orders. The 
``clear and conspicuous'' definition requires that respondents present 
such lease or credit information within the advertisement in a manner 
that is readable [or audible] and understandable to a reasonable 
consumer.
    The definition lends specificity to and is consistent with the 
general ``clear and conspicuous'' requirement in

[[Page 64526]]

Regulations M and Z, which requires readable and understandable 
disclosures. Similar to prior Commission orders and statements that 
interpret Section 5's prohibition of deceptive acts and practices, 
these orders require respondents to include certain disclosures in 
advertising that are readable (or audible) and understandable to 
reasonable consumers.
    The purpose of this analysis is to facilitate public comment on the 
proposed orders, and it is not intended to constitute an official 
interpretation of the agreements and proposed orders or to modify in 
any way their terms.
Donald S. Clark,
Secretary.
[FR Doc. 96-30945 Filed 12-4-96; 8:45 am]
BILLING CODE 6750-01-P