[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