[Federal Register Volume 62, Number 24 (Wednesday, February 5, 1997)]
[Notices]
[Pages 5414-5416]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-2807]


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FEDERAL TRADE COMMISSION
[File No. 942-3114]


Herb Gordon Auto World, Inc. d/b/a Herb Gordon Auto World, Herb 
Gordon Dodge, Herb Gordon Mercedes-Benz, Herb Gordon Nissan, Herb 
Gordon Oldsmobile, Herb Gordon Volvo, and Herb Gordon Used Cars; 
Analysis to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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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, this consent agreement, accepted subject to final 
Commission approval, would prohibit, among other things, the Silver 
Spring, Maryland-based automobile dealerships from misrepresenting 
financing terms and would require them them to comply with federal laws 
mandating accurate disclosure of the annual percentage rate and monthly 
payments in financed offers and clear and conspicuous disclosure of 
major automobile deal terms. They also agreed not to advertise terms 
that are not actually available to consumers. The Commission had 
alleged that, in several car leasing advertising campaigns, Herb Gordon 
Auto had not included all of the disclosures of lease costs and terms 
required under the Consumer Leasing Act.

DATES: Comments must be received on or before April 7, 1997.

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: David Medine, Federal Trade 
Commission, 6th and Pennsylvania Ave, NW, Washington, DC 20580. (202) 
326-3224. Carole Reynolds, Federal Trade Commission, 6th and 
Pennsylvania Ave, NW, Washington, DC 20580. (202) 326-3230.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Sec. 2.34 of the 
Commission's rules of practice (16 CFR 2.34), notice is hereby given 
that the above-captioned consent agreement containing a consent order 
to cease and desist, having been filed with and accepted, subject to 
final approval, by the Commission, has 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 agreement, and the 
allegations in the accompanying complaint. An electronic copy of the 
full text of the consent agreement package can be obtained from the 
Commission Actions section of the FTC Home Page (for January 23, 1997), 
on the World Wide Web, at ``http://www.ftc.gov/os/actions/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 Sec. 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

    The Federal Trade Commission has accepted an agreement to a 
proposed consent order from respondent Herb Gordon Auto, Inc. dba Herb 
Gordon Auto World, Herb Gordon Dodge, Herb Gordon Mercedes-Benz, Herb 
Gordon Nissan, Herb Gordon Oldsmobile, Herb Gordon Volvo, and Herb 
Gordon Used Cars.1
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    \1\ In this Analysis to Aid Public Comment, Herb Gordon Auto, 
Inc. dba Herb Gordon Auto World, Herb Gordon Dodge, Herb Gordon 
Mercedes-Benz, Herb Gordon Nissan, Herb Gordon Oldsmobile, Herb 
Gordon Volvo and Herb Gordon Used Cars are referred to collectively 
as ``respondent Herb Gordon Auto'' or ``respondent.''
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    The proposed consent order has 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 
agreement and the comments received and will decide whether it should 
withdraw from the agreement or make final the agreement's proposed 
order.
    The complaint alleges that respondent Herb Gordon Auto has 
disseminated or caused to be disseminated advertisements that state 
initial low monthly payment amounts and promote the ``luxury of low 
payments'' and in fine print, inter alia, state an initial number of 
payments, a downpayment and another amount described as a ``purchase 
option'' (``Gold Key Plus'' advertisements). The complaint alleges that 
the Gold Key Plus advertisements misrepresent that the additional 
amount is optional and fail to disclose that the financing to be signed 
at purchase requires the consumer to make a substantial balloon payment 
at the conclusion of the initial payments, which is a mandatory 
obligation, and that respondent, therefore, has engaged in a deceptive 
act or practice in violation of section 5(a) of the Federal Trade 
Commission Act (``FTC Act'). The complaint also alleges that the Gold 
Key Plus advertisements fail to accurately state the terms of 
repayment, by failing to disclose that the additional amount is a final 
payment and by inaccurately stating that the amount is optional when, 
in fact, it is mandatory based on the financing to be signed at 
purchase, in violation of the Truth in Lending Act (``TILA'') and 
Sec. 226.24(c) of Regulation Z. The complaint also alleges that the 
Gold Key Plus advertisements fail to disclose the annual percentage 
rate for the financing, using that term or the abbreviation ``APR,'' in 
violation of the TILA and Sec. 226.24(c) of Regulation Z, and that this 
is a deceptive act or practice in violation of section 5(a) of the FTC 
Act.
    The complaint also alleges that respondent Herb Gordon Auto has 
disseminated or caused to be disseminated advertisements that state a 
low downpayment and initial low monthly payment amounts and thereafter, 
inter alia, state that the ``balance of 48 payments will be higher than 
1st 12 months'' and ``cost per $1,000 borrowed $20.52'' (``Drive for 
95'' advertisements). The complaint alleges that the Drive for 95 
advertisements misrepresent and fail to accurately disclose the amount 
of the second series of installment payments required at conclusion of 
the initial payments, based on the financing to be signed at purchase, 
and that respondent, therefore, has engaged in a deceptive act or 
practice, in violation of section 5(a) of the FTC Act. The complaint 
also alleges that the Drive for 95 advertisements, inter alia, fail to 
accurately state the terms of repayment, by failing to accurately 
disclose the amount of the second series of installment payments 
required at conclusion of the initial payments, based on the financing 
to be signed at purchase, in violation of the TILA and Sec. 226.24(c) 
of Regulation Z.
    The complaint also alleges that in fine print in the Gold Key Plus 
advertisements, respondent's advertisements state an initial number of 
payments, a downpayment and another amount described as a ``purchase 
option'' (the ``disclaimer''). The complaint also alleges that in fine 
print (print), in fine print for a short duration (television) and 
orally for a short duration (radio) in the Drive for 95

[[Page 5415]]

advertisements, respondent's advertisements, inter alia, state 
``balance of 48 payments will be higher than 1st 12 months,'' and 
``cost per $1,000 borrowed $20.52,'' and an annual percentage rate (the 
``disclaimer''). The complaint also alleges that the disclaimer in 
respondent's Gold Key Plus advertisements is virtually unreadable and 
incomprehensible to ordinary consumers and is not clear and conspicuous 
because of the small typesize. The complaint also alleges that the 
disclaimer in respondent's Drive for 95 advertisements is virtually 
incomprehensible to ordinary consumers and is not clear and conspicuous 
because of the small typesize in the print and televised advertisements 
and because of the short duration in the radio and televised 
advertisements. The complaint further alleges that respondent's 
aforesaid practices in connection with the disclaimers in its Gold Key 
Plus and Drive for 95 advertisements constitute deceptive practices in 
violation of section 5(a) of the FTC Act and violations of the TILA and 
Sec. 226.24(c) of Regulation Z, as more fully set out in 226.24-1 of 
the Official Staff Commentary to Regulation Z.
    The complaint also alleges that respondent Herb Gordon Auto has 
disseminated or caused to be disseminated advertisements that state the 
amount or percentage of any downpayment, the number of payments or 
period of repayment, or the amount of any payment, but fail to state 
all of the terms required by Regulation Z, as follows: the amount or 
percentage of the downpayment, the terms of repayment, and the annual 
percentage rate, using that term or the abbreviation ``APR,'' in 
violation of the TILA and Sec. 226.24(c) of Regulation Z.
    The complaint also alleges that respondent Herb Gordon Auto has 
disseminated or caused to be disseminated advertisements that state the 
amount of any payment, the number of required payments, or that any or 
no downpayment or other payment is required at consummation of the 
lease, but fail to state all of the terms required by Regulation M, as 
applicable and as follows: That the transaction advertised is a lease; 
the total amount of any payment such as a security deposit or 
capitalized cost reduction required at the consummation of the lease or 
that no such payments are required; the number, amount, due dates or 
periods of scheduled payments, and the total of such payments under the 
lease; a statement of whether or not the lessee has the option to 
purchase the leased property and at what price and time (the method of 
determining the price may be substituted for disclosure of the price); 
and a statement of the amount or method of determining the amount of 
any liabilities the lease imposes upon the lessee at the end of the 
term, in violation of the Consumer Leasing Act (``CLA'') and 
Sec. 213.5(c) of Regulation M.
    The proposed order prohibits respondent Herb Gordon Auto, in 
connection with any advertisement to promote any extension of consumer 
credit, from misrepresenting in any manner, directly or by implication, 
the terms of financing the purchase of a vehicle, including but not 
limited to whether there may be a balloon payment or second series of 
installment payments, and the amount of any balloon payment or second 
series of installment payments.
    The proposed order also requires respondent Herb Gordon Auto, in 
any advertisement to promote any extension of consumer credit, whenever 
the number or amount of payments required to repay the debt are stated, 
to accurately, clearly and conspicuously, state all of the terms 
required by Regulation Z, as follows: The amount or percentage of the 
downpayment; the terms of repayment, including the amount of any 
balloon payment, or the number and amount of any second series of 
installment payments, and the annual percentage rate, using that term 
or the abbreviation ``APR.''
    The proposed order further requires respondent Herb Gordon Auto, in 
any advertisement to promote any extension of consumer credit, whenever 
the amount or percentage of any downpayment, the number of payments or 
period of repayment, the amount of any payment or the amount of any 
finance charge is stated, to clearly and conspicuously state all of the 
terms required by Regulation Z, as follows: the amount or percentage of 
the downpayment; the terms of repayment, and the annual percentage 
rate, using that term or the abbreviation ``APR.''
    The proposed order also prohibits respondent Herb Gordon Auto, in 
any advertisement to promote any extension of consumer credit, from 
stating a rate of finance charge without stating the rate as an 
``annual percentage rate,'' using that term or the abbreviation 
``APR,'' and from failing to calculate the rate in accordance with 
Regulation Z. The proposed order also requires respondent Herb Gordon 
Auto to state only those terms that actually are or will be arranged or 
offered by the creditor, in any credit advertisement, as required by 
Regulation Z.
    The proposed order prohibits respondent Herb Gordon Auto, in 
connection with any advertisement to aid, promote or assist any 
consumer lease, from misrepresenting the costs or terms of leasing a 
vehicle.
    The proposed order also requires respondent Herb Gordon Auto, in 
any advertisement to aid, promote or assist any consumer lease, 
whenever the amount of any payment, the number of required payments, or 
that any or no downpayment or other payment is required at consummation 
of the lease is stated, to state, clearly and conspicuously, all of the 
terms required by Regulation M, as applicable and as follows: That the 
transaction advertised is a lease; the total amount of any payment such 
as a security deposit or capitalized cost reduction required at the 
consummation of the lease, or that no such payments are required; the 
number, amounts, due dates or periods of scheduled payments, and the 
total of such payments under the lease; a statement of whether or not 
the lessee has the option to purchase the leased property and at what 
price and time (the method of determining the price may be substituted 
for disclosure of the price); and a statement of the amount or method 
of determining the amount of any liabilities the lease imposes upon the 
lessee at the end of the term and a statement that the lessee shall be 
liable for the difference, if any, between the estimated value of the 
leased property and its realized value at the end of the lease term if 
the lessee has such liability.2 The proposed order also

[[Page 5416]]

requires respondent in any lease advertisement to state that a specific 
lease of any property at specific amounts or terms is available only if 
the lessor usually and customarily leases or will lease such property 
at those amounts or terms, as required by Regulation M.
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    \2\ The Federal Reserve Board (``Board''), which implements the 
CLA, recently issued revised Regulation M, 61 FR 52246 (Oct. 7, 
1996) (to be codified at 12 CFR part 213). Revised Regulation M is 
not mandatorily effective until Oct. 1, 1997; compliance with 
revised Regulation M is optional starting Oct. 1, 1996. 61 FR at 
52246. In addition, President Clinton recently signed the Omnibus 
Consolidated Appropriations Act for Fiscal Year 1997 (``Omnibus 
Act'), Pub. L. No. 104-208, 110 Stat. 3009 (Sept. 30, 1996). Title 
II, Section 2605 of the Omnibus Act amends certain provisions of the 
CLA (``revised CLA'') (to be codified at 15 U.S.C. 1667 et seq.); in 
the future, the Board will implement the revised CLA. The revised 
CLA is mandatorily effective on the first October 1 that follows the 
Board's promulgation of implementing regulations, amendments or 
interpretations by not less than six months; compliance with the 
revised CLA is optional at any time before the mandatory effective 
date. See Title II, section 2605(b)(2) of the Omnibus Act.
    Accordingly, the proposed order permits respondent to comply 
with the lease advertising ``triggering term'' rules of existing 
Regulation M, 12 CFR 213.5(c), as amended, and the CLA, 15 U.S.C. 
1667c(a)-(b), by utilizing applicable provisions of the revised CLA 
and revised Regulation M. For all lease advertisements, respondent 
may utilize section 184(a) of the revised CLA (to be codified at 15 
U.S.C. 1667c(a)), as amended, or utilize Sec. 213.7(d) of revised 
Regulation M (to be codified at 12 CFR 213.7(d)), as amended. For 
radio lease advertisements, respondent may also utilize section 
184(b) of the CLA, 15 U.S.C. 1667c(b), as amended by Title II, 
section 2605 of the Omnibus Act (to be codified at 15 U.S.C. 
1667c(c)) (``Section 184(c) of the revised CLA''), as amended, or 
utilize Sec. 213.7(f) of revised Regulation M (to be codified at 12 
CFR 213.7(f)), as amended. For television lease advertisements, 
respondent may also utilize Sec. 213.7(f) of revised Regulation M, 
as amended.
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    The proposed order also prohibits respondent Herb Gordon Auto from 
failing to comply in any other respect with the TILA and Regulation Z 
and the CLA and Regulation M.3
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    \3\ The proposed order permits respondent to comply with other 
requirements of existing Regulation M, 12 CFR part 213, as amended, 
and the CLA, 15 U.S.C. 1667-1667e, as amended, by utilizing revised 
Regulation M, as amended.
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    The proposed order defines the term ``clearly and conspicuously'' 
for respondent's advertisements in all media. In a television or 
videotaped advertisement, the required disclosures made in the audio 
portion of the advertisement must be in a volume, cadence and location, 
and for a duration, as to be readily noticeable, hearable and 
comprehensible to an ordinary consumer. The required disclosures made 
in the video portion of the advertisement must appear on the screen in 
a size, shade, contrast, prominence and location, and for a duration, 
as to be readily noticeable, readable and comprehensible to an ordinary 
consumer. In a radio advertisement, the required disclosures must be 
delivered in a volume, cadence and location, and for a duration, as to 
be readily noticeable, hearable and comprehensible to an ordinary 
consumer. In a print advertisement (including but not limited to mail 
solicitations), the required disclosures must appear in a size, shade, 
contrast, prominence and location as to be readily noticeable, readable 
and comprehensible to an ordinary consumer. Additionally, nothing 
contrary to, inconsistent with or in mitigation of the required 
disclosures can be used in any advertisement.
    The purpose of this analysis is to facilitate public comment on the 
proposed order. It is not intended to constitute an official 
interpretation of the agreement and proposed order or to modify in any 
way their terms.
Donald S. Clark,
Secretary.
[FR Doc. 97-2807 Filed 2-4-97; 8:45 am]
BILLING CODE 6750-01-P