[Federal Register Volume 62, Number 199 (Wednesday, October 15, 1997)]
[Pages 53640-53642]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-27227]



[File Nos. 9723141 and 9523098]

Volkswagen of America, Inc., and Toyota Motor Sales, U.S.A., 
Inc.; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.


SUMMARY: The consent agreements in these matters settle alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaints that accompany the consent agreements and the terms of the 
consent orders--embodied in the consent agreements--that would settle 
these allegations.

DATES: Comments must be received on or before December 15, 1997.

ADDRESSES: Comment should be directed to: FTC/Office of the Secretary, 
Room 159, 6th St. and Pa. Ave., NW., Washington, DC 20580.

Commission, S-4429, 6th St. 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 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 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 consent agreements, and the 
allegations in the

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accompanying complaints. Electronic copies of the full text of the 
consent agreement packages can be obtained from the Commission Actions 
section of the FTC Home Page (for October 7, 1997), on the World Wide 
Web, at ``http://www.ftc.gov/os/actions97.htm.'' Paper copies 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 

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 Toyota Motor 
Sales, U.S.A., Inc. (``Toyota'') and Volkswagen of America, Inc. 
(``Volkswagen'') (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 
    The complaints allege that the respondents' automobile lease 
advertisements violate the Federal Trade Commission Act (``FTC Act''), 
the Consumer Leasing Act (``CLA''), and Regulation M. 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 
advertising under the CLA and directed the Federal Reserve Board 
(``Board'') to promulgate regulations implementing this statutue--
Regulation M. See 15 U.S.C. 1667-1667e; 12 CFR part 213. On September 
30, 1996, Congress passed revisions to the CLA that became optionally 
effective immediately and that have been implemented through the 
Board's recent revisions to Regulation M. See Title II, section 2605 of 
the Omnibus Consolidated Appropriations Act for Fiscal Year 1997, Pub. 
L. 104-208, 110 Stat. 3009, 3009-473 (Sept. 30, 1996) (``revised 
CLA''); 61 FR 52,246 (October 7, 1996), 62 FR 15,364 (April 1, 1997), 
and 62 FR 16,053 (April 4, 1997) (together ``revised Regulation M'') 
(to be codified at 12 CFR 213), as amended.
    The complaints against Toyota and Volkswagen allege that 
respondents' automobile lease advertisements represent that a 
particular amount stated as ``down'' or ``due at lease signing'' 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'' or ``due at lease signing,'' such 
as a capitalized cost reduction, security deposit, first month's 
payment and/or an acquisition fee, to lease the advertised vehicles. 
The complaints also allege that respondents fail to disclose adequately 
lease inception fees, often highlighting only a low monthly payment, 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 fail to disclose the terms of the offered lease in a 
clear and conspicuous manner, as required by the CLA and Regulation M. 
According to the complaints, respondents' television lease disclosures 
are not clear and conspicuous because they appear on the screen in 
small type, against a background of similar shade, for a very short 
duration, and/or over a moving background. The Toyota complaint also 
alleges that Toyota's fine print disclosures of lease terms in direct 
mail advertisements are 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. These 
alleged practices would also violate the advertising disclosure 
requirements of the revised CLA and the revised Regulation M.
    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 
signing or delivery, 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 signing or delivery 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 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 signing or 
delivery; (3) whether or not 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 and the revised Regulation M.
    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 Sec. 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 signing or 
delivery,'' 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.
    The information required by subparagraph I.C. must be disclosed 
``clearly and conspicuously'' as defined in the proposed orders. The 
``clear and

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conspicuous'' definition requires that respondents present such lease 
information within the advertisement in a manner that is readable [or 
audible] and understandable to a reasonable consumer. This definition 
is consistent with the ``clear and conspicuous'' requirement for 
advertising disclosures in the revised Regulation M that requires 
disclosures that consumers can see and read (or hear) and comprehend 
and in prior Commission orders and statements, interpreting Section 5's 
prohibition of deceptive acts and practices, that require advertising 
disclosures 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,
[FR Doc. 97-27227 Filed 10-14-97; 8:45 am]