[Federal Register Volume 63, Number 16 (Monday, January 26, 1998)]
[Notices]
[Pages 3744-3746]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-1801]


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FEDERAL TRADE COMMISSION

[File Nos. 972-3190; 972-3191; and 972-3192]


Grey Advertising, Inc.; Rubin Postaer and Associates, Inc.; and 
Foote, Cone & Belding Advertising, Inc.--Analysis to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreements.

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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 March 27, 1998.

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, FTC/S-4429, 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 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 consent agreements, and the 
allegations in the complaints. An electronic copy of the full text of 
the consent agreement packages can be obtained from the FTC Home Page 
(for January 20, 1998), 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 Orders to Aid Public Comment

    The Federal Trade Commission has accepted separate agreements, 
subject to final approval, to proposed consent orders from three 
advertising agencies--Grey Advertising, Inc. (``Grey''), Rubin Postaer 
and Associates, Inc. (`'Rubin Postaer''), and Foote, Cone & Belding, 
Inc., (``FCB'') (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.
    These matters concern automobile lease and/or credit advertisements 
at issue in the Federal Trade Commission's enforcement actions against 
Mitsubishi Motor Sales of America, Inc. (``Mitsubishi''), Dkt. No. C-
3713, American Honda Motor Corporation, Inc. (``Honda''), Dkt. No. C-
3711, and Mazda Motor of America, Inc. (``Mazda''), Dkt. No. C-3714. 
The complaints allege that Grey, Rubin Postaer, and FCB, the 
advertising agencies for Mitsubishi, Honda, and Mazda, respectively, 
created and disseminated automobile lease advertisements that violate 
the Federal Trade Commission Act (``FTC Act''), the Consumer Leasing 
Act (``CLA''), and Regulation M. The complaint against Grey also 
alleges that respondent Grey'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

[[Page 3745]]

disclosure requirements for lease and credit advertising under the CLA 
and TILA, respectively, and directed the Federal Reserve Board 
(``Board'') to promulgate regulations implementing such statutes--
Regulations M and Z. See 15 U.S.C. 1667-1667e; 12 CFR part 213; 12 CFR 
part 226. 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. No. 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 part 213), as 
amended.
    The complaints allege that each of the respondent's 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 a 
security deposit, first month's payment and/or an acquisition fee, to 
lease the advertised vehicles. The complaints allege that respondents 
knew or should have known that this representation was false or 
misleading. The complaints also allege that respondents knew or should 
have known that the failure to disclose adequately lease inception fees 
in their advertisements was deceptive. 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 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 Grey and Rubin Postaer 
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. These alleged practices would also violate the 
advertising disclosure requirements of the revised CLA and the revised 
Regulation M.
    The Grey complaint also alleges that respondent Grey's 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 complaint, 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 Grey complaint alleges that Grey knew or should have 
known that this representation was false or misleading. The Grey 
complaint also alleges that Grey knew or should have known that the 
failure to disclose adequately in its 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, was deceptive. These practices, according to the 
complaint, constitute deceptive acts or practices in violation of 
Section 5(a) of the FTC Act.
    The Grey complaint further alleges that respondent Grey's 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 complaint, respondent's 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 
complaint also alleges that this respondent's fine print disclosures of 
credit terms in print advertisements were not clear and conspicuous. 
The complaint, therefore, alleges that Grey'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 motor vehicle 
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 motor vehicle 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 motor vehicle 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 maybe 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 motor vehicle 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 subparagraph 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.

[[Page 3746]]

    Subparagraph IV.A of the proposed Grey order prohibits respondent 
Grey, in any closed-end credit advertisement involving motor vehicles, 
from misrepresenting the existence and amount of any balloon payment or 
the annual percentage rate; subparagraph IV.B also prohibits respondent 
Grey from stating the amount of any payment, including but not limited 
to any monthly payment, in any motor vehicle closed-end credit 
advertisement unless the amount of any balloon payment is disclosed 
prominently and in close proximity to the most prominent of the above 
statements.
    Subparagraphs IV.C of the proposed Grey order also enjoins 
respondent from disseminating motor vehicle closed-end 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, all of the terms required by Regulation Z, as follows: 
(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 as 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 subparagraph I.C. (lease 
advertisements) and IV.C of the Grey order (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. This definition is consistent 
with the ``clear and conspicuous'' requirements for advertising 
disclosures in the revised Regulation M and Regulation Z that require 
disclosures that consumers can see and read (or hear) and comprehend. 
Similar to prior Commission orders and statements interpreting Section 
5's prohibition or 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. 98-1801 Filed 1-23-98; 8:45 am]
BILLING CODE 6750-01-M