Auto Dealers Agree To Reform Advertising Practices

Attorney General Spitzer today announced that a statewide investigation of the advertising practices of automobile dealers has revealed a widespread pattern of misleading, deceptive and, in some cases, fraudulent advertising.

As a result of the investigation, nearly 50 auto dealers across the state have entered into agreements with the Attorney General's office to reform their advertising practices. The dealerships collectively will pay almost $500,000 in costs and penalties.

"Aggressive enforcement of auto advertising laws is essential to protect consumers and level the playing field for law-abiding dealers," Spitzer said. "This statewide investigation uncovered widespread problems in auto ads with spurious offers, false representations, and misleading depictions developed to confuse and distract rather than to inform."

"Without such enforcement efforts, dealers are often drawn into a perverse competition to see who can get away with the most outrageous ads," Spitzer said.

Spitzer's office targeted nearly 50 dealers after a comprehensive review of radio, television, print and Internet advertisements found numerous violations of state and federal laws that regulate advertising practices. The investigation also involved the review of numerous consumer complaints and undercover work.

Examples of typical violations include:

  • Advertising a remarkably low price for a new car, but failing to note that the low price was available only with financing through the dealership at higher-than-market rates;
  • Claiming to provide a $3,000 trade-in allowance for "vehicles in any condition," while marking up the price of the new or used car, cancelling out the guaranteed value of the trade-in;
  • Offering 0.9 percent financing, but not disclosing that the low-cost financing was available on very few, if any, vehicles and that the offer applied only to individuals with strong credit ratings;
  • Promoting the lowest prices in ads, without disclosing (or doing so in extremely fine print) that the advertised price excluded a range of additional fees and charges or applied rebates of very limited availability;
  • Claiming to have "under invoice " prices, thereby implying that consumers are purchasing cars for less than dealers paid for them, when the invoice price does not reflect the dealer's actual cost;
  • Advertising "$79 Acquisition Fee Sales" which falsely imply that a consumer is simply taking over someone else's payments while failing to disclose credit terms and limitations; and
  • Advertising "Liquidation Sales" or "Public Notice" sales that falsely imply that the sale is court-ordered or that the dealership is going out of business.

In addition to advertising violations, Spitzer's office found one dealership extended sub-prime credit to consumers in a fraudulent manner. Other dealerships were found to have engaged in deceptive sales practices in selling cars and extended warranties.

Spitzer stressed that the settlements with dealerships would not end his office's investigation. He said further charges may result from an ongoing investigation of a number of dealerships.

Various state and federal laws regulate auto advertisements, including:

.Federal Truth-In-Leasing Law

This law ensures that consumers have adequate access to information that could significantly change the total cost of leasing a vehicle, while also serving to assist consumers in comparison shopping. Specifically, this law requires certain disclosures in lease advertising, such as: when an advertisement for a leased vehicle provides a down payment amount, the ad must also disclose with equal prominence all amounts due at the lease signing.

Lease advertisements also should state: that the transaction is a lease; the number, amounts, and due dates of scheduled payments; and a statement whether or not a security deposit is required.

Federal Truth-In-Lending Act

This law requires that credit advertisers give consumers information that enables them to compare credit terms. Under this law, advertisers who state the amount of any down payment, the interest rate, or the monthly payment "trigger" the requirement to state other crucial loan terms. A common violation of this act is advertising only the amount of the down payment ("$88 down delivers") without stating the annual percentage rate or the repayment terms.

.New York State General Business Law, Article 22-A prohibits false advertising and deceptive business practices.

In addition to enforcement efforts, Spitzer's office initiated an educational campaign for consumers and issued new car buying tips, used car buying tips, and "Deceptive Auto Advertising: Recognizing the Hype." His office also worked with the New York State Automobile Dealers Association and the Greater New York Automobile Dealers Association to provide training for auto dealers around the state. The Attorney General's office distributed "Auto Advertising Guidelines" which the Attorney General had developed in conjunction with automobile dealer associations across the state to assist in their efforts to produce advertisements that comply with the law.

Consumer advocates expressed their support for this effort: "We applaud the Attorney General's actions to protect consumers in an area where they can be particularly vulnerable to unscrupulous dealers," said Marta Genovese, Chair of the Legislative Committee of the American Automobile Association (AAA) New York State. "These cases highlight the need for consumers to scrutinize dealer claims that sound too good to be true." These cases were handled by Assistant Attorneys General Robert Vawter (Albany), and Stephen Mindell and Herb Israel (New York City) of the Consumer Frauds and Protection Bureau; Michael Danaher of the Binghamton Regional Office; Dennis Rosen of the Buffalo Regional Office; Carlos Rodriguez of the Rochester Regional Office; Robert Glennon of the Plattsburgh Regional Office; Juan Merchan of the Nassau Regional Office; Ricardo Montano of the Suffolk Regional Office; Nicholas Garin of the Poughkeepsie Regional Office; Judith Malkin of the Syracuse Regional Office; Joel Marmelstein of the Utica Regional Office; James O'Rourke of the Watertown Regional Office; and Doris K. Morin of the Westchester Regional Office under the supervision of Leslie Neustadt and Jane Azia of the Consumer Frauds and Protection Bureau.

Individuals with complaints about auto dealer advertising or with questions about buying used cars are encouraged to contact the Attorney General's consumer help line at (800) 771-7755 or to visit his web site at www.ag.ny.gov.

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