FTC cracks down on deceptive dealer advertising

Time to batten down the hatches!

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On January 9, 2014, the Federal Trade Commission and the County of Los Angeles Department of Consumer Affairs held a press conference in downtown Los Angeles announcing a nationwide enforcement action targeting deceptive auto dealer advertisements. The enforcement action is called “Operation Steer Clear” and has already resulted in the voluntary settlement of complaints against nine new and used auto dealerships across the country, including some in California like Norm Reeves Honda Superstore and Honda of Hollywood.

Christian Scali, of The Scali Law Firm, attended the conference telephonically. During the press conference, Jessica Rich, the FTC’s Director of Consumer Protection, stated that this was just the beginning of Operation Steer Clear and that “we believe that many, many more auto dealerships are violating the law.” When asked if the investigation was ongoing and involved other dealerships, Ms. Rich responded, “We have many other investigations in the pipeline. This is a priority area for the FTC and you will see other cases in the auto area as we move forward.” The operation has included print, radio, TV and Internet advertising.

As if foretelling this sweep, late last year, the Los Angeles City Attorney’s office sent warning letters to Los Angeles area dealers advising them to mind the Ps and Qs of vehicle advertising. Identified problem areas appear to be in “rebate” and “discount” advertising, among others.

In some of the consent settlements, fines of up to $16,000 per day for violation of the consent orders have been preliminarily approved by the FTC. Settling dealers would be saddled with the terms of these settlements for up to 20 years. When asked how the fines will be calculated, Ms. Rich stated that if an unlawful advertisement goes up on Day 1 and the dealer keeps it up until Day 90 or the FTC enforcement unit catches it on Day 90, the dealer would be liable for 90 days of violations at $16,000 per day. Ms. Rich also stated that the consent orders allow the FTC the ability to obtain injunctive relief as well. The proposed consent orders are open for public comment through February 10, 2014, after which the FTC will decide whether to make the proposed consent orders final.

In California, we haven’t seen this kind of activity in the advertising arena since the advertising cases of the late 1990s that had dealers facing up to $35,000 in settlements and stipulated injunctions requiring third party or attorney review of dealer advertising for four years. The Scali Law Firm’s principal, Christian Scali, was part of the defense effort that reduced those settlements to a more manageable number and the effort to obtain disbarment against one of the consumer advocate firms that perpetuated that litigation.

The difference this time around is that the government is not likely to back down under pressure or provide volume settlement discounts and it has the resources to continue to monitor, track and enforce violations of consent orders. It is therefore more important than ever to review and evaluate your print, radio, TV and Internet advertising practices.