Major Auto Associations Agree To Alter Deceptive Advertising Practices

Attorney General Spitzer announced an agreement with eight auto advertising associations that will change the way a popular financing program is advertised.

The agreement covers the "Red Carpet Option" (RCO) offered by Ford Motor Credit Company. The RCO is a retail installment contract that replaces auto leases no longer available in New York State with loans involving low monthly payments, but also a "balloon" payment at the end of the loan period.

"It is important that consumers are presented with clear, non-misleading information about the terms, conditions and qualifiers for auto financing offers so that they can competitively shop and make informed decisions, Spitzer said."

Spitzer's office raised concerns that advertisements about the "Red Carpet Option" in newspapers, on television, on radio and in direct mailings misled consumers by focusing on its most attractive features, such as a low monthly payment, without disclosing important information about other features of the loan.

Specifically, the advertising failed to:

• Clearly disclose that a substantial final "balloon" payment would be required at the end of the finance period and the amount of such payment;
  
• Clearly disclose the options available at the end of the term including: paying the balloon payment, financing the balloon payment or reselling the vehicle to the creditor subject to excess mileage and wear charges;
  
• Clearly disclose that advertised prices include rebates that are limited to specific groups for which much of the general public would not qualify; and
  
• Accurately state the amount of the down payment due at contract signing and that the manufacturer's advertised rebate is applied to the down payment.

Earlier this year, banks and financial institutions with large leasing businesses and the financing arms of many automobile manufacturers announced that they would discontinue auto leases to New Yorkers because of New York State's vicarious liability law. This law provides that a finance company, as the legal owner of a car, may be financially responsible for accidents involving the car.

It is estimated that those entities that have stopped writing leases alone account for over 65 percent of the auto leasing transacted in New York State last year.

In resolving the investigations, the eight Ford and Lincoln/Mercury dealer associations - which were formed for the purpose of joint advertising - agreed to reform their advertising practices to address the Attorney General's concerns. They also agreed to pay a total of $60,000 in civil penalties and costs to the state.

The eight trade associations that signed settlements with Spitzer's office include: New York District Ford Dealers Association, Inc.; Western New York Ford Dealers Advertising Fund, Inc.; Upstate Ford Dealers Association, Inc.; Upstate 1 Ford Dealers Association, Inc.; New York Lincoln Mercury Dealers Association, Inc. d/b/a Tri-State Lincoln Mercury Dealers Association; Long Island Lincoln Mercury Dealers Advertising Association, Inc.; Upstate New York Lincoln Mercury Dealers Association; and Newark Ford Dealers Advertising Association, Inc.

This case is the latest in an on-going effort by the Attorney General's Office to monitor auto advertising practices throughout the state. Since 1999, Spitzer's office has commenced more than 170 enforcement actions against auto dealers and manufacturers across the state, many of which involved violations of federal and state laws that regulate auto advertising.

Last month, the National Association of Consumer Agency Administrators and the Consumer Federation of America announced that complaints associated with auto buying, including misleading advertising, were the most common consumer complaint they received in 2002.

This case was handled by Special Assistant Attorney General Stephen Mindell and Assistant Attorney General Herbert Israel of the Consumer Frauds and Protection Bureau.