General Motors Corp., American Honda Motor Co., Inc., American Isuzu Motors, Inc., Mazda Motor of America, Inc., and Mitsubishi Motor Sales of America, Inc., Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File Nos. 952 3093, 952 3094, 952 3095, 952 3450, and 952 3096

General Motors Corp., American Honda Motor Co., Inc., American

Isuzu Motors, Inc., Mazda Motor of America, Inc., and Mitsubishi Motor

Sales of America, Inc., Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreements.

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SUMMARY: In settlement of alleged violations of federal law prohibiting

unfair or deceptive acts or practices and unfair methods of

competition, these five consent agreements, accepted subject to final

Commission approval, would require, among other things, five major

automobile manufacturers to provide consumers with clear, readable, and

understandable cost information in their car lease and financed

purchase advertising. The agreements prohibit the manufacturers from

featuring low monthly payments or low amounts ``down'' in large, bold

print, while hiding additional costs and sometimes contradictory

information in ``mouse print'' that is difficult or impossible to read.

DATES: Comments must be received on or before February 3, 1997.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,

Room 159, 6th St. and Pa. Ave., N.W., Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT: David Medine, Federal Trade

Commission, S-4429, 6th 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 Section 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 five consent

agreements, and the allegations in the accompanying complaints.

Electronic copies of the full text of the five consent agreement

packages can be obtained from the Commission Actions section of the FTC

Home Page (for November 21, 1996), on the World Wide Web, at ``http://

www.ftc.gov/os/actions/htm.'' Paper copies can be obtained from the FTC

Public Reference Room, Room H-130, Sixth Street and Pennsylvania

Avenue, N.W., Washington, D.C. 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 Section

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 General

Motors Corporation (``General Motors''), American Honda Motor

Corporation, Inc. (``Honda''), American Isuzu Motors Inc. (``Isuzu''),

Mazda Motor of America, Inc. (``Mazda''), and Mitsubishi Motor Sales of

America, Inc. (``Mitsubishi'') (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.

The complaints allege that each of the respondents' automobile

lease advertisements violated the Federal Trade Commission Act (``FTC

Act''), the Consumer Leasing Act (``CLA''), and Regulation M. The

complaints also allege that General Motors and Mitsubishi'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 disclosure requirements for lease and credit advertising

under the CLA and the TILA, respectively, and directed the Federal

Reserve Board (``Board'') to promulgate regulations implementing such

statutes--Regulations M and Z. See 15 U.S.C. Secs. 1601-1667e; 12

C.F.R. Part 213; 12 C.F.R. Part 226. On September 30, 1996, Congress

passed revisions to the CLA that will be implemented by the Board

through future changes to Regulation M and will become optionally

effective immediately. See Title II, Section 2605 of the Omnibus

Consolidated Appropriations Act for Fiscal Year 1997, Pub. L. No. 104-

208, 110 Stat. 3009, ________ (Sept. 30, 1996)(``revised CLA''), as

amended, and Section 213.7(d)(2) of revised Regulation M, 61 Fed. Reg.

at 52,261 (to be codified at 12 C.F.R. Sec. 213.7(d)(2)), as amended.

The complaints against General Motors, Honda, Isuzu, Mazda, and

Mitsubishi allege that respondents' 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 the security deposit and first

month's payment, to lease the advertised vehicles. The complaints also

allege that respondents failed to disclose adequately these additional

fees 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 failed to disclose the terms of the offered lease

[[Page 64525]]

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 General

Motors, Honda, Mazda, and Mitsubishi 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.

The General Motors and Mitsubishi complaints also allege that these

respondents' 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 complaints, 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 complaints further allege that respondents

General Motors and Mitsubishi failed to disclose adequately in their

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. These practices, according to

the complaints, constitute deceptive acts or practices in violation of

Section 5(a) of the FTC Act.

The General Motors and Mitsubishi complaints further allege that

these respondents' 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 complaints, respondents' 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 complaints also allege that these respondents'

fine print disclosures of credit terms in print advertisements were not

clear and conspicuous. The complaints, therefore, allege that General

Motors and Mitsubishi'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 lease

advertisement, from misrepresenting the total amount due at lease

inception, 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 inception 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 zero dollars or other 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 inception; (3)

that 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.

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 Section 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 inception,'' 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.

Subparagraph IV.A. of the proposed General Motors and Mitsubishi

orders prohibits these respondents, in any credit advertisement, from

misrepresenting the existence and amount of any balloon payment or the

annual percentage rate; subparagraph IV.B. also prohibits these

respondents from stating the amount of any payment, including but not

limited to any monthly payment, in any credit advertisement unless the

amount of any balloon payment is disclosed prominently and in close

proximity to the most prominent of the above statements.

Subparagraph IV.C. of the proposed General Motors and Mitsubishi

orders also enjoins these respondents from disseminating 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, the following items of information: (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 in 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 subparagraphs I.C. (lease

advertisements) and IV.C. (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.

The definition lends specificity to and is consistent with the

general ``clear and conspicuous'' requirement in

[[Page 64526]]

Regulations M and Z, which requires readable and understandable

disclosures. Similar to prior Commission orders and statements that

interpret Section 5's prohibition of 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. 96-30945 Filed 12-4-96; 8:45 am]

BILLING CODE 6750-01-P