Volkswagen of America, Inc., and Toyota Motor Sales, U.S.A., Inc.; Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File Nos. 9723141 and 9523098]

Volkswagen of America, Inc., and Toyota Motor Sales, U.S.A.,

Inc.; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

-----------------------------------------------------------------------

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 December 15, 1997.

ADDRESSES: Comment 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, Federal Trade

Commission, S-4429, 6th St. 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 Sec. 2.34 of the

Commission's rules of practice (16 CFR 2.34), notice is hereby given

that the above-captioned consent agreement 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

[[Page 53641]]

accompanying complaints. Electronic copies of the full text of the

consent agreement packages can be obtained from the Commission Actions

section of the FTC Home Page (for October 7, 1997), on the World Wide

Web, at ``http://www.ftc.gov/os/actions97.htm.'' Paper copies 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 Toyota Motor

Sales, U.S.A., Inc. (``Toyota'') and Volkswagen of America, Inc.

(``Volkswagen'') (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 the respondents' automobile lease

advertisements violate the Federal Trade Commission Act (``FTC Act''),

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

advertising under the CLA and directed the Federal Reserve Board

(``Board'') to promulgate regulations implementing this statutue--

Regulation M. See 15 U.S.C. 1667-1667e; 12 CFR part 213. 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. 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 213), as amended.

The complaints against Toyota and Volkswagen allege that

respondents' automobile lease advertisements represent that a

particular amount stated as ``down'' or ``due at lease signing'' 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'' or ``due at lease signing,'' such

as a capitalized cost reduction, security deposit, first month's

payment and/or an acquisition fee, to lease the advertised vehicles.

The complaints also allege that respondents fail to disclose adequately

lease inception fees, often highlighting only a low monthly payment, 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 fail 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

are not clear and conspicuous because they appear on the screen in

small type, against a background of similar shade, for a very short

duration, and/or over a moving background. The Toyota complaint also

alleges that Toyota's fine print disclosures of lease terms in direct

mail advertisements are 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 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

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 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 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 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 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 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.

The information required by subparagraph I.C. must be disclosed

``clearly and conspicuously'' as defined in the proposed orders. The

``clear and

[[Page 53642]]

conspicuous'' definition requires that respondents present such lease

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'' requirement for

advertising disclosures in the revised Regulation M that requires

disclosures that consumers can see and read (or hear) and comprehend

and in prior Commission orders and statements, interpreting Section 5's

prohibition of deceptive acts and practices, that require advertising

disclosures 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. 97-27227 Filed 10-14-97; 8:45 am]

BILLING CODE 6750-01-M