Herb Gordon Auto World, Inc. d/b/a Herb Gordon Auto World, Herb Gordon Dodge, Herb Gordon Mercedes-Benz, Herb Gordon Nissan, Herb Gordon Oldsmobile, Herb Gordon Volvo, and Herb Gordon Used Cars; Analysis to Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 942-3114]

Herb Gordon Auto World, Inc. d/b/a Herb Gordon Auto World, Herb

Gordon Dodge, Herb Gordon Mercedes-Benz, Herb Gordon Nissan, Herb

Gordon Oldsmobile, Herb Gordon Volvo, and Herb Gordon Used Cars;

Analysis to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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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, this consent agreement, accepted subject to final

Commission approval, would prohibit, among other things, the Silver

Spring, Maryland-based automobile dealerships from misrepresenting

financing terms and would require them them to comply with federal laws

mandating accurate disclosure of the annual percentage rate and monthly

payments in financed offers and clear and conspicuous disclosure of

major automobile deal terms. They also agreed not to advertise terms

that are not actually available to consumers. The Commission had

alleged that, in several car leasing advertising campaigns, Herb Gordon

Auto had not included all of the disclosures of lease costs and terms

required under the Consumer Leasing Act.

DATES: Comments must be received on or before April 7, 1997.

ADDRESSES: Comments 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, 6th and Pennsylvania Ave, NW, Washington, DC 20580. (202)

326-3224. Carole Reynolds, Federal Trade Commission, 6th and

Pennsylvania Ave, NW, Washington, DC 20580. (202) 326-3230.

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 a consent order

to cease and desist, having been filed with and accepted, subject to

final approval, by the Commission, has 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 agreement, and the

allegations in the accompanying complaint. An electronic copy of the

full text of the consent agreement package can be obtained from the

Commission Actions section of the FTC Home Page (for January 23, 1997),

on the World Wide Web, at ``http://www.ftc.gov/os/actions/htm.'' A

paper copy 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 Order to Aid Public Comment

The Federal Trade Commission has accepted an agreement to a

proposed consent order from respondent Herb Gordon Auto, Inc. dba Herb

Gordon Auto World, Herb Gordon Dodge, Herb Gordon Mercedes-Benz, Herb

Gordon Nissan, Herb Gordon Oldsmobile, Herb Gordon Volvo, and Herb

Gordon Used Cars.1

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\1\ In this Analysis to Aid Public Comment, Herb Gordon Auto,

Inc. dba Herb Gordon Auto World, Herb Gordon Dodge, Herb Gordon

Mercedes-Benz, Herb Gordon Nissan, Herb Gordon Oldsmobile, Herb

Gordon Volvo and Herb Gordon Used Cars are referred to collectively

as ``respondent Herb Gordon Auto'' or ``respondent.''

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The proposed consent order has 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

agreement and the comments received and will decide whether it should

withdraw from the agreement or make final the agreement's proposed

order.

The complaint alleges that respondent Herb Gordon Auto has

disseminated or caused to be disseminated advertisements that state

initial low monthly payment amounts and promote the ``luxury of low

payments'' and in fine print, inter alia, state an initial number of

payments, a downpayment and another amount described as a ``purchase

option'' (``Gold Key Plus'' advertisements). The complaint alleges that

the Gold Key Plus advertisements misrepresent that the additional

amount is optional and fail to disclose that the financing to be signed

at purchase requires the consumer to make a substantial balloon payment

at the conclusion of the initial payments, which is a mandatory

obligation, and that respondent, therefore, has engaged in a deceptive

act or practice in violation of section 5(a) of the Federal Trade

Commission Act (``FTC Act'). The complaint also alleges that the Gold

Key Plus advertisements fail to accurately state the terms of

repayment, by failing to disclose that the additional amount is a final

payment and by inaccurately stating that the amount is optional when,

in fact, it is mandatory based on the financing to be signed at

purchase, in violation of the Truth in Lending Act (``TILA'') and

Sec. 226.24(c) of Regulation Z. The complaint also alleges that the

Gold Key Plus advertisements fail to disclose the annual percentage

rate for the financing, using that term or the abbreviation ``APR,'' in

violation of the TILA and Sec. 226.24(c) of Regulation Z, and that this

is a deceptive act or practice in violation of section 5(a) of the FTC

Act.

The complaint also alleges that respondent Herb Gordon Auto has

disseminated or caused to be disseminated advertisements that state a

low downpayment and initial low monthly payment amounts and thereafter,

inter alia, state that the ``balance of 48 payments will be higher than

1st 12 months'' and ``cost per $1,000 borrowed $20.52'' (``Drive for

95'' advertisements). The complaint alleges that the Drive for 95

advertisements misrepresent and fail to accurately disclose the amount

of the second series of installment payments required at conclusion of

the initial payments, based on the financing to be signed at purchase,

and that respondent, therefore, has engaged in a deceptive act or

practice, in violation of section 5(a) of the FTC Act. The complaint

also alleges that the Drive for 95 advertisements, inter alia, fail to

accurately state the terms of repayment, by failing to accurately

disclose the amount of the second series of installment payments

required at conclusion of the initial payments, based on the financing

to be signed at purchase, in violation of the TILA and Sec. 226.24(c)

of Regulation Z.

The complaint also alleges that in fine print in the Gold Key Plus

advertisements, respondent's advertisements state an initial number of

payments, a downpayment and another amount described as a ``purchase

option'' (the ``disclaimer''). The complaint also alleges that in fine

print (print), in fine print for a short duration (television) and

orally for a short duration (radio) in the Drive for 95

[[Page 5415]]

advertisements, respondent's advertisements, inter alia, state

``balance of 48 payments will be higher than 1st 12 months,'' and

``cost per $1,000 borrowed $20.52,'' and an annual percentage rate (the

``disclaimer''). The complaint also alleges that the disclaimer in

respondent's Gold Key Plus advertisements is virtually unreadable and

incomprehensible to ordinary consumers and is not clear and conspicuous

because of the small typesize. The complaint also alleges that the

disclaimer in respondent's Drive for 95 advertisements is virtually

incomprehensible to ordinary consumers and is not clear and conspicuous

because of the small typesize in the print and televised advertisements

and because of the short duration in the radio and televised

advertisements. The complaint further alleges that respondent's

aforesaid practices in connection with the disclaimers in its Gold Key

Plus and Drive for 95 advertisements constitute deceptive practices in

violation of section 5(a) of the FTC Act and violations of the TILA and

Sec. 226.24(c) of Regulation Z, as more fully set out in 226.24-1 of

the Official Staff Commentary to Regulation Z.

The complaint also alleges that respondent Herb Gordon Auto has

disseminated or caused to be disseminated advertisements that state the

amount or percentage of any downpayment, the number of payments or

period of repayment, or the amount of any payment, but fail to state

all of the terms required by Regulation Z, as follows: the amount or

percentage of the downpayment, the terms of repayment, and the annual

percentage rate, using that term or the abbreviation ``APR,'' in

violation of the TILA and Sec. 226.24(c) of Regulation Z.

The complaint also alleges that respondent Herb Gordon Auto has

disseminated or caused to be disseminated advertisements that state the

amount of any payment, the number of required payments, or that any or

no downpayment or other payment is required at consummation of the

lease, but fail to state all of the terms required by Regulation M, as

applicable and as follows: That the transaction advertised is a lease;

the total amount of any payment such as a security deposit or

capitalized cost reduction required at the consummation of the lease or

that no such payments are required; the number, amount, due dates or

periods of scheduled payments, and the total of such payments under the

lease; a statement of whether or not the lessee has the option to

purchase the leased property and at what price and time (the method of

determining the price may be substituted for disclosure of the price);

and a statement of the amount or method of determining the amount of

any liabilities the lease imposes upon the lessee at the end of the

term, in violation of the Consumer Leasing Act (``CLA'') and

Sec. 213.5(c) of Regulation M.

The proposed order prohibits respondent Herb Gordon Auto, in

connection with any advertisement to promote any extension of consumer

credit, from misrepresenting in any manner, directly or by implication,

the terms of financing the purchase of a vehicle, including but not

limited to whether there may be a balloon payment or second series of

installment payments, and the amount of any balloon payment or second

series of installment payments.

The proposed order also requires respondent Herb Gordon Auto, in

any advertisement to promote any extension of consumer credit, whenever

the number or amount of payments required to repay the debt are stated,

to accurately, clearly and conspicuously, state all of the terms

required by Regulation Z, as follows: The amount or percentage of the

downpayment; the terms of repayment, including the amount of any

balloon payment, or the number and amount of any second series of

installment payments, and the annual percentage rate, using that term

or the abbreviation ``APR.''

The proposed order further requires respondent Herb Gordon Auto, in

any advertisement to promote any extension of consumer credit, whenever

the amount or percentage of any downpayment, the number of payments or

period of repayment, the amount of any payment or the amount of any

finance charge is stated, to clearly and conspicuously state all of the

terms required by Regulation Z, as follows: the amount or percentage of

the downpayment; the terms of repayment, and the annual percentage

rate, using that term or the abbreviation ``APR.''

The proposed order also prohibits respondent Herb Gordon Auto, in

any advertisement to promote any extension of consumer credit, from

stating a rate of finance charge without stating the rate as an

``annual percentage rate,'' using that term or the abbreviation

``APR,'' and from failing to calculate the rate in accordance with

Regulation Z. The proposed order also requires respondent Herb Gordon

Auto to state only those terms that actually are or will be arranged or

offered by the creditor, in any credit advertisement, as required by

Regulation Z.

The proposed order prohibits respondent Herb Gordon Auto, in

connection with any advertisement to aid, promote or assist any

consumer lease, from misrepresenting the costs or terms of leasing a

vehicle.

The proposed order also requires respondent Herb Gordon Auto, in

any advertisement to aid, promote or assist any consumer lease,

whenever the amount of any payment, the number of required payments, or

that any or no downpayment or other payment is required at consummation

of the lease is stated, to state, clearly and conspicuously, all of the

terms required by Regulation M, as applicable and as follows: That the

transaction advertised is a lease; the total amount of any payment such

as a security deposit or capitalized cost reduction required at the

consummation of the lease, or that no such payments are required; the

number, amounts, due dates or periods of scheduled payments, and the

total of such payments under the lease; a statement of whether or not

the lessee has the option to purchase the leased property and at what

price and time (the method of determining the price may be substituted

for disclosure of the price); and a statement of the amount or method

of determining the amount of any liabilities the lease imposes upon the

lessee at the end of the term and a statement that the lessee shall be

liable for the difference, if any, between the estimated value of the

leased property and its realized value at the end of the lease term if

the lessee has such liability.2 The proposed order also

[[Page 5416]]

requires respondent in any lease advertisement to state that a specific

lease of any property at specific amounts or terms is available only if

the lessor usually and customarily leases or will lease such property

at those amounts or terms, as required by Regulation M.

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\2\ The Federal Reserve Board (``Board''), which implements the

CLA, recently issued revised Regulation M, 61 FR 52246 (Oct. 7,

1996) (to be codified at 12 CFR part 213). Revised Regulation M is

not mandatorily effective until Oct. 1, 1997; compliance with

revised Regulation M is optional starting Oct. 1, 1996. 61 FR at

52246. In addition, President Clinton recently signed the Omnibus

Consolidated Appropriations Act for Fiscal Year 1997 (``Omnibus

Act'), Pub. L. No. 104-208, 110 Stat. 3009 (Sept. 30, 1996). Title

II, Section 2605 of the Omnibus Act amends certain provisions of the

CLA (``revised CLA'') (to be codified at 15 U.S.C. 1667 et seq.); in

the future, the Board will implement the revised CLA. The revised

CLA is mandatorily effective on the first October 1 that follows the

Board's promulgation of implementing regulations, amendments or

interpretations by not less than six months; compliance with the

revised CLA is optional at any time before the mandatory effective

date. See Title II, section 2605(b)(2) of the Omnibus Act.

Accordingly, the proposed order permits respondent to comply

with the lease advertising ``triggering term'' rules of existing

Regulation M, 12 CFR 213.5(c), as amended, and the CLA, 15 U.S.C.

1667c(a)-(b), by utilizing applicable provisions of the revised CLA

and revised Regulation M. For all lease advertisements, respondent

may utilize section 184(a) of the revised CLA (to be codified at 15

U.S.C. 1667c(a)), as amended, or utilize Sec. 213.7(d) of revised

Regulation M (to be codified at 12 CFR 213.7(d)), as amended. For

radio lease advertisements, respondent may also utilize section

184(b) of the CLA, 15 U.S.C. 1667c(b), as amended by Title II,

section 2605 of the Omnibus Act (to be codified at 15 U.S.C.

1667c(c)) (``Section 184(c) of the revised CLA''), as amended, or

utilize Sec. 213.7(f) of revised Regulation M (to be codified at 12

CFR 213.7(f)), as amended. For television lease advertisements,

respondent may also utilize Sec. 213.7(f) of revised Regulation M,

as amended.

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The proposed order also prohibits respondent Herb Gordon Auto from

failing to comply in any other respect with the TILA and Regulation Z

and the CLA and Regulation M.3

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\3\ The proposed order permits respondent to comply with other

requirements of existing Regulation M, 12 CFR part 213, as amended,

and the CLA, 15 U.S.C. 1667-1667e, as amended, by utilizing revised

Regulation M, as amended.

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The proposed order defines the term ``clearly and conspicuously''

for respondent's advertisements in all media. In a television or

videotaped advertisement, the required disclosures made in the audio

portion of the advertisement must be in a volume, cadence and location,

and for a duration, as to be readily noticeable, hearable and

comprehensible to an ordinary consumer. The required disclosures made

in the video portion of the advertisement must appear on the screen in

a size, shade, contrast, prominence and location, and for a duration,

as to be readily noticeable, readable and comprehensible to an ordinary

consumer. In a radio advertisement, the required disclosures must be

delivered in a volume, cadence and location, and for a duration, as to

be readily noticeable, hearable and comprehensible to an ordinary

consumer. In a print advertisement (including but not limited to mail

solicitations), the required disclosures must appear in a size, shade,

contrast, prominence and location as to be readily noticeable, readable

and comprehensible to an ordinary consumer. Additionally, nothing

contrary to, inconsistent with or in mitigation of the required

disclosures can be used in any advertisement.

The purpose of this analysis is to facilitate public comment on the

proposed order. It is not intended to constitute an official

interpretation of the agreement and proposed order or to modify in any

way their terms.

Donald S. Clark,

Secretary.

[FR Doc. 97-2807 Filed 2-4-97; 8:45 am]

BILLING CODE 6750-01-P