Grey Advertising, Inc.; Rubin Postaer and Associates, Inc.; and Foote, Cone & Belding Advertising, Inc.Analysis to Aid Public Comment

FEDERAL TRADE COMMISSION

[File Nos. 972-3190; 972-3191; and 972-3192]

Grey Advertising, Inc.; Rubin Postaer and Associates, Inc.; and

Foote, Cone & Belding Advertising, Inc.--Analysis to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreements.

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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 March 27, 1998.

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, FTC/S-4429, 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 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 consent agreements, and the

allegations in the complaints. An electronic copy of the full text of

the consent agreement packages can be obtained from the FTC Home Page

(for January 20, 1998), 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 Orders to Aid Public Comment

The Federal Trade Commission has accepted separate agreements,

subject to final approval, to proposed consent orders from three

advertising agencies--Grey Advertising, Inc. (``Grey''), Rubin Postaer

and Associates, Inc. (`'Rubin Postaer''), and Foote, Cone & Belding,

Inc., (``FCB'') (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.

These matters concern automobile lease and/or credit advertisements

at issue in the Federal Trade Commission's enforcement actions against

Mitsubishi Motor Sales of America, Inc. (``Mitsubishi''), Dkt. No. C-

3713, American Honda Motor Corporation, Inc. (``Honda''), Dkt. No. C-

3711, and Mazda Motor of America, Inc. (``Mazda''), Dkt. No. C-3714.

The complaints allege that Grey, Rubin Postaer, and FCB, the

advertising agencies for Mitsubishi, Honda, and Mazda, respectively,

created and disseminated automobile lease advertisements that violate

the Federal Trade Commission Act (``FTC Act''), the Consumer Leasing

Act (``CLA''), and Regulation M. The complaint against Grey also

alleges that respondent Grey'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

[[Page 3745]]

disclosure requirements for lease and credit advertising under the CLA

and TILA, respectively, and directed the Federal Reserve Board

(``Board'') to promulgate regulations implementing such statutes--

Regulations M and Z. See 15 U.S.C. 1667-1667e; 12 CFR part 213; 12 CFR

part 226. 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. No. 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 part 213), as

amended.

The complaints allege that each of the respondent's 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 a

security deposit, first month's payment and/or an acquisition fee, to

lease the advertised vehicles. The complaints allege that respondents

knew or should have known that this representation was false or

misleading. The complaints also allege that respondents knew or should

have known that the failure to disclose adequately lease inception fees

in their advertisements was deceptive. 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 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 Grey and Rubin Postaer

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. These alleged practices would also violate the

advertising disclosure requirements of the revised CLA and the revised

Regulation M.

The Grey complaint also alleges that respondent Grey's 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 complaint, 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 Grey complaint alleges that Grey knew or should have

known that this representation was false or misleading. The Grey

complaint also alleges that Grey knew or should have known that the

failure to disclose adequately in its 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, was deceptive. These practices, according to the

complaint, constitute deceptive acts or practices in violation of

Section 5(a) of the FTC Act.

The Grey complaint further alleges that respondent Grey's 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 complaint, respondent's 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

complaint also alleges that this respondent's fine print disclosures of

credit terms in print advertisements were not clear and conspicuous.

The complaint, therefore, alleges that Grey'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 motor vehicle

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 motor vehicle 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 motor vehicle 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 maybe 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 motor vehicle 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 subparagraph 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.

[[Page 3746]]

Subparagraph IV.A of the proposed Grey order prohibits respondent

Grey, in any closed-end credit advertisement involving motor vehicles,

from misrepresenting the existence and amount of any balloon payment or

the annual percentage rate; subparagraph IV.B also prohibits respondent

Grey from stating the amount of any payment, including but not limited

to any monthly payment, in any motor vehicle closed-end credit

advertisement unless the amount of any balloon payment is disclosed

prominently and in close proximity to the most prominent of the above

statements.

Subparagraphs IV.C of the proposed Grey order also enjoins

respondent from disseminating motor vehicle closed-end 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, all of the terms required by Regulation Z, as follows:

(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 as 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 subparagraph I.C. (lease

advertisements) and IV.C of the Grey order (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. This definition is consistent

with the ``clear and conspicuous'' requirements for advertising

disclosures in the revised Regulation M and Regulation Z that require

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

Similar to prior Commission orders and statements interpreting Section

5's prohibition or 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. 98-1801 Filed 1-23-98; 8:45 am]

BILLING CODE 6750-01-M