Chrysler Corporation, Bozell Worldwide, Inc., & Martin Advertising, Inc.; Analysis to Aid Public Comment

FEDERAL TRADE COMMISSION

[File Nos. 9823162, 9823528, & 9723267]

Chrysler Corporation, Bozell Worldwide, Inc., & Martin

Advertising, Inc.; Analysis to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreements.

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SUMMARY: The three 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 21, 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:

Rolando Berrelez or Sally Pitofsky, FTC/S-4429, Washington, DC 20580.

(202) 326-3211 or 326-3318.

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 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 October 15, 1998), on the World Wide Web, at ``http://

www.ftc.gov/os/actions97.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 Section

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

Summary

The Federal Trade Commission has accepted separate agreements,

subject to final approval, from Chrysler Corporation (``Chrysler'') and

two advertising agencies, Bozell Worldwide, Inc. (``Bozell'') and

Martin Advertising, Inc., (``Martin'') (collectively referred to as

``respondents''). Bozell is the advertising agency for Chrysler, and

Martin is an advertising agency for numerous automobile dealers and

dealer marketing groups.

The proposed consent orders have been placed on the public record

for sixty (60) days for receipt 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 respondents created and disseminated

autombile lease advertisements that violate the Federal Trade

Commission Act (``FTC Act''), the Consumer Leasing Act (``CLA''), and

Regulation M. The complaint against Martin also alleges that respondent

Martin's automobile

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credit advertisements violated the FTC Act, the Truth in Lending Act

(``TILA''), and Regulation Z. One of Martin's advertisements was a

balloon payment credit advertisement at issue in the Federal Trade

Commission's enforcement action against General Motors Corporation

(``GM''), Dkt. No. C-3710.

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 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. 1667-1667e; 12 C.F.R. Part 213; 12 C.F.R. Part 226.

I. Chrysler and Bozell

A. FTC Act Violations--Lease Advertising

1. Misrepresentation of Model Availability

The complaints against Chrysler and Bozell allege that these

companies misrepresent the vehicle models available at the advertised

lease terms. According to the complaints, these respondents represent

that consumers can lease the Chrysler vehicles featured in respondents'

advertisements at the lease terms prominently stated in the

advertisements. This representation is false, according to the

complaints, because the lease terms apply to Chrysler models of lesser

value than the Chrysler vehicles featured in the advertisements. The

complaints allege that the fine print disclosures in Chrysler and

Bozell's lease advertisements, including but not limited to ``Limited

model shown, higher'' are inadequate to disclaim or modify the

representation. The Bozell complaint also alleges that Bozell, the

advertising agency, knew or should have known that this representation

was false and misleading. These practices, according to the complaint,

constitute deceptive acts or practices in violation of Section 5(a) of

the FTC Act.

2. Failure to Provide Adequate Disclosures in Lease Advertising

The Chrysler and Bozell complaints also allege that respondents'

lease advertisements represent that consumers can lease the advertised

vehicles at the terms prominently stated in the advertisements,

including but not limited to the monthly payment amount. These

advertisements allegedly do not adequately disclose additional terms

pertaining to the lease offers, such as the total amount of any

payments due at lease inception. The existence of these additional

terms would be material to consumers in deciding whether to lease the

advertised vehicles, according to the complaints. The Bozell complaint

alleges that Bozell knew or should have known that the failure to

disclosure adequately material terms was deceptive. These practices,

according to the complaints, constitute deceptive acts or practices in

violation of Section 5(a) of the FTC Act.

B. CLA and Regulation M Violations

Chrysler and Bozell's lease advertisements also allegely violate

the CLA and Regulation M. According to the complaints, these

respondents' lease advertisements state a monthly payment amount but

fail to disclose clearly and conspicuously certain additional terms

required by the CLA and Regulation M, including one or more of the

following terms: that the transaction advertised is a lease; the total

amount due prior to or at consummation or by delivery, if delivery

occurs after consummation, and that such amount: (1) excludes third-

party fees, such as taxes, licenses, and registration fees, and

discloses that fact or (2) includes third-party fees based on a

particular state or locality and discloses that fact and the fact that

such fees may vary by state or locality; whether or not a security

deposit is required; and the number, amount, and timing of scheduled

payments.

According to the complaints, respondents' television lease

disclosures are not clear and conspicuous because they appear on the

screen in very small type, for a very short duration, and/or

accompanied by background sounds and images. The Chrysler and Bozell

complaints, therefore, allege that these practices violate Section 184

of the CLA, 15 U.S.C. Sec. 1667c, as amended, and Section 213.7 of

Regulation M, 12 C.F.R. Sec. 213.7, as amended.

II. Martin

A. FTC Act Violations--Lease Advertising

1. Misrepresentation of Advertised Transaction

Count I of the Martin complaint alleges that respondent's

automobile lease advertisements represent that consumers can purchase

the advertised vehicles by financing the vehicles though credit at the

monthly payment amounts prominently stated in the advertisements. This

representation is false, according to the complaint, because the

monthly payment amounts stated in respondent's lease advertisements are

components of lease offers and not credit offers. Count I, therefore,

alleges that respondent's practices constitute deceptive acts or

practices in violation of Section 5(a) of the FTC Act.

2. Misrepresentation of Inception Fees

Count II of the Martin complaint alleges that Martin's automobile

lease advertisements represent that a particular amount stated as

``down'' or ``cash or trade down'' is the total amount consumers must

pay at lease inception to lease the advertised vehicles. According to

the complaint, this representation is false because consumers must pay

additional fees at lease inception beyond the amount stated as ``down''

or ``cash or trade down,'' such as a security deposit, first month's

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

Count II alleges that these practices constitute deceptive acts or

practices in violation of Section 5(a) of the FTC Act.

3. Failure to Disclose Adequately that Transaction Advertised in a

Lease

Count III of the Martin complaint further alleges that respondent,

in lease advertisements, represents that consumers can purchase the

advertised vehicles for the monthly payment amounts prominently stated

in the advertisements. The advertisements allegedly do not adequately

disclose that each advertised monthly payment amount is a component of

a lease offer. The complaint alleges that the existence of this

additional information would be material to consumers in deciding

whether to visit the dealership named in the advertisements and/or

whether to lease or purchase an automobile from the dealership. Count

III, therefore, alleges that the failure to disclose adequately this

additional information, in light of the representation made, was, and

is, a deceptive practice in violation of Section 5 of the FTC Act.

4. Failure to Disclose Adequately Inception Fees

Count IV of the Martin complaint alleges that Martin represents in

lease advertisements that consumers can lease the advertised vehicles

at the terms prominently stated in the advertisements, including but

not necessarily limited to the monthly payment amount and/or amount

stated as ``down'' or ``cash or trade down.'' Like the Chrysler and

Bozell complaints, the Martin complaint alleges that Martin's lease

advertisements do not adequately disclose additional material terms

pertaining to the lease, such as the total

[[Page 56651]]

amount due at lease inception. The failure to disclose these additional

terms, according to the complaint, was, and is, a deceptive practice in

violation of the FTC Act.

The complaint alleges that Martin knew or should have known that

the alleged misrepresentations and failure to disclose adequately

material terms was, and is deceptive. These practices, according to the

complaint, constitute deceptive acts or practices in violation of

Section 5(a) of the FTC Act.

B. CLA and Regulation M Violations

Count V of the Martin complaint alleges that respondent Martin's

lease advertisements state a monthly payment amount, the number of

required payments, and/or an amount ``down.'' Respondent Martin's

advertisements, however, allegedly omit or fail to clearly and

conspicuously disclose certain additional terms required by the CLA and

Regulation M. Martin's radio lease advertisements, for example,

allegedly contain none of the required lease disclosures or rapidly

state the disclosures at the end of the advertisements. The complaint,

therefore, alleges that respondent Martin's failure to disclose lease

terms in a clear and conspicuous manner violates the CLA and Regulation

M.

C. FTC Act Violations--Credit Advertising

1. Misrepresentation in Credit Advertising

Count VI of the Martin complaint further alleges that respondent

Martin's credit advertisements represent 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 monthly payment and/or amount down, to purchase the

advertised vehicles. The complaint alleges that Martin knew or should

have known that this representation was false or misleading.

Accordingly, Count VI alleges that these practices dilate Section 5(a)

of the FTC Act.

2. Failure to Disclose Adequately in Credit Advertising

Count VII of the Martin complaint alleges that Martin 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 ballon 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.

D. TILA and Regulation Z Violations

1. Failure to State Rate of Finance Charge as Annual Percentage Rate

The Martin complaint alleges in Count VIII that respondent Martin's

credit advertisements state a rate of finance charge without stating

the rate as an ``annual percentage rate,'' using that term or the

abbreviation ``APR.'' According to the complaint, these practices

constitute a violation of Section 144 and 107 of the TILA, 15 U.S.C.

Secs. 1664 and 1606, respectively, and Sections 226.24(b) and 226.22 of

Regulation Z, 12 C.F.R. Sec. 226.24(b) and 226.22, respectively.

2. Failure to Disclose Required Information Clearly and Conspicuously

The complaint further alleges in Count IX that Martin's credit

advertisements fail 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 televeision advertisements contain

credit disclosures that 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

complaint, therefore, alleges that these practices violate Section 144

of the TILA, 15 U.S.C. Sec. 1664, as amended, and Section 226.24(c) of

Regulation Z, 12 C.F.R. Sec. 226.24(c), as amended.

III. Proposed Consent Orders

The proposed consent orders contain provisions designed to remedy

the violations charged and to prevent respondents from engaging in

similar acts and practices in the future. Specifically, subparagraph

I.A. of the Chrysler and Bozell proposed orders prohibits these

respondents form misrepresenting the vehicle model(s) available to

consumers in connection with any advertised lease offer. Subparagraph

I.A. of the proposed Martin order prohibits Martin, in any motor

vehicle lease advertisement, from misrepresenting that any advertised

lease terms pertain to a cash or credit offer.

Subparagraph I.B. of the proposed orders prohibits respondents 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). Additionally, subparagraph I.C. of the

proposed orders 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 respondents 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

Regulation M.

Moreover, subparagraph I.D. of the proposed orders prohibits

respondents, in any motor vehicle lease advertisement, form stating the

amount of any payment, or that any or not initial payment is required

at consummation of the lease, unless the advertisement also states,

clearly and conspicuously, all of the terms required by Regulation M,

as follows: (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.

Subparagraph II.A of the proposed Martin order prohibits respondent

Martin, 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 II.B also prohibits

respondent Martin 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.

Furthermore, subparagraph II.C of the proposed Martin order also

enjoins respondent from stating a rate of finance charge without

stating the rate as an ``annual percentage rate'' or using the

abbreviation ``APR''. Additionally, subparagraph II.D of the proposed

Martin order 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

[[Page 56652]]

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 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.D. (lease

advertisements) and II.D (credit advertisements) of the proposed orders

must be disclosed ``clearly and conspicuously'' as defined in the

proposed orders. The ``clear and conspicuous'' definition requires

respondents to present such lease or credit information,as applicable,

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 Regulation M and Regulation Z that require disclosure

that consumers can see and read (or hear) and comprehend. Is is also

consistent with prior Commission orders and statements interpreting

Section 5 to require that advertising disclosures be readable (or

audible) and understandable to reasonable consumers.

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

proposed orders. It is not intended to constitute an official

interpretation of the agreements and proposed orders or to modify in

any way their terms.

By direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 98-28400 Filed 10-21-98; 8:45 am]

BILLING CODE 6750-01-M