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FTC settles with 5 dealers whose ads promised trade-in payoffs

March 30, 2012
Five car dealers around the country have agreed to Federal Trade Commission settlement orders that require them to stop running ads in which they promise to pay off a consumer’s trade-in no matter how much the consumer owes on the vehicle.
The FTC charged that the ads, which ran on the dealers’ websites and on sites such as, deceived consumers into thinking they would no longer be responsible for paying off the loan balance on their trade-ins, even if the balance exceeded a trade-in’s value.
Instead, the dealers rolled the negative equity into the consumer’s new vehicle loan or, in the case of one dealer, required consumers to pay it out of pocket.
The proposed settlements, reached with the dealers in four states as part of the FTC’s ongoing efforts to protect consumers in financial distress, bar all of the dealers from making similar deceptive representations in the future.
The cases are the first of their kind brought by the FTC, which also issued a new consumer education publication, “Negative Equity Ads and Auto Trade-ins,” to help consumers understand these types of ads.
“Buying a new car or truck is a major financial commitment, and the last thing consumers need is to be tricked into thinking that a dealer will ‘pay off’ what they owe on their current vehicle, when they really won’t,” said David Vladeck, director of the FTC’s Bureau of Consumer Protection. “The Federal Trade Commission is constantly on the lookout for potentially deceptive ads, and brings actions to stop them when appropriate.”
The dealers named in the FTC’s complaints are: Billion Auto, Inc., in Sioux Falls, S.D.; Frank Myers AutoMaxx, LLC, in Winston-Salem, N.C.; Key Hyundai of Manchester, LLC and Hyundai of Milford LLC, in Vernon and Milford, Conn., respectively, and which advertise jointly; and Ramey Motors, Inc., in Princeton, W. Va.
The FTC’s complaints allege that despite the dealers’ claims, consumers still end up being responsible for paying the difference between the trade-in loan balance and the vehicle’s value. The complaints charge that the dealers’ representations that they will “pay off” what the consumers owe are false and misleading, and violate the FTC Act.
Examples of the allegedly deceptive advertisements include:
• “Credit upside down? Need a new car? Go to We want to pay off your car.” The advertisement depicts a car moving, inverts the video to depict it upside down, and then turns it right-side up again. (Billion Auto)
• “Uncle Frank wants to pay [your trade] off in full, no matter how much you owe.” (Frank Myers AutoMaxx)
• “I want your trade no matter how much you owe or what you’re driving. In fact I’ll pay off your trade when you upgrade to a nicer, newer vehicle.” (Key Hyundai and Hyundai of Milford)
• “Ramey will pay off your trade no matter what you owe . . . even if you’re upside down, Ramey will pay off your trade.” (Ramey Motors)
The complaints in three of the cases also allege violations of the Truth in Lending Act and its implementing Regulation Z for failing to disclose certain credit-related terms. The complaints in two of the cases also allege violations of the Consumer Leasing Act and its implementing Regulation M for failing to disclose certain lease-related terms.
The proposed orders settling the FTC’s charges are designed to prevent them from engaging in similar deceptive advertising practices in the future. First, each order prohibits the dealership from misrepresenting that it will pay the remaining loan balance on a consumer’s trade-in, so the consumer will have no further obligation for any amount of that loan. It also prohibits the dealer from misrepresenting any other facts related to leasing or financing a vehicle.
The proposed orders against Billion Auto, Key Hyundai, Hyundai of Milford, and Ramey Motors require them to comply with TILA and Regulation Z, and to make clear and conspicuous disclosures when advertising certain terms related to issuing consumer credit. The orders also require that if any finance charge is advertised, the rate must be stated as an annual percentage rate or as the APR.
In addition, the proposed orders against Billion Auto, Key Hyundai, and Hyundai of Milford require those dealers to clearly and conspicuously make all lease-related disclosures required by the CLA and Regulation M, including the monthly lease payment.
The proposed orders also require each of the dealers to keep copies of relevant advertisements and materials substantiating claims made in their advertisements, and to provide copies of the order to certain employees. Finally, the dealers are required to file compliance reports with the FTC to show they are meeting the terms of the orders, which will expire in 20 years.
The misrepresentation alleged in the cases was one of the topics raised at the FTC’s 2011 public roundtables regarding consumer protection issues that may arise in the sale, financing or lease of motor vehicles. For many consumers, buying or leasing a car is their most expensive financial transaction aside from owning a home. As the nation’s consumer protection agency, the FTC is committed to protecting consumers in connection with these financial transactions.
The Commission vote to issue the administrative complaints and accept the consent agreement packages containing the proposed consent orders for public comment was 4-0. The FTC will publish a description of the consent agreement packages in the Federal Register. The agreements will be subject to public comment through April 16, after which the
Commission will decide whether to make the proposed consent orders final.
The FTC issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the respondent has actually violated the law. A consent agreement is for settlement purposes only and does not constitute an admission by the respondent that the law has been violated. Violation of such an order can result in a civil penalty of up to $16,000.