5 Car Firms’ Pacts Will Put Brakes on Hidden Lease Costs
In a move that authorities hope will push the entire auto industry to clean up its act, five major car makers agreed Thursday to stop hiding costs in ads promoting their car leasing programs.
General Motors Corp., Isuzu Motors Ltd., Honda Motor Co. and Mitsubishi Motor Corp. reached settlements with the Federal Trade Commission and a group of 23 state attorneys general after more than six months of negotiations.
Irvine-based Mazda Motor of America Inc., which is being sued by 15 states over its leasing ads, reached agreement with the FTC but still is negotiating out-of-court settlements with the individual states.
Regulators targeted ads designed to lure consumers into dealer showrooms by touting low or zero down payment leases and making it difficult for consumers to read or hear information about security deposits and other fees that can boost the initial price by hundreds or even thousands of dollars.
“What you represent to the American consumer should be what they get, and the fine print doesn’t get you off the hook,” Arizona Atty. Gen. Grant Woods said at a news conference at FTC headquarters in Washington. “If you need a disclaimer and you can’t read the disclaimer, then it’s not a disclaimer.”
The FTC is continuing its investigation into lease advertising and expects to file additional complaints in coming months, said David Medine, associate director of the agency’s credit practices unit. “You will see more cases, including cases against individual dealers,” he said.
While the settlements signed Thursday are only binding on the five car companies and do not apply to ads or brochures prepared by independent auto dealers or leasing companies, Medine said he hoped that the entire auto industry would adopt the terms. Thursday’s action, he said, “should send a strong signal” that the FTC and the various states expect the auto industry to be truthful about lease and financing terms.
Car leasing programs have been targeted because nearly a third of all new cars today are leased--double the number of just four years ago--and leasing is expected to increase in popularity as car and truck prices keep rising.
Consumer groups generally applauded the settlement. “There’s been a real problem [with leases] and this is a definite improvement,” said Gail Hillebrand, a staff attorney for Consumers Union’s western office in San Francisco.
Thursday’s settlements take effect immediately in the 23 states, including California. But the federal settlement isn’t effective until after a 60-day public review period, meaning that the car companies could continue using the offending ads in states that haven’t negotiated their own settlements until the federal agreement takes effect.
The agreements require General Motors and the Southern California-based marketing subsidiaries of the four Japanese companies to change their radio, television and print ads. The news ads must state “clearly and conspicuously” not only the down payment on a lease but the total due at the start of the lease, the number and dollar amount of payments and any balloon payment due at the end of the lease.
General Motors and Mitsubishi Motor Sales of America, which is based in Cypress, also signed agreements settling FTC charges that ads for their financing plans for car buyers misrepresented annual percentage rates and balloon payments.
None of the companies were required to pay fines, although GM, Honda, Mitsubishi and Isuzu agreed to pay $12,500 each to 20 of the states--a total of $1 million--to help defray costs of the three-year investigation.
“The settlement is part of an industrywide pursuit of a resolution of the difficult issue of how to most meaningfully provide leasing information to consumers as they comparison shop for automobiles,” said Kyle Johnson, a GM spokesman for legal and safety issues, who spoke for the other auto makers.
One of the offending commercials identified by the FTC is a television ad for an Isuzu Trooper lease offered American Isuzu Motors Inc., based in Industry.
It begins by quickly scanning over a leasing agreement and saying “the hardest part about leasing a vehicle these days is reading the conditions of the lease.” It then says that consumers can lease the trucks for $1,999 down and $339 a month. The fine print, though, shows consumers must pay at least $2,688 at lease signing, the FTC said.
Terms of the settlement are identical to new rules that will take effect next October under amendments to the federal Consumer Leasing Act. The changes also will require auto companies and dealers to arrange auto leases so that consumers can detect certain charges that are now hidden in the fine print.
