[Federal Register Volume 65, Number 88 (Friday, May 5, 2000)]
[Notices]
[Pages 26209-26211]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-11311]


-----------------------------------------------------------------------

FEDERAL TRADE COMMISSION

[File Nos. 992 3246 and 992 3247]


R.N. Motors, Inc., et al. and Simmons Rockwell Ford Mercury, 
Inc., et al.; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreements.

-----------------------------------------------------------------------

SUMMARY: The consent agreements in these two 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 May 30, 2000.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 600 Pennsylvania Ave., NW, Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Carole Reynolds or Michelle Chua, FTC/
S-4429, 600 Pennsylvania Ave., NW, Washington, DC 20580. (202) 326-3230 
or 326-3248.

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 thirty (30) 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 agreements package can be obtained from the FTC 
Home Page (for April 27, 2000), on the World Wide Web, at ``http://
www.ftc.gov/ftc/formal.htm.'' A paper copy can be obtained from the FTC 
Public Reference Room, Room H-130, 600 Pennsylvania Avenue, NW, 
Washington, DC 20580, either in person or by calling (202) 326-3627.
    Public comment is invited. Comments should be directed to: FTC/
Office of the Secretary, Room 159, 600 Pennsylvania Ave., NW, 
Washington, DC 20580. Two paper copies of each comment should be filed, 
and should be accompanied, if possible, by a 3\1/2\ inch diskette 
containing an electronic copy of the comment. 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 Orders To Aid Public Comment

Summary

    The Federal Trade Commission has accepted separate agreements, 
subject to final approval, to proposed consent orders from respondents: 
(1) R.N. Motors, Inc., Red Noland Cadillac, Inc., and Nelson B. Noland 
(``Red Noland''); and (2) Simmons Rockwell Ford Mercury, Inc., Simmons 
Rockwell Autoplaza, Inc., Don Simmons, Inc., and Donald M. Simmons, II 
and Richard L. Rockwell (``Simmons Rockwell''). The persons named in 
these actions are named individually and as officers of their 
respective corporations.
    The proposed consent orders have been placed on the public record 
for

[[Page 26210]]

thirty (30) days for receipt of comments by interested persons. 
Comments received during this period will become part of the public 
record. After thirty (30) 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 Red Noland and Simmons Rockwell complaints allege that these 
respondents disseminated automobile lease advertisements that violate 
the Federal Trade Commission Act (``FTC Act''), the Consumer Leasing 
Act (``CLA''), and Regulation M. The Simmons Rockwell complaint also 
alleges that it disseminated automobile credit advertisements that 
violate 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 disclosure requirements for 
lease and credit advertisements under the CLA and the TILA, 
respectively, and directed the Federal Reserve Board to promulgate 
regulations implementing such statutes--Regulations M and Z 
respectively. See 15 U.S.C. 1667 et seq; 15 U.S.C. 1601 et seq; 12 CFR 
213; 12 CFR 226.

I. The Complaints

A. FTC Act Violations
    The Red Noland complaint alleges that, based on the terms 
prominently stated in their lease advertisements, including but not 
necessarily limited to the monthly payment amount, the downpayment, and 
the security deposit, respondent failed to disclose, and failed to 
disclose adequately, additional terms pertaining to the lease offer, 
such as the total amount due at lease inception, including but not 
limited to whether third-party fees such as taxes, licenses, and 
registration fees are required as part of the total amount due at lease 
inception. The Simmons Rockwell complaint alleges that, based on the 
terms prominently stated in their lease advertisements, including but 
not necessarily limited to the monthly payment amount, respondent 
failed to disclose, and/or failed to disclose adequately, additional 
terms pertaining to the lease offer, such as the total amount due at 
lease inception, including but not limited to whether third-party fees, 
such as taxes, licenses, and registration fees, are required as part of 
the total amount due at lease inception. The Red Noland and Simmons 
Rockwell complaints allege that the required information does not 
appear at all or appears in fine print and/or is illegible in the 
advertisements and that this information would be material to consumers 
in deciding whether to visit respondents' dealerships and/or whether to 
lease an automobile from respondents. These practices, according to 
both complaints, constitute deceptive acts or practices in violation of 
section 5(a) of the FTC Act.
B. CLA and Regulation M Violations
    The Red Noland and Simmons Rockwell complaints also allege that 
respondents' lease advertisements have violated the CLA and Regulation 
M. The Red Noland complaint alleges that respondent's ads state the 
monthly payment amount, the downpayment, and the security deposit; the 
Simmons Rockwell complaint alleges that respondent's ads state the 
monthly payment amount--all ``triggering'' terms under these laws. The 
Red Noland and Simmons Rockwell complaints allege that respondents 
failed to disclose, and/or fail to disclose clearly and conspicuously, 
certain additional ``triggered'' terms, as applicable and as follows: 
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, amounts, and timing of scheduled 
payments.
    According to the complaints, Red Noland's lease disclosures are 
omitted altogether and are not clear and conspicuous. Simmons 
Rockwell's lease disclosures, if provided, are not clear and 
conspicuous because they appear in fine print and/or are illegible.
    The Red Noland and Simmons Rockwell complaints, therefore, allege 
that these practices violate section 184 of the CLA, 15 U.S.C. 1667c, 
as amended, and section 213.7 of Regulation M, 12 CFR 213.7, as 
amended.
    In addition, the Red Noland complaint alleges that respondent's 
lease advertisements state specific lease rates for each of certain 
advertised vehicles, but fail to disclose, and fail to disclose clearly 
and conspicuously, the following notice concerning lease rates required 
by Regulation M: ``This percentage may not measure the overall cost of 
financing this lease.''
    The Red Noland complaint, therefore, alleges that this practice 
violates section 213.4(s) of Regulation M, 12 CFR 213.4(s).
C. TILA and Regulation Z Violations
    The Simmons Rockwell complaint alleges that respondent's credit 
advertisements have violated the TILA and Regulation Z. It alleges that 
respondent's credit ads state the number of payments required to 
finance the transaction and an annual percentage rate (expressed as an 
``APR''), but failed to disclose, and/or failed to disclose clearly and 
conspicuously, certain additional terms required by Regulation Z, 
including the amount of the downpayment and the full terms of 
repayment, such as the amount of the monthly payment.
    According to the complaint, Simmons Rockwell's credit disclosures, 
if provided, are not clear and conspicuous because they appear in 
blurred print.
    The Simmons Rockwell complaint, therefore, alleges that these 
practices violate section 144 of the TILA, 15 U.S.C. 1664, as amended, 
and section 226.24(c) of Regulation Z, 12 CFR 226.24(c), as amended.

II. Proposed Consent Orders

    The Red Noland and Simmons Rockwell 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, Paragraph I.A. of the Red Noland and Simmons Rockwell 
proposed orders prohibit respondents, in any lease advertisement, from 
misrepresenting, in any manner, directly or by implication, the costs 
or terms of leasing a vehicle, including but not limited to the total 
amount due at lease signing or delivery.
    Paragraph I.B. of the Red Noland and Simmons Rockwell proposed 
orders prohibit respondents, in any 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 charge is required, not 
including a statement of the periodic payment, unless the advertisement 
also states with ``equal prominence'' the total amount due at lease 
signing or delivery. The ``prominence'' requirement prohibits 
respondents from running deceptive advertisements that highlight low 
amounts due at lease inception with inadequate disclosure of the actual 
total lease inception fees. This ``prominence'' requirement for lease 
inception fees is also found in Regulation M.

[[Page 26211]]

    Paragraph I.C. of the Red Noland and Simmons Rockwell proposed 
orders prohibit respondents, in any lease, from stating the amount of 
any payment or that any or no initial payment is required at lease 
signing or delivery, unless the advertisement also states, clearly and 
conspicuously, all of the terms required by Regulation M, as amended 
and 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, amounts, and timing of 
scheduled payments; and (5) that an extra charge may be imposed at the 
end of the lease term in a lease in which the liability of the consumer 
at the end of the lease term is based on the anticipated residual value 
of the vehicle.
    Furthermore, Paragraph I.D. of the Red Noland proposed order 
prohibits this respondent from stating a percentage rate in an 
advertisement or in documents evidencing the lease transaction, unless 
respondent also states the notice required by Regulation M that ``this 
percentage may not measure the overall cost of financing this lease.''
    Paragraph I.D. of the Simmons Rockwell proposed order, and 
paragraph I.E. of the Red Noland proposed order, prohibit respondents 
from engaging in any other violation of Regulation M, as amended.
    In addition, Paragraph II. A. of the Simmons Rockwell proposed 
order enjoins respondent, in any credit advertisement, from stating 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, 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; and (3) 
annual percentage rate, using that term or the abbreviation ``APR.'' If 
the annual percentage rate may be increased after consummation of the 
credit transaction, that fact must also be disclosed. Paragraph II.B. 
of this proposed order also prohibits Simmons Rockwell from stating a 
rate of finance charge unless respondents state the rate as an ``annual 
percentage rate'' or the abbreviation ``APR,'' using that term. 
Paragraph III.C. of this proposed order also enjoins Simmons Rockwell 
from engaging in any other violation of Regulation Z, as amended.
    The information required by Paragraph I of the Red Noland proposed 
order (lease advertisements), and Paragraphs I and II of the Simmons 
Rockwell proposed order (lease and credit advertisements), must be 
disclosed ``clearly and conspicuously.'' Both proposed orders define 
the term ``clearly and conspicuously'' for Red Noland's and Simmons 
Rockwell's advertisements in all media. In a television, video, radio 
or Internet or other electronic advertisement, the required disclosures 
made in the audio portion of the advertisement must be delivered in a 
volume, cadence, and location sufficient for an ordinary consumer to 
hear and comprehend. The required disclosures in the video portion of 
the advertisement must be of a size and shade, and must appear on the 
screen for a duration and in a location, sufficient for an ordinary 
consumer to read and comprehend. In a print advertisement, the required 
disclosures must be in a type size and location sufficient for an 
ordinary consumer to read and comprehend, in print that contrasts with 
the background against which it appears. Additionally, the required 
disclosures must be in understandable language and syntax. Further, 
nothing contrary to, inconsistent with, or in mitigation of the 
required disclosures shall be used in any advertisement.
    The purpose of this analysis is a 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. 00-11311 Filed 5-4-00; 8:45 am]
BILLING CODE 6750-01-M