Dealers Should Beware of Deceptive Advertising – April 2018

Apr 30, 2018 | Member News

Promotional activities increase in the spring season, which means heightened advertising oversight from the Attorney General’s office.

 

The Attorney General’s office has reviewed and contacted dealers regarding advertisements that are deceptive and violate state and federal laws and regulations. The following are comments and recommendations regarding types of advertisements containing the term “Free” and promoting contests, lotteries or raffles.

 

Advertising as “Free”

Dealerships cannot offer an item as free if the customer must buy or lease a vehicle in order to obtain the free item. The rationale is that vehicle prices are usually negotiable and could reflect the cost of the free item in the negotiated price. Dealers are restricted from using words or similar phrases that imply free, including “without charge,” “giveaway,” “we’ll give you,” “complimentary,” “at no cost,” “bonus,” “on us,” or “gift.” Any term which implies “free” is prohibited, as is any language offering another item at a nominal cost.

 

There are ways for dealers to advertise an additional item with the purchase of a vehicle. Two or more items can be advertised for one price as long as it is not implied that any of the items in the offer are free.

 

Correct ways to advertise two or more items at one price, which require an additional disclosure, include:

• Buy a vehicle and an (item) for $(price);

• Price includes (item); or

• An (item) is included with the purchase price of the vehicle.

 

These offers are acceptable but require a disclosure. When using the above advertising language, dealers must also use one of the following disclosures in the advertisement that: “Cost of this promotion may increase the price of the vehicle;” or “This is a combined offer. Make your best deal on a package price.”

 

When is “Free” Permissible?
 

  1. Dealers may make free offers if no purchase is required to obtain the free item. For example, giving away a pen or other premium item to anyone who visits the dealership, not just to vehicle purchasers, is acceptable.
  2. Dealers may make free offers such as free loaners to replace a vehicle which is at the dealer’s location for repairs as long as the prices or rates for repairs are set and not negotiable.
  3. A manufacturer may make a free offer if its price to dealers are not subject to negotiation. A dealer who negotiates price is permitted to advertise and promote the manufacturer’s free offer. However, if the dealer contributes financially to the cost of the free offer, the amount the dealer contributes must be disclosed in the advertisement in this manner: “Dealer pays $(amount) of this offer which may increase the cost of the vehicle.”

Contests, Lotteries and Raffles

Contests and giveaways are designed to increase dealership traffic and boost sales. These business promotions are acceptable, provided they do not fall under the definition of a “lottery.”

 

Pennsylvania law allows for certain limited activities, such as the state-run lottery and nonprofit organizations’ small games of chance, however for-profit businesses, such as dealerships, are prohibited from running lotteries.

 

The basic elements of a lottery include:
 

  • a prize to be won;
  • a winner to be determined by chance; and
  • the payment of consideration by the player.

For a dealership or other business, payment of consideration (the requirement to purchase an item or spend money) becomes a troublesome factor.

 

Example of Incorrect Advertisement

Every vehicle purchaser during the month of May becomes eligible to win a prize. By requiring that a purchase be made to be eligible to win, the activity becomes a lottery and is prohibited by law.

 

Example of Correct Advertisement

Anyone who visits the dealership during the month of May can register to win a prize. This contest would be acceptable because no purchase is necessary. By removing one of the elements of a lottery, a dealership eliminates the possibility of a violation.

 

Contest Rules

When advertising a contest, dealerships should include basic information. Complete contest rules should be available at the dealership for anyone who requests a copy.

 

Rules should include information such as:

·         must be over 18 years to register to win;

·         enter by completing a registration form at the dealership or by mailing a card to the dealership at a specific address and containing specific information;

·         entries limited to one per visit to the dealership and one per mailing received;

·         entrants need not be present to win;

·         no cash substitutions allowed;

·         prize winning is not transferable;

·         employees of the dealership or its advertising agency and members of their immediate families are ineligible to participate;

·         results of the drawing are final; and

·         the contest winner is responsible for disclosing the value of the prize as income on all applicable local, state and federal income tax returns.

Dealers should be aware that even when a third party designs a promotion, it is important for the dealership to review the final drafts of the advertisement for compliance with the law. It is ultimately the dealership that is responsible for the content and presentation of its advertising.

 

PAA Advertising Guide

NADA has authored a compliance publication entitled “A Dealer Guide to Federal Advertising Requirements.”

 

This guide is available at www.paa. org under Hot Driving Topics, and contains examples of ads, use of discount claims, email advertising rules, internet advertising, satisfaction guarantees, and trigger terms.

 

In addition to recommending the NADA “A Dealer Guide to Federal Advertising Requirements”, PAA in conjunction with the Office of Attorney General prepared a Dealer Advertising Guide, which is available at no cost at www.paa.org under Members Only or by contacting Melanie Stine at [email protected].

 

Courtesy of PAA Bulletin No. 8, 4/24/2018