You may remember the 80’s game show Press Your Luck where contestants answered trivia questions for the opportunity to take a spin on the game board for cash and prizes. The contestant who collected the most cash and prizes and avoided hitting the dreaded “Whammy” won the game. The Whammy was a red cartoon creature who was hidden at various places on the board. If a contestant landed on a space with the hidden Whammy, the Whammy would take away all of the contestant’s cash and prizes. When spinning, it was common for contestants to chant “Come on—No Whammies! No Whammies!”
So why are we talking about Whammies? Well, because there are Whammies in real life too—like in dealer advertising. You may be just trying to get ahead, when Whammy! You unexpectedly get tagged and lose it all.
Given the current economic environment, you may be considering advertising attractive credit terms to drive traffic and increase sales in 2009. This tactic presents some risks, however, so proceed with caution.
One way to hit a “Whammy” is to run afoul of state and federal credit advertising laws. It is not that you shouldn’t advertise credit terms or even “attractive” credit terms; it’s that you should do so first, with the intent to stand behind the terms you advertise and second by adhering to any required disclosure rules. For example, if a dealer advertises credit terms that it either is not willing or able to provide to customers, it may be violating the advertising rules of the Truth in Lending Act (TILA) and Regulation Z (Reg. Z), its implementing regulation. It may also be violating federal and state unfair and deceptive trade practice laws.
What is the lesson? Be prepared to stand behind any credit terms that you advertise. In addition, if any of the credit terms you offer are available only in limited circumstances, such as five percent financing, but only on last year’s models, make sure you clearly and conspicuously disclose this important fact. Do not think that placing this disclaimer in small print at the bottom of the ad does the job. It does not! If limitations or restrictions are not clearly and conspicuously disclosed, the advertising may falsely suggest that the credit terms are generally available to all, when in reality they are not. The Federal Trade Commission (FTC) has been known to pursue advertisers for this type of behavior, charging that it is deceptive.
The other critical point is that some laws place requirements on what information must be included when advertising includes credit terms. For example, TILA and Reg. Z place disclosure requirements when “triggering terms” are used. The monthly payment amount is one such “triggering term.” If an advertisement offers a monthly payment of $299, TILA and Reg. Z require that the ad also provide: (i) the amount or percentage of any required down payment, (ii) the terms of repayment, and (iii) the “annual percentage rate.”
What happens if you don’t comply with credit advertising rules? For the TILA and Reg. Z advertising rules there is no private right of action for violations, however, there are real potential consequences. A dealer that violates these rules may be subject to an FTC “cease and desist” order and to fines of up to $11,000 per violation. In addition, plaintiffs’ lawyers have successfully argued that violating a federal law or regulation constitutes an unfair and deceptive trade practice under state law. That means a dealership could also find itself subject to damages and penalties under state unfair and deceptive practices statutes. Further, states with credit advertising disclosure laws may provide private causes of actions or subject dealers to penalties for violations.
Avoid hitting a “Whammy” in 2009 and losing all of your cash and prizes. Before advertising credit terms, make sure you are willing (and able) to honor them. If the credit terms include any conditions or restrictions, clearly present this information. If triggering terms are included in the ad, make all of the required TILA and Reg. Z disclosures. Finally, know if your state has credit advertising disclosure laws and, if it does, comply with them.
Best of luck for a prosperous 2009!
Patricia E. Covington is a partner with Hudson Cook, LLP, a Hanover, Maryland-based law firm. Her practice focuses on consumer finance, motor vehicle dealer law, privacy, security and information management, electronic commerce, and marketing. She regularly advises on matters in these areas, with a particular concentration on information privacy and security, as well as matters relating to federal compliance for motor vehicle finance companies and motor vehicle dealers. Ms. Covington can be reached at 410-865-5409 or by email at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .
C. Carter Berkeley is an associate with Hudson Cook, LLP, a Hanover, Maryland-based law firm that represents national and state banks, savings associations, credit unions, mortgage bankers, and licensed lenders in the development and maintenance of consumer mortgage, automobile finance, and other credit programs. Ms. Berkeley can be reached at 410-782-2346 or by email at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .
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