Today's Trends in Credit Regulation

When It Comes to the FTC, the Second Time is Not the Charm
By Joel C. Winston

Having to deal with one Federal Trade Commission enforcement action is bad enough. But, once you have the dubious distinction of being under an FTC consent order, the stakes become much higher. The FTC takes seriously its obligation to ensure that companies under order comply with the order's terms, and the consequences of violating an order are severe. This is the lesson from two recent actions brought by the agency against auto dealers who allegedly violated the terms of prior orders against them. Over the next few months, I will describe other key lessons embedded in these two cases that should be heeded by all dealers and lenders.

Back in 2012, two dealerships, Billion Auto (a family-owned chain of dealerships in Iowa, Montana, and South Dakota) and Ramey Motors (with several locations in Virginia and West Virginia) entered into consent orders with the FTC. The cases were part of a sweep involving five dealerships that, according to the FTC, engaged in deceptive advertising by claiming they would pay off a consumer's existing financing when a consumer traded in his or her car for a new one, no matter how "upside down" the consumer might be. In fact, any negative equity was rolled into the new financing.

The consent orders did not include any sort of penalty or consumer redress, but only prohibited future deceptive conduct. As is typical in FTC (and Consumer Financial Protection Bureau) cases, however, the orders did not simply ban the misrepresentations the dealers had made in the past, but included "fencing-in" relief, which broadly prohibited them from:

  • misrepresenting "any material fact" regarding the cost and terms of financing or leasing of any vehicle; and
  • failing to clearly and conspicuously disclose terms required by the Truth in Lending Act and the Consumer Leasing Act in advertising vehicle sales and leases.

It is the breadth of fencing-in relief that is often the most hotly contested issue in negotiating a consent order, and the Billion and Ramey cases are good examples of why that is so. In December 2014, the Department of Justice (on behalf of the FTC) filed two cases in federal court alleging that the two dealerships had violated the fencing-in provisions of the prior orders. The alleged violations had nothing to do with claims about trade-ins or negative equity, but fell within the broad fencing-in provisions. In both cases, the government contended that the dealer's advertisements prominently included certain attractive terms, such as a low monthly finance or lease payment, but concealed other material terms (such as a large down payment or a trade-in requirement) that "limit who can qualify or that add significant extra costs." Typically, those other terms were stated in fine print footnotes or video crawls that were essentially illegible.

While the prior Billion and Ramey orders did not require any monetary payments, the FTC did not need to be nearly so generous the second time around. Under Section 5(l) of the FTC Act, violators of a pre-existing FTC order against it are liable for penalties of up to $16,000 for each violation of the order. And, according to the FTC, each day in which the violations occurred (for example, each day that a deceptive advertisement ran) is a separate violation.

To settle its case, Billion agreed to pay $360,000 in penalties - a relatively low number compared to many other FTC order enforcement cases, but certainly substantial for a family-owned chain of dealerships. Ramey, on the other hand, did not settle its case and consequently was sued in federal court in West Virginia, where a judge will decide the amount of any fine.

The messages from these two cases are simple: Of course, it's best to avoid the FTC or other law enforcer in the first place by making sure you act within the law. But, if you are under a government order, you need to be especially careful to comply with its terms. In particular, in negotiating a consent order and in later complying with it, you and your counsel should pay particular attention to the fencing-in provisions. Otherwise, you may find yourself paying a hefty fine for practices only remotely related to what you may have done wrong in the past.

Joel C. Winston is a partner in the Washington, D.C., office of Hudson Cook, LLP. Joel can be reached at 202-327-9716 or by email at

Article Archive

2024   2023   2022   2021   2020   2019   2018   2017   2016   2015   2014   2013   2012   2011   2010   2009  

Copyright © 2024, LLC. All rights reserved.