Rebate Advertising: Warnings Issued by the Riverside District Attorney Office

by Rob Cohen, Esq.

Several sources have reported that the Riverside District Attorney’s office has issued letters to every dealer in Riverside county regarding allegedly deceptive advertising. I can confirm that this is true.

The crux of the DA’s concerns are related to rebate advertising.  The DA alleges that some dealers include limited rebates in advertisements to reduce the “net cost” of the vehicle. In their view, this is deceptive insofar as all consumers will not qualify for all rebates.

In light of these recent inquiries, I thought we should reiterate some good rebate advertising practices.

1. For starters, advertising a dealer rebate is prohibited. And, technically speaking, so is advertising any rebate from any source other than a manufacturer and/or distributor. Only rebates offered by the manufacturer or distributor should be advertised. (Vehicle Code § 11713.1(j))

2. Rebates must be “expressed in a specific dollar amount.” This means phrases such as “Rebates  up to $4,000” should be avoided. Instead, use phrases such as “Rebates such as $4,000 on all 2013 Chevy Volts.” (Vehicle Code § 11713.1(j))

3. Dealers may advertise the effect that one or more rebates may have on a selling price; however, dealers should follow these guidelines:

a. The selling price of the vehicle must be shown and identified as the “selling price.”

b. Each rebate must be listed and specifically identified.

c. The phrase “Net Cost” or “Net Cost to You” should be stated next to the final price resulting from the equation.

 Example:

2013chevy

 [Reference: Vehicle Code § 11713.16(e)]

4.    Advertising one price alone, qualified by a phrase such as “after rebate,” “includes rebate,” or similar words, is prohibited. (Vehicle Code § 11713.16(e))

5.    Dealers should only include in the “net cost” formula those rebates that are available to all purchasers.  Special and/or limited manufacturer rebates, such as “commercial rebates,” “owner loyalty rebates,” “college grad rebates,” “first time buyer rebates,” “active duty military rebates,” etc., should not appear in the “net cost” formula. Although this practice is not specifically prohibited by statute or regulation, AAS recommends against including limited rebates in the net cost formula in order to avoid possible consumer confusion.

It is perfectly acceptable to advertise these types of limited rebates outside of the “net cost” formula. In other words, limited rebates can be mentioned as being available in a section of an advertisement, just not in a formula used to reduce the net cost of a vehicle. But, if you do advertise limited rebates, be sure to follow these guidelines:

a.    The limited rebate must be clearly and conspicuously  identified by a name that is reasonably likely to notify eligible consumers. In other words, using a label such as “Active Duty Military Rebate” is good. However, using an acronym such as “ADMR” may not be.

b.   The limited rebate must be “expressed in a specific dollar amount.”

c.    Be sure to include all qualifying criteria in the disclaimer (i.e., state how customers qualify for the limited rebate). As with all disclaimers, special rebate disclaimers should be “clear and conspicuous.”  Whether a disclaimer is clear and conspicuous is very subjective. Nevertheless, here is a definition  of “clearly and conspicuously” the Federal Trade Commission included in its settlement agreements with some dealers last year.

“Clearly and conspicuously” shall mean as follows:

i.   In a print advertisement, the disclosure shall be in a type size, location, and in print that contrasts with the background against which it appears, sufficient for an ordinary consumer to notice, read, and comprehend it.

ii.   In an electronic medium, an audio disclosure shall be delivered in a volume and cadence sufficient for an ordinary consumer to hear and comprehend it. A video disclosure shall be of a size and shade and appear on the screen for a duration and in a location sufficient for an ordinary consumer to read and comprehend it.

iii. In a television or video advertisement, an audio disclosure shall be delivered in a volume and cadence sufficient for an ordinary consumer to hear and comprehend it. A video disclosure shall be of a size and shade, and appear on the screen for a duration, and in a location, sufficient for an ordinary consumer to read and comprehend it.

iv. In a radio advertisement, the disclosure shall be delivered in a volume and cadence sufficient for an ordinary consumer to hear and comprehend it.

v.   In all advertisements, the disclosure shall be in understandable language and syntax. Nothing contrary to, inconsistent with, or in mitigation of the disclosure shall be used in any advertisement or promotion.

[Reference: See, e.g., http://ftc.gov/os/caselist/1123207/ 120314rameymotorsorder.pdf]

 In addition to the above, when discussing the “fine print” and the clear and conspicuous standard, FTC staff often refer to the “Four Ps”:

Prominence: Is the fine print big enough for people to notice and read?

Presentation: Is the wording and format easy for people to understand?

Placement: Is the fine print where people will look?

Proximity: Is the fine print near the claim it qualifies?

 [FTC Fact Sheet: The Devil’s in the Details, www.ftc.gov/bcp/edu/microsites/youarehere/pages/pdf/FTC-Ad-Marketing_Devil-In-Details.pdf, downloaded July 7, 2013]

 Even if you don’t do business in Riverside county, it is a very good idea to pay close attention to this issue.  The Riverside DA has already begun contacting other District Attorney offices across the state (as well as the DMV) in  an attempt to draw further attention to rebate and other advertising practices of dealers.  As always, Auto Advisory Services will keep you informed of any developments.

Article originally published in Transmission, [June/July, 2013].

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