Social Media Advertising
Basic rule
The rules regarding auto dealer advertising apply to advertising on the internet as well as to other media. The FTC has provided guidance for advertising on the internet, as discussed below.
Dealer advertising on social media internet sites such as Facebook, Twitter, and others, must comply with the dealership advertising rules in this manual.
It is important that this chapter be read with the following two chapters: Chapter 63, Website Advertising, and Chapter 12, Qualifiers, Disclosures, and Disclaimers.
Text of the law
Internet advertising disclosure when price advertised
California Vehicle Code § 11713.1(c): It is a violation of this code for the holder of any dealer’s license issued under this article to do any of the following:
(1) Exclude from an advertisement of a vehicle for sale that there will be added to the advertised total price at the time of sale, charges for sales tax, vehicle registration fees, the California tire fee, the fee charged by the state for the issuance of a certificate of compliance or noncompliance pursuant to a statute, finance charges, a charge to electronically register or transfer the vehicle, and dealer document processing charge.
(2) The obligations imposed by paragraph (1) are satisfied by adding to the advertisement a statement containing no abbreviations and that is worded in substantially the following form: “Plus government fees and taxes, any finance charges, any dealer document processing charge, any electronic filing charge, and any emission testing charge.”
(3) For purposes of paragraph (1), “advertisement” means an advertisement in a newspaper, magazine, or direct mail publication that is two or more columns in width or one column in width and more than seven inches in length, or on a Web page of a dealer’s Internet Web site that displays the price of a vehicle offered for sale on the Internet, as that term is defined in paragraph (6) of subdivision (f) of Section 17538 of the Business and Professions Code.
See discussion in Chapter 63, Website Advertising, for what is meant by a dealer’s Web page.
Duty to display list of advertised vehicles in showroom
California Vehicle Code § 11709.3: (a) Every dealer shall clearly and conspicuously display in its showroom at its established place of business, in a place that is easily accessible to prospective purchasers, a clear and conspicuous listing of each vehicle that the dealer has advertised for sale if the vehicle meets all of the following requirements:
(1) The vehicle is advertised for sale in a newspaper or other publication of general circulation, or in another advertising medium that is disseminated to the public generally, including, but not limited to, radio, television, or the Internet.
(2) The vehicle is advertised at a specific price and is required pursuant to subdivision (a) of Section 11713.1 to be identified in the advertisement by its vehicle identification number or license number.
(3) The vehicle has not been sold or leased during the time that the advertised price is valid.
(4) The vehicle does not clearly and conspicuously have displayed on or in it the advertised price.
(b) The listing required by subdivision (a) may be satisfied by clearly and conspicuously posting in the showroom a complete copy of any print advertisement that includes vehicles currently advertised for sale or by clearly and conspicuously displaying in the showroom a list of currently advertised vehicles described by make, model, model-year, vehicle identification number, or license number, and the advertised price.
(See Chapter 24, Duty to Sell at Advertised Price and Posting Rules, for how this law may be satisfied by posting the information digitally.)
FTC.com rules
The Federal Trade Commission (“FTC”) has published .com Disclosures: How to Make Effective Disclosures in Digital Advertising which gives the FTC’s position on the application of advertising law to internet marketing and advertising. Basically, the FTC takes the position that the rules and regulations which prohibit unfair or deceptive ads or practices are applicable to internet advertising, marketing and sales, and that existing rules and regulations which use such terms as “written” or “printed” are not limited to any particular medium.
Discussion
FTC.com Disclosures publication
It is very important that dealers utilizing the internet for advertising purposes review the FTC .com Disclosures publication. The following are some of the highlights of the publication, but the full text should be read by anyone who has responsibility for dealership internet advertising. The FTC publication also provides examples of good and bad internet ads.
“Clear and conspicuous” manner
As emphasized in .com Disclosures, the FTC’s primary concern is that internet advertising provides material information to consumers in a manner that is truthful and not misleading. As part of this concern, the FTC is focused on making sure that disclosures (which may be specifically required by law or provided to qualify information in an ad to prevent the ad from being misleading), must be made in a “clear and conspicuous manner.” Whether this “clear and conspicuous” standard is complied with is determined based upon an overall impression of the ad from the perspective of a reasonable consumer.
Determining factors
As discussed in the Dotcom Disclosures publication, factors which play a role in determining whether or not a disclosure is “clear and conspicuous” include the placement of the disclosure in the ad, its proximity to the relevant claim, the prominence of the disclosure, whether other parts of the ad distract attention from the disclosure, whether a disclosure needs to be repeated because of the length of an ad, whether an audio disclosure is properly presented in terms of adequate volume and cadence, whether a visual disclosure is displayed for a sufficient duration, whether the disclosure is unavoidable (consumers should not be able to proceed without scrolling through the disclosure), and whether the language used for a disclosure is understandable. When practical, advertisers should incorporate relevant limitations and qualifying information into the underlying claim, rather than having a separate disclosure qualifying the claim.
Scrolling issues
Preferably, design advertisements so that scrolling is not necessary in order to find a disclosure. When advertisers are putting disclosures in a place where consumers might have to scroll in order to view them, they should use text or visual cues to encourage consumers to scroll and avoid formats that discourage scrolling.
Key .com points regarding hyperlinks
Hyperlinks lead to information placed on a webpage separate from webpage on which the claim is made. In some cases, a hyperlink leads to bookmarked information on the same webpage that contains the hyperlink. Hyperlinks can be useful when the information linked to is or needs to be repeated because of multiple triggering claims. Some of the key points made by the FTC regarding using hyperlinks in internet advertising are the following:
Use a label on the hyperlink that indicates the link is relevant to a particular claim and indicate the nature of the information the link will lead to.
Hyperlinks that simply say “disclaimer,” “more information,” “terms and conditions,” or “fine print” do not convey the importance, nature, and relevance of the information to which they lead and are likely to be inadequate.
Use hyperlink styles consistently to increase the likelihood that consumers will know it is a link to information.
The hyperlink should be noticeably placed near the claim that triggers the disclosure.
The hyperlink should take consumers directly to the disclosure without having to search through the page or go to other places to find the disclosure.
Disclosures should be incorporated in banner ads and communicated clearly and conspicuously on the page to which the banner ad links. Disclosures should be prominently displayed so that they are noticeable to consumers, taking into account the size, color, and graphic treatment of other information contained on the webpage.
When making disclosures, don’t use pop-ups subject to pop-up blocking software.
Audio disclosures should be used when audio claims are made, and these disclosures should be given in a volume and cadence which is clear and understandable to consumers.
Disclosures should be displayed visually for a sufficient duration to allow them to be read and understood by consumers. When written claims are made, the disclosure should be written.
Teaser space-constrained ads, such as banner ads and tweets, often do not have space for the details of the ad. Incorporate the disclosure into the ad whenever possible. When it is not possible to make the disclosures in a space-constrained ad, in some circumstances it may be acceptable for a space-constrained ad to link to a webpage where the details of the ad are clearly and conspicuously shown.
See Chapter 63, Website Advertising, for a discussion, among other things, of how “special internet prices” must be offered to everyone whether or not they are aware of the internet ad, the requirement that a list of all vehicles advertised be posted in the dealership, and the notice that the advertisements are only for those in California.
Social media advertising
Advertising on social media websites, such as Facebook, Twitter, Instagram, YouTube, and others is a necessity in the internet age. It is tempting for some to forget about dealer advertising rules or believe that the internet is the Wild West where anything goes. However, this is not the case and the advertising rules discussed in this manual apply no matter where or in what medium a dealer is advertising.
Importance of having a written internet and social media advertising policy
Because of all the pitfalls inherent in internet advertising and the increased scrutiny of dealer advertising by regulators, it is important that every dealership have a written advertising policy that includes internet and social media advertising. There should also be a person in the dealership who is responsible for monitoring adherence to the policy by dealership employees and outside vendors. Dealers should seek the assistance of an attorney with expertise in dealer advertising law for assistance in preparing the policy. An internet search of “examples of company social media policies” will show some companies’ policies.
Particular issues for social media advertising
If employees post anything positive about the dealership (an endorsement), there should be a disclosure of the fact that the poster is an employee of the dealership and whether the employee is receiving anything of value for the posting. If customers or anyone else, such as bloggers or social media influencers, post anything positive about the dealership and are paid money or are provided with anything of value, that fact should be disclosed with the posting. If vendors to the dealership, or their employees, post anything positive about the dealership, the fact of the vendor relationship and resulting benefit to the vendor should be disclosed. See Chapter 45, Endorsements and Testimonials for more information on this topic.
If anyone receiving anything of value from the dealership posts a link to the dealership, or has a link to the dealership on their own website or one they control, a description of the value received should be disclosed.
If there’s a connection between an endorser and the marketer that consumers would not expect and it would affect how consumers evaluate the endorsement, that connection should be disclosed.
The FTC has provided specific guidance regarding Endorsements by Individuals on Social Media Websites and Social Media Contests. See the FTC’s Endorsement Guides: What People Are Asking.
All social media websites maintained by the dealership for advertising, such as a Facebook page, should give the name and address of the dealership and follow the posting disclosure rules above.
Dealership inventory on or accessed through third party websites
A dealer’s strategy for selling and leasing vehicles typically involves advertising the dealership’s vehicle inventory on its website and also on other third-party websites. In many instances, the content of these websites is developed by outside vendors, including vendors recommended and approved by the dealer’s franchisor. Just as is the case with other types of dealer advertising, the content of these websites, including how it is formatted, needs to comply with the applicable advertising laws. Legal compliance concerns regarding website content include using accurate vehicle pictures, properly displaying vehicle price information (especially regarding vehicles having dealer-added equipment or added mark-up. See Chapter 27, Supplemental Stickers, for more information), properly displaying vehicle status information (for example, used, demonstrator or prior rental designations), providing accurate factory rebate and financing offer details and deadlines, and the timely removal of content regarding previously sold vehicles. Because of these concerns, dealers should consider requiring the website vendor involved to represent that the content provided by the vendor is compliant with the applicable laws and also to commit to indemnifying the dealership regarding claims arising from that content (including errors) as part of the dealer’s written agreement with the vendor.
Additional resources
FTC publication, Advertising and Marketing on the Internet: Rules of the Road
FTC publication, Advertising FAQ’s: A Guide for Small Business
The FTC’s Endorsement Guides: What People Are Asking
Cross-references
Chapter 14: Identification and Description of Vehicles
Chapter 19: Pictures of Vehicles
Chapter 12: Qualifiers, Disclosures, and Disclaimers
Chapter 63: Website Advertising
Chapter 45: Endorsements and Testimonials
Chapter 56: Sweepstakes and Contests
Chapter 27: Supplemental Stickers
Fax Advertising
Basic rule
There is a California statute, plus federal statutes and regulations, dealing with fax advertising. For the most part, California law must be followed over federal law because, with a few exceptions discussed below, it is more restrictive than federal law. Here is a summary of what California and federal law require, giving effect to the principle that where California or federal law is stricter, the stricter law applies.
California law:
If the sender or recipient is located in California, an unsolicited fax may not be transmitted to any person or entity without express invitation of that person or entity.
Any fax communicated by a fax machine from a sender in California, or to a recipient in California, must have at the top or bottom of each page, or on the first page, the date and time sent, and identification of the sender, and telephone number of the sender’s machine. The same information is required if a computer or other electronic device is used to transmit to a telephone fax machine. California and federal law are the same with regard to this requirement.
Federal law:
See the detailed requirements of federal law in those parts of 47 Code of Federal Regulations § 64.1200 (a)(4)quoted below in the section “Federal Law Requires Opt-Out Language and Method; Liability of Fax Broadcasters,” which require that the recipient of a fax be notified by the sender that the recipient may make a request to the sender of the advertisement not to send any future advertisements to a fax machine or machines, that the notice sets forth the requirements for an opt-out request, and that the notice complies with the requirements of 47 Code of Federal Regulations § 64.1200 (a)(4)below.
The telephone and fax numbers and cost-free mechanism identified in the notice must permit an individual or business to make an opt-out request 24 hours a day, 7 days a week.
A fax advertisement that is sent to a recipient that has provided prior express invitation or permission to the sender must include an opt-out notice that complies with the requirements of 47 Code of Federal Regulations § 64.1200 (a)(4) below.
Text of the law
California fax law
California Business and Professions Code § 17538.43:
Unlawful faxing
(b) (1) It is unlawful for a person or entity, if either the person or entity or the recipient is located within California, to use any telephone facsimile machine, computer, or other device to send, or cause another person or entity to use such a device to send, an unsolicited advertisement to a telephone facsimile machine.
Required Information on Faxes
(c) It is unlawful for a person or entity, if either the person or entity or the recipient is located in California, to do either of the following:
(1) Initiate any communication using a telephone facsimile machine that does not clearly mark, in a margin at the top or bottom of each transmitted page or on the first page of each transmission, the date and time sent, an identification of the business, other entity, or individual sending the message, and the telephone number of the sending machine or of the business, other entity, or individual.
(2) Use a computer or other electronic device to send any message via a telephone facsimile machine unless it is clearly marked, in a margin at the top or bottom of each transmitted page of the message or on the first page of the transmission, the date and time it is sent and the identification of the business, other entity, or individual sending the message and the telephone number of the sending machine or of the business, other entity, or individual.
Definitions of “telephone facsimile machine” and “unsolicited advertisement”
(a) As used in this section, the following terms have the following meanings:
(1) “Telephone facsimile machine” means equipment that has the capacity to do either or both of the following:
(A) Transcribe text or images, or both, from paper into an electronic signal and to transmit that signal over a regular telephone line.
(B) Transcribe text or images, or both, from an electronic signal received over a regular telephone line onto paper.
(2) “Unsolicited advertisement” means any material advertising the commercial availability or quality of any property, goods, or services that is transmitted to any person or entity without that person’s or entity’s prior express invitation or permission. Prior express invitation or permission may be obtained for a specific or unlimited number of advertisements and may be obtained for a specific or unlimited period of time.
Faxes to tax-exempt nonprofit organization members
(d) This section shall not apply to a facsimile sent by or on behalf of a professional or trade association that is a tax-exempt nonprofit organization and in furtherance of the association’s tax-exempt purpose to a member of the association, provided that all of the following conditions are met:
(1) The member voluntarily provided the association the facsimile number to which the facsimile was sent.
(2) The facsimile is not primarily for the purpose of advertising the commercial availability or quality of any property, goods, or services of one or more third parties.
(3) The member who is sent the facsimile has not requested that the association stop sending facsimiles for the purpose of advertising the commercial availability or quality of any property, goods, or services of one or more third parties.
Note
There does not appear to be a similar federal exemption for nonprofit organization faxing, so the federal law is stricter, and this exemption would not apply.
Federal fax law
Federal statute and regulations dealing with fax advertising include: 47 United States Code § 227; 47 Code of Federal Regulations § 64.1200; and 47 Code of Federal Regulations § 68.318. Because California law is generally more restrictive than federal law with regard to fax advertising, only those sections of the federal regulations that are the same as, or require more than, California law are shown below.
Federal opt-out requirements; liability of fax broadcasters
47 Code of Federal Regulations § 64.1200 (a) (4): No person or entity may—Use a telephone facsimile machine, computer, or other device to send an unsolicited advertisement to a telephone facsimile machine, unless—
(iii) The advertisement contains a notice that informs the recipient of the ability and means to avoid future unsolicited advertisements. A notice contained in an advertisement complies with the requirements under this paragraph only if—
(A) The notice is clear and conspicuous and on the first page of the advertisement;
(B) The notice states that the recipient may make a request to the sender of the advertisement not to send any future advertisements to a telephone facsimile machine or machines and that failure to comply, within 30 days, with such a request meeting the requirements under paragraph (a)(4)(v) of this section is unlawful;
(C) The notice sets forth the requirements for an opt-out request under paragraph (a)(4)(v) of this section;
(D) The notice includes—
(1) A domestic contact telephone number and facsimile machine number for the recipient to transmit such a request to the sender; and
(2) If neither the required telephone number nor facsimile machine number is a toll-free number, a separate cost-free mechanism including a Web site address or email address, for a recipient to transmit a request pursuant to such notice to the sender of the advertisement. A local telephone number also shall constitute a cost-free mechanism so long as recipients are local and will not incur any long distance or other separate charges for calls made to such number; and
(E) The telephone and facsimile numbers and cost-free mechanism identified in the notice must permit an individual or business to make an opt-out request 24 hours a day, 7 days a week.
Note
A facsimile advertisement that is sent to a recipient that has provided prior express invitation or permission to the sender must include an opt-out notice that complies with the requirements in paragraph (a)(4)(iii) [see above] of this section.
(iv) A request not to send future unsolicited advertisements to a telephone facsimile machine complies with the requirements under this subparagraph only if—
(A) The request identifies the telephone number or numbers of the telephone facsimile machine or machines to which the request relates;
(B) The request is made to the telephone number, facsimile number, Web site address or email address identified in the sender’s facsimile advertisement; and
(C) The person making the request has not, subsequent to such request, provided express invitation or permission to the sender, in writing or otherwise, to send such advertisements to such person at such telephone facsimile machine.
(v) A sender that receives a request not to send future unsolicited advertisements that complies with paragraph (a)(4)(v) of this section must honor that request within the shortest reasonable time from the date of such request, not to exceed 30 days, and is prohibited from sending unsolicited advertisements to the recipient unless the recipient subsequently provides prior express invitation or permission to the sender. The recipient’s opt-out request terminates the established business relationship exemption for purposes of sending future unsolicited advertisements [California does not have a business relationship exemption]. If such requests are recorded or maintained by a party other than the sender on whose behalf the unsolicited advertisement is sent, the sender will be liable for any failures to honor the opt-out request.
(vi) A facsimile broadcaster will be liable for violations of paragraph (a)(4) of this section, including the inclusion of opt-out notices on unsolicited advertisements, if it demonstrates a high degree of involvement in, or actual notice of, the unlawful activity and fails to take steps to prevent such facsimile transmissions.
(f) Definitions
(f) As used in this section:
(1) The term advertisement means any material advertising the commercial availability or quality of any property, goods, or services.
(3) The term clear and conspicuous means a notice that would be apparent to the reasonable consumer, separate and distinguishable from the advertising copy or other disclosures. With respect to facsimiles and for purposes of paragraph (a)(4)(iii)(A) of this section, the notice must be placed at either the top or bottom of the facsimile.
(7) The term facsimile broadcaster means a person or entity that transmits messages to telephone facsimile machines on behalf of another person or entity for a fee.
(10) The term seller means the person or entity on whose behalf a telephone call or message is initiated for the purpose of encouraging the purchase or rental of, or investment in, property, goods, or services, which is transmitted to any person.
(11) The term sender for purposes of paragraph (a)(4) of this section means the person or entity on whose behalf a facsimile unsolicited advertisement is sent or whose goods or services are advertised or promoted in the unsolicited advertisement.
(14) The term telephone facsimile machine means equipment which has the capacity to transcribe text or images, or both, from paper into an electronic signal and to transmit that signal over a regular telephone line, or to transcribe text or images (or both) from an electronic signal received over a regular telephone line onto paper.
(16) The term unsolicited advertisement means any material advertising the commercial availability or quality of any property, goods, or services which is transmitted to any person without that person’s prior express invitation or permission, in writing or otherwise.
Required language on faxes; Who is fax broadcaster and when broadcaster information is necessary
47 Code of Federal Regulations § 68.378: (d) Telephone facsimile machines; Identification of the sender of the message. It shall be unlawful for any person within the United States to use a computer or other electronic device to send any message via a telephone facsimile machine unless such person clearly marks, in a margin at the top or bottom of each transmitted page of the message or on the first page of the transmission, the date and time it is sent and an identification of the business, other entity, or individual sending the message and the telephone number of the sending machine or of such business, other entity, or individual. If a facsimile broadcaster demonstrates a high degree of involvement in the sender’s facsimile messages, such as supplying the numbers to which a message is sent, that broadcaster’s name, under which it is registered to conduct business with the State Corporation Commission (or comparable regulatory authority), must be identified on the facsimile, along with the sender’s name. Telephone facsimile machines manufactured on and after December 20, 1992, must clearly mark such identifying information on each transmitted page.
Discussion
California and federal law
California law prohibits the faxing of unsolicited advertisements which are defined to be advertisements about the commercial availability or quality of property, goods, or services that are transmitted to a person or entity without that person’s or entity’s prior express invitation or permission. Federal law (the Junk Fax Prevention Act of 2005) does allow the faxing of unsolicited advertisements to a recipient with whom the sender has an established business relationship, but California law does not allow this exception. However, federal law does have additional requirements for opt-out notices as shown in 47 Code of Federal Regulations § 64.1200 (a)(4) above.
Recipient permission
Because of California law, a dealer should not fax advertising materials to anyone, including existing customers, without first obtaining the express permission of the recipient. This permission should be documented by a written agreement signed by the intended recipient which specifies the telephone number to which faxes may be sent and clearly states that the person wishes to receive faxes from the dealership. This permission may be for a specific or unlimited number of advertisements and may be for a specific or unlimited period of time.
Faxes without any advertising
Note that the prohibition concerning transmission of faxes does not apply to faxes without any advertising message.
Penalties
Penalties and enforcement remedies applicable to violations of California law regarding unlawful faxes include injunctive relief and/or actual or statutory damages of $500 per violation, whichever amount is greater, as well as other remedies provided by law. A willful or knowing violation may increase these damages up to three times.
Federal Communications Commission (“FCC”) rules which could also apply provide for substantial penalties.
Third-party providers
If a dealership contracts with a third-party provider to conduct advertising campaigns by fax (commonly known as fax broadcasters), the dealership should make sure the third-party provider follows the law and gives the dealership indemnification regarding any violation. Because of the potential for substantial damages to be involved, a dealership should also make sure the third-party provider will name the dealership as an additional insured on the provider’s insurance policy and that the policy has enough coverage for any possible violations. A dealership considering such advertising campaigns should also review the dealership insurance policies to determine if any coverage is provided in the event of a violation.
Reason for the law
These laws prevent persons from being inundated with unsolicited fax advertising and impose restrictions on fax advertisers.
Cross-references
Chapter 12: Qualifiers, Disclosures, and Disclaimers
Direct Mail and Offers to Select Groups
Basic rule
All statements made in connection with direct mail and closed sale advertising must comply with all of the advertising laws and regulations applicable to dealers. Some unique issues come up in direct mail advertising. These issues include the following:
- Deceptive formats on envelopes
- Offers made to select groups
- Simulated checks and discount coupons
- Prescreened offers of credit
- Advertising sweepstakes
Text of the law
Misleading appearance
California Business and Professions Code § 17537.1 (g): It is unlawful for any person making an offer subject to subdivision (a), or any employee, agent, or independent contractor employed or authorized by that person, to:
(1) Use any printing styles, graphics, layouts, text, colors, or formats on envelopes or on the offer that imply, create an appearance, or would lead a reasonable person to believe, that the offer originates from or is issued by or on behalf of a government or public agency, public utility, public organization, insurance company, credit reporting agency, bill collecting company, or law firm, unless the same is true.
(2) Misrepresent the size, quantity, identity, value, or qualities of any incentive.
(3) Misrepresent in any manner the odds of receiving any particular incentive.
(4) Represent directly or by implication that the number of participants has been significantly limited or that any person has been selected to receive a particular incentive unless that is the fact.
(5) Label any offer a notice of termination or notice of cancellation.
(6) Misrepresent, in any manner, the offer, plan, or program or the affiliation, connection, association, or contractual relationship between the person making the offer and the owner or provider, if they are not the same.
One of a select group
California Business and Professions Code § 17537.2 (b): The following, when used as part of an advertising plan or program defined in Section 17537.1, are deceptive and constitute unfair trade practices: (b) Stating or implying in the offer that the recipient is one of a selected group to receive a particular incentive or one or more of a group of incentives, without clearly and conspicuously disclosing in close proximity to the statement or implied statement of selection the total number of persons in that select group or the odds of receiving the incentive or incentives. Statements of selection which require such disclosure include such phrases as “you are a finalist,” “we are sending this to a limited number of people,” “either you or another named person has won the major prize,” “if you do not respond, your incentive will be given to someone else.”
Coupons
California Business and Professions Code § 17537.11:
(a) It is unlawful for any person to offer a coupon that is in any manner untrue or misleading.
(b) It is unlawful for any person to offer a coupon described as “free,” or as a “gift,” “prize,” or other similar term if (1) the recipient of the coupon is required to pay money or buy any goods or services to obtain or use the coupon, and (2) the person offering the coupon or anyone honoring the coupon made the majority of his or her sales in the preceding year in connection with one or more “free,” “gift,” “prize,” or similarly described coupons.
(c) For purposes of this section:
(1) “Coupon” includes any coupon, certificate, document, discount, or similar matter that purports to entitle the user of the coupon to obtain goods or services for free or for a special or reduced price.
(2) “Sale” includes lease or rent.
Simulated checks prohibited
California Vehicle Code § 11713.1 (w): It is unlawful for a dealer to] use a simulated check, as defined in subdivision (a) of Section 22433 of the Business and Professions Code, in an advertisement for the sale or lease of a vehicle.
Definition of simulated check
Business and Professions Code § 22433: Definition; violations; penalties
(a) As used in this section, “simulated check” means any document that is not currency or a check, draft, note, bond, or other negotiable instrument but that, because of its appearance, has the tendency to mislead or deceive any person viewing it into believing that it, in fact, represents any of the following: (1) currency or a negotiable instrument that can be deposited in a bank or used for third party payments; (2) a prize, gift, or monetary benefit that the recipient has won or is entitled or guaranteed to receive; or (3) an actual check or other item of value that can be claimed or redeemed. “Simulated check” does not include a nonnegotiable check, draft, note, or other instrument that is used for soliciting orders for the purchase of checks, drafts, notes, bonds, or other instruments, and that is clearly marked as a sample, specimen, or nonnegotiable. “Simulated check” also does not include any document indicating in a truthful and nonmisleading manner that a person, in fact, unconditionally has won or is entitled or guaranteed to receive a specific prize, gift, or amount of money or credit.
(b) No person shall produce, advertise, offer for sale, sell, distribute, or otherwise transfer for use in this state any simulated check.
(c) The Attorney General may bring an action to enjoin a violation of this section, and to recover a civil penalty of not more than one hundred dollars ($100) for each violation of this section. A violation of this section may be enjoined without proof that any person has, in fact, been injured or damaged by the violation.
Prescreened credit offers—California law
California Civil Code § 1785.20.1: a) Except as provided in subdivision (b), any person who uses a consumer credit report in connection with any credit transaction not initiated by the consumer and which consists of a firm offer of credit shall provide with any solicitation made to the consumer a clear and conspicuous statement as to all of the following:
(1) Information contained in the consumer’s prequalifying report was used in connection with the transaction.
(2) The consumer received the offer of credit, because the consumer satisfied the criteria for creditworthiness under which the consumer was selected for the offer.
(3) Where applicable, the credit may not be extended if, after the consumer responds to the offer, the consumer does not meet the criteria used to select the consumer for the offer.
(4) The consumer has a right to prohibit use of information contained in the consumer’s file with any consumer credit reporting agency in connection with any credit transaction that is not initiated by the consumer. The consumer may exercise this right by notifying the notification system or joint notification system established under subdivision (d) or (e) of Section 1785.11.
(b) Subdivision (a) does not apply to any person using a prequalifying report if all of the following conditions are met:
(1) The person using the prequalifying report is affiliated by common ownership or common corporate control with the person who procured the report.
(2) The person who procures the prequalifying report from the consumer credit reporting agency clearly and conspicuously discloses to the consumer to whom the report relates, before the prequalifying report is provided to the person who uses the report, that the prequalifying report might be provided to, and used by, persons affiliated in the manner specified in paragraph (1) with the person that procured the report.
(3) The consumer consents in writing to this provision and use of the prequalifying report.
(c) No person shall be denied credit on the basis of the consumer’s refusal to provide consent pursuant to paragraph (3) of subdivision (b), unless that consent is necessary for the extension of credit, related to that transaction, by an affiliate.
Prescreened Credit offers—federal law
The FTC Prescreen Opt-Out Disclosure Rule regarding unsolicited offers of credit, enacted in 2005, can be found in 16 Code of Federal Regulations, Parts 642 and 698.
Federal law disclosure requirements when making a firm offer of credit not initiated by the consumer are very similar to California law above. See 15 United States Code section 1681m (d).
Discussion
Deceptive formats on envelope or offer
The use of any deceptive formats on an envelope or the offer that creates an appearance or leads the recipient to believe the offer originates from a government agency, bill collecting agency, and other specified businesses, is prohibited. See California Business and Professions Code § 17537.1(g)(1). Examples of deceptive format are showing “IRS” as the sender (meaning “Inventory Reduction Service”); showing the bald eagle with an implication that the sender is the U.S. Government; and graphics showing the Washington Capitol building, implying the sender is the U.S. Government.
Offers made to select groups
If a special offer is made to a select group, those to whom the offer is communicated are the only ones who can take advantage of the offer. However, if after making the special offer to the select group, the dealer makes the offer to customers who come into the dealership and who are not part of the select group, the offer may then be deemed to be an offer to the public generally so that any customer may claim that he or she is entitled to the benefits of the special offer. If an offer is made to the public generally, it then must be made to customers whether or not they are aware of the offer. For more information: see Chapter 24, Duty to Sell at Advertised Price and Posting Rules.
Under California Business and Professions Code § 17537.2 (b), it is a deceptive and unfair trade practice to state that a person is one of a select group to receive an incentive (such as a discount coupon) without clearly disclosing close to the statement the number of persons in the select group or the odds of receiving the incentive.
Simulated checks and discount coupons
Simulated checks or discount coupons are often a component of direct mail promotions. Simulated checks may not be used in California for any purpose. If a newspaper ad requires that a discount coupon be clipped and brought into the dealership, it would appear that the same discount would have to be allowed to any other customer, whether that customer was aware of the advertisement or not. This follows the rule that vehicles must be sold to customers as advertised, whether or not the customer knows of the advertisement. For more information, see Chapter 54, Simulated Checks. Discount coupons are an acceptable way of advertising, but the coupon must represent a true discount or savings. See Chapter 25, Savings and Discount Claims.
Under California Business and Professions Code § 17537.11, coupons may not in any way be untrue or misleading. And, as discussed above, California Business and Professions Code § 17537.2 (b) makes it a deceptive and unfair trade practice to state that a person is one of a select group to receive an incentive (such as a discount coupon) without clearly disclosing close to the statement the number of persons in the select group or the odds of receiving the incentive.
Prescreened credit offers
The basic legal requirement for soliciting consumers (whose credit information has been accessed) regarding credit offers is that the solicitation include a “firm offer of credit.” This means the offer will be honored if the consumer meets the pre-established criteria. The Federal Trade Commission (FTC) describes prescreening as working in one of two ways: 1. A creditor or insurer establishes criteria, like a minimum credit score, and asks a consumer reporting company for a list of people in the company’s database who meet the criteria; or 2. A creditor or insurer provides a list of potential customers to a consumer reporting company and asks the company to identify people on the list who meet certain criteria.
Disclosure Requirements
The written materials which solicit prescreened credit offers must under federal and California law contain certain disclosures that are summarized as follows:
i. that information in the consumer’s credit report was used;
ii. the consumer was selected because certain criteria were satisfied;
iii. the offer may not be extended if the consumer does not continue to meet the criteria; and
iv. the consumer has a right to prohibit use of the credit information and may exercise this right concerning future offers by contacting credit reporting agencies at specified toll-free numbers or addresses.
Important
Your legal counsel should review the language to be used for these disclosures.
FTC opt-out notices
The FTC rule provides that when making pre-screened offers of credit, the consumer must be provided with an opt-out notice. The FTC rule covering how opt-out notices should be made in the documents promoting the prescreened credit offer follows a “layered” approach which basically involves using two different notices (one short and one long) with very technical requirements. See federal law referenced above.
FTC short notice
The FTC example of the short notice reads as follows:
You can choose to stop receiving ‘prescreened’ offers of credit from this and other companies by calling toll free [toll-free number]; or visiting [prescreen opt-out website. See PRESCREEN & OPT-OUT NOTICE on other side [or other location] for more information about prescreened offers.
This short notice must be located on the front side of the first page of the principal promotional document in the solicitation and be located on the page and in a format that is distinct from other text, such as inside a border. The type size for the short notice must be larger than the type size of the principal text on the same page, but in no event smaller than 12-point type, and the type style must be distinct from the principal type style used on the same page (for example, bolded, italicized, underlined, or a different color).
FTC long notice
The FTC example of the long notice reads as follows:
PRESCREEN & OPT-OUT NOTICE: This ‘prescreened’ offer of credit is based on information in your credit report indicating that you meet certain criteria. This offer is not guaranteed if you do not meet our criteria [including providing acceptable property as collateral]. If you do not want to receive prescreened offers of credit from this and other companies, call the consumer reporting agencies [or name of consumer reporting agency] toll free at [toll-free number]; visit [prescreen opt-out website]; or write: [consumer reporting agency name and mailing address].
The long notice must appear in the solicitation and begin with the heading “PRESCREEN & OPT-OUT NOTICE” (this heading must be in capital letters and underlined) and be set apart from other text on the page (for example, by including a blank line above and below the statement, and by indenting both the left and right margins from other text on the page). The type size of the long notice must be no smaller than the type size of the principal text on the same page, and in no event be smaller than 8-point type. The type style must also be distinct from the principal type style used on the same page (for example, bolded, italicized, underlined, or in a contrasting color). The long notice must not include any other information that interferes with, detracts from, contradicts, or otherwise undermines the purpose of the notice.
Tip
Dealers considering direct mail advertising campaigns involving prescreened credit offers should require the vendor providing the advertising materials to represent in writing that they are legally compliant and also to indemnify the dealer regarding any claims arising from the materials. Even if the vendor satisfies these requirements, a dealer should have the mailer reviewed by legal counsel. This is especially important because there is a difference of opinion among the federal courts regarding how specific the firm offer of credit must be in disclosing all the material terms. (See Cole v. U.S. Capital, 389 F.3d 719 (7th Cir. 2004) and Putkowski v. Irwin Home Equity Corp, 423 F. Supp. 2d 1053 (N.D. Cal. 2006.)
Attorney review; reliance on others
To be on the safe side, have your ads reviewed by a competent attorney familiar with dealer advertising law. Do not rely on your advertising agency, newspaper, or other vendors for compliance with the advertising rules; this is the dealer’s responsibility, not theirs, and they are not qualified to give legal advice. For an example of how a dealership group and their marketing company got into trouble with the Federal Trade Commission (FTC), go to the CNCDA Comply section at www.cncda.org to see a December 2018 bulletin article, Don’t Blindly Follow Marketing Company Suggestions. To see the FTC case, click here.
Reason for the law
These laws are designed to protect consumers from false and misleading advertising in direct mail and offers to select groups advertising.
Cross-references
Chapter 51: Free Goods and Services
Chapter 58: Incentives to Visit Dealership
Chapter 25: Saving and Discount Claims
Chapter 56: Sweepstakes and Contests
Service and Parts Advertising
Basic rule
Just as with any dealership advertising, service and parts department advertising must be truthful and non-deceptive in all respects. There should always be full disclosure of all charges that will be incurred by the customer so there will be no surprises. The details of California and federal regulations for automotive repair dealer advertising are shown below.
Text of the law
California law
Definition of automotive repair dealer
16 California Code of Regulations 3371.1: Presumption as Automotive Repair Dealer.
A person shall be deemed to be an automotive repair dealer as defined by subdivision (a) of section 9880.1 of the Business and Professions Code when such person:
(a) Solicits or advertises the repair of motor vehicles by telephone directory, newspaper, periodical, airwave transmission, the Internet, printed handbill, printed business card, printed poster, lettering on motor vehicles, or painted or electric sign, and repairs motor vehicles, or
(b) maintains an establishment for the repair of motor vehicles where within or outside the establishment is a sign, poster, or other representation which might reasonably lead a member of the public to believe that such establishment performs the repair of motor vehicles, or
(c) holds a retail sellers permit when such permit has been acquired for the purpose of, or has been used for, obtaining parts for the repair of motor vehicles, or
(d) holds himself or herself out to the public as an automotive repair dealer and receives a motor vehicle from the public and transmits or renders control of the motor vehicle to another for repair.
A person will be deemed to be holding himself or herself out to the public as an automotive repair dealer within the meaning of subdivision (d) above when such person solicits such business in a manner which might reasonably lead the public to believe that such person is an automotive repair dealer, or when the person receiving the service is billed on such person’s own invoice.
False or misleading defined
16 California Code of Regulations § 3372: False or Misleading Defined. In determining whether any advertisement, statement, or representation is false or misleading, it shall be considered in its entirety as it would be read or heard by persons to whom it is designed to appeal. An advertisement, statement, or representation shall be considered to be false or misleading if it tends to deceive the public or impose upon credulous or ignorant persons.
Prohibition of untrue or misleading advertising; identification of repair dealer in advertisement
16 California Code of Regulations § 3371: Untrue or Misleading Statements or Advertising.
No dealer shall publish, utter, or make or cause to be published, uttered, or made any false or misleading statement or advertisement which is known to be false or misleading, or which by the exercise of reasonable care should be known to be false or misleading. Advertisements and advertising signs shall clearly show the following:
(a) Firm Name and Address. The dealer’s firm name and address as they appear on the State registration certificate as an automotive repair dealer; and
(b) Telephone Number. If a telephone number appears in an advertisement or on an advertising sign, this number shall be the same number as that listed for the dealer’s firm name and address in the telephone directory, or in the telephone company records if such number is assigned to the dealer subsequent to the publication of such telephone directory.
Automotive repair dealer price advertising
16 California Code of Regulations § 3372.1: Price Advertising.
An automotive repair dealer shall not advertise automotive service at a price which is misleading. Price advertising is misleading in circumstances which include but are not limited to the following:
(a) The automotive repair dealer does not intend to sell the advertised service at the advertised price but intends to entice the consumer into a more costly transaction; or
(b) The advertisement for service has the capacity to mislead the public as to the extent that anticipated parts, labor or other services are included in the advertised price; or
(c) The advertisement for service or repair has the capacity to mislead the public as to the need for additional related parts, labor or other services; or
(d) The automotive repair dealer knows or should know that the advertised service cannot usually be performed in a good and workmanlike manner without additional parts, services or labor; provided, however, that an advertisement which clearly and conspicuously discloses that additional labor, parts or services are often needed will, to that extent, not be regarded as misleading. Any such disclosure statement shall indicate that many instances of performance of the service involve extra cost and, if the automotive dealer reasonably expects that the extra cost will be more than 25% of the advertised costs, that the extra cost may be substantial. The type size of the disclosure statement shall be at least 1/2 the type size used in the advertised price and the statement shall either be shown near the price or shall be prominently footnoted through use of an asterisk or similar reference.
New, rebuilt, reconditioned, or used parts and components
16 California Code of Regulations § 3374: New, Rebuilt, Reconditioned, or Used Parts and Components. No dealer shall advertise, represent, or in any manner imply that a used, rebuilt or reconditioned part or component is new unless such part and all of the parts of any component are in fact new.
No misleading representation regarding warranties
California Code of Regulations 16 § 3375: Guarantees and Warranties. For the purpose of this Act and of these regulations the term “guarantee” and “warranty” have like meanings. No advertisement shall contain any false or misleading representation concerning the nature, extent, duration, terms or cost of a guarantee of a motor vehicle part or component or repair service subject to the provisions of the Act.
Required content of warranties; delivery of warranties with invoice
16 California Code of Regulations § 3376: Disclosure of guarantee. All guarantees shall be in writing and a legible copy thereof shall be delivered to the customer with the invoice itemizing the parts, components, and labor represented to be covered by such guarantee. A guarantee shall be deemed false and misleading unless it conspicuously and clearly discloses in writing the following:
(a) The nature and extent of the guarantee including a description of all parts, characteristics or properties covered by or excluded from the guarantee, the duration of the guarantee and what must be done by a claimant before the guarantor will fulfill his obligation (such as returning the product and paying service or labor charges).
(b) The manner in which the guarantor will perform. The guarantor shall state all conditions and limitations and exactly what the guarantor will do under the guarantee, such as repair, replacement or refund. If the guarantor or recipient of the guarantee has an option as to what may satisfy the guarantee, this must be clearly stated.
(c) The guarantor’s identity and address shall be clearly revealed in any documents evidencing the guarantee.
Duty to disclose adjustment of warranties on a pro-rata basis both in the warranty and the advertising of the warranty
16 California Code of Regulations § 3377: Pro-Rata Guarantee. Any guarantee or any advertisement of a guarantee which provides for adjustment on a pro-rata basis shall be deemed false and misleading unless the guarantee and/or the advertisement conspicuously and clearly discloses this fact and the basis on which the guarantee will be pro-rated, e.g., the time or mileage the part, component, or item repaired has been used and in what manner the guarantor will perform. If adjustments are based on a price other than that paid by the customer, clear disclosure must be made of the amount. However, a fictitious price must not be used even where the sum is adequately disclosed.
Use of coupons
California Business and Professions Code § 17537.11:
(a) It is unlawful for any person to offer a coupon that is in any manner untrue or misleading.
(b) It is unlawful for any person to offer a coupon described as “free,” or as a “gift,” “prize,” or other similar term if (1) the recipient of the coupon is required to pay money or buy any goods or services to obtain or use the coupon, and (2) the person offering the coupon or anyone honoring the coupon made the majority of his or her sales in the preceding year in connection with one or more “free,” “gift,” “prize,” or similarly described coupons.
(c) For purposes of this section:
(1) “Coupon” includes any coupon, certificate, document, discount, or similar matter that purports to entitle the user of the coupon to obtain goods or services for free or for a special or reduced price.
(2) “Sale” includes lease or rent.
Proposition 65 warning for parts sales
If a dealer is selling parts and accessories which require a Proposition 65 warning, see 27 California Code of Regulations 25602. See also the Proposition 65 and parts sales discussion below.
Federal regulations
Federal FTC Guides
The FTC’s Guides for the Rebuilt, Reconditioned, and other Used Automobile Parts Industry are found in Part 20 of 16 Code of Federal Regulations. Section 20.0(a) states:
The Guides in this part apply to the manufacture, sale, distribution, marketing and advertising (including advertising in electronic formats, such as on the internet) of parts that are not new, and assemblies containing such parts, that were designed for use in automobiles, trucks, motorcycles, tractors, or similar self-propelled vehicles, regardless of whether such parts or assemblies have been cleaned, repaired, reconstructed, or reworked in any other way (industry product or product). Industry products include, but are not limited to, airbags, alternators and generators, anti-lock brake systems, brake cylinders, carburetors, catalytic converters, differentials, engines, fuel injectors, hybrid drive systems and hybrid batteries, navigation and audio systems, power steering pumps, power window motors, rack and pinion units, starters, steering gears, superchargers and turbochargers, tires, transmissions and transaxles, and water pumps.
Important
Anyone advertising or selling parts described in § 20.0 which are not new must read Part 20 and not advertise or sell the parts as new.
Discussion
Here are key points to consider in advertising parts and service:
No misleading statements.
Do not make any false or misleading statements in advertising, An advertisement, statement, or representation is considered to be false or misleading if it tends to deceive the public or impose upon credulous or ignorant persons.
Dealer identifying information.
All advertising and advertising signs must have the dealer’s name and address as shown in the Bureau of Automotive Repair’s records, together with the dealer’s telephone number as shown in the telephone company records.
End date.
Have an end date in all advertisements.
Free offers.
Unlike with the purchase of a vehicle, a dealer may offer something free in connection with service and parts advertising. However, do not raise the price of the service and/or parts purchase to cover the cost of whatever is advertised as free. See Chapter 51, Free Goods and Services.
Price advertising.
With regard to price advertising, review 16 California Code of Regulations § 3372.1 quoted in the Text of the law section above for the rules on price advertising and what is considered to be false or misleading. These include:
Baiting with a low price with the intent of enticing the customer to a more expensive transaction;
Not clearly letting the customer know what parts, labor, or other services are included in the advertised price;
An advertisement which is misleading concerning the need for additional parts, labor or other services; and
Advertising a price knowing that there will usually be additional costs without the disclosure required by section (d) of the regulation and without the type size requirement of the disclosure.
Parts that are not new.
Do not advertise as new any part which is not new. Describe parts that are not new as rebuilt, reconditioned, used parts and components, or whatever description best describes them.
Additions to price.
Disclose what will be added to the price such as taxes, hazardous waste fees, and the like.
Warranty advertising.
Do not make false or misleading statements concerning the nature, extent, duration, terms or cost of a part or service warranty. See Chapter 52, Warranty Advertising, for more rules of warranty advertising.
Content and delivery of warranties.
Review 16 California Code of Regulations § 3376 quoted in the Text of the law section above regarding the content and delivery of warranties to the customer.
Warranty pro-rata adjustment.
Review 16 California Code of Regulations § 3377 quoted in the Text of the law section above for the advertising and sale requirement of a clear and conspicuous disclosure of any warranty that provides for an adjustment on a pro-rata basis and the basis on which the warranty will be pro-rated.
Use of coupons.
See California Business and Professions Code § 17537.11 quoted in the Text of the law section above for the rules regarding the use of coupons.
Ordered products.
It is unlawful to accept payment from a buyer, for the purchase or lease of goods or services ordered by mail, telephone, internet, or other electronic means, without complying with specific rules in California Business and Professions Code §§ 17538- 17538.3.
Disclose terms and conditions.
Provide a clear and conspicuous disclosure of any terms or conditions that apply to any advertisement.
Online parts sales.
If products can be ordered online, then a notice of pre-sale warranty availability must be in close proximity to the warranted product. See FTC November 2013 letter discussed above, and see Chapter 52, Warranty Advertising.
Proposition 65 warning and parts sales.
- As stated above, If a dealer is selling parts and accessories that require a Proposition 65 warning, see 27 California Code of Regulations § 25602.
- For such parts sold through the internet or by catalog, see subsections (b) and (c) of this regulation.
- If parts subject to the warning are sold by email, telephone, or fax, consult with Proposition 65 legal counsel for compliance advice to ensure that you are in compliance with the warning requirements.
Even though it is the manufacturer’s responsibility to provide Proposition 65 information to retailers of its products, it is not inconceivable that dealers could be brought into a “failure to warn” action as someone in the chain of distribution. Consequently, it would be a good idea for dealers to ensure that manufacturers are providing the necessary warning materials. A dealer can request that parts and accessories manufacturers provide the dealer with a list of all products that require a Proposition 65 warning and request that the list be updated when necessary. In making that request, dealers should also request that they be provided with the actual warning label for parts and accessories that require it. Under the Proposition 65 regulations, manufacturers must provide the warning materials to retailers for posting on the affected products or for putting the warning on product packaging if the packaging does not already have the Proposition 65 warning.
The California New Car Dealers Association has a Proposition 65 handbook available in the CNCDA Comply section at www.cncda.org which contains Proposition 65 compliance guidance for California new motor vehicle dealers. The handbook has compliance information for the parts department as well as other dealership departments.
Reason for the law
The parts and service advertising rules are designed to prevent false or misleading statements and require appropriate disclosures about the advertisement.
Cross-references
Chapter 52: Warranty Advertising
Chapter 51: Free Goods and Services
Chapter 1: Advertising Law Basics
Chapter 12: Qualifiers, Disclosures, and Disclaimers
Examples
See Example 15 and Example 16.
Lotteries
Basic rule
A lottery is a game of chance for people to win something by paying money or other consideration. With certain exceptions such as the state-run lottery, the conducting of lotteries in California constitutes a crime.
Text of the law
California lottery law
Definition
California Penal Code § 319: Lottery Defined. A lottery is any scheme for the disposal or distribution of property by chance, among persons who have paid or promised to pay any valuable consideration for the chance of obtaining such property or a portion of it, or for any share or any interest in such property, upon any agreement, understanding, or expectation that it is to be distributed or disposed of by lot or chance, whether called a lottery, raffle, or gift enterprise, or by whatever name the same may be known.
Prohibitions
California Penal Code § 320: Punishment for Drawing Lottery. Every person who contrives, prepares, sets up, proposes, or draws any lottery, is guilty of a misdemeanor.
California Penal Code 321: Every person who sells, gives, or in any manner whatever furnishes or transfers to or for any other person any ticket, chance, share, or interest, or any paper, certificate, or instrument purporting or understood to be or to represent any ticket, chance, share, or interest in, or depending upon the event of any lottery, is guilty of a misdemeanor.
California Penal Code § 322: Every person who aids or assists, either by printing, writing, advertising, publishing, or otherwise in setting up, managing, or drawing any lottery, or in selling or disposing of any ticket, chance, or share therein, is guilty of a misdemeanor.
Federal lottery law
18 United States Code § 1302: Mailing lottery tickets or related matter. Whoever knowingly deposits in the mail, or sends or delivers by mail:
Any letter, package, postal card, or circular concerning any lottery, gift enterprise, or similar scheme offering prizes dependent in whole or in part upon lot or chance;
Any lottery ticket or part thereof, or paper, certificate, or instrument purporting to be or to represent a ticket, chance, share, or interest in or dependent upon the event of a lottery, gift enterprise, or similar scheme offering prizes dependent in whole or in part upon lot or chance;
Any check, draft, bill, money, postal note, or money order, for the purchase of any ticket or part thereof, or of any share or chance in any such lottery, gift enterprise, or scheme;
Any newspaper, circular, pamphlet, or publication of any kind containing any advertisement of any lottery, gift enterprise, or scheme of any kind offering prizes dependent in whole or in part upon lot or chance, or containing any list of the prizes drawn or awarded by means of any such lottery, gift enterprise, or scheme, whether said list contains any part or all of such prizes;
Any article described in section 1953 of this title shall be fined under this title or imprisoned not more than two years, or both; and for any subsequent offense shall be imprisoned not more than five years.
18 United States Code § 1304: Broadcasting lottery information. Whoever broadcasts by means of any radio or television station for which a license is required by any law of the United States, or whoever, operating any such station, knowingly permits the broadcasting of, any advertisement of or information concerning any lottery, gift enterprise, or similar scheme, offering prizes dependent in whole or in part upon lot or chance, or any list of the prizes drawn or awarded by means of any such lottery, gift enterprise, or scheme, whether said list contains any part or all of such prizes, shall be fined under this title or imprisoned not more than one year, or both. Each day’s broadcasting shall constitute a separate offense.
Discussion
Under lottery law, it would be illegal for a dealer to engage in a sales promotion offering prizes or gifts to customers who must make purchases in order to qualify for the chance of becoming a winner of such prizes or gifts whether by way of a contest, raffle, lottery, or whatever the promotion might be called. Lottery law, however, does not prohibit a dealer from making gifts to prospective purchasers if no purchase is required as a condition for entry in a game of chance.
Example
Sometimes people are prompted to visit a dealership or take a test drive by a promotion whereby their names are entered into a drawing for the purpose of winning prizes. There may be a question of whether the requirement of a dealership visit or taking a test drive is “payment of consideration” under state and federal lottery laws. By allowing persons to also enter the promotion by mail might avoid any lottery “consideration” problems. A dealership contemplating this type of promotion should consult with their legal counsel to see if the facts of the particular promotion run the risk of violating lottery laws.
For more information on California lottery laws, see California Penal Code §§ 319-329.
Charitable raffles
A dealer may on occasion be recruited by a charitable organization to sponsor a raffle with prizes that may include a vehicle supplied by the dealer. A dealer considering participation in this type of lottery should verify that the organization is eligible for “charitable status” as defined by California Penal Code § 320.5 and that the raffle will be conducted in compliance with the requirements of that statute.
Cross-references
Chapter 51: Free Goods and Services
Chapter 58: Incentives to Visit Dealership
Chapter 56: Sweepstakes and Contests
Examples
See Example 10 and Example 11.
Incentives to Visit Dealership
Basic rule
There are detailed rules when an incentive is offered as an inducement to a recipient to visit a location, attend a sales presentation, or contact a sales agent in person, by telephone, or by mail
The rules are quite detailed and some of them may not apply to typical dealership’s promotions. However, any dealership planning this type of advertising should review the two statutes immediately below
Text of the law
This area is governed by California Business and Professions Code §§ 17537.1 and 17537.2.
California Business and Professions Code § 17537.1 provides in part: (a) It is unlawful for any person, or an employee, agent, or independent contractor employed or authorized by that person, by any means, as part of an advertising plan or program, to offer any incentive as an inducement to the recipient to visit a location, attend a sales presentation, or contact a sales agent in person, by telephone, or by mail, unless the offer clearly and conspicuously discloses in writing, in readily understandable language, all of the information required in paragraphs (1) and (2). If the offer is not initially made in writing, the required disclosures shall be received by the recipient in writing prior to any scheduled visit to a location, sales presentation, or contact with a sales agent. For purposes of this section, the term “incentive” means any item or service of value, including, but not limited to, any prize, gift, money, or other tangible property.
The remainder of the statute provides what must be disclosed for the promotion.
California Business and Professions Code § 17537.2 lists what acts are deceptive and constitute unfair trade practices when used as a part of an advertising plan or program as defined in Business and Professions Code § 17537.1 above.
Discussion
Gifts for visiting dealership
Most of the provisions in the Business and Professions Code on this subject apply to letters sent out to the public inviting them to come to a sales presentation for a vacation home, or something similar, with the promise of a substantial gift for attending the presentation. As noted above, however, some of the provisions of the statutes could apply to dealership promotions.
You have been specially chosen
Business and Professions Code § 17537.2(b) contains a prohibition of a practice sometimes seen in dealership promotions. The statute makes it a deceptive and unfair trade practice to state or imply in the offer that the individual is one of a selected group to receive a particular incentive, without clearly and conspicuously disclosing in close proximity to the statement, the total number of persons in that select group or the odds of receiving that incentive.
Advertising sweepstakes by mail
Sweepstakes that are advertised by mail must comply with the requirements of the federal Deceptive Mail Prevention and Enforcement Act (39 U.S.C. § 3001 et seq.). To comply, a dealer (or promoter hired by the dealer to handle such promotions) must include certain key disclosures regarding the sweepstakes in the mailed materials. The required disclosures are similar to those required by California law with some notable distinctions. Conspicuous statements that “NO PURCHASE IS NECESSARY” and “A PURCHASE WILL NOT IMPROVE AN INDIVIDUAL’S CHANCES OF WINNING” must be included in the mailer, the official rules, and any entry form provided (the required statements could therefore be disclosed three times).
Notification requirements
A person originating and mailing an advertisement of a sweepstakes is required, regardless of whether entry materials are included, to conspicuously display a notification system (showing an address or toll-free number) which allows the individual receiving the advertisement to notify the promoter of the contest to exclude his or her name from the mailing list used to mail such advertising. Persons who mail advertisements that are not in compliance with this requirement may be subject to significant civil penalties.
California Business and Professions Code – no purchase necessary
California Business and Professions Code §17539.15, which also applies to solicitation materials involving sweepstakes, prohibits certain misrepresentations regarding a recipient’s prize-winning status and requires disclosure of a “no purchase necessary” message in a technically specified manner.
Tip
Dealers involved in advertising sweepstakes or other giveaways should carefully review their advertising and consult legal counsel when needed because of the detail of California and federal law governing this type of advertising.
Reason for the law
These laws prevent members of the public from being enticed into promotions by unscrupulous sellers.
Cross-references
Chapter 62: Direct Mail and Offers to Select Groups
Chapter 51: Free Goods and Services
Chapter 56: Sweepstakes and Contests
Example
See Example 2.
Buyers Guide (Used Car Sticker)
Basic rule
A Buyers Guide, in the form required by federal law, must be displayed on any used vehicle displayed or offered for sale.
Text of the law
California law
California Vehicle Code § 11713.1(t): It is unlawful for a dealer to display or offer for sale any used vehicle unless there is affixed to the vehicle the Federal Trade Commission’s Buyer’s Guide as required by Part 455 of Title 16 of the Code of Federal Regulations.
Federal law
16 Code of Federal Regulations § 455.2(a): “(a) General duty. Before you offer a used vehicle for sale to a consumer, you must prepare, fill in as applicable and display on that vehicle the applicable “Buyers Guide” illustrated by Figures 1-2 at the end of this part.”
“(1) The Buyers Guide shall be displayed prominently and conspicuously in any location on a vehicle and in such a fashion that both sides are readily readable. You may remove the form temporarily from the vehicle during any test drive, but you must return it as soon as the test drive is over.”
For more information
See Part 455 of Title 16 of the Code of Federal Regulations, Section 455.2.
Discussion
Dealerships audits
Periodically the FTC conducts audits of dealers to see if they are posting the Buyers Guide on all used vehicles displayed. When there is a failure to comply, the fines imposed are sometimes substantial.
Proper placement of the guide
In the past, the FTC gave these examples of proper display locations: hanging from the rear-view mirror; resting under the windshield wiper; or hanging from an exterior side view mirror. Examples of improper locations given were inside glove compartments; on the floor; or in the trunk.
When sale conducted in Spanish
If a used car sale is conducted in Spanish, both the Buyer’s Guide and the statement regarding the Guide required in the sales contract must be in Spanish. Before any sales efforts are conducted in Spanish, a Spanish version of the Buyer’s Guide must be posted. See 16 Code of Federal Regulations 455.5.
Note on both sides must be readable
While the “both sides are readily readable” provision is somewhat ambiguous, based upon the FTC’s published comments and on a discussion between the authors and an FTC attorney in charge of enforcement, it appears that this requirement will be satisfied if customers can see that the Guide has two sides, and, even if customers have to be in the vehicle and/or handle the Guide to do so, can then read both sides.
Reason for the law
The FTC Buyers Guide is designed to give consumers basic information regarding used vehicles, a list of major defects that may occur in used vehicles, and to make clear whether the vehicle is being purchased “as is” or with a warranty.
Cross-references
Chapter 52: Warranty Advertising
Part 455—Used Motor Vehicle Trade Regulation Rule of Title 16 of the Federal Code of Regulations
Simulated Checks
Basic rule
A dealer may not use a simulated check in an advertisement for the sale or lease of a vehicle. Further, the California Business and Professions Code prohibits the use of a simulated check for any purpose.
Text of the law
Simulated checks prohibited
California Vehicle Code § 11713.1 (w): It is unlawful for a dealer to use a simulated check, as defined in subdivision (a) of Section 22433 of the Business and Professions Code, in an advertisement for the sale or lease of a vehicle.
Definition of simulated check and prohibition of use
Business and Professions Code § 22433: Definition; violations; penalties
(a) As used in this section, “simulated check” means any document that is not currency or a check, draft, note, bond, or other negotiable instrument but that, because of its appearance, has the tendency to mislead or deceive any person viewing it into believing that it, in fact, represents any of the following: (1) currency or a negotiable instrument that can be deposited in a bank or used for third party payments; (2) a prize, gift, or monetary benefit that the recipient has won or is entitled or guaranteed to receive; or (3) an actual check or other item of value that can be claimed or redeemed. “Simulated check” does not include a nonnegotiable check, draft, note, or other instrument that is used for soliciting orders for the purchase of checks, drafts, notes, bonds, or other instruments, and that is clearly marked as a sample, specimen, or nonnegotiable. “Simulated check” also does not include any document indicating in a truthful and nonmisleading manner that a person, in fact, unconditionally has won or is entitled or guaranteed to receive a specific prize, gift, or amount of money or credit.
(b) No person shall produce, advertise, offer for sale, sell, distribute, or otherwise transfer for use in this state any simulated check.
(c) The Attorney General may bring an action to enjoin a violation of this section, and to recover a civil penalty of not more than one hundred dollars ($100) for each violation of this section. A violation of this section may be enjoined without proof that any person has, in fact, been injured or damaged by the violation.
Discussion
The prohibition against the use of simulated checks not only applies to advertising the sale or lease of a vehicle, but their use for any purpose is prohibited in California. Typically, discount coupons are not simulated checks. Sometimes, however, rebates are shown in the form of a simulated check. This is not allowed both because of the simulated check rule and the rule prohibiting dealer rebates.
Reason for the law
The laws regarding simulated checks prevent consumers from being led to believe that the simulated check is an actual negotiable check. The following is a statement of Legislative Intent in connection with the total ban on simulated checks in the year 2000 legislation:
Section 1 of Stats.2000, c. 185 (A.B.1816), provides: “The Legislature finds and declares that the use of simulated checks is inherently misleading to many members of the public who believe that they have won a prize or gift or received a monetary benefit represented by the simulated check and that the simulated check itself either has the value represented on its face or represents an actual check or other item of value that can be claimed or redeemed with the simulated check. The Legislature further finds and declares that disclosures, such as an indication that the simulated check is not a real check, have not been effective in curing the misleading impact created by the bogus checks. It is, therefore, the intent of the Legislature to prevent the deception inherent in simulated checks by prohibiting their use.”
Cross-references
Chapter 62: Direct Mail and Offers to Select Groups
Chapter 51: Free Goods and Services
Chapter 29: Rebates and Cash Back
Chapter 25: Savings/Discount Claims
Guaranteed Trade-in Allowances
Basic rule
A dealer may not advertise a guaranteed trade-in allowance.
Text of the law
Guaranteed trade-in allowances prohibited
California Vehicle Code § 11713.1 (l): It is unlawful for a dealer to advertise a guaranteed trade-in allowance.
Discussion
As the statute states, dealers cannot advertise a guaranteed trade-in allowance in any way.
If an advertisement states: “We’ll pay off your trade-in, no matter how much you owe,” or something similar, then the ad should also clearly and conspicuously state: “Any amount you owe which is more than the amount allowed on your trade-in will be added to the balance of your purchase loan,” or some similar disclosure.
Reason for the Law
The law prohibiting guaranteed trade-in allowances prevents the dealer from raising the price of a vehicle to compensate for the guaranteed trade-in allowance. The reason for this law is similar to the reason for the law prohibiting dealer rebates and cash back.
Example
See Example 4.