Five car dealers have agreed to Federal Trade Commission settlement orders that require them to stop running ads in which they promise to pay off a consumer's trade-in no matter what the consumer owes on the vehicle.

The FTC charged that the ads, which ran on the dealers' websites and on sites such as, deceived consumers into thinking they would no longer be responsible for paying off the loan balance on their trade-in, even if it exceeded the trade-in's value. Instead, the dealers rolled the negative equity into the consumer's new-vehicle loan or, in the case of one dealer, required consumers to pay it out of pocket.

The proposed settlements, reached as part of the FTC's ongoing efforts to protect consumers in financial distress, bar all of the dealers from making similar deceptive representations in the future. The cases are the first of their kind brought by the FTC. The commission also issued a new consumer education publication titled "Negative Equity Ads and Auto-Trade-ins" to help consumers understand these types of ads.

"Buying a new car or truck is a major financial commitment, and the last thing consumers need is to be tricked into thinking that a dealer will pay off' what they owe on their current vehicle when they really won't," said David Vladeck, director of the FTC's Bureau of Consumer Protection. "The Federal Trade Commission is constantly on the lookout for potentially deceptive ads, and brings actions to stop them when appropriate."

The dealers named in the FTC's complaints are Billion Auto Inc. of Sioux Falls, S.D., Frank Myers AutoMaxx LLC of Winston-Salem, N.C., Connecticut-based dealers Key Hyundai of Manchester and Hyundai of Milford, which advertise jointly, and Ramey Motors Inc. of Princeton, West Virginia.

The complaints charge that the dealers' representations that they will "pay off" what the consumers owe are false and misleading, and violate the FTC Act. In the case of Billion Auto Inc., the operation’s video promotion showed an inverted video of a car moving to depict a customer being upside down on their vehicle. The video then flips right-side up and displays the following tagline: "Credit upside down? Need a new car? Go to We want to pay off your car."

Frank Myers AutoMaxx’s tagline for its advertisements read: "Uncle Frank wants to pay [your trade] off in full, no matter how much you owe."

Key Hyundai and Hyundai of Milford used the following line to promote its dealerships: "I want your trade no matter how much you owe or what you're driving. In fact I'll pay off your trade when you upgrade to a nicer, newer vehicle." Ramey Motors used a similar line it its ads.

In addition, the complaints in three of the cases allege violations of the Truth in Lending Act (TILA)’s Regulation Z for failing to disclose certain credit-related terms. Complaints in two of the cases allege violations of the Consumer Leasing Act (CLA)’s Regulation M for failing to disclose certain lease-related terms.

The proposed orders settling the FTC's charges against the dealers are designed to prevent them from engaging in similar deceptive advertising practices in the future. First, each order prohibits the dealer from misrepresenting that it will pay the remaining loan balance on a consumer's trade-in, so the consumer will have no further obligation for any amount of that loan. It also prohibits the dealer from misrepresenting any other facts related to leasing or financing a vehicle.

The proposed orders against Billion Auto, Key Hyundai, Hyundai of Milford, and Ramey Motors require these dealers to comply with TILA and Regulation Z, and to make clear and conspicuous disclosures when advertising certain terms related to issuing consumer credit. It also requires that if any finance charge is advertised, the rate must be stated as an "annual percentage rate.”

In addition, the proposed orders against Billion Auto, Key Hyundai, and Hyundai of Milford require the dealers to clearly and conspicuously make all lease-related disclosures required by the CLA and Regulation M, including the monthly lease payment.

The proposed orders also require each of the dealers to keep copies of relevant advertisements and materials substantiating claims made in their advertisements, and to provide copies of the order to certain employees. Finally, the dealers are required to file compliance reports with the FTC to show they are meeting the terms of the orders, which will expire in 20 years.

The misrepresentation alleged in these cases was one of the topics raised at the FTC's 2011 public roundtables regarding consumer protection issues that may arise in the sale, financing or lease of motor vehicles. And the commission’s vote to issue the administrative complaints and accept the consent agreement packages containing the proposed consent orders for public comment was 4-0.

The FTC will publish a description of the consent agreement packages in the Federal Register. The agreements will be subject to public comment for 30 days, beginning today and continuing through April 16, 2012, after which the commission will decide whether to make the proposed consent orders final.