WASHINGTON -- Beware of car dealer ads that promise to pay off the loan on your trade-in.
In a first-of-its-kind case, the Federal Trade Commission last week targeted five car dealers in four states that regulators say deceived consumers by promising to pay off their loans, no matter what was owed on the cars. The balance, the FTC said, was usually rolled right into the new car loan. One dealer later required customers to pay the balance out of pocket.
Settlements agreed to by the dealers would require them to stop running the ads on their Web pages and other sites such as YouTube.
The settlements remain subject to a final vote by the commission after a 30-day public comment period.
The announcement from the commission named firms in South Dakota, North Carolina, Connecticut, and West Virginia. The FTC has brought cases against auto dealers before, but not for this kind of advertising.
"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, head of the commission's consumer protection bureau.
The promises might sound attractive to anyone facing tough financial times. Rosemary Shahan, president of California-based Consumers for Auto Reliability and Safety, says this kind of misleading advertising pitch is a common practice among dealers, and that people who are upside down on their loans -- owing more on the old car than its actual value -- are especially vulnerable.
"A huge percentage of people are upside down," she said. "What they don't realize is that they are just getting deeper and deeper into debt."
She says it's usually better to pay off the loan on the old car before buying new.
As part of the proposed settlements, the dealers would be barred from future deceptive ads and would not be allowed to misrepresent any other facts in the leasing and financing of a car.