One car dealer advertisement promised "the equivalent of 5.9 percent APR financing." Another offered "cash back of $200 to $800." But the best deal clearly was from the dealer whose ad pledged "0 percent interest expense."
If all those ads seem too good to be true, it's because they are.
According to the Federal Trade Commission, a rash of recent car advertisements for bargain loans failed to include all information required by law. The three ads cited above are examples from the agency's file of ads that appear to violate federal credit laws. Some of the ads omit the required disclosure of the down payment, the terms of repayment and the annual percentage rate as the law requires, the FTC said. Other ads don't say that the low interest rate is available only with a large down payment, such as 50 percent, according to the FTC.
So far the FTC has sent letters to 70 dealers in various cities telling them that their ads didn't meet legal requirements and asking that the ads be corrected. More letters are scheduled to go out, and some lawsuits may be filed if dealers don't comply voluntarily, an FTC official said.
"The investigation will continue until we get the advertising cleaned up," said FTC attorney Sarah J. Hughes.
"A year ago, an advertised rate of 6.9 percent for a car loan wouldn't have been taken seriously because everyone knew the prime was 18 percent," Hughes said. "But now, because interest rates have been going down, a 6.9 percent rate is no longer outside the border of reality."
To help car buyers, the FTC has issued a new consumer fact sheet suggesting questions that potential car buyers should ask when trying to evaluate the deals they are being offered in advertisements and in showrooms. Here are some questions from that fact sheet:
* Are you required to pay a higher price for the car to qualify for the low-rate financing? Would the price be lower if you paid cash, or supplied your own financing from your bank or credit union?
Does the financing require a larger-than-usual down payment--such as 25 to 30 percent?
* Do you have to buy special or extra merchandise or services to qualify, such as rustproofing or an extended warranty or service contract?
* Does the dealership require you to give it the manufacturer's rebate to qualify for financing?
The FTC said that many dealers are offering other special incentives besides low-rate financing to encourage consumers to purchase new cars. "Some of the special offers include high trade-in allowances or guarantees that cars will be sold for a stated amount over the dealer's invoice," the agency said.
In considering these offers, the FTC advises consumers to consider these questions:
* Is the stated trade-in allowance offered for all vehicles regardless of condition? Are there any deductions from the allowance (such as for mileage, dents or rust)?
* If the dealer is offering a high trade-in allowance, is the asking price for the new car higher than it would be without the trade-in? Will you end up losing the benefit of the high trade-in allowance by paying more for your new car?
* Does the dealer's price include the cost of options added by the dealer, such as rust- and waterproofing? Is the dealer's stated price on these options higher than you would pay elsewhere?
* Does the dealer have cars in stock without a lot of expensive options? If not, will the dealer order one for you?
A copy of the FTC fact sheet, titled "Buying a Car: Low-Rate Loans and Other Incentives," can be ordered from the Public Reference Branch, Room 130, Federal Trade Commission, Sixth Street and Pennsylvania Avenue NW, Washington, D.C., 20580.
The agency also is asking consumers to provide examples of ads that don't comply with federal laws. FTC officials said they are "especially interested in ads that fail to state the conditions of the low-rate financing or that advertise a rate far below the true rate of the transaction."
Material and questions concerning automobile consumer credit should be directed to Carole L. Reynolds, Division of Credit Practices, Federal Trade Commission, Washington, D.C., 20580. Her telephone number is 724-1188. If the ads or questions concern marketing practices not related to credit, you should write to Marilyn J. Holmes, Division of Marketing Practices, FTC, Washington, D.C., 20580. Her phone number is 523-3860.