The Federal Trade Commission (“FTC”) has initiated what are its first ever actions against car title lenders.  The FTC has alleged that First American Title Lending of Georgia, LLC and Finance Select, Inc. were engaged in deceptive marketing practices in connection with advertisements that touted “zero interest” car title loans.

By way of background, car title loans tend to be short term loans (at least in design), with the borrower’s automobile put up as collateral.  However, such loans can impose extremely high interest rates for delinquent borrowers – in some cases as high as 300% a year – and can become long term, onerous obligations if not paid in full over the initial period of the loan.

The FTC notes in these actions that, because an automobile is often such an important facet of a consumer’s long term economic health and livelihood, the associated marketing practices of car title lenders deserve a certain level of additional scrutiny.

Zero?…Some Game

In both actions, the FTC focused in on the lenders’ use of advertisements marketing so-called zero percent loans which, in each instance, failed to prominently disclose important conditions, stipulations and other details that could greatly alter the interest rates that would actually apply to the loans in question.  Specifically, the FTC alleged that First American Title Lending:

[A]dvertised a zero percent offer (in English and Spanish) and failed to disclose that the borrower had to meet specific conditions to receive that rate. The borrower had to be a new customer, repay the loan within 30 days, and pay with a money order or certified funds, not cash or a personal check.  If a borrower failed to meet those conditions, the offer did not apply, and he or she would be required to pay a finance charge from the start of the loan.  The company’s advertisements also failed to disclose the amount of the finance charge after the introductory period ended.

The FTC alleged Finance Select, doing business as Fast Cash Title Pawn, failed to disclose that unless a loan was paid in full in 30 days, the zero percent offer did not apply, and that a borrower would have to pay a finance charge for the initial 30 days of the loan in addition to any finance charges incurred going forward. Fast Cash . . . also failed to disclose how much the finance charge would cost a borrower after the 30-day introductory period was over.

Ensuring that Your Car Title Loan Marketing Practices Remain “Free” and Clear

As these actions indicate, businesses that fail to comply with state and federal deceptive marketing statutes may find themselves facing regulatory action brought by the FTC and/or state attorneys general, as well as consumer class action litigation.  In particular, businesses that make bold claims about zero percent interest rates, or other offers of cost-free or risk-free services, must ensure that all of the conditions and limitations associated with such loans are prominently disclosed in sufficient detail.