[Guest post by DRJ]
Was GM deceptive when it claimed in an ad it has repaid its government loan?
“Republican Reps. Darrell Issa of California and Jim Jordan of Ohio have seen General Motors’ new television ad, a 60-second spot featuring Chairman and CEO Ed Whitacre telling viewers that “we have repaid our government loan in full, with interest, five years ahead of the original schedule.”
They aren’t impressed.
Issa, ranking member on the House Committee on Oversight and Government Reform, and Jordan, ranking member on the Domestic Policy Subcommittee, sent Whitacre a blistering letter Thursday accusing the automaker of running “false advertisements” that “constitute a lie to the American people.”
Issa and Jordan say the ad is misleading because it suggests GM repaid its taxpayer-funded loan with the company’s own earnings. In reality, GM used separate taxpayer money from an escrow account worth $17.4 billion – set up by the Treasury Department upon taking a 61 percent majority stake in the company – to repay the $4.7 billion balance of the original $7.1 billion loan.”
The Treasury Department supports GM:
“Responding to a letter from Sen. Charles Grassley (R-Iowa) that called the transaction a “debt-for-equity” swap, Assistant Secretary Herbert Allison said GM repaying the loan is an encouraging development – no matter where the money came from.”
The Federal Trade Commission oversees truth-in-advertising laws and has issued a 1983 Policy Statement on deceptive advertising:
“Certain elements undergird all deception cases. First, there must be a representation, omission or practice that is likely to mislead the consumer. Practices that have been found misleading or deceptive in specific cases include false oral or written representations, misleading price claims, sales of hazardous or systematically defective products or services without adequate disclosures, failure to disclose information regarding pyramid sales, use of bait and switch techniques, failure to perform promised services, and failure to meet warranty obligations.
Second, we examine the practice from the perspective of a consumer acting reasonably in the circumstances. If the representation or practice affects or is directed primarily to a particular group, the Commission examines reasonableness from the perspective of that group.
Third, the representation, omission, or practice must be a “material” one. The basic question is whether the act or practice is likely to affect the consumer’s conduct or decision with regard to a product or service. If so, the practice is material, and consumer injury is likely, because consumers are likely to have chosen differently but for the deception. In many instances, materiality, and hence injury, can be presumed from the nature of the practice. In other instances, evidence of materiality may be necessary.
Thus, the Commission will find deception if there is a representation, omission or practice that is likely to mislead the consumer acting reasonably in the circumstances, to the consumer’s detriment.”
The link provides more detail in analyzing this standard, but interpretation and intent are relevant:
“To be considered reasonable, the interpretation or reaction does not have to be the only one. When a seller’s representation conveys more than one meaning to reasonable consumers, one of which is false, the seller is liable for the misleading interpretation. An interpretation will be presumed reasonable if it is the one the respondent intended to convey.
The Commission has used this standard in its past decisions. The test applied by the Commission is whether the interpretation is reasonable in light of the claim.”
I’d have to read the case law to know if this is an accurate statement of current law. However, in general, it seems to me that the advertiser’s intent alone cannot be the determining factor, or every advertiser would avoid sanctions simply by claiming it didn’t intend to be deceptive.
As for GM, I doubt the Obama Administration wants to investigate this matter further. However, if the GOP wins the House or Senate in November, maybe they will.