Patterico's Pontifications

4/30/2010

When Is Advertising Deceptive?

Filed under: Government — DRJ @ 5:45 pm

[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.

— DRJ

14 Responses to “When Is Advertising Deceptive?”

  1. Those GM ads are aggressively dishonest, by any standard applied to them. And it was likely tax dollars that paid for that garbage, no? Regardless, the MSM ain’t gonna call them on it, the FCC won’t do anything, and Congress ain’t gonna touch it.

    JD (c1a2b8)

  2. “Assistant Secretary Herbert Allison said GM repaying the loan is an encouraging development – no matter where the money came from.””

    Herb is a smart guy. That’s an astounding, loyalist, bury the facts type statement for someone like him.

    daleyrocks (1d0d98)

  3. I don’t think “deceptive” was meant to cover such outright lying.

    htom (412a17)

  4. I vote misleading instead of dishonest.

    But why doesn’t someone ask the question – Why are they spending money to advertise their balance sheet transactions. How much money do they really have to piss away on such stupid announcements?

    MU789 (13091a)

  5. Absolutely dishonest. It is like saying I just paid off my mortgage, because you refinanced. The real problem is that the stink of being known as Government Motors in this current anti big gubmint environment is killing their chances of selling any cars to aggrieved citizens. If they can pretend that the stigma has gone, they think sales will rise, crappy product line notwithstanding. They are wrong and the public knows it. In many respects this subterfuge is probably the final nail in the coffin.

    gazzer (7588eb)

  6. Outrageously deceptive. As if I needed yet another reason never to buy another GM product for the rest of my days.

    Beldar (b363e8)

  7. As a governmental agency, I don’t think GM is subject to the usual truth-in-advertising rules. The ad is a public service announcement.

    Actually, the bigger question is: When is the government going to divest itself of GM?

    Ag80 (f67beb)

  8. “Assistant Secretary Herbert Allison said GM repaying the loan is an encouraging development – no matter where the money came from.””

    Bullsh*t. All GM did was the equivalent of a credit card balance transfer. A company that made no profit is able to pay back billions in government loans? Yeah, right.

    It looks like the dishonesty behind Geithner’s tax fudging is starting to filter down to his underlings.

    Another Chris (35bdd0)

  9. Why no mention of law against statements by executives that hype (or lie) about the company’s state of financial health. Has something to do with legislation passed after Enron episode.

    ric (b98bd1)

  10. Good idea. Why don’t you find more on that and link it here?

    DRJ (d15e92)

  11. http://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act
    The act significantly raises criminal penalties for securities fraud, for destroying, altering or fabricating records in federal investigations or any scheme or attempt to defraud shareholders.
    Corporate Responsibility:
    Title III consists of eight sections and mandates that senior executives take individual responsibility for the accuracy and completeness of corporate financial reports. It defines the interaction of external auditors and corporate audit committees, and specifies the responsibility of corporate officers for the accuracy and validity of corporate financial reports. It enumerates specific limits on the behaviors of corporate officers and describes specific forfeitures of benefits and civil penalties for non-compliance. For example, Section 302 requires that the company’s “principal officers” certify and approve the integrity of their company financial reports quarterly.

    ric (b98bd1)

  12. Well done, ric. I’m interested in reading it.

    DRJ (d15e92)

  13. Ed Whitacre’s commercial for GM will do exactly what Osama bin Ladin’s endorsement did for John Kerry.

    ropelight (782583)

  14. DRJ @12 – Much of the liability of corporate officers for misleading public statements was already in place before the passage of Sarbanes-Oxley. Some of the personal liability and lookback provisions were new as well as the Director liability provisions. The huge change was the extensive certification and documentation of internal controls by management and external auditors.

    daleyrocks (1d0d98)


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