FORD
MOTOR CO. v. FEDERAL TRADE COMMISSION.
UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT
120 F.2d 175; 1941 U.S. App. LEXIS 3449
June 5, 1941
This is a petition by the Ford Motor Company to review an order of the
Federal Trade Commission requiring it to cease and desist from the use
of the word "six percent" or the figure and symbol "6%" in certain
forms of advertising in connection with the cost of, or the additional
charge for, the use of a deferred or installment payment plan of
purchasing automobiles manufactured by it.
The so-called "six percent plan" of financing the retail sale of
automobiles was first used in 1935 by the General Motors Corporation,
through its wholly-owned subsidiary, the General Motors Acceptance
Corporation and was as follow:
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General Motors Acceptance Corporation
Reduces Time Payment Costs
On New Cars
With a new 6% Plan
Simple as A, B, C
A - Take Your Unpaid Balance
B - Add Cost of Insurance
C - Multiply by 6% - 12 Months' plan
(One-half of one percent per month for periods more or less than 12
months)
That's your whole financing cost. No extras. No service fees. No other
charges.
GMAC announces today a new, economical way to buy any new General
Motors car from General Motors dealers al over the United States.
It's the plan you're been waiting for - a plan you can understand at a
glance. It is far simpler and more economical than any other automobile
time payment arrangement you're even tried.
Actually as simple as A, B, C - this new plan provides for convenient
time payments of the unpaid balance on your car - including cost of
insurance and a financing cost of 6%. This represents a considerable
reduction in the cost of financing car purchases. It is not 6% interest, but simply a
convenient multiplier anyone can use and understand. Nothing is
added in the way of so-called service or carrying charges. There are no
extras. Simply a straightforward, easy-to-understand transaction.
[Emphasis added]
This single step brings the world's finest cars within reach of
thousands who have long needed new cars. When you buy a new Cadillac or
Buick, Chevrolet or Pontiac, Oldsmobile or LaSalle, on this new plan,
you actually save money!
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General Motors, through its subsidiaries, published many thousands of
advertisements featuring this so-called "6% plan," some with the above
explanation, others merely referring to a "6%" plan without explanation.
Other leading automobile manufacturing concerns proptly announced
similar plans, all featuring the "6%" plan, determined approximately in
the same manner as the General Motors, all appearing in advertisements
in newspapers of
general and wide circulation and all featuring in a conspicuous manner,
the symbol "6%" or the words "six percent," and all odetermined in the
same manner as the plan of petitioner.
Many independent finance companies engaged primarily in financing
retail sales of automobiles were obliged to abandon their pre-existing
methods of computing charges in order to meet competitive disadvantages
to which they were put by the publication and operation of the
so-called "6%" plans of petitioner and others. Before that, the charges
of all automobile finance companies were slghtly higher than the rates
under the so-called "6%" plan and were based on a flat charge for a
specified credit over a definite period.
In January 1936, petitioner announced it had adopted the "6%" plan and
issued throughout the country this advertisement:
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Ask your Ford dealers about the new
$25-a-month new U.C.C. 6% finance plan.
6% Plan of Financing. Total cost of credit is only 1/2 % monthly on
original unpaid balance and insurance.
(6% for 12 months)
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The "6%" plan was computed in actual practice as follows:
On a new car, the purchase price of which is $643 and on which the
purchaser makes a down payment of $243, there is an unpaid balance of
$400 due and if the dealer furnishes the insurance, its cost on the
above transaction would be $15, the total balance to be paid by the
purchaser would be $415 and where this amount is paid according to the
6% plan (or 1/2 of 1% a month) in eighteen consecutive monthly payments
of substantially $25 each, the charge of 1/2 of 1% a month for 18
months, or 9% on $415 would be $37.35, which, added to the original
balance of $415, makes a total sum of $452.35.
This same transaction with an unpaid balance of $415 paid in like
manner at $25 a month over a period of eighteen months on a straight 6%
simple interest per annum basis, computed on the declining balances as
reduced by monthly installments, would amount to $19.34 interest charge
or $18.01 less than the charge made pursuant to petitioner's plan.
Comparative tables prepared by an expert accountant in evidence in the
case indicated that the credit charge under petitioner's "6%" plan
amounted to approximately 11 1/2% simple annual interest.
The 6% plans of all of petitioner's competitors were also computed in
the above described manner and the average member of the public was
under the impression the "6%" plan as advertised by petitioner and the
other manufacturers meant 6% simple interest annually on the remaining
balance after deducting each successive monthly payment.
The Commission found that the statements
contained in petitioner's advertising matter with reference to its "6%"
plan had the tendency to mislead and deceive, and did mislead and
deceive, a substantial part of the purchasing public into the erroneous
belief that petitioner's finance plan or method as outlined
contemplates a simple 6% interest charge upon the deferred and unpaid
balance of the purchase price of cars and tended to cause, and has
caused, the public to purchase autombiles from the petitioner through
its dealers and agents because of this mistaken belief, when the actual
credit charge, computed in accordance with the "6%" plan, amounts to
approximately 11 1/2% simple annual interest on the unpaid balance of
the installments due on cars sold. It also found that these acts and
practices of petitioner tended to unfairly divert trade to the
petitioner and its dealers from competitors who correctly represented
the cost of the credit charges for purchasing cars on the installment
or deferred payment plan and a substantial injury had been done by
petitioner to competitors in commerce among and between the various
states of the United States and the District of Columbia.
The relevant portion of Section 5 of the Federal Trade Commission Act
as it read at the time the present complaint was issued, is as follows:
"That unfair methods of competition in
[interstate
and foreign] commerce are hereby declared unlawful."
The phrase is not statutorily definded and its scope cannot be
precisely determined and what constitutes "unfair methods of
competition" must be decided in particular instances upon incidences in
light of existing competitive conditions. The courts, and not the
Commission, must ultimately
determine, as a matter of law what this phrase includes.
Unfair methods of competition as used in the Act may consist generally
of false advertising of a product, process or method which misleads, or
has the capacity or tendency to mislead, the purchasing public into
buying such product, process or method in the belief it is acquiring
one essentially different. The question does not depend upon the
purpose of the
advertisement nor upon the good or bad faith of the advertiser. The
point for consideration here is whether, under the facts and
circumstances in connection with the publication of the advertisement,
the language in and of itself, without regard to good or bad faith, is
calculated to deceive the buying public into believing it is purchasing
petitioner's cars at one price when in fact it is purchasing them at
another. A prerequisite to the application of the statute in any case
is the unfair interference with interstate trade and such deception of
the public as to cause it to buy and pay for something which it is in
fact not getting.
Petitioner contends that the method of competition here complained of
is not unfair within the meaning of the Act nor of the foregoing
general rule, as it long has been the established practice of
automobile manufacturers and vendors of merchandise on the deferred
payment plan to charge an advance over what would be charged in a cash
sale and that it also has been the common practice of banks and small
loan companies to advertise loans with a percentage added to the
principal payable over fixed periods without calculating interest upon
a declining balance. It also charges that the Federal Housing
Administration and the Federal Electric Home and Farm Authority, two
governmental agencies, use the same plan. It thus argues that the
present advertisements were subject to the interpretation only that
petitioner was adding a charge to the cash price of its cars because of
the extension of credit to the purchaser.
The practices in the automobile industry or those in similar related
enterprises are immaterial, if petitioner's advertisements misled the
members of the public into purchasing its cars at a higher cost than
they otherwise would have paid. A method inherently unfair does not
cease to be so because the falsity
of the public representation has become so well known to those engaged
in identical or similar enterprises as to no longer deceive them.
The average individual does not make, and often is incapable of making,
minute calculations to determine the cost of property purchased on the
deferred payment paln. Mechanization, industrialization, and
urbanization have transformed the structure of our society and raised
to the proportions of a major social problem, the protection of the
installment purchaser against his own ignorance and the pressure of his
need. The present advertisement must be considered from the view of the
prospective purchasers of petitioner's cars and, in determining its
capacity or tendency to mislead, must be judged from its general
fabric, not its single threads.
Kindred senses in the use of language may be so interwoven that the
perplexities cannot be disentangled nor any reason be assigned why one
should be ranged before the other. The advertisement here in question
is susceptible to the construction that it contains two ideas; one,
that it means simply an addition of six percent to the cash price of
the car, charged for an extension of credit and the other, that it
means ordinary interest at the rate of 6% on deferred installment
payments. Either idea is so obscure that one blends into the other. The
uncertainty of terms and commixture of ideas expressed by petitioner in
its advertisement had the tendency to mislead.
The primary consideration in carrying out the purpose of the present
Act is the promotion and continuance of free enterprise and competition
in interstate commerce. Installment credit in varying forms is widely
used in this country in the purchase of many types of property and
especially affects the manufacturers of automobiles. No one can deny it
is in the public interest in the sale on credit of such devices to
prevent the use of methods which have a tendency and capacity to
mislead the purchasing public and to unfairly damage the manufacturer's
present or potential competitors and that such practices may be
restrained.
Advertising goes hand in hand with volume of production and retail
distribution. It operates to increase the demand for and availability
of goods and to devlop quickly consumers' acceptance of the
manufactured products. Expressed another way, it breaks down consumers'
resistance, creates consumers' acceptance and develops consumers'
demand.