TA i: A MEMORANDUM. A gift card is another advertising method but the Texas Finance Code must be adhered to if giving away a gift card.

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1 Ut TA i: A Texas Autumubile Dealers Assuciation 1108 Lavaca, Suite 800 Austin, Texas Phone: wwtada.org To: TADA Members From: Karen Phillips Date: November 17, 2014 Re: Advertising Coupons (See attached TxDMVDo s and Don Is,) Advertising Gift Cards (See attached OCCC Letter) MEMORANDUM As a reminder when advertising or using a coupon or gift card, the first rule to remember is with respect to Free Offers. A seller may not advertise an item as free if the vehicle can be purchased or leased for a lower sales price or if the vehicle s sales price is increased to cover the cost of the item. The TxDMV s advertising rule states: No merchandise or enticement may be described as free if the vehicle can be purchased or leased for a lesser price without the merchandise or enticement or if the price of the vehicle has been increased to cover the cost or any part of the cost of the merchandise or enticement. The advertisement shall clearly and conspicuously disclose the conditions under which the free offer may be obtained. (43 TAC ) Using a coupon in an advertisement is available; however, please review the attached Dos and Don ts from Mr. Karbeson. Enforcement Director, TxDMV. A gift card is another advertising method but the Texas Finance Code must be adhered to if giving away a gift card. The gift card MAY NOT be equivalent to cash nor may it be redeemed for cash. The gift card cannot be a term of the retail installment contract (RIC). If the RIC is rescinded, the buyer must be allowed to keep the gift card. The cash price cannot be increased by the amount of the gift card (See Free Offer nile above). Make all disclosures relating to the gift card. No unauthorized fees can be charged with the gift card. Please review the attached letter from Ms. Pettijohn, Consumer Credit Commissioner. Please note the special concerns expressed with the use of a gift card. Please call if you have any question.

2 v Texas Department of Motor Vehicles HELPING TEXANS GO. HELPING TEXAS GROW. November 12, 2014 From: Bill Harbeson, Enforcement Division To: Karen Phillips, Texas Automobile Dealers Association Subj.: COUPONS AND ADVERTISING Karen: Thank you for your question on using coupons in dealer advertising. I hope the discussion below helps you and your members in using coupons while remaining compliant with the advertising statute and rules. As always, we appreciate your and TADA s efforts to partner with us to assure a level playing field in advertising. DO S and DON Ts of ADVERTISING WITH COUPONS THE DOs DO keep in mind that ALL advertisements, regardless of format, including coupons, must be compliant with TxDMV advertising rules found at: view=5&ti=43&ptl O&ch2 I 5&schH&rl=Y As a starting point, always ask: Is the advertisement false, deceptive of misleading? DO clearly and conspicuously inform consumers on the face of the coupon that any amount listed is only available to be used toward a lease if that is in fact the case. DO clearly and conspicuously disclose the conditions and requirements necessary for a consumer to receive clearly and conspicuously any advertised cash amount. DO clearly and conspicuously thily disclose that your coupon only pertains to one specific vehicle by listing a stock number if you only intend to honor the coupon for that one vehicle. DO clearly and conspicuously disclose that you do not currently have possession of a specific vehicle or linemake if your coupon details a vehicle or vehicles you do not currently have in your possession. DO clearly and conspicuously let consumers know if your coupon only applies toward the purchase of a demonstrator or factory executive/official vehicle. DO remember that any featured savings claim or discount offer for a new motor vehicle, when advertised, must be the savings claim or discount which is available to any and all members of the buying public. THE DON Ts DON T advertise free items in your coupon if the vehicle can be purchased or leased for a lesser price without the merchandise or enticement, or if the price of the vehicle has been increased to cover the cost or any part of the cost of the merchandise or enticement. DON T advertise a savings claim or discount offer on used motor vehicles with your coupon JACKSON AVENUE, AUSTIN, TEXAS (686-DMVGOTX) F vwwtxdmv.gov

3 Texas Department of Motor Vehicles HELPING TEXANS GO. HELPING TEXAS GROW. DON T make guarantees or claims in your coupon that you cannot support with facts and evidence. DON T use your coupon to advertise a guaranteed amount for a consumer trade-in. DON T advertise in a misleading or deceptive manner. Consumer protection statutes in every state protect against these types of actions and if you are caught attempting to deceive consumers the punishment can be more than monetary -- your business reputation will also suffer. DON T think you can write yourself out of having to comply with the rules by hiding all of the important information into a disclaimer at the bottom of the coupon using a small type or font. DON T mislead consumers as to which vehicle or vehicles your coupon applies to by using confusing layouts, headlines, illustrations, or type or font size in your coupon, especially if it is part of a boarder advertisement JACKSON AVENUE, AUSTIN, TEXAS (888DMVGOTX) F wwwtxdmvgov

4 /.. e c: c c Auslin 2601 N. Lamar Blvd TX N. c :r Office of Consumer Fax: Credit Commissioner consumerheiptine info@cccc.siaieix.us March 12, 2014 Karen Phillips General Counsel Texas Automobile Dealers Association 1108 Lavaca Street, Suite 800 Austin, Texas Re: Providing a Gift Card to a Retail Buyer Dear Ms. Phillips: A few weeks ago, you informed me that several motor vehicle dealers have been offering gift cards to buyers as an incentive to enter retail installment contracts. You asked whether this practice is prohibited under Chapter 348 of the Texas Finance Code. Although the Finance Code does not prohibit a dealer from offering gift cards as an incentive, dealers that do this should be wary. If dealers engage in this practice improperly, they risk violating several laws. This letter describes some of the laws that dealers risk violating by providing gift cards to buyers as an incentive to enter a retail installment contract. First, the gift card cannot be equivalent to cash. Section of the Finance Code prohibits dealers from providing cash payments to buyers in connection with retail installment contracts. That section states: A retail seller may not promise to pay, pay, or otherwise tender cash to a retail buyer as a part of a transaction under this chapter unless specifically authorized by this chapter Typically, gift cards state that they are not redeemable for cash. They are also typically limited to a single retailer or a small group of retailers. If a dealer provides a card without these characteristics, such as a prepaid debit card or a card that can be redeemed at all retailers accepting a particular payment card network (e.g., Visa or MasterCard), then the dealer risks violating Section by providing the equivalent of cash. Second, the gift card must be a bona fide gift and cannot, in any way, be a term of the retail installment contract. If the retail installment contract is rescinded (e.g., by the parties agreement, or under Section ), then the buyer must be allowed to keep the gift card, because it is not a term of the retail installment contract. In addition, the gift card cannot be associated with any increase in the cash price, principal balance, or amount financed of the retail installment contract. For example, suppose that a buyer receives a $500 gift card for entering a motor vehicle retail installment contract, and suppose that a second buyer buys an identical vehicle to the first buyer, pays a cash price $100 less than the first buyer, and does not receive a gift card. A plaintiffs lawyer might use the $100 variance to attempt to pursue civil claims related to a misrepresented cash price under the Finance Code, the Texas Deceptive Trade Practices Act, and the Truth in

5 Karen Phillips Texas Automobile Dealers Association March 12, 2014 Page 2 of 2 Lending Act (as well as further penalties if the additional amount is subject to a finance charge). Even if there were no variance between the cash prices of the two transactions, a plaintiffs attorney might attempt to pursue a claim based on the fact that one buyer received the card while the other did not. By providing gift cards, dealers could inadvertently create a fertile ground for plaintiffs attorneys to initiate lawsuits. Third, the dealer must carefully ensure that all of its representations relating to the gift card are correct. The Texas Deceptive Trade Practices Act prohibits false, misleading, or deceptive acts or practices, which include among other things representing that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities which they do not have and representing that goods or services are of a particular standard, quality, or grade, or that goods are of a particular style or model, if they are of another. Tex. Bus. & Comm. Code 17.46(b)(5), (7). If a dealer does not fully and accurately disclose the nature and permissible uses of the gift card, then the dealer risks violating the DTPA. Fourth, the dealer must ensure that no unauthorized fees are charged in connection with the gift card. In particular, the Electronic Funds Transfer Act prohibits any person from charging an inactivity fee or a service fee in connection with a gift card. 15 U.S.C (b). If a dealer, in connection with a retail installment transaction, assists a consumer in obtaining a gift card that violates these provisions, the dealer could be subject to penalties under federal law as well as the Finance Code. This letter summarizes some of the most significant legal issues regarding the use of gift cards in retail installment transactions it is not intended to provide comprehensive guidance. This letter only addresses typical gift cards that are not equivalent to cash and are limited to a single retailer (or a small group of retailers). This letter does not address the possible tax consequences (both state and federal) of offering the cards. Finally, this letter assumes that dealers offering gift cards will carefully ensure that all aspects of the transaction comply with all applicable laws, including laws that were not mentioned in this letter. This advisory letter is not an interpretation approved by the Finance Commission of Texas pursuant to Texas Finance Code, If an interpretation approved by the Finance Commission of Texas is desired, then an interpretation should be requested pursuant to the procedures set forth in 7 Texas Administrative Code, 1.201(b). Respectfully, Leslie Pettijohn Consumer Credit Commissioner