A recent FTC complaint filed in federal court charged Associates First Capital Corporation and Associates Corporation of North America with systematic and widespread abusive lending practices, commonly known as "predatory lending." FTC charged that The Associates violated the FTC Act through deceptive marketing practices that induced consumers to refinance existing debts into home loans with high interest rates, costs, and fees, and to purchase high-cost credit insurance.

Among other charges, FTC's Complaint alleged that the defendants violated the Truth in Lending Act (TILA) by failing in their advertisements to disclose clearly and conspicuously loan fees, balloon payments, and other information, and by failing to retain certain records of compliance.

FTC filed its complaint in the U.S. District Court for the Northern District of Georgia, Atlanta Division, on March 6, 2001. The Commission vote authorizing staff to file the complaint was 5-0.

NOTE: The Commission files a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendants have actually violated the law. The case will be decided by the court.

(Associates First Capital Corporation, FTC File No.: 972 3152, Civil Action No.: 010CV-0606, March 6, 2001.)

FTC's annual report on cigarette sales and advertising for 1999 shows that cigarette sales fell from 1998 to 1999, but advertising and promotional expenditures increased significantly. The report details the first year of spending affected by the tobacco industry's Master Settlement Agreement (MSA) with the Attorneys General of 46 states. According to this report, the five largest cigarette manufacturers spent $8.24 billion on advertising and promotional expenditures in 1999, a 22.3% increase from the $6.73 billion spent in 1998. (The MSA imposed phased-in restrictions on the companies' use of outdoor advertising and brand-name sponsorships, their distribution of free samples, and their distribution and sale of apparel and merchandise with brand-name logos.) The industry's total expenditures were the most ever reported to FTC.

In 1999, the manufacturers reported that they sold 411.3 billion cigarettes domestically, which is 47.2 billion fewer than they sold in 1998. The largest category of advertising and promotional expenditures was promotional allowances, which include payments to retailers for shelf space. Cigarette companies spent $3.54 billion in 1999 on promotional allowances (43% of total industry spending), up from $2.88 billion in 1998.

Spending on retail value added - which includes both multiple-pack promotions ("buy one, get one free") and non-cigarette items, such as hats or lighters, given away at the point-of-sale with the purchase of cigarettes - rose from $1.56 billion in 1998 to $2.56 billion in 1999, an increase of 64.6%. At the same time, expenditures for distribution of branded specialty items (such as lighters) through the mail, at promotional events, or by any means other than at the point-of-sale with the purchase of cigarettes declined from $355.8 million in 1998 to $335.7 million in 1999. Money spent giving cigarette samples to the public rose from $14.4 million in 1998 to $33.7 million in 1999, an increase of 133.5%. In contrast, spending on discount coupons declined from $624.2 million in 1998 to $531 million in 1999.

The industry's expenditures on advertising in newspapers rose 73%, from $29.4 million in 1998 to $51 million in 1999. Spending on magazine advertising increased from $281.3 million in 1998 to $377.4 million, according to the FTC report, while outdoor advertising expenditures plummeted from $294.7 million to $53.8 million and transit advertising declined from $40.2 million in 1998 to $5.6 million in 1999. Point-of-sale advertising increased from $290.7 million in 1998 to $329.4 million in 1999. The cigarette companies reported a total of $94.6 million for direct mail advertising in 1999, 63.8% more than the $57.8 million reported in 1998.

The industry reported spending $650,000 on Internet advertising in 1999. Spending on public entertainment (e.g., sponsorship of concerts, auto racing, and fishing tournaments) was $267.4 million in 1999, an increase of 7.6% from 1998 to 1999.

(Federal Trade Commission Cigarette Report for 1999, FTC File No. 002-3207, March 13, 2001.)