Ford Motor Company v. Federal Trade Commission

Ford Motor Company (Ford) (defendant) allowed customers to purchase automobiles on an installment plan that Ford called the six-percent plan. Competing automobile manufacturers, including General Motors and Chrysler, also used identical six-percent plans. Under the plan, the total cost of the customer’s automobile was calculated by multiplying the unpaid balance and insurance costs by half of a percent each month. For example, if a $643 car was sold to a customer who paid a $243 down payment, making the unpaid balance $400, and the customer was charged $15 for insurance, the $415 would be multiplied by half of a percent each month for the loan period. If the customer entered a plan to pay off the automobile in a year, the total cost was determined by multiplying the unpaid balance by 6 percent—half of a percent per month for 12 months. In advertisements for the six-percent plan, Ford specified that the financing was not the same as being charged an annual 6 percent interest rate and represented that the six-percent plan was cheaper than other interest-based payment plans. In fact, under the six-percent plan, customers were charged an approximately 11.5 percent annual interest rate. This discrepancy occurred because, unlike in a simple interest arrangement in which the monthly fee is calculated by multiplying the interest rate against the declining unpaid balance, the six-percent plan multiplied the rate against the initial unpaid balance for each month’s payment. The Federal Trade Commission (FTC) (plaintiff) charged Ford with violating § 5 of the FTC Act by misleading consumers about its six-percent plan. The FTC reasoned that the consumers were deceived about the price of their automobile purchases under the plan because consumers were likely to believe that the plan charged an annual 6 percent interest rate. The FTC issued a cease-and-desist order against Ford, enjoining Ford from advertising its six-percent payment plan. Ford appealed, arguing that its six-percent plan and related advertisements were standard practice in the automobile industry.