In the first coordinated legal action over car leases, California and 13 other states on Monday accused Mazda Motor Corp. of America Inc. of using false and deceptive ads to lure consumers into expensive car lease agreements.
The lawsuits, filed individually under each state's own laws, mark the opening courthouse salvo in an ongoing investigation by numerous states into the auto-leasing business.
"Auto leases are causing consumers many, many problems and consternation," said Deputy Atty. Gen. Albert N. Shelden, who is overseeing California's case. "Consumers aren't really used to these leases and don't really understand them."
States have been coordinating their efforts to investigate auto leases for the last 18 months, he said, as the arrangements have become more popular. About 28% of new-car transactions now involve leases, he said, and more than a third of the transactions next year will involve leases.
"We've been talking with a number of other manufacturers," Shelden said. "The investigations are ongoing."
Mazda executives at the Irvine sales and distribution headquarters for the Japanese auto maker said they were upset about the action, particularly since they have been meeting with the state attorneys general, the Federal Trade Commission and the Federal Reserve Board over advertising issues.
"We've been in conversations with them for some time, right up through the end of last week," said Mazda spokesman Jay Amestoy. "We were to meet with FTC tomorrow."
He said the company had "every reason to believe" it would reach an amicable settlement.
But Monday morning, the company began getting telephone calls from reporters around the country as each attorney general put out a press release announcing the lawsuits.
Amestoy said the company was "at a loss to understand why we're being singled out when our practices are in line with the rest of the industry." He said the company had been willing to adopt any industry settlement over the issues.
The lawsuits assert that Mazda's "zero-down" and "penny-down" leases, advertised in a campaign that ran nationwide from February through June, implied that a consumer could lease a car with no down payment or with only a penny down.
In fact, the lawsuits allege, the leases required up-front costs totaling about $900, state prosecutors said. These costs included a $450 acquisition fee, a security deposit and the first month's lease payment, prosecutors said.
The lawsuits were filed by California, Arizona, Connecticut, Hawaii, Idaho, Illinois, Iowa, Maryland, Massachusetts, Minnesota, Missouri, Nevada, Ohio and Washington.
Arizona is spearheading the overall investigation into car leases, which has led nearly two dozen states to file joint comments with the Federal Reserve Board over changes in the truth-in-lending law for lease arrangements.
Other states are taking on lead roles in specific investigations, Shelden said. Minnesota, for instance, led the investigation into Mazda.
California Atty. Gen. Dan Lungren was unavailable for comment, but officials in other states issued scathing statements.
"Luring consumers in with attractive offers that do not exist is deceptive, unfair and illegal," Illinois Atty. Gen. Jim Ryan said in a statement. An aide commented: "The state is saying that if the company can't conduct business in a proper manner, it can't sell cars here."
Amestoy, though, asserted that the company had been working in good faith to settle differences.
"We are particularly dismayed since automotive leasing is regulated at the federal level," he said. "An industrywide solution consistent with the regulations recently adopted by the Federal Reserve Board would be the best for all concerned."
Mazda, he said, believes it is in full compliance with all federal regulations governing leasing arrangements.
He would not comment about allegations in any of the lawsuits because none had been served on Mazda yet.
Bloomberg Business News contributed to this report.