Update: No More Upcharges at Shady Dealerships – For Now!

FTC Implements Tougher Rules on Phony Fees, NADA Displeased

Updated on 1/18/24: In a disappointing victory for unscrupulous car dealers, the Federal Trade Commission has released an edict delaying the implementation of the CARS regulation due to two associations representing the industry filing petitions to revoke it. The regulation, originally set to be enforced on July 30, 2024, will now be put on hold until legal battles surrounding the petitions are resolved.

In an effort to crack down on deceptive practices used by car dealerships, the Federal Trade Commission (FTC) has officially put into effect a new regulation known as the Combating Auto Retail Scams (CARS) Rule. The goal of this rule is to eradicate fraudulent charges often included in purchase contracts and provide consumers with transparent pricing information from the start. However, the effectiveness of this measure remains to be seen.The FTC’s latest initiative is intended to address the underhanded tactics employed by some auto dealerships when selling vehicles. The CARS Rule aims to stamp out hidden fees that may be tacked onto sales agreements, leaving customers with a clear understanding of the final cost. In theory, at least.

As stated by the Federal Trade Commission (FTC), a new regulation will prevent dealers from giving false information about vehicle prices, such as advertising a cost for a particular model which may not be actually accessible for sale. Furthermore, dealers will be obligated to disclose any additional features that are not necessary, like extended warranties. Toyota faced a hefty penalty of $60 million due to numerous offenses committed by their financing branch, Toyota Motor Credit, which included supposedly misleading customers by claiming that some optional add-ons were mandatory.

The regulation also targets fraudulent extras, referred to by the FTC as charges for products or services that offer no tangible benefit or advantage. Instances such as warranty extensions that mirror those included by the manufacturer or complimentary oil changes for electric vehicles are cited as illustrations. Dealers must obtain explicit consent from buyers for any additional expenses incurred during the transaction. Moreover, the FTC focuses on the vulnerability of young individuals serving in the military, who are believed to be a prime target for deceitful dealers.

FTC Chair Lina M. Khan stated, “When Americans embark on the journey of purchasing a car, they are often faced with unwarranted and avoidable charges imposed by dealers simply because they have the power to do so.” She further added, “The implementation of the CARS Rule will put an end to these exploitative fees in the car-buying process, ultimately saving consumers both time and money while also safeguarding the integrity of honest dealers.”

The recently approved regulation, which was accepted by a unanimous 3-0 vote, is scheduled to be implemented on July 30, 2024. As anticipated, the National Automobile Dealers Association (NADA) is expressing strong disapproval towards this decision.

“The FTC’s proposed regulation is a prime example of heavy-handed bureaucratic overreach and excessive redundancy,” stated Mike Stanton, President and CEO of NADA. He further added, “This unnecessary measure will only serve to prolong the car sales process by introducing additional layers of disclosures and complexity.” Stanton criticized the FTC for fabricating data to justify their claims and disregarding requests to slow down the process and conduct real consumer testing on the effectiveness of their proposal. “We are currently exploring all possible options to prevent this poorly thought-out rule from being implemented.”

Motor1 reached out to NADA for clarification on the fabricated data mentioned by Stanton. According to a representative, this data was included in the ruling and the FTC stated that it was an assumption, not a determination, calculation, or estimation. The assumption was that the regulation would somehow save consumers $30 billion annually by streamlining the vehicle shopping process.

Upon reviewing the comprehensive 372-page FTC CARS Regulation, the sole reference to $30 billion is found in this particular segment on page 303:

According to NADA, in their 364-page document submitted to the FTC during the comment phase, it is important to acknowledge that laws are already in place addressing the concerns at hand. NADA also asserts that the proposed rule goes against the established procedures of the FTC and infringes upon the First Amendment. Despite this, NADA maintains that car buyers are typically satisfied with the current process.

The FTC and NADA have a combined total of 736 pages, implying that both entities have their own perspectives to share. We anticipate that there may be further developments on this matter before the deadline of July 30, 2024.

Sources: Federal Trade Commission, National Automobile Dealers Association