FTC Proposes New Regulations To Protect Consumers From Dealer Duplicity

Complaints about auto dealers are consistently high on the list of things consumers complain about to the FTC, otherwise known as Federal Trade Commission, which has logged more than 100,000 complaints over the past 3 years. If you think that number is low, consider that only a small fraction of people bother to file official complaints. The actual number of instances in which consumers are taken advantage is probably closer to 1 million over the last three years rather than 100,000.

The FTC this week took a first step toward establishing guidelines that would provide consumers with key protections against dealers who unlawfully charge junk fees without their consent or engage in bait-and-switch advertising. The announcement begins a period during which consumers can comment on the proposed rules, which focus on four specific areas.

• Ban bait-and-switch claims: The proposal would prohibit dealers from making a number of deceptive advertising claims to lure in prospective car buyers. This deal deception can include the cost of a vehicle or the terms of financing, the cost of any add-on products or services, whether financing terms are for a lease, the availability of any discounts or rebates, the actual availability of the vehicles being advertised, and whether a financing deal has been finalized, among other areas. Once in the door or on the hook, consumers face the fallout of false promises that don’t pan out.
• Ban fraudulent junk fees:  The proposal would prohibit dealers from charging consumers junk fees for fraudulent add-on products and services that provide no benefit to the consumer (including “nitrogen filled” tires that contain no more nitrogen than normal air).
• Ban surprise junk fees: The proposal would prohibit dealers from charging consumers for an add-on without their clear, written consent and would require dealers to inform consumers about the price of the car without any of optional add-ons.
• Require full upfront disclosure of costs and conditions: The proposal would require dealers to make key disclosures to consumers, including providing a true “offering price” for a vehicle that would be full price a consumer would pay, excluding only taxes and government fees. It would also require dealers to make disclosures about optional add-on fees, including their price and the fact that they are not required as a condition of purchasing or leasing the vehicle, along with disclosures to consumers with key information about financing terms.

Sharp-eyed readers will  note the proposed rules do not address dealers which mark up vehicles that are in short supply or which require customers to pay additional fees to preserve their place on a reservation list — two of the common practices that annoy customers the most. The manufacturers often try to address those issues directly with dealers, but because franchise dealer laws are so strong in many states, there is often little automakers can do to rein in even the most rapacious dealers.

A Dissenting Opinion

The proposed rules were approved by a vote of 4 to 1. You might think the dissenting opinion by Christine Wilson was filed by a supporter of a disgraced former president or some rabid reactionary, but it’s actually quite thoughtful and makes some good points. Read it for yourself and form your own judgment.

“Attempts to narrowly tailor rules are frequently unsuccessful. Technologies and markets evolve in ways regulators are unable to predict, leading either to mission creep — the expansion of regulatory regimes to address these unforeseen developments — or to ossification, given the opportunity cost of frequent updates to reflect emerging market realities.

“Notably, the motor vehicle industry has benefited from innovation in all areas — safety, performance, options, and sales. For example, in the 1980s, GM created the Saturn project, introducing a then-revolutionary way to manufacture, market, and sell cars. More recently, consumer car shopping has moved online with services that assist consumers in price negotiation and location of desired vehicles.

“In addition, Tesla and Carvana have introduced sales models that obviate the need to enter a dealership at all. And sales practices will continue to evolve. The market dynamism flowing from these innovations make it likely that an FTC rule will be incomplete even as it is finalized.”

Once the proposed rules are published in the Federal Register, the public will have 60 days to file comments with the FTC. You can be sure a slew of dealer organizations will weigh in to oppose the rules. So why not make your voice heard on this topic?

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