The Federal Trade Commission (FTC) this week finalized protections against junk fees when buying a car set to take effect in 2024 that dealer industry leaders called “heavy-handed.”
The Combating Auto Retail Scams (CARS) Rules from the FTC will require up-front pricing in dealers’ advertising and sales discussions, while baring the sale of add-on products or services that confer no benefit to consumers. The new rules, passed on Dec. 12, are slated to go into effect July 30, 2024.
Federal officials stressed the CARS Rule includes protections for members of the military and their families, who they found are targeted not only with bait-and-switch tactics and junk fees, but deceptive information about whether dealers are affiliated with the military and other specific issues that affect service members, according to the FTC statement.
Khan Comments
“When Americans set out to buy a car, they’re routinely hit with unexpected and unnecessary fees that dealers extract just because they can,” said FTC Chair Lina M. Khan. “The CARS Rule will prohibit exploitative junk fees in the car-buying process, saving people time and money and protecting honest dealers.”
The rule would specifically bar misrepresentations about price, cost and the total cost of the vehicle.
Dealers will be required to obtain consent for any charges they add to a vehicle’s price. They would be barred from charging for add-ons that are useless to the buyer, such as selling nitrogen-filled tires that contain no more nitrogen than normal air.
New Rules
The rule mandates dealers provide “the actual price any consumer can pay for the vehicle; tell consumers that optional add-ons (like extended warranties) are not required; and give information about the total payment when discussing monthly payments.”
The rules attempt to limit several practices common to some, but not all, car dealers. They include:
- Bait and Switch Marketing: Advertising cars the dealer never had in stock or prices or financing terms the dealer will not honor;
- Junk Fees: Fees for products or services that do not benefit the consumer;
- Misleading buyers about optional fees: An example would be telling buyers that extended warranties or other services are mandatory; and
- Surprise Fees: Under the CARS Rule, dealers must get consumers’ express, consent before charging them for anything.
CARS History
The FTC issued a Notice of Proposed Rulemaking related to motor vehicle shopping in June 2022 and the agency received tens of thousands of comments from consumers, servicemembers, veterans, auto dealers and others about the proposed rule during the comment period,. The agency said it made substantial changes to the proposed rule in creating the CARS Rule due to those comments.
The changes ensure that the rule is focused on protecting consumers from many of the most common scams that target people buying vehicles while ensuring that auto dealers are able to compete on a level playing field.
The CARS Rule takes steps to protect not only consumers but honest dealers and competition. Many auto dealers submitted comments to the proposed rule noted they lost business to other dealers who used deceptive bait-and-switch tactics, according to federal officials.
Allowed Fees
The rules do notg ban all fees associated with a car sale.
For example, every automaker charges a delivery or destination fee, which helps cover the cost of moving cars from the factory to the dealership. Those fees won’t disappear as a result of the FTC’s move. Delivery charges have been increasing in recent years. That comes largely thanks to the increasing cost of diesel fuel and a shortage of qualified truck drivers.
A recent study by the Center for Automotive Research finds that dealers could spend an average of $46,950 upfront and $50,958 per year to comply with the new rules.
NADA Statement
National Automobile Dealers Association (NADA) President and CEO Mike Stanton called the new rules “heavy-handed bureaucratic overreach and redundancy at its worst, that will needlessly lengthen the car sales process by forcing new layers of disclosures and complexity into the transaction.”
“The FTC made up data to support its claims, then rejected calls to slow down the process and test the effectiveness of its proposal with real consumers. We are exploring all options on how to keep this ill-conceived rule from taking effect.”
Congress may get involved as Republicans House members have signaled that he might hold hearings on the issue. While lawmakers in Washington can intervene to stop the rulemaking process with a new law, a divide Congress makes any action unlikely.