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The Federal Trade Commission (FTC) has finalized its new rule designed to combat nefarious automobile dealerships using shady tactics when selling cars. Called the Combating Auto Retail Scams (CARS) Rule, it will eliminate junk fees that are sometimes added to purchase agreements and present customers with a clearer up-front picture of what the final price will be. In theory, anyway.
According to the FTC, the rule will prohibit dealers from misrepresenting pricing on vehicles, such as advertising a price for a specific trim that may not be available for purchase. Dealers will be required to inform customers of add-ons that aren’t required, such as extended warranties. Toyota was recently fined $60 million for a plethora of infractions through Toyota Motor Credit, including allegedly telling customers some optional add-ons were required.
The rule also goes after bogus add-ons, which the FTC describes as fees for items or services that serve no purpose or bring no added value to the table. Extended warranties that mirror a manufacturer’s warranty, or built-in service visits for oil changes on electric cars are listed as examples. Dealers will be required to get consumers’ consent for any charges paid that are part of the purchase. And the FTC specifically mentions younger members of the military, whom the agency believes are targeted by unscrupulous dealers more than most.
“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 passed by a vote of 3-0 and is set to go into effect July 30, 2024. As you might expect, the National Automobile Dealers Association (NADA) is not the least bit happy about it.
“This regulation is 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,” NADA President and CEO Mike Stanton said in a statement. “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.”
Motor1 contacted NADA to ask specifically about the made-up data to which Stanton referred. A spokesperson explained it was listed in the ruling, claiming “the FTC clearly states that it assumed – not ‘determined,’ ‘calculated,’ or even ‘estimated;’ assumed – that the regulation would save consumers $30 billion a year by somehow reducing time during the vehicle shopping process.”
Perusing the 372-page FTC CARS Rule, the only mention of $30 billion comes in this section on page 303:
The Commission’s preliminary analysis estimated that the proposed rule would allow consumers to spend 3 fewer hours completing each motor vehicle transaction and result in (quantifiable) overall time savings valued at between $30 billion and $35 billion.
It’s worth noting that NADA’s 364-page document submitted to the FTC during the comment phase claims that laws already exist regarding the issues in question. NADA further claims that the rule violates the FTC’s already established procedures, and violates the First Amendment, and even then, car buyers are “generally very happy” with the process as it is now:
Despite many unfounded stereotypes to the contrary, the public record contains ample data demonstrating that consumers are generally very happy with their experiences acquiring automobiles. For example, the Sales Satisfaction Index (SSI) compiled by renowned market research firm J.D. Power shows that overall customer satisfaction with all dealers (both those where they bought and those they interacted with but did not buy from) is high, scoring 789 on a 1,000-point scale in 2021.
With 736 combined pages between the FTC and NADA, clearly, each side has something to say. We suspect there could be more to come on this before July 20, 2024, arrives.
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