Auto Dealers Force FTC to Hit the Brakes on New Consumer Protection Rules for Car Buyers
Last updated February 7, 2024
The Federal Trade Commission (FTC) has postponed the effective date for its Combating Auto Retail Scams (CARS) Rule due to a court challenge from car dealers.
Listen to audio highlights of the story below:
The CARS Rule targets bait-and-switch sales tactics that lure buyers to dealerships, and would ban hidden junk fees that are often buried in lengthy contracts. In its notice of proposed rulemaking, the FTC stated that it receives more than 100,000 complaints about car dealers annually.
When it announced the final rule in December, the FTC said it would save consumers nationwide more than $3.4 billion as well as an estimated 72 million hours each year shopping for vehicles “by targeted persistent and illegal bait-and-switch scams and junk fees in the car buying process.”
The National Auto Dealers Association (NADA) and the Texas Automobile Dealers Association have asked a federal appeals court to block the new rule that was set to take effect on July 30, 2024, claiming the regulations are “arbitrary, capricious, (and) abuse of discretion.”
Mike Stanton, NADA president and CEO, said he was “pleased” the FTC decided to stay the effective date, but he vowed to continue the fight to “keep this ill-conceived rule from taking effect.” In his statement, Stanton said the rule is “unnecessary, redundant, confusing, and will needlessly lengthen the car sales process for consumers.”
Dealers claim complying with the new rule would drive up their costs, an assertion the FTC rejected when it wrote the rule and ordered the pause.
“In fact, the rule does not impose substantial costs, if any, on dealers that presently comply with the law, and to the extent there are costs, those are outweighed by the benefits to consumers, to law-abiding dealers, and to fair competition—as honest dealers will not be at a competitive disadvantage relative to dishonest dealers,” the Commission’s order states.
What the CARS Rule Would Do
Buying a car is a complicated transaction, and no matter how prepared you are when you head to the showroom, the dealer always has the upper hand.
The process is even more unfair when a shady dealer lies about its prices to get you into its showroom. It might quote a price for a specific vehicle, but when you get to the dealership, the car is gone, and the sales staff is no longer willing to honor its commitment. Instead, it offers another vehicle—which just happens to cost more.
“Bait and switch has been a long-standing problem with car sales,” said Chuck Bell, director of advocacy programs at Consumer Reports.
The CARS Rule would require that price quotes provided by phone, email, on the dealer’s website, or in person are the total price (minus tax and licensing fees). Such transparency would save consumers “an enormous amount of time, and allow them to engage in head-to-head comparison shopping,” Bell told Checkbook.
Dan Dwyer, a staff attorney at the FTC’s division on Financial Practices who worked on the CARS Rule, said it was designed to protect consumers and honest car dealers.
“We’re not trying to get in the way of the dealers’ business,” Dwyer told Checkbook. “It doesn’t require any new paperwork, and as such, it should be business as usual for honest dealers. And in fact, it will help them compete by leveling the playing field and providing clear rules of the road. Honest dealers can’t compete fairly when unscrupulous dealers lure customers away with bogus prices.”
Here’s what would be required if the CARS Rule takes effect:
Offering Price, Total Payment, and Optional Add-Ons: Dealers must provide their offering prices—the actual prices any consumer would pay for vehicles; tell consumers that optional add-ons (such as extended warranties) are not required; and give information about total payments when discussing financing options.
Ban Bogus Add-Ons: The rule prohibits dealers from charging for any add-ons that do not provide benefits to buyers. The Commission cites these real-life examples of worthless add-ons: Warranty programs that duplicate manufacturers’ warranties, service contracts for oil changes on electric vehicles that don’t use oil, nitrogen-filled tires that contain no more nitrogen than normal air, and software/audio subscription services on vehicles that cannot support those subscriptions.
Require Consumers’ Consent: The rule requires dealers to get consumers’ express, informed consent for any charges that are part of vehicle purchases.
“The rule focuses on conduct that’s already illegal,” Dwyer said. “It’s already unlawful to charge consumers for items without their consent. It’s also illegal to charge consumers for items based on deception, by lying to them about the benefits. So, the rule actually helps draw clear lines about what is needed in the car-buying context and what dealers need to do to comply with existing law.”
Contributing editor Herb Weisbaum (“The ConsumerMan”) is an Emmy award-winning broadcaster and one of America's top consumer experts. He has been protecting consumers for more than 40 years, having covered the consumer beat for CBS News, The Today Show, and NBCNews.com. You can also find him on Facebook, Twitter, and at ConsumerMan.com.