What Dealers Should Know About the New Proposed FTC Rules Governing Motor Vehicle Dealerships
On July 13, 2022, the Federal Trade Commission released a set of proposed regulations governing motor vehicle dealerships. The proposed regulations, which are open for public comment until September 12th, would affect how dealers advertise and sell motor vehicles and associated “add-on” products. In particular, the proposed regulations prohibit a number of advertising and disclosure practices as unfair and deceptive trade practices, which, if violated, could expose dealers to fines of more than $46,000 per violation. Dealers should understand how the proposed regulations will affect their business practices so that they can remain in compliance if the regulations are adopted.
What business practices are covered by the proposed regulations?
Many business practices prohibited by the proposed regulations are already considered deceptive or unfair trade practices by the FTC. The proposed regulations, however, clarify and expand on existing rules and potentially expose dealers who violate the rules to larger fines.
Misrepresentations in Advertising: The proposed regulations prohibit 16 different types of misrepresentations related to advertising, selling, financing, and leasing motor vehicles, including:
- advertising a vehicle that is not available,
- advertising a price that includes rebates/discounts that might not be available to everyone,
- misrepresenting the costs or benefits of an add-on product or service, or
- inaccurately representing to a consumer that they have been or will be preapproved or guaranteed for a product, service, or term.
Dealers should note that misrepresentations include not only express “lies,” but also inaccurate claims that might be implied by advertising materials. Therefore, dealers should carefully consider what messages consumers might receive from their advertising materials and whether those messages are accurate.
Required Disclosures: The proposed regulations require dealers to make certain disclosures to consumers:
- First, dealers would need to disclose the full cash price, excluding only required government charges, for vehicles they advertise. Note that this rule may require dealers to include service fees in the vehicle price they advertise or communicate to consumers, even though current Wisconsin law allows service fees to be excluded from advertised prices.
- Second, dealers would need to provide consumers with a list of any optional add-on products or services they charge for, and disclose whether the add-ons are optional or required for vehicle purchase.
- Third, for financed or leased vehicles with a monthly payment, dealers would need to disclose the total amount that the consumer will pay to purchase or lease the vehicle at that monthly payment. Dealers offering higher and lower monthly rates to consumers also would need to disclose if the lower monthly rate would increase the total amount that the consumer would pay for the vehicle.
Add-Ons: The proposed regulations aim to prevent consumers from unknowingly purchasing add-ons such as extended warranties, service and maintenance plans, GAP insurance, emergency road service, or theft protection devices. The proposed regulations prohibit dealers from charging for add-ons that provide no benefit to the consumer, such as nitrogen-filled tire services that contain no more nitrogen than the air, or service plans that provide no greater coverage than the vehicle warranty. For other add-ons, dealers must provide the consumer with the cash price of the vehicle without the add-ons, tell the consumer that they can purchase the vehicle without the optional add-ons, and allow the consumer to expressly decline to purchase the vehicle without the optional add-ons. The disclosure and declination must be set forth on its own, signed form.
Recordkeeping: Finally, if the proposed regulations go into effect, they would require dealers to keep records for 24 months that demonstrate their compliance with the regulations, including advertisements, financing documents, and add-on lists.
What should dealers do?
According to Automotive News, the National Automobile Dealers Association CEO Mike Stanton has deemed the FTC’s new proposed car dealer regulations “completely unwarranted, redundant, and ineffectual.” The increased disclosure requirements are undeniably burdensome and will likely lead to an inefficient customer experience with extended transaction times.
Dealers can submit comments to the FTC on the proposed regulations until September 12, 2022. Comments can be submitted online here. The FTC will consider the comments made during this time period, so any that are submitted may influence whether the FTC will formally adopt the regulations as currently proposed.
Additionally, dealers should familiarize themselves with the proposed regulations and start planning now so that they can ensure compliance with the regulations if they are adopted. Considering that the FTC has been taking a harder approach to enforcement against deceptive practices, proactive efforts would not be fruitless. Dealers should talk to an attorney if they have questions about these proposed regulations.
The information provided is for general informational purposes only. This post is not updated to account for changes in the law and should not be considered tax or legal advice. This article is not intended to create an attorney-client relationship. You should consult with legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.