Proposed FTC Rule Would Add Additional Compliance Requirements for Automotive Dealerships
Over the last decade, the Federal Trade Commission (“FTC”) has brought a number of enforcement actions involving the motor vehicle industry. However, according to the FTC, complaints continue. In response, the FTC recently filed a Notice of Proposed Rulemaking (“NPRM”) seeking to stamp out bait-and-switch claims, halt surprise fees, and require certain additional disclosures, among other things. The NPRM was published on July 13, 2022, and the period for comments ends on September 12, 2022.
It remains to be seen whether the FTC will issue the rule as written, but below is a general overview of its key provisions and the proposed additional compliance obligations dealerships may need to comply with should the rule be made final.
According to the FTC, for most consumers, a car is the second most expensive purchase they will make, and new-vehicle dealers spend an average of more than $600 on advertising per vehicle sold. The FTC explained that it received more than 100,000 complaints in each of the past three years regarding new and used motor vehicle sales, financing, service and warranties, and rentals and leasing, placing the industry near the top among complaints received.
The new Proposed Rule—titled Motor Vehicle Dealers Trade Regulation Rule (found here)—covers a lot of tarmac but, in general, the rule can be split into four parts: (1) prohibition on certain misrepresentations; (2) added disclosure requirements; (3) charging for add-ons; and (4) added recordkeeping requirements.
We have provided a brief overview of what’s under the hood, but encourage readers to contact our Media & Marketing Practice Group or our Auto & Equipment Dealers Practice Group if you want to learn more.
- The Rule
If enacted, violations of the Proposed Rule would be considered an unfair or deceptive act or practice in violation of Section 5 of the FTC Act.
- Prohibition on Certain Misrepresentations
The Proposed Rule prohibits any motor vehicle dealer from making any misrepresentations, expressly or by implication regarding: (a) the costs or terms of purchasing, financing, or leasing a vehicle; (b) any costs, limitation, benefit, or any other material aspect of an add-on product or service; (c) whether the terms are, or transaction is, for financing or a lease; (d) the availability of any rebates or discounts that are factored into the advertised price but not available to all consumers; (e) the availability of vehicles at an advertised price; (f) whether, or under what circumstances, a vehicle may be moved, including across state lines or out of the country; and (g) any of the required disclosures identified in the Proposed Rule, among others.
The FTC has found that consumers who select and travel to dealerships based on an advertised offer, only to learn late in the process (if at all) that the advertised offer does not apply, have often spent hours trying to purchase a specific car at that dealership. For many consumers, walking away is not a realistic option—for example, restarting the hours-long process at another dealership might mean having to take an additional day off work. Thus, this section, according to the FTC, ensures that the advertisements consumers see match what they can receive upon arriving at the dealership.
- Disclosure requirements
The Proposed Rule requires that the “offering price,” which is defined as “the full cash price for which a Dealer will sell or finance the motor vehicle to any consumer, excluding only required Government Charges,” be disclosed in certain advertisements and communications.
In addition, this section requires: (1) a list of add-ons on each website, online service, or mobile application operated by the dealer; (2) a disclosure that any add-on is not required (if true); (3) disclosures regarding total payment amounts; and (4) disclosures relating to monthly payment comparisons.
- Charging for Add-ons
The Proposed Rule prohibits charging for add-ons that provide no benefit. One example the FTC provides is nitrogen-filled tires that contain no more nitrogen than naturally exists in the air. The Proposed Rule also states that a dealer cannot charge for any item unless the dealer obtains the express, informed consent from the consumer for the charge. The FTC defines “express, informed consent” to mean an “affirmative act communicating unambiguous assent to be charged, made after receiving and in close proximity to a clear and conspicuous disclosure, in writing, and also orally for in-person transactions, of the following: (1) what the charge is for; and (2) the amount of the charge, including, if the charge is for a product or service, all fees and costs to be charged to the consumer over the period of repayment with and without the product or service.”
Notably, the Proposed Rule explains that express, informed consent does not include: “(i) a signed or initialed document, by itself, (ii) prechecked boxes, or (iii) an agreement obtained through any practice designed or manipulated with the substantial effect of subverting or impairing user autonomy, decision-making, or choice.”
Finally, the Proposed Rule imposes several additional recordkeeping requirements. Specifically, under the Proposed Rule, dealers would be required to maintain records necessary to demonstrate compliance for at least two years, including keeping copies of:
- Advertisements and marketing materials relating to price, financing, or lease terms;
- Purchase orders;
- Add-on products and services offered; and
- Written consumer complaints and inquires relating to vehicles and/or products, among other things.
3. Next Steps
The Proposed Rule’s 60-day comment period ends on September 12, 2022. We will have to wait and see whether the comments push the FTC to revise certain provisions. Commentators have argued that these disclosures may create duplicitous paperwork and overlap with other regulations, such as the Truth in Lending Act.