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FTC Proposes New Motor Vehicle Dealers Trade Regulation Rule

Robert Ebin /

It’s officially summer.  The weather is getting warmer, and, for most of us, the air conditioners are working to keep us cool.  Unfortunately, those air conditioners may have to work a little harder to prevent us from becoming hot under the collar after you hear what the FTC has just announced this past June 23. The first part of the announcement is a series of statistics, which read as follows: over the last 10 years, the FTC has brought over 50 law enforcement actions in the automotive space, two nationwide law enforcement sweeps, and 181 state-level enforcement actions; and over the last three years, the FTC has fielded on average more than 100,000 annual consumer complaints related to automobiles.  In fact, as you may all remember, it was just in April that the FTC announced a record-setting $10 million payment from an Illinois dealer group (you can read our previous article on that here). These alone should make dealers anxious.  However, the second part of the announcement will really get your blood boiling. Because of all the above, the FTC has proposed a new rule, dubbed the “Motor Vehicle Dealers Trade Regulation Rule,” which will surely affect dealers nationwide.

This new proposed rule seeks to create a set of guidelines to “protect consumers and honest dealers by making the car-buying process more clear and competitive.” According to the FTC, at a high level, the proposed rule would:

  • Prohibit dealers from making certain misrepresentations in the course of selling, leasing, or arranging financing for motor vehicles.
  • Require accurate pricing disclosures in dealers’ advertising and sales discussions.
  • Require dealers to obtain consumers’ express, informed consent for charges.
  • Prohibit the sale of any optional product or service that confers no benefit to the consumer.
  • Require dealers to keep records of advertisements and customer transactions.

Specifically, this new proposed rule will:

  • Prohibit dealers from making a number of deceptive advertising claims, including those that involve the cost of the vehicle, terms of financing, cost of optional products, and whether the vehicle is actually available, among other things.
  • Prohibit dealers from charging consumers for optional products without clear written consent and would require clear disclosure about the price of the vehicle without any optional products.
  • Prohibit dealers from charging consumers for optional products that are fraudulent or provide no benefit. The FTC cites a couple of examples.  First, the FTC references nitrogen-filled tires that contain no more nitrogen than exists naturally in the air.  Second, the FTC references GAP sold to a customer if it is either excluded from coverage in that consumer’s neighborhood or if the loan-to-value ratio would result in no financial benefit to the consumer.
  • Require dealers to make certain key disclosures to consumers. These would include providing a true “offering price,” or the full price excluding taxes and government fees, and making disclosures about optional product fees and that these products are not required to purchase or lease the vehicle.

You can read the full FTC press release here.  If you have some spare time, you can also read the entire FTC Notice of Proposed Rulemaking here.  The Notice includes questions for public comment to inform the Commission’s decision-making on the proposal. After the comment period, the FTC will review all comments received and decide whether to proceed with the issuance of a final rule. Remember, although this is not a final rule, it does appear that some form of this rule will likely be passed by the FTC.  We at KPA will be keeping a close eye on this process and will provide updates accordingly.

Questions?

If you have any questions regarding this, or any other situation that may arise in your sales or service departments, hotline clients are invited to contact us at (800) 785-2880 (then press “4” for hotline) or hotline@autoadvisory.com.

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