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Update on the FTC Proposed Motor Vehicle Dealers Trade Regulation Rule

Robert Ebin /

We previously discussed the proposed FTC Motor Vehicle Dealers Trade Regulation Rule, and since the official comment period just ended on September 12 (the FTC declined to extend the comment period back in August despite multiple requests), we thought it fitting to provide a quick status update.

Since it was abruptly announced, the proposed Rule has created quite a buzz in the automotive and other related industries.  It should come as no surprise then that during the comment period, over 26,000 comments were submitted, and several other studies and articles were published on the proposed Rule. Interestingly, quite a few comments were actually in support of the proposed Rule, and some even allege that the Rule does not go far enough to protect consumers. Of note, Senator Elizabeth Warren and Congressmember Katie Porter wrote a letter in support of the proposed Rule, claiming that the “rule will be an important step to protect consumers and help rein in corporate profiteering that exacerbates inflation…”

As you might imagine, there were many others who did not provide such rosy comments about the proposed Rule. The American Financial Services Association (ASFA) and the Consumer Bankers Association (CBA) submitted a letter to the FTC raising concerns over the proposed Rule’s possible unintended, negative consequences as it relates to finance companies and suggests making numerous changes to the Rule, including allowing for an ample implementation period.

A senior citizen advocacy group, the 60 Plus Association, wrote a letter to the FTC arguing that the proposed Rule will provide “neither transparency nor simplicity [as it seeks to do], and could leave older Americans with a more time-consuming and complex transaction to navigate.” Specifically, the letter challenges the FTC’s assertion that the Rule will save consumers three hours during the car buying process, states that the FTC provides no evidence for its claim, and claims that the Rule will likely in fact make the process longer, especially with senior citizens, due to the required extra disclosures. The letter concludes that “only with a more methodical and transparent regulatory process should these regulations [the proposed Rule] move forward.”

A study released by the American Action Forum, which is headed by the former Congressional Budget Office Director, Doug Holtz-Eakin, challenges the analysis the FTC used as justification for the Rule. Specifically, the study challenges the FTC’s assertion that the Rule will yield tens of billions of dollars in benefits (primarily in saving time) to consumers.  The study alleges that the FTC’s “underlying assumptions and emerging market trends suggest that such estimates are dramatically overstated.” In fact, the benefit-to-cost ratio of 30:1 (i.e., benefit to consumer compared with cost to dealer) cited in the rulemaking’s analysis, when adjusted with more realistic circumstances and parameters show that the “benefits-to-cost ratio appear at best to be roughly even.”

Six sitting U.S. Senators also sent a letter to the FTC seeking answers to eleven specific questions regarding the FTC’s proposed Rule and rulemaking process. The letter begins by strongly stating that “the proposed rule would fundamentally change the way that vehicles are retailed in America [and]…would confuse customers, lengthen the transaction time to purchase a vehicle, limit consumer choice, increase paperwork, and mandate burdensome new recordkeeping requirements…” Among the most interesting questions the letter raises are: 1) what consultations did the FTC have with other agencies before issuing the proposed Rule? 2) what acts this proposed Rule seeks to address that are not already illegal or that the FTC is powerless to bring an enforcement action on? and 3) why did the FTC not perform a quantitative study and only relied on a qualitative one?

Finally, NADA filed a comprehensive 364-page comments letter in response to the FTC’s proposed Rule, urging its withdrawal.  NADA argues that the proposed Rule is based on flawed assumptions, inadequate research, lack of meaningful analysis, and no apparent coordination with other government agencies.  Specifically, the letter states that the Rule is “ill-conceived, ill-supported, ill-coordinated, untested and unlawful.” The letter further notes that the Rule will increase the costs of the auto retailing process, extend transaction times, confuse consumers, and hinder the customer experience.  NADA also argues that the Rule is unnecessary “as each harm it seeks to address is already regulated under existing law.”

Due to the heavy burdens that this proposed Rule may present on dealers and the fact that it could potentially affect millions of consumers annually, Congressmen Doug Lamalfa and Chris Pappas have recently submitted yet another request that the FTC reopen the comment period by an additional 60-90 days.

At the time of writing this article, the FTC has not addressed any of these comments, nor has it extended the comment period.  We will, of course, keep you updated on the status of this proposed Rule.

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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