On June 23, 2022, the Federal Trade Commission (FTC) announcement that it has initiated the process of adopting regulations for dealers in relation to the advertising and sale of new cars. The proposed rules target “[d]better control over the flow and timing of information” which according to the FTC, “allows them to add fees or change contract terms late in the purchase or lease process.” The proposed rules would regulate this flow of information, placing significant limits on how dealers advertise to attract customers to dealerships and initial dealer disclosure requirements at the start of negotiations, including the requirement to the dealer to inform the consumer of the “total cash price” for a specific vehicle in the dealer’s “first response” to a consumer’s inquiry regarding that vehicle.
FTC cites ‘long-standing’ issues as reason for new rules
The FTC provided a lengthy and detailed rationale for the proposed rules, explaining that because buying a car is “not only an expensive undertaking”, but also “time-consuming and arduous”, the proposed rules are necessary to ensure that consumers are not lured into dealerships with price promises or offers that are not actually available. The FTC cited as additional justification “more than 100,000 complaints in each of the past three years regarding new and used motor vehicle sales” it had received, noting that “complaints regarding motor vehicle transactions consistently feature in the top ten categories of complaints tracked by the agency.”
The FTC further noted that “[a] a significant consumer protection concern is that consumers pay for add-ons without knowing about them or expressly agreeing to them”, with some dealers waiting “until late in the transaction to mention the add-ons and then doing so[ing] therefore misleadingly. According to the FTC, “[i]Over the past ten years, the Commission has filed more than fifty enforcement actions and conducted two enforcement operations to protect consumers in the motor vehicle market, including one that involved 181 state enforcement actions” , justifying the adoption of rules to remedy it. long-standing issues. »
The rules would impose advertising limits and require early disclosure of prices
FTCs offers the rules for new car dealers would prohibit new car dealers from, among other things, misrepresenting the “costs or terms of purchasing, financing or leasing a vehicle”, “[a]any cost, limitation, benefit or any other material aspect of an add-on product or service”, “[w]Whether the terms are, or the transaction is, for financing or a lease,” “[t]the availability of any discount or rebate that is reflected in the advertised price but is not available to all consumers” and “[t]the availability of vehicles at an advertised price. In explaining the need for these prohibitions, the FTC noted that “the cost or price of a vehicle is material – it is likely to affect a consumer’s driving, including the purchase of a particular vehicle from a particular dealer”.
In addition to these prohibitions, the FTC’s proposed rules would impose positive disclosure obligations on dealers early in the trading process. Among other things, the proposed rules would require that when a consumer and dealer communicate about a particular vehicle, “[t]The offer price for the vehicle must be disclosed in the dealer’s first response regarding that specific vehicle to the consumer” and “[i]If the communication or response is in writing, the offer price must be disclosed in writing. The term “offer price” is defined as “the total cash price for which a dealer will sell or finance the motor vehicle to any consumer, excluding only required government fees”, such that a dealer would be obligated to commit to a retail price (and negotiate from that price) before negotiating other aspects of the transaction with the customer.
The proposed rules would also require dealerships that sell add-ons for vehicles to disclose the prices of those add-ons.”[o]n each website, online service or mobile application operated by or on behalf of the Dealer, and in each dealership. According to the FTC, these disclosure requirements would provide consumers with much more information about the prices actually available for vehicles and add-ons before those consumers invest time in visiting a dealership.
The proposed rules do not meet with universal approval
Unsurprisingly, the National Automobile Dealers Association, a trade association for new car dealerships, reacted negatively to the proposal, to declare that the rules, if passed, “will cause great harm to consumers by raising prices, extending transaction times and making the customer experience much more complex and inefficient”. Although four of the five FTC commissioners voted in favor of starting the regulatory process, one FTC commissioner dissented. In his dissent statementFTC Commissioner Christine Wilson expressed concern that the proposed rules could stifle innovation, particularly because “consumer car buying has moved online with services that help consumers to negotiate prices and locate desired vehicles” and that new market entrants such as Tesla and Carvana have introduced “sales methods that avoid the need to enter a dealership at all.
The FTC’s regulation of vehicle sales is not new and appears to fall within the agency’s mandate from the US Congress. As Noted by the FTC’s four commissioners voting to move forward with the rule-making process, Congress gave the FTC the power over a decade ago, through the Dodd-Frank Act, to adopt rules relating to new car dealerships. Additionally, the FTC adopted rules for used car dealerships nearly 40 years ago. The FTC will now receive public comment as part of the rulemaking process before making a final decision on what regulations, if any, should be enacted for new car dealerships.