The Federal Trade Commission (FTC) released the CARS rule this month, which could significantly alter the automotive sales process. The Rule requires additional disclosures and paperwork to address activities that are already considered illegal, taking effect on July 30, 2024. Potential fines for non-compliance are up to $50,120 per incident.
The FTC’s CARS Rule aims to bring truth and transparency to the car buying and leasing process. Named for its focus on Combating Auto Retail Scams, the Rule outlines four key principles that are not new but are restated for the auto industry with additional remedies for deceptive or unfair practices.
1. The CARS Rule prohibits misrepresentations about material information, including:
- The costs or terms of vehicle buying, financing, or leasing.
- Details about and benefits of add-on products or services.
- Distinction between financing or lease terms.
- Availability of rebates or discounts included in the price that are not available to all consumers or stacking rebates that a typical consumer wouldn’t qualify for.
- Availability of vehicles at an advertised price. (Cannot list vehicles not available on the lot unless shown as “in-transit” with date of availability or location of vehicle clearly indicated.)
- Consumer preapproval or guarantee for any product, service, or term (ability to finance everyone).
- Information on or about financing applications.
- When the transaction is final.
- Keeping cash down payments or trade-ins, charging fees, or initiating legal processes if the consumer changes their mind about a transaction.
- Terms on dealer pay-offs of trade-ins (must disclose negative equity will be added to the loan balance).
- Unbiased consumer reviews that are independent of the dealer.
- Whether the dealer or its products or services are affiliated with or endorsed by the US government or military.
- Whether consumers have won a prize or sweepstakes.
- Whether a vehicle may be moved, including across state lines or out of the country.
- Whether a vehicle may be repossessed.
- Offer details and disclosures must be “unavoidable,” not hidden in the footer, and not in fine print (if you can avoid seeing the disclaimer by not clicking on “view details” or “disclaimer,” the disclosure is not unavoidable).
2. The CARS Rule mandates dealers to transparently disclose the offering price, representing the actual amount any consumer can pay for a vehicle, excluding only essential government charges.
The CARS Rule requires dealers to disclose vital details, prominently and conspicuously. The following are the disclosures required by the CARS Rule:
- Dealers must clearly disclose the offering price, defined as the full cash price for selling or financing a vehicle to any consumer. Only necessary government charges, such as taxes or registration fees, can be excluded.
- Every vehicle must include an offering price (cannot state “call dealer for details” or use “unlock price” lead form).
- Cannot advertise at MSRP unless that is the offering price.
- Cannot advertise above MSRP unless the specific offering price is disclosed.
- When representing an add-on product or service, dealers must explicitly disclose that it is not required, and consumers can purchase or lease the vehicle without it.
- Cannot exclude any fees or add-ons in the disclaimer, except required government fees.
- Cannot include rebates in selling price that not all consumers qualify for (rebates offered by a specific finance source or to “very-qualified” consumers).
- Very first communication with a consumer must include the offering price on a specific vehicle of inquiry.
- When representing a monthly payment for a vehicle, dealers must transparently disclose the total amount the consumer will pay after all scheduled payments.
- Cannot no longer use “$xx.xx per month per $1,000 financed” in finance disclosure.
- If a dealer compares payment options, including discussions of lower monthly payments, they must clearly disclose that the lower monthly payment may increase the total amount the consumer pays for the vehicle.
3. The CARS Rule prohibits dealers from charging consumers for add-ons that lack a benefit.
The Rule centers on deceptive practices where dealers include add-on products or services, charging consumers for unexpected or for services that do not provide a benefit, including:
- Fees for “nitrogen-filled tires” that offer no more nitrogen than naturally exists in the air.
- Add-ons lacking coverage for the vehicle, the consumer, or the transaction, or duplicating the car’s warranty coverage.
- Charging consumers for a GAP Agreement if the consumer’s vehicle or location is excluded from coverage, or if the loan-to-value ratio means the consumer receives no financial benefit from the product or service.
- The cost of mandatory items must be included in the offering price, while the cost of optional options does not need to be included.
4. Under the CARS Rule, dealers are obligated to secure express, informed consent from consumers before initiating any charges.
- All forms must include a description of the charge.
- All forms must include the total amount of the charge, detailing all associated fees and costs, with and without the product or service if applicable.
- Consumer consent must be closely linked to the time and place of the dealer’s clear disclosures.
- Cannot rely solely on a signed or initialed document, pre checked boxes, or agreements .
The National Automobile Dealers Association (NADA) contested the proposed rule in June 2022, estimating it could lead to a median compliance cost of approximately $47,000 per dealership, totaling around $2.2 billion across the entire retail industry nationwide. NADA released the following statement by its president and CEO Mike Stanton, on the FTC’s issuance of its vehicle shopping rule:
“This regulation is heavy-handed bureaucratic overreach and redundancy at its worst, that will needlessly lengthen the car sales process by forcing new layers of disclosures and complexity into the transaction. The FTC made up data to support its claims, then rejected calls to slow down the process and test the effectiveness of its proposal with real consumers. We are exploring all options on how to keep this ill-conceived rule from taking effect.”
While this interpretation of the FTC’s CARS Rule is provided, it is crucial for each dealer to refer directly to the official FTC CARS Rule Dealers Guide and seek guidance from a legal professional. Another recommended resource is ComplyAuto, which offers an FTC Safeguards compliance solution tailored for automotive dealers. Understanding the implications of the new dealer guide in advertising is essential for ensuring compliance and ethical practices within the auto industry.
