After a year and a half of bureaucratic process, the Federal Trade Commission announced new rules for car sales yesterday. The rules are aimed to limit so-called junk fees, bait-and-switch advertising, and surprise prices in car sales.
The rules will require dealers to clearly disclose final pricing and financing terms before a buyer signs for a car.
Related: Study – Americans Growing Frustrated With Car Buying Process
The new rules don’t kick in until July 30, 2024.
The FTC calls its new protections the Combating Auto Retail Scams (CARS) Rules. It predicts the new rules will “save consumers nationwide more than $3.4 billion and an estimated 72 million hours each year” spent car shopping.
What the Rules Ban
The rules attempt to limit several practices common to some, but not all, car dealers. They include:
- Bait and switch marketing: Advertising cars the dealer never had in stock or prices or financing terms the dealer will not honor
- Junk fees: Fees for products or services that do not benefit the consumer. The FTC gives examples, including nitrogen in tires or additional warranties that duplicate a manufacturer’s warranty
- Misleading buyers about optional fees: Telling buyers that extended warranties or other services are mandatory
- Surprise fees: In a guide explaining the new rules to dealerships, the FTC says, “Under the CARS Rule, dealers must get consumers’ express, informed consent before charging them for anything. Period.”
Dealers must “provide the offering price — the actual price any consumer can pay for the vehicle; tell consumers that optional add-ons (like extended warranties) are not required; and give information about the total payment when discussing monthly payments.”
The FTC tells dealerships that each violation of the rules could result in “civil penalties of as much as $50,120.”
Special Protections for Military Personnel
The rules also include additional protections for members of the military.
“Servicemembers have an average of twice as much auto debt as civilians,” the FTC says.
Owning a vehicle can be almost required on some sprawling military bases. Some unscrupulous dealers near military bases engage in unusually aggressive sales tactics with young servicemembers buying their first cars. As a result, the FTC says, “Around 20% of young servicemembers have at least $20,000 in auto debt.” That debt “creates a substantial challenge to servicemembers’ financial well-being.”
So, the rules prohibit dealers from “lying to servicemembers and other consumers about important cost and financing information.” They prohibit dealers from claiming to have any affiliation with the military. Dealers must disclose whether a financing agreement prevents a vehicle from moving out of state and cannot lie about whether a vehicle can be repossessed. Many states have laws protecting servicemembers from repossession.
What the Rules Don’t Ban
The rules require dealers to disclose the final purchase price of a car, but they won’t ban all fees associated with a car sale.
Every automaker charges a delivery or destination fee, which helps cover the cost of moving cars from the factory to the dealership. Those fees won’t disappear as a result of the FTC’s move.
Delivery charges have been increasing in recent years. That comes largely thanks to the increasing cost of diesel fuel and a shortage of qualified truck drivers.
Some destination fees seem disproportionately high — Stellantis charges $1,995 to move a Ram truck from Michigan, while BMW charges $1,000 less to ship a car from Austria to the United States. But the FTC’s rule doesn’t address fees that cover an actual cost.
Dealer Group Objects
In a statement, the National Automobile Dealers Association (NADA) called the new rules “heavy-handed bureaucratic overreach and redundancy at its worst.”
A recent study by the Center for Automotive Research finds that dealers could spend an average of $46,950 upfront and $50,958 per year to comply with the new rules.
Congress may also get involved. Last month, House Oversight Committee Chair U.S. Rep. James Comer (R-Ky.) sent pointed questions about the rule to the FTC and signaled that he might hold hearings on the issue.
Congress can intervene to stop the rulemaking process, but only through law. Current congressional paralysis means it’s unlikely both houses could agree on any changes.
