Jul 11, 2022
FTC Begins Process To Adopt Rules For New Car Dealer Advertising And Sales
On June 23, 2022, the Federal Trade Commission (FTC) announced that it has initiated the process to adopt regulations for dealers in connection with the advertising and sale of new cars. The proposed rules target “[d]ealer control over the flow and timing of information” which according to the FTC, “enables them to add charges or change contract terms late in the purchase or lease process.” The proposed rules would regulate that flow of information, imposing significant limits on how dealers advertise to bring customers into dealerships and on dealers up-front disclosure requirements at the outset of negotiations, including a requirement that the dealer tell the consumer the “full 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 justification for the proposed rules, explaining that because buying a car is “not only an expensive endeavor,” but also “time-consuming and arduous,” the proposed rules are necessary to ensure that consumers are not lured into dealerships with promises of prices or deals that are not actually available. The FTC cited as further justification “more than 100,000 complaints in each of the past three years regarding new and used motor vehicle sales” that it had received, noting that “complaints about motor vehicle transactions are regularly in the top ten complaint categories tracked by the agency.”
The FTC further noted that “[a] significant consumer protection concern is consumers paying for add-ons without knowing about or expressly agreeing to them,” with some dealers waiting “until late in the transaction to mention add-ons, and then do[ing] so in a misleading manner.” According to the FTC, “[i]n the last ten years, the Commission has brought more than fifty law enforcement actions and led two law enforcement sweeps to protect consumers in the motor vehicle marketplace, including one that involved 181 state enforcement actions,” justifying the adoption of rules to address these “long-standing issues.”
Rules Would Impose Advertising Limits and Require Early Price Disclosures
The FTC’s proposed rules for new car dealers would prohibit new car dealers from, among other things, misrepresenting the “costs or terms or purchasing, financing, or leasing a vehicle,” “[a]ny costs, limitation, benefit, or any other Material aspect of an Add-on Product or Service,” “[w]hether the terms are, or transaction is, for financing or a lease,” “[t]he availability of any rebates or discounts that are factored into the advertised price but not available to all consumers,” and “[t]he 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 conduct, including whether to purchase a particular vehicle at a particular dealership.”
In addition to these prohibitions, the FTC’s proposed rules would impose affirmative disclosure obligations on dealers early in the negotiation process. Among other things, the proposed rules would require that when a consumer and dealer communicate concerning a specific vehicle, “[t]he Offering Price for the vehicle must be disclosed in the Dealer’s first response regarding that specific vehicle to the consumer,” and “[i]f the communication or response is in writing, the Offering Price must be disclosed in writing.” The term “Offering Price” is defined to mean “the full cash price for which a Dealer will sell or finance the motor vehicle to any consumer, excluding only required Government Charge,” so that a dealer would be forced commit to a retail price (and negotiate from that price) before negotiating other aspects of the transaction with the customer.
The proposed rules also would require that dealers who sell add-ons for vehicles to disclose the prices for those add-ons “[o]n each website, online service, or mobile application operated by or on behalf of the Dealer, and at each dealership.” According to the FTC, these disclosure requirements would arm consumers with substantially more information about the prices actually available for vehicles and add-ons before those consumers invest time in going to a dealership.
Proposed Rules Do Not Meet With Universal Approval
Not surprisingly, the National Automobile Dealers Association, a trade association for new car dealers, reacted negatively to the proposal, declaring that the rules if adopted “will cause great harm to consumers by increasing 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 the initiating the rulemaking process, one FTC commissioner dissented. In her dissenting statement, FTC Commissioner Christine Wilson expressed concern that the proposed rules might stifle innovation, particular because “consumer car shopping has moved online with services that assist consumers in price negotiation and location of desired vehicles” and new market entrants like Tesla and Carvana have introduced “sales methods that obviate the need to enter a dealership at all.”
FTC regulation of vehicle sales is not new and would appear to be within the agency’s mandate from the U.S. Congress. As noted by the four FTC commissioners voting to move forward with the rulemaking process, Congress more than a decade ago gave the FTC authority through the Dodd-Frank Act to adopt rules relating to new car dealers. Moreover, the FTC adopted rules for used car dealers nearly 40 years ago. The FTC will now receive public comments as part of the rulemaking process before making a final determination as to what regulations, if any, should be adopted for new car dealers.