The FTC has made clear in recent years that it is prioritizing cracking down on fraud in auto sales and financing. Last week, the Commission published its final Combating Auto Retail Scams (CARS) Rule in the Federal Register, marking the next step in the agency’s journey toward leveling the playing field for car buyers. The Rule was originally proposed in July 2022 through a notice of proposed rulemaking (NPRM), targeting pricing transparency and deceptive practices around the sale of add-on goods and services.

This is part one of a three-part blog series which will cover the major changes to the Rule, what the FTC declined to address in this rulemaking, and the major components of the CARS Rule. CFA has been a strong advocate for this rulemaking and looks forward to continuing its support to ensure that the CARS Rule becomes law.

Changes from 2022 Proposed Rule:

The CARS Rule includes two major changes from the NPRM to its requirements about add-ons and the scope of the Rule, and several other, smaller changes.

Add-on Selection Requirements. In both the July 2022 NPRM and the CARS Rule, the FTC details a well-founded litany of problems with the way dealers advertise and sell add-on products to consumers. Many consumers do not know they are being charged for add-ons, dealers misrepresent to consumers that add-ons are mandatory, and dealers’ use of complex paperwork and deceptive conduct often obscures consumers’ understanding of the cost of add-ons and their impact on financing.

The July 2022 NPRM proposed adding safeguards into this process, including (1) requiring dealers to disclose a list of available add-ons and their prices, and (2) adding a particularized multi-step consent process for add-ons, whereby dealers would be required to calculate the price of the car with and without the add-ons and itemize the add-ons, all before the final purchase and with the consumer’s clear understanding that these add-ons were not mandatory.  The FTC declined to adopt these provisions in the final CARS Rule, citing commenter concerns about ineffectiveness and inserting more documents into an already complex and document-heavy process. The FTC maintained its prohibitions against the sale of worthless add-ons, prohibiting dealers from misrepresenting that add-ons are mandatory, and requiring express informed consent to purchase an add-on.

Add-ons are a major problem for car buyers. The FTC clearly wants dealers to provide more information to consumers to make a better-informed decision about add-ons, and advocates are hopeful that the FTC will undertake future action to create a better solution to this problem. Regardless, it is evident that the FTC thoughtfully considered the tens of thousands of comments it received when making these changes, underscoring the power of public participation in agency rulemaking.

Definition of a Covered Vehicle. The second major change reduces the scope of application of the CARS Rule itself to the sale of certain cars instead of all motor vehicles. The July 2022 NPRM expansively defined “motor vehicle,” but the CARS Rule scales back the definition of “covered vehicle” to exclude recreational boats, motorcycles, scooters, electric bicycles, motor homes and golf carts. The FTC also limited the definition to refer only to vehicles designed for use on a public roadway. This means that the CARS Rule will not apply to the sale of these excluded vehicles.

To be clear, the abuses described by the FTC occur in the sale of all types of vehicles, but it is likely that the vast majority of comments received by the Commission pertained to cars, prompting its decision to narrow the CARS Rule scope. The FTC states that it will monitor the market to determine whether broadening the scope of the CARS rule as originally proposed is appropriate.

Other Changes. The FTC made several other smaller changes, including:

• A requirement that each of the prohibited misrepresentations pertain to “material information,” which means “likely to affect a person’s choice of, or conduct regarding, goods or services.”
• Including a phrase in the definition of “covered dealer” that explicitly provides that it applies to individuals and
• Changing the definition of “offering price” to clarify that dealers “may, but need not, exclude required government charges.”