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 three 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.
The CARS Rule is largely the same as the original proposal (see part 1 of this blog series for a detailed description of the changes), targeting price transparency and add-on products and services. Here are the primary components of the CARS Rule, with links to the corresponding provisions in the lengthy Federal Register notice:
Pricing Transparency
Offering Price Disclosure. The Offering Price is defined as the full cash price for which the dealer will sell the vehicle, excluding only government taxes. The FTC has made clear that this includes all mandatory fees, including fees for pre-installed and mandatory add-on goods and services.
WHEN – Dealers must disclose the Offering Price in any advertisement and/or communications that reference a specific vehicle or that reference a monetary or financing term for a specific vehicle. In any communications, the Offering Price must be included in the first response regarding a specific vehicle.
HOW – These disclosures must be made clearly and conspicuously, and if the communication is in writing, then the Offering Price must be in writing.
Total of Payments. Rather than solely focusing on misleading monthly payment amounts, dealers must disclose the total amount that a consumer will pay for the vehicle, after all installment payments are made. Many add-on’s look innocuous and less expensive when they appear to cost a few dollars a month, but the FTC is requiring dealers to be more up front with consumers about the true, total cost of purchasing a vehicle.
WHEN – Dealers must disclose the Total of Payments whenever they make a representation about monthly payments for a vehicle.
HOW – These disclosures must be made clearly and conspicuously, and if the communication is in writing, then the Offering Price must be in writing.
Monthly Payments Comparison. The FTC is also requiring dealers to provide a simple, clear explanation that decreasing a monthly payment will increase the total cost of the vehicle if this is the case. Many consumers misunderstand the fundamental concept that lowering a monthly payment corresponds to a longer payment term and higher finance charges and total cost.
WHEN – Dealers must provide the Monthly Payments Comparison whenever comparing a lower monthly payment option.
HOW – These disclosures must be made clearly and conspicuously, and if the communication is in writing, then the Offering Price must be in writing.
Add-on Products
Prohibiting Worthless Products. The CARS Rule explicitly prohibits the sale of any add-on product or services “if the consumer would not benefit from” the product. It includes the examples of “nitrogen-filled tires” and GAP products that do not provide coverage or are duplicative of existing insurance coverage.
Optional Add-ons. The CARS Rule also requires dealers to explicitly state that optional add-ons are not required, and the vehicle can be purchased without them if this is true. Dealers must provide this disclosure whenever make any representation about add-ons, and it must be in writing if the representations about add-ons are made in writing.
Express Informed Consent. The CARS Rule requires dealers to obtain consumers’ “express informed consent” when charging for any item, including add-ons. The FTC defines this as “an affirmative act communicating unambiguous assent to be charged” which states what the charge is for and the amount of the charge, including all fee and costs. The definition also makes clear that dealers cannot use prechecked boxes or use a method that subverts or impairs consumer choice to satisfy this requirement.
Prohibited Practices
The CARS Rule includes a list of 16 prohibited misrepresentations that address many common deceptive practices in the auto marketplace. Notably, unless the FTC includes these provisions in a rule, it is precluded from obtaining refunds for consumers when this misconduct occurs. In 2021, the Supreme Court ruled in AMG Capital that the FTC cannot use its traditional UDAP authority to obtain refunds, and the FTC must instead pursue rule violations to make consumers whole.
Recordkeeping
Dealers will be required to maintain records of all documents pertaining to rule compliance for two years from the date they are created.