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 two 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.
What did the FTC decline to do in the CARS Rule?
CFA and over 100 other groups commented on the July 2022 NPRM, asking the FTC to go further in the Rule itself and to address many other issues plaguing auto sales and financing. The FTC largely declined to adopt the changes requested, citing their intent to “continue to monitor the marketplace.” Here are the top areas of concern consumer groups asked the FTC to address:
Yo-yo sales. After a consumer has signed a financing contract and left the dealership with a vehicle, some dealers subsequently claim that the deal “fell through” and tell the consumer that they need to sign a new financing contract with terms that are worse than previously agreed to. The CARS Rule and the July 2022 NPRM prohibit dealers from making misrepresentations about this conduct, but do not prohibit yo-yo sales. Advocates have separately petitioned the FTC to ban this practice primarily because disclosure is an ineffective tool to curb this egregious fraud. In the CARS Rule Notice, the FTC says it will address the petition separately.
Cooling off period for add-ons. Part 1 of this blog series describes the FTC’s approach to add-ons and what changed from July 2022 to the final CARS Rule. In our comment, advocates asked for a clearer, better solution to nefarious add-ons: a 30-day cooling off period which would permit consumers to review and cancel their add-ons for a full refund. The FTC declined to make this change but left open the possibility that it would reconsider this in the future “based on actual stakeholder experience” with the CARS Rule.
Translating documents. Advocates asked the FTC to require dealers to translate major contractual documents into the language in which the sale was negotiated. Many dealers solicit non-English speaking consumers and employ salespersons who are fluent in other languages. Consumers are then baffled when that trusted salesperson disappears, and they are presented with all-English documents by English-speaking finance managers. The FTC declined to require translated contracts but notes that the CARS Rule requires “express informed consent” for each item charged. It then explains that a consumer who does not speak English and signs an English language document “is in no position to give unambiguous assent to the charges described therein.” Interestingly, this seems to call into question whether such contracts would be enforceable.
Safety and defects. Advocates asked the FTC to prohibit dealers from representing that vehicles are safe or “certified” when they have open recalls, and to prohibit many other misrepresentations about safety, recall repair availability, mileage, and eligible for service contract coverage. The FTC declined to adopt any of these provisions, claiming that much of this conduct is already prohibited and that it would continue to monitor the marketplace. The reality is that dealers often claim that vehicles with open recalls are safe and without a clear statement from the FTC about this particular problem, it is often not actionable by a consumer.
Electronic repossessions. Advocates asked the FTC to prohibit the electronic disablement of vehicles as a means of repossession. Creditors can use kill switch devices to remotely disable vehicles when they believe a consumer is late in their payments, leading to a host of dangerous outcomes. The CARS Rule prohibits misrepresentations about “whether or under what circumstances a vehicle may be repossessed,” but the FTC declined to prohibit their use altogether. Therefore, as long as dealers do not lie about their use of these dangerous devices, they remain permissible.
It is clear that the number and scope of issues that plague auto sales and financing are numerous and complex. While advocates urged the FTC to go further, we are encouraged by the strong steps taken by the FTC to date to rein in some of the worst problems in this marketplace and look forward to future opportunities to support efforts to empower car buyers.