The Federal Trade Commission (FTC) is seeking to adopt a rule that it claims will make the motor vehicle-buying process clearer and more competitive and also allow the FTC to impose monetary penalties on dealers when consumers are misled or charged without their consent. The expansive rule stems from the agency’s concern that car buyers don’t understand the true prices of vehicles they buy and that they unknowingly pay many add-on items that they didn’t bargain for.

If the proposed rule goes into effect, auto dealers could be found in violation of Section 5 of the FTC Act and be held liable for unfair or deceptive acts or practices under that section. This would expose dealers to legal liability simply for conducting business as usual in the way it has been done for decades.

The FTC’s proposal, which is called the Motor Vehicle Dealers Trade Regulation Rule, contains four major items that would greatly affect car dealers’ ability to advertise vehicles and sell optional products and services that benefit buyers. The four major parts of the proposal would make the following changes to the way dealers operate:

  • The full purchase price would need to be disclosed upfront, including in online vehicle listings.
  • Customers must be told the full price of the car both with and without financing, as the agency claims dealerships tend to discriminate against cash buyers by charging higher prices to make up for the lack of financing revenue.
  • Banning all add-ons, including some warranty coverages and GAP insurance.
  • Requiring far more disclosures, signatures and paperwork for any add-ons sold in the financing and insurance (F&I) office, rather than allowing customers to simply initial existing documents.

Not only would these rules overhaul the way dealerships work, but they also may complicate the landscape for consumers. For example, the National Automobile Dealers Association (NADA) has pointed out that additional disclosures are untested and, if adopted, may conflict with existing Truth in Lending Act (TILA) requirements and confuse shoppers along the way. The NADA and other dealer groups have called these rules unnecessary and without any demonstrable benefit to consumers.

Fortunately, the FTC rulemaking process takes a long time. It can take three to five years for a rule to go from proposal to implementation. So dealers and dealers’ representatives have time to try to fight back against the rules’ adoption.

Pullin, Fowler, Flanagan, Brown & Poe, PLLC in Charleston advises and represents auto dealerships in West Virginia, Ohio and Kentucky in a wide range of legal matters. We are actively monitoring the FTC rulemaking process. If you are a dealer and wish to consult about the proposed rule, please call 304-344-0100 or contact us online.