Federal Trade Commission leadership and a public commentator called the agency’s CARS Rule regulations on auto dealers a win for service members and honorable retailers at an open FTC meeting Thursday.
“The [auto retail] industry has a duty to set a higher bar not only for the average American consumer, but for military members in particular,” Todd Achilles, a professor at the University of California Berkeley Goldman School of Public Policy and an Army veteran, said at the meeting. He said that cars are a necessity on “sprawling military bases,” and that young service members with their first steady paycheck can be preyed upon by dealerships.
Achilles said that as a former platoon leader, he more than once had to “walk [troops] through the math on their onerous car loan terms.”
Agency attorneys also described the rule’s goals, and what one called four “key” requirements it imposed on dealerships.
The CARS Rule had been slated to take effect July 30 though the agency postponed it on Thursday pending the outcome of a court challenge by the National Automobile Dealers Association and Texas Automobile Dealers Association. The regulations would create specific new requirements for dealership advertising, finance and insurance practices and document retention.
Dan Dwyer, an attorney in the FTC’s Division of Financial Practices, said the CARS Rule targets two things hurting “law-abiding dealers” and consumers:
- Bait-and-switch tactics, which he defined as failing to honor a term advertised.
- Junk fees, which he defined to include dealerships that hide charges in contracts for things that don’t benefit consumers, or that the consumer doesn’t even know about.
Sanya Shahrasbi, an attorney in the agency’s financial practices division, highlighted four key provisions of the rule in a presentation at the meeting.
- “Dealers can’t lie about important information,” like financing terms.
- Retailers must tell consumers the vehicle’s offering price, the “actual price” honored for any buyer. If monthly payments are discussed, the store must disclose the “total of payments,” the full amount the customer will pay over the life of the loan. Dealerships must also specify that consumers don’t have to buy optional additional products.
- Dealerships can’t charge junk fees on worthless products, such as a service contract duplicating the warranty or oil changes for an electric vehicle.
- Dealerships can charge buyers for products, but the customer must be informed of the charge and agree to it. “They can’t just hide charges in contracts,” she said.
Shahrasbi said the rule also helps with issues service members encounter more than typical consumers. It prevents dealerships from lying about a service member’s ability to move a vehicle out of state or to another country and about the repossession protections found within the Servicemembers Civil Relief Act. The rule also prevents dealerships from lying about any military affiliation held by the store.
“Transparency and clarity of financial terms and business practices is not a burden on the auto industry,” Achilles said. “Just the opposite. The CARS Rule benefits reputable dealers by putting a floor under the most egregious practices.” It prevents them from being sucked into a “race to the bottom” to compete, he said.
FTC Chair Lina Khan said “some of the comments I was most struck by in the record” came from dealers calling regulation important to protect dealerships that accurately represent their vehicle prices, and included services losing business to retailers that advertise a phony lower price only to load up a deal with additional cost.
“I was really struck by the fact that this is going to be good for consumers, but also really good for honest dealers in making sure that there’s a fair and level playing field,” Khan said.