The Federal Trade Commission’s final version of its consumer-focused Combating Auto Retail Scams, or CARS, Rule enacted Dec. 12 preserved most of the numerous requirements it had proposed for the auto retail industry 18 months ago.
And the breadth of the FTC’s new rules — which set specific requirements for advertising, record-keeping, customer interactions and lineups of finance-and-insurance products and other add-ons — might find even the best dealerships having to adjust one or more processes before the mandates and prohibitions take effect July 30. (The FTC has a recap of the new regulations and a Dealers Guide on its website.)
“It’s just not workable,” National Automobile Dealers Association CEO Mike Stanton said Friday of the regulations. “It’s bad for consumers on a number of accounts. … We’re very disappointed and frustrated.”
Rhett Ricart, CEO of Ricart Automotive Group in Columbus, Ohio, said he is concerned the rule will lead to more customer anxiety if it results in vehicle transaction times becoming lengthier.
“We will be ready for it when it happens, but hopefully the FTC takes a harder look at this thing and understands this overreach they have is … going to be damning customers,” Ricart said. “There’s so much redundancy in it.”
Rick Case Automotive Group CEO Rita Case called the regulations an “octopus with 50 legs” which was “literally all-encompassing.”
“I think it’s going to be quite difficult for the dealers to really understand the scope of it in order to really transfer that information to their associates and to their paperwork and to their process,” she said.
However, Case also called herself “very positive” about the rules benefiting consumers.
“It’s going to help the consumer better understand,” she said. “It’s going to hold the dealers accountable that don’t have good consumer practices — which is not us.”
FTC Chair Lina Khan said in a statement Dec. 12 that when Americans buy a car, “they’re routinely hit with unexpected and unnecessary fees that dealers extract just because they can,” she said. “The CARS Rule will prohibit exploitative junk fees in the car-buying process, saving people time and money and protecting honest dealers.”
One significant element of the requirements is that customers must give what the FTC calls “express, informed consent” to any charges — an “unambiguous assent to be charged.” This must come after being informed in writing or verbally the purpose and amount of the charge.
The FTC’s rules said a pre-checked box or a “signed or initialed document, by itself” fails to count as such “unambiguous assent.”
“I maintain that today no dealer in the country, including those with gold standard compliance procedures, are in compliance with this final rule,” said Jean Noonan, a former FTC regulator who’s now a partner at Hudson Cook.
Among the FTC’s new records-keeping rules is a requirement to save text messages between sales personnel and customers. Dealers told Noonan their salespeople use personal phones to text customers. Under the FTC rule, the store needs to preserve those records if a vehicle sale is made, she said.
“I don’t know any 20-some-year-old salesperson who has his whole life on his phone that’s going to want to give it to his boss to download at the end of every day,” Noonan said.
In a similar vein, Noonan noted the FTC’s rules on dealership statements to customers could be triggered by social media posts — “Come see me for a car.”
“Anything they say on social media is attributable to the dealership,” Noonan said. “There are so many hidden pitfalls for dealers that we haven’t even found them all.”
Though the FTC retained most of its initial 2022 proposal, it did revise some of it and cut what Noonan called “certainly the most ill-advised provision.”
The FTC had planned to introduce at least one new form and step to every car sale in a process lampooned in a 2022 NADA video.
Under the initial concept, a dealership would have to tell a customer the cost of buying a vehicle for cash without any F&I coverages or physical additions. The customer would have to decline this offer in writing before the store could discuss financing or proceed to a deal including F&I or other physical add-ons.
If the customer wanted to arrange financing, another disclosure would have been triggered before the store could sell the customer add-ons. The dealership would have had to present the total cost of financing the vehicle without add-ons and have the consumer and manager decline it in writing before proceeding.
“It was almost like you wonder if they ever really meant it; it was such a bad idea,” Noonan said.
The new FTC guidelines taking effect July 30 is “very problematic,” said NADA regulatory affairs Senior Vice President Paul Metrey, because it wasn’t simply an adjustment of existing regulations.
“It’s a new set of duties and obligations,” he said, “and trying to determine with any sense of clarity what those are, and then how to implement them across your entire work force and to do it in a manner that complies with the specifics is a huge challenge — certainly one that warrants much more time.”