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A recent rule promulgated by the Federal Trade Commission (FTC) seeks to regulate possibly deceptive practices in automobile sales. Finalized in December, the Combating Auto Retail Scams (CARS) Rule looks to protect consumers, including by limiting two common illegal acts encountered by consumers: imposing hidden junk fees and using bait-and-switch tactics. The rule aims to make sure that the purchase and lease prices of automobiles are disclosed and complete – that the price you see will be the price you pay. The FTC estimates that this measure could save consumers more than $3.4 billion.

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In support of this rule, FTC Chair Lina M. Khan stated, “When Americans set out to buy a car, they’re routinely hit with unexpected and unnecessary fees that dealers extract just because they can.” The FTC has highlighted the importance of stopping these practices, noting that a vehicle is often one of the most significant purchases many Americans make and that the frequently “opaque process can leave consumers open to scams by unscrupulous car dealers.” The FTC additionally has claimed that many car dealers prey on young service members, who have an average of twice as much auto debt as civilians.

With respect to stopping bait-and-switch schemes, the CARS Rule will prohibit dealers from luring buyers with false information regarding the terms of financing, the availability of discounts or rebates, and the actual availability of the vehicle being advertised. Hidden junk fees, which would be prohibited, refer to the charges “buried in lengthy contracts that consumers never agreed to pay.” Specifically, the rule will prohibit misrepresentations about key information related to the vehicle – information that would “likely [affect] a person’s choice of, or conduct regarding goods or services”; require dealers to provide the offering price and tell consumer that all add-ons are optional; prohibit dealers from charging for “bogus” add-ons – that is, add-ons that don’t actually provide a benefit to the consumer (for example, oil changes on an electric vehicle); and require dealers to get consumer consent for any charges that consumers pay in connection with the purchase of a vehicle.

Originally slated to take effect July 30, the rule has come under scrutiny by two industry groups – the National Automobile Dealers Association and the Texas Automobile Dealers Association – who have petitioned to have the rule overturned. The industry groups filed an administrative petition in the Fifth Circuit, arguing that passage of the rule was an abuse of discretion by the FTC and that members of their groups face irreparable harm as they will need to expend substantial sums of money to comply. The petitioners contend that the FTC’s issuance of the rule is “arbitrary, capricious, an abuse of discretion, [and] without observance of procedure required by law.” The groups also filed a motion for a stay of the rule and expedited consideration, arguing that the FTC did not properly evaluate the rule’s costs and benefits and that the FTC failed to “show that a significant industry-wide problem exists that would justify a disruptive and burdensome industry-wide regulatory response.” Though the FTC postponed enactment of the rule, it rebuts the allegations and claims that the rule will not impose substantial costs on law-abiding dealerships. The Fifth Circuit has agreed to hear the petition.

Industry Challenges Lead to Postponement of New FTC CARS Rule to Stop Car Dealership ‘Scams’