The Federal Trade Commission (FTC) has implemented a new rule, the Combating Auto Retail Scams (CARS) Rule, to shield consumers from deceptive practices in the car-buying process.
Key Provisions of the CARS Rule
This rule specifically targets two prevalent types of illegal strategies: bait-and-switch tactics and hidden junk fees.
The CARS Rule aims to provide significant financial relief and time savings for consumers across the nation.
This rule also includes special protections for military personnel and their families, who are frequent targets of these scams.
“When Americans go to purchase a car, they are often hit with unexpected and unnecessary fees that dealers add simply because they can,” stated FTC Chair Lina M. Khan. “The CARS Rule will prohibit these exploitative junk fees, saving people time and money while also protecting honest dealers.”
The CARS Rule prevents dealerships from using deceptive offers to attract buyers, including misleading information regarding vehicle costs, financing conditions, available discounts, and vehicle availability.
It further addresses concealed junk fees – charges concealed within extensive contracts that consumers never agreed to pay.
Sometimes, these fees cover services or products that provide no benefit to the buyer.
Vehicles are a major investment for most consumers, and the CARS Rule is designed to combat unfair practices during the often complex and unclear buying process.
What the CARS Rule Requires
No Misrepresentations
The rule prohibits misrepresenting important details such as the price.
Clear Pricing and Optional Add-ons
Dealers must clearly provide the offering price – the actual price any buyer will pay for the vehicle.
They must also inform consumers that add-ons, like extended warranties, are not mandatory.
Dealers must give the whole payment details when they discuss monthly payments, so everything is up front.
No Bogus Add-Ons
The rule bars dealerships from charging for add-ons that offer no real benefit to the consumer. Examples of such add-ons include:
- Warranty programs that mirror the manufacturer’s warranty.
- Service contracts for electric vehicle oil changes (which are not needed).
- GAP agreements that do not provide proper coverage.
- Software or audio subscription services on vehicles that cannot support those features.
Get Consumer Consent
The rule requires that dealerships get a buyer’s explicit and informed permission for all fees charged as part of a vehicle purchase.
Impact on Servicemembers
Military members face additional challenges, as they are often targeted by dealers.
Servicemembers tend to have double the car debt of civilians on average.
By age 24, about 20% have at least $20,000 in auto debt, affecting their financial well-being.
The CARS Rule prevents dealers from lying to servicemembers about price and financing.
It prohibits deceit about military affiliation, vehicle out-of-state movement, and car repossession.
“The Department of Defense is pleased with the FTC’s CARS Rule,” said Ashish S. Vazirani, Acting DoD Under Secretary of Defense for Personnel and Readiness. “For our service members and their families, a car is a necessary purchase, and this CARS Rule will help fight predatory practices that target our men and women in uniform.”
How the Rule Was Developed
The FTC invited public commentary on motor vehicle shopping in June 2022.
The agency received tens of thousands of comments from consumers, servicemembers, veterans, and dealers.
The FTC reviewed these comments and amended the proposed rule to better protect buyers and provide a level playing field for dealerships.
Several auto dealers reported losing business to competitors using deceptive methods.
The CARS Rule aims to protect consumers, foster fair competition, and support ethical dealerships.
What Happens Next
The CARS Rule will become effective on July 30, 2024.
The FTC has prepared new guidance for consumers regarding vehicle purchases.
They’ve also published guidance for dealerships, including a website with FAQs and other advice.
The Commission’s vote to approve the final rule was unanimous.
The full text of the rule will be available soon in the Federal Register.
The FTC is dedicated to enhancing competition, protecting consumers, and providing educational resources.
For more information about consumer topics, visit consumer.ftc.gov, and to report fraud, scams, or unfair business practices, go to ReportFraud.ftc.gov.
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