In late January, a key legal shift occurred for car buyers. The Federal Trade Commission (FTC) faced a challenge from the National Auto Dealers Association (NADA) and the Texas Automobile Dealers Association (TADA) over its regulation of deceptive dealer practices, specifically targeting "junk fees." Despite the FTC's recent $20 million victory against fraudulent dealerships, the Fifth Circuit Court of Appeals ruled 2-1 that the FTC had overstepped its authority. With a business-friendly administration, further challenges to this ruling are unlikely.
The FTC's Combating Auto Retail Scams (CARS) program aimed to simplify car buying by enforcing transparent pricing. Its key objectives included:
- Eliminating deceptive advertising: Ensuring advertised prices match what consumers pay, excluding taxes.
- Mandating clear communication: Price offers must be clearly stated in any language and format.
- Prohibiting hidden fees: Consumers must give informed consent before incurring charges.
- Transparent Pricing: Advertised vehicle prices must be accurate and inclusive.
- Clear Communication: Consistency in ads and communications is required, avoiding complex language.
- Informed Consent: Consumers' consent must be recorded before any transactions.
The rules also mandated full disclosure of financial details, including:
- Total vehicle price when financing
- Availability of rebates and discounts
- Transparent down payment or trade-in return procedures
- No Forced Add-ons: Dealers cannot require the purchase of additional services/products like extended warranties or maintenance packages unless installed by manufacturers.
The CARS rule states:
- No Waiver of Rights: Consumers cannot waive their rights under the CARS rules.
- Penalties for Violations: Dealers face substantial fines for breaches and must compensate affected consumers.
- State and Federal Rule Consistency: FTC rules apply unless state laws offer stronger consumer protections.
NADA and TADA are pushing back, arguing that the FTC's actions are overreaching. They have filed for an expedited review with the Fifth Circuit, casting doubt on the rule's implementation.
Summary: The FTC's effort to curb deceptive auto sales practices with the CARS rule faces significant legal hurdles following a court ruling against it. Despite its potential consumer benefits, implementation remains uncertain due to ongoing challenges from auto dealer associations.
