As prices for both new and used motor vehicles remain elevated, the Federal Trade Commission (FTC) has proposed new regulations to make the automotive buying process more precise and competitive. According to the FTC, “[i]n the past ten years, the FTC has brought more than 50 motor vehicle-related enforcement actions, including matters involving misleading motor vehicle advertising, financing paperwork falsification, “yo-yo” financing, deceptive and unfair add-on fees, discrimination, and privacy and data security issues.” In addition, “[t]he FTC received more than 100,000 complaints in each of the past three years regarding new and used motor vehicle sales, financing, service & warranties, and rentals & leasing, and complaints about motor vehicle transactions are regularly in the top ten complaint categories tracked by the agency.”
If finalized, the proposed FTC regulations would impose several new compliance requirements on the auto industry related to the purchase and lease of motor vehicles that would need to be implemented, including some specific record-keeping requirements.
How can I support my car dealership if the proposed FTC regulations take effect?
Facing the potential for an increase in compliance requirements, dealerships should focus on business efficiency, learning how to use their resources most advantageously, eliminating waste, promoting continuous improvement, increasing profit, and providing better customer service. Safeguard has the business essentials that streamline daily operations and help you maximize profit.
The Proposed FTC Regulations Would Ban Bait-and-Switch Advertising
Intended to mislead buyers, bait-and-switch or deceptive door-opener advertising often lures prospective buyers to a dealership by advertising a price for a specific vehicle or specific financing terms. However, once the buyer arrives at the dealership, the dealer may try to sell the consumer a different vehicle, change the terms of the financing, add-on services, or several other practices. Bait-and-switch advertising also includes a dealership listing a vehicle as in stock online but not having the car on the lot. The FTC seeks to prevent dealers from luring consumers with false advertising by prohibiting bait-and-switch advertising.
Under the proposed rule, bait-and-switch claims can include any of the following:
- the cost of a vehicle
- the terms of financing
- the cost of any add-on products or services
- the actual availability of the car being advertised
- the availability of any discounts or rebates
- whether financing terms are for a lease
- whether a financing deal has been finalized
The Proposed FTC Regulations Would Ban Fraudulent Junk Fees
Referred to as junk fees, the proposal would also prohibit auto dealers from charging consumers for fraudulent add-on products and services that provide no benefit to the consumer. Specifically, finance and insurance coverage would also be considered junk fees, and non-beneficial physical add-ons, such as “nitrogen-filled” tires containing no more nitrogen than normal air, would be prohibited.
The Proposed FTC Regulations Would Ban Surprise Junk Fees
Slightly different from fraudulent junk fees, surprise junk fees refer to unexpected expenses during the purchase process, specifically dealers charging consumers for add-on products or services without their explicit, written consent. The proposal would require dealers to inform consumers of a vehicle’s price without any optional add-on products or services. Dealers would need specific disclosures and the express, informed consent of consumers for any optional add-on products.
The Proposed FTC Regulations Would Require Full Upfront Disclosure of Costs and Conditions
Dealers would also have to provide consumers with crucial information regarding the financing terms, such as clearly stating the total offering price of the vehicle, with everything included other than tax and government fees.
Some of the other costs that dealers would be responsible for informing consumers of include:
- Dealer fees
- Destination freight charges
- The total amount of the monthly payment
- The total number of monthly payments
If there are any add-ons, dealers need to explain the charges and whether they are optional. They also need to clarify to buyers that the sale is not conditional upon purchasing any add-ons. This transparency would need to occur before the purchase process begins as part of the proposal.
The Proposed FTC Regulations Would Require Dealers to Maintain Records
The last central regulation that the proposal would require is that dealers must maintain detailed records for at least two years. These records would need to include:
- advertisements
- sales scripts
- training materials
- marketing materials regarding vehicle price, financing, or leasing terms
- add-on products and services offered
- consumer transaction documents such as purchase orders, financing, and leasing agreements
- records to show compliance with monthly payment disclosure
- records to show compliance with add-on sales requirements
- written consumer complaints and consumer inquiries regarding add-ons or individual vehicles
- any other records needed to demonstrate compliance
The Proposed FTC Regulations Would Impact The Majority of Auto Dealers
If the proposed FTC regulations go into effect, the rules will impact most dealerships. It is estimated that compliance could cost dealers $1.4 billion to $1.6 billion over 10 years. It will also likely require dealers to spend significant time and energy bringing their practices into compliance.
The automotive industry has already weathered many challenges over the last two years, including auto parts shortages, supply chain issues, and fluctuating consumer demand. No matter the future holes, the automotive marketing specialists at Safeguard can help with everything you need to run your business more efficiently and promote it more effectively, from essential management products to innovative marketing services. Call 844-4CARBIZZ to get started.
Key Takeaways
- The proposed FTC regulations would impose several new compliance requirements on the auto industry.
- The proposed FTC regulations would ban bait-and-switch advertising, fraudulent junk, and surprise junk fees.
- The proposed FTC regulations would require dealers to provide consumers with crucial information regarding costs and financing terms.
- The proposed FTC regulations would require dealers to maintain detailed records for at least two years.
- It is estimated that compliance could cost dealers $1.4 billion to $1.6 billion over 10 years.
- Safeguard has the business essentials that streamline daily operations and help you maximize profit.