A new Notice of Proposed Rulemaking (NPRM) from the Federal Trade Commission (FTC) regarding advertising, supplemental products, and new disclosures in the motor vehicle market could have a major impact on industry players. Using negative rhetoric similar to that of a recently proposed request for information by the Consumer Financial Protection Bureau, the FTC is proposing to “ban unwanted fee tactics that plague car buyers.”
The NPRM, in particular,
- prohibit motor vehicle dealers from making certain misrepresentations in connection with the sale, lease or financing of motor vehicles;
- require accurate pricing information in dealer advertisements and sales discussions;
- requiring dealers to obtain express and informed consumer consent for fees;
- prohibit the sale of any complementary product or service that does not confer any benefit to the consumer; and
- requiring dealerships to keep records of advertisements and customer transactions.
Who can be impacted by this NPRM?
Car dealerships offering complementary products and engaging in advertising campaigns will be directly impacted. The NPRM would apply to motor vehicle dealerships primarily engaged in the sale and service of motor vehicles, the rental and service of motor vehicles, or both, as defined in section 1029 of the Dodd Frank Act. Those who offer complementary products and engage in advertising campaigns should carefully consider for direct impact.
State-licensed credit unions and other covered lenders providing indirect financing, suppliers, sellers and underwriters of motor vehicle protection products and other market participants who may be considered to have committed a deceptive or unfair act in the motor vehicle market may also be affected. The FTC has enforcement authority over most non-bank entities for many consumer protection laws such as the incumbent rule, as well as Section 5 of the Federal Trade Act (FTC Act), 15 USC 45 , which broadly prohibits unfair or deceptive acts or practices in or affecting trade.
The proposal also focuses on entities seeking to reach consumers using television and radio advertising, social media, and online and direct mail advertising. He notes that the FTC has brought a number of cases involving misrepresentations regarding key aspects of pricing a vehicle purchase, including vehicle price, availability of discounts and rebates, amount of payment monthly for a financed purchase or lease or the amount due at signing. The NPRM also explains that the FTC’s complaints in this area have focused on whether it is a purchase or a lease and whether the dealer or consumer is responsible for refunding “capital own negatives”, which include the outstanding debt on a vehicle that is traded in. as part of another vehicle purchase.
Other areas mentioned include financial incentives linked to the purchase, such as the promise of a price of value and “misleading advertisements”. The proposal also outlines specific areas of interest for complementary products and services, including warranties, service and maintenance plans, payment programs, guaranteed automobile or asset protection (“GAP” or “GAP insurance”), emergency roadside service, VIN engraving and other theft protection features and underlay.
What is he looking for comments on?
The FTC invites comments on the proposed measures which it describes as:
- Prohibit bait and switch claims: The proposal would prohibit dealerships from making a number of misleading advertising claims to entice potential car buyers. This deception may include the cost of a vehicle or financing terms, the cost of any add-on products or services, whether the financing terms relate to a lease, the availability of rebates or rebates, the actual availability of vehicles being advertised, and whether a funding agreement has been finalized, among others. Once in the door or on the hook, consumers face the fallout of false promises that don’t materialize.
- Prohibit Fraudulent Junk Charges: The proposal would prohibit dealers from charging consumers unwanted fees for fraudulent additional products and services that provide no benefit to the consumer (including “nitrogen-filled” tires that contain no more nitrogen than air normal).
- Prohibit unwanted surprise charges: The proposal would prohibit dealers from charging consumers for an add-on without their clear, written consent and would require dealers to tell consumers the price of the car without any optional add-ons.
- Require full initial disclosure of costs and terms: The proposal would require dealers to provide key information to consumers, including providing an actual “offer price” for a vehicle that would be the total price a consumer would pay, excluding only taxes and government fees. It would also require dealers to disclose optional extra charges, including their price and the fact that they are not required as a condition of purchasing or leasing the vehicle, as well as consumer disclosures with key information about the terms. of financing.
This proposal is noteworthy for a number of reasons, including serving as yet another example of an NPRM that was not included in the recently released Spring 2022 Unified Regulatory and Deregulatory Action Agenda, but was subsequently released on same week. This casts further doubt on the accuracy of the agenda after the CFPB also issued an Advance Notice of Proposed Rulemaking related to the Credit Card Accountability and Disclosure Act 2009, which was not also not on the agenda. The timing and phraseology reflecting a recent CFPB proposal in this area also indicate that there may be increasing coordination between agencies, especially since CFPB Director Rohit Chopra is a former FTC commissioner.
Republican members of Congress have challenged similar blanket attempts to limit legitimate fees, even sending a letter to the CFPB challenging the term “junk fees” in March 2022. In the letter, they said:
“The CFPB broadly groups all fees associated with consumer products and services as “undesirable fees” and provides no legal definition of the term or any statutory authority to define such term. The CFPB gives examples of the types of charges it seeks information on, including “unexpected charges” and “charges that seemed too high.”
Brownstein is following all of these developments and will continue to monitor any impact on customers. The NPRM should be published in the Federal Register soon and will be open for 60 days. Brownstein’s team is well equipped to help craft comment letters and facilitate engagement with the FTC and Congress on these issues.