Over the past decade, the Federal Trade Commission (“FTC”) has brought a number of enforcement actions involving the automotive industry. However, according to the FTC, the complaints continue. In response, the FTC recently filed a Notice of Proposed Rulemaking (“NPRM”) seeking to eradicate bait and switch claims, end surprise charges, and require certain additional disclosures, among other things. The NPRM was published on July 13, 2022 and the comment period ends on September 12, 2022.

Whether the FTC will release the rule as written remains to be seen, but below is a general overview of its key provisions and proposed additional compliance obligations that dealers may need to meet if the rule becomes final.

  1. Background

According to the FTC, for most consumers, a car is the second most expensive purchase they will make, and new car dealerships spend on average more than $600 on advertising per vehicle sold. The FTC explained that it had received more than 100,000 complaints in each of the past three years regarding new and used motor vehicle sales, financing, servicing, and warranties, as well as leasing and leasing, placing the industry at the top of the complaints received.

The proposed new rule – titled Motor Vehicle Dealers Business Regulation Rule (found here) – covers a lot of tarmac but, in general, the rule can be broken down into four parts: (1) prohibition of certain misrepresentations; (2) additional disclosure requirements; (3) billing for add-ons; and (4) additional record keeping requirements.

We’ve provided a brief overview of what’s under the hood, but encourage readers to contact our Media and Marketing practice group or our Automotive and Equipment Dealers practice group if you’d like to learn more.

  1. Rule

If enacted, violations of the proposed rule would be considered an unfair or deceptive act or practice in violation of Section 5 of the FTC Act.

  • Prohibition of certain misrepresentations

The proposed rule prohibits any motor vehicle dealer from making any express or implied misrepresentations regarding: (a) the costs or terms of purchasing, financing or leasing a vehicle; (b) any cost, limitation, benefit or other material aspect of an add-on product or service; (c) whether the terms are, or the transaction is, for financing or a lease; (d) the availability of discounts or discounts that are reflected in the advertised price but are not available to all consumers; (e) the availability of vehicles at an advertised price; (f) whether, or under what circumstances, a Vehicle may be moved, including across state lines or out of the country; and (g) any required disclosures identified in the Proposed Rule, among others.

The FTC has found that consumers who select and visit dealerships based on an advertised offer, only to learn late in the process (if any) that the advertised offer does not apply, have often spent hours trying to buy a specific car at that time. concession. For many consumers, walking away isn’t a realistic option – for example, starting the hours-long process over at another dealership could mean having to take an extra day off. Thus, this section, according to the FTC, ensures that the advertisements that consumers see correspond to what they may receive when arriving at the dealership.

The proposed rule requires that the “offer price”, which is defined as “the total cash price at which a dealer will sell or finance the motor vehicle to any consumer, excluding only required government fees”, be disclosed in certain advertisements and communications.

In addition, this section requires: (1) a list of add-ons on each website, online service, or mobile application operated by Dealer; (2) a disclosure that no add-ons are required (if true); (3) disclosures regarding total payment amounts; and (4) disclosures relating to monthly payment comparisons.

The proposed rule prohibits charging for add-ons that provide no benefit. An example provided by the FTC is nitrogen-filled tires that contain no more nitrogen than naturally exists in the air. The proposed rule also states that a dealer cannot charge for an item unless it obtains the consumer’s express and informed consent for the charge. The FTC defines “express and informed consent” as an “affirmative act communicating unambiguous consent to be charged, performed after receiving and near a clear and conspicuous disclosure, in writing, and also orally for in-person transactions , of the following: (1) what the charges are; and 2° the amount of the charges, including, if it is a product or service, all charges and costs borne by the consumer over the repayment period with and without the product or service .

In particular, the proposed rule explains that express and informed consent not included: “(i) a document signed or initialed, by itself, (ii) pre-ticked boxes, or (iii) an agreement obtained by any practice designed or manipulated with the substantial effect of subverting or impairing the autonomy, decision-making or user choice.”

Finally, the proposed rule imposes several additional record-keeping requirements. Specifically, under the proposed rule, dealerships would be required to keep records necessary to demonstrate compliance for at least two years, including keeping copies of:

  • Advertisements and marketing materials relating to price, financing or rental terms;
  • Buy online;
  • Complementary products and services offered; and
  • Written consumer complaints and inquiries regarding vehicles and/or products, among others.

3. Next steps

The 60-day comment period for the proposed rule ends on September 12, 2022. We’ll have to wait and see if the comments cause the FTC to revise certain provisions. Commentators have argued that these disclosures can create misleading red tape and overlap with other regulations, such as the Truth in Lending Act.