The Federal Trade Commission (FTC) has recently announced a new rule, called Combatting Auto Retail Scams (CARS) rule, which is set to revolutionize the car buying experience for American consumers. This rule, aimed at protecting car buyers, could also level the playing field for dealerships by enforcing transparency in a sales process that has long been clouded by misleading prices and hidden fees.
The CARS rule addresses common deceptive practices in the auto retail industry, such as bait-and-switch advertising and the addition of unnecessary fees. Bait-and-switch advertising, as explained by Malini Mithal, Associate Director of FTC’s Division of Financial Practices, involves luring customers to dealerships with low prices, only to confront them with a multitude of hidden fees that inflate the final cost. These additional charges, often buried in lengthy contracts and obscured in fine print, can significantly increase the sales price without the buyer’s full understanding.
Furthermore, FTC attorney Sanya Shahrasbi highlights the issue of add-on fees, such as coatings, sealants, and extended warranties, which can add thousands to the sales price. These add-ons, often presented as necessary or beneficial, have seen substantial cost increases over the past two years, despite being largely unconstrained by supply. This practice has been particularly detrimental to consumers, who either unknowingly pay for these add-ons or assume they are an essential part of the purchasing process.
The CARS rule also tackles the issue of long and complex contracts, sometimes extending up to 60 pages, making it difficult for buyers to identify hidden fees. This complexity often leads to consumers unknowingly agreeing to terms and conditions that are not in their best interest. The FTC cites examples where buyers, overwhelmed and rushed by dealers, skip over significant portions of the contract, only realizing the implications after the deal is finalized.
Dealerships have been found to mislead customers in various ways, including pretending to be affiliated with the federal government in fake Covid relief offerings, complete with mock government checks and seals. Additionally, deceptive advertising practices, such as advertising low monthly payments while hiding large down payment requirements and lengthy terms in fine print, have been prevalent.
Under the new CARS rule, dealers are required to clearly explain total costs when quoting monthly payments, and all disclosures must be easily understandable. If advertising or negotiating is conducted in one language, all related documents must be in the same language, ensuring that consumers fully understand what they are agreeing to.
The importance of this rule is underscored by the fact that cars are one of the most expensive purchases many people make, second only to buying a home. With last year’s average car price at $46,000 new and $30,000 used, and financing for these high-ticket items being the third largest source of debt in the country, the need for transparency and fairness in auto sales is more critical than ever.
The FTC’s new rule prohibits dealers from misleading customers with rebates, extraneous financing, or hidden charges. Dealers can only charge for items that the consumer is aware of, and services that provide no benefit, such as duplicative warranties, are prohibited. The rule also makes it illegal to offer incompatible services, like oil changes on an electric vehicle (EV).
This rule not only protects consumers but also benefits honest dealerships by creating a more level playing field. It encourages dealers to comply with the new regulations, as the FTC now has greater ease in obtaining refunds for consumers. When the FTC sues a company and wins, the money is awarded back to consumers without the need for a class action lawsuit.
FTC’s CARS rule is a significant step forward in protecting car buyers and ensuring fairness in the auto retail industry. It addresses long-standing issues of deceptive advertising and hidden fees, making the car buying process more transparent and equitable. As this rule takes effect, consumers are advised to read the fine print, refuse unnecessary add-ons, and report any unfair practices to the FTC.
