Contributors

Christian Scali

Founder and Managing Shareholder

The Combating Auto Retail Scams (CARS) Rule targets bait-and-switch tactics, junk fees; includes clear protections for military members, who are frequent targets for vehicle scams.

Here we go. Largely thumbing its nose at the National Automobile Dealers Association and others who strongly opposed the proposed rule, the FTC has gone through with its CARS rule.

While its stated purpose is to "fight two common types of illegal tactics consumers face when buying a car: bait-and-switch tactics and hidden junk fees", its overreaching effect will complicate the car buying process and lead to more consumer confusion.

What the CARS Rule requires:

• No Misrepresentations: The rule prohibits misrepresentations about key information, like price and cost.
• Offering Price, Total Payment, and Add-Ons Optional: Dealers have to provide the offering price—the actual price any consumer can pay for the vehicle; tell consumers that optional add-ons (like extended warranties) are not required; and give information about the total payment when discussing monthly payments.
• No Bogus Add-Ons: The rule prohibits dealers from charging for any add-on that does not provide a benefit to consumers. Examples of such add-ons include: warranty programs that duplicate a manufacturer’s warranty, service contracts for oil changes on an electric vehicle, GAP agreements that do not actually cover the car or neighborhood in which it is housed, or other parts of the deal, and software or audio subscription services on a vehicle that cannot support the software or subscription.
• Get Consumers’ Consent: The rule requires dealers to get consumers’ express, informed consent for any charges that they pay as part of a vehicle purchase.

NADA did, however, obtain some important changes in the final rule from that which the FTC originally proposed. Among other changes, the FTC eliminated requirements that dealers:

• Maintain on their website a list of all “add-on” products offered and the price of each such product,
• Provide a series of written disclosures related to the sale of “add-on” products, and
• Retain copies of “Add-On” Lists and documents describing “Add-On” products offered to consumers.

But the final rule would still impose several new problematic oral and written disclosures, numerous ill-defined requirements, and additional burdensome record-keeping obligations. It is duplicative of many state laws and contrary to others. It also opens the door to wide interpretation of what constitutes a "junk fee" and would impose on dealers the obligation to suss out whether its offer to one customer of an F&I product, like GAP for example, would be "valueless" to a subset of customers where the coverage might exclude one of the zip codes in its sales area. We are in the process of analyzing the new law and will update you with guidance.

The new law goes into effect on July 30, 2024.