On Oct. 7, a federal court will hold hearings that could determine how much frustration you feel the next time you go car shopping. A group of experts is urging car dealers to get ready, and clean up some practices before a decision comes down.
A New Set of Rules, On Hold
The Federal Trade Commission — a government agency charged with protecting consumers — passed a new set of rules governing car sales last October. The agency called them the Combating Auto Retail Scams (CARS) regulations.
The rules would limit what fees dealerships can charge and require them to advertise prices they’ll honor.
The National Automobile Dealers Association sued, saying the rules were enacted improperly. The FTC put its rules on hold while it awaits the court’s decision.
Regulations Are the Specifics of Laws
Regulations are how government agencies interpret laws. Congress passes laws. Then agencies like the FTC write regulations that explain how they’ll enforce them.
Congress, for instance, has passed laws limiting water pollution. It hasn’t written a list of which chemicals are considered pollutants and how many parts per million of each are allowed in groundwater. Federal agencies do that in regulations.
Agencies sometimes use old laws to write new regulations. If a chemical once believed to be safe is found to cause cancer, for instance, Congress doesn’t have to rewrite the law to ban it. The Environmental Protection Agency can simply add it to the existing regulation.
The FTC didn’t create the CARS rule because of a new law. It used existing laws to say that some fees car dealerships have passed are illegal.
What the Rules Ban, Require
The CARS rules attempt to limit practices common at some, but not all, car dealers. They include:
- Bait and switch marketing: Advertising cars the dealer never had in stock or prices or financing terms the dealer will not honor
- Junk fees: Fees for products or services that do not benefit the consumer. The FTC gives examples, including nitrogen in tires or additional warranties that duplicate a manufacturer’s warranty, neither of which provide any practical benefit
- Misleading buyers about optional fees: Telling buyers that extended warranties or other services are mandatory
- Surprise fees: In a guide explaining the new rules to dealerships, the FTC says, “Under the CARS Rule, dealers must get consumers’ express, informed consent before charging them for anything. Period.”
The CARS rule also requires dealers to provide “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.”
They forbid dealers from adding fees to the final sales contract that weren’t discussed beforehand.
The rule also includes special provisions protecting military personnel. They, the FTC says, often have more auto debt than general consumers.
A dealership could be charged more than $50,000 for each violation.
Experts Say Dealerships Should Comply Now
A group of lawyers told industry publication Automotive News that dealerships shouldn’t wait for the court to rule before closely examining their current advertisements and fees.
Jean Noonan is a partner at the law firm Hudson Cook. She told AN, “Dealers absolutely should be preparing immediately.”
Shannon Robertson, executive director of the Association of Finance and Insurance Professionals, notes that the rules didn’t come out of nowhere. The FTC created them because of common complaints, she notes.
Even if the court strikes down the rules, she explains, the CARS rule still reflects “important lessons that we’ve learned that our customers are requesting.”
Noonan notes that the FTC based its rules on existing laws. The practices the CARS rule bans “are things that are illegal,” she says.
The Government Has a Backup Plan
Even if the court invalidates the CARS rules, some fees may still be illegal. The FTC is currently working on a second rule that could affect car sales.
The so-called “junk fee” rule isn’t specific to car dealers. It would ban fees added to the cost of many products and services, from hotel stays to concert tickets.
That rule could also affect car sales, experts say.
It will likely also face court challenges. A recent Supreme Court decision lets judges accept new challenges to regulations and could tie both FTC proposals up in the court system for years.
