Introduction:

The Federal Trade Commission (FTC) has taken a significant stride towards safeguarding consumers in the motor vehicle industry by issuing a Notice of Proposed Rulemaking (NPRM). The proposed rule addresses numerous concerns surrounding the sale, financing, and leasing of motor vehicles, aiming to protect consumers and curb deceptive practices prevalent in the marketplace. With the increasing financial commitments associated with vehicle purchases and the widespread reliance on financing, the FTC seeks to level the playing field for consumers and promote fair and transparent practices among motor vehicle dealers. As of mid July 2023, the rules are nearing vote whether or not the new FTC rules becomes the law of the land.

Key Provisions of the Proposed Rule:

Prohibition of Misrepresentations: One of the primary aspects of the proposed rule is the prohibition of misrepresentations made by motor vehicle dealers during sales, leasing, or financing transactions. This includes deceptive advertising practices related to pricing, financing terms, discounts, and incentives. By putting an end to misleading marketing tactics, consumers can confidently make informed decisions without falling victim to deceptive offers.

Accurate Pricing Disclosures:The proposed rule mandates that dealers' advertising and sales discussions include accurate pricing disclosures. This measure aims to eliminate practices like "drip pricing," where hidden charges are revealed only later in the buying process. By providing transparent pricing information upfront, consumers can better understand the true cost of the vehicle and avoid unexpected fees. Informed Consent for Charges: Dealers would be required to obtain consumers' express, informed consent for any charges related to add-on products or services. This measure ensures that consumers are fully aware of the costs and terms of these optional add-ons before making a purchase, protecting them from undisclosed or unauthorized charges. Prohibition of Add-ons with No Benefit: The proposed rule aims to ban the sale of add-on products or services that offer no benefit to consumers. Dealers would be required to prominently display that these add-ons are optional and not necessary for purchasing or leasing a vehicle, preventing consumers from purchasing unnecessary or low-value products. Recordkeeping Requirements: To enhance transparency and facilitate regulatory oversight, dealers would be obligated to maintain records of advertisements and customer transactions. This will aid in monitoring compliance and detecting potential deceptive practices in the industry.

The Scope of the Motor Vehicle Market:

The motor vehicle market in the United States is vast, comprising over 21,000 new motor vehicle dealerships and more than 25,000 used motor vehicle dealerships. Annually, around 17 million new vehicles are sold, with each dealership conducting over 800 new vehicle sales per year. Financing and insurance services significantly contribute to the gross profits of new-vehicle dealerships, while independent used vehicle dealerships also thrive on the sales of used vehicles. Given the significant role motor vehicle financing plays in the marketplace, the proposed rule seeks to address issues related to deceptive practices in vehicle financing. It aims to protect consumers from misleading advertisements and practices, ensuring that they have a clear understanding of the terms and costs associated with vehicle financing.

Consumer Complaints and Enforcement Actions:

Deceptive practices in the motor vehicle industry have resulted in substantial consumer harm, as evidenced by the over 100,000 annual complaints related to motor vehicle transactions received by the FTC. Misrepresentations in advertising, false representations of required add-ons, and incomplete disclosures are among the common issues raised by consumers. Over the past decade, the FTC has taken over 50 enforcement actions against motor vehicle dealerships engaged in deceptive practices. Additionally, the FTC has conducted consumer education programs and industry research to raise awareness of consumer issues in the motor vehicle market.

Seeking Public Input for an Effective Rule:

In October 2022, the proposed rules were subject to public comments, as the FTC encouraged feedback from interested parties. The public can submit comments online or via mail within 60 days after the rule's publication in the Federal Register. The FTC's Division of Financial Practices within the Bureau of Consumer Protection is available to provide additional information on the matter to help interested parties formulate their comments. Given the feedback from the various constituents and stakeholders that the initial 60 days comment period was not enough, the FTC extend the comments period for another 60 days through February 8, 2023.

Addressing Potential Concerns:

The FTC is keenly aware of the potential impact of the proposed rule on small entities, particularly motor vehicle dealers. However, the rule is not expected to impose significant economic burdens on them. Instead, it aims to create a fair marketplace where consumers can confidently engage in transactions without fear of deceptive practices.

The Benefits of the Proposed Rule

The proposed rule offers multiple benefits for consumers and the industry alike. By streamlining the buying or leasing process and improving price transparency, consumers are expected to save considerable time and effort, resulting in billions of dollars in value saved over a decade. Furthermore, by preventing non-mutually beneficial transactions, consumers will avoid paying more than the actual value of the vehicle, ensuring that welfare transfers from consumers to dishonest dealers are minimized.

Enhancing Social Welfare and Information Asymmetry:

The proposed rule is also anticipated to enhance social welfare by reducing information asymmetry between dealers and consumers. With clear and conspicuous disclosures, the rule aims to prevent transactions that would otherwise lead to reduced social welfare due to deceptive practices.

Public Input and Finalizing the Rule:

To ensure that the proposed rule strikes the right balance between protection and practicality, the FTC welcomes public input and comments. Suggestions to reduce burdens without compromising consumer protections, accuracy of burden estimates, methods to enhance information quality, and ways to minimize recordkeeping requirements are all crucial aspects that the FTC seeks feedback on.

Conclusion:

The FTC's proposed rule represents a significant step forward in enhancing transparency and preventing deceptive practices in motor vehicle sales. By empowering consumers with accurate and accessible pricing information, the rule aims to protect their interests and promote fair practices within the industry. As the FTC invites public comments, stakeholders and consumers alike have an opportunity to shape the rule and contribute to its successful implementation. Through a collaborative effort, the proposed rule can achieve its intended goal of enhancing consumer protection and promoting fair practices in the motor vehicle industry."

Regardless of the proposed FTC rules becomes a law or not, the proposed rule by the FTC aligns with our core values of openness, honesty, and transparency. We firmly believe that an informed consumer is an empowered consumer, and the proposed rule enhances transparency and consumer protection in the motor vehicle marketplace. By prohibiting deceptive practices, ensuring accurate pricing disclosures, and requiring informed consent for charges, the rule reinforces our commitment to fair and ethical practices. As the FTC seeks a final vote on the issue, we encourage our valued customers, stakeholders, and the public to stay tuned. Together, we can create a motor vehicle marketplace that prioritizes consumer protection, transparency, and trust. At CostPlusCars, we are excited about the future of a fair and honest automotive industry, and we are ready to lead the way in setting new standards of excellence for all stakeholders involved. Join us on this journey towards a brighter and more consumer-centric motor vehicle marketplace.