The FTC’s CARS Rule: Major Implications for Independent Dealers

The Federal Trade Commission (FTC) has announced a new rule aimed at curbing deceptive practices in the car buying process. The “Combating Auto Retail Scams (CARS)” rule, unveiled on December 12, 2023, targets what the FTC calls “bait-and-switch” advertising and “junk fees.”

The FTC's website offers a dealers' guide to the CARS Rule, which takes effect on July 30, 2024, where they summarize the Rule's requirements:
  1. The CARS Rule prohibits misrepresentations about material information.
  2. The CARS Rule requires dealers to clearly disclose the offering price – the actual price anyone can pay to get the car, excluding only required government charges. For example, an advertised price would need to include the documentary fee in the advertised price to meet this requirement.
  3. Dealers must provide the drive-off-the-lot price in any communication with a consumer that refers, expressly or by implication, to a specific vehicle or to any monetary amount or financing term. For example, a dealer responding to an inquiry on a specific vehicle must include the offer price in a response to the inquiry.
  4. If a dealer mentions optional add-ons, the dealer has to tell the consumer they can say no. And if discussing a monthly payment, the dealer has to tell the consumer the total payment. 
  5. The CARS Rule makes it illegal for dealers to charge consumers for add-ons that don't provide a benefit such as selling GAP when the amount financed is low enough that it would not benefit the consumer.
  6. The CARS Rule requires dealers get consumers' express, informed consent before charging them for anything. This consent must be conveyed in writing, and also orally for in-person transactions.
The FTC's main claim focuses on protecting consumers from harmful practices and promoting a more honest and transparent car buying experience through the CARS Rule.

“When Americans set out to buy a car, they're routinely hit with unexpected and unnecessary fees that dealers extract just because they can,” said FTC Chair Lina M. Khan in a press release. “The CARS Rule will prohibit exploitative junk fees in the car-buying process, saving people time and money and protecting honest dealers.”
However, it's important to note that the Rule's effectiveness remains to be seen. While the FTC intends to monitor compliance and enforce the regulations, the long-term impact on car buying practices is yet to be fully realized.
The National Independent Automobile Dealers Association (NIADA) voiced concerns about the potential impact on dealerships, citing a study by the Center for Automotive Research (CAR) suggesting the rule could cost consumers over $38 billion and add 2 hours per transaction. Meanwhile, consumer advocates have welcomed the move, arguing it's crucial to protect buyers from deceptive practices. NIADA members actively engaged in discussions with lawmakers about the proposed rule during their National Policy Conference in September.
“It's frustrating to see the FTC rush this rule out given the extensive questions, concerns and comments the FTC received about the proposal,” said NIADA CEO Jeff Martin. “When we met with the FTC at our Policy Conference in September, it was clear there were more questions than answers from the agency. Our members are not opposed to well-thought-out, reasonable and responsible regulation. But taking a small sample size and punishing the entire industry for the actions of a few rogue actors does more harm than good for consumers and dealers. We will review the over 370-page rule, help our dealers navigate the new compliance regulations, and explore other options to address some of the overregulation in this rule.”
The FTC's CARS Rule presents several potential challenges for automobile dealers, ranging from operational adjustments to concerns about increased costs and competitiveness. Automobile dealers face a bumpy road with the FTC's CARS Rule. 

The FTC's CARS Rule presents several potential challenges for automobile dealers, ranging from operational adjustments to concerns about complexity and competitiveness. Automobile dealers face a bumpy road with the FTC's CARS Rule. Requirements like upfront pricing and clear disclosures may stifle negotiation freedom, restrict alternatives, and dampen the ability to advertise. Adapting to a slower, government-directed buying process means operational headaches and potential technology hurdles. Ultimately, the CARS Rule presents a challenging balancing act for dealers.


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