FTC Targets Bait-And-Switch Tactics And Hidden Fees With Rule For New Car Dealers

After more than a year of review, the Federal Trade Commission (FTC) on December 12, 2023 launched its much-anticipated final rule targeting misleading advertising and sales tactics by new car dealers. First proposed in the summer of 2022, the FTC announced that the Combating Auto Retail Scams or “CARS” Rule will protect U.S. consumers from bait-and-switch tactics and hidden fees the FTC found frequently plague new car buyers. The CARS Rule for new car dealers will take effect July 30, 2024.

The CARS Rule seeks to require greater transparency by dealers during the sales process and imposes four main requirements:

1. The rule prohibits dealers from misrepresenting material information that would affect the buyer’s purchase choice, such as the vehicle’s price, financing options, add-ons, and availability.
2. The rule requires dealers to clearly disclose to buyers the offering price, e., the full cash price any buyer could pay for the vehicle or the “drive-off-the-lot” price, in the first communication with buyers. Buyers also must be told that optional add-ons are optional and can be refused.
3. The rule prohibits “bogus” add-ons that do not actually provide a benefit to the buyer, such as add-on purchases that a particular vehicles cannot possibly use, like a service contract for oil changes on an electric vehicle.
4. The rule requires dealers to obtain buyers’ express, informed consent before imposing any charges as part of a vehicle purchase. It must be clear that the buyer understands why and how much they are being charged.

The FTC also expressed particular concern about false advertising and misrepresentations aimed at military servicemembers. As a result, the CARS Rule specifically prohibits dealers from lying about whether the dealer is affiliated with the military, whether the vehicle can be moved out of state (in the event of a servicemember’s relocation to a new duty station), or whether the vehicle can be repossessed (as many servicemembers are shielded from vehicle repossession by law).

In adopting the rule, the FTC largely rejected pushback from the National Automobile Dealer Association and other dealer groups who argued in public comments filed in the fall of 2022 that the FTC had failed to document the existence of “widespread misconduct” by new car dealers sufficient to justify such a rule. In adopting the rule, the FTC responded that in each of the past four years, it had received more than 100,000 consumer complaints about motor vehicle sales, financing, service and warranties, and rentals and leasing. The FTC also claimed the new rule will save U.S. consumers more than $3.4 billion and 72 million hours each year shopping for vehicles. The Commission voted 3-0 to approve the final rule.