Proposed Rule2022-14214
Motor Vehicle Dealers Trade Regulation Rule
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 13, 2022
Issuing agencies
Federal Trade Commission
Abstract
The Federal Trade Commission ("FTC" or "Commission") seeks comment on this notice of proposed rulemaking ("NPRM") related to the sale, financing, and leasing of motor vehicles by motor vehicle dealers. The proposed rule would prohibit motor vehicle dealers from making certain misrepresentations in the course of selling, leasing, or arranging financing for motor vehicles, require accurate pricing disclosures in dealers' advertising and sales discussions, require dealers to obtain consumers' express, informed consent for charges, prohibit the sale of any add-on product or service that confers no benefit to the consumer, and require dealers to keep records of advertisements and customer transactions. This NPRM invites written comments on all issues raised herein and seeks answers to the specific questions set forth in Section VIII of this document.
Full Text
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[Federal Register Volume 87, Number 133 (Wednesday, July 13, 2022)]
[Proposed Rules]
[Pages 42012-42048]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-14214]
[[Page 42011]]
Vol. 87
Wednesday,
No. 133
July 13, 2022
Part III
Federal Trade Commission
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16 CFR Part 463
Motor Vehicle Dealers Trade Regulation Rule; Proposed Rule
Federal Register / Vol. 87 , No. 133 / Wednesday, July 13, 2022 /
Proposed Rules
[[Page 42012]]
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FEDERAL TRADE COMMISSION
16 CFR Part 463
RIN 3084-AB72
Motor Vehicle Dealers Trade Regulation Rule
AGENCY: Federal Trade Commission.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Federal Trade Commission (``FTC'' or ``Commission'') seeks
comment on this notice of proposed rulemaking (``NPRM'') related to the
sale, financing, and leasing of motor vehicles by motor vehicle
dealers. The proposed rule would prohibit motor vehicle dealers from
making certain misrepresentations in the course of selling, leasing, or
arranging financing for motor vehicles, require accurate pricing
disclosures in dealers' advertising and sales discussions, require
dealers to obtain consumers' express, informed consent for charges,
prohibit the sale of any add-on product or service that confers no
benefit to the consumer, and require dealers to keep records of
advertisements and customer transactions. This NPRM invites written
comments on all issues raised herein and seeks answers to the specific
questions set forth in Section VIII of this document.
DATES: Comments must be received on or before September 12, 2022.
ADDRESSES: Interested parties may file a comment online or on paper by
following the instructions in the Request for Comment part of the
SUPPLEMENTARY INFORMATION section below. Write ``Motor Vehicle Dealers
Trade Regulation Rule--Rulemaking, No. P204800'' on your comment, and
file it online at <a href="https://www.regulations.gov">https://www.regulations.gov</a>, by following the
instructions on the web-based form. If you prefer to file your comment
on paper, mail your comment to the following address: Federal Trade
Commission, Office of the Secretary, 600 Pennsylvania Avenue NW, Suite
CC-5610 (Annex C), Washington, DC 20580.
FOR FURTHER INFORMATION CONTACT: Daniel Dwyer or Sanya Shahrasbi,
Division of Financial Practices, Bureau of Consumer Protection, Federal
Trade Commission, 202-326-2957 (Dwyer), 202-326-2709 (Shahrasbi),
<a href="/cdn-cgi/l/email-protection#f99d9d8e809c8bb99f8d9ad79e968f"><span class="__cf_email__" data-cfemail="6a0e0e1d130f182a0c1e09440d051c">[email protected]</span></a>, <a href="/cdn-cgi/l/email-protection#6615150e070e140715040f2600120548010910"><span class="__cf_email__" data-cfemail="0675756e676e746775646f4660726528616970">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
I. Background
Buying or leasing a motor vehicle is, for many consumers, both
essential and expensive.\1\ Millions of Americans depend on vehicles
for daily living, with recent data showing that over 95% of American
households own at least one motor vehicle,\2\ and nearly 84% of
Americans drive to work as of 2020.\3\ Americans rely on their vehicles
for work, school, childcare, groceries, medical visits, and many other
important tasks in their daily lives. This necessity does not come
cheap: a new vehicle is the second-most expensive purchase many
consumers make, falling only behind purchasing a home.\4\ For purchases
at new car dealerships, the average new vehicle now sells for more than
$42,000,\5\ and the average used vehicle sells for more than
$26,000.\6\ All told, Americans spent more than $2.8 trillion dollars
on motor vehicles and vehicle parts in 2021.\7\
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\1\ In this proposed rulemaking, ``auto,'' ``automobile,''
``car,'' ``motor vehicle,'' and ``vehicle'' refer to motor vehicles
as defined in Section 1029 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (``Dodd-Frank Act''), 15 U.S.C. 5519(f)(1).
\2\ U.S. Census Bureau, American Community Survey: Means of
Transportation to Work by Selected Characteristics, 2020, <a href="https://data.census.gov/cedsci/table?q=S0802&tid=ACSST5Y2020.S0802">https://data.census.gov/cedsci/table?q=S0802&tid=ACSST5Y2020.S0802</a> (last
visited Apr. 25, 2022) (listing 4.2% of population as having ``[n]o
vehicle available'' in 2020); compare U.S. Census Bureau, American
Community Survey: Selected Housing Characteristics, 2020, <a href="https://data.census.gov/cedsci/table?q=vehicle&tid=">https://data.census.gov/cedsci/table?q=vehicle&tid=</a> ACSDP5Y2020.DP04 (last
visited Apr. 25, 2022) (listing 8.5% of households as having ``no
vehicles available'').
\3\ U.S. Census Bureau, American Community Survey: Means of
Transportation to Work by Selected Characteristics, 2020, <a href="https://data.census.gov/cedsci/table?q=S0802&tid=ACSST5Y2020.S0802">https://data.census.gov/cedsci/table?q=S0802&tid=ACSST5Y2020.S0802</a> (last
visited Apr. 25, 2022) (including those who commute in a car, truck,
or van, either alone or by carpool).
\4\ Fed. Trade Comm'n, Buying a New Car, <a href="https://www.consumer.ftc.gov/articles/0209-buying-new-car">https://www.consumer.ftc.gov/articles/0209-buying-new-car</a> (last visited Apr.
25, 2022); see also Am. Auto. Ass'n., Average Annual Cost of New
Vehicle Ownership, <a href="https://www.aaa.com/autorepair/articles/average-annual-cost-of-new-vehicle-ownership">https://www.aaa.com/autorepair/articles/average-annual-cost-of-new-vehicle-ownership</a> (last visited Apr. 25, 2022)
(``After a home purchase, buying a vehicle is usually a consumer's
second biggest expense.''); Bureau of Lab. Stats., Consumer
Expenditures: Multiyear Tables (2013-2020) at 2, <a href="https://www.bls.gov/cex/tables/calendar-year/mean/cu-all-multi-year-2013-2020.pdf">https://www.bls.gov/cex/tables/calendar-year/mean/cu-all-multi-year-2013-2020.pdf</a> (noting average annual home ownership expenditures of
$7,473 and average annual vehicle purchase expenditures of $4,523
per consumer in 2020).
\5\ Nat'l Auto. Dealers Ass'n, NADA Data 2021 at 7, <a href="https://www.nada.org/media/4695/download?inline">https://www.nada.org/media/4695/download?inline</a> (noting average retail
selling price of $42,379 for new vehicles sold by dealerships in
2021).
\6\ Id. at 10 (noting average retail selling price of $26,709
for used vehicles sold by new vehicle dealerships in 2021).
\7\ Bureau of Econ. Analysis, National Data: National Income and
Product Accounts, Personal Consumption Expenditures by Major Type of
Product at Table 2.3.5, <a href="https://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=2#reqid=19&step=2&isuri=1&1921=survey">https://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=2#reqid=19&step=2&isuri=1&1921=survey</a> (last
visited Apr. 25, 2022).
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Given how expensive it can be to buy a vehicle, many consumers rely
on financing to complete their purchases. Indeed, according to public
reports, 81% of new motor vehicle purchases, and nearly 35% of used
vehicle purchases, are financed.\8\ The motor vehicle financing market
is the third-largest consumer credit market in the United States, after
mortgages and student loans. By the end of 2021, Americans had more
than 111 million outstanding auto loans, and owed more than $1.46
trillion thereon.\9\ Motor vehicle financing is the third-largest
source of debt for U.S. consumers under the age of 50, and the second-
largest source of debt for those 50 and older.\10\
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\8\ Melinda Zabritski, Experian Info. Sol's, Inc., State of the
Automotive Finance Market Q4 2020 at 5, <a href="https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf">https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf</a>.
\9\ Fed. Rsrv. Bank of N.Y., Quarterly Report on Household Debt
and Credit, 2021: Q4 at 3-4 (Feb. 2022), <a href="https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2021Q4.pdf">https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2021Q4.pdf</a>;
Fed. Rsrv. Bank of N.Y., Data underlying report at ``Page 3 Data''
and ``Page 4 Data'' tabs, <a href="https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/xls/hhd_c_report_2021q4.xlsx">https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/xls/hhd_c_report_2021q4.xlsx</a> (last
visited Apr. 25, 2022) (number of open auto loan accounts and total
balance outstanding).
\10\ Fed. Rsrv. Bank of N.Y., Data underlying report at ``Page
21 Data'' tab, <a href="https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/xls/hhd_c_report_2021q4.xlsx">https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/xls/hhd_c_report_2021q4.xlsx</a> (last visited Apr.
25, 2022).
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Buying or leasing a vehicle is not only an expensive endeavor, but
the transaction itself is time-consuming and arduous. Consumers who
purchase vehicles at a dealership may spend five hours or more--or even
days--doing so.\11\ And that does not include the time spent visiting
dealerships when consumers do not make purchases, or the hours it can
take to travel to the dealerships themselves.\12\ Consumers
[[Page 42013]]
may need to take time off work and arrange daycare or take young
children to the dealership, and the process can be especially taxing
for one-vehicle families who also need their vehicle for commuting and
day-to-day tasks like buying groceries and attending medical
appointments.
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\11\ Mary W. Sullivan, Matthew T. Jones & Carole L. Reynolds,
Fed. Trade Comm'n, The Auto Buyer Study: Lessons from In-Depth
Consumer Interviews and Related Research 15 (2020) [hereinafter Auto
Buyer Study], <a href="https://www.ftc.gov/system/files/documents/reports/auto-buyer-study-lessons-depth-consumer-interviews-related-research/bcpreportsautobuyerstudy.pdf">https://www.ftc.gov/system/files/documents/reports/auto-buyer-study-lessons-depth-consumer-interviews-related-research/bcpreportsautobuyerstudy.pdf</a> (noting the purchase transactions in
the FTC's qualitative study often took 5 hours or more to complete,
with some extending over several days); Cf. Cox Automotive, 2020 Cox
Automotive Car Buyer Journey 6 (2020), available at https://
<a href="http://b2b.autotrader.com/app/uploads/2020-Car-Buyer-Journey-Study.pdf">b2b.autotrader.com/app/uploads/2020-Car-Buyer-Journey-Study.pdf</a>
(reporting average consumer time spent shopping for a vehicle at 14
hours, 53 minutes, including 4 hours, 49 minutes visiting
dealerships/sellers).
\12\ For example, consumers have complained when they go to a
dealership based on an offer that the dealer refuses to honor once
they have spent hours driving there and have then spent additional
time on the lot. See, e.g., Complaint, FTC & Illinois v. N. Am.
Auto. Servs., Inc., No. 1:22-cv-0169 at ]] 23-26 (N.D. Ill. Mar. 31,
2022) (alleging many consumers drive hours to dealerships based on
the advertised prices; test-driving and selecting a vehicle, and
negotiating the price and financing terms, is an often hours-long
process; and, after this time, dealers falsely told consumers add-on
products or packages were required to purchase or finance the
vehicle, even though they were not included in the low prices
advertised or disclosed to consumers who called to confirm prices).
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The Commission, the nation's consumer protection agency, is charged
with enforcing key laws and regulations applicable to the motor vehicle
marketplace, including sales, financing, and leasing.\13\ The FTC
protects consumers in motor vehicle transactions through law
enforcement actions, rulemaking, consumer education, and business
guidance, aided by information-gathering efforts such as agency
roundtables and industry research. In the past ten years, the FTC has
brought more than 50 motor vehicle-related enforcement actions,
including matters involving misleading motor vehicle advertising,
financing paperwork falsification, ``yo-yo'' financing, deceptive and
unfair add-on fees, discrimination, and privacy and data security
issues.\14\ At the same time, the FTC has conducted a qualitative study
of consumer experiences \15\ and hosted public events to engage in a
dialogue with consumer and dealer groups and other stakeholders, gather
information, spotlight misleading practices, and raise awareness of
issues that can affect consumers in this space, including consumers who
are servicemembers.\16\ The FTC also has posted many educational
materials to assist consumers and dealers on motor vehicle market
issues, and we have worked collaboratively with industry groups to do
the same.\17\
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\13\ These laws include the FTC Act, 15 U.S.C. 41-58; the Truth
in Lending Act, 15 U.S.C. 1601-1667f, and its implementing
Regulation Z, 12 CFR parts 226 and 1026; the Consumer Leasing Act,
15 U.S.C. 1667-1667f and its implementing Regulation M, 12 CFR parts
213 and 1013; and the Used Car Rule, 16 CFR part 445.
\14\ See generally Fed. Trade Comm'n, The Auto Marketplace,
<a href="https://www.ftc.gov/news-events/media-resources/consumer-finance/auto-marketplace">https://www.ftc.gov/news-events/media-resources/consumer-finance/auto-marketplace</a>.
\15\ See, e.g., Carole L. Reynolds & Stephanie E. Cox, Fed.
Trade Comm'n, Buckle Up: Navigating Auto Sales and Financing (2020),
<a href="https://www.ftc.gov/reports/buckle-navigating-auto-sales-financing">https://www.ftc.gov/reports/buckle-navigating-auto-sales-financing</a>
[hereinafter Buckle Up]; Auto Buyer Study, supra note 11.
\16\ For example, the FTC has held public workshops: (1) in
conjunction with the National Highway Traffic Safety Administration,
to examine the consumer privacy and security issues posed by
automated and connected motor vehicles, see Connected Cars: Privacy,
Security Issues Related to Connected, Automated Vehicles (June 28,
2017), <a href="https://www.ftc.gov/news-events/events-calendar/2017/06/connected-cars-privacy-security-issues-related-connected">https://www.ftc.gov/news-events/events-calendar/2017/06/connected-cars-privacy-security-issues-related-connected</a>; (2) to
explore competition and related issues in the U.S. motor vehicle
distribution system including how consumers and businesses may be
affected by state regulations and emerging trends in the industry,
Auto Distribution: Current Issues & Future Trends (Jan. 19, 2016),
<a href="https://www.ftc.gov/news-events/events-calendar/2016/01/auto-distribution-current-issues-future-trends">https://www.ftc.gov/news-events/events-calendar/2016/01/auto-distribution-current-issues-future-trends</a>; (3) on military consumer
financial issues including automobile purchases, financing, and
leasing, Military Consumer Financial Workshop (July 2017), <a href="https://www.ftc.gov/news-events/events-calendar/military-consumer-workshop">https://www.ftc.gov/news-events/events-calendar/military-consumer-workshop</a>;
and (4) through a series of three roundtables on numerous issues in
selling, financing, and leasing automobiles, The Road Ahead: Selling
Financing, and Leasing Motor Vehicles (Feb. 2011, Aug. 2011, and
Nov. 2011), <a href="https://www.ftc.gov/news-events/events-calendar/2011/11/road-ahead-selling-financing-leasing-motor-vehicles">https://www.ftc.gov/news-events/events-calendar/2011/11/road-ahead-selling-financing-leasing-motor-vehicles</a>, <a href="https://www.ftc.gov/news-events/events-calendar/2011/08/road-ahead-selling-financing-leasing-motor-vehicles">https://www.ftc.gov/news-events/events-calendar/2011/08/road-ahead-selling-financing-leasing-motor-vehicles</a>, <a href="https://www.ftc.gov/news-events/events-calendar/2011/04/road-ahead-selling-financing-leasing-motor-vehicles">https://www.ftc.gov/news-events/events-calendar/2011/04/road-ahead-selling-financing-leasing-motor-vehicles</a>; see also Consumers for Auto Reliability and Safety,
Comment Letter on Motor Vehicle Roundtables, Project No. P104811 at
6 (Apr. 1, 2012), <a href="https://www.ftc.gov/sites/default/files/documents/public_comments/public-roundtables-protecting-consumers-sale-and-leasing-motor-vehicles-project-no.p104811-00108/00108-82875.pdf">https://www.ftc.gov/sites/default/files/documents/public_comments/public-roundtables-protecting-consumers-sale-and-leasing-motor-vehicles-project-no.p104811-00108/00108-82875.pdf</a>
(stating that Director of the Navy-Marine Corps Relief Society in
San Diego indicated before the California Assembly Committee on
Banking and Finance ``the number one issue they are confronted with
is used car dealers who are taking advantage of military
personnel.''). These events, and others, have included speakers
representing consumers, dealers, regulators, and other industry
stakeholders.
\17\ See, e.g., Fed. Trade Comm'n, The Auto Marketplace, <a href="https://www.ftc.gov/news-events/media-resources/consumer-finance/auto-marketplace">https://www.ftc.gov/news-events/media-resources/consumer-finance/auto-marketplace</a>; see also Nat'l Auto. Dealers Ass'n, Understanding
Vehicle Financing,<a href="https://www.nada.org/WorkArea/DownloadAsset.aspx?id=21474839119">https://www.nada.org/WorkArea/DownloadAsset.aspx?id=21474839119</a> (prepared cooperatively by Am.
Fin. Servs. Ass'n Educ. Found., Fed. Trade Comm'n & Nat'l Auto.
Dealers Ass'n). Industry groups also play an important role in
educating their members on how to comply with the law, including by
issuing guidance in specific areas. See, e.g., Nat'l Auto. Dealers
Ass'n, Am. Int'l Auto. Dealers Ass'n & Nat'l Ass'n of Minority Auto.
Dealers, Voluntary Protection Products: A Model Dealership Policy
(2019), <a href="https://www.nada.org/regulatory-compliance/voluntary-protection-products-model-dealership-policy">https://www.nada.org/regulatory-compliance/voluntary-protection-products-model-dealership-policy</a>.
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The Dodd-Frank Wall Street Reform and Consumer Protection Act
(``Dodd-Frank Act'') was signed into law in 2010.\18\ Section 1029 of
the Dodd-Frank Act authorizes the FTC to prescribe rules with respect
to unfair or deceptive acts or practices by motor vehicle dealers,\19\
and to do so pursuant to the Commission's authority under the FTC Act
and in accordance with the Administrative Procedure Act (``APA'').\20\
Although it has engaged in law enforcement, the Commission's relatively
small size and limited resources make it challenging to investigate and
act upon the tens of thousands of complaints regarding dealerships. As
discussed below, many of the problems observed in the motor vehicle
marketplace persist in the face of repeated federal and state
enforcement actions, suggesting the need for additional measures to
deter deceptive and unfair practices. In addition, a rule prohibiting
unfair or deceptive acts or practices in the motor vehicle marketplace
would allow the FTC to seek redress for harmed consumers and obtain
other forms of monetary relief in cases involving FTC Act
violations.\21\ Further, law-abiding dealers suffer when other dealers
gain business through deceptive or unfair means. For all these reasons,
the Commission believes it is appropriate to utilize its rulemaking
authority to issue a rule to address unfair or deceptive acts or
practices in the motor vehicle marketplace.
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\18\ Public Law 111-203 (2010).
\19\ See supra note 1.
\20\ 12 U.S.C. 5519.
\21\ Under Section 19(a)(1) of the FTC Act, the Commission may
sue in federal district court ``any person, partnership, or
corporation'' that ``violates any rule under [the FTC Act]
respecting unfair or deceptive acts or practices.'' 15 U.S.C.
57b(a)(1). Where such liability is found, under Section 19(b) a
court may ``grant such relief as [it] finds necessary to redress
injury . . . resulting from the rule violation,'' including the
``rescission or reformation of contracts, the refund of money or
return of property, [or] the payment of damages.'' Id. 57b(b).
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I. Overview of Vehicle Dealers and Motor Vehicle Financing
A. New and Used Motor Vehicle Dealerships
There are more than 21,000 new motor vehicle dealerships across the
country.\22\ Collectively, these dealerships sold more than 17 million
new vehicles per year in each of the past three years,\23\ averaging
more than 800 new vehicle sales per dealership per year.\24\ New-
vehicle dealers spend an average of more than $600 on advertising per
vehicle sold \25\--more
[[Page 42014]]
than half of which goes toward online advertising.\26\ According to
industry sources, these dealers averaged a gross profit of about $2,444
per vehicle.\27\ More than half of this profit came from the dealers'
financing and insurance, or ``F&I'', offices, which sell consumers
financing and leasing, as well as add-on products and services such as
vehicle service contracts.\28\
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\22\ U.S. Census Bureau, All Sectors: County Business Patterns,
including ZIP Code Business Patterns, by Legal Form of Organization
and Employment Size Class for the U.S., States, and Selected
Geographies: 2019, https://data.census.gov/cedsci/
table?q=CBP2019.CB1900CBP&n=44111%3A44112&tid=CBP2019.CB1900CBP&hideP
review=true&nkd=EMPSZES~001,LFO~001 (listing 21,427 establishments
for ``new car dealers,'' NAICS code 44111).
\23\ Edmunds, Automotive Industry Trends [verbar] 2020 at 2,
<a href="https://static.ed.edmunds-media.com/unversioned/img/industry-center/insights/2020-automotive-trends.pdf">https://static.ed.edmunds-media.com/unversioned/img/industry-center/insights/2020-automotive-trends.pdf</a>.
\24\ Nat'l Auto. Dealers Ass'n, NADA Data 2021 at 7, <a href="https://www.nada.org/media/4695/download?inline">https://www.nada.org/media/4695/download?inline</a>. New vehicle dealerships are
also a significant source of used vehicles, having sold between 13.7
million and 14.9 million such vehicles per year over the past three
years. Id. at 10 (graph of used-vehicle sales by new-vehicle
dealerships, by year).
\25\ Id. at 15 (listing average dealership advertising per new
vehicle sold of $602).
\26\ Id. at 16 (listing 63.6% of estimated advertising
expenditures by medium as internet expenditures).
\27\ Nat'l Auto. Dealers Ass'n, Average Dealership Profile 1
(2020), <a href="https://www.nada.org/media/4136/download?attachment">https://www.nada.org/media/4136/download?attachment</a>.
\28\ Id. (listing an average 6.3% gross as a percentage of the
vehicle's selling price, and a 3.2% average F&I gross as a
percentage of new-vehicle dept. sales). While many dealers have seen
increased profits during the pandemic, to the extent some dealers
may be profiting through unscrupulous practices, the proposed rule
would help honest dealers compete on a level playing field. See Nora
Eckert & Mike Colias, Ford and GM Warn Dealers to Stop Charging So
Much for New Cars, Wall St. J. (Feb. 9, 2022), <a href="https://www.wsj.com/articles/ford-gm-warn-dealers-charge-above-sticker-price-and-face-repercussions-11644323580">https://www.wsj.com/articles/ford-gm-warn-dealers-charge-above-sticker-price-and-face-repercussions-11644323580</a> (discussing how many dealers have
increased markups, including by requiring consumers to accept added
fees and warranty protection as part of the asking price).
Conditioning a vehicle sale or lease on the purchase of an add-on
product or service is contrary to industry guidance. See Nat'l Auto.
Dealers Ass'n et al., Voluntary Protection Products: A Model
Dealership Policy 4 (2019), <a href="https://www.nada.org/regulatory-compliance/voluntary-protection-products-model-dealership-policy">https://www.nada.org/regulatory-compliance/voluntary-protection-products-model-dealership-policy</a>
(stating dealerships should ``prominently display to customers a
poster stating that [add-on products and services] offered by the
dealership are optional and are not required to purchase or lease a
vehicle or obtain warranty coverage, financing, financing on
particular terms, or any other product or service offered by the
dealership.'').
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There are more than 25,000 used motor vehicle dealerships across
the country,\29\ and used vehicle sales are nearly evenly split between
new and used car dealerships.\30\ Used vehicles sold by new-vehicle
dealerships cost $24,542 on average.\31\ These vehicles brought in an
average gross profit of about $2,675 per vehicle, more than a third of
which came from the F&I office.\32\ Independent used vehicle
dealerships sold an average of 684 vehicles per dealership in 2019,
with an average gross profit of more than $6,000 per vehicle.\33\ While
some independent used vehicle dealerships do not have a separate F&I
office, more than half of them sell add-on products.\34\
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\29\ U.S. Census Bureau, All Sectors: County Business Patterns,
including ZIP Code Business Patterns, by Legal Form of Organization
and Employment Size Class for the U.S., States, and Selected
Geographies: 2019, https://data.census.gov/cedsci/
table?q=CBP2019.CB1900CBP&n=44111%3A44112&tid=CBP2019.CB1900CBP&hideP
review=true&nkd=EMPSZES~001,LFO~001 (listing 25,098 establishments
for ``used car dealers,'' NAICS code 44112).
\30\ In 2020, 52.2% of used motor vehicle sales were by new car
dealerships, while 47.8% were by independent used vehicle
dealerships. Melinda Zabritski, Experian Info. Sol's, Inc., State of
the Automotive Finance Market Q4 2020 at 32, <a href="https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf">https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf</a>.
\31\ Nat'l Auto. Dealers Ass'n, NADA Data 2021: Midyear Report
10, <a href="https://www.nada.org/media/4694/download?inline">https://www.nada.org/media/4694/download?inline</a>.
\32\ Nat'l Auto. Dealers Ass'n, Average Dealership Profile 1
(2020), <a href="https://www.nada.org/media/4136/download?attachment">https://www.nada.org/media/4136/download?attachment</a> (listing
an average 6.3% gross as a percentage of the vehicle's selling
price, and a 3.2% average F&I gross as a percentage of new-vehicle
dept. sales).
\33\ Nat'l Indep. Auto. Dealers Ass'n, NIADA Used Car Industry
Report 2020 at 21 (2020).
\34\ Id. at 8, 10.
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B. Motor Vehicle Financing and Leasing Overview
Consumers can finance the purchase or use of a vehicle in several
ways. Those interested in purchasing a vehicle generally use either
indirect financing or direct financing. Others--particularly those with
thin or damaged credit--work with a so-called ``buy here, pay here''
dealership for financing, typically without the involvement of an
outside financing entity.\35\ Finally, some consumers opt to lease a
vehicle rather than purchase it.\36\
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\35\ In some regions, ``lease here, pay here'' dealerships may
provide leases to consumers through similar programs.
\36\ Melinda Zabritski, Experian Info. Sol's, Inc., State of the
Automotive Finance Market Q4 2020 at 19, <a href="https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf">https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf</a>
(more than 72% of new vehicle financing in MI is for leases; the
Northeast ranges from 43% in VT to 66% in NY; other states range
from 45% (OH) to less than 4% (AR)).
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Approximately 70 percent of consumers use dealer-provided indirect
financing at the dealership.\37\ In this scenario, the dealership
collects financial information on the consumer and forwards that
information to prospective financing entities. These financing
entities, who work with the dealer, evaluate that information and in
the process determine whether, and on what terms, to provide
credit.\38\ These terms include the ``buy rate,'' a risk-based finance
charge that reflects the interest rate at which the entity will finance
the deal.\39\ Dealers often add a finance charge called a ``dealer
reserve'' or ``markup'' to the buy rate.\40\ Unlike the buy rate, the
markup is not based on the underwriting risk or credit characteristics
of the applicant.\41\
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\37\ See Nat'l Auto. Dealers Ass'n, Dealer-Assisted Financing
Benefits Consumers, <a href="https://www.nada.org/autofinance/">https://www.nada.org/autofinance/</a> (last visited
Apr. 25, 2022) (noting 7 out of 10 consumers finance through their
dealership). This is also known as ``dealer financing,'' because
consumers obtain financing through the dealer that partners with
other entities in the financing process.
\38\ Dealers often may originate the financing and then sell the
financing agreements to third-parties.
\39\ Lesley Fair, FTC says Bronx Honda discriminated against
African-American and Hispanic consumers, Fed. Trade Comm'n Business
Blog (May 27, 2020), <a href="https://www.ftc.gov/business-guidance/blog/2020/05/ftc-says-bronx-honda-discriminated-against-african-american-hispanic-consumers">https://www.ftc.gov/business-guidance/blog/2020/05/ftc-says-bronx-honda-discriminated-against-african-american-hispanic-consumers</a>.
\40\ See, e.g., Nat'l Auto. Dealers Ass'n, Nat'l Ass'n of
Minority Auto. Dealers & Am. Int'l Auto. Dealers Ass'n, Fair Credit
Compliance Policy & Program 1, n.4 & accompanying text, <a href="https://www.nada.org/media/4558/download?inline">https://www.nada.org/media/4558/download?inline</a>.
\41\ Id. (describing this as the amount dealers earn for
arranging financing, measured as the difference between the
consumer's APR and the wholesale ``buy rate'' at which a finance
source buys the finance contract from the dealer, and noting finance
sources typically permit dealers to retain the dealer
participation).
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Alternatively, those who use direct financing apply for and obtain
financing directly from a credit union, bank, or other financing
entity.\42\ These consumers typically receive an interest rate quote
from the entity prior to arriving at a dealership to purchase a
vehicle. Then, once these consumers agree to purchase a vehicle, they
can use the financing from the entity to pay for the vehicle.\43\
Dealerships do not profit on the financing portion of the transaction
when a consumer arranges financing directly.
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\42\ Consumer Fin. Prot. Bureau, Automobile Finance Examination
Procedures 4 (Aug. 2019), <a href="https://files.consumerfinance.gov/f/documents/201908_cfpb_automobile-finance-examination-procedures.pdf">https://files.consumerfinance.gov/f/documents/201908_cfpb_automobile-finance-examination-procedures.pdf</a>.
\43\ Consumer Fin. Prot. Bureau, Consumer Voices on Automobile
Financing 5 (June 2016), <a href="https://files.consumerfinance.gov/f/documents/201606_cfpb_consumer-voices-on-automobile-financing.pdf">https://files.consumerfinance.gov/f/documents/201606_cfpb_consumer-voices-on-automobile-financing.pdf</a>.
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``Buy here, pay here'' dealers typically finance their motor
vehicle sales in-house rather than routinely assigning their financing
to unaffiliated parties.\44\ That means consumers borrow from and make
their payments directly to the dealership. Interest rates for this
financing are usually much higher than for direct or indirect
financing,\45\ and consumers default on this financing at
[[Page 42015]]
a high rate.\46\ The dealer often performs its own collections and
repossession operations when consumers fall behind. ``Buy here, pay
here'' accounts for 6-8% of financing to purchase a vehicle.\47\
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\44\ See Consumer Fin. Prot. Bureau, Automobile Finance
Examination Procedures 4 (Aug. 2019), <a href="https://files.consumerfinance.gov/f/documents/201908_cfpb_automobile-finance-examination-procedures.pdf">https://files.consumerfinance.gov/f/documents/201908_cfpb_automobile-finance-examination-procedures.pdf</a>. (``While most Buy-Here, Pay-Here
(BHPH) dealers are independently owned entities that serve as the
primary lender and servicer, some larger BHPH dealers sell or assign
their contracts to an affiliated BHPH finance company once the
contract has been consummated with the consumer.'')
\45\ As of 2017, interest rates at ``buy here, pay here''
dealerships averaged around 20%. Nat'l Indep. Auto Dealers Ass'n,
NIADA Used Car Industry Report 2019 at 14. In contrast, the average
financing rate for used vehicles across the industry was 8.43% in
the fourth quarter of 2020. Melinda Zabritski, Experian Info. Sol's,
Inc., State of the Automotive Finance Market Q4 2020 at 38, <a href="https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf">https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf</a>.
\46\ For example, approximately 37.5% of ``buy here, pay here''
consumers defaulted in 2019. Nat'l Indep. Auto. Dealers Ass'n, NIADA
Used Car Industry Report 2020 at 13. The overall motor vehicle debt
default rate was 4.94% in 2019. Zhu Wang, Fed. Rsrv. Bank of
Richmond, Coronavirus and Auto Lending: A Market Outlook (Apr. 16,
2020), <a href="https://www.richmondfed.org/-/media/RichmondFedOrg/research/economists/bios/pdfs/wang_covid19_paper.pdf">https://www.richmondfed.org/-/media/RichmondFedOrg/research/economists/bios/pdfs/wang_covid19_paper.pdf</a>.
\47\ Melinda Zabritski, Experian Info. Sol's, Inc., State of the
Automotive Finance Market Q2 2020 at 8, <a href="https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-q2-safm-final.pdf">https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-q2-safm-final.pdf</a>.
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Leasing involves arranging to drive a vehicle for a set period of
time--typically around three years \48\--and for a certain maximum
number of miles--typically 10-15,000 miles per year--in exchange for an
upfront payment, a monthly payment, and fees before, during, and at the
end of the lease, including for excess wear and usage over the mileage
limit.\49\ When consumers lease a vehicle, they do not own it, and they
must return the vehicle when the lease expires, though they may have
the option to purchase the vehicle at the end of the lease period.
Nearly 27% of new vehicles are leased, as are just over 8% of used
vehicles.\50\
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\48\ Melinda Zabritski, Experian Info. Sol's, Inc., State of the
Automotive Finance Market Q4 2020 at 26, <a href="https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf">https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf</a>.
\49\ See Fed. Trade Comm'n, Financing or Leasing a Car, <a href="https://www.consumer.ftc.gov/articles/0056-financing-or-leasing-car">https://www.consumer.ftc.gov/articles/0056-financing-or-leasing-car</a> (last
visited Apr. 25, 2022) (``The mileage limit in most standard leases
is typically 15,000 or fewer per year''); Consumer Fin. Prot.
Bureau, What should I know about the differences between leasing and
buying a vehicle?, <a href="https://www.consumerfinance.gov/ask-cfpb/what-should-i-know-about-the-differences-between-leasing-and-buying-a-vehicle-en-815/">https://www.consumerfinance.gov/ask-cfpb/what-should-i-know-about-the-differences-between-leasing-and-buying-a-vehicle-en-815/</a> (last visited Apr. 25, 2022) (``Most leases include
mileage restrictions of 10,000-15,000 miles per year.'').
\50\ Melinda Zabritski, Experian Info. Sol's, Inc., State of the
Automotive Finance Market Q4 2020 at 5, <a href="https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf">https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf</a>.
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II. Deception and Unfairness in the Motor Vehicle Marketplace
For many consumers, buying or leasing a vehicle is a difficult and
time-consuming experience. The process of shopping for a vehicle,
conducting test drives, providing financing information, and completing
stacks of paperwork at a dealership can take many hours or even
days,\51\ and can involve unfair or deceptive practices. The FTC
received more than 100,000 complaints in each of the past three years
regarding new and used motor vehicle sales, financing, service &
warranties, and rentals & leasing, and complaints about motor vehicle
transactions are regularly in the top ten complaint categories tracked
by the agency.\52\
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\51\ Auto Buyer Study, supra note 11, at 15 (finding the process
of completing a vehicle purchase often took five hours or more, and
sometimes several days); Cf. Cox Automotive, 2020 Cox Automotive Car
Buyer Journey 5-6 (2020), available at <a href="https://b2b.autotrader.com/app/uploads/2020-Car-Buyer-Journey-Study.pdf">https://b2b.autotrader.com/app/uploads/2020-Car-Buyer-Journey-Study.pdf</a> (noting, on average,
consumers spend 89 day in the market and 14 hours, 53 minutes
shopping for a vehicle).
\52\ See, e.g., Fed. Trade Comm'n, Consumer Sentinel Network
Data Book 2021 at 7-8 & app. B3 at 85 (Feb. 2022), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/CSN%20Annual%20Data%20Book%202021%20Final%20PDF.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/CSN%20Annual%20Data%20Book%202021%20Final%20PDF.pdf</a> (listing motor
vehicle-related complaints as the eighth most common report category
in 2021, and reporting complaints about new and used motor vehicle
sales, financing, service & warranties, and rentals & leasing,
collectively, of more than 100,000 in 2019, 2020, and 2021).
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The FTC uses its authority under Section 5 to stop deceptive and
unfair acts or practices in the motor vehicle marketplace. A
representation, omission, or practice is deceptive if it is likely to
mislead consumers acting reasonably under the circumstances and is
material to consumers--that is, it would likely affect the consumer's
conduct or decisions with regard to a product or service.\53\ Some
deception cases involve omission of material information, the
disclosure of which is necessary to prevent the claim, practice, or
sale from being misleading.\54\ Deceptive information distorts the
marketplace and thus, these false and misleading statements are
unlawful regardless of an intent to deceive.\55\
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\53\ See Fed. Trade Comm'n, FTC Policy Statement on Deception 2,
5, 103 F.T.C. 174 (1984) (appended to Cliffdale Assocs., Inc., 103
F.T.C. 110, 183 (1984)), <a href="https://www.ftc.gov/system/files/documents/public_statements/410531/831014deceptionstmt.pdf">https://www.ftc.gov/system/files/documents/public_statements/410531/831014deceptionstmt.pdf</a>.
\54\ Id.
\55\ In re Sears, Roebuck & Co., 95 F.T.C. 406, 517 n.9 (1980)
(citing Regina Corp. v. FTC, 322 F.2d 765, 768 (3d Cir. 1963).
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A practice is considered unfair under Section 5 if: (1) it causes,
or is likely to cause, substantial injury; (2) the injury is not
reasonably avoidable by consumers; and, (3) the injury is not
outweighed by benefits to consumers or competition.\56\
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\56\ 15 U.S.C. 45(n).
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Chronic problems confronting consumers in the sales, financing, and
leasing process include advertising misrepresentations and unlawful
practices related to add-ons and deceptive pricing.\57\
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\57\ While other issues exist in the motor vehicle sales,
financing, and leasing space, including issues involving
discrimination, financing application falsification, data privacy
and security, and yo-yo financing, this proposal's core focus is on
misrepresentations and add-on and pricing practices.
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A. Advertising Misrepresentations
Advertisements for motor vehicles are often consumers' first
contact in the vehicle-buying or leasing process. Dealers utilize a
variety of means to reach consumers, including television and radio
commercials, social media and online advertisements, and direct mail
marketing.
The FTC has brought many cases concerning misrepresentations
regarding key pricing aspects of a vehicle purchase, including the
price of the vehicle, the availability of discounts and rebates, the
monthly payment amount for a financed purchase or lease, or the amount
due at signing.\58\ Other misrepresentations regarding financial terms
that have been the subject of FTC complaints have included whether an
offer pertains to a purchase or a lease \59\ and whether the dealer or
consumer is responsible for paying off ``negative equity,'' i.e., the
outstanding debt on a vehicle that is being traded in as part of
another vehicle purchase.\60\ And according to other FTC actions, some
dealers have lured potential buyers through financial incentives
incidental
[[Page 42016]]
to the purchase, such the promise of a valuable prize.\61\
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\58\ See Complaint, In re Timonium Chrysler, Inc., No. C-4429
(F.T.C. Jan. 28, 2014) (alleging dealership advertised internet
prices and dealer discounts but failed to disclose consumer would
have to qualify for multiple rebates not generally available to
them); Complaint, In re Ganley Ford West, Inc., No. C-4428 (F.T.C.
Jan. 28, 2014) (alleging dealership advertised discounts on vehicle
prices, but failed to disclose discounts were only available on the
most expensive models); Complaint, In re Progressive Chevrolet Co.,
No. C-4578 (F.T.C. June 13, 2016) (alleging deceptive failure to
disclose material conditions of obtaining the lease monthly payment
in their online and print advertising).
\59\ See Complaint, FTC v. Tate's Auto Ctr. of Winslow, Inc.,
No. 3:18-cv-08176-DJH at ]] 38-46 (D. Ariz. July 31, 2018) (alleging
company issued advertisements for attractive terms but concealed
that the terms were only applicable to lease offers); Complaint,
United States v. New World Auto Imports, Inc. No. 3:16-cv-02401-K at
]] 36-38 (N.D. Tex. Aug. 18, 2016) (alleging misrepresentation that
terms were for financing instead of leasing); Complaint, FTC v.
Universal City Nissan, Inc., No. 2:16-cv-07239 at ]] 85-87 (C.D.
Cal. Sept. 29, 2016) (alleging dealerships claimed consumers could
finance the purchase of vehicles with attractive terms and buried
disclosures indicating such terms were applicable to leases only).
\60\ Universal City Nissan, No. 2:16-cv-07239 at ]] 82-84 (C.D.
Cal. Sept. 29, 2016) (alleging misrepresentation that dealer would
pay off consumer's trade-in when in fact consumers were still
responsible for outstanding debt on trade-in vehicles); Complaint,
In re TXVT Ltd. P'ship, No. C-4508 at ]] 17-19 (F.T.C. Feb. 12,
2015) (alleging failure to disclose in leasing advertising that the
dealership would pay off the negative equity of consumers' trade in
vehicle, when in fact, it was merely rolled into the financed amount
for the consumer's newly financed vehicle).
\61\ See, e.g., Complaint, FTC v. Traffic Jam Events, LLC, No.
9395 at ]] 12, 17-19 (F.T.C. Aug. 7, 2020); Complaint, In re
Fowlerville Ford, Inc., No. C-4433 at ]] 4, 7-9 (F.T.C. Feb. 20,
2014).
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Misleading advertisements can cause significant consumer harm, and
reduce competition amongst law-abiding dealers. When dealerships
advertise prices, discounts, or other terms that are not actually
available to typical consumers, those consumers end up selecting that
dealership instead of others and spending time visiting it and
transacting with it under false pretenses.
B. Unlawful Practices Relating to Add-Ons and Deceptive Pricing
Another key consumer protection concern is the sale of ``add-on''
products and services in a deceptive or unfair manner. Commonly offered
add-ons include extended warranties, service and maintenance plans,
payment programs, guaranteed automobile or asset protection (``GAP'' or
``GAP insurance''), emergency road service, VIN etching and other theft
protection devices, and undercoating. Individual add-ons can cost
consumers thousands of dollars and can significantly increase the
overall cost to the consumer in the transaction.
A significant consumer protection concern is consumers paying for
add-ons without knowing about or expressly agreeing to them.\62\ The
protracted and paperwork-heavy vehicle-buying process can make it
difficult for consumers to spot add-on charges, particularly when
advertised prices do not mention add-ons.\63\ If consumers are
financing the vehicle, they then undergo a separate financing process,
which can include wading through a thick stack of dense paperwork
filled with fine print.\64\ For example, according to an FTC complaint,
consumers were required to complete a stack of paperwork that ran more
than sixty pages and required more than a dozen signatures.\65\ This
paperwork can include hidden charges for add-on products and services,
causing consumers to purchase those add-ons without knowing about or
agreeing to them, or without knowing or agreeing to their costs, or
other key terms.\66\ Unscrupulous dealers are able to slip these
additional costs past consumers unnoticed and into purchase contracts
through a variety of means, including by not mentioning them at
all,\67\ or by focusing consumers' attention on other aspects of the
complex transaction, such as monthly payments, which might increase
only marginally with the addition of prorated add-on costs or even be
made to decrease if the financing term is stretched out, while in fact
these added costs can be considerable in aggregate.\68\ Dealers
[[Page 42017]]
engaging in this type of conduct have targeted immigrants, communities
of color, and servicemembers.\69\
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\62\ See Nat'l Consumer Law Ctr., Auto Add-ons Add Up: How
Dealer Discretion Drives Excessive, Inconsistent, and Discriminatory
Pricing (Oct. 11, 2017), <a href="https://www.nclc.org/images/pdf/car_sales/report-auto-add-on.pdf">https://www.nclc.org/images/pdf/car_sales/report-auto-add-on.pdf</a>; Consumers for Auto Reliability and Safety,
Comment Letter on Motor Vehicle Roundtables, Project No. P104811 at
2-3 (Apr. 1, 2012), <a href="https://www.ftc.gov/sites/default/files/documents/public_comments/public-roundtables-protecting-consumers-sale-and-leasing-motor-vehicles-project-no.p104811-00108/00108-82875.pdf">https://www.ftc.gov/sites/default/files/documents/public_comments/public-roundtables-protecting-consumers-sale-and-leasing-motor-vehicles-project-no.p104811-00108/00108-82875.pdf</a> (citing a U.S. Department of Defense data call summary
that found the vast majority of military counselors have clients
with auto financing problems and cited loan packing and yo-yo
financing as the most frequent auto lending abuses affecting
servicemembers); Adam J. Levitin, The Fast and the Usurious: Putting
the Brakes on Auto Lending Abuses, 108 Geo. L.J. 1257, 1265-66
(2020), <a href="https://www.law.georgetown.edu/georgetown-law-journal/wp-content/uploads/sites/26/2020/05/Levitin_The-Fast-and-the-Usurious-Putting-the-Brakes-on-Auto-Lending-Abuses.pdf">https://www.law.georgetown.edu/georgetown-law-journal/wp-content/uploads/sites/26/2020/05/Levitin_The-Fast-and-the-Usurious-Putting-the-Brakes-on-Auto-Lending-Abuses.pdf</a> (discussing ``loan
packing'' as the sale of add-on products falsely represented as
being required in order to obtain financing.); Complaint, FTC v.
Liberty Chevrolet, Inc., No. 1:20-cv-03945 at ]] 12-19 (S.D.N.Y. May
21, 2020) (alleging deceptive and unauthorized add-on charges in
consumers' transactions); Universal City Nissan, No. 2:16-cv-07329
at ]] 59-64 (C.D. Cal. Sept. 29, 2016) (alleging deceptive and
unauthorized add-on charges in consumers' transactions); Complaint,
In re TT of Longwood, Inc., No. C-4531 at ]] 6, 9 (F.T.C. July 2,
2015) (alleging misrepresentations regarding prices for added
features); see also Auto Buyer Study, supra note 11, at 14
(``Several participants who thought that they had not purchased add-
ons, or that the add-ons were included at no additional charge, were
surprised to learn, when going through the paperwork, that they had
in fact paid extra for add-ons. This is consistent with consumers'
experiencing fatigue during the buying process or confusion with a
financially complex transaction, but would also be consistent with
dealer misrepresentations.'').
\63\ Liberty Chevrolet No. 1:20-cv-03945 (S.D.N.Y. May 21,
2020); Universal City Nissan, No. 2:16-cv-07329 (C.D. Cal. Sept. 29,
2016).
\64\ See, e.g., Buckle Up, supra note 15, at 10-11 (noting the
long, complex transaction process); N. Am. Auto. Servs., No. 1:22-
cv-0169 at ]] 23-28 (N.D. Ill. Mar. 31, 2022) (same).
\65\ N. Am. Auto. Servs., No. 1:22-cv-0169 at ] 24 (N.D. Ill.
Mar. 31, 2022); see also Buckle Up, supra note 15, at 10-11.
\66\ Liberty Chevrolet, No. 1:20-cv-03945 at ]] 17-19 (S.D.N.Y.
May 21, 2020); The Road Ahead: Selling, Financing & Leasing Motor
Vehicles, <a href="https://www.ftc.gov/news-events/events-calendar/2011/08/road-ahead-selling-financing-leasing-motor-vehicles">https://www.ftc.gov/news-events/events-calendar/2011/08/road-ahead-selling-financing-leasing-motor-vehicles</a>; Dale Irwin,
Slough Connealy Irwin & Madden LLC, Comment Letter on Public
Roundtables: Protecting Consumers in the Sale and Leasing of Motor
Vehicles, Project No. P104811, Submission No. 558507-00060 (Dec. 29,
2011), available at <a href="https://www.regulations.gov/docket/FTC-2022-0036">https://www.regulations.gov/docket/FTC-2022-0036</a>
(consumer protection lawyer noting ``payment packing'' among
problems ``that cry out for scrutiny and regulation); Michael
Archer, Comment Letter on Public Roundtables: Protecting Consumers
in the Sale and Leasing of Motor Vehicles, Project No. P104811,
Submission No. 558507-00041 (Aug. 6, 2011), available at <a href="https://www.regulations.gov/docket/FTC-2022-0036">https://www.regulations.gov/docket/FTC-2022-0036</a> (workshop panelist stating
``I have seen cases wherein the dealer uses financing to pack in
extra costs or to wipe out trade-in value.''); Comment Letter on
Public Roundtables: Protecting Consumers in the Sale and Leasing of
Motor Vehicles, Project No. P104811, Submission No. 558507-00027
(July 27, 2011), available at <a href="https://www.regulations.gov/docket/FTC-2022-0036">https://www.regulations.gov/docket/FTC-2022-0036</a> (``Confusing or misleading sales terms Extra fees was
added at the time of purchase and to this day I still do not
understand what the fee was for, it made the payment higher.'');
Carrie Ferraro, Legal Servs. of N.J, Comment Letter on Public
Roundtables: Protecting Consumers in the Sale and Leasing of Motor
Vehicles, Project No. P104811, Submission No. 558507-00061 (Dec. 29,
2011), available at <a href="https://www.regulations.gov/docket/FTC-2022-0036">https://www.regulations.gov/docket/FTC-2022-0036</a>
(citing dealers ``engage[d] in packing'' as a common consumer
complaint received by LSNJ's legal advice hotline); Rosemary Shahan,
Consumers for Auto Reliability and Safety, Comment Letter on Public
Roundtables: Protecting Consumers in the Sale and Leasing of Motor
Vehicles, Project No. P104811, Submission No. 558507-00069 (Jan. 31,
2012), available at <a href="https://www.regulations.gov/docket/FTC-2022-0036">https://www.regulations.gov/docket/FTC-2022-0036</a>
(noting ``[m]any common auto scams do not generate complaints in
proportion to how pervasive or costly the practices are, simply
because the consumers generally remain unaware they have been
scammed,'' including as a result of ``Loan packing''); Mary W.
Sullivan, Matthew T. Jones & Carole L. Reynolds, Fed. Trade Comm'n,
The Auto Buyer Study: Lessons from In-Depth Consumer Interviews and
Related Research, Supplemental Appendix: Redacted Interview
Transcripts (2020) [hereinafter Auto Buyer Study: Appendix], <a href="https://www.ftc.gov/system/files/documents/reports/buckle-navigating-auto-sales-financing/bcpstaffreportautobuyerstudysuppappendix.pdf">https://www.ftc.gov/system/files/documents/reports/buckle-navigating-auto-sales-financing/bcpstaffreportautobuyerstudysuppappendix.pdf</a> (Study
participant 169810 at 525 (consumer had ``additional items'' charges
on contract that consumer could not identify); Study participant
188329 at 730, 740-42 (dealer did not tell consumer about GAP
insurance or service contract but consumer was charged $599 and
$1950 for those add-ons, respectively)); Press Release, N.Y. State
Att'y Gen., A.G. Schneiderman Announces Nearly $14 Million
Settlement With NYC And Westchester Auto Dealerships For Deceptive
Practices That Resulted In Inflated Car Prices (June 17, 2015),
<a href="https://ag.ny.gov/press-release/2015/ag-schneiderman-announces-nearly-14-million-settlement-nyc-and-westchester-auto">https://ag.ny.gov/press-release/2015/ag-schneiderman-announces-nearly-14-million-settlement-nyc-and-westchester-auto</a> (``This
settlement is part of the [New York] Attorney General's wider
initiative to end the practice of ``jamming,'' or unlawfully
charging consumers for hidden purchases by car dealerships.'').
\67\ Under the Truth in Lending Act (``TILA'') and its
implementing Regulation Z, required add-on products and services
must be factored into the APR and the finance charge disclosed
during the transaction. See Sections 106, 107, and 128 of the TILA
(15 U.S.C. 1605, 1606 and 1638) and Sec. Sec. 226.4, 226.18(b),
(d), and (e), and 226.22 of Regulation Z (12 CFR 226.4, 226.18(b),
(d) and (e), and 226.22). It is legally impermissible for dealers to
include charges for such products into a consumer's contract without
disclosing them under TILA. See, e.g., Complaint, FTC v. Stewart
Fin. Co. Holdings, Inc., No. 103CV-2648 at ]] 57-60 (N.D. Ga. Sept.
4, 2003) (alleging violations for failure to include the cost of
required add-on products in the finance charge and annual percentage
rate disclosed to consumers).
\68\ See, e.g., Buckle Up, supra note 15, at 6; Military
Consumer Financial Workshop (July 19, 2017), <a href="https://www.ftc.gov/news-events/events-calendar/military-consumer-workshop">https://www.ftc.gov/news-events/events-calendar/military-consumer-workshop</a>; The Road
Ahead: Selling, Financing & Leasing Motor Vehicles, Fed. Trade
Comm'n (Aug. 2011) (Public Roundtables) (Session 2 transcript at 40-
41) (noting optional products and services are often already
included in the monthly payment prices advertised or quoted);
Christopher Kukla, Ctr. for Responsible Lending, Comment Letter on
Public Roundtables: Protecting Consumers in the Sale and Leasing of
Motor Vehicles, Project No. P104811, Submission No. 558507-00071
(Feb. 2, 2012), available at <a href="https://www.regulations.gov/docket/FTC-2022-0036">https://www.regulations.gov/docket/FTC-2022-0036</a> (discussing how dealers conceal loan packing by expressing
an increase in price in terms of monthly payment); Att'ys General of
31 States & DC, Comment Letter on Public Roundtables: Protecting
Consumers in the Sale and Leasing of Motor Vehicles, Project No.
P104811, Submission No. 558507-00112 at 5 (Apr. 13, 2012), available
at <a href="https://www.regulations.gov/docket/FTC-2022-0036">https://www.regulations.gov/docket/FTC-2022-0036</a> (discussing the
``age-old auto salesperson's trick'' of quoting monthly payment
prices without disclosing the quote includes the cost of optional
items the customer has not yet agreed to purchase).
\69\ Liberty Chevrolet, No. 1:20-cv-03945 at ]] 9, 26 (S.D.N.Y.
May 21, 2020); Press Release, N.Y. State Att'y Gen., Attorney
General James Delivers Restitution to New Yorkers Cheated by Auto
Dealership (Nov. 17, 2020), <a href="https://ag.ny.gov/press-release/2020/attorney-general-james-delivers-restitution-new-yorkers-cheated-auto-dealership">https://ag.ny.gov/press-release/2020/attorney-general-james-delivers-restitution-new-yorkers-cheated-auto-dealership</a> (dealership targeted Chinese-speakers for unlawful
payment packing); Military Consumer Financial Workshop (July 19,
2017), <a href="https://www.ftc.gov/news-events/events-calendar/military-consumer-workshop">https://www.ftc.gov/news-events/events-calendar/military-consumer-workshop</a> (panelist discussing servicemembers experiencing
payment packing at 19:21); see also Fed. Trade Comm'n, Staff
Perspective: A Closer Look at the Military Consumer Financial
Workshop 2-3 (Feb. 2018), <a href="https://www.ftc.gov/system/files/documents/reports/closer-look-military-consumer-financial-workshop-federal-trade-commission-staff-perspective/military_consumer_workshop_-_staff_perspective_2-2-18.pdf">https://www.ftc.gov/system/files/documents/reports/closer-look-military-consumer-financial-workshop-federal-trade-commission-staff-perspective/military_consumer_workshop_-_staff_perspective_2-2-18.pdf</a>
(explaining the unique situation of servicemembers as having steady
paychecks that make them attractive customers for dealers, while
having no or minimal credit history means they qualify for less
advantageous credit terms and higher interest rate financing).
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In other instances, dealers might wait until late in the
transaction to mention add-ons, and then do so in a misleading manner.
For example, according to an FTC study, there were situations where
dealers waited until the financing stage to mention add-ons, after
consumers believed they had agreed on terms, and even though many add-
ons have nothing to do with financing and were not mentioned at all
during the sales process or when prices were initially negotiated.\70\
According to FTC enforcement actions, dealers also have represented
that add-ons are required when in fact they are not,\71\ have
misrepresented the purported benefits of add-ons, and have failed to
disclose material limitations.\72\
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\70\ See, e.g., Buckle Up, supra note 15, at 6 (observing that
the introduction of ``add-ons during financing discussions caused
several participants' total sale price to balloon from the cash
price'') & id. at 9 (observing for most consumers in the study,
``add-ons did not come up until the financing process, if at all,
after a long car-buying process and at a time when the consumer
often felt pressure to close the deal'') & id. at 8-9 (noting most
study participants' contracts included add-ons charges, but many
``were unclear what those add-ons included, and sometimes did not
realize they had purchased any add-ons at all'') & id. at 7
(explaining situations where the consumer reached the financing
office after negotiating with the sales staff, and were then told
the agreed upon price was not compatible with key financing terms--
for example, a promised rebate or discount could not be combined
with an advertised interest rate); Liberty Chevrolet, No. 1:20-cv-
03945 at ] 17 (S.D.N.Y. May 21, 2020).
\71\ Liberty Chevrolet, No. 1:20-cv-03945 at ]] 12-19 (S.D.N.Y.
May 21, 2020) (alleging deceptive and unauthorized add-on charges in
consumers' transactions); Universal City Nissan, No. 2:16-cv-07329
at ]] 59-64 (C.D. Cal. Sept. 29, 2016) (deceptive and unauthorized
add-on charges in consumers' transactions); TT of Longwood, No. C-
4531 at ]] 6, 9 (F.T.C. July 2, 2015) (misrepresentations regarding
prices for added features); see also Auto Buyer Study, supra note
11, at 14 (``Several participants who thought that they had not
purchased add-ons, or that the add-ons were included at no
additional charge, were surprised to learn, when going through the
paperwork, that they had in fact paid extra for add-ons. This is
consistent with consumers' experiencing fatigue during the buying
process or confusion with a financially complex transaction, but
would also be consistent with dealer misrepresentations.'').
\72\ Complaint, Nat'l Payment Network, Inc., No. C-4521 at ]] 4-
14 (F.T.C. May 4, 2015) (alleging failure to disclose fees
associated with financing program; misleading savings claims in
advertisements); Complaint, Matt Blatt, Inc., No. C-4532 at ]] 4-13
(F.T.C. May 4, 2015) (alleging failure to disclose fees associated
with financing program; misleading savings claims); Buckle Up, supra
note 15, at 10 (noting some Auto Buyer Study participants did not
fully understanding material aspects of extended warranties or
service plans they purchased and ``were surprised to discover during
the interview that their plans had unexpected limitations'' or
``they had to pay out-of-pocket for repairs or services that were
not covered''; for example, one ``consumer purchased a `Lifetime'
maintenance plan, only to discover later that he received a one-year
plan that covered periodic oil changes''). Cf. Consent Order,
Santander Consumer USA, Inc., CFPB No. 2018-BCFP-0008 at ]] 10-16
(Nov. 20, 2018) (finding defendant sold GAP product allegedly
providing ``full coverage'' to consumers with loan-to-value ratios
(``LTVs'') above 125%, when in fact coverage is limited to 125% of
LTV).
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Indeed, in a recent enforcement proceeding brought by the FTC, the
agency cited a survey finding that 83% of consumers from ten dealership
locations within the same motor vehicle dealership group--the
thirteenth largest dealership group in the country in 2020, as ranked
by total revenue--were charged for add-on products or services that
they did not authorize or as a result of deceptive claims that they
were required to purchase them.\73\
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\73\ N. Am. Auto. Servs., No. 1:22-cv-0169 at ] 27 (N.D. Ill.
Mar. 31, 2022); WardsAuto, WardsAuto 2020 Megadealer 100, <a href="https://www.wardsauto.com/dealers/wardsauto-2020-megadealer-100-industry-force">https://www.wardsauto.com/dealers/wardsauto-2020-megadealer-100-industry-force</a> (last visited Apr. 25, 2022) (listing Napleton Automotive
Group at the 13th-ranked dealership group by total revenue).
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One participant in an FTC qualitative study of consumers' car
buying experiences summed up these issues during an interview after
having purchased a vehicle. The consumer purchased a $2,000 service
contract that the dealer falsely said was free, and a $900 GAP
insurance contract that the dealer falsely said was mandatory, and
learned about these purchases during the study interview. This consumer
remarked:
I feel I've been taken advantage of, to be honest with you. Even
though I thought that I was getting a great deal with the interest
rate, but I now see that they're also very sneaky about putting stuff
on your paperwork. They only let you skim through the paperwork that
you have to sign and they just kind of tell you what it is. This is
this, this is that, this is this, and then you just sign it away.
You're so tired, you're so worn down, you don't want to be there no
more. You just want to get it done and over with. They take advantage
of that. Yes, they still play this friendly card, you know, thank you
for your business card kind of thing. Like I said, they never lose.
They never lose.\74\
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\74\ Auto Buyer Study: Appendix, supra note 66 (Study
participant 152288 at 130; see also Study participant 180267 at 202
(dealership included a charge for GAP insurance in the final
paperwork but not in retail sales contract); Study participant
146748 at 296 (consumer learned during interview with FTC that
consumer purchased GAP insurance: ``maybe they're just throwing that
in there without telling you.'')).
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III. Law Enforcement Actions and Other Responses
To address these types of unfair and deceptive practices in the
motor vehicle industry, the Commission has brought enforcement actions
and engaged in other efforts. In the last ten years, the Commission has
brought more than fifty law enforcement actions and led two law
enforcement sweeps to protect consumers in the motor vehicle
marketplace, including one that involved 181 state enforcement
actions.\75\
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\75\ Fed. Trade Comm'n, Enforcement Cases Tagged with
Automobiles, <a href="https://www.ftc.gov/legal-library/browse/cases-proceedings?sort_by=field_date&items_per_page=20&search=&field_competition_topics=All&field_consumer_protection_topics=All&field_federal_court=All&field_industry=1382&field_case_status=All&field_enforcement_type=All&search_matter_number=&search_civil_action_number=&start_date=&end_date=">https://www.ftc.gov/legal-library/browse/cases-proceedings?sort_by=field_date&items_per_page=20&search=&field_competition_topics=All&field_consumer_protection_topics=All&field_federal_court=All&field_industry=1382&field_case_status=All&field_enforcement_type=All&search_matter_number=&search_civil_action_number=&start_date=&end_date=</a> (last visited Apr. 25, 2022); Press Release, Fed. Trade
Comm'n, FTC Announces Sweep Against 10 Auto Dealers (Jan. 9, 2014),
<a href="https://www.ftc.gov/news-events/press-releases/2014/01/ftc-announces-sweep-against-10-auto-dealers">https://www.ftc.gov/news-events/press-releases/2014/01/ftc-announces-sweep-against-10-auto-dealers</a>; Press Release, Fed. Trade
Comm'n, Multiple Law Enforcement Partners Announce Crackdown on
Deception, Fraud in Auto Sales, Financing and Leasing (Mar. 26,
2015), <a href="https://www.ftc.gov/news-events/press-releases/2015/03/ftc-multiple-law-enforcement-partners-announce-crackdown">https://www.ftc.gov/news-events/press-releases/2015/03/ftc-multiple-law-enforcement-partners-announce-crackdown</a>.
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To complement its law enforcement efforts, the FTC's Bureau of
Consumer Protection and the Bureau of Economics recently published two
reports on the results of a qualitative study on consumer experiences
while purchasing a motor vehicle.\76\ The study found that many
participating consumers were left in the dark about key terms.
Consumers
[[Page 42018]]
recalled dealers renegotiating vehicle prices at different stages of
the transaction and being confused about the price of the vehicle.\77\
Despite the lengthy transaction, many study participants felt review of
the final documents was rushed and were surprised to learn of
additional add-on charges in their contracts.\78\
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\76\ Buckle Up, supra note 15; Auto Buyer Study, supra note 11.
\77\ Buckle Up, supra note 15, at 5-7.
\78\ Buckle Up, supra note 15, at 9.
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These are long-standing issues.\79\ In 2011, the agency reached out
to consumers through three motor vehicle roundtable events, reviewing
over 100 comments from industry representatives, consumer advocates,
and state enforcement agencies, among others who attended.\80\ Through
these events and comments, consumers expressed confusion regarding
aspects of the financing process and commented that they were surprised
when they reached the dealership that the price advertised was not
available to them.\81\
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\79\ See The Road Ahead: Selling Financing, and Leasing Motor
Vehicles, Transcript: Session 2, Washington DC (Nov. 2011), pp. 19-
23.
\80\ The FTC hosted three roundtable events requesting public
comments to gather information about possible consumer protection
issues that may arise in the sale, financing, and leasing of motor
vehicles. These events took place from April to November 2011 in
Detroit, Austin, and Washington DC. The Road Ahead: Selling
Financing, and Leasing Motor Vehicles (Apr. 2011, Aug. 2011, and
Nov. 2011), <a href="https://www.ftc.gov/news-events/events-calendar/2011/08/road-ahead-selling-financing-leasing-motor-vehicles">https://www.ftc.gov/news-events/events-calendar/2011/08/road-ahead-selling-financing-leasing-motor-vehicles</a>.
\81\ See Comment Letters on Public Roundtables: Protecting
Consumers in the Sale and Leasing of Motor Vehicles, Project No.
P104811, Submission Nos. 558507-00015, 558507-00026, 558507-00046,
558507-00051, 558507-00094, 558507-00099, available at <a href="https://www.regulations.gov/docket/FTC-2022-0036">https://www.regulations.gov/docket/FTC-2022-0036</a>; Consumers for Auto
Reliability and Safety, Comment Letter on Public Roundtables:
Protecting Consumers in the Sale and Leasing of Motor Vehicles,
Project No. P104811 at 5 (Apr. 1, 2012), <a href="https://www.ftc.gov/sites/default/files/documents/public_comments/public-roundtables-protecting-consumers-sale-and-leasing-motor-vehicles-project-no.p104811-00108/00108-82875.pdf">https://www.ftc.gov/sites/default/files/documents/public_comments/public-roundtables-protecting-consumers-sale-and-leasing-motor-vehicles-project-no.p104811-00108/00108-82875.pdf</a> (noting military command has gone
as far as banning servicemembers from conducting business from
certain auto dealerships because of ``abusive auto sales and
financing practices.'').
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The Commission's law enforcement partners have also brought actions
addressing unfair and deceptive practices in the motor vehicle
industry. For example, the Consumer Financial Protection Bureau has
taken action against third-party motor vehicle financing entities in
matters that raise similar, and sometimes identical, claims of
deceptive and unfair practices as were at issue in FTC cases.\82\
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\82\ The Consumer Financial Protection Bureau has brought at
least 16 enforcement actions involving motor vehicles, financing, or
add-on products and services. See Santander Consumer USA Inc., No.
2020-BCFP-0027 at ]] 8-50 (Dec. 22, 2020) (finding auto finance
company provided inaccurate records to credit reporting agencies);
Nissan Motor Acceptance Corp., No. 2020-BCFP-0017 at ]] 46-52 (Oct.
13, 2020) (finding auto finance company misrepresented financing
extension agreements, repossessions, and limitations to consumer
bankruptcy protections); Lobel Fin. Corp., No. 2020-BCFP-0016 at ]]
8-22 (Sept. 21, 2020) (finding auto-loan servicer charged consumers
unfair add-on charges in the form of Loss Damage Waiver premiums);
Santander Consumer USA Inc., No. 2018-BCFP-0008 at ]] 6-30 (Nov. 20,
2018) (finding auto finance company sold GAP to consumers with LTV
over 125%, misrepresenting such consumers would be fully covered
with total loss); Wells Fargo Bank, N.A., No. 2018-BCFP-0001 at ]]
27-39 (Apr. 20, 2018) (finding bank imposed duplicative or
unnecessary forced-placed auto loan insurance on consumers); Toyota
Motor Credit Corp., No. 2016-CFPB-0002 at ]] 12-23 (Feb. 2, 2016)
(finding auto finance company engaged in discriminatory pricing
markup for motor vehicle financing, without regard to credit
worthiness); Y King S. Corp., No. 2016-CFPB-0001 at ]] 73-75 (Jan.
21, 2016) (finding used car dealer failed to disclose mandatory add-
ons as financing charge); Interstate Auto Grp., Inc. & Universal
Acceptance Corp., No. 2015-CFPB-0032 at ]] 12-51 (Dec. 17, 2015)
(finding dealership and financing company reported information they
knew or had reasonable cause to believe was inaccurate to credit
reporting entities, harming consumer credit); Westlake Servs., LLC,
No. 2015-CFPB-0026 at ]] 7-90 (Sept. 30, 2015) (finding indirect
auto financing entity used illegal debt collection tactics); Fifth
Third Bank, No. 2015-CFPB-0024 at ]] 8-23 (Sept. 28, 2015) (finding
discrimination against loan applicants in credit applications based
on characteristics such as race and national origin); Am. Honda Fin.
Corp., No. 2015-CFPB-0014 ]] at 9-24 (Jul. 14, 2015) (same);
DriveTime Auto Grp., Inc., No. 2014-CFPB-0017 at ]] 4-60 (Nov. 19
2014) (finding buy-here-pay-here dealership made harassing debt
collection calls and provided inaccurate credit information to
credit reporting agencies); First Investor Fin. Servs. Grp., Inc.,
No. 2014-CFPB-0012 at ]] 4-37 (Aug. 20, 2014) (finding auto
financing company provided inaccurate records to credit reporting
agencies); Ally Fin. Inc., No. 2013-CFPB-0010 at ]] 7-27 (Dec. 20,
2013) (finding auto lender charged discriminatory pricing to
African-American, Hispanic, and Asian and Pacific Islander
borrowers); U.S. Bank Nat'l Ass'n, No. 2013-CFPB-0004 at ]] 14-28
(June 26, 2013) (finding bank failed to properly disclose all the
fees charged to participants in the companies' Military Installment
Loans and Educational Services auto loans program, and
misrepresented the true cost and coverage of add-on products
financed along with the auto loans); Dealers' Fin. Servs., LLC, No.
2013-CFPB-0004 at ]] 10-22 (June 2013) (finding financing company
made deceptive statements regarding the cost of add-on products and
the scope of coverage of the Vehicle Service Contract).
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States have also taken measures to address consumer protection
issues in the motor vehicle industry. In addition to participating in
law enforcement sweeps with the FTC,\83\ state regulators and Attorneys
General have independently filed more than 200 actions alleging
deceptive and unlawful conduct by motor vehicle dealerships across the
country.\84\
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\83\ Operation Steer Clear and Operation Ruse Control brought
with state law enforcement partners around the nation and Canada,
encompassed over 246 enforcement actions. Press Release, Fed. Trade
Comm'n, Multiple Law Enforcement Partners Announce Crackdown on
Deception, Fraud in Auto Sales, Financing and Leasing (Mar. 26
2015), <a href="https://www.ftc.gov/news-events/press-releases/2015/03/ftc-multiple-law-enforcement-partners-announce-crackdown">https://www.ftc.gov/news-events/press-releases/2015/03/ftc-multiple-law-enforcement-partners-announce-crackdown</a>.
\84\ For example, in a recent action, California Attorney
General's office sued a dealership chain under state consumer
protection laws for deceiving consumers about add-on product charges
and misrepresenting consumers' income on credit applications; the
alleged practices specifically targeted low-income consumers with
subprime credit. People of the State of California v. Paul Blanco's
Good Car Co. Auto Grp., No. RG19036081 (Alameda County Super. Ct.
Sept. 2019).
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Some states have also taken legislative or regulatory action.\85\
For example, to ``ensure that dealers do not add in hidden or
undisclosed costs after the price for a vehicle has been advertised,''
Oregon promulgated a rule that requires dealerships to state an
``offering price'' which is the actual offer and amount the consumer
can pay to own the vehicle, excluding only taxes, license, registration
costs, environmental fees, and a document processing fee.\86\
California and Wisconsin have similarly enacted codes that make it
unlawful for dealerships to advertise a total price without including
additional costs to the purchaser outside the mandatory tax, title, and
registration fees.\87\ Other states, like Indiana, have enacted codes
that prohibit the sale of add-ons in certain circumstances.\88\
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\85\ See, e.g., Cal. Veh. Code sec. 11713.1(b)-(c); Or. Admin.
R. 137-020-0020(3)(c); Wis. Admin. Code. Trans 139.03(3).
\86\ Or. Admin. R. 137-020-0020(3)(c); Official Commentary, Or.
Admin. R. 137-020-0020(3)(c).
\87\ Cal. Veh. Code sec. 11713.1(b)-(c); Wis. Admin. Code. Trans
139.03(3).
\88\ Ind. Code sec. 24-4.5-3-202 (3)(e)(ix) (2018) (prohibiting
the sale of any GAP program when the LTV <80%).
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IV. Section-by-Section Analysis
Based on its enforcement and other experience, the Commission
proposes specific legal restrictions to address deceptive and unfair
conduct by motor vehicle dealers. Thus, the Commission is proposing a
rule requiring dealers, whether acting directly or indirectly, to
refrain from misrepresentations, provide for material disclosures at
key points in the transaction, refrain from the sale of deceptive or
unfair add-on products, and require retention of dealers'
advertisements and consumer transaction documents.
While the proposed rule is an important step in the effort to
prevent harm to consumers in the motor vehicle marketplace, a
comprehensive approach is needed to address the important consumer
protections at issue. Therefore, in addition to this rulemaking
initiative, the Commission intends to continue law enforcement, as well
as its consumer education and other efforts, to ensure that consumers
can make informed decisions about
[[Page 42019]]
purchasing, financing, and leasing motor vehicles. The Commission also
intends to continue its constructive engagement with consumer and
dealer groups and other stakeholders.
The Commission invites written comments on the proposed rule, and,
in particular, answers to the specific questions set forth below.
A. Section 463.1: Authority
Proposed Sec. 463.1 identifies the statutory authority under which
the Commission proposes to promulgate this Rule to prevent unfair or
deceptive acts or practices in connection with the sale, lease, or
financing of motor vehicles.
B. Section 463.2: Definitions
Proposed Sec. 463.2 contains definitions for the following terms:
``Add-on'' or ``Add-on Product(s) or Service(s),'' ``Add-on List,''
``Cash Price without Optional Add-ons,'' ``Clearly and Conspicuously,''
``Dealer'' or ``Motor Vehicle Dealer,'' ``Express, Informed Consent,''
``GAP Agreement,'' ``Government Charges,'' ``Material'' or
``Materially,'' ``Motor Vehicle,'' and ``Offering Price.'' Each of
these terms is used in the proposed rule.
C. Section 463.3: Prohibited Misrepresentations
Section 463.3 of the proposed rule would prohibit motor vehicle
dealers from making certain misrepresentations, to address the
deceptive practices surrounding motor vehicle transactions discussed
above and emerging from the landscape of enforcement actions,
workshops, industry and consumer studies, and consumer interviews and
complaints. As discussed in Section III above, a representation,
omission, or practice is deceptive if it is likely to mislead consumers
acting reasonably under the circumstances and is material to
consumers.\89\
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\89\ See supra note 53 (citing FTC Policy Statement on
Deception).
---------------------------------------------------------------------------
This section seeks to prohibit deceptive representations to
consumers, clarify dealers' obligations under the law, and ensure that
motor vehicle dealers compete on a level playing field. The prohibited
misrepresentations in this section of the proposed rule are material
because they are likely to affect a consumer's choices, such as whether
to visit a particular dealership or enter into a transaction.\90\ These
misrepresentations also harm consumers and divert business from
reputable dealerships that provide truthful advertising to consumers.
Consumers who select and travel to dealerships based on an advertised
offer, only to learn late in the process (if at all) that the
advertised offer does not apply, have often spent hours trying to
purchase a car. Even if they notice and successfully resist later-added
fees, or leave after learning that advertised discounts and rebates do
not apply to them, misleading advertisements cause them to waste hours
driving to and visiting the dealership.\91\ For many consumers,
however, walking away is not a realistic option--for example,
restarting the hours-long process at another dealership might mean
having to take an additional day off work, and for those who cannot
afford a second car, finding other means of transportation to travel to
another dealership. Thus, even if they somehow learn that they are
paying more than what was advertised, consumers might just sign the
deal rather than start the entire process anew. In other instances, as
discussed below, consumers learn that they did not receive the offer as
represented only after they enter into the contract and end up spending
hundreds or even thousands of dollars more than they were led to
believe.
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\90\ As noted above, ``material''--as used in the proposed rule
and throughout this Notice of Proposed rulemaking--means likely to
affect the consumer's conduct or decisions with regard to a product
or service. See supra note 53 (citing FTC Policy Statement on
Deception); In re Sanctuary Belize Litig., 482 F. Supp. 3d 373, 397
(D. Md. 2020) (``Representations with respect to . . . [a product's]
cost are also presumptively material.'') (citing In re Thompson Med.
Co., Inc., 104 F.T.C. 648 (1984)); see also FTC v. Crescent Pub.
Grp., Inc., 129 F. Supp. 2d 311, 321 (S.D.N.Y. 2001).
\91\ See, e.g., Matthew Jones, Bruce Kobayashi & Jason O'Connor,
Economics at the FTC: Non-Price Merger Effects and Deceptive
Automobile Ads 12-26 (2018), also published at 53 Rev. Indust. Org.
593 (2018), <a href="https://www.ftc.gov/system/files/documents/reports/economics-ftc-non-price-merger-effects-deceptive-automobile-ads/1812-be-rio.pdf">https://www.ftc.gov/system/files/documents/reports/economics-ftc-non-price-merger-effects-deceptive-automobile-ads/1812-be-rio.pdf</a> (developing and discussing a model for quantifying
the consumer injury from deceptive motor vehicle ads, in which
injury occurs because such ads persuade consumers ``to spend time
and effort to visit the dealership, when they might otherwise have
pursued a legitimate offer elsewhere'').
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Section 463.3(a) of the proposed rule would prohibit
misrepresentations concerning ``[t]he costs or terms of purchasing,
financing, or leasing a vehicle.'' This provision would bar deceptive
practices surrounding, among other things, the total cost, price for
added features, other charges, terms and finality of financing, and
availability of discounts.\92\ The cost or price of a vehicle is
material--it is likely to affect a consumer's conduct, including
whether to purchase a particular vehicle at a particular dealership.
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\92\ See, e.g., Liberty Chevrolet, No. 1:20-cv-03945 at ]] 10-11
(S.D.N.Y. May 21, 2020) (alleging false ads stating a certain price
but charging consumers higher prices); Tate's Auto Ctr., No. 3:18-
cv-08176-DJH at ]] 38-46 (D. Ariz. July 31, 2018) (alleging false
ads touting attractive terms but concealing (i) ads were for lease
offers only and required substantial initial payment, (ii) discounts
were subject to material limitations, or (iii) other legally
required disclosures); Complaint, In re Cowboy AG, LLC, No. C-4639
at ]] 7-16 (F.T.C. Jan. 4, 2018) (alleging false ads touting
attractive terms, but concealing substantial down payments, offers
were for leases and not purchases, material eligibility
restrictions, and other legally required disclosures); Universal
City Nissan, No. 2:16-cv-07329 (C.D. Cal. Sept. 29, 2016) (alleging
misrepresentation of lease, credit, or purchase terms; lease terms
were for purchases; add-ons were authorized, free, or required; and
the finality of financing transactions or consequences when
financing falls through. Failing to disclose TILA/CLA trigger
terms); Complaint, In re Jim Burke Automotive, Inc., No. C-4523 at
]] 6-14 (F.T.C. May 4, 2015) (alleging misrepresentations regarding
vehicle purchase price and promising prices and discounts not
generally available to consumers); Complaint, In re City Nissan,
Inc., No. C-4524 at ]] 8-10, 12 (F.T.C. May 4, 2015) (alleging
misrepresentations regarding lease and finance terms); TT of
Longwood, No. C-4531 at ]] 6-12 (F.T.C. July 2, 2015) (alleging
misrepresentations regarding vehicle purchase price and prices for
added features, promising prices and discounts not generally
available to consumers, and misrepresentations regarding finance and
lease terms); Complaint, In re Courtesy Auto Grp., Inc., No. 9359 at
]] 5-7 (F.T.C. Jan. 7, 2014) (alleging misrepresentation regarding
lease terms); Complaint, In re New World Auto Imports, Inc., No. C-
4437 at ]] 8-11 (F.T.C. Feb. 20, 2014) (alleging misrepresentations
regarding monthly finance payments and lease terms); Complaint, In
re Ramey Motors, Inc., No. C-4354 at ]] 4-5 (F.T.C. Apr. 19, 2012)
(alleging false ads promising to pay off consumers' existing motor
vehicle debt and failing to disclose legally required financing
terms); Complaint, In re Billion Auto, Inc., No. C-4356 at ]] 4-6
(F.T.C. May 1, 2012) (alleging false ads promising to pay off
consumers' existing motor vehicle debt and failing to disclose
legally required financing and leasing terms.); see also Buckle Up,
supra note 15, at 5 (noting ``[a]dvertisements with misleading
financing terms (as well as those with deceptive price and discount
offers) remain a concern, and stating ``[d]ealers should make only
accurate and non-misleading advertising claims to consumers,
advertise terms that are actually available, and clearly and
conspicuously disclose material qualifications or limitations on any
advertised deal''); Auto Buyer Study, supra note 11, at 14 (noting,
in a 2016 study by the Consumer Financial Protection Bureau,
``consumers reported that lenders insisted that the purchase of add-
ons were necessary for the financing to be approved'').
---------------------------------------------------------------------------
Section 463.3(b) of the proposed rule would prohibit
misrepresentations concerning any ``costs, limitation, benefit, or any
other Material aspect of an Add-on Product or Service.'' As discussed
above, add-ons are a particularly problematic area in auto sales and
financing. The cost and coverage of an add-on is likely to affect a
consumer's conduct, including the consumer's decision to purchase the
product or service.
Section 463.3(c) of the proposed rule would prohibit
misrepresentations regarding ``[w]hether the terms are, or transaction
is, for financing or a lease.'' If a dealer advertises vehicles for low
monthly payments or other terms that
[[Page 42020]]
apply in financing offers, but the offer is actually for a lease only,
that conduct misleads consumers.\93\ These representations are likely
to affect consumers' conduct, including by causing consumers to enter
into a monetary transaction for a product they do not want (borrowing
instead of owning), or, if the true circumstances are revealed prior to
consummation of the transaction, to waste time traveling to the
dealership and potentially spending hours on the sales floor and
financing office.
---------------------------------------------------------------------------
\93\ See Tate's Auto Ctr., No. 3:18-cv-08176-DJH at ]] 38-39 (D.
Ariz. July 31, 2018) (alleging false ads touting attractive terms
but concealing ads were for lease offers only); Complaint, In re TC
Dealership, L.P., No. C-4536 at ]] 10, 13 (F.T.C. Aug. 13, 2015)
(same); Cowboy AG, LLC, No. C-4639 at ]] 9-12 (F.T.C. Jan. 4, 2018)
(same); New World Auto Imports, No. 3:16-cv-02401-K at ]] 36-38
(N.D. Tex. Aug. 18, 2016) (alleging misrepresentation that terms
were for financing instead of leasing); Universal City Nissan, No.
2:16-cv-07329 at ]] 28-37, 44 (C.D. Cal. Sept. 29, 2016) (alleging
advertisements with key terms that were not generally available).
---------------------------------------------------------------------------
Section 463.3(d) of the proposed rule would prohibit
misrepresentations concerning ``[t]he availability of any rebates or
discounts that are factored into the advertised price but not available
to all consumers.'' When dealers advertise rebates and discounts, or
offer prices that factor in such rebates and discounts, but in fact
those rebates and discounts are not available to the typical consumer,
but only a select set of customers, such conduct induces the consumer
to select and transact with the dealer under false pretenses.\94\ In
other instances, the advertised rebates and discounts might apply only
to the most expensive versions of the make and model.\95\ Consumers may
learn they do not qualify for these advertised rebates or discounts, if
at all, only after they spend time traveling to the dealership or at
the end of the financing stage.\96\
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\94\ See Tate's Auto Ctr., No. 3:18-cv-08176-DJH, ]] 41-43 (D.
Ariz. July 31, 2018) (alleging false ads touting attractive terms
and discounts but concealing material limitations); Complaint, In re
JS Autoworld, Inc., No. C-4535 at ]] 8-9 (F.T.C. Aug. 13, 2015)
(alleging false ads touting prices but concealing discounts with
material eligibility limitations); TC Dealership, L.P., No. C-4536
at ]] 7-9 (F.T.C. Aug. 13, 2015) (alleging false ads touting
attractive prices but concealing discounts were subject to material
eligibility limitations and trade-in requirement); TXVT Ltd. P'ship,
No. C-4508 at ] 14 (F.T.C. Feb. 12, 2015) (alleging false ads failed
to disclose that it would match consumers' income tax refunds only
up to $1,000); Timonium Chrysler, No. C-4429 at ]] 4-5 (F.T.C. Jan.
28, 2014) (alleging false ads touting pricing and discounts but
concealing material qualifications and restrictions); TT of
Longwood, No. C-4531 at ]] 6, 9 (F.T.C. July 2, 2015) (alleging
promises of prices and discounts not generally available to
consumers); Jim Burke Automotive, No. C-4523 at ]] 6-13 (F.T.C. May
4, 2015) (alleging promises of prices and discounts not generally
available to consumers); see also Auto Buyer Study, supra note 11,
at 8 (``A number of [study] participants were attracted by
promotional offers in ads that they did not qualify for, but did not
realize that they did not qualify until they got to the dealer. Some
did not learn that they did not qualify until they got to the
financing stage of the transaction.'').
\95\ Ganley Ford West, No. C-4428 at ] 5 (F.T.C. Jan. 28, 2014)
(alleging false ads touting price discount but concealing offer was
limited to certain high-end models).
\96\ For example, one consumer had reached a three-year
financing agreement with the dealership salesman over the phone,
which would include a $4,300 rebate to reduce their purchase price,
only to walk into the dealership and be told at the financing office
the rebates were only offered with seven-year financing agreements.
Auto Buyer Study, supra note 11, at Supp. Appx 90-91.
---------------------------------------------------------------------------
Section 463.3(e) and (f) of the proposed rule would prohibit
misrepresentations surrounding ``[t]he availability of vehicles at an
advertised price'' and representations that a consumer has been or will
be ``preapproved or guaranteed for any product, service, or term.''
This provision would prohibit dealers from first touting low prices or
other attractive terms for specific vehicles and inducing consumers to
spend time traveling to the dealership and pursuing the offer, but then
claiming, among other things, that the advertised vehicle is no longer
available, no longer available at the advertised price, or that the
financing offer is only available to those with high credit scores.\97\
To the extent that dealers are advertising prices, preapprovals,
guaranteed rates, or other terms for military consumers, but then
charging the same prices to other consumers or otherwise failing to
honor the deal, the proposed rule would cover such conduct as well.
This information is material because it is likely to affect consumers'
conduct, including whether to spend time traveling to a particular
dealership and pursuing a specific offer on a specific car.
---------------------------------------------------------------------------
\97\ Liberty Chevrolet, No. 1:20-cv-03945 at ]] 10-11 (S.D.N.Y.
May 21, 2020) (alleging false ads stating a certain price but then
charging consumers higher prices than advertised); Tate's Auto Ctr.,
No. 3:18-cv-08176-DJH at ]] 41-43 (D. Ariz. July 31, 2018) (alleging
false ads touting attractive terms but concealing discounts were
subject to material limitations); Complaint, Cowboy AG, No. C-4639
at ]] 7-14 (F.T.C. Jan. 4, 2018) (alleging false ads touting
attractive terms but concealing material eligibility restrictions
and certain advertised vehicles not available for sale); Complaint,
FTC v. Norm Reeves, Inc., No. 8:17-cv-01942 at ]] 28-30 (C.D. Cal.
Nov. 3, 2017) (alleging deceptive representations regarding monthly
payments being available to consumers while concealing credit
restrictions); New World Auto Imports, No. 3:16-cv-02401-K at ]] 36-
38 (N.D. Tex. Aug. 18, 2016) (alleging deceptive representations
regarding monthly and down payments being available to consumers
with repossessions or foreclosures and concealing restrictions
making the offer available only to consumers with good credit);
Progressive Chevrolet Co., No. C-4578 at ]] 5-7 (F.T.C. June 13,
2016) (alleging ads touting attractive terms but failure to disclose
high credit score requirement); JS Autoworld, No. C-4535 at ]] 8-9
(F.T.C. Aug. 13, 2015) (alleging false ads touting attractive prices
but concealing discounts with material eligibility limitations);
Complaint, TC Dealership, No. C-4536 at ]] 7-9 (F.T.C. Aug. 13,
2015) (alleging false ads touting attractive price but concealing
discounts were subject to material eligibility limitations and
trade-in requirement); Complaint, FTC v. Ramey Motors, Inc., No.
1:14-cv-29603, ]] 21-23 (S.D.W. Va. Dec. 11, 2014) (alleging false
ads touting attractive terms but concealing substantial down
payments or trade-in requirements); Timonium Chrysler., No. C-4429
at ]] 4-5 (F.T.C. Jan. 28, 2014) (alleging false ads touting pricing
and discounts but concealing material qualifications and
restrictions); Ganley Ford West, No. C-4428 at ] 5 (F.T.C. Jan. 28,
2014) (alleging false ads touting price discount but concealing
offer was limited to certain high-end models); Complaint, United
States v. Billion Auto, Inc., No. 5:14-cv-04118-MWB, ]] 38-40 (N.D.
Iowa 2014) (alleging false ads touting attractive terms but
concealing material eligibility limitations and significant extra
costs); see also Adam J. Levitin, The Fast and the Usurious: Putting
the Brakes on Auto Lending Abuses, 108 Geo. L.J. 1257, 1282 (2020),
<a href="https://www.law.georgetown.edu/georgetown-law-journal/wp-content/uploads/sites/26/2020/05/Levitin_The-Fast-and-the-Usurious-Putting-the-Brakes-on-Auto-Lending-Abuses.pdf">https://www.law.georgetown.edu/georgetown-law-journal/wp-content/uploads/sites/26/2020/05/Levitin_The-Fast-and-the-Usurious-Putting-the-Brakes-on-Auto-Lending-Abuses.pdf</a> (discussing dealership tactic
of advertising one vehicle and then claiming it has been sold to
upsell consumer to a different vehicle).
---------------------------------------------------------------------------
Section 463.3(g) of the proposed rule would prohibit dealers from
misrepresenting ``[a]ny Material information on or about a consumer's
application for financing.'' Material misrepresentations on or about a
consumer's financing application include instances in which dealers
submit income information that is different from what consumers have
stated that they earn, or alter the down payment amount from what the
consumer has actually provided.\98\
---------------------------------------------------------------------------
\98\ Tate's Auto Ctr., No. 3:18-cv-08176-DJH, ]] 18-21, 25 (D.
Ariz. July 31, 2018) (alleging dealership falsified consumers'
monthly income and down payments on financing applications and
financing contracts); People of the State of California v. Paul
Blanco's Good Car Co. Auto Grp., Case No. RG19036081 (Sept. 2019).
---------------------------------------------------------------------------
Section 463.3(h) and (i) of the proposed rule would prohibit
dealers from misrepresenting ``[w]hen the transaction is final or
binding on all parties'' and making misrepresentations about
``[k]eeping cash down payments or trade-in vehicles, charging fees, or
initiating legal process or any action if a transaction is not
finalized or if the consumer does not wish to engage in a
transaction.'' These provisions are intended to curb yo-yo financing,
which occurs when a dealer obtains a consumer's agreement to a deal
that has not been finalized, allows the consumer to drive the vehicle
off the lot, and then directs the consumer to return and engages in
unlawful tactics, such as failing to give back a consumer's trade-in
vehicle, while refusing to honor the deal or pressuring the consumer
into entering a new deal.\99\ Yo-yo financing
[[Page 42021]]
is often made possible because a dealer misleads consumers, directly or
by omission, about whether their financing is final, and subsequently
applies pressure when revealing that the financing is not final,
including by threatening to retain the consumer's cash down payment or
trade-in vehicle unless the consumer agrees to a new financing
contract.\100\ These tactics affect consumer conduct, including whether
to enter into a new deal with less beneficial terms for the consumer.
Several states have enacted statutes to protect consumers against this
practice.\101\
---------------------------------------------------------------------------
\99\ Universal City Nissan, No. 2:16-cv-07329 at ]] 67-72 (C.D.
Cal. Sept. 29, 2016); State ex rel. Dewine v. Dads Car Lot Inc., No.
13CV4036, 2014 Ohio Misc. LEXIS 10987, at *4 (Ct. Com. Pl. June 6,
2014) (finding defendant violated state consumer sales protection
act by including ``spot delivery'' document that allowed defendant
to keep ``all funds on deposit''); Att'ys General of 31 States & DC,
Comment Letter on Public Roundtables: Protecting Consumers in the
Sale and Leasing of Motor Vehicles, Project No. P104811, Submission
No. 558507-00112 at 4 (Apr. 13, 2012), available at <a href="https://www.regulations.gov/docket/FTC-2022-0036">https://www.regulations.gov/docket/FTC-2022-0036</a> (recommending, among other
rules aimed at deterring yo-yo sales, FTC adopt rules that would
require dealers to disclose the consumer's ``right to walk away'' if
financing is rejected and, in the context of spot delivery, to
disclose financing has not been finalized as well as the
responsibilities and potential consequences for consumers); Legal
Aid Justice Ctr., Comment Letter on Public Roundtables: Protecting
Consumers in the Sale and Leasing of Motor Vehicles, Project No.
P104811, Submission No. 558507-00066 (Jan. 30, 2012) available at
<a href="https://www.regulations.gov/docket/FTC-2022-0036">https://www.regulations.gov/docket/FTC-2022-0036</a> (explaining that in
a yo-yo sale the dealer misrepresents to the consumer credit has
been finalized, when in fact the dealer treats the sale as
contingent, retaining the ability call off or seize the vehicle
later; a ``yo[hyphen]yo case can result in substantial distress to
the person who has been tricked''; and ``the harm to the marketplace
occurs when the consumer believes a credit sale has been completed
and stops shopping for a car on credit''); Nat'l Consumer Law Ctr.,
In Harm's Way--At Home: Consumer Scams and the Direct Targeting of
America's Military and Veterans 41 (May 2003), <a href="https://www.nclc.org/images/pdf/special_projects/military/report-scams-facing-military.pdf">https://www.nclc.org/images/pdf/special_projects/military/report-scams-facing-military.pdf</a> (listing ``spot delivery'' or ``yo-yo sales'' among
scams commonly aimed at military members).
\100\ See, e.g., Delvin Davis, Ctr. for Responsible Lending,
Deal or No Deal: How Yo-Yo Scams Rig the Game against Car Buyers,
submitted as an attachment to Comment #558507-00104 on Public
Roundtables: Protecting Consumers in the Sale and Leasing of Motor
Vehicles, Project No. P104811 at 1, 5-6 (Apr. 2, 2012), <a href="https://www.ftc.gov/sites/default/files/documents/public_comments/public-roundtables-protecting-consumers-sale-and-leasing-motor-vehicles-project-no.p104811-00104/00104-82860.pdf">https://www.ftc.gov/sites/default/files/documents/public_comments/public-roundtables-protecting-consumers-sale-and-leasing-motor-vehicles-project-no.p104811-00104/00104-82860.pdf</a>.
\101\ See Alaska Stat. secs. 45.25.500, 45.25.610(c)
(prohibiting dealers from transferring title to a trade-in vehicle
or performing any repairs/reconditioning before completing sales
transaction, and requiring specific disclosures to consumers
regarding spot delivery); Ariz. Rev. Stat. sec. 44-1371 (prohibiting
sale of trade-in before financing is finalized); Ark. Code. Ann.
sec. 23-112-316 (prohibiting dealers from depositing money from
consumer or selling a trade-in before financing is finalized and
permitting consumer to cancel purchase if dealer changes any terms
or consumer does not obtaining the financing agreed upon); Colo.
Rev. Stat. sec. 6-1-708 (prohibiting spot delivery tactics and
requiring dealers to return any collateral or down payment if
financing is not approved and the consumer is required to return the
vehicle); Nev. Rev. Stat. sec. 482.554(2)(a) (protecting against
misrepresentations surrounding spot delivery); N.H. Rev. Stat. Ann.
sec. 361-A:10-b (requiring dealers to return trade-in, deposit, and
fees, if financing is not approved); Or. Rev. Stat. sec. 646A.090
(requiring dealers to return trade-in vehicle if financing is not
approved).
---------------------------------------------------------------------------
Section 463.3(j) of the proposed rule would prohibit
misrepresentations regarding ``[w]hether or when a Motor Vehicle Dealer
will pay off some or all of the financing or lease on a consumer's
trade-in vehicle.'' This provision would prohibit dealers from
misrepresenting to consumers trading in a vehicle when the consumer
owes more than the vehicle is worth, that the dealer will pay off that
negative balance or negative equity when the consumer purchases a new
vehicle. If the dealer does not pay off the negative balance but rather
includes it in the new amount to be financed for the vehicle to be
purchased, this sleight of hand (often buried in the financing
paperwork) requires the consumer, not the dealer, to pay off the
previous financing as promised.\102\ This provision would also prohibit
dealers that are going out of business from representing that they will
pay off liens if they do not, in fact, pay off the liens, and prohibit
them from failing to pay off liens in a timely manner. This information
is material because information about the amount the consumer is
actually paying or will end up owing is likely to affect the consumer's
decision to visit a particular dealership and purchase a particular
vehicle.
---------------------------------------------------------------------------
\102\ Universal City Nissan, No. 2:16-cv-07329 at ]] 28-34, 54-
55 (C.D. Cal. Sept. 29, 2016) (alleging failure to disclose
remaining amount due on trade-in would be added to the consumer's
new financing or lease balance); Ramey Motors, No. C-4354 at ] 4
(F.T.C. Apr. 19, 2012) (alleging false ads promising to pay off
consumers' existing motor vehicle debt); Billion Auto, No. C-4356 at
] 4 (F.T.C. May 1, 2012) (alleging false ads promising to pay off
consumers' existing motor vehicle debt); TXVT Ltd. P'ship, No. C-
4508 at ]] 7-11 (F.T.C. Feb. 12, 2015) (alleging false ads that
consumers could exit existing debt or leases for $1); Complaint, In
re Frank Myers Automaxx, LLC, No. C-4353 at ] 4 (F.T.C. Apr. 19,
2012) (alleging false ads promising to pay off consumers' existing
motor vehicle debt and leases); Key Hyundai of Manchester, No. C-
4358 at ] 6 (F.T.C. May 4, 2012) (alleging false ads promising to
pay off consumers' existing motor vehicle debt and leases); see also
Auto Buyer Study, supra note 11, at 13 (noting a participant was
``surprised'' to learn during the study interview the dealer had
rolled negative equity into her new financing).
---------------------------------------------------------------------------
Section 463.3(k) of the proposed rule would prohibit
misrepresentations that consumer reviews or ratings are unbiased,
independent, or from ordinary consumers, and Sec. 463.3(l) of the
proposed rule would similarly prohibit misrepresentations that ``the
Dealer or any of its personnel or products or services is or was
affiliated with, endorsed or approved by, or otherwise associated with
the United States government or any Federal, State, or local government
agency, unit, or department, including the United States Department of
Defense or its Military Departments.'' The FTC has combatted such
misrepresentations in enforcement actions.\103\ Claims that products
and services are endorsed by other impartial consumers or the
government are material to consumers' decision-making because a
consumer is more likely to visit a dealership and select a vehicle that
has been approved by an impartial consumer or a government entity.
---------------------------------------------------------------------------
\103\ See Universal City Nissan, No. 2:16-cv-07329 at ]] 73-78
(C.D. Cal. Sept. 29, 2016) (alleging posting by dealership of
positive, five-star reviews on third-party websites that falsely
purport to be objective or independent); Complaint, FTC v. Passport
Imports, Inc., No. 8:18-cv-03118 at ] 20 (D. Md. Oct. 10, 2018)
(alleging Defendants misled consumers by mailing notices that were
similar to and had the same color scheme as notices manufacturers
are required by the US Department of Transportation's NHTSA to use
when sending information about recalls); Complaint, United States v.
Sunkey Publ'g, Inc., No. 3:18-cv-01444 at ]] 14-112 (N.D. Ala. Sept.
6, 2018) (alleging deceptive educational marketing and lead
generation that targeted potential military recruits and used a
series of false representations of military affiliation and
endorsement to induce recruits to submit their information and agree
to future contacts).
---------------------------------------------------------------------------
Section 463.3(m) of the proposed rule would prohibit
misrepresentations that ``consumers have won a prize or sweepstakes.''
\104\ Like the other provisions in Sec. 463.3, these claims are
material and harm consumers by inducing a consumer to choose and
transact with a particular dealership under false pretenses.
---------------------------------------------------------------------------
\104\ See Fowlerville Ford, No. C-4433 at ] 4 (F.T.C. Feb. 20,
2014) (alleging misrepresentation that consumers have won a prize
that can be collected at a dealership).
---------------------------------------------------------------------------
Section 463.3(n) of the proposed rule would prohibit
misrepresentations regarding ``[w]hether, or under what circumstances,
a vehicle may be moved, including across state lines or out of the
country.'' This provision would prevent dealers from making
misrepresentations about any liens or other restrictions that prevent
or hinder consumers' ability to move the vehicle beyond certain
boundaries. The manner in which a consumer can move a vehicle is likely
to affect the consumer's decision to purchase a vehicle, including
decisions of military consumers who may frequently need to move.
Section 463.3(o) of the proposed rule would prohibit
misrepresentations regarding ``[w]hether, or under what circumstances,
a vehicle may be repossessed.'' This provision would prevent dealers
from making
[[Page 42022]]
misrepresentations that they may repossess a vehicle, when they cannot.
For example, the Servicemembers Civil Relief Act prohibits repossession
of vehicles during a servicemember's period of military service without
a court order as long as the servicemember either placed a deposit for
the vehicle, or made at least one installment payment on the contract
before entering military service.\105\ Thus, this provision would
prevent dealers from representing that they could repossess military
consumers' vehicles under these circumstances. Information about when a
vehicle may be repossessed is likely to affect a consumer's conduct,
including the consumer's conduct regarding which payments to prioritize
while serving our country.
---------------------------------------------------------------------------
\105\ 50 U.S.C. 3952.
---------------------------------------------------------------------------
Section 463.3(p) of the proposed rule would prohibit
misrepresentations of ``[a]ny of the required disclosures identified in
this part,'' including but not limited to representations that limit or
contradict the required disclosures. This prohibition against
misrepresentations complements the disclosure requirements in the
proposed rule.
D. Sec. 463.4: Disclosure Requirements
Section 463.4 of the proposed rule would require key disclosures by
dealers. The proposed rule would require that such disclosures be made
in a clear and conspicuous manner, but would not prescribe the form
that such disclosures must take.
Proposed Sec. 463.4(a) through (e) would require disclosures
regarding pricing and certain financing information. Providing
consumers with accurate and timely pricing and financing information is
critical, especially in the context of motor vehicle sales and leasing,
where such information has proved singularly confusing to
consumers.\106\ Such confusion is heightened when, as discussed above,
advertisements list vehicle prices that are lower than that at which
the dealer will sell or lease the vehicle, including because of
incremental charges and fees added to an hours-long transaction as it
develops.
---------------------------------------------------------------------------
\106\ See, e.g., Buckle Up, supra note 15, at 5 (noting consumer
confusion about how the vehicle price they were offered was
determined and consumers did not understand they could negotiate
price); id. at 9 (observing add-on products and services, which
typically increase a vehicle's purchase price, were ``the single
greatest area of confusion'' in the study); Att'ys General of 31
States & DC, Comment Letter on Public Roundtables: Protecting
Consumers in the Sale and Leasing of Motor Vehicles, Project No.
P104811, Submission No. 558507-00112 at 5 (Apr. 13, 2012), available
at <a href="https://www.regulations.gov/docket/FTC-2022-0036">https://www.regulations.gov/docket/FTC-2022-0036</a>.
---------------------------------------------------------------------------
Misleading and false price and financing information hinder
consumers' ability to comparison shop, an essential element to a
competitive market. If buyers can see and compare the actual prices and
costs for the same or similar goods offered by different sellers,
buyers can choose to visit the seller that offers the terms most
important to them, instead of wasting time and expense exploring offers
based on deceptive information. When price or cost information in the
market are distorted, consumers are unable to effectively differentiate
between sellers, and sellers trying to deal honestly with consumers are
put at competitive disadvantage.
Proposed Sec. 463.4(a) would require a motor vehicle dealer to
disclose the true ``Offering Price'' of a vehicle in advertisements
that reference specific vehicles or price or financing terms. Under the
proposed rule, the ``Offering Price'' of a vehicle means ``the full
cash price for which a dealer will sell or finance the motor vehicle to
any consumer,'' excluding only required government charges.'' \107\
---------------------------------------------------------------------------
\107\ In a similar vein, a number of states have enacted laws
that require any advertised or quoted vehicle price to include any
non-governmental fees charged by the dealer. See, e.g., Or. Admin R.
137-020-0020(3)(c) (requiring any price stated in an ad or in a
price quotation to be the offering price, excluding only taxes,
license, and other specified fees); Cal. Veh. Code sec. 11713.1(b)-
(c) (making it a violation of the regulation to advertise the total
price of a vehicle without including all costs to purchaser at the
time of the sale, except taxes, registration, and other specified
charges); Wis. Admin. Code Trans. 139.03(3) (requiring an advertised
price include ``all charges that shall be paid by the purchaser to
acquire ownership of the vehicle with the exception of sales tax,
title and registration fees''); Oh. Admin. Code 109:4-3-16(B)(21)
(prohibiting advertising ``any price for a motor vehicle unless such
price includes all costs to the consumer except tax, title and
registration fees, and a documentary service charge''); see also Ga.
Dept. of Law Consumer Prot. Div., Auto Advertising & Sales Practices
Enforcement Policies, 11 (``Advertised prices must state the actual
total purchase price of the vehicle, excluding only government fees
. . . . Any advertisement which lists a price `plus' some additional
amount will be considered to be deceptive.''), <a href="https://consumer.georgia.gov/business-services/auto-advertising-and-sales-practices-enforcement-policies">https://consumer.georgia.gov/business-services/auto-advertising-and-sales-practices-enforcement-policies</a>; accord N.Y.C. Admin Code sec. 20-
271(b)(1) (used vehicles must display the total selling price,
inclusive of all dealer fees but exclusive of government charges);
cf. Att'ys General of 31 States & DC, Comment Letter on Public
Roundtables: Protecting Consumers in the Sale and Leasing of Motor
Vehicles, Project No. P104811, Submission No. 558507-00112 at 5
(Apr. 13, 2012), available at <a href="https://www.regulations.gov/docket/FTC-2022-0036">https://www.regulations.gov/docket/FTC-2022-0036</a> (recommending the FTC adopt a rule requiring all
advertised prices and price quotes for motor vehicles include all
required non-governmental fees).
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This provision would prohibit deceptive and unfair practices with
respect to price and add-ons. Price is one of the most material pieces
of information for a consumer in making an informed purchasing
decision.\108\ Yet it is difficult for consumers to uncover the actual
price for which a dealer will sell an advertised vehicle until visiting
the dealership and spending hours on the lot. Sometimes dealers will
tout prices based on dealer discounts, rebates, or other price
reductions when such benefits are in fact subject to hidden or
undisclosed restrictions that render them unavailable to typical
customers.\109\ Other times, dealers hide or omit additional dealer
charges, such as for document preparation fees, amounting to several
hundred dollars.\110\ It is deceptive for dealers to advertise a price
without disclosing material limitations or additional charges required
by the dealer that are fixed and thus can be readily included in the
price at the outset.\111\
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\108\ See, e.g., Sanctuary Belize Litig., 482 F. Supp. 3d at 397
(``Representations with respect to . . . [a product's] cost are also
presumptively material.'') (citing Thompson Med. Co., 104 F.T.C.
648); see also Crescent Pub. Grp., 129 F. Supp. 2d at 321.
\109\ See, e.g., Tate's Auto Ctr., No. 3:18-cv-08176-DJH at ]]
41-43 (D. Ariz. July 31, 2018) (alleging defendants failed to
adequately disclose advertised discount incentives were available to
select consumers only); Progressive Chevrolet Co., No. C-4578 at ]]
5-7 (F.T.C. June 13, 2016) (alleging respondents failed to disclose
or disclose adequately that typical consumers cannot qualify for
advertised terms); TT of Longwood, No. C-4531 at ]] 16-17 (F.T.C.
July 2, 2015) (alleging respondent advertised discounts and prices
but failed to adequately disclose various qualifications and
restrictions that made incentives or prices unavailable to consumers
generally); JS Autoworld, No. C-4535 at ]] 8-9 (F.T.C. Aug. 13,
2015) (alleging prominently advertised price is not generally
available to consumers); TC Dealership, L.P., No. C-4536 at ]] 7-9
(F.T.C. Aug. 13, 2015) (same); Timonium Chrysler, No. C-4429 at ]]
4-5 (F.T.C. Jan. 28, 2014) (alleging advertised prices and discounts
but failed to disclose consumer would have to qualify for multiple
rebates not generally available to them); Ganley Ford West, No. C-
4428 at ]] 4-5 (F.T.C. Jan. 28, 2014) (alleging advertised price
discounts applied only to more expensive versions of vehicles
featured in the ad).
\110\ See, e.g., Liberty Chevrolet, No. 1:20-cv-3945 (S.D.N.Y.
May 21, 2020) (alleging defendants advertised vehicles for sale at a
specific price that failed to include additional fees dealer later
tacked onto the price, resulting in higher sales prices than
advertised); see also Press Release, State of Alaska, Dep't of Law
State Settles Consumer Protection Case with Lithia Auto Dealers
(Dec. 1, 2006), <a href="http://www.law.alaska.gov/press/releases/2006/120106-Lithia.html">http://www.law.alaska.gov/press/releases/2006/120106-Lithia.html</a> (announcing settlement with dealerships for
charging ``doc prep fees '' not included in the advertised price of
the vehicle, and noting such fees are ``nothing more than dealer
profit'' and ``consumers often confuse'' them with governmental
fees).
\111\ Indeed, an entity that induces the first contact through
false or misleading representation is liable under the FTC Act,
regardless if the buyer later becomes fully informed. See, e.g.,
Resort Car Rental Sys., Inc. v. FTC, 518 F.2d 962, 964 (9th Cir.
1975); FTC v. Gill, 71 F. Supp. 2d 1030, 1046 (C.D. Cal. 1999)
(same), aff'd, 265 F.3d 944 (9th Cir. 2001).
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[[Page 42023]]
These practices are also unfair because they are likely to cause
substantial injury: Consumers lose time when they pursue offers that
are not actually available, and they may end up paying more for a
vehicle than they expected, either because unexpected charges are not
adequately disclosed until late in the transaction, or are never
disclosed at all.\112\ By requiring disclosure of the true Offering
Price upfront, Sec. 463.4(a) aims to curb this deceptive and unfair
conduct, while producing the corollary benefit of increasing price
competition among dealers, who would be able to compete on truthful,
standard terms.\113\ Specifically, Sec. 463.4(a) would require
disclosure of the Offering Price when dealers advertise a specific
vehicle for sale as well as when any monetary amount or financing term
is advertised.
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\112\ See, e.g., Liberty Chevrolet, No. 1:20-cv-03945 at ]] 12-
19 (S.D.N.Y. May 21, 2020) (alleging defendants falsely told
consumers they were required to pay excess fees and taxes, and in
other instances added such costs to the total price without
consumers' knowledge or consent); Universal City Nissan, No. 2:16-
cv-07329 at ]] 59-64 (C.D. Cal. Sept. 29, 2016) (alleging defendants
engaged in deceptive and unfair practices relating to add-on
products, including charging consumers for add-ons the consumer
rejected or did not consent to purchase); see also Buckle Up, supra
note 15, at 6 (summarizing the frustrating and time-consuming
experience of some consumers who negotiated what they thought was an
agreed-upon price with a dealership's sales staff, only to face
further rounds of negotiating with the dealer's financing office and
the introduction of adds-on that caused the price to balloon),
<a href="https://www.ftc.gov/reports/buckle-navigating-auto-sales-financing">https://www.ftc.gov/reports/buckle-navigating-auto-sales-financing</a>;
Matthew Jones, Bruce Kobayashi & Jason O'Connor, Economics at the
FTC: Non-Price Merger Effects and Deceptive Automobile Ads 12
(2018), also published at 53 Rev. Indust. Org. 593 (2018), <a href="https://www.ftc.gov/system/files/documents/reports/economics-ftc-non-price-merger-effects-deceptive-automobile-ads/1812-be-rio.pdf">https://www.ftc.gov/system/files/documents/reports/economics-ftc-non-price-merger-effects-deceptive-automobile-ads/1812-be-rio.pdf</a> (discussing
the injurious effects of deceptive ads about motor vehicle sales and
financing, including the time and effort spent by consumers visiting
the dealership, when they might have otherwise pursued a legitimate
offer elsewhere).
\113\ The FTC has long considered the deceptive or unfair
effects of ``drip pricing''--the colloquial term for the pricing
practice that proposed Sec. 463.4(a) aims to curb--whereby firms
advertise only part of a product's price and reveal other mandatory
charges later in the buying process. In 2012, the FTC convened a
workshop on drip pricing at which then-Chairman Leibowitz discussed
the practice's potential to harm consumers by ``causing them to pay
too much and to waste time searching'' goods and services with
deceptively low prices. That same year, the FTC sent letters to
numerous hotels warning against the practice of excluding mandatory
``resort fees'' from quoted room rates and urging them to make total
quoted prices inclusive of all unavoidable costs. See Mary W.
Sullivan, Economic Analysis of Hotel Resort Fees, Fed. Trade. Comm'n
(Jan. 2017) (concluding hotels could eliminate the potential harm
and cost to consumers caused by price dripping by disclosing any
mandatory fees upfront in the quoted price). Almost a decade later,
complaints about mandatory fee disclosures persist. During a recent
workshop to examine digital ``dark patterns,'' participants
identified drip pricing as a leading issue in online pricing, with
some suggesting the FTC implement a rule banning hidden fees and
drip pricing. <a href="https://www.ftc.gov/news-events/events-calendar/bringing-dark-patterns-light-ftc-workshop">https://www.ftc.gov/news-events/events-calendar/bringing-dark-patterns-light-ftc-workshop</a>. See Fed. Trade Comm'n,
Staff Perspective: ``That's the Ticket'' Workshop (May 2020) (noting
a preference for regulating drip pricing in the context of online
advertising and sale of event tickets), <a href="https://www.ftc.gov/system/files/documents/reports/thats-ticket-workshop-staff-perspective/staffperspective_tickets_final-508.pdf">https://www.ftc.gov/system/files/documents/reports/thats-ticket-workshop-staff-perspective/staffperspective_tickets_final-508.pdf</a>. One model for all-in,
upfront pricing are DOT's rules requiring airlines to include all
mandatory fees in ticket display prices. Under these rules, whenever
a carrier advertises a price for air transportation, that price must
be the full price customers will have to pay. See 14 CFR part 399
(implementing 49 U.S.C. 41712). Regardless of the market, whether
air travel, hotels, or motor vehicles, the empirical evidence
suggests price transparency leads to more informed consumers, lower
and more uniform prices, and more competition among sellers. See,
e.g., D. Andrew Austin & Jane G. Gravelle, Cong. Rsch. Serv., CRS
Report for Congress: Does Price Transparency Improve Market
Efficiency? Implications of Empirical Evidence in Other Markets for
the Health Sector (July 24, 2007), <a href="https://fas.org/sgp/crs/secrecy/RL34101.pdf">https://fas.org/sgp/crs/secrecy/RL34101.pdf</a>.
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This provision would further require that, upon receipt of a
consumer inquiry about a specific vehicle or price or financing term
for any vehicle, the dealer must disclose the Offering Price of that
vehicle, and that if any part of such an inquiry or response is made in
writing, the Offering Price must be disclosed in writing as well. This
provision would require dealers to provide accurate information to
consumers, including those beginning their vehicle-shopping process
online \114\ and those selecting a dealership based on price.
Inaccurate price information is likely to cause substantial injury for
consumers who waste time traveling to the dealership in pursuit of an
offer that does not exist, and for consumers who never learn that
unexpected charges have been added to their dense paperwork during the
hours-long vehicle buying and financing process.
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\114\ See generally Fed. Trade Comm'n, The Road Ahead: Selling,
Financing & Leasing Motor Vehicles (Aug. 2011) (Public Roundtables)
(Session 2 transcript) (discussing that each month tens of millions
of consumers seek out vehicle information on <a href="http://edmunds.com">edmunds.com</a>, but also
discussing the reliability (or lack thereof) of such information
available online), <a href="https://www.ftc.gov/system/files/documents/public_events/52654/080211_ftc_sess2.pdf">https://www.ftc.gov/system/files/documents/public_events/52654/080211_ftc_sess2.pdf</a>.
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Section 463.4(b) would require dealers to provide consumers with
information about optional add-on charges to help curb deceptive and
unfair practices. As discussed in Part III.B above, misrepresenting
that add-ons are required or charging for add-ons without consumers'
Express, Informed Consent are significant consumer protection concerns.
Section 463.4(b) would require disclosure on any website, online
service, or mobile application on which vehicles are offered for sale,
of a list of all optional add-ons and the price of each add-on (``Add-
on List'').\115\ The Add-on List would have to include all optional
add-on products for which the dealer charges consumers (and their
respective prices). If the price of the add-on varies based on the
specifics of the transaction, the Add-on List would have to include the
range the typical consumer will pay.\116\ Due to space constraints,
dealer advertisements presented not online but in another format--such
as in print, radio, or television--would not be required to include the
Add-on List. Instead, pursuant to Sec. 463.4(b)(2), those
advertisements would be required to disclose the website, online
service, or mobile application where consumers can access a copy of the
Add-on List.\117\ This proposed provision is consistent with industry
guidance \118\ and would help ensure that dealers that follow such
guidance will not be competitively disadvantaged relative to those that
do not.
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\115\ To the extent any add-on charges are required by a
dealership, and thus not optional, such charges would have to be
disclosed in the Offering Price, pursuant to proposed Sec. 463.4(a)
et al.
\116\ See FTC v. Five Star Auto Club, 97 F. Supp. 2d 502, 528
(S.D.N.Y. 2000) (``at the very least, it would have been reasonable
for consumers to have assumed that the promised rewards were
achieved by the typical Five Star participant''); Universal City
Nissan, No. 2:16-cv-07239 (C.D. Cal. Sept. 29, 2016) (alleging
unlawful deception where a dealer's ads list prominent terms not
generally available to consumers, including where those terms are
subject to various qualifications or restrictions); Progressive
Chevrolet Co., No. C-4578 (F.T.C. June 13, 2016) (alleging
advertised offer was deceptive because the typical consumer would
not qualify for the offer).
\117\ Working in tandem, proposed Sec. 463.4(b)(1) and (b)(2)
would mean that dealers who engage in advertising and charge for
optional add-ons must have a website, online service, or other
mobile application by which to disclose an Add-on List.
\118\ See Nat'l Auto. Dealers Ass'n et al., Voluntary Protection
Products: A Model Dealership Policy 11 (2019), <a href="https://www.nada.org/regulatory-compliance/voluntary-protection-products-model-dealership-policy">https://www.nada.org/regulatory-compliance/voluntary-protection-products-model-dealership-policy</a> (stating add-on products and services should be
presented ``in a standard, simple menu format that, at a minimum,
prominently discloses: . . . 7. the price of--and monthly payment
for--each Product . . . .'')
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For optional add-on products and services, proposed Sec. 463.4(c)
would require dealers to disclose that the optional add-on product or
service is not required and that a consumer can purchase or lease the
vehicle without the add-on. This disclosure would curb the deceptive
practice of misleading consumers into thinking an add-on is required
when it is not.\119\ As with proposed Sec. 463.4(b), this proposed
provision is consistent with industry
[[Page 42024]]
guidance \120\ and would avoid competitive disadvantage to those
dealerships that follow such guidance.
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\119\ See, e.g., Stipulated Order, FTC v. Universal City Nissan,
et al., No. 2:16-cv-07239 at Art. III (C.D. Cal. Mar. 22, 2017);
Stipulated Order, FTC & Illinois v. N. Am. Auto. Servs., Inc., No.
1:22-cv-0169 at Art. II (N.D. Ill. Mar. 31, 2022).
\120\ See Nat'l Auto. Dealers Ass'n et al., Voluntary Protection
Products: A Model Dealership Policy 4 (2019), <a href="https://www.nada.org/regulatory-compliance/voluntary-protection-products-model-dealership-policy">https://www.nada.org/regulatory-compliance/voluntary-protection-products-model-dealership-policy</a> (stating dealerships should ``prominently display
to customers a poster stating that [add-on products and services]
offered by the dealership are optional and are not required to
purchase or lease a vehicle or obtain warranty coverage, financing,
financing on particular terms, or any other product or service
offered by the dealership.'')
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Section 463.4(d) would require dealers to disclose the total of
payments when quoting monthly payment amounts to a prospective buyer or
lessee. Specifically, Sec. 463.4(d) would prohibit motor vehicle
dealers from making any representation about a monthly payment for any
vehicle without disclosing the total amount the consumer will pay to
purchase or lease the vehicle at that monthly payment amount after
making all monthly payments; if that total amount assumes consideration
provided by the consumer (e.g., a cash down payment or a trade-in),
those amounts must also be disclosed.
Section 463.4(e) would complement the preceding provision by
requiring dealers, when they compare different monthly payment options
with consumers, to inform consumers that a lower monthly payment will
increase the total amount the consumer will pay, if true. These
provisions are intended to prohibit dealers from using claims regarding
monthly payment amounts to falsely imply savings or parity between
different offers where reduced monthly payments increase the total
vehicle cost due to an increased payment term, and potentially an
increased annual percentage rate (``APR'') as well. Additionally, when
a consumer pays for his or her vehicle over a longer period of time,
there is an increased likelihood that the consumer will continue to owe
money even after he is no longer driving the vehicle. This results in
negative equity when the consumer needs or wants to purchase another
vehicle, because a vehicle's value tends to decline faster than the
amount owed.\121\ Longer motor vehicle financing terms also have higher
rates of default, potentially posing greater risks to both borrowers
and financing companies.\122\
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\121\ Buckle Up, supra note 15, at 7.
\122\ Consumer Fin. Prot. Bureau, Quarterly Consumer Credit
Trends: Growth In Longer-Term Auto Loans 7-8 (Nov. 2017), <a href="https://files.consumerfinance.gov/f/documents/cfpb_consumer-credit-trends_longer-term-auto-loans_2017Q2.pdf">https://files.consumerfinance.gov/f/documents/cfpb_consumer-credit-trends_longer-term-auto-loans_2017Q2.pdf</a>; see also Zhengfeng Guo et
al., Off. of the Comptroller of the Currency, A Puzzle in the
Relation Between Risk and Pricing of Long-Term Auto Loans 2, 4-5, 20
(June 2020), <a href="https://www.occ.gov/publications-and-resources/publications/economics/working-papers-banking-perf-reg/pub-econ-working-paper-puzzle-long-term-auto-loans.pdf">https://www.occ.gov/publications-and-resources/publications/economics/working-papers-banking-perf-reg/pub-econ-working-paper-puzzle-long-term-auto-loans.pdf</a> (finding motor vehicle
financing with six-plus-year terms have higher default rates than
shorter-term financing during each year of their lifetimes, after
controlling for borrower and loan-level risk factors).
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Take, for example, a borrower who finances the purchase of a
$25,000 vehicle with a $5,000 down payment and a 10% APR. With a five-
year (60-month) term, her monthly payment will be $425. If the consumer
balks at that monthly payment, the dealer could quote her a lower
monthly payment of $332. If, however, the down payment and APR stay the
same, that would result in a seven-year (84-month) term. Although the
second offer might appear to be less costly, it will result in the
consumer paying $2,394 more in interest over the course of the longer
financing term. The second offer would also obligate the buyer to make
payments for two additional years; if she needed to shop for a new
vehicle after 60 months, she would still owe an outstanding balance of
$7,195 on the first vehicle.\123\
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\123\ The cost disparities resulting from monthly payment
fixation can be even greater because financing entities tend to
charge higher interest rates for longer terms. See Nat'l Credit
Union Admin., Credit Union and Bank Rates 2021 Q1 (Mar. 26, 2021),
<a href="https://www.ncua.gov/analysis/cuso-economic-data/credit-union-bank-rates/credit-union-and-bank-rates-2021-q1">https://www.ncua.gov/analysis/cuso-economic-data/credit-union-bank-rates/credit-union-and-bank-rates-2021-q1</a> (listing national average
rates for new motor vehicle and used motor vehicle financing by
term). In the example above, the alternate deal presented to the
consumer may be for the same $25,000 purchase price and same $5,000
down payment, but with a longer repayment term of 84 months and a
higher 12% APR. With this alternative, the new monthly payment of
$353 is still considerably lower than the $425 monthly payment first
offered, but it will in fact result in the consumer paying in $4,161
additional interest over the course of the extended period, and
owing a balance of $7,500 to trade in the vehicle on the same 60-
month timeline as the first offer.
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As discussed further below, singular focus on monthly payments can
also make consumers susceptible to unwanted, undisclosed, or even
fictitious add-on charges and fees, because consumers may not notice
relatively small add-on charges secreted within a monthly payment
(e.g., $15). Such hidden charges can cost a consumer more than a
thousand dollars over the course of an auto financing or lease
term.\124\
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\124\ See Auto Buyer Study, supra note 11, at 14 (``the dealer
can extend the maturity of the financing to reduce the effect of the
add-on on the monthly payment, obscuring the total cost of the add-
on''); Auto Buyer Study: Appendix, supra note 66 (Study participant
457481 at 229, 233 (dealership pitching add-ons at the end of the
negotiation, and in terms of consumer's monthly price); Study
participant 437175 at 701 (dealership pitching add-ons in terms of
monthly price)); see also Liberty Chevrolet, No. 1:20-cv-03945 at ]]
12-19 (S.D.N.Y. May 21, 2020) (alleging dealership included
deceptive and unauthorized add-on charges in consumers'
transactions); Ramey Motors, No. 1:14-cv-29603 at ]] 21-28 (S.D. W.
Va. Dec. 11, 2014) (alleging dealer emphasized attractive terms such
as low monthly payments but concealed substantial cash down payments
or trade-in requirements); Billion Auto, No. 5:14-cv-04118-MWB at ]]
38-46 (N.D. Iowa Dec. 11, 2014) (alleging dealer touted attractive
terms such as low monthly payments but concealed significant extra
costs).
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Further, when dealers advertise deceptively low monthly payments
that amount to a fraction of the total cost of the vehicle, consumers
may end up owing a large balloon payment in addition to the advertised
monthly payment amount, either at signing \125\ or after finishing
their monthly payments,\126\ or may be required to pay a much higher
monthly payment once the artificially low ``teaser rate'' expires.\127\
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\125\ See, e.g., Norm Reeves, No. 8:17-cv-01942 at ]] 28-30
(C.D. Cal. Nov. 3, 2017) (alleging deceptive representations
regarding monthly payments); Universal City Nissan, No. 2:16-cv-
07329 at ]] 30-33 (C.D. Cal. Sept. 29, 2016) (alleging
misrepresentations regarding monthly payments).
\126\ See, e.g., New World Auto Imports, No. C-4437 at ]] 8-11
(F.T.C. Feb. 20, 2014) (alleging misrepresentation regarding monthly
finance payments); New World Auto Imports, No. 3:16-cv-02401-K at ]]
36-38 (N.D. Tex. Aug. 18, 2016) (alleging deceptive representations
regarding monthly payments); see also Melissa Harper, Comment Letter
on Public Roundtables: Protecting Consumers in the Sale and Leasing
of Motor Vehicles, Project No. P104811, Submission No. 558507-00007
(Apr. 2, 2011), available at <a href="https://www.regulations.gov/docket/FTC-2022-0036">https://www.regulations.gov/docket/FTC-2022-0036</a> (stating consumer paid monthly payments for 4 years, told
she still owed money on the car when originally told it would be
paid off in this time period).
\127\ See, e.g., Complaint, In re Paramount Kia of Hickory, LLC,
No. C-4450 at ]] 5-6 (F.T.C. Apr. 11, 2014) (alleging
misrepresentation regarding monthly payment amount); Complaint, In
re Nissan of South Atlanta, LLC, No. C-4435 at ] 5 (F.T.C. Feb. 28,
2014) (alleging misrepresentation of monthly payment amount);
Universal City Nissan, No. 2:16-cv-07329 at ]] 30-34 (C.D. Cal.
Sept. 29, 2016) (alleging advertised $38 monthly payment only
applied for the first 6 months; offer in fact required $179.62 per
month for the remaining 30 months).
---------------------------------------------------------------------------
The Commission anticipates that the proposed rule's requirement
that dealers must disclose the total cost of a vehicle when quoting
monthly payment amounts to a prospective buyer will help prospective
buyers make more informed purchasing decisions and curb these deceptive
and unfair practices.
Similarly, by requiring that dealers disclose that a lower monthly
payment amount will increase the vehicle's total cost, when true,
consumers will be able to gauge how much a given financing or lease
offer will ultimately cost in order to compare different offers. This
will help to decrease the likelihood that a consumer will be deceived
about the comparative cost of a financing or lease offer, and help
prevent dealers from
[[Page 42025]]
including optional add-on products or services without the consumer's
Express, Informed Consent. These proposed provisions do not conflict
with ``triggering term'' requirements under other federal rules,
including Regulation Z (of the Truth in Lending Act) and Regulation M
(of the Consumer Leasing Act).\128\
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\128\ See 12 CFR 1026.24(d) (Regulation Z triggering terms
provision); 12 CFR 213.7 (Regulation M triggering terms provision).
These rules require that when an advertisement for a financed
purchase or a lease mention a specific triggering term--for example,
a monthly payment amount--that those advertisements also disclose
other specified terms, including the number, amount, and timing of
payments.
---------------------------------------------------------------------------
Taken together, provisions 463.4(a) through (e) are intended to
curb deceptive and unfair conduct related to pricing and add-ons. As
discussed above, consumers are presented with a high volume of dense
information during the long and complex motor vehicle buying or leasing
experience. In some cases, prospective buyers receive conflicting
information or are not provided key information, or fully informed
about applicable charges. These practices harm consumers who may incur
time and expense during the vehicle-shopping process or incur
unexpected costs when dealers tout artificially low costs and other
incentives in advertising and during negotiations, only revealing that
those deals are not available late in the buying process, if at all.
For example, participants in the FTC's qualitative Auto Buyer Study
encountered situations where dealers settled on a price with them on
the sales floor, but later a financing representative revoked the
agreed upon price, claiming that it could not be honored.\129\
---------------------------------------------------------------------------
\129\ See Auto Buyer Study, supra note 11, at 11.
---------------------------------------------------------------------------
Dealer control over the flow and timing of information enables them
to add charges or change contract terms late in the purchase or lease
process.\130\ In some instances, after consumers have spent hours
traveling to the dealership and then on the lot (perhaps after already
having spent hours comparing prices and features online), dealers
present a large pile of paperwork and give consumers little time to
review it. As a result, consumers are unaware that charges have been
added or promised discounts or benefits have been removed.\131\ In
other instances, consumers learn about additional charges or changes to
their terms after they have invested substantial time and energy in the
buying or leasing process.\132\ Requiring that consumers receive clear
pricing disclosures early in the process will curb situations where
consumers face unexpected charges at the end of the vehicle-buying
process.\133\
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\130\ Att'ys General of 31 States & DC, Comment Letter on Public
Roundtables: Protecting Consumers in the Sale and Leasing of Motor
Vehicles, Project No. P104811, Submission No. 558507-00112 at 5
(Apr. 13, 2012), available at <a href="https://www.regulations.gov/docket/FTC-2022-0036">https://www.regulations.gov/docket/FTC-2022-0036</a> (describing the addition of documentary fees that
``often come as complete surprises to consumers, and are not
disclosed until well after the dealer and consumer agree on a sales
price for the vehicle.''); Auto Buyer Study, supra note 11, at 13-
14, (offering add-ons after a vehicle price is negotiated is a form
of drip pricing, which can result in higher prices to consumers by
reducing the likelihood consumers will search for alternative
suppliers).
\131\ See Liberty Chevrolet, No. 1:20-cv-03945 at ]] 17-18
(S.D.N.Y. May 21, 2020) (alleging dealer inflated vehicle prices and
charged consumers double for sales tax or other fees, and often
consumers did not notice the bait and switch from an earlier price
document to the final sales price contained in ``a stack of complex,
highly technical documents presented at the close of a long
financing process after an already lengthy process of selecting car
and negotiating over its price.''); Universal City Nissan, No. 2:16-
cv-07329 at ]] 60, 91-93 (C.D. Cal. Sept. 29, 2016) (alleging dealer
rushed consumers through signing process, and often consumers were
unaware of add-on products included in the paperwork); see also
Buckle Up, supra note 15, at 10-11. As part of the FTC's study of
dozens of motor vehicle buyers who recently purchased a vehicle,
many consumers reported they were unable to review the paperwork
consummating the purchase transaction. The consumers reported
several reasons, including that the long transaction left them
exhausted, the dealer rushed them through the signing process, and
they were overwhelmed or thought it would take them a few hours or
days to read all of the fine print in the paperwork. These factors
likely contributed to many consumers lacking awareness of critical
financing terms.
\132\ See Auto Buyer Study, supra note 11, at 13.
\133\ See Buckle Up, supra note 15, at 6. Some study
participants found ``after negotiating what they thought was an
agreed-upon price for a vehicle with sales personnel, they faced
negotiating again during the dealer's financing process, which they
found frustrating and time-consuming.'' In addition, ``introduction
of add-ons during financing discussions caused several participants'
total sale price to balloon from the cash price.'' Accordingly, the
staff report recommends ``discussing the `out-the-door' price of the
vehicle (the total price, before financing, including taxes and
fees) before discussing financing could help avoid confusion.''
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E. Sec. 463.5: Dealer Charges for Add-Ons and Other Items
Section 463.5 of the proposed rule would prohibit charging for add-
on products that provide no benefit to the consumer and would prohibit
charging consumers without Express, Informed Consent. Add-on products
and services are commonly offered by dealers in conjunction with
vehicle financing or leasing, and these products and services make up a
significant share of dealers' profits.\134\ In some cases, dealers
appear to charge for add-on products or services under circumstances in
which the consumer could never benefit from that product or
service.\135\ However, charging for non-beneficial products is
inconsistent with industry guidance,\136\
[[Page 42026]]
and dealerships that profit from such sales put honest dealerships at a
competitive disadvantage.
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\134\ See Adrienne Roberts, Add-On Services Emerge as Car
Dealers' Profit Generator, Wall Street Journal, Apr. 7, 2019,
<a href="https://www.wsj.com/articles/add-on-services-emerge-as-car-dealers-profit-generator-11554634800">https://www.wsj.com/articles/add-on-services-emerge-as-car-dealers-profit-generator-11554634800</a>; Edmunds, Where Does the Car Dealer
Make Money, June 13, 2019, <a href="https://www.edmunds.com/car-buying/where-does-the-car-dealer-make-money.html">https://www.edmunds.com/car-buying/where-does-the-car-dealer-make-money.html</a>. As of August 2021,
approximately 94% of new vehicles and 86% of used vehicle sales
involved dealerships' finance and insurance office, which offers
products and services such as GAP insurance, alarm systems and
extended warranties. Nat'l Auto. Dealers Ass'n, Average Dealership
Profile at 1 (Aug. 2021), <a href="https://www.nada.org/media/4129/download?inline">https://www.nada.org/media/4129/download?inline</a>.
\135\ See, e.g., Individual consumer complaint, filed Mar. 27,
2021 (``I bought this warranty February 2nd with insistence from the
dealer. They advertise false coverage, most of the things they
supposedly covered come with limitations and exclusions in which you
are ultimately not covered at all. The[re a]re is so many exclusions
it's ridiculous, there is a total of A-Z of letters with each one
stating various parts that are not covered, I will only mention one
since there is an absurd amount. Letter B states, `repair or
replacement of any covered component when it has been determined
that the condition existed prior to purchase of this agreement.'
Lovely, so if you bought your vehicle used, you are not covered.
Their contract is misleading, you're promised coverage but then they
find loopholes and you are left with no coverage.''); Individual
consumer complaint, filed Aug. 29, 2019 (``Federal Trade Commission,
I believe I have been treated unfairly as a consumer in the state of
Iowa . . . . I was aggressively sold GAP insurance while purchasing
a vehicle . . . . The [ ] dealership made a lot of promises when
selling the GAP insurance which I have documentation for, but then
failed to honor those promises once I needed the GAP insurance after
a no fault deer collision . . . The [ ] dealership aggressively sold
me GAP insurance as `an add-on car insurance coverage that would
cover the `gap' between the amount owed on the car and the car's
actual cash value in the event of an accident or collision. I was
told my primary insurance company . . . would only cover the cash
value, I would pay my $500 deductible, and [the dealership]'s GAP
would cover the remaining amount owed to pay the lien holder down to
a zero balance . . . . Instead of getting the peace of mind they
sold by adding GAP insurance, [the dealership] left me to cover the
remaining balance of $998.62 after I pay the $500 insurance
deductible.''); Individual consumer complaint, filed June 23, 2021
(``The dealership also sold an aftermarket warranty. 24 hours after
taking delivery, I had the vehicle inspected and was informed of
$6,000 in repairs . . . . Once the warranty company checked the
vehicle, they informed me that the warranty was void due to intake
and tubing modifications. Therefor[e], the dealership sold a
warranty for a vehicle that could not be warrantied by the
company''); Individual consumer complaint, filed May 12, 2021 (``I
purchased a 2011 Chevy Malibu from a dealer and with the purchase,
also purchased a 5 year, 100,000 mile power train warranty. I have
had the car for 39 months and have driven about 35,000 miles since
purchase. The car has had a couple issues and the warranty has never
covered ANY repair costs at any time. 2 weeks ago, an item in the
engine broke and now is not functioning at all. The mechanic reached
out to [the extended warranty provider] and was told nothing will be
covered. I called and asked and got told that covered items would be
covered along with labor. We continue to get the run around with me
being told one thing and the mechanic another. This warranty has
been nothing more than a waste of time, money, and is now in my mind
a scam to get money from unsuspecting customers.'').
\136\ See Nat'l Auto. Dealers Ass'n et al., Voluntary Protection
Products: A Model Dealership Policy 5 (2019), <a href="https://www.nada.org/regulatory-compliance/voluntary-protection-products-model-dealership-policy">https://www.nada.org/regulatory-compliance/voluntary-protection-products-model-dealership-policy</a> (explaining that when determining which voluntary
protection products to offer to customers, ``the dealership should
have confidence in the value that the product offers to customers'',
including that it should ``understand whether its coverage is
already provided by another product being purchased by the
customer,'' and stating ``[i]t is essential customers have a clearly
defined path to receiving such benefits.'').
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Proposed Sec. 463.5(a) would prohibit this practice. A dealer
would be in violation of this provision if, for example, the dealer
offered and charged for products such as ``rustproofing'' that did not
actually prevent rust, offered purported theft-prevention or theft-
recovery services without proof that the services actually prevented
theft or recovered stolen items, or charged for ``nitrogen-filled
tires'' that in fact contained no more nitrogen than naturally exists
in the air. A dealer would also violate this provision if the dealer
sold GAP insurance to buyers whose financing balance was so low that
ordinary insurance would be adequate to cover any loss.\137\ Further,
the proposed restriction would prohibit the sale of GAP insurance when
hidden restrictions would exclude a vehicle buyer from coverage (e.g.,
where the consumer's vehicle is among a list of vehicles excluded from
coverage, or the consumer's neighborhood is excluded from coverage).
Similarly, the proposed rule would prohibit other optional add-on
products or services that offer consumers no benefit, including
extended warranties that merely duplicate coverage already provided on
the vehicle.\138\
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\137\ GAP products cover the difference, or ``gap,'' between the
amount the consumer owes on the motor vehicle financing and the
amount received from the vehicle insurer in the event of a total
loss. A gap is more likely when the loan-to-value (LTV) ratio is
high, since the outstanding balance owed by the consumer at the time
of a total loss is more likely to exceed the insurance proceeds;
conversely, with a low LTV, the insurance payout for a totaled
vehicle will likely cover the consumers' outstanding debt, rendering
GAP unnecessary. See Consumer Fin. Prot. Bureau, Supervisory
Highlights, Issue 19--Summer 2019 at 4, <a href="https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-19_092019.pdf">https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-19_092019.pdf</a> (describing as unlawful the sale of
``a GAP product to consumers whose low LTV meant that they would not
benefit from the product'').
\138\ The Road Ahead: Selling, Financing & Leasing Motor
Vehicles, a Roundtable, Panel 2: Misrepresentations and Other
Consumer Protection Issues in Motor Vehicle Leasing, comment of
panelist Tom Domonoske, transcript at 19-21 (Nov. 17, 2011), <a href="https://www.ftc.gov/sites/default/files/documents/public_events/road-ahead-3rd-roundtable-november-17th/dc_sess2.pdf">https://www.ftc.gov/sites/default/files/documents/public_events/road-ahead-3rd-roundtable-november-17th/dc_sess2.pdf</a>; Dale Irwin, Slough
Connealy Irwin & Madden LLC, Comment Letter on Public Roundtables:
Protecting Consumers in the Sale and Leasing of Motor Vehicles,
Project No. P104811, Submission No. 558507-00060 (Dec. 29, 2011),
available at <a href="https://www.regulations.gov/document/FTC-2011-0027-0001">https://www.regulations.gov/document/FTC-2011-0027-0001</a>
(``fraudulent sale of duplicative extended warranty coverage on new
cars''); FSP and Assocs., LLC, Comment Letter on Public Roundtables:
Protecting Consumers in the Sale and Leasing of Motor Vehicles,
Project No. P104811, Submission No. 558507-00094 (Mar. 19, 2012),
available at <a href="https://www.regulations.gov/docket/FTC-2022-0036">https://www.regulations.gov/docket/FTC-2022-0036</a> (one
of ``the most insidious elements of car dealer financing is . . .
insurance [add-ons] they load into every contract,'' which in ``most
cases the purchaser has no idea it is there'' and ``adds to the
overall interest and vehicle cost and usually provides no benefit to
the purchaser''); Consent Order, Consumer Fin. Prot. Bureau v. Wells
Fargo Bank, N.A., No. 2018-BCFP-0001 at ]] 27-39 (Apr. 20, 2018)
(finding force-placing duplicative or unnecessary collateral-
protection insurance on hundreds of thousands of borrowers'
vehicles); StewartFin. Co. Holdings, No. 103CV-2648 at ]] 28, 45-48
(N.D. Ga. Sept. 4, 2003) (``On numerous occasions, Stewart Finance
has sold Car Club to borrowers who do not own cars or do not have
driver's licenses and thus, would not benefit from the product'');
cf. Nat'l Payment Network, No. C-4521 at ]] 4-14 (F.T.C. May 4,
2015) (alleging provider of third-party vehicle repayment service
failed to disclose fees associated with financing program often
exceed consumers' savings from using the program); Matt Blatt, No.
C-4532 at ]] 4-13 (F.T.C. May 4, 2015) (alleging dealership failed
to disclose fees associated with third-party vehicle repayment
service often exceeded consumers' savings from using the program).
---------------------------------------------------------------------------
Consumers do not agree to purchase additional products from which
they could not benefit unless they are led to believe, directly or by
omission, that these products would be beneficial. Rather than
requiring an additional, confusing disclosure--e.g., that the dealer is
charging extra for an item that will not provide the consumer any
benefit--this provision would prevent dealers from being able to
extract additional charges from consumers based on deception.
Accordingly, and similar to provisions enacted by a number of
states,\139\ Sec. 463.5(a) of the proposed rule would prohibit motor
vehicle dealers from marketing or selling an add-on product or service
if the consumer would not benefit from such an add-on product or
service.
---------------------------------------------------------------------------
\139\ See, e.g., Ind. Code sec. 24-4.5-3-202(e)(ix) (prohibiting
sale of GAP when LTV is less than 80); 4 Colo. Code Regs. sec. 902-
1:8(g) (prohibiting sale of GAP when the consumer, the credit terms,
or the purchased vehicle do not qualify for, or conflict with,
coverage); S.C. Code sec. 37-30-120(I)(1) (prohibiting sale of GAP
unless seller reasonably believes the borrower will be eligible for
a benefit).
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Section 463.5(b) of the proposed rule would curb the practice of
charging for optional add-ons without the consumer's consent or
misrepresenting that an optional add-on is instead a required purchase.
It would also prohibit dealers from changing pricing information in the
financing office. Specifically, proposed Sec. 463.5(b)(1) states that
dealers may not charge for optional add-ons unless they disclose up
front the cash price at which a consumer may purchase the vehicle
without additional add-ons. The proposed rule would require that
dealers disclose, and offer to close the transaction for, the Cash
Price without Optional Add-ons, separately itemizing the Offering
Price, any discounts, rebates, or trade-in valuation, and required
government charges. If the prospective buyer declines to purchase the
vehicle at that price, the dealer must obtain confirmation in writing,
with the date and time recorded, signed by the consumer and a manager
of the dealership. The dealer must retain this signed form to document
that the dealer has provided the required Offering Price disclosure to
consumers before including optional add-ons in a sales transaction. The
Cash Price without Optional Add-ons disclosure and declination must be
limited to the information required by this Sec. , and cannot be
presented together with any other written materials.
Proposed Sec. 463.5(b)(2) would require similar disclosures in the
context of financed transactions: dealers would not be permitted to
charge for optional add-ons without disclosing, and offering to
consummate the transaction for, the Cash Price without Optional Add-ons
plus the finance charge, factoring in any cash down payment or trade-in
valuation (and separately itemizing the components of the offer).\140\
If the consumer declines to finance the transaction for that amount,
the dealer, as above, must obtain confirmation of that declination in
writing. The disclosure and declination must be limited to the
information required by this section, and cannot be presented with any
other written materials
---------------------------------------------------------------------------
\140\ Consistent with TILA, charges included entirely in the
finance charge are not ``optional Add-ons.''
---------------------------------------------------------------------------
Proposed Sec. 463.5(b)(3) would require a dealer, before charging
for any optional add-on, to disclose the cost of the transaction
without any optional add-ons (whether the transaction is financed or
not), and also disclose the charges for the optional add-ons selected
by the consumer, separately itemized.
Section 463.5(c) of the proposed rule would prohibit motor vehicle
dealers, in connection with the sale, financing, and leasing of
vehicles, from charging consumers for any item without their Express,
Informed Consent. ``Express, Informed Consent'' is defined as an
affirmative act communicating unambiguous assent to be charged, made
after receiving and in close proximity to a Clear and Conspicuous
disclosure, in writing, and also orally
[[Page 42027]]
for in-person transactions, of the following: (1) what the charge is
for; and (2) the amount of the charge, including, if the charge is for
a product or service, all fees and costs to be charged to the consumer
over the period of repayment with and without the product or
service.\141\ The definition also provides nonexclusive examples of
what is not considered Express, Informed Consent. First, documents with
a mere signature or initials, or a form presented to a consumer with
preprinted checkboxes, would not constitute Express, Informed Consent.
Similarly, agreement obtained through any practice, such as a user
interface or document, designed or manipulated with the substantial
effect of subverting or impairing user autonomy, decision-making, or
choice, would not constitute Express, Informed Consent.
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\141\ See, e.g., Stipulated Order, FTC v. Liberty Chevrolet,
Inc., No. 1:20-cv-03945 (S.D.N.Y. May 22, 2020) (defining Express,
Informed Consent in the same manner).
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As discussed above, the length and complexity of motor vehicle
transactions has created an environment ripe for deceptive or unfair
conduct. Consumer complaints suggest some dealers have added thousands
of dollars in unauthorized charges, including for add-ons consumers had
already rejected.\142\ These issues are exacerbated when pre-printed
consumer contracts automatically include charges for optional add-ons,
when consumers are rushed through stacks of paperwork, or when they are
asked to sign blank documents.\143\
---------------------------------------------------------------------------
\142\ See generally Buckle Up, supra note 15. As part of the
FTC's qualitative study of dozens of consumers who had recently
purchased a vehicle, nearly all complained about the time spent at
the dealership and the hefty paperwork needed to complete the
transaction. Several consumers learned during their post-purchase
interviews that they had bought add-ons that they did not know about
(or that they had declined), others thought they got add-ons for
free but in fact paid for them, and some purchased GAP insurance
only because the dealer said or implied that it was mandatory.
\143\ Universal City Nissan, No. 2:16-cv-07329 at ]] 58, 60
(C.D. Cal. Sept. 29, 2016) (alleging preprinted contracts and
rushing consumers to sign); Liberty Chevrolet, No. 1:20-cv-03945 at
]] 17-19 (S.D.N.Y. May 21, 2020) (alleging charging consumers for
taxes twice by rushing consumers to sign); see also Individual
consumer complaint, filed May 18, 2021 (``They signed me up for a
service plan even though I never requested one and charged an extra
$1000 to my auto loan without my consent. They stated I signed the
paperwork so theres nothing I could do that its my fault for not
being more careful and they refused to reimburse me even though I
never knew of or used the service.'').
---------------------------------------------------------------------------
This provision would help protect consumers from unfair or
deceptive charges buried within lengthy contracts or stacks of
paperwork.\144\
---------------------------------------------------------------------------
\144\ The Commission has observed that some businesses use
``dark patterns'' to steer consumers to take particular action,
whether it is making claims in a particular way to induce them to
click on a link on a website or to agree to a transaction, even if
it includes charges for unwanted items. See, e.g., Bringing Dark
Patterns to Light: an FTC Workshop, Fed. Trade Comm'n (Apr. 29,
2021) (Public Event), <a href="https://www.ftc.gov/news-events/events-calendar/bringing-dark-patterns-light-ftc-workshop">https://www.ftc.gov/news-events/events-calendar/bringing-dark-patterns-light-ftc-workshop</a>; see also supra
note 113. And the Commission has seen via extrinsic evidence
(including consumer complaints and surveys) that large numbers of
consumers experience unexpected and unauthorized charges,
notwithstanding disclosures, contract disclaimers, and signature
lines. Summary Judgment Order, FTC v. <a href="http://Amazon.com">Amazon.com</a>, No. 2:14-cv-01038-
JCC, at 17-20 (W.D. Wash. 2016); N. Am. Auto. Servs., No. 1:22-cv-
0169 at ] 27 (N.D. Ill. Mar. 31, 2022) (alleging that, according to
a survey of dealership customers, at least 83% of them were charged
for add-on products without authorization or as a result of
deception).
---------------------------------------------------------------------------
In sum, the complexities and duration of a typical motor vehicle
transaction, and the myriad problems observed in the industry, call for
a means to obtain and record Express, Informed Consent to charges
instead of simply collecting signatures or initials within dense
paperwork. Other statutes and rules enforced by the FTC likewise
include Express, Informed Consent requirements for consumer
purchases,\145\ and similar provisions appear in Commission orders
resolving charges that motor vehicle dealers or other sellers have
levied unauthorized charges on consumers.\146\
---------------------------------------------------------------------------
\145\ 15 U.S.C. 8402(a)(2), 8403(2) (Restore Online Shoppers'
Confidence Act); 16 CFR 310.4(a)(7) (Telemarketing Sales Rule).
\146\ Liberty Chevrolet, No. 1:20-cv-03945 at Art. II (S.D.N.Y.
May 27, 2020); Stipulated Order, FTC v. Consumer Portfolio Servs.,
No. 14-cv-00819 at Art. III (C.D. Cal. June 11, 2014). Based on
years of experience in a variety of contexts (including for dealings
not nearly as complex as motor vehicle transactions), the Commission
has often required such Express, Informed Consent provisions. See,
e.g., Stipulated Order, FTC v. Yellowstone Capital LLC, No. 1:20-cv-
06023-LAK at Art. III (S.D.N.Y. May 4, 2021); Stipulated Order, FTC
v. Prog. Leasing, No. 1:20-cv-1688-JPB at Art. IV (N.D. Ga. Apr. 22,
2020); Decision and Order, FTC v. Bionatrol Health, LLC, No. C-4733
at Art. VI (F.T.C. Mar. 5, 2021); Stipulated Order, FTC v. Bunzai
Media Grp., Inc., No. CV 15-4527-GW(PLAx) at Art. I.E (C.D. Cal.
June 27, 2018); Stipulated Order, FTC v. T-Mobile USA, Inc., No.
2:14-cv-00967-JLR at Art. I (W.D. Wash. Dec. 19, 2014); Stipulated
Order, FTC v. AT&T Mobility, LLC, No. 1:14-cv-03227-HLM at Art. I
(N.D. Ga. Oct. 8, 2014); Decision and Order, In re Google, Inc., No.
C-4499 at Art. I (F.T.C. Dec. 2, 2014).
---------------------------------------------------------------------------
F. Sec. 463.6: Recordkeeping
The proposed rule also includes various recordkeeping requirements
to help ensure compliance with the Rule's disclosure requirements.
Section 463.6 of the proposed rule describes the types of records motor
vehicle dealers must keep, and the time period for retention.
Specifically, this provision requires motor vehicle dealers subject to
the Rule to keep for a period of 24 months: all materially different
advertisements, sales scripts, training materials, and marketing
materials regarding vehicle price, financing, or leasing terms; all
materially different copies of lists of add-on products and services;
consumer transaction documents such as purchase orders, financing and
leasing agreements (and related correspondence, including declination
documents as required by the preceding section); records to show
compliance with monthly payment disclosure and add-on sales
requirements; written consumer complaints and consumer inquiries
regarding add-ons or individual vehicles; and other records needed to
demonstrate compliance with this Rule. These recordkeeping provisions
are necessary to ensure dealers make required disclosures under the
Rule. They will also assist the Commission in assessing dealers'
compliance with the Rule and help to ensure its effectiveness.\147\
These recordkeeping obligations are consistent with and similar to
requirements included in similar Commission disclosure rules, as
tailored to individual industries and markets.\148\
---------------------------------------------------------------------------
\147\ Norm Reeves, No. 8:17-cv-01942 at ]] 42-45 (C.D. Cal. Nov.
3, 2017) (alleging dealer failed to keep records of previous
advertisements needed to demonstrate compliance with prior order);
New World Auto Imports, No. 3:16-cv-22401 at ]] 32-35 (N.D. Tex.
Aug. 18, 2016) (alleging dealer failed to keep records of previous
advertisements needed to demonstrate compliance with prior order).
\148\ 16 CFR 310.5 (Telemarketing Sales Rule); 16 CFR 437.7
(Business Opportunity Rule); 16 CFR 453.6 (Funeral Industry
Practices Rule); 16 CFR 301.41 (Fur Products Labeling).
---------------------------------------------------------------------------
G. Sec. 463.7: Waiver Not Permitted
Section 463.7 of the proposed rule provides that ``[a]ny attempt by
any person to obtain a waiver from any consumer of any protection
provided by or any right of the consumer under this part constitutes a
violation of this part.'' This provision would prevent attempts to
circumvent provisions of the proposed rule, for example during the
paperwork review process with consumers. This provision is modeled on a
similar provision in the Mortgage Assistance Relief Services Rule.\149\
---------------------------------------------------------------------------
\149\ See 12 CFR 1015.8.
---------------------------------------------------------------------------
V. Request for Comment
You can file a comment online or on paper. For the Commission to
consider your comment, we must receive it on or before September 12,
2022. Write ``Motor Vehicle Dealers Trade Regulation Rule--Rulemaking,
No. P204800'' on your comment. Your comment--including your name and
your state--will be placed on the public record of this proceeding,
including, to the extent practicable, on the <a href="https://www.regulations.gov">https://www.regulations.gov</a> website.
[[Page 42028]]
Because of the public health emergency in response to the COVID-19
outbreak and the agency's heightened security screening, postal mail
addressed to the Commission will be subject to delay. We strongly
encourage you to submit your comments online through the <a href="https://www.regulations.gov">https://www.regulations.gov</a> website. To ensure the Commission considers your
online comment, please follow the instructions on the web-based form.
If you file your comment on paper, write ``Motor Vehicle Dealers
Trade Regulation Rule--Rulemaking, Matter No. P204800'' on your comment
and on the envelope, and mail your comment to the following address:
Federal Trade Commission, Office of the Secretary, 600 Pennsylvania
Avenue NW, Suite CC-5610 (Annex C), Washington, DC 20580.
Because your comment will be placed on the public record, you are
solely responsible for making sure your comment does not include any
sensitive or confidential information. In particular, your comment
should not include any sensitive personal information, such as your or
anyone else's Social Security number; date of birth; driver's license
number or other state identification number, or foreign country
equivalent; passport number; financial account number; or credit or
debit card number. You are also solely responsible for making sure your
comment does not include any sensitive health information, such as
medical records or other individually identifiable health information.
In addition, your comment should not include any ``trade secret or any
commercial or financial information which . . . is privileged or
confidential''--as provided by Section 6(f) of the FTC Act, 15 U.S.C.
46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2) --including in
particular competitively sensitive information such as costs, sales
statistics, inventories, formulas, patterns, devices, manufacturing
processes, or customer names.
Comments containing material for which confidential treatment is
requested must be filed in paper form, must be clearly labeled
``Confidential,'' and must comply with FTC Rule 4.9(c). In particular,
the written request for confidential treatment that accompanies the
comment must include the factual and legal basis for the request and
must identify the specific portions of the comment to be withheld from
the public record. See FTC Rule 4.9(c). Your comment will be kept
confidential only if the General Counsel grants your request in
accordance with the law and the public interest. Once your comment has
been posted publicly at <a href="http://www.regulations.gov">www.regulations.gov</a>--as legally required by FTC
Rule 4.9(b) --we cannot redact or remove your comment from the FTC
website, unless you submit a confidentiality request that meets the
requirements for such treatment under FTC Rule 4.9(c), and the General
Counsel grants that request.
Visit the FTC website to read this document and the news release
describing it. The FTC Act and other laws the Commission administers
permit the collection of public comments to consider and use in this
proceeding as appropriate. The Commission will consider all timely and
responsive public comments it receives on or before September 12, 2022.
For information on the Commission's privacy policy, including routine
uses permitted by the Privacy Act, see <a href="https://www.ftc.gov/site-information/privacy-policy">https://www.ftc.gov/site-information/privacy-policy</a>.
VI. Communications by Outside Parties to the Commissioners or Their
Advisors
Written communications and summaries or transcripts of oral
communications respecting the merits of this proceeding, from any
outside party to any Commissioner or Commissioner's advisor, will be
placed on the public record. See 16 CFR 1.26(b)(5).
VII. Questions for Comment
The Commission seeks comments on various aspects of the proposed
rule. Without limiting the scope of issues it seeks comment on, the
Commission is particularly interested in receiving comments on the
questions that follow. Responses to these questions should be itemized
according to the numbered questions in this document. In responding to
these questions, include detailed, factual supporting information
whenever possible.
General Questions for Comment
When responding to any of the following general questions, please
specify the portion(s) of the proposal to which your comment relates.
1. Does the proposed rule further the Commission's goal of
protecting consumers from unfair or deceptive acts or practices in the
motor vehicle marketplace? Why or why not?
2. Are there any unfair or deceptive acts or practices not
addressed by the proposed rule that should be? For example, should
there be additional provisions pertaining to leasing or provisions
pertaining to interest rates or other financing terms?
3. Are there any additional practices that occur largely or
exclusively at certain types of dealerships that any final Rule should
address? For example, should there be additional provisions pertaining
to collection or repossession practices employed by ``buy here, pay
here'' dealerships, including the use of electronic disabling devices
(sometimes called ``starter interrupt'' or ``kill switches'')?
4. Portions of the proposed rule contemplate additional disclosures
in an already lengthy, confusing and disclosure-heavy but low-
comprehension transaction. Would any of the additional proposed
disclosures do more harm than good? If so, is there another measure
that should be used to address the consumer protection concerns
described herein?
5. Should the Commission provide more detailed requirements
regarding the content or form of any of the proposed disclosures?
6. What economic burdens would be imposed on dealers if the Rule
proposals were adopted? Are there changes that could be made to lessen
any such burdens without significantly reducing the benefits to
consumers?
7. Does the proposed rule adequately address sales and leasing
practices that take place partially or completely online? If not,
should there be different or fewer or additional requirements for
online sales and leasing?
8. Should any final Rule include additional provisions to address
electronic disclosures or recordkeeping? Why or why not? If yes, in
what manner(s)?
9. Should any final Rule address disclosures in other languages?
Why or why not? If yes, in what manner(s)?
Sec. 463.2: Definitions
10. Are the proposed definitions clear? Should any changes be made
to any definitions? Should the scope of any of the proposed definitions
be expanded or narrowed, and if so, why?
11. Are additional definitions needed?
Sec. 463.3: Prohibited Misrepresentations
Proposed Sec. 463.3 would prohibit dealers from making specified
misrepresentations.
12. Are the proposed prohibitions on misrepresentations in this
section clear, meaningful, and appropriate? Should the scope of any of
the proposed prohibitions be expanded or narrowed, and if so, how and
why?
13. Would any of the proposed prohibitions inadvertently discourage
truthful advertising to the detriment of consumers? For example, would
prohibitions against misrepresenting the cost of a purchase make it
less likely dealers would include truthful pricing
[[Page 42029]]
claims in their ads? If so, please provide suggestions on how to
address these issues.
14. Are there any other practices by dealers relating to vehicle
sales, financing, or leasing that are particularly harmful to military
servicemembers? For example, are there particular unfair or deceptive
acts or practices engaged in by dealerships in the proximity of, or
within, military installations?
15. Proposed Sec. 463.3(e) would prohibit dealers from
misrepresenting the availability of vehicles at an advertised price.
Are there situations in which dealers misrepresent the availability of
vehicles without reference to price (e.g., the total number of vehicles
of a certain make, model, and year the dealer has available)? If so,
should the Commission amend the proposal in Sec. 463.3(e) to directly
address such misrepresentations? Why or why not?
16. Proposed Sec. s 463.3(h) and (i) would prohibit dealers from
misrepresenting when the transaction is final or binding on all parties
and from making misrepresentations about keeping cash down payments or
trade-in vehicles, charging fees, or initiating legal process or any
action if a transaction is not finalized or if the consumer does not
wish to engage in a transaction. As indicated in this document, these
proposed provisions are intended to curb problems with the spot
delivery of vehicles while the financing for the vehicle remains
contingent--problems sometimes referred to as ``yo-yo financing.''
Should the Commission consider alternative approaches to address such
problems, such as requiring retail installment sales contracts to
include a clause prohibiting financing-contingent sales, prohibiting
the dealer from transferring title to a trade-in vehicle or performing
any repairs or reconditioning before a sale is final or requiring
dealers to return trade-in, deposit, and fees, if financing is not
approved? What would be the effect of such a requirement, and what
costs and benefits would it entail? Are there data regarding the
feasibility of finalizing vehicle financing at or before the time the
retail installment sales contract is signed?
17. Proposed Sec. 463.3(j) would prohibit misrepresentations
regarding whether or when a dealer will pay off some or all of the
financing or lease on a consumer's trade-in vehicle. Should there be
additional protections here--for example, should there be a requirement
that dealers pay off outstanding financing or liens on a trade-in
vehicle within a specified amount of time, or before selling the trade-
in vehicle?
18. Are there any other common misrepresentations in the motor
vehicle marketplace that are not adequately addressed by the proposed
rule? If so, please identify them and how they should be addressed in
any final Rule. Please also identify the potential costs and benefits
associated with the approach you propose.
Sec. 463.4: Disclosure Requirements
Proposed Sec. 463.4 would require dealers to make specified
disclosures.
19. Are the disclosures that would be required by this section
clear, meaningful, and appropriate? Should the scope of any of the
proposed disclosures be expanded or narrowed, and if so, how and why?
20. What would be the economic impact, and the costs and benefits,
of these disclosure requirements?
21. Should this section include additional disclosure requirements?
Given the length and complexity of the transaction, would additional
disclosures make the consumer experience better or worse? Why or why
not? If so, what are the costs and benefits associated with these
additional disclosures?
22. Is the timing of disclosures contemplated by this section
appropriate and sufficient to provide consumers with useful information
regarding the purchase or lease of a motor vehicle?
23. Would any of the required disclosures inadvertently discourage
truthful advertising to the detriment of consumers? For example, to the
extent the proposed rule would require that certain disclosures (e.g.,
Offering Price) must accompany other specific information, will dealers
cease providing that other information altogether? If so, please
provide suggestions on how to address these issues.
24. Are there circumstances in which dealers should be required to
make disclosures and contracts available in languages other than
English? For instance, should dealers be required to provide
disclosures and contracts in any language they use for advertising, or
in any language they use to conduct sales, financing, or lease
transactions? What would be the effect of such a requirement, and what
costs and benefits would it entail? Are there other steps the
Commission should consider taking to protect consumers from
misrepresentations in dealer advertisements when the sale, lease, or
financing transaction is conducted in a different language from the one
used in advertising?
25. Are the proposed disclosures sufficient to provide consumers
with clear, meaningful and appropriate information about the financing
terms of the transaction? Are there other steps the Commission should
consider taking to protect consumers from being misled regarding their
financing terms and to ensure that consumers understand their financing
options?
26. Proposed Sec. 463.4(a) would require dealers to disclose the
Offering Price in certain advertisements.
a. Do dealers already calculate a figure equivalent to the Offering
Price for every vehicle in their inventory? If so, how is this
calculated?
b. In particular, the Commission is contemplating whether it is
necessary to prohibit advertising any price aside from the Offering
Price to address concerns with unfairness and deception, including
those described in this Document. Or, alternatively, should dealers be
permitted to state in advertisements the Offering Price along with
other offers that may be of limited applicability (provided the nature
of the limited applicability is clearly disclosed)? c. Would the
mandatory disclosure of Offering Price where required ``crowd out''
other information in advertising formats where dealers pay for time or
space?
27. Proposed Sec. 463.4(a) would also require a dealer to disclose
the Offering Price in the first response to any query about any
specific vehicle.
a. Is it appropriate to limit this requirement to only the dealer's
first response about the specific vehicle? Or, should the Commission
require dealers to include the Offering Price in additional
communications to potential buyers?
b. What other measures could be taken so consumers know the true
Offering Price of a vehicle earlier in their decision-making process,
including before expending resources to visit the dealership?
28. Proposed Sec. 463.4(b) would require dealers to disclose an
Add-on List in certain circumstances.
a. How many add-ons do dealers typically offer, and how many of
those are sold regularly? Would this disclosure require such a lengthy
list of add-on products and services that the list would be too long to
be meaningful to consumers? If so, are there changes that could be made
to this proposed requirement to reduce the amount of information
disclosed while preserving the benefits to consumers? For example,
would limiting this requirement to add-ons that are proposed by the
dealer to
[[Page 42030]]
a prospective buyer, as opposed to raised by the consumer, adequately
address the harms that occur to consumers in the context of these
transactions? Or, should the Add-on List be limited to a certain number
(e.g., 15) of add-on products and services most frequently sold by the
dealer in the previous quarter?
b. How common is it for the price of a given add-on product or
service to vary for different vehicles and different transactions, and
on what basis would the price vary? Would it be necessary for dealers
to provide disclosures specific to an individual consumer, or could
this proposed requirement be satisfied with a pre-formatted disclosure
that could be provided to all potential buyers or lessees? If prices
vary greatly, would disclosing the price range provide meaningful
information to consumers?
c. The proposed rule would allow certain advertisements (i.e.,
those not presented on a website, online service, or mobile
application) to disclose the website, online service, or mobile
application where the consumer can view the Add-on List, rather than
disclosing the Add-on List itself within the advertisement. Should the
Commission take the same or similar approach with advertisements
presented via other forms of media? Why or why not?
d. The proposed rule would require dealers that run certain types
of advertisements and charge for optional add-ons to maintain a
website, online service, or mobile application at which an Add-on List
may be found. Do all or most such dealers already operate a website,
online service, or mobile application that could display the Add-on
List?
29. Proposed Sec. 463.4(d) would require a dealer to disclose the
total amount a consumer must pay to purchase or lease a vehicle when
the dealer makes representations about monthly payments for a vehicle
purchase. Can dealers calculate accurate monthly payment information
for a consumer without calculating the total amount? If not, is there
any value in a consumer learning monthly payment information before the
total amount is calculated? If so, how can the proposal be adjusted to
allow for such information without obscuring necessary information
about the total amount required to purchase a vehicle?
30. Proposed Sec. 463.4(e) would require dealers to disclose that
a lower monthly payment will increase the total amount, if lowering
monthly payments will do so. This provision could require this
disclosure multiple times in the same transaction, for example, when a
dealer's financing office is discussing a range of different monthly
payments with the consumer. Would requiring multiple disclosures result
in the disclosure losing effectiveness? Would limiting the disclosure,
for example, to the first time the disclosure is triggered have
benefits, or would this reduce the effectiveness of the disclosure by
requiring it at a time that is not as meaningful to consumers?
Sec. 463.5: Dealer Charges for Add-Ons and Other Items
Proposed Sec. 463.5(a) would prohibit dealers from marketing or
selling an add-on product or service to a consumer who would not
benefit from the add-on product or service in connection with the sale
or financing of a vehicle.
31. Are the proposed prohibitions in this section clear,
meaningful, and appropriate? Should the scope of any of the proposed
prohibitions be expanded or narrowed, and if so, how and why?
32. Is the proposal adequate and appropriate to address consumer
harms that occur with the sale of add-on products or services from
which the consumer cannot benefit? Why or why not? How could the
proposal be modified to better address such harms?
33. This provision is intended to prevent conflicting and otherwise
deceptive representations, and to protect consumers without requiring
additional disclosures in an already lengthy, disclosure-heavy process.
Given these concerns, should additional restrictions be placed on all
add-ons? In particular, the Commission is contemplating whether any
final Rule should restrict dealers from selling add-ons (other than
those already installed on the vehicle) in the same transaction, or on
the same day, the vehicle is sold or leased. Would such a provision
better protect consumers without unduly burdening competition?
34. The proposed rule would prohibit dealers from charging for non-
beneficial add-ons, such as nitrogen-filled tires that contain no more
nitrogen than naturally exists in the air, and GAP insurance that
cannot be used by the consumer. Are there other add-ons for which
dealers commonly charge that are similarly non-beneficial and should be
specifically referenced in any final Rule?
35. The proposed rule would also prohibit dealers from charging for
GAP Agreements if the consumer's vehicle or neighborhood is excluded
from coverage or the loan-to-value ratio would result in the consumer
not benefitting financially from the agreement. Should any final Rule
set forth how to calculate the loan-to-value ratio? If so, what should
such a provision require?
36. Proposed Sec. 463.5(b) would prohibit a dealer from charging
for optional add-ons unless the dealer first discloses the vehicle's
Cash Price without Optional Add-ons and records that a consumer has
declined to purchase the vehicle at that price. Should the Commission
consider means to require more affirmative engagement by consumers to
consciously select add-on products and services? In particular, the
Commission is contemplating whether any final Rule should require
separating the purchase of add-ons from the vehicle sale or lease
transaction, or permit consumers to cancel add-ons (that do not involve
physical alteration to the vehicle) within a short time after the sale
or lease transaction is concluded. What practical limitations might
such additional requirements impose?
37. Would the proposal prompt dealers to make offers regarding add-
ons at a time and in a manner that is meaningful to consumers, or would
it result in yet another disclosure being presented to consumers during
an already disclosure-heavy transaction? If it would result in too many
disclosures, what other measures could be taken to protect consumers
from unauthorized add-ons, or from being induced to purchase add-ons
under false pretenses?
38. Proposed Sec. 463.5(c) would prohibit dealers from charging
consumers without their Express, Informed Consent, and would provide
requirements for what constitutes Express, Informed Consent. Does the
proposal provide a meaningful way to obtain consent in an already
disclosure-heavy transaction? If it would result in too many
disclosures, what other measures could be taken to protect consumers
from unauthorized charges? Are there any additional requirements that
should be mandated to gain Express, Informed Consent? How do dealers
currently obtain consent for charges?
39. The proposed rule would define Express, Informed Consent to
exclude signed or initialed documents by themselves (e.g., those
without a closely proximate disclosure of the basis and amount for the
charge), preprinted checkboxes, and practices designed or manipulated
with the substantial effect of subverting or impairing user autonomy,
decision making, or choice. Should the Commission identify other
practices that do not, in themselves, constitute Express, Informed
Consent? Why or why not? Are there other ``dark patterns'' that the
Commission should address? Is there language, such as in
[[Page 42031]]
other statutes, that the Commission should use to further protect
consumers from being charged without Express, Informed Consent?
Sec. 463.6: Recordkeeping
Proposed Sec. 463.6 would require dealers to keep, for a period of
24 months, records necessary to de
[…truncated; see source link]Indexed from Federal Register on July 13, 2022.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.