Rule2023-27997
Combating Auto Retail Scams 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
January 4, 2024
Effective
July 30, 2024
Issuing agencies
Federal Trade Commission
Abstract
The Federal Trade Commission ("FTC" or "Commission") is issuing this Combating Auto Retail Scams Trade Regulation Rule ("CARS Rule," "Rule," or "Final Rule") and Statement of Basis and Purpose ("SBP") related to the sale, financing, and leasing of covered motor vehicles by covered motor vehicle dealers. The Final Rule, among other things, prohibits motor vehicle dealers from making certain misrepresentations in the course of selling, leasing, or arranging financing for motor vehicles, requires accurate pricing disclosures in dealers' advertising and sales communications, requires dealers to obtain consumers' express, informed consent for charges, prohibits the sale of any add-on product or service that confers no benefit to the consumer, and requires dealers to keep records of certain advertisements and customer transactions.
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[Federal Register Volume 89, Number 3 (Thursday, January 4, 2024)]
[Rules and Regulations]
[Pages 590-695]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-27997]
[[Page 589]]
Vol. 89
Thursday,
No. 3
January 4, 2024
Part III
Federal Trade Commission
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16 CFR Part 463
Combating Auto Retail Scams Trade Regulation Rule; Final Rule
Federal Register / Vol. 89 , No. 3 / Thursday, January 4, 2024 /
Rules and Regulations
[[Page 590]]
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FEDERAL TRADE COMMISSION
16 CFR Part 463
RIN 3084-AB72
Combating Auto Retail Scams Trade Regulation Rule
AGENCY: Federal Trade Commission.
ACTION: Final rule.
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SUMMARY: The Federal Trade Commission (``FTC'' or ``Commission'') is
issuing this Combating Auto Retail Scams Trade Regulation Rule (``CARS
Rule,'' ``Rule,'' or ``Final Rule'') and Statement of Basis and Purpose
(``SBP'') related to the sale, financing, and leasing of covered motor
vehicles by covered motor vehicle dealers. The Final Rule, among other
things, prohibits motor vehicle dealers from making certain
misrepresentations in the course of selling, leasing, or arranging
financing for motor vehicles, requires accurate pricing disclosures in
dealers' advertising and sales communications, requires dealers to
obtain consumers' express, informed consent for charges, prohibits the
sale of any add-on product or service that confers no benefit to the
consumer, and requires dealers to keep records of certain
advertisements and customer transactions.
DATES: This rule is effective July 30, 2024.
ADDRESSES: Copies of this document are available on the Commission's
website, <a href="http://www.ftc.gov">www.ftc.gov</a>.
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#5c38382b25392e1c3a283f723b332a"><span class="__cf_email__" data-cfemail="d7b3b3a0aeb2a597b1a3b4f9b0b8a1">[email protected]</span></a>, <a href="/cdn-cgi/l/email-protection#9ae9e9f2fbf2e8fbe9f8f3dafceef9b4fdf5ec"><span class="__cf_email__" data-cfemail="4635352e272e342735242f0620322568212930">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
A. Statutory Authority
B. Commission Actions Following the Dodd-Frank Act and the
Rulemaking Process
II. Motor Vehicle Financing and Leasing
A. Overview of the Motor Vehicle Marketplace
B. Deceptive and Unfair Practices in the Motor Vehicle
Marketplace
1. Bait-and-Switch Tactics
2. Unlawful Practices Relating to Add-On Products or Services
and Hidden Charges
C. Law Enforcement and Other Responses
III. Section-by-Section Analysis
A. Sec. 463.1: Authority
B. Sec. 463.2: Definitions
1. Overview
2. Definition-by-Definition Analysis
(a) Add-On or Add-On Product(s) or Service(s)
(b) Add-On List
(c) Cash Price Without Optional Add-Ons
(d) Clearly and Conspicuously
(e) Motor Vehicle (finalized as ```Covered Motor Vehicle' or
`Vehicle' '')
(f) Dealer or Motor Vehicle Dealer (finalized as ```Covered
Motor Vehicle Dealer' or `Dealer' '')
(g) Express, Informed Consent
(h) GAP Agreement
(l) Government Charges
(j) Material or Materially
(k) Offering Price
C. Sec. 463.3: Prohibited Misrepresentations
1. General Comments
2. Paragraph-by-Paragraph Analysis of Sec. 463.3
(a) The Costs or Terms of Purchasing, Financing, or Leasing a
Vehicle
(b) Any Costs, Limitation, Benefit, or Any Other Aspect of an
Add-On Product or Service
(c) Whether Terms Are, or Transaction Is, for Financing or a
Lease
(d) The Availability of Any Rebates or Discounts That Are
Factored Into the Advertised Price but Not Available to All
Consumers
(e) The Availability of Vehicles at an Advertised Price
(f) Whether Any Consumer Has Been or Will Be Preapproved or
Guaranteed for Any Product, Service, or Term
(g) Any Information on or About a Consumer's Application for
Financing
(h) When the Transaction Is Final or Binding on All Parties
(i) 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
(i) 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
(j) Whether or When a Dealer Will Pay Off Some or All of the
Financing or Lease on a Consumer's Trade-in Vehicle
(k) Whether Consumer Reviews or Ratings Are Unbiased,
Independent, or Ordinary Consumer Reviews or Ratings of the Dealer
or the Dealer's Products or Services
(l) Whether the Dealer or Any of the Dealer's 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
(m) Whether Consumers Have Won a Prize or Sweepstakes
(n) Whether, or Under What Circumstances, a Vehicle May Be
Moved, Including Across State Lines or Out of the Country
(o) Whether, or Under What Circumstances, a Vehicle May Be
Repossessed
(p) Any of the Required Disclosures Identified in This Part
D. Sec. 463.4: Disclosure Requirements
1. Overview
2. Paragraph-by-Paragraph Analysis of Sec. 463.4
(a) Offering Price
(b) Add-On List
(c) Add-Ons Not Required
(d) Total of Payments and Consideration for a Financed or Lease
Transaction
(e) Monthly Payments Comparison
E. Sec. 463.5: Dealer Charges for Add-Ons and Other Items
1. Overview
2. Paragraph-by-Paragraph Analysis of Sec. 463.5
(a) Add-Ons That Provide No Benefit
(b) Undisclosed or Unselected Add-Ons
(c) Any Item Without Express, Informed Consent
F. Sec. 463.6: Recordkeeping
G. Sec. 463.7: Waiver Not Permitted
H. Sec. 463.8: Severability
I. Sec. 463.9: Relation to State Laws
IV. Effective Date
V. Paperwork Reduction Act
A. Add-On List Disclosures
B. Disclosures Relating to Cash Price Without Optional Add-Ons
C. Prohibited Misrepresentations and Required Disclosures
D. Recordkeeping
E. Capital and Other Non-Labor Costs
1. Disclosures
2. Recordkeeping
VI. Regulatory Flexibility Act
A. Significant Impact Analysis
1. Comments on Significant Impact
2. Certification of the Final Rule
(a) Industry Averages
(b) Dealer Size Based on the Number of Employees
B. Initial and Final Regulatory Flexibility Analysis
1. Comments on the Initial Regulatory Flexibility Analysis
(a) Description of the Reasons Why Action by the Agency Is Being
Considered
(b) Succinct Statement of the Objectives of, and Legal Basis
for, the Proposed Rule
(c) Description of and, Where Feasible, Estimate of the Number
of Small Entities to Which the Proposed Rule Will Apply
(d) Description of the Projected Reporting, Recordkeeping, and
Other Compliance Requirements of the Proposed Rule
(e) Duplicative, Overlapping, or Conflicting Federal Rules
(f) Description of Any Significant Alternatives to the Proposed
Rule Which Accomplish the Stated Objectives of Applicable Statutes
and Which Minimize Any Significant Economic Impact of the Proposed
Rule on Small Entities
2. Final Regulatory Flexibility Analysis
(a) Statement of the Need for, and Objectives of, the Rule
(b) Issues Raised by Comments, Including Comments by the Chief
Counsel for Advocacy of the SBA, the Commission's Assessment and
Response, and Any Changes Made as a Result
[[Page 591]]
(c) Description and Estimate of the Number of Small Entities to
Which the Final Rule Will Apply or an Explanation of Why No Such
Estimate Is Available
(d) Description of the Projected Reporting, Recordkeeping, and
Other Compliance Requirements
(e) Description of the Steps the Commission Has Taken To
Minimize the Significant Economic Impact on Small Entities
Consistent With the Stated Objectives of Applicable Statutes
VII. Final Regulatory Analysis Under Section 22 of the FTC Act
A. Introduction
B. Estimated Benefits of Final Rule
1. Consumer Time Savings When Shopping for Motor Vehicles
2. Reductions in Deadweight Loss
3. Framework
4. Estimation
5. Benefits Related to More Transparent Negotiation
C. Estimated Costs of Final Rule
1. Prohibited Misrepresentations
2. Required Disclosure of Offering Price in Advertisements and
in Response to Inquiry
3. Disclosure of Add-On List and Associated Prices
4. Required Disclosure of Total of Payments for Financing/
Leasing Transactions
5. Prohibition on Charging for Add-Ons that Provide No Benefit
6. Requirement to Obtain Express, Informed Consent Before Any
Charges
7. Recordkeeping
D. Other Impacts of Final Rule
E. Conclusion
F. Appendix: Derivation of Deadweight Loss Reduction
G. Appendix: Uncertainty Analysis
VIII. Other Matters
I. Background
A. Statutory Authority
The Dodd-Frank Wall Street Reform and Consumer Protection Act
(``Dodd-Frank Act'') was signed into law in 2010.\1\ 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.\2\
The FTC is authorized to do so under the FTC Act and in accordance with
section 553 of the Administrative Procedure Act (``APA'').\3\ The grant
of APA rulemaking authority set forth in section 1029 of the Dodd-Frank
Act became effective as of July 21, 2011--the designated ``transfer
date'' established by the Treasury Department.\4\
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\1\ Public Law 111-203, 124 Stat. 1376 (2010).
\2\ 12 U.S.C. 5519(d). See 12 U.S.C. 5519(f)(1) and (2) for
definitions of the terms ``motor vehicle'' and ``motor vehicle
dealer'' under section 1029 of the Dodd-Frank Act, respectively.
\3\ See 12 U.S.C. 5519(a) (discussing the authority over ``motor
vehicle dealer[s] that [are] predominantly engaged in the sale and
servicing of motor vehicles, the leasing and servicing of motor
vehicles, or both''); 12 U.S.C. 5519(d) (``Notwithstanding section
57a of title 15, the Federal Trade Commission is authorized to
prescribe rules under sections 45 and 57a(a)(1)(B) of title 15[ ] in
accordance with section 553 of title 5, with respect to a person
described in subsection (a).''); 5 U.S.C. 553. Because the
Commission has authority to promulgate this Rule in accordance with
the APA, it is not required to include a statement as to the
prevalence of the acts or practices treated by the Rule under
section 18(d) of the FTC Act. Compare 12 U.S.C. 5519(d) and (a)
(providing the FTC with APA rulemaking authority for purposes of
section 1029 of the Dodd-Frank Act), with 15 U.S.C. 57a(b)(3)
(requiring a statement as to prevalence for certain rulemaking
proceedings by the Commission under non-APA procedures), and 15
U.S.C. 57a(b)(1) (establishing that certain rulemaking proceedings
by the Commission under non-APA procedures are subject to
requirements in addition to those under the APA).
\4\ See 12 U.S.C. 5411(a).
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B. Commission Actions Following the Dodd-Frank Act and the Rulemaking
Process
Following enactment of the Dodd-Frank Act, the Commission published
in the Federal Register a notice discussing its authority to prescribe
rules with respect to unfair or deceptive acts or practices by motor
vehicle dealers and announcing that it would be hosting a series of
public roundtables to explore consumer protection issues pertaining to
motor vehicle sales and leasing, including what consumer protection
issues, if any, exist that could be addressed through a possible
rulemaking.\5\ The Commission sought participation from regulators,
consumer advocates, industry participants, and other interested parties
and ultimately held three such public roundtables.\6\
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\5\ 76 FR 14014, 14015 (Mar. 15, 2011).
\6\ See Fed. Trade Comm'n, ``The Road Ahead: Selling, Financing
& Leasing Motor Vehicles'' (Apr. 12, 2011), <a href="https://www.ftc.gov/news-events/events/2011/04/road-ahead-selling-financing-leasing-motor-vehicles">https://www.ftc.gov/news-events/events/2011/04/road-ahead-selling-financing-leasing-motor-vehicles</a> (providing materials from roundtable in Detroit,
Michigan); Fed. Trade Comm'n, ``The Road Ahead: Selling, Financing &
Leasing Motor Vehicles'' (Aug. 2, 2011), <a href="https://www.ftc.gov/news-events/events/2011/08/road-ahead-selling-financing-leasing-motor-vehicles">https://www.ftc.gov/news-events/events/2011/08/road-ahead-selling-financing-leasing-motor-vehicles</a> (providing materials from roundtable in San Antonio,
Texas); Fed. Trade Comm'n, ``The Road Ahead: Selling, Financing &
Leasing Motor Vehicles'' (Nov. 17, 2011), <a href="https://www.ftc.gov/news-events/events/2011/11/road-ahead-selling-financing-leasing-motor-vehicles">https://www.ftc.gov/news-events/events/2011/11/road-ahead-selling-financing-leasing-motor-vehicles</a> (providing materials from roundtable in Washington,
District of Columbia).
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The Commission subsequently focused on enforcement and business
guidance in the motor vehicle dealer marketplace. As discussed in SBP
II.C,\7\ however, certain unfair and deceptive acts or practices have
persisted, despite more than a decade of enforcement and education.
Accordingly, on June 23, 2022, the Commission announced a notice of
proposed rulemaking (``NPRM'') addressing unfair or deceptive acts or
practices by motor vehicle dealers.\8\ That notice was published in the
Federal Register on July 13, 2022.\9\ The NPRM, among other things,
proposed to (i) prohibit motor vehicle dealers from making certain
misrepresentations, (ii) require accurate pricing disclosures, (iii)
prohibit the sale of any add-on product or service that confers no
benefit to the consumer, (iv) require express, informed consent for
add-ons and other charges, and (v) impose certain recordkeeping
requirements. The comment period for the NPRM closed on September 12,
2022.
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\7\ As used herein, references to the ``Statement of Basis and
Purpose'' or ``SBP'' refer to the portions of this document that
precede the regulatory text of the Final Rule. References to the
``Rule,'' ``Final Rule,'' or ``CARS Rule'' refer to the text in part
463--Combating Auto Retail Scams (``CARS'') Trade Regulation Rule.
Because the Final Rule is narrower than the proposed Motor Vehicle
Dealers Trade Regulation Rule in the NPRM, the Commission has
modified the Rule title to reflect the more limited scope.
\8\ See Press Release, Fed. Trade Comm'n, ``FTC Proposes Rule to
Ban Junk Fees, Bait-and-Switch Tactics Plaguing Car Buyers'' (June
23, 2022), <a href="https://www.ftc.gov/news-events/news/press-releases/2022/06/ftc-proposes-rule-ban-junk-fees-bait-switch-tactics-plaguing-car-buyers">https://www.ftc.gov/news-events/news/press-releases/2022/06/ftc-proposes-rule-ban-junk-fees-bait-switch-tactics-plaguing-car-buyers</a>.
\9\ See Fed. Trade Comm'n, Notice of Proposed Rulemaking, Motor
Vehicle Dealers Trade Regulation Rule, 87 FR 42012 (released June
23, 2022; published July 13, 2022) [hereinafter NPRM], <a href="https://www.govinfo.gov/content/pkg/FR-2022-07-13/pdf/2022-14214.pdf">https://www.govinfo.gov/content/pkg/FR-2022-07-13/pdf/2022-14214.pdf</a>.
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In response to the NPRM and proposed rule, the Commission received
more than 27,000 comments from stakeholders representing a wide range
of viewpoints.\10\ These stakeholders included numerous individual
consumers who described deceptive practices during recent car purchases
and many who discussed current or former military service and deceptive
and predatory practices common near military installations.\11\
Commenters
[[Page 592]]
also included dealerships and their employees, industry groups,
consumer and community groups, and Federal and State lawmakers and law
enforcement agencies. Many commenters, such as consumers, some dealers
and dealer employees, consumer groups, and lawmakers and enforcers,
were supportive of the proposed rule in whole or in part. Many of these
commenters also urged the FTC to include additional protections for
consumers and law-abiding businesses, while others, such as industry
groups, dealers, and dealer employees, asked questions or criticized
the proposal.\12\ These comments and responses to comments are
discussed primarily in the discussion of the Final Rule in SBP III.
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\10\ The Commission received 27,349 comment submissions filed
online in response to its NPRM. See Gen. Servs. Admin., Dkt. No.
FTC-2022-0046, Proposed Rule, Motor Vehicle Dealers Trade Regulation
Rule (July 13, 2022), <a href="https://www.regulations.gov/document/FTC-2022-0046-0001">https://www.regulations.gov/document/FTC-2022-0046-0001</a> (noting comments received). To facilitate public access,
over 11,000 such comments have been posted publicly on
<a href="http://Regulations.gov">Regulations.gov</a> at <a href="https://www.regulations.gov/document/FTC-2022-0046-0001/comment">https://www.regulations.gov/document/FTC-2022-0046-0001/comment</a> (noting posted comments). As explained at
<a href="http://Regulations.gov">Regulations.gov</a>, agencies may choose to redact or withhold certain
submissions (or portions thereof) such as those containing private
or proprietary information, inappropriate language, or duplicate/
near duplicate examples of a mass-mail campaign. See Gen. Servs.
Admin., <a href="http://Regulations.gov">Regulations.gov</a> Frequently Asked Questions, Find Dockets,
Documents, and Comments FAQs, ``How are comments counted and posted
to <a href="http://Regulations.gov">Regulations.gov</a>?,'' <a href="https://www.regulations.gov/faq?anchor=downloadingdata">https://www.regulations.gov/faq?anchor=downloadingdata</a> (last visited Dec. 5, 2023). The
Commission has considered all timely and responsive public comments
it received in response to its NPRM.
\11\ See, e.g., Individual commenter, Doc. No. FTC-2022-0046-
4648 (``As a young Marine stationed in a military town I was taken
advantage of by a dealership when purchasing my first car. It set me
back financially for years. I know of many young military people who
purchased vehicle[ ]s and we[ ]re instantly so far upside down after
leaving the dealership with thousands of dollars in add on junk
charges . . . .''); Individual commenter, Doc. No. FTC-2022-0046-
0542 (``As a former member of the Military, the amount of scams and
horror stories I have heard regarding young service members buying
cars is absurd. . . . Someone shouldn't have to do hours of research
on how to buy a car so they don't get taken advantage of.'');
Individual commenter, Doc. No. FTC-2022-0046-0637 (``As a small
business owner and active duty military member I have played the
role of both a buyer, toiling for hours to just reach fair deals on
vehicles, as well as that of an advocate for my Sailors who have
been preyed upon by local dealerships. Nowhere else in our society
do so many average citizens have to mentally prepare for a battle
over fair pricing and treatment for something that is realistically
a modern necessity.''); Individual commenter, Doc. No. FTC-2022-
0046-9840 (``I can't list the number of times I have either seen, or
have stepped in a situation, where car dealers have either attempted
to take, or have successfully taken, advantage of a young military
member or their family by baiting and switching when it came to the
price of a car, or stated that the price was one amount, only to be
charged, and over-charged a higher amount. These dealers have even
attempted to pull unethical tricks on me and my wife, even after
they found out that I was a military member, a combat veteran, that
was serving this great nation.''); Individual commenter, Doc. No.
FTC-2022-0046-0845 (``Predatory practices like [bait-and-switch
pricing] are common near military installations . . . .'').
\12\ Industry commenters claimed that many of the areas covered
by the proposed rule are already addressed in industry guidance. The
Commission notes that, although industry guidance can provide
helpful information to dealers, dealers who choose not to follow
such guidance, or who engage in deceptive or unfair practices,
subject their customers to significant harm. The Rule addresses such
practices, thus protecting consumers and law-abiding dealers.
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The Commission notes that it has undertaken careful review and
consideration of each of the comments it received in response to its
NPRM. The Commission has dedicated the majority of its section-by-
section analysis to descriptions of, and responses to, comments or
portions thereof that were critical of the Commission's proposal or
that urged the Commission to adopt additional requirements. Thus, to
ensure that this document also reflects the many comments in the public
record from stakeholders who supported the proposal as is, the
Commission has excerpted a number of such comments in portions of its
SBP.
II. Motor Vehicle Financing and Leasing
A. Overview of the Motor Vehicle Marketplace
For many consumers, buying or leasing a motor vehicle is essential,
expensive, and time-consuming.\13\ Americans rely on their vehicles for
work, school, childcare, groceries, medical visits, and many other
important tasks in their daily lives.\14\ These vehicles have become
increasingly costly: the average price of a new vehicle sold at a new
car dealership in 2022 was more than $46,000,\15\ while the average
price of a used vehicle sold at such dealerships was more than
$30,000.\16\ By the second quarter of 2023, the average monthly payment
for used cars reached $533, and the average monthly payment for new
cars reached $741--both record highs.\17\ Vehicles are now many
consumers' largest expense--on a par with housing, child care and food,
and accounting for 16% of the median annual household income before
taxes.\18\ In 2022 alone, Americans spent more than $720 billion on
motor vehicles and vehicle parts.\19\
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\13\ Unless otherwise indicated, the terms ``auto,''
``automobile,'' ``car,'' ``motor vehicle,'' and ``vehicle,'' as used
in this SBP and the Commission's final regulatory analysis, refer to
``Covered Motor Vehicle'' as defined in this part.
\14\ During 2017 to 2022, an average of 91% of American workers
who did not work from home drove to work. See U.S. Census Bureau,
``American Community Survey: Means of Transportation to Work by
Selected Characteristics, 2022: ACS 1-Year Estimates Subject
Tables'' (2023), <a href="https://data.census.gov/table?q=Commuting&tid=ACSST1Y2022.S0802">https://data.census.gov/table?q=Commuting&tid=ACSST1Y2022.S0802</a> (reporting 110,245,368
workers 16 years and over who drove alone to work in a car, truck,
or van, and 13,881,067 workers 16 years and over who drove by
carpool to work in a car, truck or van, together accounting for 91%
of the total of 136,196,004 workers 16 years and over who did not
work from home); U.S. Census Bureau, ``American Community Survey:
Means of Transportation to Work by Selected Characteristics, 2021:
2017-2021 ACS 5-Year Estimates Subject Tables'' (2022), <a href="https://data.census.gov/table?q=Commuting&tid=ACSST5Y2021.S0802">https://data.census.gov/table?q=Commuting&tid=ACSST5Y2021.S0802</a> (reporting
113,724,271 workers 16 years and over who drove alone to work in a
car, truck, or van, and 13,340,838 workers 16 years and over who
drove by carpool to work in a car, truck or van, together accounting
for 91% of the total of 140,223,271 workers 16 years and over who
did not work from home).
\15\ Nat'l Auto. Dealers Ass'n, ``NADA Data 2022'' 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 $46,287 for new vehicles sold by dealerships in
2022).
\16\ Id. at 10 (noting average retail selling price of $30,736
for used vehicles sold by new-vehicle dealerships in 2022).
\17\ Lydia DePillis, ``How the Costs of Car Ownership Add Up,''
N.Y. Times (Oct. 6, 2023), <a href="https://www.nytimes.com/interactive/2023/10/07/business/car-ownership-costs.html">https://www.nytimes.com/interactive/2023/10/07/business/car-ownership-costs.html</a> (citing average monthly
payment figures from TransUnion).
\18\ Id. (citing data from AAA and the U.S. Census Bureau).
\19\ Bureau of Econ. Analysis, ``National Data: National Income
and Product Accounts, Personal Consumption Expenditures by Major
Type of Product'' tbl. 2.3.5, <a href="https://apps.bea.gov/iTable/?reqid=19&step=2&isuri=1&categories=survey#eyJhcHBpZCI6MTksInN0ZXBzIjpbMSwyLDNdLCJkYXRhIjpbWyJjYXRlZ29yaWVzIiwiU3VydmV5Il0sWyJOSVBBX1RhYmxlX0xpc3QiLCI2NSJdXX0=">https://apps.bea.gov/iTable/?reqid=19&step=2&isuri=1&categories=survey#eyJhcHBpZCI6MTksInN0ZXBzIjpbMSwyLDNdLCJkYXRhIjpbWyJjYXRlZ29yaWVzIiwiU3VydmV5Il0sWyJOSVBBX1RhYmxlX0xpc3QiLCI2NSJdXX0=</a> (last revised July 27, 2023) (listing
estimated annual expenditure rates of between $713.1 billion and
$737.1 billion in 2022).
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Given these costs, many consumers who purchase a motor vehicle rely
on financing to complete their purchases. According to public reports,
81% of new motor vehicle purchases, and nearly 35% of used vehicle
purchases, are financed.\20\ By the first quarter of 2023, Americans
had more than 107 million outstanding auto financing accounts and owed
more than $1.56 trillion thereon,\21\ making auto finance the third-
largest source of debt for U.S. consumers, and the second-largest for
U.S. consumers ages 40 and over.\22\ Servicemembers have an average of
twice as much auto debt as civilians--particularly young
servicemembers, who generally require vehicles for transportation while
living on military bases.\23\ By the age of 24, around 20
[[Page 593]]
percent of young servicemembers have at least $20,000 in auto debt,
which equates to nearly two-thirds of an enlisted soldier's typical
base salary at that age.\24\
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\20\ Melinda Zabritski, Experian Info. Sols., Inc., ``State of
the Automotive Finance Market Q4 2020'' 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>
(on file with the Commission).
\21\ Fed. Rsrv. Bank of N.Y., ``Quarterly Report on Household
Debt and Credit, 2023: Q1'' 3-4 (May 2023), <a href="https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2023Q1">https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2023Q1</a>; Fed. Rsrv. Bank of N.Y., ``Data Underlying Report''
on ``Page 3 Data'' and ``Page 4 Data'' tabs, <a href="https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/xls/HHD_C_Report_2023Q1">https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/xls/HHD_C_Report_2023Q1</a> (last visited Dec. 5, 2023) (listing number
of open ``Auto Loan'' accounts and total outstanding balance in such
accounts).
\22\ Fed. Rsrv. Bank of N.Y., ``Quarterly Report on Household
Debt and Credit, 2023: Q1'' 3, 21 (May 2023), <a href="https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2023Q1">https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2023Q1</a>; Fed. Rsrv. Bank of N.Y., ``Data Underlying Report''
on ``Page 3 Data'' and ``Page 21 Data'' tabs, <a href="https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/xls/HHD_C_Report_2023Q1">https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/xls/HHD_C_Report_2023Q1</a> (last visited Dec. 5, 2023) (listing total
``Auto Loan'' debt balance compared to other product type
categories).
\23\ See Consumer Fin. Prot. Bureau, ``Financially Fit?
Comparing the Credit Records of Young Servicemembers and Civilians''
27 (July 2020), <a href="https://files.consumerfinance.gov/f/documents/cfpb_financially-fit_credit-young-servicemembers-civilians_report_2020-07.pdf">https://files.consumerfinance.gov/f/documents/cfpb_financially-fit_credit-young-servicemembers-civilians_report_2020-07.pdf</a>.
\24\ See Consumer Fin. Prot. Bureau, ``Protecting Servicemembers
from Costly Auto Loans and Wrongful Repossessions'' (July 18, 2022),
<a href="https://www.consumerfinance.gov/about-us/blog/protecting-servicemembers-from-costly-auto-loans-and-wrongful-repossessions/">https://www.consumerfinance.gov/about-us/blog/protecting-servicemembers-from-costly-auto-loans-and-wrongful-repossessions/</a>.
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In addition to the expense, the process of buying or leasing a
vehicle is often time-consuming and arduous. It can take several hours
or days to finalize a transaction,\25\ on top of the hours it can take,
particularly in rural areas, to drive to a dealership.\26\ Consumers
may need to take time off work or arrange childcare, and families with
a single vehicle may be forced to delay other important appointments
due to the length of the vehicle-buying or -leasing process.
---------------------------------------------------------------------------
\25\ 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 (July 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
that 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 Auto., ``2020 Cox Automotive Car Buyer Journey'' 6
(2020) [hereinafter 2020 Cox Automotive Car Buyer Journey], <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>
(reporting average consumer time spent shopping for a vehicle at 14
hours, 53 minutes); Cox Auto., ``2022 Car Buyer Journey: Top Trends
Edition'' 6 (2023) [hereinafter 2022 Car Buyer Journey], <a href="https://www.coxautoinc.com/wp-content/uploads/2023/01/2022-Car-Buyer-Journey-Top-Trends.pdf">https://www.coxautoinc.com/wp-content/uploads/2023/01/2022-Car-Buyer-Journey-Top-Trends.pdf</a> (reporting average consumer time spent
shopping for a vehicle at 14 hours, 39 minutes).
\26\ For example, consumers have complained about going to a
dealership based on an offer that the dealer refuses to honor only
after they have spent hours driving there and additional time on the
lot. See, e.g., Complaint ]] 23-26, Fed. Trade Comm'n v. N. Am.
Auto. Servs., Inc., No. 1:22-cv-0169 (N.D. Ill. Mar. 31, 2022)
(alleging that many consumers drive hours to dealerships based on
the advertised prices; that test-driving and selecting a vehicle,
and negotiating the price and financing terms, is an often hours-
long process; and that, after this time, dealers falsely told
consumers that 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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Most consumers--approximately 70%--finance vehicle purchases
through a motor vehicle dealer,\27\ using what is known as dealer-
provided ``indirect'' financing.\28\ This financing is typically
offered through dealers' financing and insurance (``F&I'') offices,
which may also offer leasing and add-on products or services. In the
dealer-provided financing scenario, the dealer collects financial
information about the consumer and forwards that information to
prospective motor vehicle financing entities. These financing entities
evaluate this information and, in the process, determine whether, and
on what terms, to provide credit.\29\ These terms include the ``buy
rate'': a risk-based finance charge that reflects the interest rate at
which the entity will finance the deal.\30\ Dealers often add a finance
charge called a ``dealer reserve'' or ``markup'' to the buy rate.\31\
Unlike the buy rate, the markup is not based on the underwriting risk
or credit characteristics of the applicant, and dealers retain the
markup as profit.\32\ New vehicle dealers average a gross profit of
about $2,444 per vehicle,\33\ more than half of which comes from the
dealers' F&I offices. Independent used vehicle dealers averaged a gross
profit of more than $6,000 per vehicle, as of 2019.\34\ While some used
vehicle dealerships do not have a separate F&I office, more than half
of such dealerships sell add-on products.\35\
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\27\ Unless otherwise indicated, the terms ``dealer,''
``dealership,'' and ``motor vehicle dealer'' as used in this SBP and
the Commission's final regulatory analysis refer to `` `Covered
Motor Vehicle Dealer' or `Dealer' '' as defined in this part.
\28\ 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>[<a href="https://web.archive.org/web/20220416131718/https://www.nada.org/autofinance/">https://web.archive.org/web/20220416131718/https://www.nada.org/autofinance/</a>
] (Apr. 16, 2022) (noting that 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.
\29\ Dealers often originate the contract governing the
extension of retail credit or retail leases and then sell, or
otherwise assign, these contracts to unaffiliated third-party
finance or leasing sources, including such third parties the dealer
may have contacted in the course of arranging dealer-provided
``indirect'' financing. See Consumer Fin. Prot. Bureau, ``Automobile
Finance Examination Procedures'' 3 (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>.
\30\ See 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'' 2 (2015), <a href="https://www.nada.org/media/4558/download?inline">https://www.nada.org/media/4558/download?inline</a>. (defining ``buy rate'' as ``the rate at which
the finance source will purchase the credit contract from the
dealer'').
\31\ See, e.g., id. at 1 n.4 & accompanying text.
\32\ Id. (describing this as the amount dealers earn for
arranging financing, measured as the difference between the
consumer's annual percentage rate (``APR'') and the wholesale ``buy
rate'' at which a finance source buys the finance contract from the
dealer, and noting that finance sources typically permit dealers to
retain the dealer participation).
\33\ 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>[<a href="http://web.archive.org/web/20220623204158/https://www.nada.org/media/4136/download?attachment">http://web.archive.org/web/20220623204158/https://www.nada.org/media/4136/download?attachment</a>] (June 23, 2022).
\34\ Nat'l Indep. Auto. Dealers Ass'n, ``NIADA Used Car Industry
Report 2020'' 21 (2020).
\35\ Id. at 8, 10.
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Six to eight percent of financed vehicle purchases use what is
called ``buy here, pay here'' dealers.\36\ In this scenario, consumers
typically borrow from, and make their payments directly to, the
dealership.
---------------------------------------------------------------------------
\36\ Melinda Zabritski, Experian Info. Sols., Inc., ``State of
the Automotive Finance Market Q2 2020'' 8 (2020), <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> [<a href="http://web.archive.org/web/20201106002015/https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-q2-safm-final.pdf">http://web.archive.org/web/20201106002015/https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-q2-safm-final.pdf</a>] (Mar. 6, 2023).
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The remainder of financed vehicle transactions use what is commonly
referred to as ``direct'' financing, provided by a credit union, bank,
or other financing entity.\37\ In this scenario, consumers typically
receive an interest rate quote from the financing entity prior to
arriving at a dealership to purchase a vehicle, and use the financing
to pay for their chosen vehicle.\38\ Dealerships do not profit on the
financing portion of the vehicle sale transaction when a consumer
arranges financing directly.
---------------------------------------------------------------------------
\37\ 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>.
\38\ 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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Finally, consumers may choose to lease a vehicle from a dealership
rather than purchase one. In this scenario, consumers may drive a
vehicle for a set period of time--typically around three years \39\--
and for a certain maximum number of miles--typically 10,000-15,000
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.\40\ 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
[[Page 594]]
the vehicle at the end of the lease period. Nearly 27% of new vehicles
are leased, as are just over 8% of used vehicles.\41\
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\39\ Melinda Zabritski, Experian Info. Sols., Inc., ``State of
the Automotive Finance Market Q4 2020'' 26 (2020), <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> [<a href="http://web.archive.org/web/20210311174922/https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf">http://web.archive.org/web/20210311174922/https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf</a>] (Mar. 6, 2023).
\40\ 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 Dec. 5, 2023) (``The annual mileage limit in most
standard leases is 15,000 or less.''); 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 Aug. 24, 2023) (``Most leases restrict
your mileage to 10,000-15,000 miles per year.'').
\41\ Melinda Zabritski, Experian Info. Sols., Inc., ``State of
the Automotive Finance Market Q4 2020'' 5 (2020), <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> [<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>] (Mar. 6,
2023).
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B. Deceptive and Unfair Practices in the Motor Vehicle Marketplace
Section 5 of the Federal Trade Commission Act (``FTC Act''), as
amended (15 U.S.C. 45), authorizes the FTC to address deceptive or
unfair acts or practices in or affecting commerce, including in the
motor vehicle marketplace.
An act or practice is deceptive if there is a representation,
omission, or other practice that is likely to mislead consumers acting
reasonably under the circumstances and is material to consumers--that
is, it is likely to affect consumers' conduct or decisions with regard
to a product or service.\42\ Deceptive conduct can involve omission of
material information, the disclosure of which is necessary to prevent
the claim, practice, or sale from being misleading.\43\
---------------------------------------------------------------------------
\42\ See Fed. Trade Comm'n, ``FTC Policy Statement on
Deception'' 2, 5, 103 F.T.C. 174 (1984) [hereinafter FTC Policy
Statement on Deception] (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>.
\43\ Id.
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An act or practice is considered unfair under section 5 of the FTC
Act if: (1) it causes, or is likely to cause, substantial injury to
consumers; (2) the injury is not reasonably avoidable by consumers; and
(3) the injury is not outweighed by countervailing benefits to
consumers or to competition.\44\
---------------------------------------------------------------------------
\44\ 15 U.S.C. 45(n).
---------------------------------------------------------------------------
In each of the past four years, the FTC received more than 100,000
complaints regarding motor vehicle sales, financing, service and
warranties, and rentals and leasing.\45\ This industry is also
consistently at or near the top of private sources of consumer
complaints.\46\ Many of these complaints concerned deceptive or unfair
acts or practices affecting U.S. consumers. Complaints about motor
vehicle transactions are regularly in the top ten complaint categories
tracked by the FTC.\47\ For military consumers as well, auto-related
complaints are among the top 10 complaint categories outside of
identity theft.\48\
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\45\ See, e.g., Fed. Trade Comm'n, ``Consumer Sentinel Network
Data Book 2022'' app. B3 at 85 (Feb. 2023) [hereinafter Consumer
Sentinel Network Data Book 2022], <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/CSN-Data-Book-2022.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/CSN-Data-Book-2022.pdf</a> (reporting complaints about new
and used motor vehicle sales, financing, service & warranties, and
rentals & leasing, collectively, of more than 100,000 in 2020, 2021,
and 2022); Fed. Trade Comm'n, ``Consumer Sentinel Network Data Book
2021'' app. B3 at 85 (Feb. 2022) [hereinafter Consumer Sentinel
Network Data Book 2021], <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> (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).
\46\ According to commenters, complaints to the Better Business
Bureau about new and used auto dealers, when combined, have been
either the first or second highest regarding any industry in the
U.S. for the past twenty years. See Comment of Nat'l Consumer L.
Ctr. et al., Doc. No. FTC-2022-0046-7607 at ii; see also Better Bus.
Bureau, ``BBB Complaint and Inquiry Statistics,'' <a href="https://www.bbb.org/all/bbb-complaint-statistics">https://www.bbb.org/all/bbb-complaint-statistics</a> (last visited Dec. 5, 2023)
(listing complaint statistics from 2010 through 2022, sorted by
industry). In addition, for the past seven years annual surveys of
State and local consumer protection agencies have reported that
auto-related complaints were the top complaint received from
consumers. See Comment of Nat'l Consumer L. Ctr. et al., Doc. No.
FTC-2022-0046-7607 at 13; Consumer Fed'n of Am., ``2022 Consumer
Complaint Survey Report'' 4-5 (May 2023), <a href="https://consumerfed.org/wp-content/uploads/2023/05/2022-Consumer-Complaint-Survey-Report.pdf">https://consumerfed.org/wp-content/uploads/2023/05/2022-Consumer-Complaint-Survey-Report.pdf</a>
(``For the seventh year in a row, auto sales, leases and repairs are
the #1 complaint category. Consumers filed complaints about add-on
products and services, bait and switch pricing, and mechanical
condition issues.'').
\47\ See Consumer Sentinel Network Data Book 2021, supra note
45, at 8 (listing vehicle-related complaints as the seventh most
common report category, outside of identity theft, in 2021);
Consumer Sentinel Network Data Book 2022, supra note 45, at 8
(listing motor vehicle-related complaints as the fifth most common
report category, outside of identity theft, in 2022).
\48\ See Consumer Sentinel Network Data Book 2021, supra note
45, at 18 (listing vehicle-related complaints as the eighth most
common complaint category for military consumers, outside of
identity theft categories, in 2021); Consumer Sentinel Network Data
Book 2022, supra note 45, at 18 (listing vehicle-related complaints
as the ninth most common complaint category for military consumers,
outside of identity theft categories, in 2022).
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Moreover, law enforcement experience shows that complaints are just
the tip of the iceberg.\49\ The Commission's recent enforcement action
against a large, multistate dealership group is illustrative of this
point in the motor vehicle marketplace: in that matter, the Commission
received 391 complaints--about add-ons and other issues--over a
several-month period prior to filing a complaint against the thirteenth
largest dealership group in the country by revenue as of 2020.\50\
However, in a survey of the dealer's customers over the same time
period, 83% of respondents--or at least 16,848 customers--indicated
they were subject to the dealer's unlawful practices related to add-ons
alone.\51\
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\49\ See, e.g., United States v. Brien, 617 F.2d 299, 308 (1st
Cir. 1980); United States v. Offs. Known as 50 State Distrib. Co.,
708 F.2d 1371, 1374-75 (9th Cir. 1983); Keith B. Anderson, Fed.
Trade Comm'n, ``Consumer Fraud in the United States: An FTC Survey''
80 (2004), <a href="https://www.ftc.gov/sites/default/files/documents/reports/consumer-fraud-united-states-ftc-survey/040805confraudrpt.pdf">https://www.ftc.gov/sites/default/files/documents/reports/consumer-fraud-united-states-ftc-survey/040805confraudrpt.pdf</a> (staff report noting consumers who reported
they were victims of fraud complained to an official source only 8.4
percent of the time, filing complaints with the BBB in 3.5 percent
of incidents and to a Federal agency, including the FTC, in only 1.4
percent of cases).
\50\ See Complaint, Fed. Trade Comm'n v. N. Am. Auto. Servs.,
Inc., No. 1:22-cv-0169 (N.D. Ill. Mar. 31, 2022); see also
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 Dec. 5, 2023) (listing Napleton Automotive Group
as the 13th-ranked dealership group by total revenue).
\51\ Complaint ] 27, Fed. Trade Comm'n v. N. Am. Auto. Servs.,
Inc., No. 1:22-cv-0169 (N.D. Ill. Mar. 31, 2022) (alleging that
defendants buried charges for add-ons in voluminous paperwork,
making them difficult to detect); see Press Release, Fed. Trade
Comm'n, ``FTC Returns Additional $857,000 To Consumers Harmed by
Napleton Auto's Junk Fees and Discriminatory Practices'' (Nov. 20,
2023), <a href="https://www.ftc.gov/news-events/news/press-releases/2023/11/ftc-returns-additional-857000-consumers-harmed-napleton-autos-junk-fees-discriminatory-practices">https://www.ftc.gov/news-events/news/press-releases/2023/11/ftc-returns-additional-857000-consumers-harmed-napleton-autos-junk-fees-discriminatory-practices</a>.
---------------------------------------------------------------------------
Similarly, in other contexts where companies were charged with
making misrepresentations or engaging in misconduct regarding add-on
products, information obtained after filing has shown widespread harm
far beyond the initial consumer complaint volumes reported prior to
filing.\52\
---------------------------------------------------------------------------
\52\ For example, in a recent action involving deceptive pre-
approval claims, the FTC had received roughly 30 complaints about
the company's pre-approval conduct in the five-year period prior to
announcing its action. But in the five months following announcement
of the action, more than 900 additional consumers came forward with
complaints about the conduct. See Press Release, Fed. Trade Comm'n,
``FTC Announces Claims Process for Consumers Harmed by Credit Karma
`Pre-Approved' Offers for Which They Were Denied'' (Dec. 5, 2023),
<a href="https://www.ftc.gov/news-events/news/press-releases/2023/12/ftc-announces-claims-process-consumers-harmed-credit-karma-pre-approved-offers-which-they-were">https://www.ftc.gov/news-events/news/press-releases/2023/12/ftc-announces-claims-process-consumers-harmed-credit-karma-pre-approved-offers-which-they-were</a> (``[W]ithin five months of that announcement,
the agency received nearly 900 more such complaints'').
---------------------------------------------------------------------------
As examined in greater detail in the paragraphs that follow,
consumers in the motor vehicle marketplace are confronted with chronic
deceptive or unfair practices, including bait-and-switch tactics and
hidden charges.\53\
---------------------------------------------------------------------------
\53\ 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 Rule's core focus is on
misrepresentations and add-on and pricing practices.
---------------------------------------------------------------------------
1. Bait-and-Switch Tactics
Advertisements for motor vehicles are often consumers' first
contact in the vehicle-buying or -leasing process. Dealers utilize a
variety of means to
[[Page 595]]
reach consumers, including social media and online advertisements,
television and radio commercials, and direct mail marketing. New
vehicle dealers spend an average of more than $700 on advertising per
vehicle sold \54\--more than two-thirds of which goes toward online
advertising.\55\
---------------------------------------------------------------------------
\54\ Nat'l Auto. Dealers Ass'n, ``NADA Data 2022'' 15, <a href="https://www.nada.org/media/4695/download?inline">https://www.nada.org/media/4695/download?inline</a> (listing average dealership
advertising per new vehicle sold of $718 in 2022, and $602 in 2021).
\55\ Id. at 16 (listing 68.2% of estimated advertising
expenditures by medium as internet expenditures).
---------------------------------------------------------------------------
The FTC has brought many law enforcement actions involving motor
vehicle dealers' deceptive advertising and other unlawful tactics. Such
actions have charged dealers with, inter alia, making
misrepresentations regarding the price of a vehicle, the availability
of discounts and rebates, the monthly payment amount for a financed
purchase or lease, the amount due at signing, and whether an offer
pertains to a purchase or a lease.\56\ Other such actions have charged
dealers with misrepresentations regarding 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.\57\ And in other FTC actions, some dealers
have lured potential buyers through financial incentives incidental to
the purchase, such as deceptive promises of a valuable prize that is
redeemable only by visiting the dealership.\58\
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\56\ See, e.g., Complaint, Timonium Chrysler, Inc., No. C-4429
(F.T.C. Jan. 28, 2014) (alleging dealership advertised internet
prices and dealer discounts that were only available through rebates
not applicable to the typical consumer); Complaint, Ganley Ford
West, Inc., No. C-4428 (F.T.C. Jan. 28, 2014) (alleging dealership
advertised discounts on vehicle prices, but failed to disclose that
discounts were only available on the most expensive models);
Complaint, 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); Complaint ]] 38-46, Fed. Trade Comm'n v. Tate's Auto
Ctr. of Winslow, Inc., No. 3:18-cv-08176-DJH (D. Ariz. July 31,
2018) (alleging that company issued advertisements for attractive
terms but concealed that the terms were only applicable to lease
offers); Complaint ]] 36-38, United States v. New World Auto
Imports, Inc., No. 3:16-cv-02401-K (N.D. Tex. Aug. 18, 2016)
(alleging misrepresentation that terms were for financing instead of
leasing); Complaint ]] 85-87, Fed. Trade Comm'n v. Universal City
Nissan, Inc., No. 2:16-cv-07329 (C.D. Cal. Sept. 29, 2016) (alleging
that dealerships claimed consumers could finance the purchase of
vehicles with attractive terms and buried disclosures indicating
that such terms were applicable to leases only).
\57\ Complaint ]] 82-84, Fed. Trade Comm'n v. Universal City
Nissan, Inc., No. 2:16-cv-07329 (C.D. Cal. Sept. 29, 2016) (alleging
misrepresentation that dealer would pay off a consumer's trade-in
when in fact consumers were still responsible for outstanding debt
on trade-in vehicles); Complaint ]] 17-19, TXVT Ltd. P'ship, No. C-
4508 (F.T.C. Feb. 12, 2015) (alleging misrepresentation in leasing
advertising that the dealership would pay off the negative equity of
a consumer's trade in vehicle, when in fact, it was merely rolled
into the financed amount for the consumer's newly financed vehicle).
\58\ See, e.g., Complaint ]] 12, 17-19, Traffic Jam Events, LLC,
No. 9395 (F.T.C. Aug. 7, 2020); Complaint ]] 4, 7-9, Fowlerville
Ford, Inc., No. C-4433 (F.T.C. Feb. 20, 2014).
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Deceptive tactics can cause significant consumer harm and impede
competition, competitively disadvantaging law-abiding dealers. When
dealerships advertise prices, discounts, or other terms that are not
actually available to typical consumers, consumers who select that
dealership instead of others spend time visiting the dealership or
otherwise interacting with the dealership under false pretenses.
2. Unlawful Practices Relating to Add-On Products or Services and
Hidden Charges
Another key consumer protection concern is the sale of add-on
products or services in a deceptive or unfair manner. Add-ons in
connection with the sale or financing of motor vehicles include
extended warranties, service and maintenance plans, payment programs,
guaranteed automobile or asset protection (``GAP'') agreements,
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.\59\ Moreover, in the past two years, dealers have
substantially increased prices for these add-ons, notwithstanding that
such products or services largely are not constrained by supply.\60\
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\59\ See, e.g., Complaint ]] 25, 27-28, Fed. Trade Comm'n v. N.
Am. Auto. Servs., Inc., No. 1:22-cv-0169 (N.D. Ill. Mar. 31, 2022).
\60\ See Ben Eisen, ``Car Dealer Markups Helped Drive Inflation,
Study Finds,'' Wall St. J., Apr. 23, 2023, <a href="https://www.wsj.com/articles/car-dealer-markups-helped-drive-inflation-study-finds-7c1d5a2d">https://www.wsj.com/articles/car-dealer-markups-helped-drive-inflation-study-finds-7c1d5a2d</a>; U.S. Bureau of Labor Statistics, ``Automotive Dealerships
2019-2022: Dealer Markup Increases Drive New-Vehicle Consumer
Inflation'' (Apr. 2023), <a href="https://www.bls.gov/opub/mlr/2023/article/automotive-dealerships-markups.htm">https://www.bls.gov/opub/mlr/2023/article/automotive-dealerships-markups.htm</a>.
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A significant consumer protection concern is consumers paying for
add-ons without knowing about, or expressly agreeing to, these products
or services.\61\ This type of payment packing has been a particular
concern in the military community.\62\ The protracted and paperwork-
heavy vehicle-buying or -leasing process can make it difficult for
consumers to spot add-on charges, particularly when advertised prices
or payment terms do not mention add-ons.\63\ If consumers are financing
or leasing the vehicle, they undergo a separate financing process after
selecting a vehicle, which can include wading through a thick stack of
dense paperwork filled with fine print.\64\ For example, according to
an FTC law enforcement action, consumers visiting one large dealership
group 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 or services,
causing consumers
[[Page 596]]
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 the often considerable additional
costs for these items 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 may even
be made to decrease if the financing term is extended.\68\ This type of
conduct can target immigrants, communities of color, and
servicemembers.\69\ 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, participants in an FTC qualitative study on
consumers' car-buying experiences cited 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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\61\ See Nat'l Consumer L. Ctr., ``Auto Add-ons Add Up: How
Dealer Discretion Drives Excessive, Arbitrary, and Discriminatory
Pricing'' (Oct. 1, 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>; 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 that are
falsely represented as being required in order to obtain financing);
Complaint ]] 12-19, Fed. Trade Comm'n v. Liberty Chevrolet, Inc.,
No. 1:20-cv-03945 (S.D.N.Y. May 21, 2020) (alleging deceptive and
unauthorized add-on charges in consumers' transactions); Complaint
]] 59-64, Fed. Trade Comm'n v. Universal City Nissan, Inc., No.
2:16-cv-07329 (C.D. Cal. Sept. 29, 2016) (alleging deceptive and
unauthorized add-on charges in consumers' transactions); Complaint
]] 6, 9, TT of Longwood, Inc., No. C-4531 (F.T.C. July 2, 2015)
(alleging misrepresentations regarding prices for added features);
see also Auto Buyer Study, supra note 25, 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.'').
\62\ 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
that 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).
\63\ Complaint ]] 17-19, Fed. Trade Comm'n v. Liberty Chevrolet,
Inc., No. 1:20-cv-03945 (S.D.N.Y. May 21, 2020); Complaint ] 60,
Fed. Trade Comm'n v. Universal City Nissan, Inc., No. 2:16-cv-07329
(C.D. Cal. Sept. 29, 2016); Carole L. Reynolds & Stephanie E. Cox,
Fed. Trade Comm'n, ``Buckle Up: Navigating Auto Sales and
Financing'' (2020) [hereinafter Buckle Up], <a href="https://www.ftc.gov/reports/">https://www.ftc.gov/reports/</a>buckle-navigating-auto-sales-financing.
\64\ See, e.g., Buckle Up, supra note 63, at 10-11 (noting the
long, complex transaction process); Complaint ]] 23-28, Fed. Trade
Comm'n v. N. Am. Auto. Servs., Inc., No. 1:22-cv-01690 (N.D. Ill.
Mar. 31, 2022) (same).
\65\ Complaint ] 24, Fed. Trade Comm'n v. N. Am. Auto. Servs.,
Inc., No. 1:22-cv-01690 (N.D. Ill. Mar. 31, 2022); see also Buckle
Up, supra note 63, at 10-11.
\66\ Complaint ]] 25, 27, 29-32, Fed. Trade Comm'n v. N. Am.
Auto. Servs., Inc., No. 1:22-cv-01690 (N.D. Ill. Mar. 31, 2022); see
also Complaint ]] 17-19, Fed. Trade Comm'n v. Liberty Chevrolet,
Inc., No. 1:20-cv-03945 (S.D.N.Y. May 21, 2020); 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),
<a href="https://www.regulations.gov/comment/FTC-2022-0036-0051">https://www.regulations.gov/comment/FTC-2022-0036-0051</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 at 3 (Aug. 6, 2011), <a href="https://www.regulations.gov/comment/FTC-2022-0036-0014">https://www.regulations.gov/comment/FTC-2022-0036-0014</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.''); Dawn Smith, 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), <a href="https://www.regulations.gov/comment/FTC-2022-0036-0043">https://www.regulations.gov/comment/FTC-2022-0036-0043</a>
(``Confusing or misleading sales terms[.] Extra fees was [sic] 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),
<a href="https://www.regulations.gov/comment/FTC-2022-0036-0059">https://www.regulations.gov/comment/FTC-2022-0036-0059</a> (citing
``[d]ealers engage[d] in packing'' as an example of the common
consumer complaints of car-sales-related fraud 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 at 3 (Jan. 31,
2012), <a href="https://www.regulations.gov/comment/FTC-2022-0036-0069">https://www.regulations.gov/comment/FTC-2022-0036-0069</a>
(noting that ``[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 ``[l]oan 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 at 525 (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: consumer had ``additional items'' charges on contract that
consumer could not identify); id. at 730, 740-42 (Study participant
188329: dealer did not tell consumer about GAP or service contract
but consumer was charged $599 and $1,950 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,' 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 or services must
be factored into the APR and the finance charge disclosed during the
transaction. See 15 U.S.C. 1605, 1606, 1638; 12 CFR 226.4,
226.18(b), (d), (e), and 226.22. It is legally impermissible for
dealers to include charges for such products in a consumer's
contract without disclosing them. See, e.g., Complaint ]] 57-60,
Fed. Trade Comm'n v. Stewart Fin. Co. Holdings, Inc., No. 1:03-CV-
2648 (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 63, at 6; Fed. Trade
Comm'n, Military Consumer Financial Workshop, Panel 1, Tr. 19:25-41
(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>; Fed. Trade Comm'n, ``The Road Ahead:
Selling, Financing & Leasing Motor Vehicles,'' Public Roundtable,
Session 2, Tr. at 40-41 (Aug. 2 2011), <a href="https://www.ftc.gov/news-events/events/2011/08/road-ahead-selling-financing-leasing-motor-vehicles">https://www.ftc.gov/news-events/events/2011/08/road-ahead-selling-financing-leasing-motor-vehicles</a> (noting that 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 at 10 (Feb. 1, 2012), <a href="https://www.regulations.gov/comment/FTC-2022-0036-0068">https://www.regulations.gov/comment/FTC-2022-0036-0068</a> (discussing how dealers conceal 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), <a href="https://www.regulations.gov/comment/FTC-2022-0036-0124">https://www.regulations.gov/comment/FTC-2022-0036-0124</a> (discussing the ``age-old auto salesperson's trick'' of quoting
monthly payment prices without disclosing that the quote includes
the cost of optional items that the customer has not yet agreed to
purchase).
\69\ See, e.g., Complaint ]] 9, 26, Fed. Trade Comm'n v. Liberty
Chevrolet, Inc., No. 1:20-cv-03945 (S.D.N.Y. May 21, 2020) (charging
defendants with discriminating on the basis of race, color, and
national origin by charging higher interest rates and inflated
fees); 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 or ``jamming''); Military Consumer Financial
Workshop, Tr. 19:21 (July 19, 2017), <a href="https://www.ftc.gov/news-events/events/2017/07/military-consumer-workshop">https://www.ftc.gov/news-events/events/2017/07/military-consumer-workshop</a> (panelist
discussing servicemembers experiencing payment packing); 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 whose
steady paychecks make them attractive customers for dealers, while
having no or minimal credit history, meaning they qualify for less
advantageous credit terms and higher interest rate financing).
\70\ See, e.g., Buckle Up, supra note 63, 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 that, 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. (noting that most
study participants' contracts included add-ons charges, but that
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
that 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).
\71\ Complaint ]] 12-19, Fed. Trade Comm'n v. Liberty Chevrolet,
Inc., No. 1:20-cv-03945 (S.D.N.Y. May 21, 2020) (alleging deceptive
and unauthorized add-on charges in consumers' transactions);
Complaint ]] 59-64, Fed. Trade Comm'n v. Universal City Nissan,
Inc., No. 2:16-cv-07329 (C.D. Cal. Sept. 29, 2016) (alleging
deceptive and unauthorized add-on charges in consumers'
transactions); Complaint ]] 6, 9, TT of Longwood, No. C-4531 (F.T.C.
July 2, 2015) (alleging misrepresentations regarding prices for
added features); see also Auto Buyer Study, supra note 25, at 14.
\72\ Complaint ]] 4-14, Nat'l Payment Network, Inc., No. C-4521
(F.T.C. May 4, 2015) (alleging failure to disclose fees associated
with financing program; misleading savings claims in
advertisements); Complaint ]] 4-13, Matt Blatt Inc., No. C-4532
(F.T.C. July 2, 2015) (alleging failure to disclose fees associated
with financing program; misleading savings claims); Buckle Up, supra
note 63, at 10 (noting that some Auto Buyer Study participants did
not fully understand 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 that
``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 ]] 10-
16, Santander Consumer USA, Inc., CFPB No. 2018-BCFP-0008 (Nov. 20,
2018) (finding that defendant sold GAP product allegedly providing
``full coverage'' to consumers with loan-to-value ratios (``LTVs'')
above 125%, when in fact coverage was limited to 125% of LTV).
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[[Page 597]]
Indeed, as previously noted, in a recent FTC enforcement action,
the Commission cited a survey finding that 83% of consumers from the
named dealers were charged for add-on products or services that they
did not authorize or as a result of deceptive claims.\73\
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\73\ Complaint ] 27, Fed. Trade Comm'n v. N. Am. Auto. Servs.,
Inc., No. 1:22-cv-01690 (N.D. Ill. Mar. 31, 2022).
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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.\74\ The consumer purchased a $2,000 service
contract that the dealer falsely said was free, and a $900 GAP
agreement that the dealer falsely said was mandatory. The consumer only
learned about these purchases during the study interview. This consumer
remarked:
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\74\ The study is described in the Commission's reports: Auto
Buyer Study, supra note 25, and Buckle Up, supra note 63. Some
industry commenters critiqued the FTC's reliance on this qualitative
study. The Commission notes that the study provides helpful
qualitative insight from consumer interviews regarding their recent
motor vehicle purchases and is one of the many sources the
Commission has considered, including consumer complaints,
enforcement actions, outreach and dialogue with stakeholders and
consumer groups, among others, as described in this SBP and in the
NPRM.
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 know [sic] 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.\75\
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\75\ Auto Buyer Study: Appendix, supra note 66, at 130 (Study
participant 152288); see also id. at 202-03 (Study participant
180267: dealership included a charge for GAP in the final paperwork
but not in retail sales contract); id. at 296 (Study participant
146748: consumer learned during interview with FTC that consumer
purchased GAP: ``maybe they're just throwing that in there without
telling you'').
Similarly, in response to the Commission's notice of proposed
rulemaking, thousands of commenters described issues they faced when
purchasing, financing, or leasing a vehicle. Many comments the
Commission received in support of the NPRM were from self-identified
military consumers and dealership employees. Examples of supportive
comments include the following:
<bullet> As a young Marine stationed in a military town I was taken
advantage of by a dealership when purchasing my first car. It set me
back financially for years. I know of many young military people who
purchased vehicle[]s and we[]re instantly so far upside down after
leaving the dealership with thousands of dollars in add on junk charges
. . . . Please make it more difficult for dishonest dealers like these
to financially burden young Americans and Americans of any age for that
matter.\76\
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\76\ Individual commenter, Doc. No. FTC-2022-0046-4648.
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<bullet> Imagine going to a restaurant franchise and order[ing] a
burger and fries for $10 and the franchise employees say[,] `Sorry that
will be $25 dollars, there is a $10 restaurant adjustment price due to
market conditions and $5 for us to place and document your order.' You
would walk away without hesitation because that would [be] absolutely
ridiculous. Yet, dealerships are allowed to do exactly that. . . . IT
IS TIME TO CHANGE AND PROTECT CONSUMERS[.]\77\
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\77\ Individual commenter, Doc. No. FTC-2022-0046-0016.
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<bullet> As in many other areas, it is the vulnerable in our
society who are probably most affected by such deceptive practices. . .
. Sadly, it is often these very people who desperately need a
dependable, affordable car for transportation to work, school,
shopping, or medical care. To entice, pressure, or trick people into
buying a car that is more than they can afford sets them up for
financial failure, not only in possibly having a needed car
repossessed, but in long-term damage to their credit. . . . In closing,
I would be extremely happy to see rules such as those described above
enacted, and don't think these could come a day too soon. It's a step
in the right direction for the protection of the consumer.\78\
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\78\ Individual commenter, Doc. No. FTC-2022-0046-1216.
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<bullet> None of us working here at the dealership in sales benefit
from [unfair and deceptive practices]. We cringe as much as every
customer and have to show up to work every[ ]day and hope we are not
forced to screw someone with these BS products. . . . I would hope when
[t]he regulators are making their decisions, they understand the
positive implications this would have for dealership employees both
financially and mentally.\79\
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\79\ Individual commenter, Doc. No. FTC-2022-0046-3615.
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<bullet> Generally, I'm not a person in favor of government
regulation. However, as a potential customer and cash buyer, I feel
there is certainly a need to bring car dealers back into check. I'm
just looking for a more honest and transparent process. I don't want to
be taken advantage of. I certainly don't want my family members or
[s]oldiers to be taken advantage of. Therefore, I feel it is in the
best interest of future customers to support this regulation.\80\
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\80\ Individual commenter, Doc. No. FTC-2022-0046-7366.
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<bullet> I cannot stress enough my support for these new rules.
Currently, dealerships across the US, including the one I work for,
have made the car buying process needlessly confusing, expensive, and
frustrating by engaging in false advertising and hidden add-on
products.\81\
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\81\ Individual commenter, Doc. No. FTC-2022-0046-3693.
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<bullet> I can tell you after many years of car buying I have NEVER
walked out of a dealership feeling good. Even worse, I've never
purchased a car feeling like I fully understood what I was getting. . .
. Looking forward to seeing the change happen SOON! \82\
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\82\ Individual commenter, Doc. No. FTC-2022-0046-3678.
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<bullet> When I buy a gallon of milk from the store, the price is
written next to the milk. When I go pay, I pay the price advertised
next to the milk. Would it be OK if I go up to pay and that gallon of
milk had anywhere between 1% and 1,200% markup depending on the day,
what you look like, what you drove to the store in, if you're a man or
a woman? \83\
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\83\ Individual commenter, Doc. No. FTC-2022-0046-1479.
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<bullet> We ended up having to drive 3 hours to the [vehicle we]
wanted. Upon arriving to pick[ ]up the car we were told there was a
[$]4,300 increase over MSRP. We were told if we didn't take it they had
someone else waiting to purchase it. We needed the car and didn't have
time to hunt down another one so ended up purchasing it. Very
disappointed in the long and awful process.\84\
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\84\ Individual commenter, Doc. No. FTC-2022-0046-1878.
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<bullet> The worst is dealing with car dealers. You never know what
the real price is on a vehicle until you spend a few hours with them.
Mandatory add[-] on[ ]s, market availability surcharges, doc fees that
vary from dealer to dealer. . . . Then dealing with the finance manager
who tr[ie]s to sell you everything you don't[ ]need. They high pressure
the consumer on purchasing extend[ed] warranties. There
[[Page 598]]
needs [to be] some sort of policing [of] these unscrupulous car dealers
to protect the buyers.\85\
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\85\ Individual commenter, Doc. No. FTC-2022-0046-0825.
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<bullet> This is a good start to making car purchasing a better
experience. . . . I remember looking at a Lexus and being told by the
dealership, the only one in the state, that [S]cotchguard and
undercoating were mandatory and they refused to sell any vehicles
without them. There were two Acura dealerships in town and one of them
included `free' lifetime oil changes that I didn't learn about until
negotiating the price and had already spent two hours in negotiations.
All of these services/price adjustments were not disclosed at the start
of the negotiation and were only revealed either in the manager's
office or when the purchase agreement was presented to me by the
salesperson. After spending time on the test drive and negotiating the
price, it felt that these last minute price adjustments were being
revealed that late in the process so that I wouldn't leave.\86\
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\86\ Individual commenter, Doc. No. FTC-2022-0046-4833.
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<bullet> Please enact and enforce these regulations to protect
vulnerable consumers from predatory business practices enjoyed by
dealers. Our family experienced such practices when trying to purchase
a vehicle in early 2022. It was only after five hours at the dealership
that we discovered the dealer had added on a $3,000 market adjustment
and $3,100 in other add-ons (nitrogen-filled tires, LoJack, paint
protection) to MSRP. This raised the price by about $6,000 and caused
us to use extra PTO over that week to find a new vehicle at a price
within our budget. Greater transparency in the car-buying process is
desperately needed to protect vulnerable consumers--who usually lack
any bargaining power--against power dealer networks and their special
interest groups. . . .\87\
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\87\ Individual commenter, Doc. No. FTC-2022-0046-1690.
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C. Law Enforcement and Other Responses
The Commission has taken action to protect consumers from deceptive
and unfair acts or practices in the motor vehicle marketplace. As noted
in the NPRM, the Commission has brought more than 50 auto law
enforcement actions; \88\ led two law enforcement sweeps, including one
that involved 181 State enforcement actions; \89\ published two reports
on a qualitative study of consumer experiences while purchasing motor
vehicles; and held workshops with various stakeholders to discuss the
motor vehicle marketplace.\90\
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\88\ Complaint, Fed. Trade Comm'n v. Rhinelander Auto Ctr.,
Inc., No. 3:23-cv-00737 (W.D. Wis. Oct. 24, 2023); Complaint, Fed.
Trade Comm'n v. Passport Auto. Grp., Inc., No. 8:22-cv-02670-GLS (D.
Md. Oct. 18, 2022); Complaint, Fed. Trade Comm'n v. N. Am. Auto.
Servs., Inc., No. 1:22-cv-01690 (N.D. Ill. Mar. 31, 2022);
Complaint, Traffic Jam Events, LLC, No. 9395 (F.T.C. Aug. 7, 2020);
Complaint, Fed. Trade Comm'n v. Liberty Chevrolet, Inc., No. 1:20-
cv-03945 (S.D.N.Y. May 21, 2020); Complaint, Federal-Mogul
Motorparts LLC, No. C-4717 (F.T.C. May 12, 2020); Complaint,
LightYear Dealer Techs., LLC, No. C-4687 (F.T.C. Sept. 3, 2019);
Complaint, Fed. Trade Comm'n v. Passport Imports, Inc., No. 8:18-cv-
03118 (D. Md. Oct. 10, 2018); Complaint, Fed. Trade Comm'n v. Tate's
Auto Ctr. of Winslow, Inc., No. 3:18-cv-08176-DJH (D. Ariz. July 31,
2018); Complaint, Cowboy AG, LLC, No. C-4639 (F.T.C. Jan. 4, 2018);
Complaint, Fed. Trade Comm'n v. Norm Reeves, Inc., No. 8:17-cv-01942
(C.D. Cal. Nov. 3, 2017); Complaint, Asbury Auto. Grp., Inc., No. C-
4606 (F.T.C. Mar. 22, 2017); Complaint, CarMax, Inc., No. C-4605
(F.T.C. Mar. 22, 2017); Complaint, West-Herr Auto. Grp., Inc., No.
C-4607 (F.T.C. Mar. 22, 2017); Complaint, Fed. Trade Comm'n v.
Volkswagen Grp. of Am., Inc., No. 3:16-cv-01534 (N.D. Cal. Jan. 31,
2017); Complaint, Fed. Trade Comm'n v. Uber Techs., Inc., No. 3:17-
cv-00261 (N.D. Cal. Jan. 19, 2017); Complaint, Gen. Motors LLC, No.
C-4596 (F.T.C. Dec. 8, 2016); Complaint, Jim Koons Mgmt. Co., No. C-
4598 (F.T.C. Dec. 8, 2016); Complaint, Lithia Motors, Inc., No. C-
4597 (F.T.C. Dec. 8, 2016); Complaint, Fed. Trade Comm'n v.
Universal City Nissan, Inc., No. 2:16-cv-07329 (C.D. Cal. Sep. 29,
2016); Complaint, United States v. New World Auto Imports, Inc., No.
3:16-cv-02401-K (N.D. Tex. Aug. 18, 2016); Complaint, Progressive
Chevrolet Co., No. C-4578 (F.T.C. June 13, 2016); Complaint, BMW of
N. Am., LLC, No. C-4555 (F.T.C. Oct. 21, 2015); Complaint, United
States v. Tricolor Auto Acceptance, LLC, No. 3:15-cv-3002 (N.D. Tex.
Sept. 15, 2015); Complaint, JS Autoworld, Inc., No. C-4535 (F.T.C.
Aug. 13, 2015); Complaint, TC Dealership, L.P., No. C-4536 (F.T.C.
Aug. 13, 2015); Complaint, Matt Blatt Inc., No. C-4532 (F.T.C. July
2, 2015); Complaint, TT of Longwood, Inc., No. C-4531 (F.T.C. July
2, 2015); Complaint, Fin. Select, Inc., No. C-4528 (F.T.C. June 2,
2015); Complaint, First Am. Title Lending of Ga., LLC, No. C-4529
(F.T.C. June 2, 2015); Complaint, City Nissan Inc., No. C-4524
(F.T.C. May 4, 2015); Complaint, Jim Burke Auto., Inc., No. C-4523
(F.T.C. May 4, 2015); Complaint, Nat'l Payment Network, Inc., No. C-
4521 (F.T.C. May 4, 2015); Complaint, TXVT Ltd. P'ship, No. C-4508
(F.T.C. Feb. 12, 2015); Complaint, Fed. Trade Comm'n v. Regency Fin.
Servs., LLC, No. 1:15-cv-20270-DPG (S.D. Fla. Jan. 26, 2015);
Complaint, United States v. Billion Auto, Inc., No. 5:14-cv-04118-
MWB (N.D. Iowa Dec. 11, 2014); Complaint, Fed. Trade Comm'n v. Ramey
Motors, Inc., No. 1:14-cv-29603 (S.D. W. Va. Dec. 11, 2014);
Complaint, Fed. Trade Comm'n v. Consumer Portfolio Servs., Inc., No.
14-cv-00819 (C.D. Cal. May 28, 2014); Complaint, Nissan N. Am.,
Inc., No. C-4454 (F.T.C. May 1, 2014); Complaint, TBWA Worldwide,
Inc., No. C-4455 (F.T.C. May 1, 2014); Complaint, Bill Robertson &
Sons, Inc., No. C-4451 (F.T.C. Apr. 11, 2014); Complaint, Paramount
Kia of Hickory, LLC, No. C-4450 (F.T.C. Apr. 11, 2014); Complaint,
Fed. Trade Comm'n v. Abernathy Motor Co., No. 3:14-cv-00063-BRW
(E.D. Ark. Mar. 12, 2014); Complaint, Fowlerville Ford, Inc., No. C-
4433 (F.T.C. Feb. 20, 2014); Complaint, Infiniti of Clarendon Hills,
Inc., No. C-4438 (F.T.C. Feb. 20, 2014); Complaint, Luis Alfonso
Sierra, No. C-4434 (F.T.C. Feb. 20, 2014); Complaint, Mohammad
Sabha, No. C-4435 (F.T.C. Feb. 20, 2014); Complaint, Norm Reeves,
Inc., No. C-4436 (F.T.C. Feb. 20, 2014); Complaint, Ganley Ford
West, Inc., No. C-4428 (F.T.C. Jan. 28, 2014); Complaint, Timonium
Chrysler, Inc., No. C-4429 (F.T.C. Jan. 28, 2014); Complaint,
Courtesy Auto Grp., Inc., No. 9359 (F.T.C. Jan. 7, 2014); Complaint,
Franklin's Budget Car Sales, Inc., No. C-4371 (F.T.C. Oct. 3, 2012);
Complaint, Fed. Trade Comm'n v. Matthew J. Loewen, No. 2:12-cv-
01207-MJP (W.D. Wash. July 13, 2012); Complaint, Key Hyundai of
Manchester, LLC, No. C-4358 (F.T.C. May 4, 2012); Complaint, Billion
Auto, Inc., No. C-4356 (F.T.C. May 1, 2012); Complaint, Frank Myers
AutoMaxx, LLC, No. C-4353 (F.T.C. Apr. 19, 2012); Complaint, Ramey
Motors, Inc., No. C-4354 (F.T.C. Apr. 19, 2012); Complaint, Fed.
Trade Comm'n v. Hope for Car Owners, LLC, No. 2:12-cv-00778-GEB-EFB
(E.D. Cal. Mar. 27, 2012); Complaint, Fed. Trade Comm'n v. NAFSO
VLM, Inc., No. 2:12-cv-00781-KJM-EFB (E.D. Cal. Mar. 27, 2012);
Complaint, Fed. Trade Comm'n v. Stewart Fin. Co. Holdings, Inc., No.
1:03-CV-2648 (N.D. Ga. Sept. 4, 2003); Complaint, Pacifico Ardmore,
Inc., No. C-3920 (F.T.C. Feb. 7, 2000).
\89\ Operation Steer Clear and Operation Ruse Control, brought
with State law enforcement partners around the nation and Canada,
encompassed 252 enforcement actions. See 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>.
\90\ 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 Fed. Trade Comm'n,
``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, see Fed. Trade Comm'n, ``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, see Fed. Trade Comm'n, ``Military Consumer 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>; and (4) through a series of three roundtables on
numerous issues in selling, financing, and leasing automobiles, see
Fed. Trade Comm'n, ``The Road Ahead: Selling, Financing & Leasing
Motor Vehicles'' (Apr. 12, 2011), <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>; Fed. Trade Comm'n, ``The Road Ahead: Selling, Financing &
Leasing Motor Vehicles'' (Aug. 2, 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>; Fed. Trade Comm'n, ``The Road Ahead: Selling,
Financing & Leasing Motor Vehicles'' (Nov. 17, 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>; 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 the Director of the
Navy-Marine Corps Relief Society in San Diego indicated before the
California Assembly Committee on Banking and Finance that ``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.
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[[Page 599]]
As discussed in the NPRM, the Commission's law enforcement partners
have also brought actions addressing unfair, abusive, and deceptive
practices in the motor vehicle industry. For example, the Consumer
Financial Protection Bureau (``CFPB'') has taken action against third-
party motor vehicle financing entities in matters that raise similar,
and sometimes identical, claims of deceptive and unfair acts or
practices as have been at issue in FTC enforcement actions.\91\
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\91\ The CFPB has brought at least 23 enforcement actions
involving motor vehicles, financing, or add-on products or services.
See Consent Order ]] 3, 13-57, Toyota Motor Credit Corp., CFPB No.
2023-CFPB-0015 (Nov. 20, 2023) (finding auto lender engaged in
unfair or abusive acts or practices by making it unreasonably
difficult for consumers to cancel unwanted add-ons; failing to
ensure consumers received refunds of payments they had made for
certain add-ons that had become void and worthless; and failing to
provide refunds owed to consumers who canceled their vehicle service
agreements);
Complaint ]] 75-104, CFPB v. USASF Servicing, LLC, No. 1:23-cv-
03433-VMC (N.D. Ga. Aug. 2, 2023) (alleging auto loan servicer
illegally disabled and repossessed consumers' vehicles, wrongfully
double-billed consumers, misapplied payments, and failed to ensure
refunds of unearned GAP premiums to which consumers were entitled);
Consent Order ]] 7-33, TMX Finance LLC, CFPB No. 2023-CFPB-0001
(Feb. 23, 2023) (finding auto lender understated and inaccurately
disclosed the finance charge and annual percentage rate on loans and
unfairly charged borrowers for a product that provided no benefit);
Complaint ]] 33-135, 171-226, CFPB v. Credit Acceptance Corp., No.
1:23-cv-00038 (S.D.N.Y. Jan. 4, 2023) (alleging indirect auto lender
misrepresented key terms of loans provided to subprime and deep-
subprime consumers and substantially assisted dealers in the
deceptive sale of add-on products); Consent Order ]] 7-22, Wells
Fargo Bank, N.A., CFPB No. 2022-CFPB-0011 (Dec. 20, 2022) (finding
bank incorrectly applied borrowers' auto loan payments, erroneously
assessed fees and interest, wrongly repossessed borrowers' vehicles,
and failed to ensure borrowers received refunds of unearned GAP fees
at early payoff); Consent Order ]] 4-55, Hyundai Capital America,
CFPB No. 2022-CFPB-0005 (July 26, 2022) (finding auto finance
company furnished inaccurate information about consumers to credit
reporting agencies); Consent Order ]] 4-14, 3rd Generation, Inc.,
CFPB No. 2021-CFPB-0003 (May 21, 2021) (finding subprime auto loan
servicer charged interest on late payments of fees without the
knowledge or consent of consumers); Consent Order ]] 8-50, Santander
Consumer USA Inc., CFPB No. 2020-BCFP-0027 (Dec. 22, 2020) (finding
auto finance company provided inaccurate records to credit reporting
agencies); Consent Order ]] 11-52, Nissan Motor Acceptance Corp.,
CFPB No. 2020-BCFP-0017 (Oct. 13, 2020) (finding auto finance
company misrepresented financing extension agreements,
repossessions, and limitations to consumer bankruptcy protections);
Consent Order ]] 8-22, Lobel Fin. Corp., CFPB No. 2020-BCFP-0016
(Sept. 21, 2020) (finding auto-loan servicer unfairly charged
delinquent consumers add-on charges in the form of Loss Damage
Waiver premiums); Consent Order ]] 6-30, Santander Consumer USA
Inc., CFPB No. 2018-BCFP-0008 (Nov. 20, 2018) (finding auto finance
company sold GAP to consumers with LTV over 125%, misrepresenting
that such consumers would be fully covered with total loss);
Consent Order ]] 27-39, Wells Fargo Bank, N.A., CFPB No. 2018-
BCFP-0001 (Apr. 20, 2018) (finding bank imposed duplicative or
unnecessary forced-placed auto loan insurance on consumers); Consent
Order ]] 12-23, Toyota Motor Credit Corp., CFPB No. 2016-CFPB-0002
(Feb. 2, 2016) (finding auto finance company engaged in
discriminatory pricing markup for motor vehicle financing, without
regard to creditworthiness); Consent Order ]] 73-75, Y King S Corp.,
CFPB No. 2016-CFPB-0001 (Jan. 21, 2016) (finding used car dealer
failed to disclose mandatory add-ons as financing charges); Consent
Order ]] 12-51, Interstate Auto Grp., Inc., CFPB No. 2015-CFPB-0032
(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);
Consent Order ]] 7-90, Westlake Servs., LLC, CFPB No. 2015-CFPB-0026
(Sept. 30, 2015) (finding indirect auto financing entity used
illegal debt collection tactics); Consent Order ]] 8-23, Fifth Third
Bank, CFPB No. 2015-CFPB-0024 (Sept. 28, 2015) (finding
discrimination against loan applicants in credit applications based
on characteristics such as race and national origin); Consent Order
]] 9-24, Am. Honda Fin. Corp., CFPB No. 2015-CFPB-0014 (July 14,
2015) (same);
Consent Order ]] 4-60, DriveTime Auto. Grp., Inc., CFPB No.
2014-CFPB-0017 (Nov. 19, 2014) (finding buy-here-pay-here dealership
made harassing debt collection calls and provided inaccurate credit
information to credit reporting agencies); Consent Order ]] 4-37,
First Investors Fin. Servs. Grp., Inc., CFPB No. 2014-CFPB-0012
(Aug. 20, 2014) (finding auto financing company provided inaccurate
records to credit reporting agencies); Consent Order ]] 7-27, Ally
Fin. Inc., CFPB No. 2013-CFPB-0010 (Dec. 20, 2013) (finding auto
lender engaged in discriminatory pricing); Consent Order ]] 14-29,
U.S. Bank Nat'l Ass'n, CFPB No. 2013-CFPB-0004 (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); Consent Order ]] 10-22, Dealers' Fin. Servs., LLC, CFPB No.
2013-CFPB-0004 (June 26, 2013) (finding financing company made
deceptive statements regarding the cost of add-on products and the
scope of coverage of the vehicle service contract).
In addition, States have engaged in enforcement actions alleging
similar dealer misconduct in the motor vehicle dealer marketplace, and
have implemented legislative and regulatory measures to address
corresponding consumer protection issues. With regard to law
enforcement, State regulators and Attorneys General have participated
in law enforcement sweeps with the FTC, and have filed hundreds of
actions alleging unlawful conduct by motor vehicle dealerships across
the country.\92\ Furthermore, with regard to legislative and regulatory
efforts, at least four States have enacted consumer protection measures
relating to pricing or add-ons by motor vehicle dealers.\93\ 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'' that is the actual offer and amount the consumer can pay to own
the vehicle, excluding only taxes and other specific items.\94\
California and Wisconsin have similarly enacted laws 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.\95\ Other States, such as Indiana, have enacted
codes that prohibit the sale of add-ons in certain circumstances.\96\
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\92\ Operation Steer Clear and Operation Ruse Control, brought
with State law enforcement partners around the nation and Canada,
encompassed 252 enforcement actions. See 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>. Separately,
the 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. Complaint ]] 37-86,
People v. Paul Blanco's Good Car Co. Auto Grp., No. RG-19036081
(Cal. Super. Ct. Sept. 23, 2019).
\93\ See, e.g., Cal. Veh. Code 11713.1(b), (c); Or. Admin. R.
137-020-0020(3)(c); Wis. Admin. Code Trans. 139.03(3); Ind. Code 24-
4.5-3-202.
\94\ Or. Admin. R. 137-020-0020(3)(c); Official Commentary, Or.
Admin. R. 137-020-0020(3)(c).
\95\ Cal. Veh. Code 11713.1(b), (c); Wis. Admin. Code Trans.
139.03(3).
\96\ Ind. Code 24-4.5-3-202(3)(e)(ix) (prohibiting the sale of
any GAP coverage when the LTV is less than 80%); Cal. Civ. Code
2982.12(a)(5)(B) (prohibiting the sale of any GAP waiver in three
scenarios, including when the amount financed for the vehicle
exceeds the amount covered by the GAP waiver).
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The Commission and its law enforcement partners also regularly
provide business guidance and consumer education regarding the motor
vehicle marketplace. The Commission has compiled its motor vehicle
business guidance into a portal on its website, with links to guidance
documents, frequently asked questions, and legal resources.\97\
Likewise, the Commission provides a web page for consumers to learn
more about buying, financing, and leasing motor vehicles.\98\ Several
States have published similar such guidance manuals for motor vehicle
dealers,\99\
[[Page 600]]
while others have provided online consumer education resources.\100\
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\97\ See Fed. Trade Comm'n, Business Guidance, ``Automobiles,''
<a href="https://www.ftc.gov/business-guidance/industry/automobiles">https://www.ftc.gov/business-guidance/industry/automobiles</a> (last
visited Dec. 5, 2023).
\98\ See Fed. Trade Comm'n, ``Buying and Owning a Car,'' <a href="https://consumer.ftc.gov/shopping-and-donating/buying-and-owning-car">https://consumer.ftc.gov/shopping-and-donating/buying-and-owning-car</a> (last
visited Dec. 5, 2023).
\99\ See, e.g., Ill. Sec'y of State Police, Dealer Handbook
(Apr. 2022), <a href="https://www.ilsos.gov/publications/pdf_publications/sos_dop66.pdf">https://www.ilsos.gov/publications/pdf_publications/sos_dop66.pdf</a>; Wis. DOT--Div. of Motor Vehicles, Motor Vehicle
Salesperson Manual--2020, <a href="https://wisconsindot.gov/Documents/dmv/shared/salesmanual-20.pdf">https://wisconsindot.gov/Documents/dmv/shared/salesmanual-20.pdf</a>; Enf't Div. of the Tex. Dep't of Motor
Vehicles, Motor Vehicle Dealer Manual (2017), <a href="https://www.txdmv.gov/sites/default/files/body-files/Motor_Vehicle_Dealer_Manual.pdf">https://www.txdmv.gov/sites/default/files/body-files/Motor_Vehicle_Dealer_Manual.pdf</a>.
\100\ See, e.g., Cal. Dept. of Just., ``Buying and Maintaining a
Car,'' <a href="https://oag.ca.gov/consumers/general/cars">https://oag.ca.gov/consumers/general/cars</a> (last visited Dec.
5, 2023); Fla. Highway Safety & Motor Vehicles, ``Buying from a
Licensed Dealer,'' <a href="https://www.flhsmv.gov/safety-center/consumer-education/buying-vehicle-florida/buying-licensed-dealer">https://www.flhsmv.gov/safety-center/consumer-education/buying-vehicle-florida/buying-licensed-dealer</a> (last
visited Dec. 5, 2023); Or. Dep't of Just., ``Buying a Vehicle,''
<a href="https://www.doj.state.or.us/consumer-protection/motor-vehicles/buying-a-vehicle/">https://www.doj.state.or.us/consumer-protection/motor-vehicles/buying-a-vehicle/</a> (last visited Dec. 5, 2023).
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While some commenters stated that existing Federal and State
efforts are sufficient, recent Commission and partner actions indicate
that misconduct has persisted despite prior law enforcement and other
efforts, and despite the NPRM's detailed description of chronic
problems relating to bait-and-switch tactics and hidden add-on and
other charges. For example, in a recent enforcement action, filed after
publication of the NPRM, the Commission charged several auto dealer
locations in an auto dealership group with misrepresenting the price of
vehicles. According to the complaint, the dealers advertised one price
to lure consumers to their dealerships, then charged them hundreds to
thousands of dollars more than the advertised price by tacking on bogus
extra fees for inspection, reconditioning, preparation, and
certification.\101\ The action also addressed the practice of dealers
charging Black and Latino consumers these fees more often and in higher
amounts.\102\
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\101\ Complaint ] 17, Fed. Trade Comm'n v. Passport Auto. Grp.,
Inc., No. 8:22-cv-2670 (D. Md. Oct. 18, 2022).
\102\ Id. ] 18. Recent actions outside the auto marketplace,
even in transactions that may not be as complex and time consuming
as motor vehicle transactions, further illustrate unfair and
deceptive practices related to advertising, add-ons, and hidden
charges. In one such action, the court noted ``the realities of the
disparate bargaining power'' between the corporate defendant and its
customers, adding that customers ``might have believed the [add-on]
fees were mandatory,'' and ``might not have had the time'' to
negotiate or complain about them. Fed. Trade Comm'n v. FleetCor
Techs., Inc., 1:19-cv-5727, 2022 WL 3350066, at *13 (N.D. Ga. Aug.
9, 2022) (granting the Commission's motion to exclude the
defendant's expert testimony); see also Fed. Trade Comm'n v.
FleetCor Techs., Inc., 620 F. Supp. 3d 1268, 1337 (N.D. Ga. 2022)
(finding on summary judgment that (1) defendants did not tell
consumers about fees at sign-up; (2) disclosures about fees in
contractual documents were inadequate; and (3) defendants failed to
get consent to add-on charges); id. at 1334 (concluding that
defendants had ``charged a slew of fees that: were never
discoverable to customers [and] were obscured by undecipherable
language''); Complaint ]] 41-43, Fed. Trade Comm'n v. Harris
Originals of NY, Inc., No. 2:22-cv-4260 (E.D.N.Y. July 20, 2022)
(alleging that a jewelry company charged military consumers for add-
on products without their consent or under false pretenses);
Complaint ]] 61-73, Fed. Trade Comm'n v. Benefytt Techs., Inc., No.
8:22-cv-1794 (M.D. Fla. Aug. 8, 2022) (alleging illegal add-on
charges by healthcare companies); Complaint ]] 1-4, Fed. Trade
Comm'n v. First Am. Payment Sys., LP, No. 4:22-cv-654 (E.D. Tex.
July 29, 2022) (alleging that a payment processing company
misrepresented the terms and costs of its services, resulting in
unexpected and unauthorized fees); Fed. Trade Comm'n, Notice of
Proposed Rulemaking, Trade Regulation Rule on Unfair or Deceptive
Fees, 88 FR 77420, 77435-37 (released Oct. 11, 2023; published Nov.
9, 2023), <a href="https://www.govinfo.gov/content/pkg/FR-2023-11-09/pdf/2023-24234.pdf">https://www.govinfo.gov/content/pkg/FR-2023-11-09/pdf/2023-24234.pdf</a>.
Multiple actions by partners since publication of the Commission's
NPRM have involved auto add-ons. The Commission and the State of
Wisconsin alleged that a dealership group, its current and former
owners, and its general manager deceived consumers by tacking on
hundreds or even thousands of dollars for add-ons without those
consumers' authorization or by leading the consumers to believe the
add-ons were mandatory, and doing so disproportionately more frequently
with American Indian customers.\103\ The CFPB and the New York State
Office of the Attorney General alleged that a subprime auto lender knew
or recklessly disregarded that dealers were tricking borrowers into
purchasing add-on products without their knowledge or consent and had
incentivized such behavior.\104\ In addition, the Commonwealth of
Massachusetts has brought two recent cases involving unfair add-on
pricing practices.\105\ In one such case, Massachusetts emphasized the
dynamics of auto transactions that frequently lead to deceptive and
unfair practices, particularly with respect to add-ons, noting that
add-on products ``are often sprung on consumers in the final steps of
completing a transaction'' after ``multiple rounds of negotiation on
the price of a car and/or car financing.'' \106\
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\103\ Complaint ]] 3-5, 11-18, 33-43, 48-51, Fed. Trade Comm'n
v. Rhinelander Auto Ctr., Inc., No. 3:23-cv-00737 (W.D. Wis. Oct.
24, 2023).
\104\ Complaint ]] 128-30, CFPB v. Credit Acceptance Corp., No.
1:23-cv-38 (S.D.N.Y. Jan. 4, 2023).
\105\ Complaint ] 3, Massachusetts v. Jaffarian's Serv., Inc.,
No. 2277-cv-881 (Mass. Super. Ct. Sept. 15, 2022); Assurance of
Discontinuance ]] 7-9, In re Hometown Auto Framingham, Inc., No.
2384-cv-116 (Mass. Super. Ct. Jan. 17, 2023).
\106\ Complaint ] 5, Massachusetts v. Jaffarian's Serv., Inc.,
No. 2277-cv-881 (Mass. Super. Ct. Jan. 17, 2023).
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Efforts to combat deceptive and unfair practices in the motor
vehicle industry since the NPRM have gone beyond enforcement actions.
The CFPB announced that it uncovered several unlawful practices through
supervisory examinations, including auto loan servicers charging for
add-ons that provide no benefit to the consumer \107\ and failing to
ensure consumers received refunds for add-on products that no longer
offered any benefits.\108\ In addition, the State of California enacted
new legislation that regulates a particular type of add-on product--GAP
agreements.\109\ A press release introducing the legislation cited
concerns about unfair practices in the sale of GAP agreements, stating
that this add-on has little value and is often targeted at consumers
with lower incomes and subprime credit.\110\ California's law requires
several disclosures related to GAP agreements, including disclosures
pertaining to their financed cost and informing consumers that such
products are optional.\111\ The law also prohibits the sale of GAP
agreements that will not actually cover consumers' debt.\112\
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\107\ Consumer Fin. Prot. Bureau, ``Supervisory Highlights:
Issue 24, Summer 2021'' 3-4 (June 2021), <a href="https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-24_2021-06.pdf">https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-24_2021-06.pdf</a> (finding servicers added and
maintained unnecessary collateral protection insurance (CPI) when
consumers had adequate insurance and thus the CPI provided no
benefit to the consumers, and also when consumers' vehicles had been
repossessed even though no actual insurance protection was provided
after repossession).
\108\ Consumer Fin. Prot. Bureau, ``Supervisory Highlights:
Issue 28, Fall 2022'' 4-5 (Nov. 2022), <a href="https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-28_2022-11.pdf">https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-28_2022-11.pdf</a> (finding consumers paid off their
vehicle financing early but servicers failed to ensure consumers
received refunds for unearned fees related to add-on products which
no longer offered any possible benefit to consumers after payoff).
\109\ Cal. Civ. Code 2982.12.
\110\ Press Release, Off. of the Att'y Gen. of Cal., ``Attorney
General Bonta and Assemblymember Maienschein Announce Legislation to
Strengthen Protections for Car Buyers'' (Feb. 16, 2022), <a href="https://oag.ca.gov/news/press-releases/attorney-general-bonta-and-assemblymember-maienschein-announce-legislation">https://oag.ca.gov/news/press-releases/attorney-general-bonta-and-assemblymember-maienschein-announce-legislation</a>.
\111\ Cal. Civ. Code 2982.12.
\112\ Id.
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Despite the array of actions by the Commission and its partners,
unfairness and deception continue in the motor vehicle marketplace,
including (1) deceptive or unfair sales and advertising tactics and (2)
hidden charges, particularly with respect to add-on products or
services. To address the harm these issues inflict on consumers and on
law-abiding dealers, the Final Rule, in general:
<bullet> Prohibits dealers from making misrepresentations regarding
material information, including about the cost of the vehicle, the
financing terms, and the availability of rebates or discounts;
<bullet> Requires dealers to disclose the offering price of the
vehicle--its full cash price, provided that dealers may exclude
required government charges; that optional add-ons are not required;
the total of payments for the vehicle when making a representation
about monthly payment; and that a discussed lower monthly payment will
increase
[[Page 601]]
the total amount the consumer will pay, if true;
<bullet> Prohibits dealers from charging for add-on products or
services that provide no benefit to the consumer; and
<bullet> Requires dealers to obtain express, informed consent from
the consumer for any charge.
As discussed in the section-by section analysis in SBP III and in
response to comments, the Commission is declining to finalize certain
provisions proposed in the NPRM, including the provision that dealers
must disclose a list of prices for all optional add-on products or
services, and the provision that dealers must obtain certain signed
declinations from consumers prior to charging for optional add-on
products or services. The Commission also is finalizing the defined
terms ``Covered Motor Vehicle'' and ``Covered Motor Vehicle Dealer'' to
reflect edits to narrow the scope of these definitions compared to the
scope of the terms ``Motor Vehicle'' and ``Motor Vehicle Dealer'' in
the NPRM.
III. Section-by-Section Analysis
The following discussion provides a section-by-section analysis
that states the provisions proposed in the NPRM, and discusses the
comments received, the Commission's responses to comments, and the
provisions adopted in the Final Rule.\113\
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\113\ Regarding the thousands of comments received, the
Commission notes that many commenters raised similar concerns or
addressed overlapping issues. To avoid repetition, the Commission
has endeavored to respond to issues raised in similar comments
together. Responses provided in any given section apply equally to
comments addressing the same subject in the context of other
sections. Moreover, throughout the SBP, the Commission discusses
justifications for the Final Rule that are informed by its careful
consideration of all comments received, even where that discussion
is not linked to a particular comment.
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A. Sec. 463.1: Authority
Section 463.1 states that the Final Rule is promulgated pursuant to
section 1029 of the Dodd-Frank Act, and that it is an unfair or
deceptive act or practice within the meaning of section 5(a)(1) of the
FTC Act to violate, directly or indirectly, any provision of the Final
Rule, including the recordkeeping requirements, which are necessary to
prevent such unfair or deceptive acts or practices and to enforce this
Rule.\114\ The prohibition against violating any applicable provision
``directly or indirectly'' applies to each section of part 463. As
discussed in SBP I.A, section 1029 authorizes the FTC to prescribe
rules under Sections 5 and 18(a)(1)(B) of the FTC Act with respect to
motor vehicle dealers predominantly engaged in the sale and servicing
of motor vehicles, the leasing and servicing of motor vehicles, or
both.\115\
[[Page 602]]
The Final Rule defines with specificity certain unfair or deceptive
acts or practices; the Final Rule provisions are also ``prescribed for
the purpose of preventing such acts or practices.'' \116\
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\114\ The proposed authority provision in the NPRM omitted the
second reference to ``unfair'' acts or practices with regard to the
proposed recordkeeping requirements; the Final Rule consistently
refers to both ``unfair'' and ``deceptive'' acts or practices
together.
\115\ One industry group argued that the proposed rule violated
the APA because it did not comply with the FTC's rule requiring
publication of an Advance Notice of Proposed Rulemaking (``ANPR''),
16 CFR 1.10. Section 1.10, however, like the rest of subpart B of
part 1 of the Commission's Rules of Practice, applies only to
``proceedings for the promulgation of rules as provided in section
18(a)(1)(B) of the Federal Trade Commission Act.'' 16 CFR 1.7. The
ANPR requirement in section 1.10 implements section 18(b)(2) of the
FTC Act, which requires an ANPR when the Commission promulgates
rules under the procedures set forth in that section. In this case,
the FTC is acting under statutory authority under section 1029(d) of
the Dodd-Frank Act, see NPRM at 42031, which authorizes the
Commission to promulgate rules using the APA's informal notice-and-
comment procedure, see 5 U.S.C. 553, notwithstanding the additional
procedural requirements set forth in section 18. Accordingly, this
rulemaking is governed by subpart C of part 1 of the Commission's
Rules of Practice, which ``sets forth procedures for the
promulgation of rules under authority other than section 18(a)(1)(B)
of the FTC Act.'' 16 CFR 1.21. Neither subpart C nor the APA
requires publication of an ANPR.
This is consistent with Commission practice in prior notices to
issue or amend regulations, including with the Made in USA Labeling
Rule, the Children's Online Privacy Protection Act Rule, and the
Telemarketing Sales Rule. See, e.g., Fed. Trade Comm'n, Notice of
Proposed Rulemaking, Made in USA Labeling Rule, 85 FR 43162 (July
16, 2020), <a href="https://www.govinfo.gov/content/pkg/FR-2020-07-16/pdf/2020-13902.pdf">https://www.govinfo.gov/content/pkg/FR-2020-07-16/pdf/2020-13902.pdf</a> (issuing original notice of proposed rulemaking that
was not preceded by an advance notice of proposed rulemaking); Fed.
Trade Comm'n, Notice of Proposed Rulemaking, Children's Online
Privacy Protection Rule, 64 FR 22750 (Apr. 27, 1999), <a href="https://www.govinfo.gov/content/pkg/FR-1999-04-27/pdf/99-10250.pdf">https://www.govinfo.gov/content/pkg/FR-1999-04-27/pdf/99-10250.pdf</a> (same);
Fed. Trade Comm'n, Notice of Proposed Rulemaking, Telemarketing
Sales Rule, 60 FR 8313 (Feb. 14, 1995), <a href="https://www.govinfo.gov/content/pkg/FR-1995-02-14/pdf/95-3537.pdf">https://www.govinfo.gov/content/pkg/FR-1995-02-14/pdf/95-3537.pdf</a> (same); Fed. Trade Comm'n,
Notice of Proposed Rulemaking, Telemarketing Sales Rule, 78 FR 41200
(July 19, 2013), <a href="https://www.govinfo.gov/content/pkg/FR-2013-07-09/pdf/2013-12886.pdf">https://www.govinfo.gov/content/pkg/FR-2013-07-09/pdf/2013-12886.pdf</a> (issuing notice of proposed rulemaking for rule
amendment that was not preceded by an advance notice of proposed
rulemaking); Fed. Trade Comm'n, Proposed Rule, Children's Online
Privacy Protection Rule, 76 FR 59804 (Sept. 27, 2011), <a href="https://www.govinfo.gov/content/pkg/FR-2011-09-27/pdf/2011-24314.pdf">https://www.govinfo.gov/content/pkg/FR-2011-09-27/pdf/2011-24314.pdf</a> (same);
Fed. Trade Comm'n, Notice of Proposed Rulemaking, Telemarketing
Sales Rule, 74 FR 41988 (Aug. 19, 2009), <a href="https://www.govinfo.gov/content/pkg/FR-2009-08-19/pdf/E9-19749.pdf">https://www.govinfo.gov/content/pkg/FR-2009-08-19/pdf/E9-19749.pdf</a> (same); Fed. Trade
Comm'n, Notice of Proposed Rulemaking, Children's Online Privacy
Protection Rule, 70 FR 2580 (Jan. 14, 2005), <a href="https://www.govinfo.gov/content/pkg/FR-2005-01-14/pdf/05-877.pdf">https://www.govinfo.gov/content/pkg/FR-2005-01-14/pdf/05-877.pdf</a> (same);
Fed. Trade Comm'n, Notice of Proposed Rulemaking, Telemarketing
Sales Rule, 69 FR 67287 (Nov. 17, 2004), <a href="https://www.govinfo.gov/content/pkg/FR-2004-11-17/pdf/04-25470.pdf">https://www.govinfo.gov/content/pkg/FR-2004-11-17/pdf/04-25470.pdf</a> (same); Fed. Trade
Comm'n, Notice of Proposed Rulemaking, Telemarketing Sales Rule, 69
FR 7330 (Feb. 13, 2004), <a href="https://www.govinfo.gov/content/pkg/FR-2004-02-13/pdf/04-3287.pdf">https://www.govinfo.gov/content/pkg/FR-2004-02-13/pdf/04-3287.pdf</a> (same); Fed. Trade Comm'n, Notice of
Proposed Rulemaking, Telemarketing Sales Rule, 67 FR 4492 (Jan. 30,
2002), <a href="https://www.govinfo.gov/content/pkg/FR-2002-01-30/pdf/02-1998.pdf">https://www.govinfo.gov/content/pkg/FR-2002-01-30/pdf/02-1998.pdf</a> (same); Fed. Trade Comm'n, Notice of Proposed Rulemaking,
Children's Online Privacy Protection Rule, 66 FR 54963 (Oct. 31,
2001), <a href="https://www.govinfo.gov/content/pkg/FR-2001-10-31/pdf/01-27390.pdf">https://www.govinfo.gov/content/pkg/FR-2001-10-31/pdf/01-27390.pdf</a> (same). This is also true of regulation amendments
pursuant to the authority under which this Final Rule is
promulgated--that which Congress granted to the Commission under
section 1029 of the Dodd-Frank Act, 15 U.S.C. 5519, pertaining to
motor vehicle dealers. See, e.g., Fed. Trade Comm'n, Notice of
Proposed Rulemaking, Used Motor Vehicle Trade Regulation Rule, 77 FR
74746, 74748 (Dec. 17, 2012), <a href="https://www.govinfo.gov/content/pkg/FR-2012-12-17/pdf/2012-29920.pdf">https://www.govinfo.gov/content/pkg/FR-2012-12-17/pdf/2012-29920.pdf</a> (``Because the Dodd-Frank Act
authorized the Commission to use APA procedures for notice and
public comment in issuing or amending rules with respect to motor
vehicle dealers, the FTC will not use the procedures set forth in
Section 18 of the FTC Act, 15 U.S.C. 57a, with respect to these
proposed revisions to the Used Car Rule and the Used Car Buyers
Guide. Accordingly, the Commission is publishing this Notice of
Proposed Rulemaking pursuant to Section 553 of the APA.''); see also
Fed. Trade Comm'n, Notice of Proposed Rulemaking, Privacy of
Consumer Financial Information Rule Under the Gramm-Leach-Bliley Act
(``Privacy Rule''), 84 FR 13150 (Apr. 4, 2019), <a href="https://www.govinfo.gov/content/pkg/FR-2019-04-04/pdf/2019-06039.pdf">https://www.govinfo.gov/content/pkg/FR-2019-04-04/pdf/2019-06039.pdf</a>
(issuing notice of proposed rulemaking for rule amendment that was
not preceded by an advance notice of proposed rulemaking).
This same commenter argued the FTC had not complied with the
``Principles of Regulation'' enumerated in section 1(b) of Executive
Order 12866. See Comment of Nat'l Auto. Dealers Ass'n, Doc. No. FTC-
2022-0046-8368 at 34-36 & n.123; E.O. 12866 3(b) (defining
``Agency'' to mean an authority of the United States ``other than
those considered to be independent regulatory agencies''). This
provision of the Executive Order does not apply to independent
agencies such as the FTC. Regardless, the Commission did take into
account the principles set forth in section 1(b), as is evident
throughout the NPRM. See, e.g., NPRM at 42015-17 (identifying
problems in the marketplace); id. at 42028-42031 (soliciting
comments on alternative approaches); id. at 42036-42044 (assessing
costs and benefits).
The same commenter also argued that the Commission's denial of
its request to extend the comment period prejudiced the commenter's
ability to collect and provide data pertaining to the proposed rule
and was inconsistent with the Commission's grant of extensions in
other rulemakings. As described in its letter, the Commission also
received requests opposing an extension of the comment period. See
Letter, Fed. Trade Comm'n, ``Duration of the Public Comment Period
in Matter No. P204800'' (Aug. 23, 2022), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/Matter%20No.%20204800%20-%20Letter%20re%20Extension%20for%20publication.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/Matter%20No.%20204800%20-%20Letter%20re%20Extension%20for%20publication.pdf</a>. In the letter,
the Commission noted its ongoing engagement with stakeholders on
issues relating to the sale, financing, and lease of motor vehicles,
since before its 2011 Federal Register notice inviting stakeholder
feedback on these issues and continuing since that time. See Fed.
Trade Comm'n, Public Roundtables: Protecting Consumers in the Sale
and Leasing of Motor Vehicles, 76 FR 14,014 (Mar. 15, 2011), <a href="https://www.federalregister.gov/documents/2011/03/15/2011-5873/public-roundtables-protecting-consumers-in-the-sale-and-leasing-of-motor-vehicles">https://www.federalregister.gov/documents/2011/03/15/2011-5873/public-roundtables-protecting-consumers-in-the-sale-and-leasing-of-motor-vehicles</a>. The Commission determined that a sixty-day comment period,
along with an additional twenty days following the public
announcement and release of the NPRM and prior to its publication in
the Federal Register, provided meaningful opportunity to comment.
See also Steven J. Balla, ``Public Commenting on Federal Agency
Regulations: Research on Current Practices and Recommendations to
the Administrative Conference of the United States'' App. A (2011),
<a href="https://www.acus.gov/sites/default/files/documents/Consolidated-Reports-%2B-Memoranda.pdf">https://www.acus.gov/sites/default/files/documents/Consolidated-Reports-%2B-Memoranda.pdf</a> (reporting data from a pool of 703 comment
periods associated with actions by dozens of Federal agencies, and
finding that the average duration of comment periods for proposed
agency actions was 38.7 days, and 45.1 days for actions that are
economically significant).
\116\ 15 U.S.C. 57a(a)(1)(B) (the Commission ``may include
requirements prescribed for the purpose of preventing'' unfair or
deceptive acts or practices).
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B. Sec. 463.2: Definitions
1. Overview
The proposed rule included 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.'' In the
definition-by-definition analysis in SBP III.B.2, the Commission
discusses each definition proposed in the NPRM, relevant comments that
are not otherwise addressed in the discussion of the corresponding
substantive provisions of the Final Rule, and the definition the
Commission is finalizing.
2. Definition-by-Definition Analysis
(a) Add-On or Add-On Product(s) or Service(s)
The proposed rule defined ``Add-on'' or ``Add-on Product(s) or
Service(s)'' as ``any product(s) or service(s) not provided to the
consumer or installed on the vehicle by the motor vehicle manufacturer
and for which the Motor Vehicle Dealer, directly or indirectly, charges
a consumer in connection with a vehicle sale, lease, or financing
transaction.'' This term appeared in the following definitions and
substantive provisions of the rule proposal: the definitions of ``Add-
on List'' and ``Cash Price without Optional Add-ons''; the Prohibited
Misrepresentations provision at proposed Sec. 463.3(b); the add-on
list disclosure provision at proposed Sec. 463.4(b); the requirement
to disclose that add-ons are not required at proposed Sec. 463.4(c);
the prohibition against charging for add-ons that provide the consumer
no benefit at proposed Sec. 463.5(a); and the proposed provision
relating to undisclosed or unselected add-ons at Sec. 463.5(b). As
discussed in the following paragraphs, in response to stakeholder
comments, the Commission declines to finalize certain of these
provisions; in the Final Rule, this term appears in paragraph (a) of
the Prohibited Misrepresentations section (Sec. 463.3); the Disclosure
Requirements provision in paragraph (c) of Sec. 463.4; and the
provision in Sec. 463.5(a) titled ``Dealer Charges for Add-ons and
Other Items'' and subtitled ``Add-ons that provide no benefit.''
For the following reasons, the Commission adopts the definition of
``Add-on'' or ``Add-on Product(s) or Service(s)'' largely as proposed,
with conforming modifications to reflect changes to the defined terms
```Covered Motor Vehicle' or `Vehicle''' and ```Covered Motor Vehicle
Dealer' or ``Dealer''' as described in more detail in the discussion of
Sec. 463.2(e) and (f), in SBP III.B.2(e) and (f).
The Commission received several comments relating to the scope of
its proposed definition for ``Add-on'' or ``Add-on Product(s) or
Service(s).'' Industry association and other commenters recommended
that the Commission broaden the definition to include manufacturer-
provided products or services, expressing concern that exclusion of
such products or services would put other companies that provide such
items at a competitive disadvantage. Products or services provided by
manufacturers, however, are already covered by several provisions of
the Final Rule. Under the substantive provisions the Commission is
finalizing, dealers are prohibited from making misrepresentations
regarding material information, including about the ``costs or terms of
purchasing, financing, or leasing a Vehicle'' (Sec. 463.3(a)); must
disclose the vehicle's true ``Offering Price,'' which includes any
amounts dealers charge for items already installed or provided by the
manufacturer (Sec. Sec. 463.4(a) and 463.2(k)); and are required to
obtain ``Express, Informed Consent'' for charges for any item
(Sec. Sec. 463.5(c) and 463.2(g)). The additional substantive add-on-
specific provisions \117\ address harms associated with products or
services not provided to the consumer or installed on the vehicle by
the motor vehicle manufacturer. Commenters did not provide evidence
that the proposed provisions covering manufacturer-provided products or
services would be insufficient to address consumer harm. Accordingly,
the Commission has determined not to include manufacturer-provided
products or services within this defined term. The Commission will
continue to monitor this issue to determine whether additional action
is warranted.
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\117\ Sec. Sec. 463.3(b), 463.4(c), 463.5(a).
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One individual commenter expressed concern that, under the
Commission's proposed definition, dealers could raise the price of a
vehicle by advertising additional products or services, such as ``free
lifetime benefits'' with the vehicle, and that dealers could mislead
consumers by charging more for the vehicle based on a supposedly
``free'' add-on.\118\ The Commission notes that the Rule the Commission
is finalizing contains several provisions relating to this concern. For
example, dealers are prohibited from making misrepresentations under
Sec. 463.3, including misrepresentations regarding ``costs,
limitation, benefit, or any other aspect'' of add-ons.\119\
Furthermore, dealers are required to disclose a vehicle's offering
price, which must include charges for required add-ons; this disclosure
will allow consumers to know the true price of the vehicle and
comparison shop before selecting and visiting a particular
dealership.\120\
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\118\ Individual commenter, Doc. No. FTC-2022-0046-7445 at 10-
11.
\119\ Sec. 463.3(b) (emphasis added).
\120\ See Sec. Sec. 463.2(k) (defining Offering Price),
463.4(a) (requiring disclosure of Offering Price); see also Sec.
463.3(p) (prohibiting misrepresentations regarding the disclosures
required by the Final Rule).
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Several dealership association commenters expressed concern that
the proposed definition was too broad, contending that it might apply
to hundreds of items and include fees, such as a processing or document
fee, that a dealer charges a consumer. As discussed in SBP III.B.2(b),
III.D.2(b), and III.E.2(b), upon careful review of comments, including
comments regarding the breadth of this requirement, the Commission has
determined not to finalize the provision that would have required
listing all optional add-ons--the ``Add-on List'' definition and the
associated requirement that dealers disclose such a list--as well as
proposed Sec. 463.5(b) relating to undisclosed or unselected add-
ons.\121\ The remaining substantive provisions that use the term ``Add-
ons'' prohibit misrepresentations (Sec. 463.3(b)); require dealers to
disclose, if true, that add-ons are not required (Sec. 463.4(c)); and
prohibit charges for add-ons that provide the consumer no benefit
(Sec. 463.5(a)). The law already prohibits misrepresentations,
regardless of the product or service at issue; dealers that offer
consumers additional products or services are already required to ask
[[Page 603]]
consumers if they want such products, rather than suggesting that such
products or services are mandatory, when they are not; and any hardship
associated with refraining from charging for products or services that
provide consumers no benefits are outweighed by the harms to consumers
and competition from permitting this practice, as explained in the
analysis of Sec. 463.5(a).
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\121\ See NPRM at 42044, 42046 (proposed Sec. Sec. 463.2(b),
463.4(b), 463.5(b)).
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Commenters including an industry association suggested limiting the
definition to products or services sold at the ``point of vehicle
purchase'' to clarify that indirect charges, such as the inclusion of a
one-year subscription to a satellite radio service, need not be
separately itemized.\122\ The industry association commenter suggested
that, as proposed, the definition would include charges for which
dealers and consumers ``would otherwise not account.'' \123\ The
Commission has determined not to finalize the add-on list and form
requirements in proposed Sec. Sec. 463.4(b) and 463.5(b). For the
provisions being finalized, excluding subscription charges, or
including only items added to the vehicle at the ``point of vehicle
purchase,'' would narrow the definition of ``Add-on'' and the
corresponding requirements in a manner that would allow for deceptive
or unfair practices, including by allowing dealers to represent a price
that is not the offering price, or to deceptively state that add-ons
are required. In the example provided by the commenter, if the
satellite radio subscription service is mandatory, it needs to be
included in the offering price of the vehicle, as required by Sec.
463.4(a) of the Final Rule; if it is not mandatory, the dealer needs to
disclose, when making any representations about the service, that it is
not required under Sec. 463.4(c). Further, regardless of whether such
a product or service is mandatory or optional, dealers must follow
other aspects of the Final Rule, including by not making any
misrepresentations about the subscription under Sec. 463.3 and by
obtaining the express, informed consent of the consumer for the
associated charges under Sec. 463.5(c).
---------------------------------------------------------------------------
\122\ Comment of Serv. Cont. Indus. Council, Guaranteed Asset
Prot. All., & Motor Vehicle Prot. Prods. Ass'n, Doc. No. FTC-2022-
0046-8113 at 13-14.
\123\ Id. at 13.
---------------------------------------------------------------------------
Another industry association commenter contended that add-ons sold
in the marine industry are typically different than those offered in
the context of automobile sales and described in the NPRM. While all
motor vehicle dealers must refrain from engaging in deceptive or unfair
conduct relating to add-ons, the Commission is excluding recreational
boats and marine equipment from the Final Rule's definition of ``
`Covered Motor Vehicle' or `Vehicle,' '' as discussed in additional
detail in the definition-by-definition analysis of Sec. 463.2(e) in
SBP III.B.2(e).
An industry association commenter and comments from a number of
dealership associations noted that certain State laws already regulate
the sale of add-ons, including, for example, laws in many States that
regulate vehicle sales contracts or deceptive sales practices generally
or that regulate insurance products. To the extent that the Final
Rule's add-on provisions may duplicate State law, commenters have
provided no evidence that any such duplication in the provisions that
incorporate this defined term--which prohibit misrepresentations,
require disclosures in the event add-ons are not required, and prohibit
charges for add-ons from which the consumer would not benefit--will
harm consumers or competition. Moreover, the Final Rule provides
additional remedies that will benefit consumers who encounter conduct
that is already illegal under State or Federal law, including by adding
a mechanism for the Commission to redress consumers injured by a
dealer's violation of the rule, and will assist law-abiding dealers
that presently lose business to competitors that act unlawfully. Under
the Final Rule, State laws may provide more or less specific
requirements as long as such requirements are not inconsistent with
part 463, as set forth at Sec. 463.9, and in the event of an
inconsistency, the Rule only affects such State law to the extent of
the inconsistency.\124\
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\124\ See, e.g., English v. Gen. Elec. Co., 496 U.S. 72, 79
(1990).
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A few dealership association commenters expressed concern that the
proposed definition of ``Add-on Products or Services'' would include
insurance-related products, such as credit life and credit disability
insurance, and as such, could implicate the McCarran-Ferguson Act's
reverse-preemption of certain Federal laws that ``invalidate, impair,
or supersede'' State laws enacted ``for the purpose of regulating the
business of insurance.'' \125\ Commenters have provided no evidence
that the Rule will invalidate, impair, or supersede State laws enacted
for the purpose of regulating the business of insurance.\126\ To the
contrary, the Final Rule addresses deceptive or unfair conduct--it
prohibits dealers, inter alia, from making misrepresentations regarding
material information about add-ons, from failing to disclose when add-
ons are not required, and from charging for add-ons from which the
consumer would not benefit. Nor has the Commission been presented with
evidence that the Rule's other substantive provisions (prohibiting
misrepresentations; requiring disclosures of a vehicle's offering price
and about total of payments; and requiring consumers' express, informed
consent before charging them) invalidate, impair, or supersede State
laws enacted for the purpose of regulating insurance.\127\
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\125\ See 15 U.S.C. 1012(b).
\126\ See Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 129
(1982) (setting forth test for whether an activity constitutes the
``business of insurance''); Humana Inc. v. Forsyth, 525 U.S. 299,
307-08 (1999) (establishing criteria for whether a Federal law
operates to ``invalidate, impair, or supersede'' State law).
\127\ The Supreme Court has refused to interpret the McCarran
Ferguson Act to invalidate Federal law when applied to remedy a
misrepresentation and undo the harm caused by alleged deception. See
SEC v. Nat'l Sec., Inc., 393 U.S. 453, 462 (1969). Moreover, lower
courts have rejected precisely the concern raised by the commenter
about credit life insurance. See Fed. Trade Comm'n. v. Dixie Fin.
Co., 695 F.2d 926, 930 (5th Cir. 1983) (McCarran Ferguson Act does
not preclude FTC investigation of ``whether the sale of insurance is
a precondition to the arrangement of credit''); Fed. Trade Comm'n v.
Mfrs. Hanover Consumer Servs., Inc., 567 F. Supp. 992, 94 (E.D. Pa.
1983) (same).
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A number of industry and dealership association commenters
contended that, as proposed, this definition may extend to products or
services that are provided by the manufacturer but that are installed
by a distributor of motor vehicles, or alternatively, by the dealer, at
the instruction of the manufacturer. Relatedly, a State governmental
association commenter expressed concern that the proposed definition
could create confusion with regard to the sale of used vehicles, where
a prior owner of a vehicle may have added a product to the vehicle. The
commenter contended that a motor vehicle dealer selling the used
vehicle may be unaware of the added product, and further, that listing
any such items may confuse buyers.
To the extent the commenters' concerns stem from the proposed
provisions related to add-on lists and proposed Sec. 463.5(b)'s
provisions related to separate disclosures, the Commission is not
finalizing those provisions. Under the provisions being finalized, if a
product is provided to the dealer by the manufacturer or another
entity, and a consumer chooses to have the product
[[Page 604]]
installed and pay for it, the dealer may install it and charge for it,
as long as the dealer complies with the provisions of the Final Rule,
including by disclosing that the product is not required and by
obtaining the consumer's express, informed consent for the charge. If
the manufacturer requires the dealer to install the product or if the
dealer chooses to install the product, and the dealer requires any
consumer to pay charges for it, the amount of the charge must be
included in the vehicle's offering price, and the dealer must comply
with other aspects of the Final Rule, including the express, informed
consent requirement. Relatedly, regarding used vehicles, if a prior
owner of such a vehicle installed an add-on, and the dealer that
subsequently sells such a vehicle requires any consumer to pay charges
for the add-on, the amount of those charges must be included in the
vehicle's offering price and the dealer must comply with other aspects
of the Final Rule, including the express, informed consent requirement
at Sec. 463.5(c). If, alternatively, the dealer does not require any
consumers to pay for the pre-installed add-on, then the dealer does not
have to add that amount to the vehicle's offering price, and there is
no charge for that add-on for which the dealer must obtain express,
informed consent. Thus, the definition of ``Add-on'' and the Rule
requirements being finalized address deceptive or unfair price and add-
on disclosures and hidden charges without requiring dealers to list or
itemize charges that they do not impose on consumers. For the reasons
explained in this section, the Commission is finalizing the definition
of ``Add-on'' or ``Add-on Product(s) or Service(s)'' largely as
proposed, with conforming modifications to reflect changes to the
defined terms ```Covered Motor Vehicle' or `Vehicle''' and ```Covered
Motor Vehicle Dealer' or `Dealer''' as described in more detail in the
discussion of Sec. 463.2(e) and (f), in SBP III.B.2(e) and (f).
(b) Add-On List
The NPRM proposed defining the term ``Add-on List,'' which appeared
in the associated Add-on List disclosure provision at proposed Sec.
463.4(b), as well as in the recordkeeping provision at proposed Sec.
463.6(a)(2). Based on the following, the Commission has determined not
to include this definition in its Final Rule.
Several commenters supported the substantive add-on list proposal
and its associated definition, and commenters including consumer
advocacy organizations urged the Commission to finalize additional
related restrictions or disclosures, such as requiring add-on prices to
be fixed and non-negotiable, or requiring a distinct add-on list for
each vehicle sold. Other commenters, including dealership associations,
raised concerns that, as proposed, the add-on list definition could
impose significant economic burdens on dealerships for a disclosure
that, in some circumstances, might be too voluminous to be optimally
meaningful to consumers, or permit price ranges that could be too broad
to prevent abuses and effectively inform consumers.
After careful consideration, and in light of the concerns raised by
commenters, the Commission has determined not to include the add-on
list disclosure provision at proposed Sec. 463.4(b) or the
recordkeeping provision at proposed Sec. 463.6(a)(2) in its Final
Rule, and therefore will not include a definition of the term ``Add-on
List'' in its Final Rule. Here, as elsewhere, the Commission remains
committed to promoting fair, non-deceptive, and competitive markets for
consumer products and services; it will continue to monitor the
marketplace for add-on-related acts or practices that are unfair or
deceptive, and will evaluate whether to propose additional measures
pertaining to such products and services.
(c) Cash Price Without Optional Add-Ons
The NPRM proposed defining the term ``Cash Price without Optional
Add-ons,'' which appeared in the proposed provision addressing
undisclosed or unselected add-ons at Sec. 463.5(b). Based on the
following, the Commission is declining to finalize this definition.
A number of commenters favored the proposed provision and
definition, and several, including consumer advocacy organizations,
urged the Commission to include additional requirements, such as
requiring the proposed disclosure documents associated with this
proposed definition to be available in different languages, while
others, including a dealership association, raised concerns that the
definition and relevant provision were burdensome or confusing for
dealers.
As explained in additional detail in SBP III.E.2(b) with respect to
Sec. 463.5(b), in light of commenter concerns that the proposed
provision using this term would increase costs for legitimate dealers
and add to the time and paperwork for consumers in an already lengthy,
paperwork-heavy transaction, the Commission has elected not to include
a Cash Price without Optional Add-ons disclosure requirement in its
Final Rule. Thus, after careful consideration, and in light of the
concerns raised by commenters, the Commission has determined not to
include a definition of ``Cash Price without Optional Add-ons'' in its
Final Rule.
(d) Clearly and Conspicuously
The proposed rule defined the term ``Clearly and Conspicuously'' as
``in a manner that is difficult to miss (i.e., easily noticeable) and
easily understandable,'' including in all of seven enumerated ways,
listing proposed requirements for ``any communication that is solely
visual or solely audible,'' ``[a] visual disclosure,'' ``[a]n audible
disclosure,'' and ``any communication using an interactive electronic
medium,'' and providing, inter alia, that such disclosures ``must use
diction and syntax understandable to ordinary consumers and must appear
in each language in which the representation that requires the
disclosure appears'' and ``must not be contradicted or mitigated by, or
inconsistent with, anything else in the communication.'' Based on the
following, the Commission is finalizing this definition largely as
proposed, with a modification to clarify that the definition applies
whether the term appears as an adjective or an adverb, by adding the
parentheses in the following manner to the defined term: ``Clear(ly)
and Conspicuous(ly).''
Some consumer advocacy organization commenters favored the
Commission's proposed definition while also suggesting that the
Commission include a provision requiring translation of any deal
consummating documents, including buyer's orders and retail installment
sales contracts, into the language in which the negotiations were
conducted. This issue, however, is addressed by Sec. 463.5(c) of the
Rule, which requires express, informed consent for each item
charged.\128\ As explained in additional detail in the paragraph-by-
paragraph analysis of Sec. 463.5(c) in SBP III.E.2(c), if a deal-
consummating document is provided in a language that the consumer does
not understand, and the document's contents are not otherwise clearly
understood by the consumer, then the consumer is in no position to give
unambiguous assent to the charges described therein. The Commission
therefore has determined not to add
[[Page 605]]
such a provision to its ``Clear(ly) and Conspicuous(ly)'' definition.
However, the Commission will continue to monitor the marketplace and
determine whether further language requirements or additional measures
are warranted to address deceptive or unfair practices--particularly
those that target or otherwise disproportionately impact language-
minority communities.
---------------------------------------------------------------------------
\128\ The language requirements, as they relate to obtaining
express, informed consent, are further explained in the discussion
of Sec. 463.5(c) in SBP III.E.2(c).
---------------------------------------------------------------------------
Commenters, including consumer advocacy organizations, expressed
concern that proposed Sec. 463.2(d)(5) may be read to apply only to
certain disclosures with triggering representations and only to
disclosures that are in writing. These commenters also requested that
the Commission incorporate into its Final Rule the FTC's policy
statement regarding foreign language advertising and sales materials,
which is separately codified at 16 CFR 14.9.\129\ In response, the
Commission notes that to be clear and conspicuous, the disclosure must
be ``easily understandable,'' as stated in the definition. If a
disclosure is being made in a language the consumer does not
understand, it does not meet this requirement. Further, the disclosures
highlighted by the commenters are indeed subject to the language
requirements of Sec. 463.2(d)(5), which requires that disclosures
``appear in each language in which the representation that requires the
disclosure appears.'' With regard to the offering price disclosure in
Sec. 463.4(a)(1), the applicable ``representation that requires the
disclosure'' is the ``advertisement that references . . . a specific
Vehicle''; thus, for example, if an advertisement that references a
specific vehicle is in Spanish, the offering price disclosure must also
be in Spanish. Similarly, in Sec. 463.4(a)(2), the applicable
representation that requires the disclosure is an ``advertisement that
represents . . . any monetary amount or financing term for any
Vehicle.'' In Sec. 463.4(a)(3), the applicable representation is ``any
communication . . . that includes a reference . . . regarding a
specific Vehicle, or any monetary amount or financing term for any
Vehicle.'' In Sec. 463.4(c) and (d), ``any representation'' regarding
an add-on product or service or a monthly payment for any vehicle,
respectively, triggers the language requirement of Sec. 463.2(d)(5).
The monthly payments comparison disclosure in Sec. 463.4(e) is
required when there is a ``comparison between payment options . . .
that includes discussion of a lower monthly payment.'' Thus, the
language requirements in Sec. 463.2(d)(5) apply.
---------------------------------------------------------------------------
\129\ 16 CFR 14.9 is an enforcement policy statement that
provides information to advertisers about clear and conspicuous
disclosures in foreign language advertisings and sales materials,
including ensuring the language of the disclosure matches the
language in the publication. See 16 CFR 14.9.
---------------------------------------------------------------------------
In response to this concern regarding the applicability of Sec.
463.2(d)(5) to disclosures that are not in writing, the Commission
notes that its use of the word ``appear'' in Sec. 463.2(d)(5)
incorporates common meanings, such as ``to show up,'' ``to come into
existence,'' or ``to become evident or manifest,'' which cause this
provision to apply whether the representation requiring the disclosure
appears visually, orally, or otherwise.\130\ Where the Commission
instead intended a provision to be limited to a visual disclosure, as
in Sec. 463.2(d)(2), the Rule states so explicitly.
---------------------------------------------------------------------------
\130\ See Appear (defs. 1b, 4, 6), <a href="http://Merriam-Webster.com">Merriam-Webster.com</a>
Dictionary, <a href="https://www.merriam-webster.com/dictionary/appear">https://www.merriam-webster.com/dictionary/appear</a> (last
visited Dec. 5, 2023); see also Order ]] 2-3, Asbury Auto. Grp.,
Inc., No. C-4606 (F.T.C. Mar. 22, 2017) (identical usage in
definition provision); Order ] 2, Lithia Motors, Inc., No. C-4597
(F.T.C. Dec. 8, 2016) (same); Order ]] 2-3, Jim Koons Mgmt. Co., No.
C-4598 (F.T.C. Dec. 8, 2016) (same).
---------------------------------------------------------------------------
In response to the request that the Commission incorporate into
this Rule its policy statement regarding foreign language advertising
and sales materials, separately codified at 16 CFR 14.9, the Commission
emphasizes that the enforcement statement sets out what is already
impermissible under current law and is consistent with the requirements
the Commission is finalizing. To the extent dealers take actions that
are inconsistent with Commission statements about such law, they are
risking enforcement proceedings by the Commission or others.
Accordingly, the Commission has determined not to add to the Rule
further requirements regarding foreign language advertising. The
Commission will continue to monitor the market to determine whether
further action is warranted.
Industry association commenters raised concerns about how the
Commission's proposed definition interacts with other Federal laws,
such as Regulations Z and M, which implement the Truth in Lending Act
and the Consumer Leasing Act, respectively, and contended that it
conflicts with a clear and conspicuous definition in Commodity Futures
Trading Commission regulations.\131\ Industry and dealership
association commenters contended that State advertising standards
already address what constitutes ``clear and conspicuous'' advertising
and provide guidance on disclosures, such that the FTC's proposal will
cause confusion or possible conflict with State law.
---------------------------------------------------------------------------
\131\ 17 CFR 162.2.
---------------------------------------------------------------------------
The Commission's definition of ``Clear(ly) and Conspicuous(ly)'' is
not inconsistent with the existing Federal legal requirements raised by
these commenters. Dealers can comply with these laws to the extent they
apply as well as with the requirements that follow from the
Commission's definition. Regarding State law, commenters did not
provide examples of actual conflicts. Further, to the extent there is
truly an inconsistency between the operation of the Commission's
definition and any State law, the Commission notes that the definition
is based on decades of Commission experience policing deceptive and
unfair conduct; addresses harmful practices including those related to
hidden disclosures and charges; and that Sec. 463.9 of the Final Rule
sets out the Rule's relation to State laws.
Other industry association commenters also contended that the
proposed definition of ``Clearly and Conspicuously'' would be overly
broad and challenging for compliance, but did not explain why or
suggest alternative language. In addition, some dealership association
commenters requested more guidance to understand the definition. The
Commission's definition spells out, in seven subparts, what clear and
conspicuous means, using simple terms that provide additional
information about how dealers can make a disclosure in a manner that is
easily understandable and easily noticeable to the consumer. The
definition elaborates basic, common-sense principles, including that
visual disclosures be in a size that consumers will easily notice and
that audible disclosures be in a volume, speed, and cadence such that
consumers will easily hear it. Thus, for example, disclosures in an
illegible font, or that consumers cannot hear, are not clear and
conspicuous. The Commission also notes that it did not mandate specific
fonts, volumes, or other prescriptive measures. Thus, dealers have the
flexibility to determine the best way to meet the definition's
requirements for their consumers under the circumstances.
A dealership association commenter contended that the proposed
definition does not include a reasonableness standard and may be
interpreted as prohibiting any limitations and exclusions, given the
requirement in proposed Sec. 462.3(d)(7) that a disclosure must not be
contradicted or mitigated by or inconsistent with anything else in the
communication. The commenter further asked whether a statement such as
``with approved credit'' would
[[Page 606]]
impermissibly mitigate an offer of low financing under this proposed
definition.\132\ The Commission responds as follows. The standard is an
objective one, evaluated from the perspective of a reasonable
consumer.\133\ The definition does not prohibit all advertising that
contains limitations and exclusions, but it does provide that if
dealers are advertising offers that are limited in some way, they may
not misrepresent such offers. Thus, if a dealer presents consumers with
an unqualified representation of low financing terms, those terms must
be available to typical consumers. Alternatively, a dealer may offer
low financing terms to consumers with particular credit characteristics
if that requirement is presented in a manner that does not deceive
reasonable consumers. For example, a dealer may offer ``0% annual
percentage rate (APR) for consumers with a credit score above 800.'' By
contrast, it would be deceptive if the dealer offered ``0% APR,'' and
then separately disclosed in fine print that such terms are only
available to consumers with a credit score above 800, because the
qualifying disclosure is inconsistent with an offer of ``0% APR'' that
contained no limitations and thus indicated that 0% APR is available to
the typical consumer regardless of credit score.\134\ Further, the
Commission notes that to qualify as clear and conspicuous,
``disclaimers or qualifications in any particular ad are not adequate
to avoid liability unless they are sufficiently prominent and
unambiguous to change the apparent meaning of the claims and to leave
an accurate impression. Anything less is only likely to cause confusion
by creating contradictory double meanings.'' \135\
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\132\ Comment of Ohio Auto. Dealers Ass'n, Doc. No. FTC-2022-
0046-6657 at 4.
\133\ See FTC Policy Statement on Deception, supra note 42, at
2-5.
\134\ Complaint ]] 5-7, Progressive Chevrolet Co., No. C-4578
(F.T.C. June 13, 2016) (alleging ads touting attractive terms
deceptively failed to disclose high credit score requirement).
\135\ Removatron Int'l Corp. v. Fed. Trade Comm'n, 884 F.2d
1489, 1496-97 (1st Cir. 1989); see also Fed. Trade Comm'n v. Brown &
Williamson Tobacco Corp., 778 F.2d 35, 42-43 (D.C. Cir. 1985)
(finding that a disclosure in virtually illegible form, placed in an
inconspicuous corner of Barclay advertisements, did not eliminate
deception); see Fed. Trade Comm'n v. Cap. Choice Consumer Credit,
Inc., 2003 U.S. Dist. LEXIS 29086, at *5 (S.D. Fla. June 2, 2003)
(finding that, where advertisements promised a general purpose
credit card, such as VISA or MasterCard, ``fine print on reverse
side'' of ad clarifying that the credit card was a ``merchandise
card and not a major bank card'' was inadequate to modify net
impression); Fed. Trade Comm'n v. <a href="http://Cyberspace.com">Cyberspace.com</a> LLC, 453 F.3d 1196,
1200 (9th Cir. 2006) (rejecting defendant's argument that truthful
fine print notices on reverse side of checks, invoices, and
marketing inserts cured deception that check/invoice was a refund
rather than offer for services); Fed. Trade Comm'n v. Alcoholism
Cure Corp., No. 3:10-cv-266-J-34JBT, 2011 WL 13137951, at * 51 (M.D.
Fla. Sept. 16, 2011) (finding that ``not MD'' disclaimers were
inadequate to dispel net impression regarding professional
qualifications of defendant and other employees as advertised); Fed.
Trade Comm'n v. Wash. Data Res., 856 F. Supp. 2d 1247, 1274-75 (M.D.
Fla. 2012) (rejecting defendants' argument that retainer agreement
contained sufficient disclaimer to dispel a misrepresentation about
whether a home loan was guaranteed).
---------------------------------------------------------------------------
Lastly, another dealership association commenter asked how the
proposed definition translates to visual, audible, and electronic media
disclosures and expressed concern about subjectivity, characterizing
the terms ``easily'' understood and ``unavoidable'' within the proposed
definition as subjective and open to different interpretations,
particularly in the context of websites and internet promotions. Here,
the Commission declines to mandate more prescriptive language
regarding, for example, font sizes, what volumes are to be used, and
where exactly the language should appear on a website, such as on an
overlay with mandated color, size, and location.\136\ As courts \137\
have recognized, whether a disclosure is clear and conspicuous is an
objective standard rather than a subjective one. While more
prescriptive language would provide additional objective criteria, the
Commission is concerned such language might constrain dealers from
determining the best way to meet the definition's requirements for
their consumers under the circumstances involved, and might require
dealers that are already making clear and conspicuous disclosures to
change their existing disclosure materials.
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\136\ The Commission has included such requirements elsewhere.
See, e.g., Order ] 6, United States v. Sunkey Publ'g, Inc., No:
3:18-cv-1444-HNJ (N.D. Ala. Sept. 6, 2018).
\137\ See. e.g., Palmer v. Champion Mortg., 465 F.3d 24, 28 (1st
Cir. 2006) (applying an objective standard in evaluating Truth in
Lending Act claim regarding clear and conspicuous disclosure); Smith
v. Check-N-Go of Ill., Inc., 200 F.3d 511, 515 (7th Cir. 1999)
(same); Zamarippa v. Cy's Car Sales, Inc., 674 F.2d 877, 879 (11th
Cir. 1982) (same); Bustamante v. First Fed. Sav. & Loan Ass'n, 619
F.2d 360, 364 (5th Cir. 1980) (same); see also Herrera v. First N.
Sav. & Loan Ass'n, 805 F.2d 896, 900 (10th Cir. 1986) (resolving
question of clear and conspicuous disclosure under Truth in Lending
Act as a legal, rather than factual, matter); Dixey v. Idaho First
Nat'l Bank, 677 F.2d 749 (9th Cir. 1982) (same).
---------------------------------------------------------------------------
The Commission reiterates that the definition of ``Clear(ly) and
Conspicuous(ly)'' elaborates basic, common-sense principles, such as
requiring visual disclosures in a size consumers can see and audible
disclosures in a volume they can hear. Regarding the requirement that
internet disclosures be unavoidable, this language requires evaluating
an objective standard--whether or not consumers could have avoided the
disclosure. In addition, the disclosure must be easily noticeable and
easily understandable, as set forth expressly in the definition.
Disclosures that do not meet this standard include those that are
buried in other text, including as illustrated by many FTC actions
against dealers.\138\ Regarding the requirement that disclosures be
``easily'' noticeable and understandable, the standard is also an
objective one, evaluated from the perspective of a reasonable consumer.
Determining how reasonable consumers are likely to respond may be
resolved on the basis of the advertisement, context, or disclosure
itself, or based on extrinsic evidence, such as consumer
complaints.\139\ To this end, as noted previously, the definition
enumerates in seven subparts the meaning of clear and conspicuous using
simple terms that provide additional guidance on how dealers may make
disclosures that are easily understandable and easily noticeable to the
consumer.
---------------------------------------------------------------------------
\138\ Complaint ]] 6-14, Jim Burke Auto., Inc., No. C-4523
(F.T.C. May 4, 2015); Complaint ]] 6, 9, TT of Longwood, Inc., No.
C-4531 (F.T.C. July 2, 2015); Complaint ] 13, City Nissan Inc., No.
C-4524 (F.T.C. May 4, 2015); Complaint ]] 17-19, Fed. Trade Comm'n
v. Liberty Chevrolet, Inc., No. 1:20-cv-03945 (S.D.N.Y. May 21,
2020); Complaint ]] 4-9, 12-15, 18-20, Billion Auto, Inc., No. C-
4356 (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 Complaint ]]
57-60, Fed. Trade Comm'n v. Stewart Fin. Co. Holdings, Inc., No.
1:03-CV-2648 (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).
\139\ See FTC Policy Statement on Deception, supra note 42, at
2-5 (describing application of reasonable consumer standard).
---------------------------------------------------------------------------
After carefully considering the comments, the Commission adopts
Sec. 463.2(d) with a modification to clarify, through the addition of
parentheses--``Clear(ly) and Conspicuous(ly)''--that the definition
applies whether the term is used as an adjective or adverb. Consistent
with the Commission's experience addressing unfair or deceptive
conduct, the Commission has defined the term ``Clear(ly) and
Conspicuous(ly)'' to include disclosures that are easily understandable
and easily noticeable, while also providing dealers with additional
information on how to meet those requirements.\140\
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\140\ See, e.g., Decision and Order, JS Autoworld, Inc., No. C-
4535 (F.T.C. Aug. 13, 2015); Decision and Order, Nat'l Payment
Network, Inc., No. C-4521 (F.T.C. May 4, 2015); Decision and Order,
Matt Blatt Inc., No. C-4532 (F.T.C. July 2, 2015); Decision and
Order, Ganley Ford West, Inc., No. C-4428 (F.T.C. Jan. 28, 2014).
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[[Page 607]]
(e) Motor Vehicle (Finalized as `` `Covered Motor Vehicle' or `Vehicle'
'')
The proposed rule defined the term ``Motor Vehicle'' as ``(1) any
self-propelled vehicle designed for transporting persons or property on
a street, highway, or other road; (2) Recreational boats and marine
equipment; (3) Motorcycles; (4) Motor homes, recreational vehicle
trailers, and slide-in campers, as those terms are defined in
Sec. Sec. 571.3(b) and 575.103(d) of title 49, Code of Federal
Regulations, or any successor thereto; and (5) Other vehicles that are
titled and sold through Dealers.'' The Commission has determined to
finalize the definition with the modifications discussed in the
following paragraphs.
The Commission received several comments regarding the substance
and scope of this proposed definition. A number of industry association
commenters requested that certain vehicle types, including marine
vehicles, motorcycles, RVs, and other recreational vehicles be excluded
from coverage. These commenters contended that the dealerships that
sell such vehicles function differently from automobile dealerships,
and that recreational vehicles are discretionary, rather than
essential, purchases. After careful consideration, the Commission is
excluding recreational boats and marine equipment; motorcycles; and
motor homes, recreational vehicle trailers, and slide-in campers from
the definition of `` `Covered Motor Vehicle' or `Vehicle.' '' Moving
forward, the Commission will continue to monitor for unfair and
deceptive practices to determine whether further action is warranted to
protect consumers, through law enforcement, a future rulemaking, or
other measures. The Commission notes that no dealer may misrepresent
material terms; deceive customers about prices, add-ons, or payments;
charge for products that provide no benefit; or charge consumers
without express, informed consent. To the extent that dealers engage in
such conduct, they are in violation of the FTC Act.
Another commenter contended it was unclear whether all-terrain
vehicles, go-carts, snowmobiles, scooters, electric bicycles, and golf
carts were covered by the proposed definition. In response, the
Commission has modified the first enumerated subpart of the definition
to refer only to vehicles designed for use on a ``public'' street,
highway, or road, and to expressly exclude scooters, electric bicycles,
and golf carts. The definition of `` `Covered Motor Vehicle' or
`Vehicle' '' in the Final Rule does not cover all-terrain vehicles, go-
carts, or snowmobiles because such vehicles are not designed for use on
a ``public'' street, highway, or road.\141\
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\141\ According to the National Highway Traffic Safety
Administration, ``Public road means any road under the jurisdiction
of and maintained by a public authority and open to public travel.''
23 CFR 1300.3.
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A number of industry association commenters claimed that the
proposed definition conflicts with definitions of motor vehicle under
various State laws, and one such commenter requested that, rather than
finalize a definition of ``Motor Vehicle,'' the Commission defer to the
definitions promulgated by each State's department of motor vehicles.
The commenters did not explain how the Rule's definition may actually
conflict with any laws, or how any alleged duplication would harm
consumers or competition. To the extent that States have broader or
narrower definitions, it is not clear why motor vehicle dealers covered
by the Rule cannot comply with the Rule's provisions and applicable
State laws. Moreover, the Final Rule provides additional remedies that
will benefit consumers who encounter conduct that is already illegal
under State or Federal law, including by adding a mechanism for the
Commission to redress consumers injured by a dealer's violation of the
rule, and will assist law-abiding dealers that presently lose business
to competitors that act unlawfully. Section 463.9 provides further
discussion of State laws.
Thus, after careful consideration of the comments, the Commission
is finalizing the definition of ``Motor Vehicle'' with modifications,
including adding the word ``Covered'' to the definition to reflect the
fact that the definition is narrower than the term ``Motor Vehicle'' in
the NPRM and adding ``or Vehicle'' to the definition to clarify that
all references in the Rule to the term ``Covered Motor Vehicle'' and
``Vehicle'' refer to the defined term.
(f) Dealer or Motor Vehicle Dealer (Finalized as `` `Covered Motor
Vehicle Dealer' or `Dealer' '')
The proposed rule defined the term ``Dealer'' or ``Motor Vehicle
Dealer'' as ``any person or resident in the United States, or any
territory of the United States, that: (1) Is licensed by a State, a
territory of the United States, or the District of Columbia to engage
in the sale of motor vehicles; (2) Takes title to, holds an ownership
interest in, or takes physical custody of motor vehicles; and (3) Is
predominantly engaged in the sale and servicing of motor vehicles, the
leasing and servicing of motor vehicles, or both.'' Based on the
following, the Commission is finalizing this definition in the Final
Rule with modifications for clarity.
Many stakeholders commented in support of the proposed rule and
expressed no concern over this definition. Other commenters expressed
views that the Commission examines in the following paragraphs.
A few industry association commenters contended that parts of the
proposed definition may have captured certain financial entities, such
as financial entities that maintain licenses to engage in the sale of
motor vehicles, and requested that the Commission make clear that any
rule does not apply to such entities. In response, the Commission notes
that only entities that meet all three components of the definition are
covered ``Dealers.'' Thus, an entity that maintains an applicable
license to engage in the sale of Covered Motor Vehicles but is not, for
example, predominantly engaged in the sale or leasing of motor vehicles
would not be a covered ``Dealer.''
Another industry association commenter similarly requested a
``carve-out'' from any definition of ``Dealer'' for trusts and trusts'
investors.\142\ This commenter asserted that trusts and their investors
do not satisfy two of the definition's components and did not describe
how any part of the definition creates concerns or is unclear. The
Commission reiterates that if an entity meets the three parts of the
``Covered Motor Vehicle Dealer'' definition, then it is covered; if an
entity does not meet these three parts, it is not covered. The
Commission sees no benefit to adding language stating that entities
that do not meet the definition are not covered.
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\142\ Comment of Structured Fin. Ass'n, Doc. No. FTC-2022-0046-
7646 at 3.
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Other commenters, including vehicle association commenters, claimed
that dealerships specializing in RV, marine, motorcycles, and other
recreational vehicles, including certain high-end recreational
vehicles,\143\ should be excluded from coverage, generally contending
that such dealerships operate differently from automobile dealerships,
and that these types of vehicles are used for different purposes than
are automobiles. As explained in the section-by-section analysis of the
definition of ``Covered Motor Vehicle'' in SBP III.B.2(e), after
considering stakeholder comments, the Commission
[[Page 608]]
is removing marine, motorcycle, RV, and certain other vehicles from the
definition in Sec. 463.2(e), and to reflect this change, finalizing
the defined term as `` `Covered Motor Vehicle' or `Vehicle,' '' thereby
excluding from the Final Rule entities who otherwise would have
qualified as ``Dealers'' solely based on their sale and servicing, or
leasing and servicing, of such vehicles. The Commission underscores
that, regardless of the definition of ``Covered Motor Vehicle'' under
the Final Rule, unfair and deceptive practices remain unlawful under
the FTC Act. The Commission will continue to monitor all vehicle
markets to determine whether additional action is warranted to protect
consumers.
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\143\ The Marine Retailers Association of the Americas requested
that transactions in excess of $70,000 be excluded from coverage, as
an alternative to excluding marine transactions altogether. See
Comment of Marine Retailers Ass'n of the Ams., Doc. No. FTC-2022-
046-9291 at 4.
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Some dealership association commenters argued that, under the
Commission's proposal, this definition exempted dealers subject to the
jurisdiction of the CFPB. Other such commenters similarly contended
that, under the proposal, used car dealers that do not engage in
extensive post-sale repairs do not ``service'' vehicles or that do not
have separate service departments may have been excluded from coverage,
contending further that excluding such dealers would put other dealers
at a competitive disadvantage. Contrary to these commenters'
assertions, the definition does not contain such exclusions. By its
plain terms, the definition applies to dealers that meet its three
enumerated components. Nowhere does the definition limit coverage of
dealers based on CFPB jurisdictional considerations. Likewise, the
definition does not condition coverage on whether a dealership has a
service department or include any other requirement or limitation
beyond those enumerated in Sec. 463.2(f). By its plain meaning, the
term ``servicing'' covers, for instance, ``checking and repairing a
vehicle, machine, etc. to keep it in good condition.'' \144\ As the
Commission has previously stated, the term ``servicing'' ``captures
activities undertaken by essentially all used car dealers.'' \145\
Thus, the definition does not place dealers with separate servicing
departments at a competitive disadvantage, and the Commission need not
remove the term ``servicing of motor vehicles'' from the Final Rule.
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\144\ The Oxford Advanced American Dictionary defines
``servicing'' as ``the act of checking and repairing a vehicle,
machine, etc. to keep it in good condition''; see also 15 U.S.C.
5519(b)(3) (referring to ``the sale, financing, leasing, rental,
repair, refurbishment, maintenance, or other servicing of motor
vehicles, motor vehicle parts, or any related or ancillary product
or service'').
\145\ Used Motor Vehicle Trade Regulation Rule (``Used Car
Rule''), 81 FR 81664, 81667 (Nov. 18, 2016).
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One such commenter further contended that the proposed definition
did not cover certain entities, including certain direct sellers or
manufacturers or others not licensed in a particular State, or lenders
who offer add-on products such as GAP agreements and debt suspension
products. As previously discussed, the Final Rule applies to all
dealers that meet the three parts of this definition.\146\ To the
extent that the definition does not apply to specific entities, this
reflects the scope and bounds of the rulemaking authority Congress
delegated to the Commission under the Dodd-Frank Act.\147\
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\146\ See 12 U.S.C. 5519(a), (f).
\147\ Section 1029(d) of the Dodd-Frank Act defines ``motor
vehicle dealer'' as ``any person or resident in the United States,
or any territory of the United States, who--(A) is licensed by a
State, a territory of the United States, or the District of Columbia
to engage in the sale of motor vehicles; and (b) takes title to,
holds an ownership in, or takes physical custody of motor
vehicles.'' 15 U.S.C. 5519(f)(2).
Parts (A) and (B) of this definition are identical to parts (1)
and (2) of the definition of `` `Covered Motor Vehicle Dealer' or
`Dealer' '' in the Final Rule.
Section 1029(d) of the Dodd-Frank Act states that the Commission
``is authorized to prescribe rules under sections 5 and 18(a)(1)(B)
of the Federal Trade Commission Act in accordance with section 553
of title 5, United States Code, with respect to a person described
in subsection (a).'' 15 U.S.C. 5519(d). Section 1029(a) in turn,
provides the CFPB ``may not exercise any rulemaking, supervisory,
enforcement or any other authority . . . over a motor vehicle dealer
that is predominantly engaged in the sale and servicing of motor
vehicles, the leasing and servicing of motor vehicles, or both.'' 15
U.S.C. 5519(a). The last clause is identical to part (3) of the
definition in the Final Rule.
Several commenters requested that the Commission allow consumers
to buy vehicles directly from manufacturers. Nothing in the Rule
prohibits consumers from doing so.
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Finally, some industry and dealership association commenters
posited that the proposal conflicted with Federal and State law or
duplicated the regulatory authority of State enforcement agencies.
These commenters did not provide information regarding how duplicative
laws prohibiting misrepresentations, requiring disclosures, or
prohibiting charges for items that would not benefit the consumer or
for items without express, informed consent would create harmful
consequences, and the Commission is not aware of any laws that allow
such conduct by those that the Rule defines as ``Covered Motor Vehicle
Dealer[s].'' Moreover, the Final Rule provides additional remedies that
will benefit consumers who encounter conduct that is already illegal
under State or Federal law, including by adding a mechanism for the
Commission to redress consumers injured by a dealer's violation of the
Rule, and will assist law-abiding dealers that presently lose business
to competitors that act unlawfully. To the extent the Rule may overlap
with State law, dealers can comply with these laws and also with the
requirements that follow from the operation, in the Rule, of the
Commission's definition. To the extent there is truly an inconsistency
between the provisions of the Final Rule and a State law, Sec. 463.9
sets out the Rule's relation to State laws.
Thus, after careful consideration of the comments, the Commission
is finalizing the definition of `` `Covered Motor Vehicle Dealer' or
`Dealer' '' with modifications for clarity. The definition in the Final
Rule incorporates the phrase ``including any individual or entity'' to
confirm that the term ``person,'' like all undefined terms in this
part, is used according to its ordinary meaning and includes
individuals and corporate entities and adds the word ``Covered'' to the
definition to reflect the narrowed scope of ``Covered Motor Vehicle.''
\148\
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\148\ See, e.g., Person, Black's Law Dictionary (11th ed. 2019)
(defining ``person'' to include ``[a] human being'' and ``[a]n
entity (such as a corporation) that is recognized by law as having
most of the rights and duties of a human being.''); Person, <a href="http://Merriam-Webster.com">Merriam-Webster.com</a> Dictionary, <a href="https://www.merriam-webster.com/dictionary/person">https://www.merriam-webster.com/dictionary/person</a> (last visited Dec. 5, 2023) (defining ``person'' to include
``human'' and ``one (such as a human being, a partnership, or a
corporation) that is recognized by law as the subject of rights and
duties''); see also 12 U.S.C. 5481(19) (Dodd-Frank Act statutory
authority for the Final Rule defining ``person'' as ``an individual,
partnership, company, corporation, association (incorporated or
unincorporated), trust, estate, cooperative organization, or other
entity''); 1 U.S.C. 1 (Dictionary Act defining ``person'' to include
``corporations, companies, associations, firms, partnerships,
societies, and joint stock companies, as well as individuals''). The
application of covered motor vehicle dealer and dealer to entities
also is consistent with these terms' use in the NPRM and commenter
understanding of these terms in the course of public comment.
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(g) Express, Informed Consent
The proposed rule defined the term ``Express, Informed Consent'' 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 for in-person transactions'' of
``(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.'' The proposed rule also included
in this definition three examples of what does not constitute express,
informed consent: ``(i) A signed or initialed document, by itself; (ii)
Prechecked
[[Page 609]]
boxes; or (iii) An agreement obtained through any practice designed or
manipulated with the substantial effect of subverting or impairing user
autonomy, decision-making, or choice.'' In both the NPRM and in the
provisions the Commission is finalizing, this definition is used
exclusively in Sec. 463.5(c). As such, comments regarding the
definition are examined in the discussion of that provision in SBP
III.E.2(c). As stated therein, the Commission is finalizing this
definition substantively as proposed.
(h) GAP Agreement
The proposed rule defined the term ``GAP Agreement'' as ``an
agreement to indemnify a vehicle purchaser or lessee for any of the
difference between the actual cash value of the insured's vehicle in
the event of an unrecovered theft or total loss and the amount owed on
the vehicle pursuant to the terms of a loan, lease agreement, or
installment sales contract used to purchase or lease the vehicle, or to
waive the unpaid difference between money received from the purchaser's
or lessee's motor vehicle insurer and some or all of the amount owed on
the vehicle at the time of the unrecovered theft or total loss.'' The
proposed definition also noted that this included ``products or
services otherwise titled `Guaranteed Automobile Protection Agreement,'
`Guaranteed Asset Protection Agreement,' `GAP insurance,' or `GAP
Waiver[ ].' '' This term appeared in two sections of the rule proposal:
in the provision regarding dealer charges for add-ons from which the
consumer would not benefit at proposed Sec. 463.5(a), and in the
recordkeeping provision at proposed Sec. 463.6(a)(4). Comments
regarding the proposed definition are examined in the discussion of
Sec. 463.5(a) in SBP III.E.2(a). As stated therein, the Commission is
finalizing this definition substantively as proposed, with
typographical modifications to correct a misplaced period in the
original proposal and a modification removing the extraneous term
``insured's'' from the phrase ``actual cash value of the insured's
Vehicle.'' In addition, the Final Rule capitalizes the defined term
``Vehicle'' to conform with the revised definition of `` `Covered Motor
Vehicle' or `Vehicle' '' at Sec. 463.2(e).
(i) Government Charges
The proposed rule defined ``Government Charges'' as ``all fees or
charges imposed by a Federal, State or local government agency, unit,
or department, including taxes, license and registration costs,
inspection or certification costs, and any other such fees or
charges.'' This term appeared in two provisions of the rule proposal:
in the proposed definition of ``Offering Price'' at Sec. 463.2(k),
which pertains to the proposed offering price disclosure provision at
Sec. 463.4(a); as well as in the proposed provision relating to
undisclosed or unselected Add-ons at Sec. 463.5(b). As explained in
further detail in the paragraph-by paragraph analysis of Sec. 463.5(b)
in SBP III.E.2(b), the Commission has determined not to finalize Sec.
463.5(b), and as such will refrain from examining this proposed
definition in relation to that provision. Comments regarding the
proposed definition are examined in the discussion of Sec. 463.4(a) in
SBP III.D.2(a). As stated therein, the Commission is finalizing this
definition substantively as proposed, with a typographical modification
to include a serial comma for consistency.
(j) Material or Materially
The proposed rule defined ``Material'' or ``Materially'' as
``likely to affect a person's choice of, or conduct regarding, goods or
services.'' This term appeared in the prohibited misrepresentations
provisions at Sec. 463.3(b) and (g), and in the recordkeeping
provision at Sec. 463.6(a). As described in detail in the section-by-
section analysis of Sec. 463.3 in SBP III.C, the Final Rule modifies
the introductory paragraph of Sec. 463.3 from the Commission's
original proposal to add the word ``Material,'' such that the
Commission's materiality standard applies to all subparts of Sec.
463.3. The Final Rule accordingly removes the word ``Material'' from
Sec. 463.3(b) and (g) so as to avoid duplication. Based on the
following, the Commission is finalizing this definition, now at Sec.
463.2(j), substantively as proposed.
A dealership association commenter noted that the proposed
definition did not use the term ``significance,'' and asserted that
``Material'' information should be significant and not ``rooted in
personal preference.'' \149\ The Commission notes that this definition
adopts the meaning of the term as articulated through decades of
enforcement actions \150\ instead of using a different term such as
``significance,'' and does not use the term ``personal preference'' or
rely on ``personal preference'' any more than the phrase ``likely to
affect'' or ``significant'' does. Thus, the Commission is finalizing
this definition substantively as proposed.
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\149\ Comment of Ga. Auto. Dealers Ass'n, Doc. No. FTC-2
[…truncated; see source link]Indexed from Federal Register on January 4, 2024.
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.