FTC proposes new rule imposing prohibitions and disclosure requirements on auto-dealers in car-buying process

Ballard Spahr LLP
Contact

Ballard Spahr LLP

The Federal Trade Commission (FTC) recently proposed a rule that would impose a number of new substantive and disclosure requirements on auto-dealers in the car-buying process.  The FTC described the proposed Rule as one designed “to ban junk fees and bait-and-switch advertising tactics that can plague consumers throughout the car-buying experience.”  As the impetus for the proposed Rule, the FTC cited surging auto prices, and high levels of consumer complaints related to automobiles in spite of vigorous enforcement efforts in recent years in the car-buying space. 

The proposed Rule would make it an unfair or deceptive act or practice in violation of Section 5 of the FTC Act for a motor vehicle dealer:

  • To make any misrepresentation, expressly or by implication, regarding a laundry list of specific topics relating to purchasing, financing or leasing of a vehicle;
  • To fail to make clear and conspicuous disclosures about the offering price for a vehicle, about optional add-on products or services, that add-ons need not be purchased (if true) by the consumer, about the total amount of payments required for a purchase or lease, and that lower payment options will increase the total amount the consumer will pay (if true);
  • To charge for add-ons that provide no benefit, to charge for optional add-ons without certain specific disclosures, and to charge a consumer for any item unless the dealer obtains the consumer’s express, informed consent for the charge.

The proposed Rule also imposes certain record-keeping requirements on dealers relating to the Rule’s provisions, and prohibits any attempt to obtain a consumer’s waiver of the protections of the Rule.  Finally, the proposed Rule declares that it does not supersede state law that is consistent with the Rule, and that state law is not inconsistent with the Rule just because the state law affords greater protections to consumers.

The notice includes questions for public comment, and states that, after the FTC reviews the comments received, it will decide whether to proceed with issuance of a final rule.  The notice states it will be published in the Federal Register soon, and that comments must be received 60 days from the publication date of the notice.

The new proposed Rule is obviously of interest to auto-dealers.  However, it also should be of interest to automobile finance or leasing companies that can potentially be held liable for dealer misconduct, such as under the FTC Holder Rule.

The FTC’s proposed rule would not apply to all auto dealers. In issuing the proposed rule, the FTC relies on its authority under Section 1029(d)  of the Dodd-Frank Act to prescribe rules under Section 5 of the FTC Act that apply to auto dealers exempt from the CFPB’s jurisdiction pursuant to Dodd-Frank Section 1029(a).  (This represents the FTC’s first use of this authority.)   Section 1029(a) exempts most, but not all, auto dealers from the CFPB’s jurisdiction.  Specifically, Section 1029(a) provides that the CFPB “may not exercise any rule-making, 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.”  However, pursuant to Section 1029(b), many dealers typically known as “Buy Here, Pay Here” (BNPH) dealers are not exempt from the CFPB’s jurisdiction because they extend retail motor vehicle credit or leases to consumers without routinely assigning them to unaffiliated third parties.  Thus, these BNPH dealers would not be directly subject to the FTC’s rule.  It is possible the CFPB would take the position that BNPH dealers who engage in the actions prohibited by the FTC rule are engaging in UDAAP violations.

The FTC rule could also have implications outside of the FTC Holder Rule for auto finance and leasing companies subject to CFPB jurisdiction that purchase retail installment contracts and leases from dealers that fail to comply with the FTC rule.  The CFPB could take the position that such companies have engaged in conduct that is a UDAAP violation.  (It is also possible that the FTC could assert a UDAP claim against such companies.)

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ballard Spahr LLP | Attorney Advertising

Written by:

Ballard Spahr LLP
Contact
more
less

Ballard Spahr LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.