Ballard Spahr LLP

Last week, the FTC released two new reports about the agency’s findings from an April 2017 study of consumers’ experiences with the car buying process.  The FTC’s Bureau of Consumer Protection (BPC) authored a summary report called “Buckle Up: Navigating Auto Sales and Financing.”  The BPC, in partnership with the FTC’s Bureau of Economics, also published, “The Auto Buyer Study: Lessons from In-Depth Consumer Interviews and Related Research,” which provides a more detailed discussion of the April 2017 study underlying the FTC’s findings.

The study was an in-depth qualitative study of 38 consumers who had recently purchased and financed a vehicle.  Although the participants were a small, non-representative sample of consumers, the FTC sought to include a reasonable cross-section of consumers in the sample, including age, gender, prime and sub-prime credit, and the type of dealership where the purchase took place (i.e. franchise dealer, independent dealer, buy-here pay-here dealer).  The scope of the study encompassed the entire car-buying process, from the marketing that attracted the consumer to the dealership to the review and execution of the purchase and financing documents.

The study found that many participants felt mislead about the dealer’s advertising, finding out late in the process that they either did not qualify for some offers, or offers were incompatible with other terms the participants negotiated.  Relatedly, many participants did not know that they could negotiate any terms other than vehicle price, and some participants with poor credit felt they had no ability to negotiate at all.  Additionally, many participants felt rushed to review and sign deal documents and did not understand all of the terms of their purchase.  For example, some participants did not know what their APR was, or misunderstood that the deal was final with no “cooling off” period.

One of the most problematic aspects of the car-buying process identified in the study related to disclosures about ancillary products. The study indicated that for most participants, add-ons were not discussed until the financing process, when participants felt pressured to close a deal.  Participants also experienced confusion regarding the price of add-ons.  Some participants thought they were free.  Others only received disclosures regarding how the price of add-ons would increase their monthly payment.  Some dealers bundled add-ons, making it difficult for consumers to negotiate which add-ons they purchased and to identify the cost of specific add-ons.  Finally, some participants lacked an understanding of what services or repairs were covered by add-ons.

The BPC’s emphasis on add-ons is not surprising. Add-on and ancillary products have been a significant focus of the FTC and CFPB.  This scrutiny seems unlikely to change, as the BPC concluded its “Buckle Up” report by identifying potential areas of future study, which included ancillary or add-on products, in addition to the length and complexity of the auto transaction, GPS tracking capabilities, and yo-yo financing tactics.  The BPC also warned that it “expects to continue to focus on law enforcement and deceptive or unfair tactics in the auto industry.”

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