The Proposed Federal Trade Commission banning financial and insurance coverage and physical vehicle add-ons “that offer no benefit” and requiring extensive disclosure and consent on such optional products – including an online price list.
The agency is also considering cracking down on dealer advertising tied to the cost of the vehicle itself.
The commission’s notice of draft settlement of June 27 was approved by a 4 to 1 vote with Commissioner Christine Wilson dissenting. An accompanying press release repeatedly described physical add-ons and F&I products as “unwanted fees”, although the four commissioners backing the regulations acknowledged in a separate statement, “Not all add-ons add value. “.
FTC Chairman Lina Khan and Commissioners Noah Phillips, Rebecca Slaughter and Alvaro Bedoya said the rule would be their agency’s first regulation since the Dodd-Frank Act of 2010. This act continued and expanded the FTC’s authority over car dealerships.
The quartet also noted that the proposed rule would allow the FTC to seek financial relief from customers, which they said had been prohibited by the 2021 AMG Capital Management LLC v. Supreme Court FTC. decision.
The agency will soon open a 60-day window for public comment on the proposal, no. P204800.
“As auto prices rise, the commission is taking comprehensive action to ban junk fees, bait-and-switch advertising and other practices that hurt consumers’ wallets,” the director of the Office of Protection said. FTC Consumer Affairs Samuel Levine in a June 27 statement. “Our proposed rule would save consumers time and money and help ensure a level playing field for honest dealers.”
Wilson, the dissenting commissioner, felt “illegal practices persist” in the auto retail industry, but said the proposal had “unintended but negative consequences.” She cited past regulatory issues such as the FTC’s rulemaking that had harmed competition and proven difficult to keep up to date.
Wilson also noted automotive industry innovation, including “sales models that avoid the need to enter a dealership at all” from Tesla and Carvana.
“The market momentum stemming from these innovations makes it likely that an FTC rule will be incomplete even when finalized,” she said.
The regulations proposed by the FTC include:
- Bans on all non-benefit products. Dealers would no longer be able to sell “nitrogen-filled tire products or services that contain no more nitrogen than naturally exists in the air” or coverage that duplicates the warranty of the vehicle. Secured Asset Protection (“GAP”), which covers the difference between a loan balance and the cash value of the vehicle in the event of a total loss, would also be prohibited “if the consumer’s vehicle or neighborhood is excluded from coverage or loan-to-value ratio would result in the consumer not benefiting financially from the product or service.”
- Publish a list of all optional modules and their prices online. Any ad should have a website link to this listing. If the price of F&I products varies, dealers might instead display a range “that the typical consumer would pay.” Add-ons are defined as anything sold by a dealership and not supplied by the automaker, including intangible F&I coverage.
- Prohibition of misleading price advertising.
- Disclosure and Written Disclosure of “Cash Price Without Optional Extras”. The customer should be informed of the price of the car, with and without financing, if they declined all optional add-ons and F&I coverage. If the customer agrees to pay something different, he and a dealership manager must sign a document saying so.
- “Explicit and Informed Consent” on F&I Products and Other Add-ons. It should be “an affirmative act communicating unambiguous consent” and go beyond “a document signed or initialed, by itself” or “pre-ticked boxes,” the FTC said.
“As noted above, the length and complexity of motor vehicle transactions have created an environment conducive to deceptive or unfair conduct,” the FTC’s proposed rulemaking states. “Consumer complaints suggest that some dealers added thousands of dollars in unauthorized charges, including for add-ons that consumers had already rejected.
“These issues are exacerbated when pre-printed consumer contracts automatically include fees for optional add-ons, when consumers are rushed through piles of documents, or when asked to sign blank documents.”