The Top Questions Driving New Car Dealerships in 2024

What to Know About the FTC’s New CARS Rule in 2024

The Federal Trade Commission’s Combating Auto Retail Scams (CARS) Rule is a significant regulation aimed at enhancing truth and transparency in the automobile buying and leasing process. Here’s a summary of its key aspects:

  1. Purpose of the CARS Rule: The CARS Rule is designed to protect consumers from deceptive and unfair practices in the car industry, such as bait-and-switch tactics, hidden charges, and other misleading conduct. This protection extends not only to consumers but also to honest car dealers who are negatively impacted by such practices.
  2. Combating Auto Retail Scams: The Rule addresses the widespread issue of auto retail scams, which have cost consumers billions of dollars and have put honest dealers at a competitive disadvantage.
  3. Key Principles of the CARS Rule:
    • Prohibition of Misrepresentations: It is illegal to make false statements about essential information related to car buying, leasing, or financing.
    • Disclosure of Offering Price: Dealers are required to disclose the actual price of a car, which is the price anyone can pay to purchase the vehicle, excluding mandatory government charges.
    • Illegal to Charge for Non-Beneficial Add-ons: Dealers cannot charge for add-ons that do not provide any real benefit to the consumer.
    • Requirement for Informed Consent: Dealers must obtain explicit and informed consent from consumers before charging them for any product or service.
  4. Application of the Rule: The CARS Rule applies to all forms of communication used by dealers to engage with potential car buyers and lessees. This includes advertisements, direct communications, and sales interactions.
  5. Clear and Conspicuous Disclosures: The Rule mandates that all disclosures be made clearly and conspicuously, ensuring that they are noticeable, understandable, and not contradicted by any other communication.
  6. Recordkeeping Requirements: Dealers are required to maintain records for at least 24 months to demonstrate compliance with the Rule.
  7. Penalties for Violation: Non-compliance with the CARS Rule can lead to serious consequences, including monetary penalties.
  8. Interaction with State Laws: The CARS Rule does not override state laws unless there is a direct conflict. If state laws offer greater protection, they will prevail.
  9. Effective Date: The Rule takes effect on July 30, 2024.
  10. Resources and Guidance: The FTC provides additional resources and guidance for dealers to comply with federal consumer protection laws.
The CARS Rule represents a significant step towards ensuring fairness and transparency in the car buying and leasing process, benefiting both consumers and honest dealers.

 

Frequently Asked Questions:

When does the Rule take effect?
The implementation date for the Rule is set for July 30, 2024.
Who needs to follow the Rule?
The Rule targets “Covered Motor Vehicle Dealers,” defined as entities or individuals within the U.S. or its territories who are: 1) state-licensed for selling Covered Motor Vehicles; 2) in possession or part-ownership of such vehicles; and 3) primarily involved in their sales and related services, or the leasing and servicing of these vehicles.
What prompted the FTC to establish this Rule?
According to the FTC, this Rule aims to counteract long-standing deceptive or unfair practices in the car sales sector, such as misleading advertising and undisclosed fees. The National Automobile Dealers Association (NADA) contests these claims, arguing that they do not accurately represent the majority of dealership operations, especially franchised ones. Despite the similarity of the Rule’s provisions to existing laws, the FTC introduced it to continue addressing market issues and to impose financial penalties for non-compliance.
Is there any ongoing opposition to the Rule?
Yes, the NADA is actively opposing the Rule by advocating for legislation to block FTC funding for its implementation. Specifically, the NADA is urging for the passage of a section in a proposed appropriations bill that would restrict the FTC’s enforcement of the Rule, without affecting its current market regulation capabilities. The NADA is also considering various legal strategies concerning the Rule.
What are the consequences for not adhering to the Rule?
Violating the Rule equates to breaking the FTC Act’s Section 5, which prohibits unfair or deceptive acts. The FTC indicates such breaches could force a business to alter operations, compensate affected consumers, and incur fines up to $50,120 per incident. The specifics of what constitutes a “violation” are not entirely clear but could range from misleading advertising to disclosure omissions. Additionally, such federal infringements could prompt state-level legal action, potentially leading to class-action lawsuits and legal fees. It’s recommended that dealers consult legal advisors to understand the Rule’s state and local implications.
Can a dealer and a customer agree to overlook the Rule?
No. The Rule explicitly forbids any attempt to waive a consumer’s rights or protections under its jurisdiction.
Must dealers also comply with local and state laws?
Generally, yes. Dealers are still bound by state and local regulations concerning advertising and sales unless those regulations conflict with the Rule. If local laws offer more consumer protection, they remain in force despite any inconsistencies with the Rule.
What does the Rule mandate?
The Rule stipulates a set of advertising rules, mandatory disclosures, prohibitions, and a new requirement for record-keeping. Specifically, it forbids false claims about essential details like vehicle costs and financing, mandates clear disclosure of prices and terms, and requires explicit consumer consent for charges. It bars dealers from charging for unnecessary add-ons and obligates them to be transparent about how certain offers, like lower monthly payments, may affect the total cost. These directives, although in some ways mirroring current laws, introduce complexities that could disrupt standard business practices.

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