On June 23, 2022, the Federal Trade Commission (FTC) proposed a rule that would impose a wide range of unwarranted and ill-advised new duties and restrictions on motor vehicle dealers. (A summary description of these proposed new obligations is set out below.) The FTC’s proposal relies on the agency’s authority in section 5 of the FTC Act to issue rules that prohibit unfair or deceptive acts or practices (UDAP). However, the FTC fails to provide sufficient support to justify its sweeping set of proposed duties and restrictions.

NADA is mounting a comprehensive and detailed response to the proposal, which will defend the highly competitive and pro-consumer benefits of the optional, dealer-assisted financing model, and show that, in fact, the FTC’s proposal is likely to harm consumers.

In addition to proposing sweeping new obligations, the proposed rule seeks comments to justify even more expansive regulations. Specifically, in its proposal the FTC asks 49 sets of open-ended questions on issues related to the proposed duties and restrictions, including (1) whether they should be expanded (e.g., “should additional restrictions be placed on all add-ons?” and “[s]hould the Commission consider… requiring retail installment sales contracts to include a clause prohibiting financing-contingent sales, prohibiting the dealer from transferring title to a trade-in vehicle or performing any repairs or reconditioning before a sale is final or requiring dealers to return trade-in, deposit, and fees, if financing is not approved?”) and (2) how the market operates (e.g., “Do dealers already calculate a figure equivalent to the Offering Price for every vehicle in their inventory?” and “[h]ow many add-ons do dealers typically offer, and how many of those are sold regularly?”).

These unusually broad inquiries are more typical of an Advanced Notice of Proposed Rulemaking when an agency seeks information that could potentially lead it to issue a proposed rule. The FTC’s omission of this preliminary and vital step casts serious doubt on whether its proposals are the result of neutral, thorough and carefully considered market research into the auto purchasing process.

The FTC has provided the public 60 days to respond to the proposed rule after it is published in the Federal Register. NADA will seek an extension of time to file and then submit an in-depth response to the FTC’s proposal that will further educate the FTC on the array of consumer benefits provided by dealers, and explain how the many flaws in the FTC’s proposed rule will threaten those benefits.

The duties and restrictions in the proposed rule generally include –

  1. A prohibition against misrepresentations involving any of 16 different activities related to the advertising and sales process;
  2. A requirement that dealers disclose:
    • a vehicle’s “offering price” (the full cash price a dealer will sell or finance a motor vehicle to a consumer excluding only required government charges) in any advertisement or communication with a consumer that references a specific vehicle or any monetary amount or financing term for a vehicle;
    • an “Add-on List” on each website, online service, or mobile application (or, for other forms of communication, a website, online service, or mobile application where a consumer can view the Add-on List) that includes an itemized list of all of the dealer’s optional “Add-on Products or Services” and the price of each item (or, if the price varies, a price range the typical consumer will pay for the item);
    • that the purchase of “Add-ons” is not mandatory;
    • the total amount a consumer will pay to purchase or lease a vehicle when the dealer makes any representation about monthly payment amounts;
    • the amount of any consideration provided by the consumer; and
    • whenever comparing payment options and discussing a lower monthly payment, that a lower monthly payment will increase the total amount the customer will pay to purchase or lease a vehicle (if such statement is true);
  3. A prohibition against charging for any “Add-on Product or Service” that would provide no benefit to the consumer (with certain types of products identified);
  4. A requirement that dealers make certain disclosures and conform to other requirements, including obtaining a newly defined and redundant form of express and informed consent, regarding such optional “Add-ons”; and
  5. A requirement that dealers retain for 24 months an extensive set of records that include, among many other items, all advertisements, sales scripts, training materials, and marketing materials regarding the price, financing, or lease of a motor vehicle; all “Add-on” lists and all documents describing such products and services; calculations of loan-to-value ratios in contracts including GAP Agreements; and copies of all written consumer complaints related to a wide variety of topics.