The NADA challenged the Federal Trade Commission’s proposed extensive rules on dealership advertising and F&I offices as unsupported, sloppy and inconsistent.

The National Automobile Dealers Association last week challenged the Federal Trade Commission’s proposed rules on dealership advertising and finance and insurance office disclosures as unsupported, sloppy and inconsistent in regulating the industry. The FTC countered that its proposals are backed by research, studies and past enforcement actions.

NADA CEO Mike Stanton, in a meeting here with Automotive News reporters and editors, said it was becoming clearer to the association that “the FTC absolutely needs to go back to the drawing board on this.”

The agency’s justification for the rule changes is “woefully inadequate,” added Paul Metrey, NADA senior vice president of regulatory affairs. Regulation is meant to fill a hole in the law, but in this case, “it’s things they can go after” already, he said.

The FTC last week stood by its proposals, saying its research showed “bait-and-switch tactics and junk fees” in the marketplace.

The government agency can target bait-and-switch advertising and hidden F&I or physical “add-ons” under laws such as the Truth in Lending Act and the generic federal unfair and deceptive practices prohibition. However, compliance experts have told Automotive News that the proposed changes do go beyond the scope of what’s on the books today.

“Chronic problems confronting consumers in the sales, financing and leasing process include advertising misrepresentations and unlawful practices related to add-ons and deceptive pricing,” the FTC wrote in its June 27 rule-making proposal.

But according to Metrey, the foundation upon which the FTC built that case was shaky. The agency’s proposal said it received more than 100,000 auto-related complaints in each of the past three years, putting autos “regularly in the top 10 complaint categories.” That number in 2021 was 137,468.

But Metrey pointed out that the complaints weren’t verified. Not every customer is right, Stanton said, though he acknowledged some complaints were probably warranted.

But even if all those complaints were legitimate, they represented too small of a percentage of auto transactions to merit regulatory action, Stanton argued.

NADA estimates 42 million new and used vehicles were sold to consumers in 2021, while Cox Automotive puts that number at 34.2 million. Stacked up against either sales tally, auto complaints arose on less than half a percent of all transactions.

And the FTC’s auto complaint category goes beyond dealerships, Metrey pointed out. It incorporates customer gripes with auto parts, service and rentals. Just auto finance and sales yielded 84,672 complaints last year.

The FTC cited three motor vehicle roundtables it held in 2011 following enactment of the Dodd-Frank Act to determine whether rules beyond the unfair and deceptive practices law were necessary, Metrey said. The agency wrote last month that at the roundtables, consumers “expressed confusion regarding aspects of the financing process and commented that they were surprised when they reached the dealership that the price advertised was not available to them.”

However, at the time, nothing came of the roundtables.

The agency didn’t even file an advance regulatory notice asking the public whether a rule was warranted. “That record generated nothing,” he said.

But now, Metrey said, the agency is cherry-picking from the old record to justify its new rules.

Qualitative research

The FTC also drew upon comments from a piece of qualitative research it conducted in 2017 to help shape its proposed rules.

“The study found that many participating consumers were left in the dark about key terms,” the FTC wrote in its new proposal. “Consumers recalled dealers renegotiating vehicle prices at different stages of the transaction and being confused about the price of the vehicle. Despite the lengthy transaction, many study participants felt review of the final documents was rushed and were surprised to learn of additional add-on charges in their contracts.”

Qualitative research doesn’t contain the kind of statistically significant data found in quantitative research.

The 2017 research involved interviews with 38 borrowers who bought new or used vehicles in the Washington, D.C., area.

The FTC wrote in the introduction to the research report that the study was of “a small, nonrepresentative sample of consumers,” and therefore the data was “not useful for forming quantitative or generalizable conclusions.”

But the research forms “the centerpiece” of the statement by the four commissioners who voted for the proposed rules, Metrey said. The FTC’s proposal also cites the research several times, he said.

Enforcement actions

More than 50 enforcement actions also justify the rule, the FTC says, noting that these have targeted “matters involving misleading motor vehicle advertising, financing paperwork falsification, ‘yo-yo’ financing, deceptive and unfair add-on fees, discrimination, and privacy and data security issues.”

But only three involved the voluntary protection products that are a major focus of the FTC’s proposed rules, Metrey said. And 16 of the actions targeted parties other than dealerships, he said.

The FTC also cited operations with other law enforcement agencies that produced 246 punitive actions. Metrey said “a whole slew of them” involved respondents other than dealerships.

“They are using wildly inflated figures,” he said.


The execution of the FTC’s proposal was sloppy, according to Metrey. He said agencies typically don’t jump right to a notice of rule-making the way the FTC did in this case.

The industry also had no notice from the FTC’s semiannual regulatory agenda, which describes actions the agency plans to take in the near future, according to Metrey.

“This was so hurried that they did not even list this,” he said. The topic didn’t come up during an NADA-FTC meeting in March, either, Metrey said.

NADA plans to examine the costs the regulation would impose upon dealerships, a figure the FTC estimated industrywide at $1.36 billion to $1.57 billion over a decade.

Andrew Koblenz, NADA executive vice president of legal and regulatory affairs, last week criticized the FTC’s estimate of the corresponding benefit to society over that time.

The agency forecast $31.08 billion to $36.34 billion in gains from consumers needing three fewer hours to shop for a vehicle, with an hour valued at $22.20.

How did the agency determine the customer would save three hours? Koblenz asked. “It’s one word,” he said. The FTC “assumes,” he said, quoting the proposal.

The FTC cites the 2020 Cox Automotive Car Buyer Journey study’s determination that customers spend 15 hours researching, shopping and buying a car. But Koblenz said Friday, July 15, that the agency didn’t cite Cox as the source of its three-hour projection. All it wrote was, “3 hours corresponds to 20% of an average consumer’s time spent on such activities” — an arbitrary figure, Koblenz suggested.

Additionally, the FTC’s questions for public comments suggest an unfamiliarity with the issue it’s trying to regulate, Metrey said.

Metrey said the FTC hadn’t studied the effectiveness of its proposed solutions. He cited prior examples of such research by the Federal Reserve Board and the FTC, which found disclosures confused the consumers the agencies sought to help.

The rules also fail to capture the entire industry, according to Metrey. They apply only to the franchised and independent dealerships over which the FTC has jurisdiction, not the other independent dealerships regulated by the Consumer Financial Protection Bureau, he said. The FTC has moved unilaterally instead of conducting joint rule-making with the CFPB, he said.

“So you have some market participants covered and others not,” he said.

The FTC said enforcement and research supported its proposal.

“The FTC’s proposal cites enforcement work, studies, and research, and other materials that highlight deceptive and unfair practices by unscrupulous dealers — bait-and-switch tactics and junk fees,” FTC spokesperson Jay Mayfield said Friday, July 15, in a statement responding to NADA’s criticism. “We invite the public to comment on how to curb these practices to protect consumers and promote a level playing field for law-abiding dealers. We look forward to comments from all interested parties.”

NADA will seek an extension of the window for public comment on the rule, which opened Wednesday, July 13, with a deadline of Sept. 12. The FTC proposed something it couldn’t defend, Stanton said, which “effectively put us to work” to prove it wrong.

“The regulators need to take the proper approach to this — a data-driven approach,” he said. “This is a sledgehammer of an approach, in our opinion.”