Operating a dealership within the FTC CARS rule and Making Money
Operating a dealership within the FTC CARS rule and Making Money
CARS Rule for Advertising Price and payments
1. Clear Price Disclosure:
Requirement: Dealers must clearly disclose the offering price, which is the actual price anyone can pay to get the car, excluding only mandatory government charges. This price must be evident before the consumer visits the dealership and throughout the transaction.
Reference: FTC CARS Rule document on page 19, in section § 463.3(a).
https://www.ftc.gov/system/files/ftc_gov/pdf/p204800_cars_rule.pdf#page=19
2. Disclosure of Add-ons:
Requirement: If a dealer mentions optional add-ons in advertisements, they must inform consumers that these are optional and can be declined. This applies to any additional products or services offered with the vehicle.
Clear and Conspicuous Disclosures: All disclosures must be made in a manner that is easily noticeable and understandable by the consumer. This means that the information should not be buried in fine print or communicated in a way that makes it difficult for the consumer to understand
Reference: Page 21, section § 463.3(b)
https://www.ftc.gov/system/files/ftc_gov/pdf/p204800_cars_rule.pdf#page=21
3. Informed Consent for Charges:
Requirement: Dealers must obtain express, informed consent from consumers before charging them for any product or service. This ensures that consumers are fully aware of what they are being charged for and agree to it explicitly.
Reference: Page 24, Section 463.(d)
https://www.ftc.gov/system/files/ftc_gov/pdf/p204800_cars_rule.pdf#page=24
changes to day to day operations
1. Total Payment Information:
Requirement: When discussing monthly payments, dealers must provide the total payment information. This includes the overall amount the consumer will pay over the term of the financing, not just the monthly installment.
Reference: Page 26 Section 463.5 https://www.ftc.gov/system/files/ftc_gov/pdf/p204800_cars_rule.pdf#page=26
Requirement: When discussing monthly payments, dealers must provide the total payment information. This includes the overall amount the consumer will pay over the term of the financing, not just the monthly installment.
Application: Dealers must ensure that during any negotiation or communication (including email and phone conversations), if they mention monthly payments, they must also disclose the total amount paid over the loan term, including interest and fees.
Reference: Page 21 Section 463.4(b)(4) https://www.ftc.gov/system/files/ftc_gov/pdf/p204800_cars_rule.pdf#page=21
Requirement: Dealers must disclose the interest rate and the term of the loan when discussing financing options. This ensures that consumers understand the full cost of the financing and can make informed decisions.
Application: During negotiations or communications, dealers should clearly state the interest rate and the length of the loan term whenever they discuss financing options.
Reference: Page 24 Section 465.5(d) https://www.ftc.gov/system/files/ftc_gov/pdf/p204800_cars_rule.pdf#page=24
In-Person and Remote Communications: Whether the communication is in person, via email, or over the phone, the same rules apply. Dealers must ensure that they provide clear and conspicuous disclosures of all financial terms, including the total amount to be paid, interest rates, and loan terms, to avoid misleading the consumer.
Reference: Page 24 Section 465.5(e) https://www.ftc.gov/system/files/ftc_gov/pdf/p204800_cars_rule.pdf#page=24
2. Training Requirements and Evidence of Compliance
Training on FTC CARS
Requirement: Dealers are responsible for ensuring their staff understand and comply with the CARS Rule. This includes training on the prohibition of misrepresentations, the requirement to disclose the offering price, and obtaining express, informed consent from consumers before charging them for any product or service.
Reference: Page 32, section § 463.8(a)
Source: https://www.ftc.gov/system/files/ftc_gov/pdf/p204800_cars_rule.pdf#page=32
Evidence of Training Recordkeeping for Compliance:
Requirement: Dealers are required to maintain records that demonstrate compliance with the CARS Rule, including evidence of staff training. This involves keeping documentation of training sessions, materials used, and attendance records.
Reference: Page 34, section § 463.8(c)
Source: https://www.ftc.gov/system/files/ftc_gov/pdf/p204800_cars_rule.pdf#page=34
Audit and Inspection:
Requirement: During an FTC audit or investigation, dealers may be required to provide evidence of compliance, including documentation that staff have been trained on the requirements of the CARS Rule.
Reference: Page 35, section § 463.8(d)
Source: https://www.ftc.gov/system/files/ftc_gov/pdf/p204800_cars_rule.pdf#page=35
Dealers must ensure that their staff are trained on the CARS Rule and maintain comprehensive records of this training to demonstrate compliance. During an FTC audit, providing evidence of staff training is crucial to show adherence to the rule’s requirements. This proactive approach not only helps avoid penalties but also fosters a culture of transparency and honesty within the dealership.
3. How Dealerships Are Discovered and Investigated
The FTC's CARS Rule mandates truth and transparency in auto sales and aims to combat deceptive practices. Investigations and audits of dealerships under this rule can be initiated primarily through consumer complaints.
Here are the key points with specific references:
Consumer Complaints: The FTC relies heavily on consumer complaints to identify potentially deceptive practices. Complaints can be submitted directly to the FTC through their online complaint portal or via phone. These complaints are entered into the Consumer Sentinel Network, a secure online database accessible by numerous civil and criminal law enforcement agencies.
Reference: Page 36, section § 463.9(b)
Source: https://www.ftc.gov/system/files/ftc_gov/pdf/p204800_cars_rule.pdf#page=36
Consumer Sentinel Network: This network aggregates consumer complaints from multiple sources, enabling the FTC and other agencies to identify patterns of misconduct. When a significant number of complaints are filed against a particular dealership, it can trigger an investigation.
Reference: Page 36, section § 463.9(c)
Source: https://www.ftc.gov/system/files/ftc_gov/pdf/p204800_cars_rule.pdf#page=36
Collaboration with State Agencies: The FTC often collaborates with state attorneys general and other local consumer protection agencies. These agencies can also initiate investigations based on consumer complaints and refer cases to the FTC for further action.
Reference: Page 37, section § 463.9(d)
Source: https://www.ftc.gov/system/files/ftc_gov/pdf/p204800_cars_rule.pdf#page=37
Media Reports and Industry Whistleblowers: Sometimes, investigations are prompted by media reports highlighting widespread deceptive practices or by whistleblowers within the industry who bring issues to the attention of regulatory authorities.
Reference: Page 37, section § 463.9(e)
Source: https://www.ftc.gov/system/files/ftc_gov/pdf/p204800_cars_rule.pdf#page=37
Investigations can be initiated relatively easily based on the data available through the Consumer Sentinel Network and direct consumer reports. The FTC has streamlined processes to quickly respond to significant complaint volumes or egregious violations reported by consumers and other agencies.
By understanding these processes, dealerships can better prepare for compliance and ensure they maintain transparent practices to avoid triggering an investigation. For a detailed review and preparation, consulting the full guides and announcements on the FTC website is recommended.
4. FTC CARS Rule: Penalties for Non-Compliance
Civil Penalties: Dealers who violate the CARS Rule can face significant civil penalties. The FTC can impose fines for each instance of non-compliance. The current penalty amount is up to $50,120 per violation.
Reference: Page 38, section § 463.10(a)
Source: https://www.ftc.gov/system/files/ftc_gov/pdf/p204800_cars_rule.pdf#page=38
Remedial Measures: In addition to monetary fines, the FTC may require dealers to take corrective actions, such as providing refunds to affected consumers, changing their business practices, and implementing comprehensive compliance programs.
Reference: Page 39, section § 463.10(b)
Source: https://www.ftc.gov/system/files/ftc_gov/pdf/p204800_cars_rule.pdf#page=39
Injunctive Relief: The FTC can seek injunctive relief to prevent future violations. This can include court orders that prohibit specific deceptive practices and mandate compliance with the CARS Rule.
Reference: Page 39, section § 463.10(c)
Source: https://www.ftc.gov/system/files/ftc_gov/pdf/p204800_cars_rule.pdf#page=39
Dealers must ensure full compliance with the CARS Rule to avoid these penalties. This includes training staff, maintaining accurate records, and implementing transparent business practices. Proper training and documentation are crucial as they provide evidence of compliance during audits and investigations.
By understanding and adhering to these requirements, dealers can protect themselves from significant financial penalties and legal actions, while also fostering trust with consumers. For further details, dealers should refer to the FTC’s comprehensive guidance documents available on their website.
FTC's cars rule paused from starting july, 30th 2024
1. Legal Challenge by Trade Groups:
NADA and TADA filed a lawsuit in the U.S. Court of Appeals for the Fifth Circuit, arguing that the FTC overstepped its authority and that the rule imposes unnecessary burdens on dealers. They claim the rule would increase complexity and costs in the car-buying process, making it more cumbersome for consumers and dealers alike.
Reference: "NADA Files Federal Court Challenge to Stop FTC’s Vehicle Shopping Rule," page 1, paragraph 2 states: "Today, NADA along with the Texas Automobile Dealers Association (TADA) filed a legal challenge in US Federal Court to stop the FTC’s recently finalized Vehicle Shopping Rule."
Source: NADA Press Release https://www.nada.org/nada/nada-headlines/nada-files-federal-court-challenge-stop-ftcs-vehicle-shopping-rule
2. Specific Arguments Against the Rule:
Increased Complexity and Costs: The trade groups argue that the rule would add significant paperwork and compliance burdens, which could increase transaction times and costs for both dealers and consumers.
Duplicative Penalties: They also argue that the rule enforces penalties for actions that are already regulated and penalized under existing state and federal laws, making it redundant and excessively punitive.
Reference: "FTC postpones effective date for CARS Rule in response to legal challenge," page 1, paragraph 4 states: "The trade groups argue that the rule would increase complexity and costs, adding unnecessary burdens and duplicative penalties."
Source: Consumer Finance Monitor https://www.consumerfinancemonitor.com/2024/01/22/ftc-postpones-effective-date-for-cars-rule-in-response-to-legal-challenge/
3. FTC's Response:
The FTC has filed an opposition to the petition, defending the necessity and legality of the rule, and highlighting the consumer protections it aims to enforce, such as preventing bait-and-switch tactics and hidden fees.
Reference: "FTC files opposition to petition challenging CARS Rule in the 5th Circuit," page 1, paragraph 3 states: "The FTC has filed an opposition to the petition, defending the necessity and legality of the rule."
Source: Consumer Finance Monitor https://www.consumerfinancemonitor.com/2024/05/21/ftc-files-opposition-to-petition-challenging-cars-rule-in-the-5th-circuit/
4. Court Review and Possible Changes:
The effective date of the rule has been postponed to allow for judicial review. The court's decision could lead to the rule being modified, upheld, or potentially struck down based on the merits of the arguments presented by both sides.
Reference: "FTC Pauses CARS Rule Effective Date," page 1, paragraph 2 states: "The effective date of the rule has been postponed to allow for judicial review."
Source: FTC Press Release (https://www.ftc.gov/news-events/news/press-releases/2024/01/ftc-pauses-cars-rule-effective-date)
5. Potential Modifications
If the rule is modified, it could involve clarifications to reduce perceived redundancies and complexities, adjustments to penalties and compliance requirements, or changes to specific provisions to address concerns raised by trade groups. The FTC has indicated that it will continue to monitor the automotive market and may take further action to ensure fair practices. Additionally, some industry stakeholders have suggested that the FTC could expand the rule to cover all motor vehicles, not just automobiles.
Sources: Husch Blackwell (https://www.huschblackwell.com/newsandinsights/legal-update-ftc-finalizes-and-then-pauses-cars-rule-impacting-dealers-auto-finance-companies)
Consumer Finance Monitor https://www.consumerfinancemonitor.com/2024/05/21/ftc-files-opposition-to-petition-challenging-cars-rule-in-the-5th-circuit/
References for Legal Review
1. FTC’s CARS Rule: Combating Auto Retail Scams – A Dealers Guide:
- Total Payment Information and Disclosure Requirements:
- Page 6, Paragraph 2: This section explains the requirement for dealers to disclose total payment information, including the overall amount the consumer will pay over the term of the financing, not just the monthly installment. It also covers the need to disclose interest rates and loan terms.
- Source: FTC’s CARS Rule: Combating Auto Retail Scams – A Dealers Guide https://www.ftc.gov/business-guidance/resources/ftc-cars-rule-combating-auto-retail-scams-dealers-guide
2. FTC Consumer Advice on the CARS Rule:
- This resource provides an overview of the rule, including its intention to make car shopping more transparent and the requirement for clear disclosures in all forms of communication.
- Source: FTC Consumer Advice on the CARS Rule https://consumer.ftc.gov/consumer-alerts/2023/12/new-cars-rule-what-you-need-know
3. FTC Press Release on the CARS Rule:
- This document announces the finalization of the CARS Rule and provides details on the requirements and expected benefits for consumers and honest dealers.
- Source: FTC Press Release on the CARS Rule https://www.ftc.gov/news-events/news/press-releases/2023/12/ftc-announces-cars-rule-fight-scams-vehicle-shopping
4. FTC Business Guidance on Payments and Billing:
- This page includes general guidance on ensuring charges to customers are authorized, which is relevant to understanding the disclosure requirements under the CARS Rule.
- Source: FTC Business Guidance on Payments and Billing (https://www.ftc.gov/business-guidance/credit-finance/payments-billing)
Summary Of Document
Pages 1-40
- Introduction and Background: Rationale behind the CARS Rule and the need for transparency.
- Dealer Requirements: Clear disclosure of offering prices, prohibition of misrepresentations.
- Financing Disclosures: Mandatory disclosure of total payments, interest rates, loan terms.
- Compliance Measures: Staff training, record-keeping, collaboration with state agencies, penalties for non-compliance.
Pages 41-100
- Detailed Provisions: Specifics on prohibited deceptive practices, advertising guidelines.
- Consumer Protections: Protections for military members, special rules for vulnerable consumers.
- Record-Keeping: Detailed record-keeping requirements for dealers.
Pages 101-200
- Implementation Guidelines: Steps for implementing compliance programs, training materials.
- Enforcement: FTC’s enforcement mechanisms, case studies of past violations.
Pages 201-300
- Stakeholder Feedback: Summary of public comments, responses from industry stakeholders.
- Economic Analysis: Cost-benefit analysis of the rule, projected impact on industry and consumers.
Pages 301-370+
- Legal Framework: Legal basis for the rule, detailed legal references.
- Appendices: Supplementary materials, detailed tables, and additional guidelines.