New FTC car dealer rule aims to tackle junk fees

After months of gathering public comments about bad experiences at car dealerships, the Federal Trade Commission (FTC) announced a new rule this December. The Combating Auto Retail Scams (CARS) Rule would protect consumers from certain unfair car dealer practices. It is set to go into effect on July 30, 2024.

The rule is on hold as some dealer trade groups are petitioning to stop it. Fortunately, though, the FTC states the litigation “should not postpone implementation of the rule by more than a few months, if at all.” Here’s how this new rule might affect your dealership experience in the coming year.

What is the FTC CARS Rule?

According to the FTC’s press release, this rule could result in $3.4 billion in savings per year for drivers buying or leasing vehicles at a dealership. The CARS Rule aims to prevent the following practices:

• Junk fees: The rule prohibits charges for products or services that do not benefit the buyer. The FTC’s examples included car warranties that are the same as the manufacturer’s and service contracts for oil changes for an electric vehicle.
• Bait-and-switch marketing: Some dealers advertise a certain car or promotional interest rate. Once the buyer is committed, they’re told the deal is no longer available. One version of this tactic, where the buyer is told they must accept a higher interest rate or give up the car, is called a yo-yo auto loan scam.
• Adding surprise fees: Dealers must get the buyer’s “express, informed consent” before charging them for any product or service. The information should cover both what the charge is for and the amount of the charge.
• Pretending optional fees are mandatory: Dealerships must now disclose which services and fees are optional.

Notably, dealers must clearly disclose the car’s actual purchase price before signing. The CARS Rule will also provide special protections for military personnel, who tend to have more auto debt than civilians.

Dealers also must be wary of how they discuss expected monthly auto loan payments. Dealers often advertise lower monthly payments without making it clear they require a longer loan term, resulting in more interest paid over time. The rule requires clearly disclosing the total loan cost, not just the monthly payment.

According to the FTC, if a dealership violates the outlined rules, they may need to repay impacted customers, pay civil penalties — as much as $50,120 per violation — and change business practices.

Why is the ruling on pause?

Two groups representing dealerships, the National Automobile Dealers Association and the Texas Automobile Dealers Association, petitioned the Fifth Circuit Court of Appeals to review the rule. The groups believe complying with the rule will result in additional costs for dealers.

In a mid-January statement, the FTC claims the rule should not impose substantial costs on honest dealers already following the law. It says, “To the extent there are costs, those are outweighed by the benefits to consumers, to law-abiding dealers and to fair competition.”

Honest dealers will not be at a competitive disadvantage relative to dishonest dealers.

— Federal Trade Commission

But even if the lawsuit proves successful, the FTC has plan B to protect consumers. In October, The Rule on Unfair or Deceptive Fees was proposed. It focuses on “unfair or deceptive practices relating to fees for goods or services” across many industries, including auto sales.

The bottom line

According to the FTC, “The CARS Rule is a big win for consumers, who can expect that established standards of truth and transparency.” The FTC encourages shoppers to look for dealers who comply with the rule and shop elsewhere if a dealer fails to do so.

As with any big purchase, seek reputable lenders and dealers to protect your money.