FTC Decisions on CARS Rule – Impact on Dealers and Auto Finance Companies
Recently, in December 2023, the Federal Trade Commission (FTC) announced its decision to finalize the Combating Auto Retail Scams Rule (CARS Rule), which would bring some changes to the legal requirements concerning the obligations of dealers’ sales practices and those of finance companies. To gain a detailed understanding of the legal perspectives of the case, reach out to an Austin car accident attorney.
Legal Challenges to the CARS Rule
In January 2024, the National Automobile Dealers Association and Texas Automobile Dealers Association filed a petition with the U.S. Court of Appeals regarding the Fifth Circuit of Review of the CARS Rule.
Petitioners argued that the FTC had not evaluated the costs and benefits and that the rules defined were arbitrary and baseless. Further, the petitioners also argued that the FTC did not make an effort to indicate that an industry-wide problem exists which would require a strong regulatory response to be addressed.
Instead, the FTC and the petitioners requested the Fifth Circuit to speed up the case. As per the request of both parties, a briefing would take place around mid-June 2024, followed by an oral argument shortly.
The CARS Rule
Dealers must not misrepresent material information
According to the CARS Rule, dealers are prohibited from misrepresenting facts or information about any “material” aspects. This includes:
- Cost or terms of purchasing or financing
- Cost, limitations, or benefits of any offerings or add-on parts of services or products
- Whether the transaction is related to a lease or financing
- Details of any discounts, rebates, etc.
- Any other information important to the consumer
- Dealers must mention the offering price
The Rule requires the dealers to quote the “offering price,” which is the full cash price for which the dealer will sell or finance the vehicle, excluding the government charges. In addition, it requires the dealers to mention to the customer that purchasing or leasing add-ons is at their discretion, and they can still purchase the vehicle without any add-ons.
In addition, there are certain disclosure requirements that the dealers must satisfy. In case of showing different payment options to customers, the dealers must clearly state that as the monthly payment reduces, there will be an increase in the total amount the customer must pay. This is in a scenario where a customer purchases a vehicle, and the dealer explains the option of monthly payment in installments.
Dealers must not charge customers for add-ons that offer no benefits
The CARS Rule states that dealers should not charge customers any fee for add-on services that do not offer any benefits. These include, for example, add-ons that don’t offer coverage for the vehicle, transaction, consumer, or duplicates of warranty coverage.
Dealers must follow new recordkeeping requirements
The CARS Rule places an additional recordkeeping requirement on dealers. Under this, dealers must maintain all documents with CARS to exhibit compliance for 24 months. Some of these documents include – copies of all advertisements, training and marketing materials, GAP agreements, calculation of loan-to-value ratios, copies of all leasing or financing agreements with each consumer, and more.
Under the CARS Rule, the dealers can’t misrepresent as they belong to military service or government. Additionally, they can’t misrepresent that a vehicle can be repossessed or moved out of the state.
What is expected from dealers and auto finance companies?
While the CARS Rule is paused, dealers must start revisiting and reviewing their documents, records, marketing materials, contract forms, disclosures, etc., and ensure they comply with the new requirements. Dealers must also focus on imparting training to their sales personnel.
It is expected that finance companies purchasing motor vehicle retail contracts must liaise with dealers involved in similar activities to ensure compliance with the CARS Rule.