The Federal Trade Commission just paused its own rule limiting the fees car dealerships can charge and the advertising tactics they can use, pending the outcome of a lawsuit.
New Rule Would Require Prices in Writing, Ban Some Fees
Last month, the FTC announced a new regulation restricting car dealerships from charging so-called “junk fees” and surprise pricing.
The Combating Auto Retail Scams (CARS) Rule would limit practices common to some, but far from all, car dealerships. They include:
- Junk fees: Fees for products or services that do not benefit the consumer. The FTC, in explaining the rules, specifically mentioned warranties that duplicate a manufacturer’s warranty and nitrogen-filled tires, which typically contain no more nitrogen than ambient air
- Misleading buyers about optional fees: Insisting optional services are mandatory
- Bait-and-switch marketing: Advertising vehicles the dealer never had in stock or prices the dealer will not honor
- Surprise fees: Undisclosed fees added at the end of a transaction
The rule would require dealerships to give buyers final pricing in writing before anything is signed.
The rule also includes special provisions protecting military personnel. They, the FTC says, often have more auto debt than general consumers.
Dealer Trade Groups Suing To Stop It
Two groups that represent dealerships — the National Automobile Dealers Association and the Texas Automobile Dealers Association — petitioned the 5th Circuit Court of Appeals to review the CARS rule. They allege the FTC enacted the rules without proper notice. The claim says the agency “acted arbitrarily and capriciously by failing to adequately substantiate the Rule’s benefits and costs or rationally connect the evidence before it to its decision.” They argue that the rules will impose significant new costs on dealers.
The FTC, in a statement, counters the “assertions rest on mischaracterizations of what the rule requires.” The rules don’t add any costs for “dealers who currently follow the law,” the commission says.
A Fast Lawsuit Won’t Delay the Rules
The rules were designed to go into effect on July 30. If the lawsuit is resolved quickly, the FTC notes, the matter “should not postpone implementation of the rule by more than a few months, if at all.”
The FTC Has a Backup Plan
Even if the lawsuit is successful, the FTC is developing a second rule that could prevent some of the same practices.
The agency in October proposed a more general set of rules banning junk fees in many industries, from concert tickets to vacation home rentals. That rule includes a provision stating that it will apply to car dealerships unless the FTC has a specific rule for them.
So, should a court block enforcement of the CARS rule, the separate junk fee rule might ban some of the same practices.
Browse dealer reviews, or share about your experience at a dealership here.
