The Federal Trade Commission has finalized a rule first proposed in June 2022 that it says aims to “add truth and transparency to the car-buying and leasing process.” Showing off its knack for naming, the FTC calls its creation the CARS Rule, short for Combating Auto Retail Scams. The rule lays out what the FTC calls “four principles of truth and transparency” that discourage misleading advertisements, needless add-ons that inflate vehicle price, and bait-and-switch pricing schemes that spring a higher final price on the buyer at the close of the deal. The CARS Rule takes effect on July 30, 2024.
As the FTC outlines them, the four principles are:
1. Prohibiting misrepresentations about material information: This makes it illegal for dealers to misrepresent pricing, discounts or rebates that buyers may qualify for. It also prohibits dealers from ratcheting up the price of the vehicle with last-minute add-ons.
2. Requiring dealers to clearly disclose the offering price — the actual price anyone can pay to get the car, excluding only required government charges: The FTC requires dealers to disclose the out-the-door price of a vehicle upon the customer’s request, making it illegal to withhold that information until negotiations begin. It also requires any discussion of monthly payment plans to include the total payment.
3. Making it illegal for dealers to charge consumers for add-ons that don’t provide a benefit: Prominent examples of add-ons that don’t provide a benefit are oil-change service contracts for electric vehicles, gap insurance for finance agreements where the buyer is likely to never owe more than the vehicle is worth, and extended warranties that the car is not eligible for.
4. Requiring dealers to get consumers’ express, informed consent before charging them for anything: This aspect seeks to prevent subversive practices such as fine print on a sales contract giving the dealer the right to alter pricing or payment plans in their favor after the customer drives the car off the lot.
In a statement explaining the ruling, the FTC extends olive branches to the dealership industry, calling its principles “practices that are already business as usual for honest dealers” and noting that not only is the ruling a “big win” for car buyers, it “also is a big win for honest industry members who already implement the [CARS] Rule’s principles of truth and transparency at their dealerships.” The FTC goes on to commiserate with the honest dealer staffers, saying, “Most salespeople can recount a story of losing a sale to a crosstown competitor who used questionable tactics to lure away a prospective customer.”
Dealers, however, are less pleased.
The FTC estimates its rule will shorten the car-buying process by an average of three hours. The agency also says failure to comply will result in civil penalties up to $50,120 per violation.