By Lori Lee
NDG Contributing Writer
The FTC last week announced a new rule to support American consumers when making an automobile purchase. The Combatting Auto Retail Scams (CARS) rule addresses tricks of the trade, like bait and switch advertising and add-on fees. The measure requires transparency in a sales process clouded by misleading prices and hidden fees. It is expected to save consumers near $3.4 billion each year.
Bait-and-switch advertising uses low prices to lure people to dealerships, explained Associate Director of FTC’s Division of Financial Practices Malini Mithal. Dealers may pitch a low price but often fail to mention the multitude of fees that will puff up the price at the end of a very long day. Extra financing charges are often hidden in an ad’s fine print, and fees are buried in lengthy contracts, said Mithal.
Added charges for coatings, sealants and extended warranties can add thousands to the sales price, while often needless Guaranteed Asset Protection (GAP) agreements add little value, added FTC attorney Sanya Shahrasbi. Over the past two years, dealers have substantially increased costs for add-ons even though the products are largely unconstrained by supply, said Shahrasbi. People are either paying for these add-ons without knowledge or they’re assuming they’re a necessary part of the process. One example cited was the Napleton case, where add-ons were most frequently charged to Black consumers, and in higher amounts.
In long contracts, sometimes up to 60 pages long, said Shahrasbi, these fees can be very difficult to spot. In fact, many won’t know what they’ve signed until after the deal is done.
By the time buyers drive away in their new cars, many have skipped over much of the contract, rushed by dealers motivated to maximize profits. The commission cited one consumer: “They only let you scan through the paperwork. You’re so tired, You’re worn down. You don’t want to be there. They take advantage of that.”
Dealerships mislead customers in all kinds of ways, added Jamie Brooks, attorney for the FTC’s Division of Financial Practices. One dealership even had the nerve to pretend to be affiliated with the federal government in a fake Covid relief offering, complete with a mock government check and a fake government seal, said Brooks.
Dealers will advertise a low price, then bury large down payment requirements and lengthy terms in fine print. One Kia dealer’s TV spot showed $99/month, but in illegible fine print explained the three low payments were followed by multiple payments of over $500/month, with additional fees added on.
Under the new rule, dealers are required to explain total costs when it quotes monthly payments, and disclosures must be easily understandable. If it is advertising or negotiating in one language, all documents must be in the same language, added Brooks. Consumers need to understand what they are agreeing to.
Cars are one of the most expensive purchases many people will make in their lifetimes, second only to buying a home, noted Mithal. Last year’s average car was $46,000 new and $30,000 used, and financing for these high-ticket items is the third largest source of debt in the country. It is an essential purchase that grants access to vital services like food, work and healthcare, and with average monthly payments at $741 new and $533 used, cars are only increasing in price.
A car’s high cost and essential nature make auto sales a priority for the agency. Though the FTC doesn’t act on every single complaint, if a large number comes in or with a high dollar amount, the agency will bring a case, said Mithil, and auto sales are consistently among the top ten complaints received by the agency.
Dealers can no longer mislead with rebates, extraneous financing or hidden charges, said Mithal. Under the new rule, a dealer can only charge for items the consumer is aware of, while services that provide no benefit, like duplicative warranties, are prohibited. Incompatible services, like oil changes on an EV, are also illegal.
Since the rule makes it easier for the FTC to get money back for consumers, dealers will likely try harder to comply with the new rules, Mathil added. And more so than punitive fines, getting money back for consumers is the agency’s focus. When the FTC sues a company and wins, money is awarded back to consumers without the need of a class action. We look at the victims, determine who was misled, and we put money back in peoples’ pockets, she said.
Mithal recommends that when car shopping, consumers should read the fine print, refuse to pay for add-ons, and let dealers know they are aware of their rights. If dealers still won’t offer a fair price, she suggests they report it to the FTC.
