Last week, the Federal Trade Commission announced that it is seeking comment on a Notice of Proposed Rulemaking in connection with its proposal to implement a new "Motor Vehicle Trade Regulation Rule."  In announcing the rule, the FTC said that it is proposing the rule in order to "ban junk fees and bait-and-switch advertising tactics that can plague consumers throughout the car-buying experience."  

The proposed rule would:  (i) prohibit motor vehicle dealers from making certain misrepresentations in the course of selling, leasing, or arranging financing for motor vehicles; (ii) require accurate pricing disclosures in dealers’ advertising and sales discussions; (iii) require dealers to obtain consumers’ express, informed consent for charges; (iv) prohibit the sale of any add-on product or service that confers no benefit to the consumer; and (v) require dealers to keep records of advertisements and customer transactions.  

By issuing the proposed rule, the FTC is using (by a 4-1 vote), for the first time, its authority under the Dodd-Frank Act to prescribe rules governing motor vehicle dealers.  In a joint statement, FTC Chair Lina M. Khan, along with Commissioners Noah Joshua Phillips, Rebecca Kelly Slaughter, and Alvaro M. Bedoya, said, "This proposed rule is another example of how the FTC is using the full set of tools granted us by Congress to protect Americans from deceptive or unfair practices."  Commissioner Christine S. Wilson dissented, noting that regulatory schemes "tend to create market distortions that stifle innovation, increase costs and prices, and ultimately harm consumers."  

Proposed Rule

By promulgating a trade regulation rule, the FTC obtains the authority to obtain civil penalties and redress for consumers who violate the rule's provisions.  Here's what the FTC is proposing: 

• Prohibiting a wide variety of misrepresentations by motor vehicle dealers, including, for example, related to costs or terms of purchasing, financing, or leasing a vehicle, the availability of vehicles at an advertised price, and whether consumer reviews or ratings are unbiased; 
• Failing to make required disclosures in advertising and during the sales process, including, for example, the vehicle's offering price (defined as the full cash price for which the dealer will sell or finance the vehicle, excluding only required government charges), information about add-on products and services, and the total payments required; 
• Charging consumers for add-ons that provide no benefit, such as duplicative warranty coverage, for undisclosed or unselected add-ons, and for any item where the consumer has not provided express, informed consent; and
• Requiring a variety of record-keeping requirements, including retaining copies of advertisements, sales scripts, and training materials.  

In addition to inviting comment on the proposed rule, the FTC is also seeking comment on a wide-variety of other issues, such as "Would any of the additional proposed disclosures do more harm than good?" and "Are there situations in which dealers misrepresent the availability of vehicles without reference to price (e.g., the total number of vehicles of a certain make, model, and year the dealer has available)?"

As part of the announcement of the new rule, Samuel Levine, the Director of the FTC's Bureau of Consumer Protection, said, "As auto prices surge, the Commission is taking comprehensive action to prohibit junk fees, bait-and-switch advertising, and other practices that hit consumers’ pocketbooks.  Our proposed rule would save consumers time and money and help ensure a level playing field for honest dealers.”