# Motor Vehicle Dealers Trade Regulation Rule

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/fr%3A2022-14214

## Record

- **Collection:** Federal Register
- **Document type:** Proposed Rule
- **Published:** July 13, 2022
- **Citation:** 87 FR 42012

## Text

FEDERAL TRADE COMMISSION
16 CFR Part 463
RIN 3084-AB72
Motor Vehicle Dealers Trade Regulation Rule

AGENCY:

Federal Trade Commission.

ACTION:

Notice of proposed rulemaking.

SUMMARY:

The Federal Trade Commission (“FTC” or “Commission”) seeks comment on this notice of proposed rulemaking (“NPRM”) related to the sale, financing, and leasing of motor vehicles by motor vehicle dealers. The proposed rule would prohibit motor vehicle dealers from making certain misrepresentations in the course of selling, leasing, or arranging financing for motor vehicles, require accurate pricing disclosures in dealers' advertising and sales discussions, require dealers to obtain consumers' express, informed consent for charges, prohibit the sale of any add-on product or service that confers no benefit to the consumer, and require dealers to keep records of advertisements and customer transactions. This NPRM invites written comments on all issues raised herein and seeks answers to the specific questions set forth in Section VIII of this document.

DATES:

Comments must be received on or before September 12, 2022.

ADDRESSES:

Interested parties may file a comment online or on paper by following the instructions in the Request for Comment part of the
SUPPLEMENTARY INFORMATION
section below. Write “Motor Vehicle Dealers Trade Regulation Rule—Rulemaking, No. P204800” on your comment, and file it online at
https://www.regulations.gov,
by following the instructions on the web-based form. If you prefer to file your comment on paper, mail your comment to the following address: Federal Trade Commission, Office of the Secretary, 600 Pennsylvania Avenue NW, Suite CC-5610 (Annex C), Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT:

Daniel Dwyer or Sanya Shahrasbi, Division of Financial Practices, Bureau of Consumer Protection, Federal Trade Commission, 202-326-2957 (Dwyer), 202-326-2709 (Shahrasbi),
ddwyer@ftc.gov, sshahrasbi@ftc.gov.

SUPPLEMENTARY INFORMATION:

I. Background

Buying or leasing a motor vehicle is, for many consumers, both essential and expensive.
1

Millions of Americans depend on vehicles for daily living, with recent data showing that over 95% of American households own at least one motor vehicle,
2

and nearly 84% of Americans drive to work as of 2020.
3

Americans rely on their vehicles for work, school, childcare, groceries, medical visits, and many other important tasks in their daily lives. This necessity does not come cheap: a new vehicle is the second-most expensive purchase many consumers make, falling only behind purchasing a home.
4

For purchases at new car dealerships, the average new vehicle now sells for more than $42,000,
5

and the average used vehicle sells for more than $26,000.
6

All told, Americans spent more than $2.8 trillion dollars on motor vehicles and vehicle parts in 2021.
7

1
In this proposed rulemaking, “auto,” “automobile,” “car,” “motor vehicle,” and “vehicle” refer to motor vehicles as defined in Section 1029 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), 15 U.S.C. 5519(f)(1).

2
U.S. Census Bureau,
American Community Survey: Means of Transportation to Work by Selected Characteristics, 2020, https://data.census.gov/cedsci/table?q=S0802&tid=ACSST5Y2020.S0802
(last visited Apr. 25, 2022) (listing 4.2% of population as having “[n]o vehicle available” in 2020);
compare
U.S. Census Bureau,
American Community Survey: Selected Housing Characteristics, 2020, https://data.census.gov/cedsci/table?q=vehicle&tid=
ACSDP5Y2020.DP04 (last visited Apr. 25, 2022) (listing 8.5% of households as having “no vehicles available”).

3
U.S. Census Bureau,
American Community Survey: Means of Transportation to Work by Selected Characteristics, 2020, https://data.census.gov/cedsci/table?q=S0802&tid=ACSST5Y2020.S0802
(last visited Apr. 25, 2022) (including those who commute in a car, truck, or van, either alone or by carpool).

4
Fed. Trade Comm'n,
Buying a New Car, https://www.consumer.ftc.gov/articles/0209-buying-new-car
(last visited Apr. 25, 2022);
see also
Am. Auto. Ass'n.,
Average Annual Cost of New Vehicle Ownership, https://www.aaa.com/autorepair/articles/average-annual-cost-of-new-vehicle-ownership
(last visited Apr. 25, 2022) (“After a home purchase, buying a vehicle is usually a consumer's second biggest expense.”); Bureau of Lab. Stats.,
Consumer Expenditures: Multiyear Tables (2013-2020)
at 2,
https://www.bls.gov/cex/tables/calendar-year/mean/cu-all-multi-year-2013-2020.pdf
(noting average annual home ownership expenditures of $7,473 and average annual vehicle purchase expenditures of $4,523 per consumer in 2020).

5
Nat'l Auto. Dealers Ass'n,
NADA Data 2021
at 7,
https://www.nada.org/media/4695/download?inline
(noting average retail selling price of $42,379 for new vehicles sold by dealerships in 2021).

6

Id.
at
10
(noting average retail selling price of $26,709 for used vehicles sold by new vehicle dealerships in 2021).

7
Bureau of Econ. Analysis,
National Data: National Income and Product Accounts, Personal Consumption Expenditures by Major Type of Product
at Table 2.3.5,
https://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=2#reqid=19&step=2&isuri=1&1921=survey
(last visited Apr. 25, 2022).

Given how expensive it can be to buy a vehicle, many consumers rely on financing to complete their purchases. Indeed, according to public reports, 81% of new motor vehicle purchases, and nearly 35% of used vehicle purchases, are financed.
8

The motor vehicle financing market is the third-largest consumer credit market in the United States, after mortgages and student loans. By the end of 2021, Americans had more than 111 million outstanding auto loans, and owed more than $1.46 trillion thereon.
9

Motor vehicle financing is the third-largest source of debt for U.S. consumers under the age of 50, and the second-largest source of debt for those 50 and older.
10

8
Melinda Zabritski, Experian Info. Sol's, Inc.,
State of the Automotive Finance Market Q4
2020 at 5,
https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf.

9
Fed. Rsrv. Bank of N.Y.,
Quarterly Report on Household Debt and Credit, 2021: Q4
at 3-4 (Feb. 2022),
https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2021Q4.pdf;
Fed. Rsrv. Bank of N.Y.,
Data underlying report
at “Page 3 Data” and “Page 4 Data” tabs,
https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/xls/hhd_c_report_2021q4.xlsx
(last visited Apr. 25, 2022) (number of open auto loan accounts and total balance outstanding).

10
Fed. Rsrv. Bank of N.Y.,
Data underlying report
at “Page 21 Data” tab,
https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/xls/hhd_c_report_2021q4.xlsx
(last visited Apr. 25, 2022).

Buying or leasing a vehicle is not only an expensive endeavor, but the transaction itself is time-consuming and arduous. Consumers who purchase vehicles at a dealership may spend five hours or more—or even days—doing so.
11

And that does not include the time spent visiting dealerships when consumers do not make purchases, or the hours it can take to travel to the dealerships themselves.
12

Consumers

may need to take time off work and arrange daycare or take young children to the dealership, and the process can be especially taxing for one-vehicle families who also need their vehicle for commuting and day-to-day tasks like buying groceries and attending medical appointments.

11
Mary W. Sullivan, Matthew T. Jones & Carole L. Reynolds, Fed. Trade Comm'n,
The Auto Buyer Study: Lessons from In-Depth Consumer Interviews and Related Research
15 (2020) [hereinafter
Auto Buyer Study
],
https://www.ftc.gov/system/files/documents/reports/auto-buyer-study-lessons-depth-consumer-interviews-related-research/bcpreportsautobuyerstudy.pdf
(noting the purchase transactions in the FTC's qualitative study often took 5 hours or more to complete, with some extending over several days);
Cf.
Cox Automotive,
2020 Cox Automotive Car Buyer Journey
6 (2020),
available at https://b2b.autotrader.com/app/uploads/2020-Car-Buyer-Journey-Study.pdf
(reporting average consumer time spent shopping for a vehicle at 14 hours, 53 minutes, including 4 hours, 49 minutes visiting dealerships/sellers).

12
For example, consumers have complained when they go to a dealership based on an offer that the dealer refuses to honor once they have spent hours driving there and have then spent additional time on the lot.
See, e.g.,
Complaint,
FTC & Illinois
v.
N. Am. Auto. Servs., Inc.,
No. 1:22-cv-0169 at ¶¶ 23-26 (N.D. Ill. Mar. 31, 2022) (alleging many consumers drive hours to dealerships based on the advertised prices; test-driving and selecting a vehicle, and negotiating the price and financing terms, is an often hours-long process; and, after this

time, dealers falsely told consumers add-on products or packages were required to purchase or finance the vehicle, even though they were not included in the low prices advertised or disclosed to consumers who called to confirm prices).

The Commission, the nation's consumer protection agency, is charged with enforcing key laws and regulations applicable to the motor vehicle marketplace, including sales, financing, and leasing.
13

The FTC protects consumers in motor vehicle transactions through law enforcement actions, rulemaking, consumer education, and business guidance, aided by information-gathering efforts such as agency roundtables and industry research. In the past ten years, the FTC has brought more than 50 motor vehicle-related enforcement actions, including matters involving misleading motor vehicle advertising, financing paperwork falsification, “yo-yo” financing, deceptive and unfair add-on fees, discrimination, and privacy and data security issues.
14

At the same time, the FTC has conducted a qualitative study of consumer experiences
15

and hosted public events to engage in a dialogue with consumer and dealer groups and other stakeholders, gather information, spotlight misleading practices, and raise awareness of issues that can affect consumers in this space, including consumers who are servicemembers.
16

The FTC also has posted many educational materials to assist consumers and dealers on motor vehicle market issues, and we have worked collaboratively with industry groups to do the same.
17

13
These laws include the FTC Act, 15 U.S.C. 41-58; the Truth in Lending Act, 15 U.S.C. 1601-1667f, and its implementing Regulation Z, 12 CFR parts 226 and 1026; the Consumer Leasing Act, 15 U.S.C. 1667-1667f and its implementing Regulation M, 12 CFR parts 213 and 1013; and the Used Car Rule, 16 CFR part 445.

14

See generally
Fed. Trade Comm'n,
The Auto Marketplace, https://www.ftc.gov/news-events/media-resources/consumer-finance/auto-marketplace.

15

See, e.g.,
Carole L. Reynolds & Stephanie E. Cox, Fed. Trade Comm'n,
Buckle Up: Navigating Auto Sales and Financing
(2020),
https://www.ftc.gov/reports/buckle-navigating-auto-sales-financing
[hereinafter
Buckle Up
];
Auto Buyer Study, supra
note 11.

16
For example, the FTC has held public workshops: (1) in conjunction with the National Highway Traffic Safety Administration, to examine the consumer privacy and security issues posed by automated and connected motor vehicles,
see
Connected Cars: Privacy, Security Issues Related to Connected, Automated Vehicles (June 28, 2017),
https://www.ftc.gov/news-events/events-calendar/2017/06/connected-cars-privacy-security-issues-related-connected
; (2) to explore competition and related issues in the U.S. motor vehicle distribution system including how consumers and businesses may be affected by state regulations and emerging trends in the industry, Auto Distribution: Current Issues & Future Trends (Jan. 19, 2016),
https://www.ftc.gov/news-events/events-calendar/2016/01/auto-distribution-current-issues-future-trends
; (3) on military consumer financial issues including automobile purchases, financing, and leasing, Military Consumer Financial Workshop (July 2017),
https://www.ftc.gov/news-events/events-calendar/military-consumer-workshop
; and (4) through a series of three roundtables on numerous issues in selling, financing, and leasing automobiles, The Road Ahead: Selling Financing, and Leasing Motor Vehicles (Feb. 2011, Aug. 2011, and Nov. 2011),
https://www.ftc.gov/news-events/events-calendar/2011/11/road-ahead-selling-financing-leasing-motor-vehicles
,
https://www.ftc.gov/news-events/events-calendar/2011/08/road-ahead-selling-financing-leasing-motor-vehicles
,
https://www.ftc.gov/news-events/events-calendar/2011/04/road-ahead-selling-financing-leasing-motor-vehicles
;
see also
Consumers for Auto Reliability and Safety, Comment Letter on Motor Vehicle Roundtables, Project No. P104811 at 6 (Apr. 1, 2012),
https://www.ftc.gov/sites/default/files/documents/public_comments/public-roundtables-protecting-consumers-sale-and-leasing-motor-vehicles-project-no.p104811-00108/00108-82875.pdf
(stating that Director of the Navy-Marine Corps Relief Society in San Diego indicated before the California Assembly Committee on Banking and Finance “the number one issue they are confronted with is used car dealers who are taking advantage of military personnel.”). These events, and others, have included speakers representing consumers, dealers, regulators, and other industry stakeholders.

17

See, e.g.,
Fed. Trade Comm'n,
The Auto Marketplace, https://www.ftc.gov/news-events/media-resources/consumer-finance/auto-marketplace
;
see also
Nat'l Auto. Dealers Ass'n,
Understanding Vehicle Financing,https://www.nada.org/WorkArea/DownloadAsset.aspx?id=21474839119
(prepared cooperatively by Am. Fin. Servs. Ass'n Educ. Found., Fed. Trade Comm'n & Nat'l Auto. Dealers Ass'n). Industry groups also play an important role in educating their members on how to comply with the law, including by issuing guidance in specific areas.
See, e.g.,
Nat'l Auto. Dealers Ass'n, Am. Int'l Auto. Dealers Ass'n & Nat'l Ass'n of Minority Auto. Dealers,
Voluntary Protection Products: A Model Dealership Policy
(2019),
https://www.nada.org/regulatory-compliance/voluntary-protection-products-model-dealership-policy
.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) was signed into law in 2010.
18

Section 1029 of the Dodd-Frank Act authorizes the FTC to prescribe rules with respect to unfair or deceptive acts or practices by motor vehicle dealers,
19

and to do so pursuant to the Commission's authority under the FTC Act and in accordance with the Administrative Procedure Act (“APA”).
20

Although it has engaged in law enforcement, the Commission's relatively small size and limited resources make it challenging to investigate and act upon the tens of thousands of complaints regarding dealerships. As discussed below, many of the problems observed in the motor vehicle marketplace persist in the face of repeated federal and state enforcement actions, suggesting the need for additional measures to deter deceptive and unfair practices. In addition, a rule prohibiting unfair or deceptive acts or practices in the motor vehicle marketplace would allow the FTC to seek redress for harmed consumers and obtain other forms of monetary relief in cases involving FTC Act violations.
21

Further, law-abiding dealers suffer when other dealers gain business through deceptive or unfair means. For all these reasons, the Commission believes it is appropriate to utilize its rulemaking authority to issue a rule to address unfair or deceptive acts or practices in the motor vehicle marketplace.

18
Public Law 111-203 (2010).

19

See supra
note 1.

20
12 U.S.C. 5519.

21
Under Section 19(a)(1) of the FTC Act, the Commission may sue in federal district court “any person, partnership, or corporation” that “violates any rule under [the FTC Act] respecting unfair or deceptive acts or practices.” 15 U.S.C. 57b(a)(1). Where such liability is found, under Section 19(b) a court may “grant such relief as [it] finds necessary to redress injury . . . resulting from the rule violation,” including the “rescission or reformation of contracts, the refund of money or return of property, [or] the payment of damages.”
Id.
57b(b).

I. Overview of Vehicle Dealers and Motor Vehicle Financing

A. New and Used Motor Vehicle Dealerships

There are more than 21,000 new motor vehicle dealerships across the country.
22

Collectively, these dealerships sold more than 17 million new vehicles per year in each of the past three years,
23

averaging more than 800 new vehicle sales per dealership per year.
24

New- vehicle dealers spend an average of more than $600 on advertising per vehicle sold
25

—more

than half of which goes toward online advertising.
26

According to industry sources, these dealers averaged a gross profit of about $2,444 per vehicle.
27

More than half of this profit came from the dealers' financing and insurance, or “F&I”, offices, which sell consumers financing and leasing, as well as add-on products and services such as vehicle service contracts.
28

22
U.S. Census Bureau,
All Sectors: County Business Patterns, including ZIP Code Business Patterns, by Legal Form of Organization and Employment Size Class for the U.S., States, and Selected Geographies: 2019, https://data.census.gov/cedsci/table?q=CBP2019.CB1900CBP&n=44111%3A44112&tid=CBP2019.CB1900CBP&hidePreview=true&nkd=EMPSZES~001,LFO~001
(listing 21,427 establishments for “new car dealers,” NAICS code 44111).

23
Edmunds,
Automotive Industry Trends | 2020
at 2,
https://static.ed.edmunds-media.com/unversioned/img/industry-center/insights/2020-automotive-trends.pdf.

24
Nat'l Auto. Dealers Ass'n,
NADA Data 2021
at 7,
https://www.nada.org/media/4695/download?inline.
New vehicle dealerships are also a significant source of used vehicles, having sold between 13.7 million and 14.9 million such vehicles per year over the past three years.
Id.
at 10 (graph of used-vehicle sales by new-vehicle dealerships, by year).

25

Id.
at 15 (listing average dealership advertising per new vehicle sold of $602).

26

Id.
at 16 (listing 63.6% of estimated advertising expenditures by medium as internet expenditures).

27
Nat'l Auto. Dealers Ass'n,
Average Dealership Profile
1 (2020),
https://www.nada.org/media/4136/download?attachment
.

28

Id.
(listing an average 6.3% gross as a percentage of the vehicle's selling price, and a 3.2% average F&I gross as a percentage of new-vehicle dept. sales). While many dealers have seen increased profits during the pandemic, to the extent some dealers may be profiting through unscrupulous practices, the proposed rule would help honest dealers compete on a level playing field.
See
Nora Eckert & Mike Colias,
Ford and GM Warn Dealers to Stop Charging So Much for New Cars,
Wall St. J. (Feb. 9, 2022),
https://www.wsj.com/articles/ford-gm-warn-dealers-charge-above-sticker-price-and-face-repercussions-11644323580
(discussing how many dealers have increased markups, including by requiring consumers to accept added fees and warranty protection as part of the asking price). Conditioning a vehicle sale or lease on the purchase of an add-on product or service is contrary to industry guidance.
See
Nat'l Auto. Dealers Ass'n et al.,
Voluntary Protection Products: A Model Dealership Policy
4 (2019),
https://www.nada.org/regulatory-compliance/voluntary-protection-products-model-dealership-policy
(stating dealerships should “prominently display to customers a poster stating that [add-on products and services] offered by the dealership are optional and are not required to purchase or lease a vehicle or obtain warranty coverage, financing, financing on particular terms, or any other product or service offered by the dealership.”).

There are more than 25,000 used motor vehicle dealerships across the country,
29

and used vehicle sales are nearly evenly split between new and used car dealerships.
30

Used vehicles sold by new-vehicle dealerships cost $24,542 on average.
31

These vehicles brought in an average gross profit of about $2,675 per vehicle, more than a third of which came from the F&I office.
32

Independent used vehicle dealerships sold an average of 684 vehicles per dealership in 2019, with an average gross profit of more than $6,000 per vehicle.
33

While some independent used vehicle dealerships do not have a separate F&I office, more than half of them sell add-on products.
34

29
U.S. Census Bureau,
All Sectors: County Business Patterns, including ZIP Code Business Patterns, by Legal Form of Organization and Employment Size Class for the U.S., States, and Selected Geographies: 2019, https://data.census.gov/cedsci/table?q=CBP2019.CB1900CBP&n=44111%3A44112&tid=CBP2019.CB1900CBP&hidePreview=true&nkd=EMPSZES~001,LFO~001
(listing 25,098 establishments for “used car dealers,” NAICS code 44112).

30
In 2020, 52.2% of used motor vehicle sales were by new car dealerships, while 47.8% were by independent used vehicle dealerships. Melinda Zabritski, Experian Info. Sol's, Inc.,
State of the Automotive Finance Market Q4
2020 at 32,
https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf.

31
Nat'l Auto. Dealers Ass'n,
NADA Data 2021: Midyear Report
10,
https://www.nada.org/media/4694/download?inline
.

32
Nat'l Auto. Dealers Ass'n,
Average Dealership Profile
1 (2020),
https://www.nada.org/media/4136/download?attachment
(listing an average 6.3% gross as a percentage of the vehicle's selling price, and a 3.2% average F&I gross as a percentage of new-vehicle dept. sales).

33
Nat'l Indep. Auto. Dealers Ass'n,
NIADA Used Car Industry Report 2020
at 21 (2020).

34

Id.
at 8, 10.

B. Motor Vehicle Financing and Leasing Overview

Consumers can finance the purchase or use of a vehicle in several ways. Those interested in purchasing a vehicle generally use either indirect financing or direct financing. Others—particularly those with thin or damaged credit—work with a so-called “buy here, pay here” dealership for financing, typically without the involvement of an outside financing entity.
35

Finally, some consumers opt to lease a vehicle rather than purchase it.
36

35
In some regions, “lease here, pay here” dealerships may provide leases to consumers through similar programs.

36
Melinda Zabritski, Experian Info. Sol's, Inc.,
State of the Automotive Finance Market Q4
2020 at 19,
https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf
(more than 72% of new vehicle financing in MI is for leases; the Northeast ranges from 43% in VT to 66% in NY; other states range from 45% (OH) to less than 4% (AR)).

Approximately 70 percent of consumers use dealer-provided indirect financing at the dealership.
37

In this scenario, the dealership collects financial information on the consumer and forwards that information to prospective financing entities. These financing entities, who work with the dealer, evaluate that information and in the process determine whether, and on what terms, to provide credit.
38

These terms include the “buy rate,” a risk-based finance charge that reflects the interest rate at which the entity will finance the deal.
39

Dealers often add a finance charge called a “dealer reserve” or “markup” to the buy rate.
40

Unlike the buy rate, the markup is not based on the underwriting risk or credit characteristics of the applicant.
41

37

See
Nat'l Auto. Dealers Ass'n,
Dealer-Assisted Financing Benefits Consumers, https://www.nada.org/autofinance/
(last visited Apr. 25, 2022) (noting 7 out of 10 consumers finance through their dealership). This is also known as “dealer financing,” because consumers obtain financing through the dealer that partners with other entities in the financing process.

38
Dealers often may originate the financing and then sell the financing agreements to third-parties.

39
Lesley Fair,
FTC says Bronx Honda discriminated against African-American and Hispanic consumers,
Fed. Trade Comm'n Business Blog (May 27, 2020),
https://www.ftc.gov/business-guidance/blog/2020/05/ftc-says-bronx-honda-discriminated-against-african-american-hispanic-consumers.

40

See, e.g.,
Nat'l Auto. Dealers Ass'n, Nat'l Ass'n of Minority Auto. Dealers & Am. Int'l Auto. Dealers Ass'n,
Fair Credit Compliance Policy & Program
1, n.4 & accompanying text,
https://www.nada.org/media/4558/download?inline
.

41

Id.
(describing this as the amount dealers earn for arranging financing, measured as the difference between the consumer's APR and the wholesale “buy rate” at which a finance source buys the finance contract from the dealer, and noting finance sources typically permit dealers to retain the dealer participation).

Alternatively, those who use direct financing apply for and obtain financing directly from a credit union, bank, or other financing entity.
42

These consumers typically receive an interest rate quote from the entity prior to arriving at a dealership to purchase a vehicle. Then, once these consumers agree to purchase a vehicle, they can use the financing from the entity to pay for the vehicle.
43

Dealerships do not profit on the financing portion of the transaction when a consumer arranges financing directly.

42
Consumer Fin. Prot. Bureau,
Automobile Finance Examination Procedures
4 (Aug. 2019),
https://files.consumerfinance.gov/f/documents/201908_cfpb_automobile-finance-examination-procedures.pdf.

43
Consumer Fin. Prot. Bureau,
Consumer Voices on Automobile Financing
5 (June 2016),
https://files.consumerfinance.gov/f/documents/201606_cfpb_consumer-voices-on-automobile-financing.pdf.

“Buy here, pay here” dealers typically finance their motor vehicle sales in-house rather than routinely assigning their financing to unaffiliated parties.
44

That means consumers borrow from and make their payments directly to the dealership. Interest rates for this financing are usually much higher than for direct or indirect financing,
45

and consumers default on this financing at

a high rate.
46

The dealer often performs its own collections and repossession operations when consumers fall behind. “Buy here, pay here” accounts for 6-8% of financing to purchase a vehicle.
47

44

See
Consumer Fin. Prot. Bureau,
Automobile Finance Examination Procedures
4 (Aug. 2019),
https://files.consumerfinance.gov/f/documents/201908_cfpb_automobile-finance-examination-procedures.pdf.
(“While most Buy-Here, Pay-Here (BHPH) dealers are independently owned entities that serve as the primary lender and servicer, some larger BHPH dealers sell or assign their contracts to an affiliated BHPH finance company once the contract has been consummated with the consumer.”)

45
As of 2017, interest rates at “buy here, pay here” dealerships averaged around 20%. Nat'l Indep. Auto Dealers Ass'n,
NIADA Used Car Industry Report 2019
at 14. In contrast, the average financing rate for used vehicles across the industry was 8.43% in the fourth quarter of 2020. Melinda Zabritski, Experian Info. Sol's, Inc.,
State of the Automotive Finance Market Q4
2020 at 38,
https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf.

46
For example, approximately 37.5% of “buy here, pay here” consumers defaulted in 2019. Nat'l Indep. Auto. Dealers Ass'n,
NIADA Used Car Industry Report 2020
at 13. The overall motor vehicle debt default rate was 4.94% in 2019. Zhu Wang, Fed. Rsrv. Bank of Richmond,
Coronavirus and Auto Lending: A Market Outlook
(Apr. 16, 2020),
https://www.richmondfed.org/-/media/RichmondFedOrg/research/economists/bios/pdfs/wang_covid19_paper.pdf.

47
Melinda Zabritski, Experian Info. Sol's, Inc.,
State of the Automotive Finance Market Q2
2020 at 8,
https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-q2-safm-final.pdf.

Leasing involves arranging to drive a vehicle for a set period of time—typically around three years
48

—and for a certain maximum number of miles—typically 10-15,000 miles per year—in exchange for an upfront payment, a monthly payment, and fees before, during, and at the end of the lease, including for excess wear and usage over the mileage limit.
49

When consumers lease a vehicle, they do not own it, and they must return the vehicle when the lease expires, though they may have the option to purchase the vehicle at the end of the lease period. Nearly 27% of new vehicles are leased, as are just over 8% of used vehicles.
50

48
Melinda Zabritski,
Experian Info. Sol's, Inc., State of the Automotive Finance Market Q4 2020
at 26,
https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf.

49

See
Fed. Trade Comm'n,
Financing or Leasing a Car, https://www.consumer.ftc.gov/articles/0056-financing-or-leasing-car
(last visited Apr. 25, 2022) (“The mileage limit in most standard leases is typically 15,000 or fewer per year”); Consumer Fin. Prot. Bureau,
What should I know about the differences between leasing and buying a vehicle?, https://www.consumerfinance.gov/ask-cfpb/what-should-i-know-about-the-differences-between-leasing-and-buying-a-vehicle-en-815/
(last visited Apr. 25, 2022) (“Most leases include mileage restrictions of 10,000-15,000 miles per year.”).

50
Melinda Zabritski, Experian Info. Sol's, Inc.,
State of the Automotive Finance Market Q4
2020 at 5,
https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf.

II. Deception and Unfairness in the Motor Vehicle Marketplace

For many consumers, buying or leasing a vehicle is a difficult and time-consuming experience. The process of shopping for a vehicle, conducting test drives, providing financing information, and completing stacks of paperwork at a dealership can take many hours or even days,
51

and can involve unfair or deceptive practices. The FTC received more than 100,000 complaints in each of the past three years regarding new and used motor vehicle sales, financing, service & warranties, and rentals & leasing, and complaints about motor vehicle transactions are regularly in the top ten complaint categories tracked by the agency.
52

51

Auto Buyer Study, supra
note 11, at 15 (finding the process of completing a vehicle purchase often took five hours or more, and sometimes several days);
Cf.
Cox Automotive, 2020 Cox Automotive Car Buyer Journey 5-6 (2020),
available at https://b2b.autotrader.com/app/uploads/2020-Car-Buyer-Journey-Study.pdf
(noting, on average, consumers spend 89 day in the market and 14 hours, 53 minutes shopping for a vehicle).

52

See, e.g.,
Fed. Trade Comm'n,
Consumer Sentinel Network Data Book 2021
at 7-8 & app. B3 at 85 (Feb. 2022),
https://www.ftc.gov/system/files/ftc_gov/pdf/CSN%20Annual%20Data%20Book%202021%20Final%20PDF.pdf
(listing motor vehicle-related complaints as the eighth most common report category in 2021, and reporting complaints about new and used motor vehicle sales, financing, service & warranties, and rentals & leasing, collectively, of more than 100,000 in 2019, 2020, and 2021).

The FTC uses its authority under Section 5 to stop deceptive and unfair acts or practices in the motor vehicle marketplace. A representation, omission, or practice is deceptive if it is likely to mislead consumers acting reasonably under the circumstances and is material to consumers—that is, it would likely affect the consumer's conduct or decisions with regard to a product or service.
53

Some deception cases involve omission of material information, the disclosure of which is necessary to prevent the claim, practice, or sale from being misleading.
54

Deceptive information distorts the marketplace and thus, these false and misleading statements are unlawful regardless of an intent to deceive.
55

53

See
Fed. Trade Comm'n,
FTC Policy Statement on Deception
2, 5, 103 F.T.C. 174 (1984) (
appended to Cliffdale Assocs., Inc.,
103 F.T.C. 110, 183 (1984)),
https://www.ftc.gov/system/files/documents/public_statements/410531/831014deceptionstmt.pdf.

54

Id.

55

In re Sears, Roebuck & Co.,
95 F.T.C. 406, 517 n.9 (1980) (citing
Regina Corp.
v.
FTC,
322 F.2d 765, 768 (3d Cir. 1963).

A practice is considered unfair under Section 5 if: (1) it causes, or is likely to cause, substantial injury; (2) the injury is not reasonably avoidable by consumers; and, (3) the injury is not outweighed by benefits to consumers or competition.
56

56
15 U.S.C. 45(n).

Chronic problems confronting consumers in the sales, financing, and leasing process include advertising misrepresentations and unlawful practices related to add-ons and deceptive pricing.
57

57
While other issues exist in the motor vehicle sales, financing, and leasing space, including issues involving discrimination, financing application falsification, data privacy and security, and yo-yo financing, this proposal's core focus is on misrepresentations and add-on and pricing practices.

A. Advertising Misrepresentations

Advertisements for motor vehicles are often consumers' first contact in the vehicle-buying or leasing process. Dealers utilize a variety of means to reach consumers, including television and radio commercials, social media and online advertisements, and direct mail marketing.

The FTC has brought many cases concerning misrepresentations regarding key pricing aspects of a vehicle purchase, including the price of the vehicle, the availability of discounts and rebates, the monthly payment amount for a financed purchase or lease, or the amount due at signing.
58

Other misrepresentations regarding financial terms that have been the subject of FTC complaints have included whether an offer pertains to a purchase or a lease
59

and whether the dealer or consumer is responsible for paying off “negative equity,”
i.e.,
the outstanding debt on a vehicle that is being traded in as part of another vehicle purchase.
60

And according to other FTC actions, some dealers have lured potential buyers through financial incentives incidental

to the purchase, such the promise of a valuable prize.
61

58
See Complaint,
In re Timonium Chrysler, Inc.,
No. C-4429 (F.T.C. Jan. 28, 2014) (alleging dealership advertised internet prices and dealer discounts but failed to disclose consumer would have to qualify for multiple rebates not generally available to them); Complaint,
In re Ganley Ford West, Inc.,
No. C-4428 (F.T.C. Jan. 28, 2014) (alleging dealership advertised discounts on vehicle prices, but failed to disclose discounts were only available on the most expensive models); Complaint,
In re Progressive Chevrolet Co.,
No. C-4578 (F.T.C. June 13, 2016) (alleging deceptive failure to disclose material conditions of obtaining the lease monthly payment in their online and print advertising).

59
See Complaint,
FTC
v.
Tate's Auto Ctr. of Winslow, Inc.,
No. 3:18-cv-08176-DJH at ¶¶ 38-46 (D. Ariz. July 31, 2018) (alleging company issued advertisements for attractive terms but concealed that the terms were only applicable to lease offers); Complaint,
United States
v.
New World Auto Imports, Inc.
No. 3:16-cv-02401-K at ¶¶ 36-38 (N.D. Tex. Aug. 18, 2016) (alleging misrepresentation that terms were for financing instead of leasing); Complaint,
FTC
v.
Universal City Nissan, Inc.,
No. 2:16-cv-07239 at ¶¶ 85-87 (C.D. Cal. Sept. 29, 2016) (alleging dealerships claimed consumers could finance the purchase of vehicles with attractive terms and buried disclosures indicating such terms were applicable to leases only).

60

Universal City Nissan,
No. 2:16-cv-07239 at ¶¶ 82-84 (C.D. Cal. Sept. 29, 2016) (alleging misrepresentation that dealer would pay off consumer's trade-in when in fact consumers were still responsible for outstanding debt on trade-in vehicles); Complaint,
In re TXVT Ltd. P'ship,
No. C-4508 at ¶¶ 17-19 (F.T.C. Feb. 12, 2015) (alleging failure to disclose in leasing advertising that the dealership would pay off the negative equity of consumers' trade in vehicle, when in fact, it was merely rolled into the financed amount for the consumer's newly financed vehicle).

61

See, e.g.,
Complaint,
FTC
v.
Traffic Jam Events, LLC,
No. 9395 at ¶¶ 12, 17-19 (F.T.C. Aug. 7, 2020); Complaint,
In re Fowlerville Ford, Inc.,
No. C-4433 at ¶¶ 4, 7-9 (F.T.C. Feb. 20, 2014).

Misleading advertisements can cause significant consumer harm, and reduce competition amongst law-abiding dealers. When dealerships advertise prices, discounts, or other terms that are not actually available to typical consumers, those consumers end up selecting that dealership instead of others and spending time visiting it and transacting with it under false pretenses.

B. Unlawful Practices Relating to Add-Ons and Deceptive Pricing

Another key consumer protection concern is the sale of “add-on” products and services in a deceptive or unfair manner. Commonly offered add-ons include extended warranties, service and maintenance plans, payment programs, guaranteed automobile or asset protection (“GAP” or “GAP insurance”), emergency road service, VIN etching and other theft protection devices, and undercoating. Individual add-ons can cost consumers thousands of dollars and can significantly increase the overall cost to the consumer in the transaction.

A significant consumer protection concern is consumers paying for add-ons without knowing about or expressly agreeing to them.
62

The protracted and paperwork-heavy vehicle-buying process can make it difficult for consumers to spot add-on charges, particularly when advertised prices do not mention add-ons.
63

If consumers are financing the vehicle, they then undergo a separate financing process, which can include wading through a thick stack of dense paperwork filled with fine print.
64

For example, according to an FTC complaint, consumers were required to complete a stack of paperwork that ran more than sixty pages and required more than a dozen signatures.
65

This paperwork can include hidden charges for add-on products and services, causing consumers to purchase those add-ons without knowing about or agreeing to them, or without knowing or agreeing to their costs, or other key terms.
66

Unscrupulous dealers are able to slip these additional costs past consumers unnoticed and into purchase contracts through a variety of means, including by not mentioning them at all,
67

or by focusing consumers' attention on other aspects of the complex transaction, such as monthly payments, which might increase only marginally with the addition of prorated add-on costs or even be made to decrease if the financing term is stretched out, while in fact these added costs can be considerable in aggregate.
68

Dealers

engaging in this type of conduct have targeted immigrants, communities of color, and servicemembers.
69

62

See
Nat'l Consumer Law Ctr.,
Auto Add-ons Add Up: How Dealer Discretion Drives Excessive, Inconsistent, and Discriminatory Pricing
(Oct. 11, 2017),
https://www.nclc.org/images/pdf/car_sales/report-auto-add-on.pdf
; Consumers for Auto Reliability and Safety, Comment Letter on Motor Vehicle Roundtables, Project No. P104811 at 2-3 (Apr. 1, 2012),
https://www.ftc.gov/sites/default/files/documents/public_comments/public-roundtables-protecting-consumers-sale-and-leasing-motor-vehicles-project-no.p104811-00108/00108-82875.pdf
(citing a U.S. Department of Defense data call summary that found the vast majority of military counselors have clients with auto financing problems and cited loan packing and yo-yo financing as the most frequent auto lending abuses affecting servicemembers); Adam J. Levitin,
The Fast and the Usurious: Putting the Brakes on Auto Lending Abuses,
108 Geo. L.J. 1257, 1265-66 (2020),
https://www.law.georgetown.edu/georgetown-law-journal/wp-content/uploads/sites/26/2020/05/Levitin_The-Fast-and-the-Usurious-Putting-the-Brakes-on-Auto-Lending-Abuses.pdf
(discussing “loan packing” as the sale of add-on products falsely represented as being required in order to obtain financing.); Complaint,
FTC
v.
Liberty Chevrolet, Inc.,
No. 1:20-cv-03945 at ¶¶ 12-19 (S.D.N.Y. May 21, 2020) (alleging deceptive and unauthorized add-on charges in consumers' transactions);
Universal City Nissan,
No. 2:16-cv-07329 at ¶¶ 59-64 (C.D. Cal. Sept. 29, 2016) (alleging deceptive and unauthorized add-on charges in consumers' transactions); Complaint,
In re TT of Longwood, Inc.,
No. C-4531 at ¶¶ 6, 9 (F.T.C. July 2, 2015) (alleging misrepresentations regarding prices for added features);
see also Auto Buyer Study, supra
note 11, at 14 (“Several participants who thought that they had not purchased add-ons, or that the add-ons were included at no additional charge, were surprised to learn, when going through the paperwork, that they had in fact paid extra for add-ons. This is consistent with consumers' experiencing fatigue during the buying process or confusion with a financially complex transaction, but would also be consistent with dealer misrepresentations.”).

63

Liberty Chevrolet
No. 1:20-cv-03945 (S.D.N.Y. May 21, 2020);
Universal City Nissan,
No. 2:16-cv-07329 (C.D. Cal. Sept. 29, 2016).

64

See, e.g., Buckle Up, supra
note 15, at 10-11 (noting the long, complex transaction process);
N. Am. Auto. Servs.,
No. 1:22-cv-0169 at ¶¶ 23-28 (N.D. Ill. Mar. 31, 2022) (same).

65

N. Am. Auto. Servs.,
No. 1:22-cv-0169 at ¶ 24 (N.D. Ill. Mar. 31, 2022);
see also Buckle Up, supra
note 15, at 10-11.

66

Liberty Chevrolet,
No. 1:20-cv-03945 at ¶¶ 17-19 (S.D.N.Y. May 21, 2020); The Road Ahead: Selling, Financing & Leasing Motor Vehicles,
https://www.ftc.gov/news-events/events-calendar/2011/08/road-ahead-selling-financing-leasing-motor-vehicles
; Dale Irwin, Slough Connealy Irwin & Madden LLC, Comment Letter on Public Roundtables: Protecting Consumers in the Sale and Leasing of Motor Vehicles, Project No. P104811, Submission No. 558507-00060 (Dec. 29, 2011),
available at https://www.regulations.gov/docket/FTC-2022-0036
(consumer protection lawyer noting “payment packing” among problems “that cry out for scrutiny and regulation); Michael Archer, Comment Letter on Public Roundtables: Protecting Consumers in the Sale and Leasing of Motor Vehicles, Project No. P104811, Submission No. 558507-00041 (Aug. 6, 2011),
available at https://www.regulations.gov/docket/FTC-2022-0036
(workshop panelist stating “I have seen cases wherein the dealer uses financing to pack in extra costs or to wipe out trade-in value.”); Comment Letter on Public Roundtables: Protecting Consumers in the Sale and Leasing of Motor Vehicles, Project No. P104811, Submission No. 558507-00027 (July 27, 2011),
available at https://www.regulations.gov/docket/FTC-2022-0036
(“Confusing or misleading sales terms Extra fees was added at the time of purchase and to this day I still do not understand what the fee was for, it made the payment higher.”); Carrie Ferraro, Legal Servs. of N.J, Comment Letter on Public Roundtables: Protecting Consumers in the Sale and Leasing of Motor Vehicles, Project No. P104811, Submission No. 558507-00061 (Dec. 29, 2011),
available at https://www.regulations.gov/docket/FTC-2022-0036
(citing dealers “engage[d] in packing” as a common consumer complaint received by LSNJ's legal advice hotline); Rosemary Shahan, Consumers for Auto Reliability and Safety, Comment Letter on Public Roundtables: Protecting Consumers in the Sale and Leasing of Motor Vehicles, Project No. P104811, Submission No. 558507-00069 (Jan. 31, 2012),
available at https://www.regulations.gov/docket/FTC-2022-0036
(noting “[m]any common auto scams do not generate complaints in proportion to how pervasive or costly the practices are, simply because the consumers generally remain unaware they have been scammed,” including as a result of “Loan packing”); Mary W. Sullivan, Matthew T. Jones & Carole L. Reynolds, Fed. Trade Comm'n,
The Auto Buyer Study: Lessons from In-Depth Consumer Interviews and Related Research, Supplemental Appendix: Redacted Interview Transcripts
(2020) [hereinafter
Auto Buyer Study: Appendix
],
https://www.ftc.gov/system/files/documents/reports/buckle-navigating-auto-sales-financing/bcpstaffreportautobuyerstudysuppappendix.pdf
(Study participant 169810 at 525 (consumer had “additional items” charges on contract that consumer could not identify); Study participant 188329 at 730, 740-42 (dealer did not tell consumer about GAP insurance or service contract but consumer was charged $599 and $1950 for those add-ons, respectively)); Press Release, N.Y. State Att'y Gen.,
A.G. Schneiderman Announces Nearly $14 Million Settlement With NYC And Westchester Auto Dealerships For Deceptive Practices That Resulted In Inflated Car Prices
(June 17, 2015),
https://ag.ny.gov/press-release/2015/ag-schneiderman-announces-nearly-14-million-settlement-nyc-and-westchester-auto
(“This settlement is part of the [New York] Attorney General's wider initiative to end the practice of “jamming,” or unlawfully charging consumers for hidden purchases by car dealerships.”).

67
Under the Truth in Lending Act (“TILA”) and its implementing Regulation Z, required add-on products and services must be factored into the APR and the finance charge disclosed during the transaction.
See
Sections 106, 107, and 128 of the TILA (15 U.S.C. 1605, 1606 and 1638) and §§ 226.4, 226.18(b), (d), and (e), and 226.22 of Regulation Z (12 CFR 226.4, 226.18(b), (d) and (e), and 226.22). It is legally impermissible for dealers to include charges for such products into a consumer's contract without disclosing them under TILA.
See, e.g.,
Complaint,
FTC
v.
Stewart Fin. Co. Holdings, Inc.,
No. 103CV-2648 at ¶¶ 57-60 (N.D. Ga. Sept. 4, 2003) (alleging violations for failure to include the cost of required add-on products in the finance charge and annual percentage rate disclosed to consumers).

68

See, e.g., Buckle Up, supra
note 15, at 6; Military Consumer Financial Workshop (July 19, 2017),
https://www.ftc.gov/news-events/events-calendar/military-consumer-workshop;
The Road Ahead: Selling, Financing & Leasing Motor Vehicles, Fed. Trade Comm'n (Aug. 2011) (Public Roundtables) (Session 2 transcript at 40-41) (noting optional products and services are often already included in the monthly payment prices advertised or quoted); Christopher Kukla, Ctr. for Responsible Lending, Comment Letter on Public Roundtables: Protecting Consumers in the Sale and Leasing of Motor Vehicles, Project No. P104811, Submission No. 558507-00071 (Feb. 2, 2012),

available at

https://www.regulations.gov/docket/FTC-2022-0036

(discussing how dealers conceal loan packing by expressing an increase in price in terms of monthly payment); Att'ys General of 31 States & DC, Comment Letter on Public Roundtables: Protecting Consumers in the Sale and Leasing of Motor Vehicles, Project No. P104811, Submission No. 558507-00112 at 5 (Apr. 13, 2012),
available at https://www.regulations.gov/docket/FTC-2022-0036
(discussing the “age-old auto salesperson's trick” of quoting monthly payment prices without disclosing the quote includes the cost of optional items the customer has not yet agreed to purchase).

69

Liberty Chevrolet,
No. 1:20-cv-03945 at ¶¶ 9, 26 (S.D.N.Y. May 21, 2020); Press Release, N.Y. State Att'y Gen.,
Attorney General James Delivers Restitution to New Yorkers Cheated by Auto Dealership
(Nov. 17, 2020),
https://ag.ny.gov/press-release/2020/attorney-general-james-delivers-restitution-new-yorkers-cheated-auto-dealership
(dealership targeted Chinese-speakers for unlawful payment packing); Military Consumer Financial Workshop (July 19, 2017),
https://www.ftc.gov/news-events/events-calendar/military-consumer-workshop
(panelist discussing servicemembers experiencing payment packing at 19:21);
see also
Fed. Trade Comm'n,
Staff Perspective: A Closer Look at the Military Consumer Financial Workshop
2-3 (Feb. 2018),
https://www.ftc.gov/system/files/documents/reports/closer-look-military-consumer-financial-workshop-federal-trade-commission-staff-perspective/military_consumer_workshop_-_staff_perspective_2-2-18.pdf
(explaining the unique situation of servicemembers as having steady paychecks that make them attractive customers for dealers, while having no or minimal credit history means they qualify for less advantageous credit terms and higher interest rate financing).

In other instances, dealers might wait until late in the transaction to mention add-ons, and then do so in a misleading manner. For example, according to an FTC study, there were situations where dealers waited until the financing stage to mention add-ons, after consumers believed they had agreed on terms, and even though many add-ons have nothing to do with financing and were not mentioned at all during the sales process or when prices were initially negotiated.
70

According to FTC enforcement actions, dealers also have represented that add-ons are required when in fact they are not,
71

have misrepresented the purported benefits of add-ons, and have failed to disclose material limitations.
72

70

See, e.g., Buckle Up, supra
note 15, at 6 (observing that the introduction of “add-ons during financing discussions caused several participants' total sale price to balloon from the cash price”) &
id.
at 9 (observing for most consumers in the study, “add-ons did not come up until the financing process, if at all, after a long car-buying process and at a time when the consumer often felt pressure to close the deal”) &
id.
at 8-9 (noting most study participants' contracts included add-ons charges, but many “were unclear what those add-ons included, and sometimes did not realize they had purchased any add-ons at all”) &
id.
at 7 (explaining situations where the consumer reached the financing office after negotiating with the sales staff, and were then told the agreed upon price was not compatible with key financing terms—for example, a promised rebate or discount could not be combined with an advertised interest rate);
Liberty Chevrolet,
No. 1:20-cv-03945 at ¶ 17 (S.D.N.Y. May 21, 2020).

71

Liberty Chevrolet,
No. 1:20-cv-03945 at ¶¶ 12-19 (S.D.N.Y. May 21, 2020) (alleging deceptive and unauthorized add-on charges in consumers' transactions);
Universal City Nissan,
No. 2:16-cv-07329 at ¶¶ 59-64 (C.D. Cal. Sept. 29, 2016) (deceptive and unauthorized add-on charges in consumers' transactions);
TT of Longwood,
No. C-4531 at ¶¶ 6, 9 (F.T.C. July 2, 2015) (misrepresentations regarding prices for added features);
see also Auto Buyer Study, supra
note 11, at 14 (“Several participants who thought that they had not purchased add-ons, or that the add-ons were included at no additional charge, were surprised to learn, when going through the paperwork, that they had in fact paid extra for add-ons. This is consistent with consumers' experiencing fatigue during the buying process or confusion with a financially complex transaction, but would also be consistent with dealer misrepresentations.”).

72
Complaint,
Nat'l Payment Network, Inc.,
No. C-4521 at ¶¶ 4-14 (F.T.C. May 4, 2015) (alleging failure to disclose fees associated with financing program; misleading savings claims in advertisements); Complaint,
Matt Blatt, Inc.,
No. C-4532 at ¶¶ 4-13 (F.T.C. May 4, 2015) (alleging failure to disclose fees associated with financing program; misleading savings claims);
Buckle Up, supra
note 15, at 10 (noting some
Auto Buyer Study
participants did not fully understanding material aspects of extended warranties or service plans they purchased and “were surprised to discover during the interview that their plans had unexpected limitations” or “they had to pay out-of-pocket for repairs or services that were not covered”; for example, one “consumer purchased a `Lifetime' maintenance plan, only to discover later that he received a one-year plan that covered periodic oil changes”).
Cf.
Consent Order,
Santander Consumer USA, Inc.,
CFPB No. 2018-BCFP-0008 at ¶¶ 10-16 (Nov. 20, 2018) (finding defendant sold GAP product allegedly providing “full coverage” to consumers with loan-to-value ratios (“LTVs”) above 125%, when in fact coverage is limited to 125% of LTV).

Indeed, in a recent enforcement proceeding brought by the FTC, the agency cited a survey finding that 83% of consumers from ten dealership locations within the same motor vehicle dealership group—the thirteenth largest dealership group in the country in 2020, as ranked by total revenue—were charged for add-on products or services that they did not authorize or as a result of deceptive claims that they were required to purchase them.
73

73

N. Am. Auto. Servs.,
No. 1:22-cv-0169 at ¶ 27 (N.D. Ill. Mar. 31, 2022); WardsAuto,
WardsAuto 2020 Megadealer 100, https://www.wardsauto.com/dealers/wardsauto-2020-megadealer-100-industry-force
(last visited Apr. 25, 2022) (listing Napleton Automotive Group at the 13th-ranked dealership group by total revenue).

One participant in an FTC qualitative study of consumers' car buying experiences summed up these issues during an interview after having purchased a vehicle. The consumer purchased a $2,000 service contract that the dealer falsely said was free, and a $900 GAP insurance contract that the dealer falsely said was mandatory, and learned about these purchases during the study interview. This consumer remarked:

I feel I've been taken advantage of, to be honest with you. Even though I thought that I was getting a great deal with the interest rate, but I now see that they're also very sneaky about putting stuff on your paperwork. They only let you skim through the paperwork that you have to sign and they just kind of tell you what it is. This is this, this is that, this is this, and then you just sign it away. You're so tired, you're so worn down, you don't want to be there no more. You just want to get it done and over with. They take advantage of that. Yes, they still play this friendly card, you know, thank you for your business card kind of thing. Like I said, they never lose. They never lose.
74

74

Auto Buyer Study: Appendix, supra
note 66 (Study participant 152288 at 130;
see also
Study participant 180267 at 202 (dealership included a charge for GAP insurance in the final paperwork but not in retail sales contract); Study participant 146748 at 296 (consumer learned during interview with FTC that consumer purchased GAP insurance: “maybe they're just throwing that in there without telling you.”)).

III. Law Enforcement Actions and Other Responses

To address these types of unfair and deceptive practices in the motor vehicle industry, the Commission has brought enforcement actions and engaged in other efforts. In the last ten years, the Commission has brought more than fifty law enforcement actions and led two law enforcement sweeps to protect consumers in the motor vehicle marketplace, including one that involved 181 state enforcement actions.
75

75
Fed. Trade Comm'n, Enforcement Cases Tagged with Automobiles,
https://www.ftc.gov/legal-library/browse/cases-proceedings?sort_by=field_date&items_per_page=20&search=&field_competition_topics=All&field_consumer_protection_topics=All&field_federal_court=All&field_industry=1382&field_case_status=All&field_enforcement_type=All&search_matter_number=&search_civil_action_number=&start_date=&end_date=
(last visited Apr. 25, 2022); Press Release, Fed. Trade Comm'n,
FTC Announces Sweep Against 10 Auto Dealers
(Jan. 9, 2014),
https://www.ftc.gov/news-events/press-releases/2014/01/ftc-announces-sweep-against-10-auto-dealers
; Press Release, Fed. Trade Comm'n,
Multiple Law Enforcement Partners Announce Crackdown on Deception, Fraud in Auto Sales, Financing and Leasing
(Mar. 26, 2015),
https://www.ftc.gov/news-events/press-releases/2015/03/ftc-multiple-law-enforcement-partners-announce-crackdown.

To complement its law enforcement efforts, the FTC's Bureau of Consumer Protection and the Bureau of Economics recently published two reports on the results of a qualitative study on consumer experiences while purchasing a motor vehicle.
76

The study found that many participating consumers were left in the dark about key terms. Consumers

recalled dealers renegotiating vehicle prices at different stages of the transaction and being confused about the price of the vehicle.
77

Despite the lengthy transaction, many study participants felt review of the final documents was rushed and were surprised to learn of additional add-on charges in their contracts.
78

76

Buckle Up, supra
note 15;
Auto Buyer Study, supra
note 11.

77

Buckle Up, supra
note 15, at 5-7.

78

Buckle Up, supra
note 15, at 9.

These are long-standing issues.
79

In 2011, the agency reached out to consumers through three motor vehicle roundtable events, reviewing over 100 comments from industry representatives, consumer advocates, and state enforcement agencies, among others who attended.
80

Through these events and comments, consumers expressed confusion regarding aspects of the financing process and commented that they were surprised when they reached the dealership that the price advertised was not available to them.
81

79

See
The Road Ahead: Selling Financing, and Leasing Motor Vehicles, Transcript: Session 2, Washington DC (Nov. 2011), pp. 19-23.

80
The FTC hosted three roundtable events requesting public comments to gather information about possible consumer protection issues that may arise in the sale, financing, and leasing of motor vehicles. These events took place from April to November 2011 in Detroit, Austin, and Washington DC. The Road Ahead: Selling Financing, and Leasing Motor Vehicles (Apr. 2011, Aug. 2011, and Nov. 2011),
https://www.ftc.gov/news-events/events-calendar/2011/08/road-ahead-selling-financing-leasing-motor-vehicles.

81

See
Comment Letters on Public Roundtables: Protecting Consumers in the Sale and Leasing of Motor Vehicles, Project No. P104811, Submission Nos. 558507-00015, 558507-00026, 558507-00046, 558507-00051, 558507-00094, 558507-00099,
available at https://www.regulations.gov/docket/FTC-2022-0036
; Consumers for Auto Reliability and Safety, Comment Letter on Public Roundtables: Protecting Consumers in the Sale and Leasing of Motor Vehicles, Project No. P104811 at 5 (Apr. 1, 2012),
https://www.ftc.gov/sites/default/files/documents/public_comments/public-roundtables-protecting-consumers-sale-and-leasing-motor-vehicles-project-no.p104811-00108/00108-82875.pdf
(noting military command has gone as far as banning servicemembers from conducting business from certain auto dealerships because of “abusive auto sales and financing practices.”).

The Commission's law enforcement partners have also brought actions addressing unfair and deceptive practices in the motor vehicle industry. For example, the Consumer Financial Protection Bureau has taken action against third-party motor vehicle financing entities in matters that raise similar, and sometimes identical, claims of deceptive and unfair practices as were at issue in FTC cases.
82

82
The Consumer Financial Protection Bureau has brought at least 16 enforcement actions involving motor vehicles, financing, or add-on products and services.
See Santander Consumer USA Inc.,
No. 2020-BCFP-0027 at ¶¶ 8-50 (Dec. 22, 2020) (finding auto finance company provided inaccurate records to credit reporting agencies);
Nissan Motor Acceptance Corp.,
No. 2020-BCFP-0017 at ¶¶ 46-52 (Oct. 13, 2020) (finding auto finance company misrepresented financing extension agreements, repossessions, and limitations to consumer bankruptcy protections);
Lobel Fin. Corp.,
No. 2020-BCFP-0016 at ¶¶ 8-22 (Sept. 21, 2020) (finding auto-loan servicer charged consumers unfair add-on charges in the form of Loss Damage Waiver premiums);
Santander Consumer USA Inc.,
No. 2018-BCFP-0008 at ¶¶ 6-30 (Nov. 20, 2018) (finding auto finance company sold GAP to consumers with LTV over 125%, misrepresenting such consumers would be fully covered with total loss);
Wells Fargo Bank, N.A.,
No. 2018-BCFP-0001 at ¶¶ 27-39 (Apr. 20, 2018) (finding bank imposed duplicative or unnecessary forced-placed auto loan insurance on consumers);
Toyota Motor Credit Corp.,
No. 2016-CFPB-0002 at ¶¶ 12-23 (Feb. 2, 2016) (finding auto finance company engaged in discriminatory pricing markup for motor vehicle financing, without regard to credit worthiness);
Y King S. Corp.,
No. 2016-CFPB-0001 at ¶¶ 73-75 (Jan. 21, 2016) (finding used car dealer failed to disclose mandatory add-ons as financing charge);
Interstate Auto Grp., Inc. & Universal Acceptance Corp.,
No. 2015-CFPB-0032 at ¶¶ 12-51 (Dec. 17, 2015) (finding dealership and financing company reported information they knew or had reasonable cause to believe was inaccurate to credit reporting entities, harming consumer credit);
Westlake Servs., LLC,
No. 2015-CFPB-0026 at ¶¶ 7-90 (Sept. 30, 2015) (finding indirect auto financing entity used illegal debt collection tactics);
Fifth Third Bank,
No. 2015-CFPB-0024 at ¶¶ 8-23 (Sept. 28, 2015) (finding discrimination against loan applicants in credit applications based on characteristics such as race and national origin);
Am. Honda Fin. Corp.,
No. 2015-CFPB-0014 ¶¶ at 9-24 (Jul. 14, 2015) (same);
DriveTime Auto Grp., Inc.,
No. 2014-CFPB-0017 at ¶¶ 4-60 (Nov. 19 2014) (finding buy-here-pay-here dealership made harassing debt collection calls and provided inaccurate credit information to credit reporting agencies);
First Investor Fin. Servs. Grp., Inc.,
No. 2014-CFPB-0012 at ¶¶ 4-37 (Aug. 20, 2014) (finding auto financing company provided inaccurate records to credit reporting agencies);
Ally Fin. Inc.,
No. 2013-CFPB-0010 at ¶¶ 7-27 (Dec. 20, 2013) (finding auto lender charged discriminatory pricing to African-American, Hispanic, and Asian and Pacific Islander borrowers);
U.S. Bank Nat'l Ass'n,
No. 2013-CFPB-0004 at ¶¶ 14-28 (June 26, 2013) (finding bank failed to properly disclose all the fees charged to participants in the companies' Military Installment Loans and Educational Services auto loans program, and misrepresented the true cost and coverage of add-on products financed along with the auto loans);
Dealers' Fin. Servs., LLC,
No. 2013-CFPB-0004 at ¶¶ 10-22 (June 2013) (finding financing company made deceptive statements regarding the cost of add-on products and the scope of coverage of the Vehicle Service Contract).

States have also taken measures to address consumer protection issues in the motor vehicle industry. In addition to participating in law enforcement sweeps with the FTC,
83

state regulators and Attorneys General have independently filed more than 200 actions alleging deceptive and unlawful conduct by motor vehicle dealerships across the country.
84

83
Operation Steer Clear and Operation Ruse Control brought with state law enforcement partners around the nation and Canada, encompassed over 246 enforcement actions. Press Release, Fed. Trade Comm'n,
Multiple Law Enforcement Partners Announce Crackdown on Deception, Fraud in Auto Sales, Financing and Leasing
(Mar. 26 2015),
https://www.ftc.gov/news-events/press-releases/2015/03/ftc-multiple-law-enforcement-partners-announce-crackdown.

84
For example, in a recent action, California Attorney General's office sued a dealership chain under state consumer protection laws for deceiving consumers about add-on product charges and misrepresenting consumers' income on credit applications; the alleged practices specifically targeted low-income consumers with subprime credit.
People of the State of California
v.
Paul Blanco's Good Car Co. Auto Grp.,
No. RG19036081 (Alameda County Super. Ct. Sept. 2019).

Some states have also taken legislative or regulatory action.
85

For example, to “ensure that dealers do not add in hidden or undisclosed costs after the price for a vehicle has been advertised,” Oregon promulgated a rule that requires dealerships to state an “offering price” which is the actual offer and amount the consumer can pay to own the vehicle, excluding only taxes, license, registration costs, environmental fees, and a document processing fee.
86

California and Wisconsin have similarly enacted codes that make it unlawful for dealerships to advertise a total price without including additional costs to the purchaser outside the mandatory tax, title, and registration fees.
87

Other states, like Indiana, have enacted codes that prohibit the sale of add-ons in certain circumstances.
88

85

See, e.g.,
Cal. Veh. Code sec. 11713.1(b)-(c); Or. Admin. R. 137-020-0020(3)(c); Wis. Admin. Code. Trans 139.03(3).

86
Or. Admin. R. 137-020-0020(3)(c); Official Commentary, Or. Admin. R. 137-020-0020(3)(c).

87
Cal. Veh. Code sec. 11713.1(b)-(c); Wis. Admin. Code. Trans 139.03(3).

88
Ind. Code sec. 24-4.5-3-202 (3)(e)(ix) (2018) (prohibiting the sale of any GAP program when the LTV <80%).

IV. Section-by-Section Analysis

Based on its enforcement and other experience, the Commission proposes specific legal restrictions to address deceptive and unfair conduct by motor vehicle dealers. Thus, the Commission is proposing a rule requiring dealers, whether acting directly or indirectly, to refrain from misrepresentations, provide for material disclosures at key points in the transaction, refrain from the sale of deceptive or unfair add-on products, and require retention of dealers' advertisements and consumer transaction documents.

While the proposed rule is an important step in the effort to prevent harm to consumers in the motor vehicle marketplace, a comprehensive approach is needed to address the important consumer protections at issue. Therefore, in addition to this rulemaking initiative, the Commission intends to continue law enforcement, as well as its consumer education and other efforts, to ensure that consumers can make informed decisions about

purchasing, financing, and leasing motor vehicles. The Commission also intends to continue its constructive engagement with consumer and dealer groups and other stakeholders.

The Commission invites written comments on the proposed rule, and, in particular, answers to the specific questions set forth below.

A. Section 463.1: Authority

Proposed § 463.1 identifies the statutory authority under which the Commission proposes to promulgate this Rule to prevent unfair or deceptive acts or practices in connection with the sale, lease, or financing of motor vehicles.

B. Section 463.2: Definitions

Proposed § 463.2 contains definitions for the following terms: “Add-on” or “Add-on Product(s) or Service(s),” “Add-on List,” “Cash Price without Optional Add-ons,” “Clearly and Conspicuously,” “Dealer” or “Motor Vehicle Dealer,” “Express, Informed Consent,” “GAP Agreement,” “Government Charges,” “Material” or “Materially,” “Motor Vehicle,” and “Offering Price.” Each of these terms is used in the proposed rule.

C. Section 463.3: Prohibited Misrepresentations

Section 463.3 of the proposed rule would prohibit motor vehicle dealers from making certain misrepresentations, to address the deceptive practices surrounding motor vehicle transactions discussed above and emerging from the landscape of enforcement actions, workshops, industry and consumer studies, and consumer interviews and complaints. As discussed in Section III above, a representation, omission, or practice is deceptive if it is likely to mislead consumers acting reasonably under the circumstances and is material to consumers.
89

89
See
supra
note 53 (citing FTC Policy Statement on Deception).

This section seeks to prohibit deceptive representations to consumers, clarify dealers' obligations under the law, and ensure that motor vehicle dealers compete on a level playing field. The prohibited misrepresentations in this section of the proposed rule are material because they are likely to affect a consumer's choices, such as whether to visit a particular dealership or enter into a transaction.
90

These misrepresentations also harm consumers and divert business from reputable dealerships that provide truthful advertising to consumers. Consumers who select and travel to dealerships based on an advertised offer, only to learn late in the process (if at all) that the advertised offer does not apply, have often spent hours trying to purchase a car. Even if they notice and successfully resist later-added fees, or leave after learning that advertised discounts and rebates do not apply to them, misleading advertisements cause them to waste hours driving to and visiting the dealership.
91

For many consumers, however, walking away is not a realistic option—for example, restarting the hours-long process at another dealership might mean having to take an additional day off work, and for those who cannot afford a second car, finding other means of transportation to travel to another dealership. Thus, even if they somehow learn that they are paying more than what was advertised, consumers might just sign the deal rather than start the entire process anew. In other instances, as discussed below, consumers learn that they did not receive the offer as represented only after they enter into the contract and end up spending hundreds or even thousands of dollars more than they were led to believe.

90
As noted above, “material”—as used in the proposed rule and throughout this Notice of Proposed rulemaking—means likely to affect the consumer's conduct or decisions with regard to a product or service.
See supra
note 53 (citing FTC Policy Statement on Deception);
In re Sanctuary Belize Litig.,
482 F. Supp. 3d 373, 397 (D. Md. 2020) (“Representations with respect to . . . [a product's] cost are also presumptively material.”) (citing
In re Thompson Med. Co., Inc.,
104 F.T.C. 648 (1984));
see also FTC
v.
Crescent Pub. Grp., Inc.,
129 F. Supp. 2d 311, 321 (S.D.N.Y. 2001).

91

See, e.g.,
Matthew Jones, Bruce Kobayashi & Jason O'Connor,
Economics at the FTC: Non-Price Merger Effects and Deceptive Automobile Ads
12-26 (2018),
also published at
53 Rev. Indust. Org. 593 (2018),
https://www.ftc.gov/system/files/documents/reports/economics-ftc-non-price-merger-effects-deceptive-automobile-ads/1812-be-rio.pdf
(developing and discussing a model for quantifying the consumer injury from deceptive motor vehicle ads, in which injury occurs because such ads persuade consumers “to spend time and effort to visit the dealership, when they might otherwise have pursued a legitimate offer elsewhere”).

Section 463.3(a) of the proposed rule would prohibit misrepresentations concerning “[t]he costs or terms of purchasing, financing, or leasing a vehicle.” This provision would bar deceptive practices surrounding, among other things, the total cost, price for added features, other charges, terms and finality of financing, and availability of discounts.
92

The cost or price of a vehicle is material—it is likely to affect a consumer's conduct, including whether to purchase a particular vehicle at a particular dealership.

92

See, e.g., Liberty Chevrolet,
No. 1:20-cv-03945 at ¶¶ 10-11 (S.D.N.Y. May 21, 2020) (alleging false ads stating a certain price but charging consumers higher prices);
Tate's Auto Ctr.,
No. 3:18-cv-08176-DJH at ¶¶ 38-46 (D. Ariz. July 31, 2018) (alleging false ads touting attractive terms but concealing (i) ads were for lease offers only and required substantial initial payment, (ii) discounts were subject to material limitations, or (iii) other legally required disclosures); Complaint,
In re Cowboy AG, LLC,
No. C-4639 at ¶¶ 7-16 (F.T.C. Jan. 4, 2018) (alleging false ads touting attractive terms, but concealing substantial down payments, offers were for leases and not purchases, material eligibility restrictions, and other legally required disclosures);
Universal City Nissan,
No. 2:16-cv-07329 (C.D. Cal. Sept. 29, 2016) (alleging misrepresentation of lease, credit, or purchase terms; lease terms were for purchases; add-ons were authorized, free, or required; and the finality of financing transactions or consequences when financing falls through. Failing to disclose TILA/CLA trigger terms); Complaint,
In re Jim Burke Automotive, Inc.,
No. C-4523 at ¶¶ 6-14 (F.T.C. May 4, 2015) (alleging misrepresentations regarding vehicle purchase price and promising prices and discounts not generally available to consumers); Complaint,
In re City Nissan, Inc.,
No. C-4524 at ¶¶ 8-10, 12 (F.T.C. May 4, 2015) (alleging misrepresentations regarding lease and finance terms);
TT of Longwood,
No. C-4531 at ¶¶ 6-12 (F.T.C. July 2, 2015) (alleging misrepresentations regarding vehicle purchase price and prices for added features, promising prices and discounts not generally available to consumers, and misrepresentations regarding finance and lease terms); Complaint,
In re Courtesy Auto Grp., Inc.,
No. 9359 at ¶¶ 5-7 (F.T.C. Jan. 7, 2014) (alleging misrepresentation regarding lease terms); Complaint,
In re New World Auto Imports, Inc.,
No. C-4437 at ¶¶ 8-11 (F.T.C. Feb. 20, 2014) (alleging misrepresentations regarding monthly finance payments and lease terms); Complaint,
In re Ramey Motors, Inc.,
No. C-4354 at ¶¶ 4-5 (F.T.C. Apr. 19, 2012) (alleging false ads promising to pay off consumers' existing motor vehicle debt and failing to disclose legally required financing terms); Complaint,
In re Billion Auto, Inc.,
No. C-4356 at ¶¶ 4-6 (F.T.C. May 1, 2012) (alleging false ads promising to pay off consumers' existing motor vehicle debt and failing to disclose legally required financing and leasing terms.);
see also Buckle Up, supra
note 15, at 5 (noting “[a]dvertisements with misleading financing terms (as well as those with deceptive price and discount offers) remain a concern, and stating “[d]ealers should make only accurate and non-misleading advertising claims to consumers, advertise terms that are actually available, and clearly and conspicuously disclose material qualifications or limitations on any advertised deal”);
Auto Buyer Study, supra
note 11, at 14 (noting, in a 2016 study by the Consumer Financial Protection Bureau, “consumers reported that lenders insisted that the purchase of add-ons were necessary for the financing to be approved”).

Section 463.3(b) of the proposed rule would prohibit misrepresentations concerning any “costs, limitation, benefit, or any other Material aspect of an Add-on Product or Service.” As discussed above, add-ons are a particularly problematic area in auto sales and financing. The cost and coverage of an add-on is likely to affect a consumer's conduct, including the consumer's decision to purchase the product or service.

Section 463.3(c) of the proposed rule would prohibit misrepresentations regarding “[w]hether the terms are, or transaction is, for financing or a lease.” If a dealer advertises vehicles for low monthly payments or other terms that

apply in financing offers, but the offer is actually for a lease only, that conduct misleads consumers.
93

These representations are likely to affect consumers' conduct, including by causing consumers to enter into a monetary transaction for a product they do not want (borrowing instead of owning), or, if the true circumstances are revealed prior to consummation of the transaction, to waste time traveling to the dealership and potentially spending hours on the sales floor and financing office.

93

See Tate's Auto Ctr.,
No. 3:18-cv-08176-DJH at ¶¶ 38-39 (D. Ariz. July 31, 2018) (alleging false ads touting attractive terms but concealing ads were for lease offers only); Complaint,
In re TC Dealership, L.P.,
No. C-4536 at ¶¶ 10, 13 (F.T.C. Aug. 13, 2015) (same);
Cowboy AG, LLC,
No. C-4639 at ¶¶ 9-12 (F.T.C. Jan. 4, 2018) (same);
New World Auto Imports,
No. 3:16-cv-02401-K at ¶¶ 36-38 (N.D. Tex. Aug. 18, 2016) (alleging misrepresentation that terms were for financing instead of leasing);
Universal City Nissan,
No. 2:16-cv-07329 at ¶¶ 28-37, 44 (C.D. Cal. Sept. 29, 2016) (alleging advertisements with key terms that were not generally available).

Section 463.3(d) of the proposed rule would prohibit misrepresentations concerning “[t]he availability of any rebates or discounts that are factored into the advertised price but not available to all consumers.” When dealers advertise rebates and discounts, or offer prices that factor in such rebates and discounts, but in fact those rebates and discounts are not available to the typical consumer, but only a select set of customers, such conduct induces the consumer to select and transact with the dealer under false pretenses.
94

In other instances, the advertised rebates and discounts might apply only to the most expensive versions of the make and model.
95

Consumers may learn they do not qualify for these advertised rebates or discounts, if at all, only after they spend time traveling to the dealership or at the end of the financing stage.
96

94

See Tate's Auto Ctr.,
No. 3:18-cv-08176-DJH, ¶¶ 41-43 (D. Ariz. July 31, 2018) (alleging false ads touting attractive terms and discounts but concealing material limitations); Complaint,
In re JS Autoworld, Inc.,
No. C-4535 at ¶¶ 8-9 (F.T.C. Aug. 13, 2015) (alleging false ads touting prices but concealing discounts with material eligibility limitations);
TC Dealership, L.P.,
No. C-4536 at ¶¶ 7-9 (F.T.C. Aug. 13, 2015) (alleging false ads touting attractive prices but concealing discounts were subject to material eligibility limitations and trade-in requirement);
TXVT Ltd. P'ship,
No. C-4508 at ¶ 14 (F.T.C. Feb. 12, 2015) (alleging false ads failed to disclose that it would match consumers' income tax refunds only up to $1,000);
Timonium Chrysler,
No. C-4429 at ¶¶ 4-5 (F.T.C. Jan. 28, 2014) (alleging false ads touting pricing and discounts but concealing material qualifications and restrictions);
TT of Longwood,
No. C-4531 at ¶¶ 6, 9 (F.T.C. July 2, 2015) (alleging promises of prices and discounts not generally available to consumers);
Jim Burke Automotive,
No. C-4523 at ¶¶ 6-13 (F.T.C. May 4, 2015) (alleging promises of prices and discounts not generally available to consumers);
see also Auto Buyer Study, supra
note 11, at 8 (“A number of [study] participants were attracted by promotional offers in ads that they did not qualify for, but did not realize that they did not qualify until they got to the dealer. Some did not learn that they did not qualify until they got to the financing stage of the transaction.”).

95

Ganley Ford West,
No. C-4428 at ¶ 5 (F.T.C. Jan. 28, 2014) (alleging false ads touting price discount but concealing offer was limited to certain high-end models).

96
For example, one consumer had reached a three-year financing agreement with the dealership salesman over the phone, which would include a $4,300 rebate to reduce their purchase price, only to walk into the dealership and be told at the financing office the rebates were only offered with seven-year financing agreements.
Auto Buyer Study, supra
note 11, at Supp. Appx 90-91.

Section 463.3(e) and (f) of the proposed rule would prohibit misrepresentations surrounding “[t]he availability of vehicles at an advertised price” and representations that a consumer has been or will be “preapproved or guaranteed for any product, service, or term.” This provision would prohibit dealers from first touting low prices or other attractive terms for specific vehicles and inducing consumers to spend time traveling to the dealership and pursuing the offer, but then claiming, among other things, that the advertised vehicle is no longer available, no longer available at the advertised price, or that the financing offer is only available to those with high credit scores.
97

To the extent that dealers are advertising prices, preapprovals, guaranteed rates, or other terms for military consumers, but then charging the same prices to other consumers or otherwise failing to honor the deal, the proposed rule would cover such conduct as well. This information is material because it is likely to affect consumers' conduct, including whether to spend time traveling to a particular dealership and pursuing a specific offer on a specific car.

97

Liberty Chevrolet,
No. 1:20-cv-03945 at ¶¶ 10-11 (S.D.N.Y. May 21, 2020) (alleging false ads stating a certain price but then charging consumers higher prices than advertised);
Tate's Auto Ctr.,
No. 3:18-cv-08176-DJH at ¶¶ 41-43 (D. Ariz. July 31, 2018) (alleging false ads touting attractive terms but concealing discounts were subject to material limitations); Complaint,
Cowboy AG,
No. C-4639 at ¶¶ 7-14 (F.T.C. Jan. 4, 2018) (alleging false ads touting attractive terms but concealing material eligibility restrictions and certain advertised vehicles not available for sale); Complaint,
FTC
v.
Norm Reeves, Inc.,
No. 8:17-cv-01942 at ¶¶ 28-30 (C.D. Cal. Nov. 3, 2017) (alleging deceptive representations regarding monthly payments being available to consumers while concealing credit restrictions);
New World Auto Imports,
No. 3:16-cv-02401-K at ¶¶ 36-38 (N.D. Tex. Aug. 18, 2016) (alleging deceptive representations regarding monthly and down payments being available to consumers with repossessions or foreclosures and concealing restrictions making the offer available only to consumers with good credit);
Progressive Chevrolet Co.,
No. C-4578 at ¶¶ 5-7 (F.T.C. June 13, 2016) (alleging ads touting attractive terms but failure to disclose high credit score requirement);
JS Autoworld,
No. C-4535 at ¶¶ 8-9 (F.T.C. Aug. 13, 2015) (alleging false ads touting attractive prices but concealing discounts with material eligibility limitations); Complaint,
TC Dealership,
No. C-4536 at ¶¶ 7-9 (F.T.C. Aug. 13, 2015) (alleging false ads touting attractive price but concealing discounts were subject to material eligibility limitations and trade-in requirement); Complaint,
FTC
v.
Ramey Motors, Inc.,
No. 1:14-cv-29603, ¶¶ 21-23 (S.D.W. Va. Dec. 11, 2014) (alleging false ads touting attractive terms but concealing substantial down payments or trade-in requirements);
Timonium Chrysler.,
No. C-4429 at ¶¶ 4-5 (F.T.C. Jan. 28, 2014) (alleging false ads touting pricing and discounts but concealing material qualifications and restrictions);
Ganley Ford West,
No. C-4428 at ¶ 5 (F.T.C. Jan. 28, 2014) (alleging false ads touting price discount but concealing offer was limited to certain high-end models); Complaint,
United States
v.
Billion Auto, Inc.,
No. 5:14-cv-04118-MWB, ¶¶ 38-40 (N.D. Iowa 2014) (alleging false ads touting attractive terms but concealing material eligibility limitations and significant extra costs);
see also
Adam J. Levitin,
The Fast and the Usurious: Putting the Brakes on Auto Lending Abuses,
108 Geo. L.J. 1257, 1282 (2020),
https://www.law.georgetown.edu/georgetown-law-journal/wp-content/uploads/sites/26/2020/05/Levitin_The-Fast-and-the-Usurious-Putting-the-Brakes-on-Auto-Lending-Abuses.pdf
(discussing dealership tactic of advertising one vehicle and then claiming it has been sold to upsell consumer to a different vehicle).

Section 463.3(g) of the proposed rule would prohibit dealers from misrepresenting “[a]ny Material information on or about a consumer's application for financing.” Material misrepresentations on or about a consumer's financing application include instances in which dealers submit income information that is different from what consumers have stated that they earn, or alter the down payment amount from what the consumer has actually provided.
98

98

Tate's Auto Ctr.,
No. 3:18-cv-08176-DJH, ¶¶ 18-21, 25 (D. Ariz. July 31, 2018) (alleging dealership falsified consumers' monthly income and down payments on financing applications and financing contracts);
People of the State of California
v.
Paul Blanco's Good Car Co. Auto Grp.,
Case No. RG19036081 (Sept. 2019).

Section 463.3(h) and (i) of the proposed rule would prohibit dealers from misrepresenting “[w]hen the transaction is final or binding on all parties” and making misrepresentations about “[k]eeping cash down payments or trade-in vehicles, charging fees, or initiating legal process or any action if a transaction is not finalized or if the consumer does not wish to engage in a transaction.” These provisions are intended to curb yo-yo financing, which occurs when a dealer obtains a consumer's agreement to a deal that has not been finalized, allows the consumer to drive the vehicle off the lot, and then directs the consumer to return and engages in unlawful tactics, such as failing to give back a consumer's trade-in vehicle, while refusing to honor the deal or pressuring the consumer into entering a new deal.
99

Yo-yo financing

is often made possible because a dealer misleads consumers, directly or by omission, about whether their financing is final, and subsequently applies pressure when revealing that the financing is not final, including by threatening to retain the consumer's cash down payment or trade-in vehicle unless the consumer agrees to a new financing contract.
100

These tactics affect consumer conduct, including whether to enter into a new deal with less beneficial terms for the consumer. Several states have enacted statutes to protect consumers against this practice.
101

99

Universal City Nissan,
No. 2:16-cv-07329 at ¶¶ 67-72 (C.D. Cal. Sept. 29, 2016);

State ex rel.

Dewine

v.
Dads Car Lot Inc.,
No. 13CV4036, 2014 Ohio Misc. LEXIS 10987, at *4 (Ct. Com. Pl. June 6, 2014) (finding defendant violated state consumer sales protection act by including “spot delivery” document that allowed defendant to keep “all funds on deposit”); Att'ys General of 31 States & DC, Comment Letter on Public Roundtables: Protecting Consumers in the Sale and Leasing of Motor Vehicles, Project No. P104811, Submission No. 558507-00112 at 4 (Apr. 13, 2012),
available at https://www.regulations.gov/docket/FTC-2022-0036
(recommending, among other rules aimed at deterring yo-yo sales, FTC adopt rules that would require dealers to disclose the consumer's “right to walk away” if financing is rejected and, in the context of spot delivery, to disclose financing has not been finalized as well as the responsibilities and potential consequences for consumers); Legal Aid Justice Ctr., Comment Letter on Public Roundtables: Protecting Consumers in the Sale and Leasing of Motor Vehicles, Project No. P104811, Submission No. 558507-00066 (Jan. 30, 2012) available at
https://www.regulations.gov/docket/FTC-2022-0036
(explaining that in a yo-yo sale the dealer misrepresents to the consumer credit has been finalized, when in fact the dealer treats the sale as contingent, retaining the ability call off or seize the vehicle later; a “yo‐yo case can result in substantial distress to the person who has been tricked”; and “the harm to the marketplace occurs when the consumer believes a credit sale has been completed and stops shopping for a car on credit”); Nat'l Consumer Law Ctr.,
In Harm's Way—At Home: Consumer Scams and the Direct Targeting of America's Military and Veterans
41 (May 2003),
https://www.nclc.org/images/pdf/special_projects/military/report-scams-facing-military.pdf
(listing “spot delivery” or “yo-yo sales” among scams commonly aimed at military members).

100

See, e.g.,
Delvin Davis, Ctr. for Responsible Lending,
Deal or No Deal: How Yo-Yo Scams Rig the Game against Car Buyers,
submitted as an attachment to Comment #558507-00104 on Public Roundtables: Protecting Consumers in the Sale and Leasing of Motor Vehicles, Project No. P104811 at 1, 5-6 (Apr. 2, 2012),
https://www.ftc.gov/sites/default/files/documents/public_comments/public-roundtables-protecting-consumers-sale-and-leasing-motor-vehicles-project-no.p104811-00104/00104-82860.pdf.

101

See
Alaska Stat. secs. 45.25.500, 45.25.610(c) (prohibiting dealers from transferring title to a trade-in vehicle or performing any repairs/reconditioning before completing sales transaction, and requiring specific disclosures to consumers regarding spot delivery); Ariz. Rev. Stat. sec. 44-1371 (prohibiting sale of trade-in before financing is finalized); Ark. Code. Ann. sec. 23-112-316 (prohibiting dealers from depositing money from consumer or selling a trade-in before financing is finalized and permitting consumer to cancel purchase if dealer changes any terms or consumer does not obtaining the financing agreed upon); Colo. Rev. Stat. sec. 6-1-708 (prohibiting spot delivery tactics and requiring dealers to return any collateral or down payment if financing is not approved and the consumer is required to return the vehicle); Nev. Rev. Stat. sec. 482.554(2)(a) (protecting against misrepresentations surrounding spot delivery); N.H. Rev. Stat. Ann. sec. 361-A:10-b (requiring dealers to return trade-in, deposit, and fees, if financing is not approved); Or. Rev. Stat. sec. 646A.090 (requiring dealers to return trade-in vehicle if financing is not approved).

Section 463.3(j) of the proposed rule would prohibit misrepresentations regarding “[w]hether or when a Motor Vehicle Dealer will pay off some or all of the financing or lease on a consumer's trade-in vehicle.” This provision would prohibit dealers from misrepresenting to consumers trading in a vehicle when the consumer owes more than the vehicle is worth, that the dealer will pay off that negative balance or negative equity when the consumer purchases a new vehicle. If the dealer does not pay off the negative balance but rather includes it in the new amount to be financed for the vehicle to be purchased, this sleight of hand (often buried in the financing paperwork) requires the consumer, not the dealer, to pay off the previous financing as promised.
102

This provision would also prohibit dealers that are going out of business from representing that they will pay off liens if they do not, in fact, pay off the liens, and prohibit them from failing to pay off liens in a timely manner. This information is material because information about the amount the consumer is actually paying or will end up owing is likely to affect the consumer's decision to visit a particular dealership and purchase a particular vehicle.

102

Universal City Nissan,
No. 2:16-cv-07329 at ¶¶ 28-34, 54-55 (C.D. Cal. Sept. 29, 2016) (alleging failure to disclose remaining amount due on trade-in would be added to the consumer's new financing or lease balance);
Ramey Motors,
No. C-4354 at ¶ 4 (F.T.C. Apr. 19, 2012) (alleging false ads promising to pay off consumers' existing motor vehicle debt);
Billion Auto,
No. C-4356 at ¶ 4 (F.T.C. May 1, 2012) (alleging false ads promising to pay off consumers' existing motor vehicle debt);
TXVT Ltd. P'ship,
No. C-4508 at ¶¶ 7-11 (F.T.C. Feb. 12, 2015) (alleging false ads that consumers could exit existing debt or leases for $1); Complaint,
In re Frank Myers Automaxx, LLC,
No. C-4353 at ¶ 4 (F.T.C. Apr. 19, 2012) (alleging false ads promising to pay off consumers' existing motor vehicle debt and leases);
Key Hyundai of Manchester,
No. C-4358 at ¶ 6 (F.T.C. May 4, 2012) (alleging false ads promising to pay off consumers' existing motor vehicle debt and leases);
see also Auto Buyer Study, supra
note 11, at 13 (noting a participant was “surprised” to learn during the study interview the dealer had rolled negative equity into her new financing).

Section 463.3(k) of the proposed rule would prohibit misrepresentations that consumer reviews or ratings are unbiased, independent, or from ordinary consumers, and § 463.3(
l
) of the proposed rule would similarly prohibit misrepresentations that “the Dealer or any of its personnel or products or services is or was affiliated with, endorsed or approved by, or otherwise associated with the United States government or any Federal, State, or local government agency, unit, or department, including the United States Department of Defense or its Military Departments.” The FTC has combatted such misrepresentations in enforcement actions.
103

Claims that products and services are endorsed by other impartial consumers or the government are material to consumers' decision-making because a consumer is more likely to visit a dealership and select a vehicle that has been approved by an impartial consumer or a government entity.

103

See Universal City Nissan,
No. 2:16-cv-07329 at ¶¶ 73-78 (C.D. Cal. Sept. 29, 2016) (alleging posting by dealership of positive, five-star reviews on third-party websites that falsely purport to be objective or independent); Complaint,
FTC
v.
Passport Imports, Inc.,
No. 8:18-cv-03118 at ¶ 20 (D. Md. Oct. 10, 2018) (alleging Defendants misled consumers by mailing notices that were similar to and had the same color scheme as notices manufacturers are required by the US Department of Transportation's NHTSA to use when sending information about recalls); Complaint,
United States
v.
Sunkey Publ'g, Inc.,
No. 3:18-cv-01444 at ¶¶ 14-112 (N.D. Ala. Sept. 6, 2018) (alleging deceptive educational marketing and lead generation that targeted potential military recruits and used a series of false representations of military affiliation and endorsement to induce recruits to submit their information and agree to future contacts).

Section 463.3(m) of the proposed rule would prohibit misrepresentations that “consumers have won a prize or sweepstakes.”
104

Like the other provisions in § 463.3, these claims are material and harm consumers by inducing a consumer to choose and transact with a particular dealership under false pretenses.

104

See Fowlerville Ford,
No. C-4433 at ¶ 4 (F.T.C. Feb. 20, 2014) (alleging misrepresentation that consumers have won a prize that can be collected at a dealership).

Section 463.3(n) of the proposed rule would prohibit misrepresentations regarding “[w]hether, or under what circumstances, a vehicle may be moved, including across state lines or out of the country.” This provision would prevent dealers from making misrepresentations about any liens or other restrictions that prevent or hinder consumers' ability to move the vehicle beyond certain boundaries. The manner in which a consumer can move a vehicle is likely to affect the consumer's decision to purchase a vehicle, including decisions of military consumers who may frequently need to move.

Section 463.3(o) of the proposed rule would prohibit misrepresentations regarding “[w]hether, or under what circumstances, a vehicle may be repossessed.” This provision would prevent dealers from making

misrepresentations that they may repossess a vehicle, when they cannot. For example, the Servicemembers Civil Relief Act prohibits repossession of vehicles during a servicemember's period of military service without a court order as long as the servicemember either placed a deposit for the vehicle, or made at least one installment payment on the contract before entering military service.
105

Thus, this provision would prevent dealers from representing that they could repossess military consumers' vehicles under these circumstances. Information about when a vehicle may be repossessed is likely to affect a consumer's conduct, including the consumer's conduct regarding which payments to prioritize while serving our country.

105
50 U.S.C. 3952.

Section 463.3(p) of the proposed rule would prohibit misrepresentations of “[a]ny of the required disclosures identified in this part,” including but not limited to representations that limit or contradict the required disclosures. This prohibition against misrepresentations complements the disclosure requirements in the proposed rule.

D. § 463.4: Disclosure Requirements

Section 463.4 of the proposed rule would require key disclosures by dealers. The proposed rule would require that such disclosures be made in a clear and conspicuous manner, but would not prescribe the form that such disclosures must take.

Proposed § 463.4(a) through (e) would require disclosures regarding pricing and certain financing information. Providing consumers with accurate and timely pricing and financing information is critical, especially in the context of motor vehicle sales and leasing, where such information has proved singularly confusing to consumers.
106

Such confusion is heightened when, as discussed above, advertisements list vehicle prices that are lower than that at which the dealer will sell or lease the vehicle, including because of incremental charges and fees added to an hours-long transaction as it develops.

106

See, e.g., Buckle Up, supra
note 15, at 5 (noting consumer confusion about how the vehicle price they were offered was determined and consumers did not understand they could negotiate price);
id.
at 9 (observing add-on products and services, which typically increase a vehicle's purchase price, were “the single greatest area of confusion” in the study); Att'ys General of 31 States & DC, Comment Letter on Public Roundtables: Protecting Consumers in the Sale and Leasing of Motor Vehicles, Project No. P104811, Submission No. 558507-00112 at 5 (Apr. 13, 2012),
available at https://www.regulations.gov/docket/FTC-2022-0036.

Misleading and false price and financing information hinder consumers' ability to comparison shop, an essential element to a competitive market. If buyers can see and compare the actual prices and costs for the same or similar goods offered by different sellers, buyers can choose to visit the seller that offers the terms most important to them, instead of wasting time and expense exploring offers based on deceptive information. When price or cost information in the market are distorted, consumers are unable to effectively differentiate between sellers, and sellers trying to deal honestly with consumers are put at competitive disadvantage.

Proposed § 463.4(a) would require a motor vehicle dealer to disclose the true “Offering Price” of a vehicle in advertisements that reference specific vehicles or price or financing terms. Under the proposed rule, the “Offering Price” of a vehicle means “the full cash price for which a dealer will sell or finance the motor vehicle to any consumer,” excluding only required government charges.”
107

107
In a similar vein, a number of states have enacted laws that require any advertised or quoted vehicle price to include any non-governmental fees charged by the dealer.
See, e.g.,
Or. Admin R. 137-020-0020(3)(c) (requiring any price stated in an ad or in a price quotation to be the offering price, excluding only taxes, license, and other specified fees); Cal. Veh. Code sec. 11713.1(b)-(c) (making it a violation of the regulation to advertise the total price of a vehicle without including all costs to purchaser at the time of the sale, except taxes, registration, and other specified charges); Wis. Admin. Code Trans. 139.03(3) (requiring an advertised price include “all charges that shall be paid by the purchaser to acquire ownership of the vehicle with the exception of sales tax, title and registration fees”); Oh. Admin. Code 109:4-3-16(B)(21) (prohibiting advertising “any price for a motor vehicle unless such price includes all costs to the consumer except tax, title and registration fees, and a documentary service charge”);
see also
Ga. Dept. of Law Consumer Prot. Div., Auto Advertising & Sales Practices Enforcement Policies, 11 (“Advertised prices must state the actual total purchase price of the vehicle, excluding only government fees . . . . Any advertisement which lists a price `plus' some additional amount will be considered to be deceptive.”),
https://consumer.georgia.gov/business-services/auto-advertising-and-sales-practices-enforcement-policies; accord
N.Y.C. Admin Code sec. 20-271(b)(1) (used vehicles must display the total selling price, inclusive of all dealer fees but exclusive of government charges);
cf.
Att'ys General of 31 States & DC, Comment Letter on Public Roundtables: Protecting Consumers in the Sale and Leasing of Motor Vehicles, Project No. P104811, Submission No. 558507-00112 at 5 (Apr. 13, 2012),
available at https://www.regulations.gov/docket/FTC-2022-0036
(recommending the FTC adopt a rule requiring all advertised prices and price quotes for motor vehicles include all required non-governmental fees).

This provision would prohibit deceptive and unfair practices with respect to price and add-ons. Price is one of the most material pieces of information for a consumer in making an informed purchasing decision.
108

Yet it is difficult for consumers to uncover the actual price for which a dealer will sell an advertised vehicle until visiting the dealership and spending hours on the lot. Sometimes dealers will tout prices based on dealer discounts, rebates, or other price reductions when such benefits are in fact subject to hidden or undisclosed restrictions that render them unavailable to typical customers.
109

Other times, dealers hide or omit additional dealer charges, such as for document preparation fees, amounting to several hundred dollars.
110

It is deceptive for dealers to advertise a price without disclosing material limitations or additional charges required by the dealer that are fixed and thus can be readily included in the price at the outset.
111

108

See, e.g., Sanctuary Belize Litig.,
482 F. Supp. 3d at 397 (“Representations with respect to . . . [a product's] cost are also presumptively material.”) (citing
Thompson Med. Co.,
104 F.T.C. 648);
see also Crescent Pub. Grp.,
129 F. Supp. 2d at 321.

109

See, e.g., Tate's Auto Ctr.,
No. 3:18-cv-08176-DJH at ¶¶ 41-43 (D. Ariz. July 31, 2018) (alleging defendants failed to adequately disclose advertised discount incentives were available to select consumers only);
Progressive Chevrolet Co.,
No. C-4578 at ¶¶ 5-7 (F.T.C. June 13, 2016) (alleging respondents failed to disclose or disclose adequately that typical consumers cannot qualify for advertised terms);
TT of Longwood,
No. C-4531 at ¶¶ 16-17 (F.T.C. July 2, 2015) (alleging respondent advertised discounts and prices but failed to adequately disclose various qualifications and restrictions that made incentives or prices unavailable to consumers generally);
JS Autoworld,
No. C-4535 at ¶¶ 8-9 (F.T.C. Aug. 13, 2015) (alleging prominently advertised price is not generally available to consumers);
TC Dealership, L.P.,
No. C-4536 at ¶¶ 7-9 (F.T.C. Aug. 13, 2015) (same);
Timonium Chrysler,
No. C-4429 at ¶¶ 4-5 (F.T.C. Jan. 28, 2014) (alleging advertised prices and discounts but failed to disclose consumer would have to qualify for multiple rebates not generally available to them);
Ganley Ford West,
No. C-4428 at ¶¶ 4-5 (F.T.C. Jan. 28, 2014) (alleging advertised price discounts applied only to more expensive versions of vehicles featured in the ad).

110

See, e.g., Liberty Chevrolet,
No. 1:20-cv-3945 (S.D.N.Y. May 21, 2020) (alleging defendants advertised vehicles for sale at a specific price that failed to include additional fees dealer later tacked onto the price, resulting in higher sales prices than advertised);
see also
Press Release, State of Alaska,
Dep't of Law State Settles Consumer Protection Case with Lithia Auto Dealers
(Dec. 1, 2006),
http://www.law.alaska.gov/press/releases/2006/120106-Lithia.html
(announcing settlement with dealerships for charging “doc prep fees ” not included in the advertised price of the vehicle, and noting such fees are “nothing more than dealer profit” and “consumers often confuse” them with governmental fees).

111
Indeed, an entity that induces the first contact through false or misleading representation is liable under the FTC Act, regardless if the buyer later becomes fully informed.
See, e.g., Resort Car Rental Sys., Inc.
v.
FTC,
518 F.2d 962, 964 (9th Cir. 1975);
FTC
v.
Gill,
71 F. Supp. 2d 1030, 1046 (C.D. Cal. 1999) (same),
aff'd,
265 F.3d 944 (9th Cir. 2001).

These practices are also unfair because they are likely to cause substantial injury: Consumers lose time when they pursue offers that are not actually available, and they may end up paying more for a vehicle than they expected, either because unexpected charges are not adequately disclosed until late in the transaction, or are never disclosed at all.
112

By requiring disclosure of the true Offering Price upfront, § 463.4(a) aims to curb this deceptive and unfair conduct, while producing the corollary benefit of increasing price competition among dealers, who would be able to compete on truthful, standard terms.
113

Specifically, § 463.4(a) would require disclosure of the Offering Price when dealers advertise a specific vehicle for sale as well as when any monetary amount or financing term is advertised.

112

See, e.g., Liberty Chevrolet,
No. 1:20-cv-03945 at ¶¶ 12-19 (S.D.N.Y. May 21, 2020) (alleging defendants falsely told consumers they were required to pay excess fees and taxes, and in other instances added such costs to the total price without consumers' knowledge or consent);
Universal City Nissan,
No. 2:16-cv-07329 at ¶¶ 59-64 (C.D. Cal. Sept. 29, 2016) (alleging defendants engaged in deceptive and unfair practices relating to add-on products, including charging consumers for add-ons the consumer rejected or did not consent to purchase);
see also Buckle Up, supra
note 15, at 6 (summarizing the frustrating and time-consuming experience of some consumers who negotiated what they thought was an agreed-upon price with a dealership's sales staff, only to face further rounds of negotiating with the dealer's financing office and the introduction of adds-on that caused the price to balloon),
https://www.ftc.gov/reports/buckle-navigating-auto-sales-financing;
Matthew Jones, Bruce Kobayashi & Jason O'Connor,
Economics at the FTC: Non-Price Merger Effects and Deceptive Automobile Ads
12 (2018),
also published at
53 Rev. Indust. Org. 593 (2018),
https://www.ftc.gov/system/files/documents/reports/economics-ftc-non-price-merger-effects-deceptive-automobile-ads/1812-be-rio.pdf
(discussing the injurious effects of deceptive ads about motor vehicle sales and financing, including the time and effort spent by consumers visiting the dealership, when they might have otherwise pursued a legitimate offer elsewhere).

113
The FTC has long considered the deceptive or unfair effects of “drip pricing”—the colloquial term for the pricing practice that proposed § 463.4(a) aims to curb—whereby firms advertise only part of a product's price and reveal other mandatory charges later in the buying process. In 2012, the FTC convened a workshop on drip pricing at which then-Chairman Leibowitz discussed the practice's potential to harm consumers by “causing them to pay too much and to waste time searching” goods and services with deceptively low prices. That same year, the FTC sent letters to numerous hotels warning against the practice of excluding mandatory “resort fees” from quoted room rates and urging them to make total quoted prices inclusive of all unavoidable costs.
See
Mary W. Sullivan,
Economic Analysis of Hotel Resort Fees,
Fed. Trade. Comm'n (Jan. 2017) (concluding hotels could eliminate the potential harm and cost to consumers caused by price dripping by disclosing any mandatory fees upfront in the quoted price). Almost a decade later, complaints about mandatory fee disclosures persist. During a recent workshop to examine digital “dark patterns,” participants identified drip pricing as a leading issue in online pricing, with some suggesting the FTC implement a rule banning hidden fees and drip pricing.
https://www.ftc.gov/news-events/events-calendar/bringing-dark-patterns-light-ftc-workshop. See
Fed. Trade Comm'n,
Staff Perspective: “That's the Ticket” Workshop
(May 2020) (noting a preference for regulating drip pricing in the context of online advertising and sale of event tickets),
https://www.ftc.gov/system/files/documents/reports/thats-ticket-workshop-staff-perspective/staffperspective_tickets_final-508.pdf.
One model for all-in, upfront pricing are DOT's rules requiring airlines to include all mandatory fees in ticket display prices. Under these rules, whenever a carrier advertises a price for air transportation, that price must be the full price customers will have to pay.
See
14 CFR part 399 (implementing 49 U.S.C. 41712). Regardless of the market, whether air travel, hotels, or motor vehicles, the empirical evidence suggests price transparency leads to more informed consumers, lower and more uniform prices, and more competition among sellers.
See, e.g.,
D. Andrew Austin & Jane G. Gravelle, Cong. Rsch. Serv.,
CRS Report for Congress: Does Price Transparency Improve Market Efficiency? Implications of Empirical Evidence in Other Markets for the Health Sector
(July 24, 2007),
https://fas.org/sgp/crs/secrecy/RL34101.pdf.

This provision would further require that, upon receipt of a consumer inquiry about a specific vehicle or price or financing term for any vehicle, the dealer must disclose the Offering Price of that vehicle, and that if any part of such an inquiry or response is made in writing, the Offering Price must be disclosed in writing as well. This provision would require dealers to provide accurate information to consumers, including those beginning their vehicle-shopping process online
114

and those selecting a dealership based on price. Inaccurate price information is likely to cause substantial injury for consumers who waste time traveling to the dealership in pursuit of an offer that does not exist, and for consumers who never learn that unexpected charges have been added to their dense paperwork during the hours-long vehicle buying and financing process.

114

See generally
Fed. Trade Comm'n,
The Road Ahead: Selling, Financing & Leasing Motor Vehicles
(Aug. 2011) (Public Roundtables) (Session 2 transcript) (discussing that each month tens of millions of consumers seek out vehicle information on edmunds.com, but also discussing the reliability (or lack thereof) of such information available online),
https://www.ftc.gov/system/files/documents/public_events/52654/080211_ftc_sess2.pdf.

Section 463.4(b) would require dealers to provide consumers with information about optional add-on charges to help curb deceptive and unfair practices. As discussed in Part III.B above, misrepresenting that add-ons are required or charging for add-ons without consumers' Express, Informed Consent are significant consumer protection concerns. Section 463.4(b) would require disclosure on any website, online service, or mobile application on which vehicles are offered for sale, of a list of all optional add-ons and the price of each add-on (“Add-on List”).
115

The Add-on List would have to include all optional add-on products for which the dealer charges consumers (and their respective prices). If the price of the add-on varies based on the specifics of the transaction, the Add-on List would have to include the range the typical consumer will pay.
116

Due to space constraints, dealer advertisements presented not online but in another format—such as in print, radio, or television—would not be required to include the Add-on List. Instead, pursuant to § 463.4(b)(2), those advertisements would be required to disclose the website, online service, or mobile application where consumers can access a copy of the Add-on List.
117

This proposed provision is consistent with industry guidance
118

and would help ensure that dealers that follow such guidance will not be competitively disadvantaged relative to those that do not.

115
To the extent any add-on charges are required by a dealership, and thus not optional, such charges would have to be disclosed in the Offering Price, pursuant to proposed § 463.4(a) et al.

116

See FTC
v.
Five Star Auto Club,
97 F. Supp. 2d 502, 528 (S.D.N.Y. 2000) (“at the very least, it would have been reasonable for consumers to have assumed that the promised rewards were achieved by the typical Five Star participant”);
Universal City Nissan,
No. 2:16-cv-07239 (C.D. Cal. Sept. 29, 2016) (alleging unlawful deception where a dealer's ads list prominent terms not generally available to consumers, including where those terms are subject to various qualifications or restrictions);
Progressive Chevrolet Co.,
No. C-4578 (F.T.C. June 13, 2016) (alleging advertised offer was deceptive because the typical consumer would not qualify for the offer).

117
Working in tandem, proposed § 463.4(b)(1) and (b)(2) would mean that dealers who engage in advertising and charge for optional add-ons must have a website, online service, or other mobile application by which to disclose an Add-on List.

118

See
Nat'l Auto. Dealers Ass'n et al.,
Voluntary Protection Products: A Model Dealership Policy
11 (2019),
https://www.nada.org/regulatory-compliance/voluntary-protection-products-model-dealership-policy
(stating add-on products and services should be presented “in a standard, simple menu format that, at a minimum, prominently discloses: . . . 7. the price of—and monthly payment for—each Product . . . .”)

For optional add-on products and services, proposed § 463.4(c) would require dealers to disclose that the optional add-on product or service is not required and that a consumer can purchase or lease the vehicle without the add-on. This disclosure would curb the deceptive practice of misleading consumers into thinking an add-on is required when it is not.
119

As with proposed § 463.4(b), this proposed provision is consistent with industry

guidance
120

and would avoid competitive disadvantage to those dealerships that follow such guidance.

119

See, e.g.,
Stipulated Order,
FTC
v.
Universal City Nissan, et al.,
No. 2:16-cv-07239 at Art. III (C.D. Cal. Mar. 22, 2017); Stipulated Order,
FTC & Illinois
v.
N. Am. Auto. Servs., Inc.,
No. 1:22-cv-0169 at Art. II (N.D. Ill. Mar. 31, 2022).

120

See
Nat'l Auto. Dealers Ass'n et al.,
Voluntary Protection Products: A Model Dealership Policy
4 (2019),
https://www.nada.org/regulatory-compliance/voluntary-protection-products-model-dealership-policy
(stating dealerships should “prominently display to customers a poster stating that [add-on products and services] offered by the dealership are optional and are not required to purchase or lease a vehicle or obtain warranty coverage, financing, financing on particular terms, or any other product or service offered by the dealership.”)

Section 463.4(d) would require dealers to disclose the total of payments when quoting monthly payment amounts to a prospective buyer or lessee. Specifically, § 463.4(d) would prohibit motor vehicle dealers from making any representation about a monthly payment for any vehicle without disclosing the total amount the consumer will pay to purchase or lease the vehicle at that monthly payment amount after making all monthly payments; if that total amount assumes consideration provided by the consumer (
e.g.,
a cash down payment or a trade-in), those amounts must also be disclosed.

Section 463.4(e) would complement the preceding provision by requiring dealers, when they compare different monthly payment options with consumers, to inform consumers that a lower monthly payment will increase the total amount the consumer will pay, if true. These provisions are intended to prohibit dealers from using claims regarding monthly payment amounts to falsely imply savings or parity between different offers where reduced monthly payments increase the total vehicle cost due to an increased payment term, and potentially an increased annual percentage rate (“APR”) as well. Additionally, when a consumer pays for his or her vehicle over a longer period of time, there is an increased likelihood that the consumer will continue to owe money even after he is no longer driving the vehicle. This results in negative equity when the consumer needs or wants to purchase another vehicle, because a vehicle's value tends to decline faster than the amount owed.
121

Longer motor vehicle financing terms also have higher rates of default, potentially posing greater risks to both borrowers and financing companies.
122

121

Buckle Up, supra
note 15, at 7.

122
Consumer Fin. Prot. Bureau,
Quarterly Consumer Credit Trends: Growth In Longer-Term Auto Loans
7-8 (Nov. 2017),
https://files.consumerfinance.gov/f/documents/cfpb_consumer-credit-trends_longer-term-auto-loans_2017Q2.pdf; see also
Zhengfeng Guo et al., Off. of the Comptroller of the Currency,
A Puzzle in the Relation Between Risk and Pricing of Long-Term Auto Loans
2, 4-5, 20 (June 2020),
https://www.occ.gov/publications-and-resources/publications/economics/working-papers-banking-perf-reg/pub-econ-working-paper-puzzle-long-term-auto-loans.pdf
(finding motor vehicle financing with six-plus-year terms have higher default rates than shorter-term financing during each year of their lifetimes, after controlling for borrower and loan-level risk factors).

Take, for example, a borrower who finances the purchase of a $25,000 vehicle with a $5,000 down payment and a 10% APR. With a five-year (60-month) term, her monthly payment will be $425. If the consumer balks at that monthly payment, the dealer could quote her a lower monthly payment of $332. If, however, the down payment and APR stay the same, that would result in a seven-year (84-month) term. Although the second offer might appear to be less costly, it will result in the consumer paying $2,394 more in interest over the course of the longer financing term. The second offer would also obligate the buyer to make payments for two additional years; if she needed to shop for a new vehicle after 60 months, she would still owe an outstanding balance of $7,195 on the first vehicle.
123

123
The cost disparities resulting from monthly payment fixation can be even greater because financing entities tend to charge higher interest rates for longer terms.
See
Nat'l Credit Union Admin.,
Credit Union and Bank Rates 2021 Q1
(Mar. 26, 2021),
https://www.ncua.gov/analysis/cuso-economic-data/credit-union-bank-rates/credit-union-and-bank-rates-2021-q1
(listing national average rates for new motor vehicle and used motor vehicle financing by term). In the example above, the alternate deal presented to the consumer may be for the same $25,000 purchase price and same $5,000 down payment, but with a longer repayment term of 84 months and a higher 12% APR. With this alternative, the new monthly payment of $353 is still considerably lower than the $425 monthly payment first offered, but it will in fact result in the consumer paying in $4,161 additional interest over the course of the extended period, and owing a balance of $7,500 to trade in the vehicle on the same 60-month timeline as the first offer.

As discussed further below, singular focus on monthly payments can also make consumers susceptible to unwanted, undisclosed, or even fictitious add-on charges and fees, because consumers may not notice relatively small add-on charges secreted within a monthly payment (
e.g.,
$15). Such hidden charges can cost a consumer more than a thousand dollars over the course of an auto financing or lease term.
124

124

See Auto Buyer Study, supra
note 11, at 14 (“the dealer can extend the maturity of the financing to reduce the effect of the add-on on the monthly payment, obscuring the total cost of the add-on”);
Auto Buyer Study: Appendix, supra
note 66 (Study participant 457481 at 229, 233 (dealership pitching add-ons at the end of the negotiation, and in terms of consumer's monthly price); Study participant 437175 at 701 (dealership pitching add-ons in terms of monthly price));
see also Liberty Chevrolet,
No. 1:20-cv-03945 at ¶¶ 12-19 (S.D.N.Y. May 21, 2020) (alleging dealership included deceptive and unauthorized add-on charges in consumers' transactions);
Ramey Motors,
No. 1:14-cv-29603 at ¶¶ 21-28 (S.D. W. Va. Dec. 11, 2014) (alleging dealer emphasized attractive terms such as low monthly payments but concealed substantial cash down payments or trade-in requirements);
Billion Auto,
No. 5:14-cv-04118-MWB at ¶¶ 38-46 (N.D. Iowa Dec. 11, 2014) (alleging dealer touted attractive terms such as low monthly payments but conceale

[Text truncated at 120,000 characters. The full text is on the page linked above.]

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2022-14214. Public record. Not legal advice.