Combating Auto Retail Scams Trade Regulation Rule

Federal RegisterJan 4, 2024

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FEDERAL TRADE COMMISSION

16 CFR Part 463

RIN 3084-AB72

Combating Auto Retail Scams Trade Regulation Rule

AGENCY:

Federal Trade Commission.

ACTION:

Final rule.

SUMMARY:

The Federal Trade Commission (“FTC” or “Commission”) is issuing this Combating Auto Retail Scams Trade Regulation Rule (“CARS Rule,” “Rule,” or “Final Rule”) and Statement of Basis and Purpose (“SBP”) related to the sale, financing, and leasing of covered motor vehicles by covered motor vehicle dealers. The Final Rule, among other things, prohibits motor vehicle dealers from making certain misrepresentations in the course of selling, leasing, or arranging financing for motor vehicles, requires accurate pricing disclosures in dealers' advertising and sales communications, requires dealers to obtain consumers' express, informed consent for charges, prohibits the sale of any add-on product or service that confers no benefit to the consumer, and requires dealers to keep records of certain advertisements and customer transactions.

DATES:

This rule is effective July 30, 2024.

ADDRESSES:

Copies of this document are available on the Commission's website,

www.ftc.gov.

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:

Table of Contents

I. Background

A. Statutory Authority

B. Commission Actions Following the Dodd-Frank Act and the Rulemaking Process

II. Motor Vehicle Financing and Leasing

A. Overview of the Motor Vehicle Marketplace

B. Deceptive and Unfair Practices in the Motor Vehicle Marketplace

1. Bait-and-Switch Tactics

2. Unlawful Practices Relating to Add-On Products or Services and Hidden Charges

C. Law Enforcement and Other Responses

III. Section-by-Section Analysis

A. § 463.1: Authority

B. § 463.2: Definitions

1. Overview

2. Definition-by-Definition Analysis

(a) Add-On or Add-On Product(s) or Service(s)

(b) Add-On List

(d) Clearly and Conspicuously

(e) Motor Vehicle (finalized as “`Covered Motor Vehicle' or `Vehicle' ”)

(f) Dealer or Motor Vehicle Dealer (finalized as “`Covered Motor Vehicle Dealer' or `Dealer' ”)

(g) Express, Informed Consent

(h) GAP Agreement

(l) Government Charges

(j) Material or Materially

(k) Offering Price

C. § 463.3: Prohibited Misrepresentations

1. General Comments

2. Paragraph-by-Paragraph Analysis of § 463.3

(a) The Costs or Terms of Purchasing, Financing, or Leasing a Vehicle

(b) Any Costs, Limitation, Benefit, or Any Other Aspect of an Add-On Product or Service

(d) The Availability of Any Rebates or Discounts That Are Factored Into the Advertised Price but Not Available to All Consumers

(e) The Availability of Vehicles at an Advertised Price

(f) Whether Any Consumer Has Been or Will Be Preapproved or Guaranteed for Any Product, Service, or Term

(g) Any Information on or About a Consumer's Application for Financing

(h) When the Transaction Is Final or Binding on All Parties

(i) Keeping 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

(j) Whether or When a Dealer Will Pay Off Some or All of the Financing or Lease on a Consumer's Trade-in Vehicle

(k) Whether Consumer Reviews or Ratings Are Unbiased, Independent, or Ordinary Consumer Reviews or Ratings of the Dealer or the Dealer's Products or Services

(l) Whether the Dealer or Any of the Dealer's 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

(m) Whether Consumers Have Won a Prize or Sweepstakes

(n) Whether, or Under What Circumstances, a Vehicle May Be Moved, Including Across State Lines or Out of the Country

(o) Whether, or Under What Circumstances, a Vehicle May Be Repossessed

(p) Any of the Required Disclosures Identified in This Part

D. § 463.4: Disclosure Requirements

1. Overview

2. Paragraph-by-Paragraph Analysis of § 463.4

(a) Offering Price

(b) Add-On List

(d) Total of Payments and Consideration for a Financed or Lease Transaction

(e) Monthly Payments Comparison

E. § 463.5: Dealer Charges for Add-Ons and Other Items

1. Overview

2. Paragraph-by-Paragraph Analysis of § 463.5

(a) Add-Ons That Provide No Benefit

(b) Undisclosed or Unselected Add-Ons

F. § 463.6: Recordkeeping

G. § 463.7: Waiver Not Permitted

H. § 463.8: Severability

I. § 463.9: Relation to State Laws

IV. Effective Date

V. Paperwork Reduction Act

A. Add-On List Disclosures

B. Disclosures Relating to Cash Price Without Optional Add-Ons

C. Prohibited Misrepresentations and Required Disclosures

D. Recordkeeping

E. Capital and Other Non-Labor Costs

1. Disclosures

2. Recordkeeping

VI. Regulatory Flexibility Act

A. Significant Impact Analysis

1. Comments on Significant Impact

2. Certification of the Final Rule

(a) Industry Averages

(b) Dealer Size Based on the Number of Employees

B. Initial and Final Regulatory Flexibility Analysis

1. Comments on the Initial Regulatory Flexibility Analysis

(a) Description of the Reasons Why Action by the Agency Is Being Considered

(b) Succinct Statement of the Objectives of, and Legal Basis for, the Proposed Rule

(d) Description of the Projected Reporting, Recordkeeping, and Other Compliance Requirements of the Proposed Rule

(e) Duplicative, Overlapping, or Conflicting Federal Rules

(f) Description of Any Significant Alternatives to the Proposed Rule Which Accomplish the Stated Objectives of Applicable Statutes and Which Minimize Any Significant Economic Impact of the Proposed Rule on Small Entities

2. Final Regulatory Flexibility Analysis

(a) Statement of the Need for, and Objectives of, the Rule

(b) Issues Raised by Comments, Including Comments by the Chief Counsel for Advocacy of the SBA, the Commission's Assessment and Response, and Any Changes Made as a Result

(c) Description and Estimate of the Number of Small Entities to Which the Final Rule Will Apply or an Explanation of Why No Such Estimate Is Available

(d) Description of the Projected Reporting, Recordkeeping, and Other Compliance Requirements

(e) Description of the Steps the Commission Has Taken To Minimize the Significant Economic Impact on Small Entities Consistent With the Stated Objectives of Applicable Statutes

VII. Final Regulatory Analysis Under Section 22 of the FTC Act

A. Introduction

B. Estimated Benefits of Final Rule

1. Consumer Time Savings When Shopping for Motor Vehicles

2. Reductions in Deadweight Loss

3. Framework

4. Estimation

5. Benefits Related to More Transparent Negotiation

C. Estimated Costs of Final Rule

1. Prohibited Misrepresentations

2. Required Disclosure of Offering Price in Advertisements and in Response to Inquiry

3. Disclosure of Add-On List and Associated Prices

4. Required Disclosure of Total of Payments for Financing/Leasing Transactions

5. Prohibition on Charging for Add-Ons that Provide No Benefit

6. Requirement to Obtain Express, Informed Consent Before Any Charges

7. Recordkeeping

D. Other Impacts of Final Rule

E. Conclusion

F. Appendix: Derivation of Deadweight Loss Reduction

G. Appendix: Uncertainty Analysis

VIII. Other Matters

I. Background

A. Statutory Authority

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

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.

The FTC is authorized to do so under the FTC Act and in accordance with section 553 of the Administrative Procedure Act (“APA”).

The grant of APA rulemaking authority set forth in section 1029 of the Dodd-Frank Act became effective as of July 21, 2011—the designated “transfer date” established by the Treasury Department.

Public Law 111-203, 124 Stat. 1376 (2010).

12 U.S.C. 5519(d).

See

12 U.S.C. 5519(f)(1) and (2) for definitions of the terms “motor vehicle” and “motor vehicle dealer” under section 1029 of the Dodd-Frank Act, respectively.

See

12 U.S.C. 5519(a) (discussing the authority over “motor vehicle dealer[s] that [are] predominantly engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both”); 12 U.S.C. 5519(d) (“Notwithstanding section 57a of title 15, the Federal Trade Commission is authorized to prescribe rules under sections 45 and 57a(a)(1)(B) of title 15[ ] in accordance with section 553 of title 5, with respect to a person described in subsection (a).”); 5 U.S.C. 553. Because the Commission has authority to promulgate this Rule in accordance with the APA, it is not required to include a statement as to the prevalence of the acts or practices treated by the Rule under section 18(d) of the FTC Act.

Compare

12 U.S.C. 5519(d) and (a) (providing the FTC with APA rulemaking authority for purposes of section 1029 of the Dodd-Frank Act),

with

15 U.S.C. 57a(b)(3) (requiring a statement as to prevalence for certain rulemaking proceedings by the Commission under non-APA procedures),

and

15 U.S.C. 57a(b)(1) (establishing that certain rulemaking proceedings by the Commission under non-APA procedures are subject to requirements in addition to those under the APA).

See

12 U.S.C. 5411(a).

B. Commission Actions Following the Dodd-Frank Act and the Rulemaking Process

Following enactment of the Dodd-Frank Act, the Commission published in the

Federal Register

a notice discussing its authority to prescribe rules with respect to unfair or deceptive acts or practices by motor vehicle dealers and announcing that it would be hosting a series of public roundtables to explore consumer protection issues pertaining to motor vehicle sales and leasing, including what consumer protection issues, if any, exist that could be addressed through a possible rulemaking.

The Commission sought participation from regulators, consumer advocates, industry participants, and other interested parties and ultimately held three such public roundtables.

76 FR 14014, 14015 (Mar. 15, 2011).

See

Fed. Trade Comm'n, “The Road Ahead: Selling, Financing & Leasing Motor Vehicles” (Apr. 12, 2011),

https://www.ftc.gov/news-events/events/2011/04/road-ahead-selling-financing-leasing-motor-vehicles

(providing materials from roundtable in Detroit, Michigan); Fed. Trade Comm'n, “The Road Ahead: Selling, Financing & Leasing Motor Vehicles” (Aug. 2, 2011),

https://www.ftc.gov/news-events/events/2011/08/road-ahead-selling-financing-leasing-motor-vehicles

(providing materials from roundtable in San Antonio, Texas); Fed. Trade Comm'n, “The Road Ahead: Selling, Financing & Leasing Motor Vehicles” (Nov. 17, 2011),

https://www.ftc.gov/news-events/events/2011/11/road-ahead-selling-financing-leasing-motor-vehicles

(providing materials from roundtable in Washington, District of Columbia).

The Commission subsequently focused on enforcement and business guidance in the motor vehicle dealer marketplace. As discussed in SBP II.C,

however, certain unfair and deceptive acts or practices have persisted, despite more than a decade of enforcement and education. Accordingly, on June 23, 2022, the Commission announced a notice of proposed rulemaking (“NPRM”) addressing unfair or deceptive acts or practices by motor vehicle dealers.

That notice was published in the

Federal Register

on July 13, 2022.

The NPRM, among other things, proposed to (i) prohibit motor vehicle dealers from making certain misrepresentations, (ii) require accurate pricing disclosures, (iii) prohibit the sale of any add-on product or service that confers no benefit to the consumer, (iv) require express, informed consent for add-ons and other charges, and (v) impose certain recordkeeping requirements. The comment period for the NPRM closed on September 12, 2022.

As used herein, references to the “Statement of Basis and Purpose” or “SBP” refer to the portions of this document that precede the regulatory text of the Final Rule. References to the “Rule,” “Final Rule,” or “CARS Rule” refer to the text in part 463—Combating Auto Retail Scams (“CARS”) Trade Regulation Rule. Because the Final Rule is narrower than the proposed Motor Vehicle Dealers Trade Regulation Rule in the NPRM, the Commission has modified the Rule title to reflect the more limited scope.

See

Press Release, Fed. Trade Comm'n, “FTC Proposes Rule to Ban Junk Fees, Bait-and-Switch Tactics Plaguing Car Buyers” (June 23, 2022),

https://www.ftc.gov/news-events/news/press-releases/2022/06/ftc-proposes-rule-ban-junk-fees-bait-switch-tactics-plaguing-car-buyers.

See

Fed. Trade Comm'n, Notice of Proposed Rulemaking, Motor Vehicle Dealers Trade Regulation Rule, 87 FR 42012 (released June 23, 2022; published July 13, 2022) [hereinafter NPRM],

https://www.govinfo.gov/content/pkg/FR-2022-07-13/pdf/2022-14214.pdf.

In response to the NPRM and proposed rule, the Commission received more than 27,000 comments from stakeholders representing a wide range of viewpoints.

These stakeholders included numerous individual consumers who described deceptive practices during recent car purchases and many who discussed current or former military service and deceptive and predatory practices common near military installations.

Commenters

also included dealerships and their employees, industry groups, consumer and community groups, and Federal and State lawmakers and law enforcement agencies. Many commenters, such as consumers, some dealers and dealer employees, consumer groups, and lawmakers and enforcers, were supportive of the proposed rule in whole or in part. Many of these commenters also urged the FTC to include additional protections for consumers and law-abiding businesses, while others, such as industry groups, dealers, and dealer employees, asked questions or criticized the proposal.

These comments and responses to comments are discussed primarily in the discussion of the Final Rule in SBP III.

The Commission received 27,349 comment submissions filed online in response to its NPRM.

See

Gen. Servs. Admin., Dkt. No. FTC-2022-0046, Proposed Rule, Motor Vehicle Dealers Trade Regulation Rule (July 13, 2022),

https://www.regulations.gov/document/FTC-2022-0046-0001

(noting comments received). To facilitate public access, over 11,000 such comments have been posted publicly on

Regulations.gov

https://www.regulations.gov/document/FTC-2022-0046-0001/comment

(noting posted comments). As explained at

Regulations.gov

, agencies may choose to redact or withhold certain submissions (or portions thereof) such as those containing private or proprietary information, inappropriate language, or duplicate/near duplicate examples of a mass-mail campaign.

See

Gen. Servs. Admin.,

Regulations.gov

Frequently Asked Questions, Find Dockets, Documents, and Comments FAQs, “How are comments counted and posted to

Regulations.gov?

,”

https://www.regulations.gov/faq?anchor=downloadingdata

(last visited Dec. 5, 2023). The Commission has considered all timely and responsive public comments it received in response to its NPRM.

See, e.g.,

Individual commenter, Doc. No. FTC-2022-0046-4648 (“As a young Marine stationed in

a military town I was taken advantage of by a dealership when purchasing my first car. It set me back financially for years. I know of many young military people who purchased vehicle[ ]s and we[ ]re instantly so far upside down after leaving the dealership with thousands of dollars in add on junk charges . . . .”); Individual commenter, Doc. No. FTC-2022-0046-0542 (“As a former member of the Military, the amount of scams and horror stories I have heard regarding young service members buying cars is absurd. . . . Someone shouldn't have to do hours of research on how to buy a car so they don't get taken advantage of.”); Individual commenter, Doc. No. FTC-2022-0046-0637 (“As a small business owner and active duty military member I have played the role of both a buyer, toiling for hours to just reach fair deals on vehicles, as well as that of an advocate for my Sailors who have been preyed upon by local dealerships. Nowhere else in our society do so many average citizens have to mentally prepare for a battle over fair pricing and treatment for something that is realistically a modern necessity.”); Individual commenter, Doc. No. FTC-2022-0046-9840 (“I can't list the number of times I have either seen, or have stepped in a situation, where car dealers have either attempted to take, or have successfully taken, advantage of a young military member or their family by baiting and switching when it came to the price of a car, or stated that the price was one amount, only to be charged, and over-charged a higher amount. These dealers have even attempted to pull unethical tricks on me and my wife, even after they found out that I was a military member, a combat veteran, that was serving this great nation.”); Individual commenter, Doc. No. FTC-2022-0046-0845 (“Predatory practices like [bait-and-switch pricing] are common near military installations . . . .”).

Industry commenters claimed that many of the areas covered by the proposed rule are already addressed in industry guidance. The Commission notes that, although industry guidance can provide helpful information to dealers, dealers who choose not to follow such guidance, or who engage in deceptive or unfair practices, subject their customers to significant harm. The Rule addresses such practices, thus protecting consumers and law-abiding dealers.

The Commission notes that it has undertaken careful review and consideration of each of the comments it received in response to its NPRM. The Commission has dedicated the majority of its section-by-section analysis to descriptions of, and responses to, comments or portions thereof that were critical of the Commission's proposal or that urged the Commission to adopt additional requirements. Thus, to ensure that this document also reflects the many comments in the public record from stakeholders who supported the proposal as is, the Commission has excerpted a number of such comments in portions of its SBP.

II. Motor Vehicle Financing and Leasing

A. Overview of the Motor Vehicle Marketplace

For many consumers, buying or leasing a motor vehicle is essential, expensive, and time-consuming.

Americans rely on their vehicles for work, school, childcare, groceries, medical visits, and many other important tasks in their daily lives.

These vehicles have become increasingly costly: the average price of a new vehicle sold at a new car dealership in 2022 was more than $46,000,

while the average price of a used vehicle sold at such dealerships was more than $30,000.

By the second quarter of 2023, the average monthly payment for used cars reached $533, and the average monthly payment for new cars reached $741—both record highs.

Vehicles are now many consumers' largest expense—on a par with housing, child care and food, and accounting for 16% of the median annual household income before taxes.

In 2022 alone, Americans spent more than $720 billion on motor vehicles and vehicle parts.

Unless otherwise indicated, the terms “auto,” “automobile,” “car,” “motor vehicle,” and “vehicle,” as used in this SBP and the Commission's final regulatory analysis, refer to “Covered Motor Vehicle” as defined in this part.

During 2017 to 2022, an average of 91% of American workers who did not work from home drove to work.

See

U.S. Census Bureau, “American Community Survey: Means of Transportation to Work by Selected Characteristics, 2022: ACS 1-Year Estimates Subject Tables” (2023),

https://data.census.gov/table?q=Commuting&tid=ACSST1Y2022.S0802

(reporting 110,245,368 workers 16 years and over who drove alone to work in a car, truck, or van, and 13,881,067 workers 16 years and over who drove by carpool to work in a car, truck or van, together accounting for 91% of the total of 136,196,004 workers 16 years and over who did not work from home); U.S. Census Bureau, “American Community Survey: Means of Transportation to Work by Selected Characteristics, 2021: 2017-2021 ACS 5-Year Estimates Subject Tables” (2022),

https://data.census.gov/table?q=Commuting&tid=ACSST5Y2021.S0802

(reporting 113,724,271 workers 16 years and over who drove alone to work in a car, truck, or van, and 13,340,838 workers 16 years and over who drove by carpool to work in a car, truck or van, together accounting for 91% of the total of 140,223,271 workers 16 years and over who did not work from home).

Nat'l Auto. Dealers Ass'n, “NADA Data 2022” 7,

https://www.nada.org/media/4695/download?inline

(noting average retail selling price of $46,287 for new vehicles sold by dealerships in 2022).

Id.

at 10 (noting average retail selling price of $30,736 for used vehicles sold by new-vehicle dealerships in 2022).

Lydia DePillis, “How the Costs of Car Ownership Add Up,” N.Y. Times (Oct. 6, 2023),

https://www.nytimes.com/interactive/2023/10/07/business/car-ownership-costs.html

(citing average monthly payment figures from TransUnion).

Id.

(citing data from AAA and the U.S. Census Bureau).

Bureau of Econ. Analysis, “National Data: National Income and Product Accounts, Personal Consumption Expenditures by Major Type of Product” tbl. 2.3.5,

https://apps.bea.gov/iTable/?reqid=19&step=2&isuri=1&categories=survey#eyJhcHBpZCI6MTksInN0ZXBzIjpbMSwyLDNdLCJkYXRhIjpbWyJjYXRlZ29yaWVzIiwiU3VydmV5Il0sWyJOSVBBX1RhYmxlX0xpc3QiLCI2NSJdXX0=

(last revised July 27, 2023) (listing estimated annual expenditure rates of between $713.1 billion and $737.1 billion in 2022).

Given these costs, many consumers who purchase a motor vehicle rely on financing to complete their purchases. According to public reports, 81% of new motor vehicle purchases, and nearly 35% of used vehicle purchases, are financed.

By the first quarter of 2023, Americans had more than 107 million outstanding auto financing accounts and owed more than $1.56 trillion thereon,

making auto finance the third-largest source of debt for U.S. consumers, and the second-largest for U.S. consumers ages 40 and over.

Servicemembers have an average of twice as much auto debt as civilians—particularly young servicemembers, who generally require vehicles for transportation while living on military bases.

By the age of 24, around 20

percent of young servicemembers have at least $20,000 in auto debt, which equates to nearly two-thirds of an enlisted soldier's typical base salary at that age.

Melinda Zabritski, Experian Info. Sols., Inc., “State of the Automotive Finance Market Q4 2020” 5,

https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf

(on file with the Commission).

Fed. Rsrv. Bank of N.Y., “Quarterly Report on Household Debt and Credit, 2023: Q1” 3-4 (May 2023),

https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2023Q1;

Fed. Rsrv. Bank of N.Y., “Data Underlying Report” on “Page 3 Data” and “Page 4 Data” tabs,

https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/xls/HHD_C_Report_2023Q1

(last visited Dec. 5, 2023) (listing number of open “Auto Loan” accounts and total outstanding balance in such accounts).

Fed. Rsrv. Bank of N.Y., “Quarterly Report on Household Debt and Credit, 2023: Q1” 3, 21 (May 2023),

https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2023Q1;

Fed. Rsrv. Bank of N.Y., “Data Underlying Report” on “Page 3 Data” and “Page 21 Data” tabs,

https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/xls/HHD_C_Report_2023Q1

(last visited Dec. 5, 2023) (listing total “Auto Loan” debt balance compared to other product type categories).

See

Consumer Fin. Prot. Bureau, “Financially Fit? Comparing the Credit Records of Young Servicemembers and Civilians” 27 (July 2020),

https://files.consumerfinance.gov/f/documents/cfpb_financially-fit_credit-young-servicemembers-civilians_report_2020-07.pdf.

See

Consumer Fin. Prot. Bureau, “Protecting Servicemembers from Costly Auto Loans and Wrongful Repossessions” (July 18, 2022),

https://www.consumerfinance.gov/about-us/blog/protecting-servicemembers-from-costly-auto-loans-and-wrongful-repossessions/.

In addition to the expense, the process of buying or leasing a vehicle is often time-consuming and arduous. It can take several hours or days to finalize a transaction,

on top of the hours it can take, particularly in rural areas, to drive to a dealership.

Consumers may need to take time off work or arrange childcare, and families with a single vehicle may be forced to delay other important appointments due to the length of the vehicle-buying or -leasing process.

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 (July 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 that 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 Auto., “2020 Cox Automotive Car Buyer Journey” 6 (2020) [hereinafter 2020 Cox Automotive Car Buyer Journey],

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); Cox Auto., “2022 Car Buyer Journey: Top Trends Edition” 6 (2023) [hereinafter 2022 Car Buyer Journey],

https://www.coxautoinc.com/wp-content/uploads/2023/01/2022-Car-Buyer-Journey-Top-Trends.pdf

(reporting average consumer time spent shopping for a vehicle at 14 hours, 39 minutes).

For example, consumers have complained about going to a dealership based on an offer that the dealer refuses to honor only after they have spent hours driving there and additional time on the lot.

See, e.g.,

Complaint ¶¶ 23-26,

Fed. Trade Comm'n

N. Am. Auto. Servs., Inc.,

No. 1:22-cv-0169 (N.D. Ill. Mar. 31, 2022) (alleging that many consumers drive hours to dealerships based on the advertised prices; that test-driving and selecting a vehicle, and negotiating the price and financing terms, is an often hours-long process; and that, after this time, dealers falsely told consumers that 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).

Most consumers—approximately 70%—finance vehicle purchases through a motor vehicle dealer,

using what is known as dealer-provided “indirect” financing.

This financing is typically offered through dealers' financing and insurance (“F&I”) offices, which may also offer leasing and add-on products or services. In the dealer-provided financing scenario, the dealer collects financial information about the consumer and forwards that information to prospective motor vehicle financing entities. These financing entities evaluate this information and, in the process, determine whether, and on what terms, to provide credit.

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

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

Unlike the buy rate, the markup is not based on the underwriting risk or credit characteristics of the applicant, and dealers retain the markup as profit.

New vehicle dealers average a gross profit of about $2,444 per vehicle,

more than half of which comes from the dealers' F&I offices. Independent used vehicle dealers averaged a gross profit of more than $6,000 per vehicle, as of 2019.

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

Unless otherwise indicated, the terms “dealer,” “dealership,” and “motor vehicle dealer” as used in this SBP and the Commission's final regulatory analysis refer to “ `Covered Motor Vehicle Dealer' or `Dealer' ” as defined in this part.

See

Nat'l Auto. Dealers Ass'n, “Dealer-Assisted Financing Benefits Consumers,”

https://www.nada.org/autofinance/[https://web.archive.org/web/20220416131718/https://www.nada.org/autofinance/]

(Apr. 16, 2022) (noting that 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.

Dealers often originate the contract governing the extension of retail credit or retail leases and then sell, or otherwise assign, these contracts to unaffiliated third-party finance or leasing sources, including such third parties the dealer may have contacted in the course of arranging dealer-provided “indirect” financing.

See

Consumer Fin. Prot. Bureau, “Automobile Finance Examination Procedures” 3 (Aug. 2019),

https://files.consumerfinance.gov/f/documents/201908_cfpb_automobile-finance-examination-procedures.pdf.

See

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” 2 (2015),

https://www.nada.org/media/4558/download?inline

. (defining “buy rate” as “the rate at which the finance source will purchase the credit contract from the dealer”).

See, e.g., id.

at 1 n.4 & accompanying text.

Id.

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

Nat'l Auto. Dealers Ass'n, “Average Dealership Profile” 1 (2020),

https://www.nada.org/media/4136/download?attachment[http://web.archive.org/web/20220623204158/https://www.nada.org/media/4136/download?attachment]

(June 23, 2022).

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

Id.

at 8, 10.

Six to eight percent of financed vehicle purchases use what is called “buy here, pay here” dealers.

In this scenario, consumers typically borrow from, and make their payments directly to, the dealership.

Melinda Zabritski, Experian Info. Sols., Inc., “State of the Automotive Finance Market Q2 2020” 8 (2020),

https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-q2-safm-final.pdf

[

http://web.archive.org/web/20201106002015/https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-q2-safm-final.pdf

] (Mar. 6, 2023).

The remainder of financed vehicle transactions use what is commonly referred to as “direct” financing, provided by a credit union, bank, or other financing entity.

In this scenario, consumers typically receive an interest rate quote from the financing entity prior to arriving at a dealership to purchase a vehicle, and use the financing to pay for their chosen vehicle.

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

Consumer Fin. Prot. Bureau, “Automobile Finance Examination Procedures” 4 (Aug. 2019),

https://files.consumerfinance.gov/f/documents/201908_cfpb_automobile-finance-examination-procedures.pdf.

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.

Finally, consumers may choose to lease a vehicle from a dealership rather than purchase one. In this scenario, consumers may drive a vehicle for a set period of time—typically around three years

—and for a certain maximum number of miles—typically 10,000-15,000 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.

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.

Melinda Zabritski, Experian Info. Sols., Inc., “State of the Automotive Finance Market Q4 2020” 26 (2020),

https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf

[

http://web.archive.org/web/20210311174922/https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf

] (Mar. 6, 2023).

See

Fed. Trade Comm'n, “Financing or Leasing a Car,”

https://www.consumer.ftc.gov/articles/0056-financing-or-leasing-car

(last visited Dec. 5, 2023) (“The annual mileage limit in most standard leases is 15,000 or less.”); 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 Aug. 24, 2023) (“Most leases restrict your mileage to 10,000-15,000 miles per year.”).

Melinda Zabritski, Experian Info. Sols., Inc., “State of the Automotive Finance Market Q4 2020” 5 (2020),

https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf

[

https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf

] (Mar. 6, 2023).

B. Deceptive and Unfair Practices in the Motor Vehicle Marketplace

Section 5 of the Federal Trade Commission Act (“FTC Act”), as amended (15 U.S.C. 45), authorizes the FTC to address deceptive or unfair acts or practices in or affecting commerce, including in the motor vehicle marketplace.

An act or practice is deceptive if there is a representation, omission, or other practice that is likely to mislead consumers acting reasonably under the circumstances and is material to consumers—that is, it is likely to affect consumers' conduct or decisions with regard to a product or service.

Deceptive conduct can involve omission of material information, the disclosure of which is necessary to prevent the claim, practice, or sale from being misleading.

See

Fed. Trade Comm'n, “FTC Policy Statement on Deception” 2, 5, 103 F.T.C. 174 (1984) [hereinafter FTC Policy Statement on Deception] (

appended to Cliffdale Assocs., Inc.,

103 F.T.C. 110, 183 (1984)),

https://www.ftc.gov/system/files/documents/public_statements/410531/831014deceptionstmt.pdf.

Id.

An act or practice is considered unfair under section 5 of the FTC Act if: (1) it causes, or is likely to cause, substantial injury to consumers; (2) the injury is not reasonably avoidable by consumers; and (3) the injury is not outweighed by countervailing benefits to consumers or to competition.

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

In each of the past four years, the FTC received more than 100,000 complaints regarding motor vehicle sales, financing, service and warranties, and rentals and leasing.

This industry is also consistently at or near the top of private sources of consumer complaints.

Many of these complaints concerned deceptive or unfair acts or practices affecting U.S. consumers. Complaints about motor vehicle transactions are regularly in the top ten complaint categories tracked by the FTC.

For military consumers as well, auto-related complaints are among the top 10 complaint categories outside of identity theft.

See, e.g.,

Fed. Trade Comm'n, “Consumer Sentinel Network Data Book 2022” app. B3 at 85 (Feb. 2023) [hereinafter Consumer Sentinel Network Data Book 2022],

https://www.ftc.gov/system/files/ftc_gov/pdf/CSN-Data-Book-2022.pdf

(reporting complaints about new and used motor vehicle sales, financing, service & warranties, and rentals & leasing, collectively, of more than 100,000 in 2020, 2021, and 2022); Fed. Trade Comm'n, “Consumer Sentinel Network Data Book 2021” app. B3 at 85 (Feb. 2022) [hereinafter Consumer Sentinel Network Data Book 2021],

https://www.ftc.gov/system/files/ftc_gov/pdf/CSN%20Annual%20Data%20Book%202021%20Final%20PDF.pdf

(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).

According to commenters, complaints to the Better Business Bureau about new and used auto dealers, when combined, have been either the first or second highest regarding any industry in the U.S. for the past twenty years.

See

Comment of Nat'l Consumer L. Ctr. et al., Doc. No. FTC-2022-0046-7607 at ii;

see also

Better Bus. Bureau, “BBB Complaint and Inquiry Statistics,”

https://www.bbb.org/all/bbb-complaint-statistics

(last visited Dec. 5, 2023) (listing complaint statistics from 2010 through 2022, sorted by industry). In addition, for the past seven years annual surveys of State and local consumer protection agencies have reported that auto-related complaints were the top complaint received from consumers.

See

Comment of Nat'l Consumer L. Ctr. et al., Doc. No. FTC-2022-0046-7607 at 13; Consumer Fed'n of Am., “2022 Consumer Complaint Survey Report” 4-5 (May 2023),

https://consumerfed.org/wp-content/uploads/2023/05/2022-Consumer-Complaint-Survey-Report.pdf

(“For the seventh year in a row, auto sales, leases and repairs are the #1 complaint category. Consumers filed complaints about add-on products and services, bait and switch pricing, and mechanical condition issues.”).

See

Consumer Sentinel Network Data Book 2021,

supra

note 45, at 8 (listing vehicle-related complaints as the seventh most common report category, outside of identity theft, in 2021); Consumer Sentinel Network Data Book 2022,

supra

note 45, at 8 (listing motor vehicle-related complaints as the fifth most common report category, outside of identity theft, in 2022).

See

Consumer Sentinel Network Data Book 2021,

supra

note 45, at 18 (listing vehicle-related complaints as the eighth most common complaint category for military consumers, outside of identity theft categories, in 2021); Consumer Sentinel Network Data Book 2022,

supra

note 45, at 18 (listing vehicle-related complaints as the ninth most common complaint category for military consumers, outside of identity theft categories, in 2022).

Moreover, law enforcement experience shows that complaints are just the tip of the iceberg.

The Commission's recent enforcement action against a large, multistate dealership group is illustrative of this point in the motor vehicle marketplace: in that matter, the Commission received 391 complaints—about add-ons and other issues—over a several-month period prior to filing a complaint against the thirteenth largest dealership group in the country by revenue as of 2020.

However, in a survey of the dealer's customers over the same time period, 83% of respondents—or at least 16,848 customers—indicated they were subject to the dealer's unlawful practices related to add-ons alone.

See, e.g., United States

Brien,

617 F.2d 299, 308 (1st Cir. 1980);

United States

Offs. Known as 50 State Distrib. Co.,

708 F.2d 1371, 1374-75 (9th Cir. 1983); Keith B. Anderson, Fed. Trade Comm'n, “Consumer Fraud in the United States: An FTC Survey” 80 (2004),

https://www.ftc.gov/sites/default/files/documents/reports/consumer-fraud-united-states-ftc-survey/040805confraudrpt.pdf

(staff report noting consumers who reported they were victims of fraud complained to an official source only 8.4 percent of the time, filing complaints with the BBB in 3.5 percent of incidents and to a Federal agency, including the FTC, in only 1.4 percent of cases).

See

Complaint,

Fed. Trade Comm'n

N. Am. Auto. Servs., Inc.,

No. 1:22-cv-0169 (N.D. Ill. Mar. 31, 2022);

see also

WardsAuto, “WardsAuto 2020 Megadealer 100,”

https://www.wardsauto.com/dealers/wardsauto-2020-megadealer-100-industry-force

(last visited Dec. 5, 2023) (listing Napleton Automotive Group as the 13th-ranked dealership group by total revenue).

Complaint ¶ 27,

Fed. Trade Comm'n

N. Am. Auto. Servs., Inc.,

No. 1:22-cv-0169 (N.D. Ill. Mar. 31, 2022) (alleging that defendants buried charges for add-ons in voluminous paperwork, making them difficult to detect);

see

Press Release, Fed. Trade Comm'n, “FTC Returns Additional $857,000 To Consumers Harmed by Napleton Auto's Junk Fees and Discriminatory Practices” (Nov. 20, 2023),

https://www.ftc.gov/news-events/news/press-releases/2023/11/ftc-returns-additional-857000-consumers-harmed-napleton-autos-junk-fees-discriminatory-practices.

Similarly, in other contexts where companies were charged with making misrepresentations or engaging in misconduct regarding add-on products, information obtained after filing has shown widespread harm far beyond the initial consumer complaint volumes reported prior to filing.

For example, in a recent action involving deceptive pre-approval claims, the FTC had received roughly 30 complaints about the company's pre-approval conduct in the five-year period prior to announcing its action. But in the five months following announcement of the action, more than 900 additional consumers came forward with complaints about the conduct.

See

Press Release, Fed. Trade Comm'n, “FTC Announces Claims Process for Consumers Harmed by Credit Karma `Pre-Approved' Offers for Which They Were Denied” (Dec. 5, 2023),

https://www.ftc.gov/news-events/news/press-releases/2023/12/ftc-announces-claims-process-consumers-harmed-credit-karma-pre-approved-offers-which-they-were

(“[W]ithin five months of that announcement, the agency received nearly 900 more such complaints”).

As examined in greater detail in the paragraphs that follow, consumers in the motor vehicle marketplace are confronted with chronic deceptive or unfair practices, including bait-and-switch tactics and hidden charges.

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 Rule's core focus is on misrepresentations and add-on and pricing practices.

1. Bait-and-Switch Tactics

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 social media and online advertisements, television and radio commercials, and direct mail marketing. New vehicle dealers spend an average of more than $700 on advertising per vehicle sold

—more than two-thirds of which goes toward online advertising.

Nat'l Auto. Dealers Ass'n, “NADA Data 2022” 15,

https://www.nada.org/media/4695/download?inline

(listing average dealership advertising per new vehicle sold of $718 in 2022, and $602 in 2021).

Id.

at 16 (listing 68.2% of estimated advertising expenditures by medium as internet expenditures).

The FTC has brought many law enforcement actions involving motor vehicle dealers' deceptive advertising and other unlawful tactics. Such actions have charged dealers with,

inter alia,

making misrepresentations regarding the price of a vehicle, the availability of discounts and rebates, the monthly payment amount for a financed purchase or lease, the amount due at signing, and whether an offer pertains to a purchase or a lease.

Other such actions have charged dealers with misrepresentations regarding 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.

And in other FTC actions, some dealers have lured potential buyers through financial incentives incidental to the purchase, such as deceptive promises of a valuable prize that is redeemable only by visiting the dealership.

See, e.g.,

Complaint,

Timonium Chrysler, Inc.,

No. C-4429 (F.T.C. Jan. 28, 2014) (alleging dealership advertised internet prices and dealer discounts that were only available through rebates not applicable to the typical consumer); Complaint,

Ganley Ford West, Inc.,

No. C-4428 (F.T.C. Jan. 28, 2014) (alleging dealership advertised discounts on vehicle prices, but failed to disclose that discounts were only available on the most expensive models); Complaint,

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); Complaint ¶¶ 38-46,

Fed. Trade Comm'n

Tate's Auto Ctr. of Winslow, Inc.,

No. 3:18-cv-08176-DJH (D. Ariz. July 31, 2018) (alleging that company issued advertisements for attractive terms but concealed that the terms were only applicable to lease offers); Complaint ¶¶ 36-38,

United States

New World Auto Imports, Inc.,

No. 3:16-cv-02401-K (N.D. Tex. Aug. 18, 2016) (alleging misrepresentation that terms were for financing instead of leasing); Complaint ¶¶ 85-87,

Fed. Trade Comm'n

Universal City Nissan, Inc.,

No. 2:16-cv-07329 (C.D. Cal. Sept. 29, 2016) (alleging that dealerships claimed consumers could finance the purchase of vehicles with attractive terms and buried disclosures indicating that such terms were applicable to leases only).

Complaint ¶¶ 82-84,

Fed. Trade Comm'n

Universal City Nissan, Inc.,

No. 2:16-cv-07329 (C.D. Cal. Sept. 29, 2016) (alleging misrepresentation that dealer would pay off a consumer's trade-in when in fact consumers were still responsible for outstanding debt on trade-in vehicles); Complaint ¶¶ 17-19,

TXVT Ltd. P'ship,

No. C-4508 (F.T.C. Feb. 12, 2015) (alleging misrepresentation in leasing advertising that the dealership would pay off the negative equity of a consumer's trade in vehicle, when in fact, it was merely rolled into the financed amount for the consumer's newly financed vehicle).

See, e.g.,

Complaint ¶¶ 12, 17-19,

Traffic Jam Events, LLC,

No. 9395 (F.T.C. Aug. 7, 2020); Complaint ¶¶ 4, 7-9,

Fowlerville Ford, Inc.,

No. C-4433 (F.T.C. Feb. 20, 2014).

Deceptive tactics can cause significant consumer harm and impede competition, competitively disadvantaging law-abiding dealers. When dealerships advertise prices, discounts, or other terms that are not actually available to typical consumers, consumers who select that dealership instead of others spend time visiting the dealership or otherwise interacting with the dealership under false pretenses.

2. Unlawful Practices Relating to Add-On Products or Services and Hidden Charges

Another key consumer protection concern is the sale of add-on products or services in a deceptive or unfair manner. Add-ons in connection with the sale or financing of motor vehicles include extended warranties, service and maintenance plans, payment programs, guaranteed automobile or asset protection (“GAP”) agreements, 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.

Moreover, in the past two years, dealers have substantially increased prices for these add-ons, notwithstanding that such products or services largely are not constrained by supply.

See, e.g.,

Complaint ¶¶ 25, 27-28,

Fed. Trade Comm'n

N. Am. Auto. Servs., Inc.,

No. 1:22-cv-0169 (N.D. Ill. Mar. 31, 2022).

See

Ben Eisen, “Car Dealer Markups Helped Drive Inflation, Study Finds,” Wall St. J., Apr. 23, 2023,

https://www.wsj.com/articles/car-dealer-markups-helped-drive-inflation-study-finds-7c1d5a2d;

U.S. Bureau of Labor Statistics, “Automotive Dealerships 2019-2022: Dealer Markup Increases Drive New-Vehicle Consumer Inflation” (Apr. 2023),

https://www.bls.gov/opub/mlr/2023/article/automotive-dealerships-markups.htm.

A significant consumer protection concern is consumers paying for add-ons without knowing about, or expressly agreeing to, these products or services.

This type of payment packing has been a particular concern in the military community.

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

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

For example, according to an FTC law enforcement action, consumers visiting one large dealership group were required to complete a stack of paperwork that ran more than sixty pages and required more than a dozen signatures.

This paperwork can include hidden charges for add-on products or 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.

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

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 may even be made to decrease if the financing term is extended.

This type of conduct can target immigrants, communities of color, and servicemembers.

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, participants in an FTC qualitative study on consumers' car-buying experiences cited 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.

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

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

See

Nat'l Consumer L. Ctr., “Auto Add-ons Add Up: How Dealer Discretion Drives Excessive, Arbitrary, and Discriminatory Pricing” (Oct. 1, 2017),

https://www.nclc.org/images/pdf/car_sales/report-auto-add-on.pdf;

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 that are falsely represented as being required in order to obtain financing); Complaint ¶¶ 12-19,

Fed. Trade Comm'n

Liberty Chevrolet, Inc.,

No. 1:20-cv-03945 (S.D.N.Y. May 21, 2020) (alleging deceptive and unauthorized add-on charges in consumers' transactions); Complaint ¶¶ 59-64,

Fed. Trade Comm'n

Universal City Nissan, Inc.,

No. 2:16-cv-07329 (C.D. Cal. Sept. 29, 2016) (alleging deceptive and unauthorized add-on charges in consumers' transactions); Complaint ¶¶ 6, 9,

TT of Longwood, Inc.,

No. C-4531 (F.T.C. July 2, 2015) (alleging misrepresentations regarding prices for added features);

see also

Auto Buyer Study,

supra

note 25, 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.”).

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 that 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).

Complaint ¶¶ 17-19,

Fed. Trade Comm'n

Liberty Chevrolet, Inc.,

No. 1:20-cv-03945 (S.D.N.Y. May 21, 2020); Complaint ¶ 60,

Fed. Trade Comm'n

Universal City Nissan, Inc.,

No. 2:16-cv-07329 (C.D. Cal. Sept. 29, 2016); Carole L. Reynolds & Stephanie E. Cox, Fed. Trade Comm'n, “Buckle Up: Navigating Auto Sales and Financing” (2020) [hereinafter Buckle Up],

https://www.ftc.gov/reports/

buckle-navigating-auto-sales-financing.

See, e.g.,

Buckle Up,

supra

note 63, at 10-11 (noting the long, complex transaction process); Complaint ¶¶ 23-28,

Fed. Trade Comm'n

N. Am. Auto. Servs., Inc.,

No. 1:22-cv-01690 (N.D. Ill. Mar. 31, 2022) (same).

Complaint ¶ 24,

Fed. Trade Comm'n

N. Am. Auto. Servs., Inc.,

No. 1:22-cv-01690 (N.D. Ill. Mar. 31, 2022);

see also

Buckle Up,

supra

note 63, at 10-11.

Complaint ¶¶ 25, 27, 29-32,

Fed. Trade Comm'n

N. Am. Auto. Servs., Inc.,

No. 1:22-cv-01690 (N.D. Ill. Mar. 31, 2022);

see also

Complaint ¶¶ 17-19,

Fed. Trade Comm'n

Liberty Chevrolet, Inc.,

No. 1:20-cv-03945 (S.D.N.Y. May 21, 2020); 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),

https://www.regulations.gov/comment/FTC-2022-0036-0051

(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 at 3 (Aug. 6, 2011),

https://www.regulations.gov/comment/FTC-2022-0036-0014

(workshop panelist stating, “I have seen cases wherein the dealer uses financing to pack in extra costs or to wipe out trade-in value.”); Dawn Smith, 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),

https://www.regulations.gov/comment/FTC-2022-0036-0043

(“Confusing or misleading sales terms[.] Extra fees was [sic] 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),

https://www.regulations.gov/comment/FTC-2022-0036-0059

(citing “[d]ealers engage[d] in packing” as an example of the common consumer complaints of car-sales-related fraud 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 at 3 (Jan. 31, 2012),

https://www.regulations.gov/comment/FTC-2022-0036-0069

(noting that “[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 “[l]oan 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 at 525 (2020) [hereinafter Auto Buyer Study: Appendix],

https://www.ftc.gov/system/files/documents/reports/buckle-navigating-auto-sales-financing/bcpstaffreportautobuyerstudysuppappendix.pdf

(Study participant 169810: consumer had “additional items” charges on contract that consumer could not identify);

id.

at 730, 740-42 (Study participant 188329: dealer did not tell consumer about GAP or service contract but consumer was charged $599 and $1,950 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,' unlawfully charging consumers for hidden purchases by car dealerships.”).

Under the Truth in Lending Act (“TILA”) and its implementing Regulation Z, required add-on products or services must be factored into the APR and the finance charge disclosed during the transaction.

See

15 U.S.C. 1605, 1606, 1638; 12 CFR 226.4, 226.18(b), (d), (e), and 226.22. It is legally impermissible for dealers to include charges for such products in a consumer's contract without disclosing them.

See, e.g.,

Complaint ¶¶ 57-60,

Fed. Trade Comm'n

Stewart Fin. Co. Holdings, Inc.,

No. 1:03-CV-2648 (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).

See, e.g.,

Buckle Up,

supra

note 63, at 6; Fed. Trade Comm'n, Military Consumer Financial Workshop, Panel 1, Tr. 19:25-41 (July 19, 2017),

https://www.ftc.gov/news-events/events-calendar/military-consumer-workshop;

Fed. Trade Comm'n, “The Road Ahead: Selling, Financing & Leasing Motor Vehicles,” Public Roundtable, Session 2, Tr. at 40-41 (Aug. 2 2011),

https://www.ftc.gov/news-events/events/2011/08/road-ahead-selling-financing-leasing-motor-vehicles

(noting that 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 at 10 (Feb. 1, 2012),

https://www.regulations.gov/comment/FTC-2022-0036-0068

(discussing how dealers conceal 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),

https://www.regulations.gov/comment/FTC-2022-0036-0124

(discussing the “age-old auto salesperson's trick” of quoting monthly payment prices without disclosing that the quote includes the cost of optional items that the customer has not yet agreed to purchase).

See, e.g.,

Complaint ¶¶ 9, 26,

Fed. Trade Comm'n

Liberty Chevrolet, Inc.,

No. 1:20-cv-03945 (S.D.N.Y. May 21, 2020) (charging defendants with discriminating on the basis of race, color, and national origin by charging higher interest rates and inflated fees); 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 or “jamming”); Military Consumer Financial Workshop, Tr. 19:21 (July 19, 2017),

https://www.ftc.gov/news-events/events/2017/07/military-consumer-workshop

(panelist discussing servicemembers experiencing payment packing);

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 whose steady paychecks make them attractive customers for dealers, while having no or minimal credit history, meaning they qualify for less advantageous credit terms and higher interest rate financing).

See, e.g.,

Buckle Up,

supra

note 63, 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 that, 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.

(noting that most study participants' contracts included add-ons charges, but that 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 that 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).

Complaint ¶¶ 12-19,

Fed. Trade Comm'n

Liberty Chevrolet, Inc.,

No. 1:20-cv-03945 (S.D.N.Y. May 21, 2020) (alleging deceptive and unauthorized add-on charges in consumers' transactions); Complaint ¶¶ 59-64,

Fed. Trade Comm'n

Universal City Nissan, Inc.,

No. 2:16-cv-07329 (C.D. Cal. Sept. 29, 2016) (alleging deceptive and unauthorized add-on charges in consumers' transactions); Complaint ¶¶ 6, 9,

TT of Longwood,

No. C-4531 (F.T.C. July 2, 2015) (alleging misrepresentations regarding prices for added features);

see also

Auto Buyer Study,

supra

note 25, at 14.

Complaint ¶¶ 4-14,

Nat'l Payment Network, Inc.,

No. C-4521 (F.T.C. May 4, 2015) (alleging failure to disclose fees associated with financing program; misleading savings claims in advertisements); Complaint ¶¶ 4-13,

Matt Blatt Inc.,

No. C-4532 (F.T.C. July 2, 2015) (alleging failure to disclose fees associated with financing program; misleading savings claims); Buckle Up,

supra

note 63, at 10 (noting that some Auto Buyer Study participants did not fully understand 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 that “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 ¶¶ 10-16,

Santander

Consumer USA, Inc.,

CFPB No. 2018-BCFP-0008 (Nov. 20, 2018) (finding that defendant sold GAP product allegedly providing “full coverage” to consumers with loan-to-value ratios (“LTVs”) above 125%, when in fact coverage was limited to 125% of LTV).

Indeed, as previously noted, in a recent FTC enforcement action, the Commission cited a survey finding that 83% of consumers from the named dealers were charged for add-on products or services that they did not authorize or as a result of deceptive claims.

Complaint ¶ 27,

Fed. Trade Comm'n

N. Am. Auto. Servs., Inc.,

No. 1:22-cv-01690 (N.D. Ill. Mar. 31, 2022).

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 agreement that the dealer falsely said was mandatory. The consumer only learned about these purchases during the study interview. This consumer remarked:

The study is described in the Commission's reports: Auto Buyer Study,

supra

note 25, and Buckle Up,

supra

note 63. Some industry commenters critiqued the FTC's reliance on this qualitative study. The Commission notes that the study provides helpful qualitative insight from consumer interviews regarding their recent motor vehicle purchases and is one of the many sources the Commission has considered, including consumer complaints, enforcement actions, outreach and dialogue with stakeholders and consumer groups, among others, as described in this SBP and in the NPRM.

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 know [sic] 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.

Auto Buyer Study: Appendix,

supra

note 66, at 130 (Study participant 152288);

see also

Fed. Trade Comm'n, Notice of Proposed Rulemaking, Privacy of Consumer Financial Information Rule Under the Gramm-Leach-Bliley Act (“Privacy Rule”), 84 FR 13150 (Apr. 4, 2019),

https://www.govinfo.gov/content/pkg/FR-2019-04-04/pdf/2019-06039.pdf

(issuing notice of proposed rulemaking for rule amendment that was not preceded by an advance notice of proposed rulemaking).

This same commenter argued the FTC had not complied with the “Principles of Regulation” enumerated in section 1(b) of Executive Order 12866.

See

Comment of Nat'l Auto. Dealers Ass'n, Doc. No. FTC-2022-0046-8368 at 34-36 & n.123; E.O. 12866 3(b) (defining “Agency” to mean an authority of the United States “other than those considered to be independent regulatory agencies”). This provision of the Executive Order does not apply to independent agencies such as the FTC. Regardless, the Commission did take into account the principles set forth in section 1(b), as is evident throughout the NPRM.

See, e.g.,

NPRM at 42015-17 (identifying problems in the marketplace);

id.

at 42028-42031 (soliciting comments on alternative approaches);

id.

at 42036-42044 (assessing costs and benefits).

The same commenter also argued that the Commission's denial of its request to extend the comment period prejudiced the commenter's ability to collect and provide data pertaining to the proposed rule and was inconsistent with the Commission's grant of extensions in other rulemakings. As described in its letter, the Commission also received requests opposing an extension of the comment period.

See

Letter, Fed. Trade Comm'n, “Duration of the Public Comment Period in Matter No. P204800” (Aug. 23, 2022),

https://www.ftc.gov/system/files/ftc_gov/pdf/Matter%20No.%20204800%20-%20Letter%20re%20Extension%20for%20publication.pdf.

In the letter, the Commission noted its ongoing engagement with stakeholders on issues relating to the sale, financing, and lease of motor vehicles, since before its 2011

Federal Register

notice inviting stakeholder feedback on these issues and continuing since that time.

See

Fed. Trade Comm'n, Public Roundtables: Protecting Consumers in the Sale and Leasing of Motor Vehicles, 76 FR 14,014 (Mar. 15, 2011),

https://www.federalregister.gov/documents/2011/03/15/2011-5873/public-roundtables-protecting-consumers-in-the-sale-and-leasing-of-motor-vehicles.

The Commission determined that a sixty-day comment period, along with an additional twenty days following the public announcement and release of the NPRM and prior to its publication in the

Federal Register

, provided meaningful opportunity to comment.

see also

§ 463.3(p) (prohibiting misrepresentations regarding the disclosures required by the Final Rule).

Several dealership association commenters expressed concern that the proposed definition was too broad, contending that it might apply to hundreds of items and include fees, such as a processing or document fee, that a dealer charges a consumer. As discussed in SBP III.B.2(b), III.D.2(b), and III.E.2(b), upon careful review of comments, including comments regarding the breadth of this requirement, the Commission has determined not to finalize the provision that would have required listing all optional add-ons—the “Add-on List” definition and the associated requirement that dealers disclose such a list—as well as proposed § 463.5(b) relating to undisclosed or unselected add-ons.

121

The remaining substantive provisions that use the term “Add-ons” prohibit misrepresentations (§ 463.3(b)); require dealers to disclose, if true, that add-ons are not required (§ 463.4(c)); and prohibit charges for add-ons that provide the consumer no benefit (§ 463.5(a)). The law already prohibits misrepresentations, regardless of the product or service at issue; dealers that offer consumers additional products or services are already required to ask

consumers if they want such products, rather than suggesting that such products or services are mandatory, when they are not; and any hardship associated with refraining from charging for products or services that provide consumers no benefits are outweighed by the harms to consumers and competition from permitting this practice, as explained in the analysis of § 463.5(a).

121

See

NPRM at 42044, 42046 (proposed §§ 463.2(b), 463.4(b), 463.5(b)).

Commenters including an industry association suggested limiting the definition to products or services sold at the “point of vehicle purchase” to clarify that indirect charges, such as the inclusion of a one-year subscription to a satellite radio service, need not be separately itemized.

122

The industry association commenter suggested that, as proposed, the definition would include charges for which dealers and consumers “would otherwise not account.”

123

The Commission has determined not to finalize the add-on list and form requirements in proposed §§ 463.4(b) and 463.5(b). For the provisions being finalized, excluding subscription charges, or including only items added to the vehicle at the “point of vehicle purchase,” would narrow the definition of “Add-on” and the corresponding requirements in a manner that would allow for deceptive or unfair practices, including by allowing dealers to represent a price that is not the offering price, or to deceptively state that add-ons are required. In the example provided by the commenter, if the satellite radio subscription service is mandatory, it needs to be included in the offering price of the vehicle, as required by § 463.4(a) of the Final Rule; if it is not mandatory, the dealer needs to disclose, when making any representations about the service, that it is not required under § 463.4(c). Further, regardless of whether such a product or service is mandatory or optional, dealers must follow other aspects of the Final Rule, including by not making any misrepresentations about the subscription under § 463.3 and by obtaining the express, informed consent of the consumer for the associated charges under § 463.5(c).

122

Comment of Serv. Cont. Indus. Council, Guaranteed Asset Prot. All., & Motor Vehicle Prot. Prods. Ass'n, Doc. No. FTC-2022-0046-8113 at 13-14.

123

Id.

at 13.

Another industry association commenter contended that add-ons sold in the marine industry are typically different than those offered in the context of automobile sales and described in the NPRM. While all motor vehicle dealers must refrain from engaging in deceptive or unfair conduct relating to add-ons, the Commission is excluding recreational boats and marine equipment from the Final Rule's definition of “ `Covered Motor Vehicle' or `Vehicle,' ” as discussed in additional detail in the definition-by-definition analysis of § 463.2(e) in SBP III.B.2(e).

An industry association commenter and comments from a number of dealership associations noted that certain State laws already regulate the sale of add-ons, including, for example, laws in many States that regulate vehicle sales contracts or deceptive sales practices generally or that regulate insurance products. To the extent that the Final Rule's add-on provisions may duplicate State law, commenters have provided no evidence that any such duplication in the provisions that incorporate this defined term—which prohibit misrepresentations, require disclosures in the event add-ons are not required, and prohibit charges for add-ons from which the consumer would not benefit—will harm consumers or competition. Moreover, the Final Rule provides additional remedies that will benefit consumers who encounter conduct that is already illegal under State or Federal law, including by adding a mechanism for the Commission to redress consumers injured by a dealer's violation of the rule, and will assist law-abiding dealers that presently lose business to competitors that act unlawfully. Under the Final Rule, State laws may provide more or less specific requirements as long as such requirements are not inconsistent with part 463, as set forth at § 463.9, and in the event of an inconsistency, the Rule only affects such State law to the extent of the inconsistency.

124

See, e.g., English

Gen. Elec. Co.,

496 U.S. 72, 79 (1990).

A few dealership association commenters expressed concern that the proposed definition of “Add-on Products or Services” would include insurance-related products, such as credit life and credit disability insurance, and as such, could implicate the McCarran-Ferguson Act's reverse-preemption of certain Federal laws that “invalidate, impair, or supersede” State laws enacted “for the purpose of regulating the business of insurance.”

125

Commenters have provided no evidence that the Rule will invalidate, impair, or supersede State laws enacted for the purpose of regulating the business of insurance.

126

To the contrary, the Final Rule addresses deceptive or unfair conduct—it prohibits dealers,

inter alia,

from making misrepresentations regarding material information about add-ons, from failing to disclose when add-ons are not required, and from charging for add-ons from which the consumer would not benefit. Nor has the Commission been presented with evidence that the Rule's other substantive provisions (prohibiting misrepresentations; requiring disclosures of a vehicle's offering price and about total of payments; and requiring consumers' express, informed consent before charging them) invalidate, impair, or supersede State laws enacted for the purpose of regulating insurance.

127

125

See

15 U.S.C. 1012(b).

126

See Union Labor Life Ins. Co.

Pireno,

458 U.S. 119, 129 (1982) (setting forth test for whether an activity constitutes the “business of insurance”);

Humana Inc.

Forsyth,

525 U.S. 299, 307-08 (1999) (establishing criteria for whether a Federal law operates to “invalidate, impair, or supersede” State law).

127

The Supreme Court has refused to interpret the McCarran Ferguson Act to invalidate Federal law when applied to remedy a misrepresentation and undo the harm caused by alleged deception.

See SEC

Nat'l Sec., Inc.,

393 U.S. 453, 462 (1969). Moreover, lower courts have rejected precisely the concern raised by the commenter about credit life insurance.

See Fed. Trade Comm'n.

Dixie Fin. Co.,

695 F.2d 926, 930 (5th Cir. 1983) (McCarran Ferguson Act does not preclude FTC investigation of “whether the sale of insurance is a precondition to the arrangement of credit”);

Fed. Trade Comm'n

Mfrs. Hanover Consumer Servs., Inc.,

567 F. Supp. 992, 94 (E.D. Pa. 1983) (same).

A number of industry and dealership association commenters contended that, as proposed, this definition may extend to products or services that are provided by the manufacturer but that are installed by a distributor of motor vehicles, or alternatively, by the dealer, at the instruction of the manufacturer. Relatedly, a State governmental association commenter expressed concern that the proposed definition could create confusion with regard to the sale of used vehicles, where a prior owner of a vehicle may have added a product to the vehicle. The commenter contended that a motor vehicle dealer selling the used vehicle may be unaware of the added product, and further, that listing any such items may confuse buyers.

To the extent the commenters' concerns stem from the proposed provisions related to add-on lists and proposed § 463.5(b)'s provisions related to separate disclosures, the Commission is not finalizing those provisions. Under the provisions being finalized, if a product is provided to the dealer by the manufacturer or another entity, and a consumer chooses to have the product

installed and pay for it, the dealer may install it and charge for it, as long as the dealer complies with the provisions of the Final Rule, including by disclosing that the product is not required and by obtaining the consumer's express, informed consent for the charge. If the manufacturer requires the dealer to install the product or if the dealer chooses to install the product, and the dealer requires any consumer to pay charges for it, the amount of the charge must be included in the vehicle's offering price, and the dealer must comply with other aspects of the Final Rule, including the express, informed consent requirement. Relatedly, regarding used vehicles, if a prior owner of such a vehicle installed an add-on, and the dealer that subsequently sells such a vehicle requires any consumer to pay charges for the add-on, the amount of those charges must be included in the vehicle's offering price and the dealer must comply with other aspects of the Final Rule, including the express, informed consent requirement at § 463.5(c). If, alternatively, the dealer does not require any consumers to pay for the pre-installed add-on, then the dealer does not have to add that amount to the vehicle's offering price, and there is no charge for that add-on for which the dealer must obtain express, informed consent. Thus, the definition of “Add-on” and the Rule requirements being finalized address deceptive or unfair price and add-on disclosures and hidden charges without requiring dealers to list or itemize charges that they do not impose on consumers. For the reasons explained in this section, the Commission is finalizing the definition of “Add-on” or “Add-on Product(s) or Service(s)” largely as proposed, with conforming modifications to reflect changes to the defined terms “`Covered Motor Vehicle' or `Vehicle'” and “`Covered Motor Vehicle Dealer' or `Dealer'” as described in more detail in the discussion of § 463.2(e) and (f), in SBP III.B.2(e) and (f).

(b) Add-On List

The NPRM proposed defining the term “Add-on List,” which appeared in the associated Add-on List disclosure provision at proposed § 463.4(b), as well as in the recordkeeping provision at proposed § 463.6(a)(2). Based on the following, the Commission has determined not to include this definition in its Final Rule.

Several commenters supported the substantive add-on list proposal and its associated definition, and commenters including consumer advocacy organizations urged the Commission to finalize additional related restrictions or disclosures, such as requiring add-on prices to be fixed and non-negotiable, or requiring a distinct add-on list for each vehicle sold. Other commenters, including dealership associations, raised concerns that, as proposed, the add-on list definition could impose significant economic burdens on dealerships for a disclosure that, in some circumstances, might be too voluminous to be optimally meaningful to consumers, or permit price ranges that could be too broad to prevent abuses and effectively inform consumers.

After careful consideration, and in light of the concerns raised by commenters, the Commission has determined not to include the add-on list disclosure provision at proposed § 463.4(b) or the recordkeeping provision at proposed § 463.6(a)(2) in its Final Rule, and therefore will not include a definition of the term “Add-on List” in its Final Rule. Here, as elsewhere, the Commission remains committed to promoting fair, non-deceptive, and competitive markets for consumer products and services; it will continue to monitor the marketplace for add-on-related acts or practices that are unfair or deceptive, and will evaluate whether to propose additional measures pertaining to such products and services.

The NPRM proposed defining the term “Cash Price without Optional Add-ons,” which appeared in the proposed provision addressing undisclosed or unselected add-ons at § 463.5(b). Based on the following, the Commission is declining to finalize this definition.

A number of commenters favored the proposed provision and definition, and several, including consumer advocacy organizations, urged the Commission to include additional requirements, such as requiring the proposed disclosure documents associated with this proposed definition to be available in different languages, while others, including a dealership association, raised concerns that the definition and relevant provision were burdensome or confusing for dealers.

As explained in additional detail in SBP III.E.2(b) with respect to § 463.5(b), in light of commenter concerns that the proposed provision using this term would increase costs for legitimate dealers and add to the time and paperwork for consumers in an already lengthy, paperwork-heavy transaction, the Commission has elected not to include a Cash Price without Optional Add-ons disclosure requirement in its Final Rule. Thus, after careful consideration, and in light of the concerns raised by commenters, the Commission has determined not to include a definition of “Cash Price without Optional Add-ons” in its Final Rule.

(d) Clearly and Conspicuously

The proposed rule defined the term “Clearly and Conspicuously” as “in a manner that is difficult to miss (

i.e.,

easily noticeable) and easily understandable,” including in all of seven enumerated ways, listing proposed requirements for “any communication that is solely visual or solely audible,” “[a] visual disclosure,” “[a]n audible disclosure,” and “any communication using an interactive electronic medium,” and providing,

inter alia,

that such disclosures “must use diction and syntax understandable to ordinary consumers and must appear in each language in which the representation that requires the disclosure appears” and “must not be contradicted or mitigated by, or inconsistent with, anything else in the communication.” Based on the following, the Commission is finalizing this definition largely as proposed, with a modification to clarify that the definition applies whether the term appears as an adjective or an adverb, by adding the parentheses in the following manner to the defined term: “Clear(ly) and Conspicuous(ly).”

Some consumer advocacy organization commenters favored the Commission's proposed definition while also suggesting that the Commission include a provision requiring translation of any deal consummating documents, including buyer's orders and retail installment sales contracts, into the language in which the negotiations were conducted. This issue, however, is addressed by § 463.5(c) of the Rule, which requires express, informed consent for each item charged.

128

As explained in additional detail in the paragraph-by-paragraph analysis of § 463.5(c) in SBP III.E.2(c), if a deal-consummating document is provided in a language that the consumer does not understand, and the document's contents are not otherwise clearly understood by the consumer, then the consumer is in no position to give unambiguous assent to the charges described therein. The Commission therefore has determined not to add

such a provision to its “Clear(ly) and Conspicuous(ly)” definition. However, the Commission will continue to monitor the marketplace and determine whether further language requirements or additional measures are warranted to address deceptive or unfair practices—particularly those that target or otherwise disproportionately impact language-minority communities.

128

The language requirements, as they relate to obtaining express, informed consent, are further explained in the discussion of § 463.5(c) in SBP III.E.2(c).

Commenters, including consumer advocacy organizations, expressed concern that proposed § 463.2(d)(5) may be read to apply only to certain disclosures with triggering representations and only to disclosures that are in writing. These commenters also requested that the Commission incorporate into its Final Rule the FTC's policy statement regarding foreign language advertising and sales materials, which is separately codified at 16 CFR 14.9.

129

In response, the Commission notes that to be clear and conspicuous, the disclosure must be “easily understandable,” as stated in the definition. If a disclosure is being made in a language the consumer does not understand, it does not meet this requirement. Further, the disclosures highlighted by the commenters are indeed subject to the language requirements of § 463.2(d)(5), which requires that disclosures “appear in each language in which the representation that requires the disclosure appears.” With regard to the offering price disclosure in § 463.4(a)(1), the applicable “representation that requires the disclosure” is the “advertisement that references . . . a specific Vehicle”; thus, for example, if an advertisement that references a specific vehicle is in Spanish, the offering price disclosure must also be in Spanish. Similarly, in § 463.4(a)(2), the applicable representation that requires the disclosure is an “advertisement that represents . . . any monetary amount or financing term for any Vehicle.” In § 463.4(a)(3), the applicable representation is “any communication . . . that includes a reference . . . regarding a specific Vehicle, or any monetary amount or financing term for any Vehicle.” In § 463.4(c) and (d), “any representation” regarding an add-on product or service or a monthly payment for any vehicle, respectively, triggers the language requirement of § 463.2(d)(5). The monthly payments comparison disclosure in § 463.4(e) is required when there is a “comparison between payment options . . . that includes discussion of a lower monthly payment.” Thus, the language requirements in § 463.2(d)(5) apply.

129

16 CFR 14.9 is an enforcement policy statement that provides information to advertisers about clear and conspicuous disclosures in foreign language advertisings and sales materials, including ensuring the language of the disclosure matches the language in the publication.

See

16 CFR 14.9.

In response to this concern regarding the applicability of § 463.2(d)(5) to disclosures that are not in writing, the Commission notes that its use of the word “appear” in § 463.2(d)(5) incorporates common meanings, such as “to show up,” “to come into existence,” or “to become evident or manifest,” which cause this provision to apply whether the representation requiring the disclosure appears visually, orally, or otherwise.

130

Where the Commission instead intended a provision to be limited to a visual disclosure, as in § 463.2(d)(2), the Rule states so explicitly.

130

See Appear

(defs. 1b, 4, 6), Merriam-Webster.com Dictionary,

https://www.merriam-webster.com/dictionary/appear

(last visited Dec. 5, 2023);

see also

Order ¶¶ 2-3,

Asbury Auto. Grp., Inc.,

No. C-4606 (F.T.C. Mar. 22, 2017) (identical usage in definition provision); Order ¶ 2,

Lithia Motors, Inc.,

No. C-4597 (F.T.C. Dec. 8, 2016) (same); Order ¶¶ 2-3,

Jim Koons Mgmt. Co.,

No. C-4598 (F.T.C. Dec. 8, 2016) (same).

In response to the request that the Commission incorporate into this Rule its policy statement regarding foreign language advertising and sales materials, separately codified at 16 CFR 14.9, the Commission emphasizes that the enforcement statement sets out what is already impermissible under current law and is consistent with the requirements the Commission is finalizing. To the extent dealers take actions that are inconsistent with Commission statements about such law, they are risking enforcement proceedings by the Commission or others. Accordingly, the Commission has determined not to add to the Rule further requirements regarding foreign language advertising. The Commission will continue to monitor the market to determine whether further action is warranted.

Industry association commenters raised concerns about how the Commission's proposed definition interacts with other Federal laws, such as Regulations Z and M, which implement the Truth in Lending Act and the Consumer Leasing Act, respectively, and contended that it conflicts with a clear and conspicuous definition in Commodity Futures Trading Commission regulations.

131

Industry and dealership association commenters contended that State advertising standards already address what constitutes “clear and conspicuous” advertising and provide guidance on disclosures, such that the FTC's proposal will cause confusion or possible conflict with State law.

131

17 CFR 162.2.

The Commission's definition of “Clear(ly) and Conspicuous(ly)” is not inconsistent with the existing Federal legal requirements raised by these commenters. Dealers can comply with these laws to the extent they apply as well as with the requirements that follow from the Commission's definition. Regarding State law, commenters did not provide examples of actual conflicts. Further, to the extent there is truly an inconsistency between the operation of the Commission's definition and any State law, the Commission notes that the definition is based on decades of Commission experience policing deceptive and unfair conduct; addresses harmful practices including those related to hidden disclosures and charges; and that § 463.9 of the Final Rule sets out the Rule's relation to State laws.

Other industry association commenters also contended that the proposed definition of “Clearly and Conspicuously” would be overly broad and challenging for compliance, but did not explain why or suggest alternative language. In addition, some dealership association commenters requested more guidance to understand the definition. The Commission's definition spells out, in seven subparts, what clear and conspicuous means, using simple terms that provide additional information about how dealers can make a disclosure in a manner that is easily understandable and easily noticeable to the consumer. The definition elaborates basic, common-sense principles, including that visual disclosures be in a size that consumers will easily notice and that audible disclosures be in a volume, speed, and cadence such that consumers will easily hear it. Thus, for example, disclosures in an illegible font, or that consumers cannot hear, are not clear and conspicuous. The Commission also notes that it did not mandate specific fonts, volumes, or other prescriptive measures. Thus, dealers have the flexibility to determine the best way to meet the definition's requirements for their consumers under the circumstances.

A dealership association commenter contended that the proposed definition does not include a reasonableness standard and may be interpreted as prohibiting any limitations and exclusions, given the requirement in proposed § 462.3(d)(7) that a disclosure must not be contradicted or mitigated by or inconsistent with anything else in the communication. The commenter further asked whether a statement such as “with approved credit” would

impermissibly mitigate an offer of low financing under this proposed definition.

132

The Commission responds as follows. The standard is an objective one, evaluated from the perspective of a reasonable consumer.

133

The definition does not prohibit all advertising that contains limitations and exclusions, but it does provide that if dealers are advertising offers that are limited in some way, they may not misrepresent such offers. Thus, if a dealer presents consumers with an unqualified representation of low financing terms, those terms must be available to typical consumers. Alternatively, a dealer may offer low financing terms to consumers with particular credit characteristics if that requirement is presented in a manner that does not deceive reasonable consumers. For example, a dealer may offer “0% annual percentage rate (APR) for consumers with a credit score above 800.” By contrast, it would be deceptive if the dealer offered “0% APR,” and then separately disclosed in fine print that such terms are only available to consumers with a credit score above 800, because the qualifying disclosure is inconsistent with an offer of “0% APR” that contained no limitations and thus indicated that 0% APR is available to the typical consumer regardless of credit score.

134

Further, the Commission notes that to qualify as clear and conspicuous, “disclaimers or qualifications in any particular ad are not adequate to avoid liability unless they are sufficiently prominent and unambiguous to change the apparent meaning of the claims and to leave an accurate impression. Anything less is only likely to cause confusion by creating contradictory double meanings.”

135

132

Comment of Ohio Auto. Dealers Ass'n, Doc. No. FTC-2022-0046-6657 at 4.

133

See

FTC Policy Statement on Deception,

supra

note 42, at 2-5.

134

Complaint ¶¶ 5-7,

Progressive Chevrolet Co.,

No. C-4578 (F.T.C. June 13, 2016) (alleging ads touting attractive terms deceptively failed to disclose high credit score requirement).

135

Removatron Int'l Corp.

Fed. Trade Comm'n,

884 F.2d 1489, 1496-97 (1st Cir. 1989);

see also

Complaint ¶¶ 57-60,

Fed. Trade Comm'n

Stewart Fin. Co. Holdings, Inc.,

No. 1:03-CV-2648 (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).

139

See

FTC Policy Statement on Deception,

supra

note 42, at 2-5 (describing application of reasonable consumer standard).

After carefully considering the comments, the Commission adopts § 463.2(d) with a modification to clarify, through the addition of parentheses—“Clear(ly) and Conspicuous(ly)”—that the definition applies whether the term is used as an adjective or adverb. Consistent with the Commission's experience addressing unfair or deceptive conduct, the Commission has defined the term “Clear(ly) and Conspicuous(ly)” to include disclosures that are easily understandable and easily noticeable, while also providing dealers with additional information on how to meet those requirements.

140

See, e.g.,

Decision and Order, JS Autoworld, Inc., No. C-4535 (F.T.C. Aug. 13, 2015); Decision and Order, Nat'l Payment Network, Inc., No. C-4521 (F.T.C. May 4, 2015); Decision and Order, Matt Blatt Inc., No. C-4532 (F.T.C. July 2, 2015); Decision and Order, Ganley Ford West, Inc., No. C-4428 (F.T.C. Jan. 28, 2014).

(e) Motor Vehicle (Finalized as “ `Covered Motor Vehicle' or `Vehicle' ”)

The proposed rule defined the term “Motor Vehicle” as “(1) any self-propelled vehicle designed for transporting persons or property on a street, highway, or other road; (2) Recreational boats and marine equipment; (3) Motorcycles; (4) Motor homes, recreational vehicle trailers, and slide-in campers, as those terms are defined in §§ 571.3(b) and 575.103(d) of title 49, Code of Federal Regulations, or any successor thereto; and (5) Other vehicles that are titled and sold through Dealers.” The Commission has determined to finalize the definition with the modifications discussed in the following paragraphs.

The Commission received several comments regarding the substance and scope of this proposed definition. A number of industry association commenters requested that certain vehicle types, including marine vehicles, motorcycles, RVs, and other recreational vehicles be excluded from coverage. These commenters contended that the dealerships that sell such vehicles function differently from automobile dealerships, and that recreational vehicles are discretionary, rather than essential, purchases. After careful consideration, the Commission is excluding recreational boats and marine equipment; motorcycles; and motor homes, recreational vehicle trailers, and slide-in campers from the definition of “ `Covered Motor Vehicle' or `Vehicle.' ” Moving forward, the Commission will continue to monitor for unfair and deceptive practices to determine whether further action is warranted to protect consumers, through law enforcement, a future rulemaking, or other measures. The Commission notes that no dealer may misrepresent material terms; deceive customers about prices, add-ons, or payments; charge for products that provide no benefit; or charge consumers without express, informed consent. To the extent that dealers engage in such conduct, they are in violation of the FTC Act.

Another commenter contended it was unclear whether all-terrain vehicles, go-carts, snowmobiles, scooters, electric bicycles, and golf carts were covered by the proposed definition. In response, the Commission has modified the first enumerated subpart of the definition to refer only to vehicles designed for use on a “public” street, highway, or road, and to expressly exclude scooters, electric bicycles, and golf carts. The definition of “ `Covered Motor Vehicle' or `Vehicle' ” in the Final Rule does not cover all-terrain vehicles, go-carts, or snowmobiles because such vehicles are not designed for use on a “public” street, highway, or road.

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According to the National Highway Traffic Safety Administration, “Public road means any road under the jurisdiction of and maintained by a public authority and open to public travel.” 23 CFR 1300.3.

A number of industry association commenters claimed that the proposed definition conflicts with definitions of motor vehicle under various State laws, and one such commenter requested that, rather than finalize a definition of “Motor Vehicle,” the Commission defer to the definitions promulgated by each State's department of motor vehicles. The commenters did not explain how the Rule's definition may actually conflict with any laws, or how any alleged duplication would harm consumers or competition. To the extent that States have broader or narrower definitions, it is not clear why motor vehicle dealers covered by the Rule cannot comply with the Rule's provisions and applicable State laws. Moreover, the Final Rule provides additional remedies that will benefit consumers who encounter conduct that is already illegal under State or Federal law, including by adding a mechanism for the Commission to redress consumers injured by a dealer's violation of the rule, and will assist law-abiding dealers that presently lose business to competitors that act unlawfully. Section 463.9 provides further discussion of State laws.

Thus, after careful consideration of the comments, the Commission is finalizing the definition of “Motor Vehicle” with modifications, including adding the word “Covered” to the definition to reflect the fact that the definition is narrower than the term “Motor Vehicle” in the NPRM and adding “or Vehicle” to the definition to clarify that all references in the Rule to the term “Covered Motor Vehicle” and “Vehicle” refer to the defined term.

(f) Dealer or Motor Vehicle Dealer (Finalized as “ `Covered Motor Vehicle Dealer' or `Dealer' ”)

The proposed rule defined the term “Dealer” or “Motor Vehicle Dealer” as “any person or resident in the United States, or any territory of the United States, that: (1) Is licensed by a State, a territory of the United States, or the District of Columbia to en

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