September 12, 2024

FTC CARS Rule: How Dealerships Can Prepare

The automotive industry has long been a source of consumer frustration, with dishonest dealerships using deceptive practices and hidden fees to cloud the car-buying process. To address these issues, the Federal Trade Commission (FTC) introduced the Combating Auto Retail Scams (CARS) Rule in December 2023, a comprehensive set of regulations designed to protect consumers from unscrupulous dealerships. Initially scheduled to take effect in July 2024, it has faced legal challenges that have temporarily delayed implementation. However, its underlying principles remain vital for ensuring a fair and transparent car-buying experience. To help clients, prospects, and others, Wilson Lewis has summarized the key details below.

What is the FTC CARS Rule?

The FTC CARS rule aims to protect consumers from unfair or deceptive practices in automotive sales. Once enacted, the Rule outlines standards for selling practices, advertising, and price disclosure at both independent and franchise car dealerships. According to the FTC, consumers should expect improved fairness and transparency in the car-buying process.

Some of the critical parts of the rule include:

• Prohibition of Misrepresentation: Dealerships are prohibited from misleading consumers about cost and financing information about vehicles. This rule extends to misinformation targeting military members, outlining that dealerships cannot lie to military members about affiliation with the military or another governmental organization.
• Clear Disclosure Requirements: Clear disclosure means that dealers must disclose the actual price anyone can pay to get the vehicle, not including any required government charges.
• Junk Fees: Under the Rule, it would be illegal for dealers to charge consumers for non-beneficial add-ons.
• Informed Consent: Before charging consumers for anything, dealers must get their express, informed consent. This needs to be obtained for each vehicle the customer is interested in.
• Servicemembers: Because servicemembers and their families are particularly targeted, the rule offers explicit protections, including preventing dealers from providing false information about financing, costs, repossession laws, and vehicle mobility.

By enforcing these regulations, the FTC aims to protect consumers and support honest dealers, creating a more transparent and fairer marketplace for car buyers.

What Has Been Challenged?

The National Automobile Dealers Association (NADA) has pushed back on some of the rules proposed by the FTC, including the requirement for dealers to provide new written forms for each vehicle or payment inquiry. The concern is that dealers and customers will be more inundated with forms than they already are should the CARS Rule move forward as it is currently organized. Even if there is a digital component for acknowledgment, for example, dealers will still need to present a written copy to customers.

The current wording around disclosure requirements is also vague, which could spell trouble for dealers who misinterpret the rules, as civil penalties could be incurred up to $50,120 per violation. Retention policies have also been expanded under the CARS Rule, requiring the retention of certain records for up to 24 months, including consumer complaints, marketing messages, advertisements, and text messages. Some dealerships worry this will significantly expand document retention, causing an undue burden.

If sufficient disclosure moves forward as outlined, all written messaging that goes out also needs to include written disclosures, such as advertisements and sales staff communication. The new requirements may slow down the sales process, especially for smaller dealerships with a few rooftops trying to keep up with training, turnover, and moving inventory.

How Should Dealerships Prepare for the CARS Rule?

The CARS Rule will not be implemented until at least September 30, 2025, following the House Appropriations Committee’s approval of the FY25 Financial Services and General Government Appropriations Act (FSGG). This gives Atlanta dealerships more time to prepare for changes to communications, record retention, and process approaches.

Contact Us

Since the burden of change lies on the dealerships, preparing for shifts in the process can help you stay one step ahead of the final ruling. Making these preparations can also foster greater transparency and trust with buyers. If you have questions about the information outlined above or need assistance with another auto dealer accounting issue, Wilson Lewis can help. For additional information, call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.