FTC’s proposed trade rules for dealerships target ‘additional’ product sales | McGlinchey Stafford

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Consumer Credit Industry Association publication, The CCIA Star. – July 2022

On July 13, 2022, the FTC’s Proposed Motor Vehicle Dealer Commerce Rule was published in the Federal Register. The stated goal of the FTC’s proposed rule is to “protect honest consumers and dealers by making the car buying process clearer and more competitive.” Specifically, the FTC believes that consumers do not know the true cost of the vehicle they are buying and financing, and that consumers unknowingly buy or are tricked into buying complementary products without knowing the costs, benefits, complementary products are optional. , or even buy add-ons for the vehicle.

The proposed rule defines “add-ons” or “add-on products or services” as any product or service not supplied to the consumer or installed on the vehicle by the engine. automobile manufacturer and for which the automobile dealer, directly or indirectly, invoices a consumer in connection with the sale, lease or financing of a vehicle. Although this is a broad definition, the FTC lists “extended warranties, service and maintenance plans, payment programs, guaranteed automobile or asset protection (“GAP” or “GAP insurance”), emergency roadside service, VIN etching and other theft protection features, and underlay” as examples of the most commonly offered add-on products.

If the proposed rule becomes effective, it will become an unfair or deceptive act or practice in violation of the FTC Act, Section 5 for a dealership of any motor vehicle to charge consumers for (i) add-on products that provide no benefit , (ii) optional add-on products without presenting specific disclosures, including their optionality and price, or (iii) any item without obtaining the express and informed consent of the consumer for payment. The proposed rule also prohibits dealers from asking consumers to waive the protections of the proposed rules and will impose special record-keeping requirements on dealers.

No misrepresentation

Consumers cannot be informed that complementary products and services are required by law. They must be informed that the consumer can buy or lease the vehicle without the Add-on, and that the financing conditions will not depend on the purchase of the Add-on. The consumer must be clearly informed of the costs of these products, as well as the advantages provided by the complementary product and service, as well as any limitations or exclusions.

The add-on must provide benefits

A reseller cannot charge for an additional product or service if the consumer would not benefit from it. The proposed rule specifically calls out products or services related to nitrogen-filled tires that contain no more nitrogen than exists naturally in the air. More generally, products or services that exclude vehicle, consumer, or transaction coverage, or that duplicate vehicle warranty coverage, are prohibited. This would specifically include a GAP waiver agreement if the consumer’s vehicle or neighborhood is excluded from coverage or if the loan-to-value ratio would result in the consumer not benefiting financially.

Disclosures

Cash price without optional add-ons
Prior to referring to any aspect of financing a specific vehicle, the dealer must clearly and prominently disclose, in detail, the total cash price, plus finance charges, taking into account any cash down payment and recovery assessment, and specifically excluding optional add-ons. It must also be stated that the consumer can purchase the vehicle for the cash price with no optional add-ons. In order for the consumer to be able to purchase add-ons, he must then refuse to purchase the vehicle at the cash price without the optional add-ons. Disclosure and declination must be in writing, date and time recorded, and signed by the consumer and a dealer official. The cash price without the optional extras and the declination cannot be presented with any other written document.

List of add-ins
After presenting the cash price without optional extras, the dealer can then present the consumer with a list of extras. The list of add-ons would include any optional add-ons that the reseller charges consumers for and their respective prices. If the price of the add-on varies depending on the specifics of the transaction, the list of add-ons should include the range that the typical consumer will pay. For the particular vehicle transaction, the dealer must present to the consumer the cash price without optional add-ons, the charge for any optional add-ons selected by the consumer (which must be itemized separately), and the sum of the cash price without add-ons. optional ons and add-on fees.
The complementary list is also relevant for advertisements. If the advertisements are presented in print, radio or television, the dealer would not be required to include the supplemental list. Instead, these advertisements would be required to disclose the website, online service or mobile application where consumers can access a copy of the complementary list.

Consumer Consent

In general, the proposed rule would require dealers to obtain clear, written, and informed consent for all charges, fees, and terms of sale, after presenting the consumer with both the Pricing Without Options form and the list of surcharges. The proposed rule does not consider a signed or initialed document, on its own, as proof of the express and informed consent of the consumer. Nor can consent be obtained through the use of “pre-ticked boxes” or the presentation of an agreement that impairs the “autonomy, decision-making or choice” of the consumer. An active selection and a clear indication of each desired Add-on will have to be made individually by the consumer.

Record keeping requirements

For a period of 24 months, resellers must retain (i) copies of all materially different Supplemental Listings and all documents describing such products or services that are offered to consumers, (ii) copies of all purchase orders , financing and lease documents signed by the consumer, (iii) copies of all service contracts, GAP agreements and calculations of loan-to-value ratios in contracts, including GAP agreements, (iv) the cash price excluding disclosures and disclaimers of optional add-ons, and (v) copies of all written consumer complaints and inquiries regarding the add-ons.

The proposed rule is similar to many regulatory, compliance and enforcement activities by state and federal regulators in recent years. However, it is likely to present operational and compliance risks for dealers if the proposed rule comes into effect. The FTC estimates that it will take about 15 hours for dealerships to bring their practices into compliance. This may be an unrealistic estimate of the time it will take to implement new forms and systems, and train employees on proposed new regulatory requirements. This is especially true when the dealership does not already have a website to direct consumers to for proposed rules and required disclosures.

In addition, many supplemental products and services are regulated by state insurance departments. Other dealer practices are also heavily regulated by states. Although the proposed rule does not replace consistent and/or supplemental state law, it may confuse dealers and consumers. As the FTC points out in its reasoning for the proposed rule, the process of buying a car is often long and tedious, with an abundant amount of paperwork. The proposed rule, while valiant in its efforts to ensure the consumer is fully informed, will add time and paperwork, often in a deceptive way.

Public comments on the proposed rule are expected by September 12, 2022.

This article first appeared in the July 2022 issue of Publication of the Consumer Credit Industry Association, The CCIA Star.

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