Under the Hood: New FTC rule aims to crack down on dealer UDAP violations

Though auto dealers were excluded from oversight when the Consumer Financial Protection Bureau (CFPB) was formed back in 2010, they are now in the crosshairs of a Federal Trade Commission (FTC) proposal targeting unfair or deceptive acts or practices (UDAP) related to the sale, financing and leasing of motor vehicles. The proposal, dubbed the Motor Vehicle Dealers Trade Regulation Rule, was triggered by two main issues, explained Sanya Shahrasbi, a staff attorney in the FTC’s Division of Financial Practices. For starters, despite dozens of law enforcement actions, coupled with agency workshops and consumer education efforts, “time and time again, we get consumer complaints about deceptive and unfair practices in this market,” Shahrasbi said recently on a Ballard Spahr podcast. Secondly, current regulations hamstring the FTC’s ability to impose civil penalties for UDAP violations. “Especially with surging car prices, it's more important now than ever to be able to get money back for consumers,” Shahrasbi said. [caption id="attachment_57331458" align="alignright" width="2560"] © Can Stock Photo / GroovySoup [/caption] The FTC’s regulatory proposal, which spanned 37 pages in the July 13 Federal Register, outlines disclosure requirements designed to curb pricing-, leasing- and financing-related deception and unfairness, particularly regarding the truthfulness of key terms and the costs of add-on products and services. It also calls for dealers to obtain consumers’ consent to charges, and it aims to promote competition by ensuring that transparent, law-abiding dealers are not competitively disadvantaged. Transparent pricing The proposed rule centers on disclosures and transparent pricing. The FTC cited a complaint it received in which consumers “were required to complete a stack of paperwork that ran more than 60 pages and required more than a dozen signatures.” The agency noted that extensive paperwork “can include hidden charges for add-on products and services, causing consumers to purchase those add-ons without knowing about or agreeing to them, or without knowing or agreeing to their costs, or other key terms.” But if current car-buying disclosures are already unwieldy, why would the FTC propose additional disclosures? The FTC devoted three pages of the proposal to questions for which it specifically requested comment, one of which centered on that precise issue. Other FTC questions — there were 49 in all — probed whether the required disclosures would inadvertently discourage truthful advertising to the detriment of consumers or whether a list of add-on products and services would be too long to be meaningful to consumers. During the comment period, the proposal generated upwards of 26,000 comments, according to Regulations.gov, a federal service that facilitates the submission of electronic comments. While some comments were just a sentence or two, others were lengthy. For instance, the National Automobile Dealers Association ’s comment was 364 pages long. Without a simple way to download all the comments, it was difficult to get a sense for the majority sentiment. A random sampling of comments showed many opinions in favor of the new rule, but keyword searches for terms like “disclosure,” “complex” or “cost” revealed more varied views. ‘It’s just too much’ Jack Fitzgerald, chief executive of Rockville, Md.-based Fitzgerald Auto Malls , largely agreed with the FTC’s rule, with one caveat related to disclosures. Fitzgerald writes: “Please know that when I started selling cars, the contract was letter-size, with very little on the back. I’ve attached today’s contract, that is almost the equivalent to three 8½ x 11 sheets of paper front and back, full of disclosures. I don’t think most people read it before they sign it. It’s just too much.” Meanwhile, 30-year dealership employee Colleen Murphy contends that “getting signed disclosures when a customer is merely shopping will stop the flow of information that buyers depend on before visiting a dealership.” No matter what the FTC decides in terms of its final rule, the proposal exposes a clear gap in consumers’ knowledge of auto financing. The proposal cites an example of a borrower who does not understand that lowering the monthly payment would require a longer financing term, which, in turn, would result in a higher overall amount paid for financing. Commenter George Greenway, a 25-year industry veteran, wrote: “With online purchasing and the levels of expectations customers have in today's market, adding more disclosures will increase the levels of frustrations and possibly cause more issues in the future. At some point, the customer needs accountability for their own actions. Over-disclosure is not the resolution. Uphold[ing] the regulations we currently have is the resolution.” Daniel Dwyer, a staff attorney in the Division of Financial Practices at the FTC, echoed that sentiment on the Ballard Spahr podcast. “It's definitely a goal of the commission to try to maximize how informed consumers are and sort of minimize burdens on dealerships in an appropriate way while we're doing that,” he said. One thing is apparent: Consumers’ research should extend beyond decisions about which vehicle they want to include an understanding of available ancillary products and services. Sure, it behooves dealers and lenders to simplify the financing process, but it is equally incumbent upon consumers to understand the financing transaction. Auto Finance Summit, the premier industry event for auto lending and leasing , returns October 26-28 at the Wynn Las Vegas. To learn more about the 2022 event and register, visit www.AutoFinanceSummit.com .

Under the Hood: New FTC rule aims to crack down on dealer UDAP violations

The proposed rule centers on disclosures and transparent pricing

Third Circuit adopts “reasonable reader” standard for credit report accuracy

Listen: Weekly Wrap on used-vehicle market, diminishing demand

Related Posts

Trump nominates a new CFPB head, but Vought isn’t going anywhere

CFPB funding in jeopardy following DOJ decision

Porsche ABS deal reveals changes in luxury market (Under the Hood)

Listen: Weekly Wrap on used-vehicle market, diminishing demand

Stay Informed with Our Newsletters

The Roadmap Podcast

SPONSORED

Driving Innovation in Automotive Refunds: How Onbe and Allied Solutions Are Modernizing the Payment Experience

Navigating the Margin Squeeze: EVs, Tariffs & Pricing — A Q&A with Earnix

Enhancing credit approaches to boost conversion and dealer loyalty

Welcome Back!

Retrieve your password