WASHINGTON—The Federal Trade Commission has finalized a new rule it said is designed fight two “common” types of illegal tactics consumers face when buying a car: bait-and-switch tactics and hidden junk fees, including those that target members of the military.
The new rule is expected to save consumers nationwide more than $3.4 billion and an estimated 72 million hours each year shopping for vehicles, the FTC said.
The Combating Auto Retail Scams (CARS) Rule also includes clear protections for members of the military and their families, who are targeted not only with bait-and-switch tactics and junk fees, but also deceptive information about whether dealers are affiliated with the military and other specific issues that affect servicemembers, the FTC said.
What’s Prohibited
According to the FTC, the CARS Rule prohibits dealers from using bait-and-switch claims to lure vehicle buyers to the lot, including about the cost of a car or the terms of financing, the availability of any discounts or rebates, and the actual availability of the vehicles being advertised.
In addition, it also seeks to tackle hidden junk fees – charges buried in lengthy contracts that consumers never agreed to pay. In some cases, these fees are for services or products that provide no benefit to consumers, the FTC said.
What’s Required
The FTC said the CARS rule requires:
- No Misrepresentations. The rule prohibits misrepresentations about key information, like price and cost.
- Offering Price, Total Payment, and Add-Ons Optional.: Dealers have to provide the offering price—the actual price any consumer can pay for the vehicle; tell consumers that optional add-ons (like extended warranties) are not required; and give information about the total payment when discussing monthly payments.
- No Bogus Add-Ons. The rule prohibits dealers from charging for any add-on that does not provide a benefit to consumers. Examples of such add-ons include: warranty programs that duplicate a manufacturer’s warranty, service contracts for oil changes on an electric vehicle, GAP agreements that do not actually cover the car or neighborhood in which it is housed, or other parts of the deal, and software or audio subscription services on a vehicle that cannot support the software or subscription.
- Get Consumers’ Consent. The rule requires dealers to get consumers’ express, informed consent for any charges that they pay as part of a vehicle purchase.
Preying on Military Members
“For members of the military, the issues addressed by the CARS Rule are compounded by dealers who prey especially on young servicemembers, for whom having a vehicle is often vital when stationed on sprawling military bases. Servicemembers have an average of twice as much auto debt as civilians. By the age of 24, around 20% of young servicemembers have at least $20,000 in auto debt, which creates a substantial challenge to servicemembers’ financial well-being,” the FTC said.
The CARS Rule will take effect on July 30, 2024. The FTC has also created guidance on the CARS Rule for auto dealers, including a website with frequently asked questions and other advice as dealerships prepare for the rule to take effect, the FTC said.
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