Document fees. Added costs for nitrogen in tires. Useless extended warranties. Bait-and-switch advertised prices for cars that the dealership never intended to honor. They’re all back and here to stay, as the federal government declined last week to defend a rule banning many questionable car sales practices.
Industry publication Automotive News explains, “The Federal Trade Commission [FTC] missed a 90-day deadline this week to petition the U.S. Supreme Court to overturn the agency’s Combating Auto Retail Scams [CARS] Rule loss in the fifth U.S. Circuit Court of Appeals.”
2023 Proposal Would Have Banned Some Fees
In late 2023, the FTC proposed its CARS rule, which would have restricted the fees dealerships can charge and required certain truth-in-advertising practices.
Not all car dealerships engage in shady sales practices. But enough do so to create public image problems for the dealership industry. The FTC, under former chair Lina Khan, proposed rules to regulate the practices.
The rule would have banned:
- Bait and switch marketing: Advertising cars the dealer never had in stock, or prices or financing terms the dealer will not honor
- Junk fees: Fees for products or services that do not benefit the consumer. The FTC gives examples, including nitrogen in tires or additional warranties that duplicate a manufacturer’s warranty
- Misleading buyers about optional fees: Telling buyers that extended warranties or other services are mandatory
- Surprise fees: In a guide explaining the new rules to dealerships, the FTC says, “Under the CARS Rule, dealers must get consumers’ express, informed consent before charging them for anything. Period.”
It would have required dealers 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”
Court Ruled Process Was Improper
A pair of trade groups representing dealerships sued, arguing that the FTC had failed to follow its own process in drafting the rules.
A court agreed, finding that the FTC didn’t provide sufficient notice that the rules were coming. Federal law mandates that agencies provide a certain notice period, but FTC rules say the agency will provide more. The court ruled that, while the agency’s move complied with the former, it moved too fast for its own rules.
The FTC had until last week to appeal to the U.S. Supreme Court. Under new Chair Andrew Ferguson, the agency declined.
The FTC had a second proposal in the works that could have reined in car dealership fees. A more general anti-junk-fee rule would have applied to nearly every industry.
A final version of that rule, published in December, limited it to event tickets and hotel stays.