[Federal Register Volume 89, Number 3 (Thursday, January 4, 2024)]
[Rules and Regulations]
[Pages 590-695]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-27997]
[[Page 589]]
Vol. 89
Thursday,
No. 3
January 4, 2024
Part III
Federal Trade Commission
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16 CFR Part 463
Combating Auto Retail Scams Trade Regulation Rule; Final Rule
Federal Register / Vol. 89 , No. 3 / Thursday, January 4, 2024 /
Rules and Regulations
[[Page 590]]
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FEDERAL TRADE COMMISSION
16 CFR Part 463
RIN 3084-AB72
Combating Auto Retail Scams Trade Regulation Rule
AGENCY: Federal Trade Commission.
ACTION: Final rule.
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SUMMARY: The Federal Trade Commission (``FTC'' or ``Commission'') is
issuing this Combating Auto Retail Scams Trade Regulation Rule (``CARS
Rule,'' ``Rule,'' or ``Final Rule'') and Statement of Basis and Purpose
(``SBP'') related to the sale, financing, and leasing of covered motor
vehicles by covered motor vehicle dealers. The Final Rule, among other
things, prohibits motor vehicle dealers from making certain
misrepresentations in the course of selling, leasing, or arranging
financing for motor vehicles, requires accurate pricing disclosures in
dealers' advertising and sales communications, requires dealers to
obtain consumers' express, informed consent for charges, prohibits the
sale of any add-on product or service that confers no benefit to the
consumer, and requires dealers to keep records of certain
advertisements and customer transactions.
DATES: This rule is effective July 30, 2024.
ADDRESSES: Copies of this document are available on the Commission's
website, www.ftc.gov.
FOR FURTHER INFORMATION CONTACT: Daniel Dwyer or Sanya Shahrasbi,
Division of Financial Practices, Bureau of Consumer Protection, Federal
Trade Commission, 202-326-2957 (Dwyer), 202-326-2709 (Shahrasbi),
[email protected], [email protected].
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
A. Statutory Authority
B. Commission Actions Following the Dodd-Frank Act and the
Rulemaking Process
II. Motor Vehicle Financing and Leasing
A. Overview of the Motor Vehicle Marketplace
B. Deceptive and Unfair Practices in the Motor Vehicle
Marketplace
1. Bait-and-Switch Tactics
2. Unlawful Practices Relating to Add-On Products or Services
and Hidden Charges
C. Law Enforcement and Other Responses
III. Section-by-Section Analysis
A. Sec. 463.1: Authority
B. Sec. 463.2: Definitions
1. Overview
2. Definition-by-Definition Analysis
(a) Add-On or Add-On Product(s) or Service(s)
(b) Add-On List
(c) Cash Price Without Optional Add-Ons
(d) Clearly and Conspicuously
(e) Motor Vehicle (finalized as ```Covered Motor Vehicle' or
`Vehicle' '')
(f) Dealer or Motor Vehicle Dealer (finalized as ```Covered
Motor Vehicle Dealer' or `Dealer' '')
(g) Express, Informed Consent
(h) GAP Agreement
(l) Government Charges
(j) Material or Materially
(k) Offering Price
C. Sec. 463.3: Prohibited Misrepresentations
1. General Comments
2. Paragraph-by-Paragraph Analysis of Sec. 463.3
(a) The Costs or Terms of Purchasing, Financing, or Leasing a
Vehicle
(b) Any Costs, Limitation, Benefit, or Any Other Aspect of an
Add-On Product or Service
(c) Whether Terms Are, or Transaction Is, for Financing or a
Lease
(d) The Availability of Any Rebates or Discounts That Are
Factored Into the Advertised Price but Not Available to All
Consumers
(e) The Availability of Vehicles at an Advertised Price
(f) Whether Any Consumer Has Been or Will Be Preapproved or
Guaranteed for Any Product, Service, or Term
(g) Any Information on or About a Consumer's Application for
Financing
(h) When the Transaction Is Final or Binding on All Parties
(i) Keeping Cash Down Payments or Trade-in Vehicles, Charging
Fees, or Initiating Legal Process or Any Action If a Transaction Is
Not Finalized or If the Consumer Does Not Wish To Engage in a
Transaction
(i) Keeping Cash Down Payments or Trade-in Vehicles, Charging
Fees, or Initiating Legal Process or Any Action If a Transaction Is
Not Finalized or If the Consumer Does Not Wish To Engage in a
Transaction
(j) Whether or When a Dealer Will Pay Off Some or All of the
Financing or Lease on a Consumer's Trade-in Vehicle
(k) Whether Consumer Reviews or Ratings Are Unbiased,
Independent, or Ordinary Consumer Reviews or Ratings of the Dealer
or the Dealer's Products or Services
(l) Whether the Dealer or Any of the Dealer's Personnel or
Products or Services Is or Was Affiliated With, Endorsed or Approved
by, or Otherwise Associated With the United States Government or Any
Federal, State, or Local Government Agency, Unit, or Department,
Including the United States Department of Defense or Its Military
Departments
(m) Whether Consumers Have Won a Prize or Sweepstakes
(n) Whether, or Under What Circumstances, a Vehicle May Be
Moved, Including Across State Lines or Out of the Country
(o) Whether, or Under What Circumstances, a Vehicle May Be
Repossessed
(p) Any of the Required Disclosures Identified in This Part
D. Sec. 463.4: Disclosure Requirements
1. Overview
2. Paragraph-by-Paragraph Analysis of Sec. 463.4
(a) Offering Price
(b) Add-On List
(c) Add-Ons Not Required
(d) Total of Payments and Consideration for a Financed or Lease
Transaction
(e) Monthly Payments Comparison
E. Sec. 463.5: Dealer Charges for Add-Ons and Other Items
1. Overview
2. Paragraph-by-Paragraph Analysis of Sec. 463.5
(a) Add-Ons That Provide No Benefit
(b) Undisclosed or Unselected Add-Ons
(c) Any Item Without Express, Informed Consent
F. Sec. 463.6: Recordkeeping
G. Sec. 463.7: Waiver Not Permitted
H. Sec. 463.8: Severability
I. Sec. 463.9: Relation to State Laws
IV. Effective Date
V. Paperwork Reduction Act
A. Add-On List Disclosures
B. Disclosures Relating to Cash Price Without Optional Add-Ons
C. Prohibited Misrepresentations and Required Disclosures
D. Recordkeeping
E. Capital and Other Non-Labor Costs
1. Disclosures
2. Recordkeeping
VI. Regulatory Flexibility Act
A. Significant Impact Analysis
1. Comments on Significant Impact
2. Certification of the Final Rule
(a) Industry Averages
(b) Dealer Size Based on the Number of Employees
B. Initial and Final Regulatory Flexibility Analysis
1. Comments on the Initial Regulatory Flexibility Analysis
(a) Description of the Reasons Why Action by the Agency Is Being
Considered
(b) Succinct Statement of the Objectives of, and Legal Basis
for, the Proposed Rule
(c) Description of and, Where Feasible, Estimate of the Number
of Small Entities to Which the Proposed Rule Will Apply
(d) Description of the Projected Reporting, Recordkeeping, and
Other Compliance Requirements of the Proposed Rule
(e) Duplicative, Overlapping, or Conflicting Federal Rules
(f) Description of Any Significant Alternatives to the Proposed
Rule Which Accomplish the Stated Objectives of Applicable Statutes
and Which Minimize Any Significant Economic Impact of the Proposed
Rule on Small Entities
2. Final Regulatory Flexibility Analysis
(a) Statement of the Need for, and Objectives of, the Rule
(b) Issues Raised by Comments, Including Comments by the Chief
Counsel for Advocacy of the SBA, the Commission's Assessment and
Response, and Any Changes Made as a Result
[[Page 591]]
(c) Description and Estimate of the Number of Small Entities to
Which the Final Rule Will Apply or an Explanation of Why No Such
Estimate Is Available
(d) Description of the Projected Reporting, Recordkeeping, and
Other Compliance Requirements
(e) Description of the Steps the Commission Has Taken To
Minimize the Significant Economic Impact on Small Entities
Consistent With the Stated Objectives of Applicable Statutes
VII. Final Regulatory Analysis Under Section 22 of the FTC Act
A. Introduction
B. Estimated Benefits of Final Rule
1. Consumer Time Savings When Shopping for Motor Vehicles
2. Reductions in Deadweight Loss
3. Framework
4. Estimation
5. Benefits Related to More Transparent Negotiation
C. Estimated Costs of Final Rule
1. Prohibited Misrepresentations
2. Required Disclosure of Offering Price in Advertisements and
in Response to Inquiry
3. Disclosure of Add-On List and Associated Prices
4. Required Disclosure of Total of Payments for Financing/
Leasing Transactions
5. Prohibition on Charging for Add-Ons that Provide No Benefit
6. Requirement to Obtain Express, Informed Consent Before Any
Charges
7. Recordkeeping
D. Other Impacts of Final Rule
E. Conclusion
F. Appendix: Derivation of Deadweight Loss Reduction
G. Appendix: Uncertainty Analysis
VIII. Other Matters
I. Background
A. Statutory Authority
The Dodd-Frank Wall Street Reform and Consumer Protection Act
(``Dodd-Frank Act'') was signed into law in 2010.\1\ Section 1029 of
the Dodd-Frank Act authorizes the FTC to prescribe rules with respect
to unfair or deceptive acts or practices by motor vehicle dealers.\2\
The FTC is authorized to do so under the FTC Act and in accordance with
section 553 of the Administrative Procedure Act (``APA'').\3\ The grant
of APA rulemaking authority set forth in section 1029 of the Dodd-Frank
Act became effective as of July 21, 2011--the designated ``transfer
date'' established by the Treasury Department.\4\
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\1\ Public Law 111-203, 124 Stat. 1376 (2010).
\2\ 12 U.S.C. 5519(d). See 12 U.S.C. 5519(f)(1) and (2) for
definitions of the terms ``motor vehicle'' and ``motor vehicle
dealer'' under section 1029 of the Dodd-Frank Act, respectively.
\3\ See 12 U.S.C. 5519(a) (discussing the authority over ``motor
vehicle dealer[s] that [are] predominantly engaged in the sale and
servicing of motor vehicles, the leasing and servicing of motor
vehicles, or both''); 12 U.S.C. 5519(d) (``Notwithstanding section
57a of title 15, the Federal Trade Commission is authorized to
prescribe rules under sections 45 and 57a(a)(1)(B) of title 15[ ] in
accordance with section 553 of title 5, with respect to a person
described in subsection (a).''); 5 U.S.C. 553. Because the
Commission has authority to promulgate this Rule in accordance with
the APA, it is not required to include a statement as to the
prevalence of the acts or practices treated by the Rule under
section 18(d) of the FTC Act. Compare 12 U.S.C. 5519(d) and (a)
(providing the FTC with APA rulemaking authority for purposes of
section 1029 of the Dodd-Frank Act), with 15 U.S.C. 57a(b)(3)
(requiring a statement as to prevalence for certain rulemaking
proceedings by the Commission under non-APA procedures), and 15
U.S.C. 57a(b)(1) (establishing that certain rulemaking proceedings
by the Commission under non-APA procedures are subject to
requirements in addition to those under the APA).
\4\ See 12 U.S.C. 5411(a).
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B. Commission Actions Following the Dodd-Frank Act and the Rulemaking
Process
Following enactment of the Dodd-Frank Act, the Commission published
in the Federal Register a notice discussing its authority to prescribe
rules with respect to unfair or deceptive acts or practices by motor
vehicle dealers and announcing that it would be hosting a series of
public roundtables to explore consumer protection issues pertaining to
motor vehicle sales and leasing, including what consumer protection
issues, if any, exist that could be addressed through a possible
rulemaking.\5\ The Commission sought participation from regulators,
consumer advocates, industry participants, and other interested parties
and ultimately held three such public roundtables.\6\
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\5\ 76 FR 14014, 14015 (Mar. 15, 2011).
\6\ See Fed. Trade Comm'n, ``The Road Ahead: Selling, Financing
& Leasing Motor Vehicles'' (Apr. 12, 2011), https://www.ftc.gov/news-events/events/2011/04/road-ahead-selling-financing-leasing-motor-vehicles (providing materials from roundtable in Detroit,
Michigan); Fed. Trade Comm'n, ``The Road Ahead: Selling, Financing &
Leasing Motor Vehicles'' (Aug. 2, 2011), https://www.ftc.gov/news-events/events/2011/08/road-ahead-selling-financing-leasing-motor-vehicles (providing materials from roundtable in San Antonio,
Texas); Fed. Trade Comm'n, ``The Road Ahead: Selling, Financing &
Leasing Motor Vehicles'' (Nov. 17, 2011), https://www.ftc.gov/news-events/events/2011/11/road-ahead-selling-financing-leasing-motor-vehicles (providing materials from roundtable in Washington,
District of Columbia).
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The Commission subsequently focused on enforcement and business
guidance in the motor vehicle dealer marketplace. As discussed in SBP
II.C,\7\ however, certain unfair and deceptive acts or practices have
persisted, despite more than a decade of enforcement and education.
Accordingly, on June 23, 2022, the Commission announced a notice of
proposed rulemaking (``NPRM'') addressing unfair or deceptive acts or
practices by motor vehicle dealers.\8\ That notice was published in the
Federal Register on July 13, 2022.\9\ The NPRM, among other things,
proposed to (i) prohibit motor vehicle dealers from making certain
misrepresentations, (ii) require accurate pricing disclosures, (iii)
prohibit the sale of any add-on product or service that confers no
benefit to the consumer, (iv) require express, informed consent for
add-ons and other charges, and (v) impose certain recordkeeping
requirements. The comment period for the NPRM closed on September 12,
2022.
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\7\ As used herein, references to the ``Statement of Basis and
Purpose'' or ``SBP'' refer to the portions of this document that
precede the regulatory text of the Final Rule. References to the
``Rule,'' ``Final Rule,'' or ``CARS Rule'' refer to the text in part
463--Combating Auto Retail Scams (``CARS'') Trade Regulation Rule.
Because the Final Rule is narrower than the proposed Motor Vehicle
Dealers Trade Regulation Rule in the NPRM, the Commission has
modified the Rule title to reflect the more limited scope.
\8\ See Press Release, Fed. Trade Comm'n, ``FTC Proposes Rule to
Ban Junk Fees, Bait-and-Switch Tactics Plaguing Car Buyers'' (June
23, 2022), https://www.ftc.gov/news-events/news/press-releases/2022/06/ftc-proposes-rule-ban-junk-fees-bait-switch-tactics-plaguing-car-buyers.
\9\ See Fed. Trade Comm'n, Notice of Proposed Rulemaking, Motor
Vehicle Dealers Trade Regulation Rule, 87 FR 42012 (released June
23, 2022; published July 13, 2022) [hereinafter NPRM], https://www.govinfo.gov/content/pkg/FR-2022-07-13/pdf/2022-14214.pdf.
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In response to the NPRM and proposed rule, the Commission received
more than 27,000 comments from stakeholders representing a wide range
of viewpoints.\10\ These stakeholders included numerous individual
consumers who described deceptive practices during recent car purchases
and many who discussed current or former military service and deceptive
and predatory practices common near military installations.\11\
Commenters
[[Page 592]]
also included dealerships and their employees, industry groups,
consumer and community groups, and Federal and State lawmakers and law
enforcement agencies. Many commenters, such as consumers, some dealers
and dealer employees, consumer groups, and lawmakers and enforcers,
were supportive of the proposed rule in whole or in part. Many of these
commenters also urged the FTC to include additional protections for
consumers and law-abiding businesses, while others, such as industry
groups, dealers, and dealer employees, asked questions or criticized
the proposal.\12\ These comments and responses to comments are
discussed primarily in the discussion of the Final Rule in SBP III.
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\10\ The Commission received 27,349 comment submissions filed
online in response to its NPRM. See Gen. Servs. Admin., Dkt. No.
FTC-2022-0046, Proposed Rule, Motor Vehicle Dealers Trade Regulation
Rule (July 13, 2022), https://www.regulations.gov/document/FTC-2022-0046-0001 (noting comments received). To facilitate public access,
over 11,000 such comments have been posted publicly on
Regulations.gov at https://www.regulations.gov/document/FTC-2022-0046-0001/comment (noting posted comments). As explained at
Regulations.gov, agencies may choose to redact or withhold certain
submissions (or portions thereof) such as those containing private
or proprietary information, inappropriate language, or duplicate/
near duplicate examples of a mass-mail campaign. See Gen. Servs.
Admin., Regulations.gov Frequently Asked Questions, Find Dockets,
Documents, and Comments FAQs, ``How are comments counted and posted
to Regulations.gov?,'' https://www.regulations.gov/faq?anchor=downloadingdata (last visited Dec. 5, 2023). The
Commission has considered all timely and responsive public comments
it received in response to its NPRM.
\11\ See, e.g., Individual commenter, Doc. No. FTC-2022-0046-
4648 (``As a young Marine stationed in a military town I was taken
advantage of by a dealership when purchasing my first car. It set me
back financially for years. I know of many young military people who
purchased vehicle[ ]s and we[ ]re instantly so far upside down after
leaving the dealership with thousands of dollars in add on junk
charges . . . .''); Individual commenter, Doc. No. FTC-2022-0046-
0542 (``As a former member of the Military, the amount of scams and
horror stories I have heard regarding young service members buying
cars is absurd. . . . Someone shouldn't have to do hours of research
on how to buy a car so they don't get taken advantage of.'');
Individual commenter, Doc. No. FTC-2022-0046-0637 (``As a small
business owner and active duty military member I have played the
role of both a buyer, toiling for hours to just reach fair deals on
vehicles, as well as that of an advocate for my Sailors who have
been preyed upon by local dealerships. Nowhere else in our society
do so many average citizens have to mentally prepare for a battle
over fair pricing and treatment for something that is realistically
a modern necessity.''); Individual commenter, Doc. No. FTC-2022-
0046-9840 (``I can't list the number of times I have either seen, or
have stepped in a situation, where car dealers have either attempted
to take, or have successfully taken, advantage of a young military
member or their family by baiting and switching when it came to the
price of a car, or stated that the price was one amount, only to be
charged, and over-charged a higher amount. These dealers have even
attempted to pull unethical tricks on me and my wife, even after
they found out that I was a military member, a combat veteran, that
was serving this great nation.''); Individual commenter, Doc. No.
FTC-2022-0046-0845 (``Predatory practices like [bait-and-switch
pricing] are common near military installations . . . .'').
\12\ Industry commenters claimed that many of the areas covered
by the proposed rule are already addressed in industry guidance. The
Commission notes that, although industry guidance can provide
helpful information to dealers, dealers who choose not to follow
such guidance, or who engage in deceptive or unfair practices,
subject their customers to significant harm. The Rule addresses such
practices, thus protecting consumers and law-abiding dealers.
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The Commission notes that it has undertaken careful review and
consideration of each of the comments it received in response to its
NPRM. The Commission has dedicated the majority of its section-by-
section analysis to descriptions of, and responses to, comments or
portions thereof that were critical of the Commission's proposal or
that urged the Commission to adopt additional requirements. Thus, to
ensure that this document also reflects the many comments in the public
record from stakeholders who supported the proposal as is, the
Commission has excerpted a number of such comments in portions of its
SBP.
II. Motor Vehicle Financing and Leasing
A. Overview of the Motor Vehicle Marketplace
For many consumers, buying or leasing a motor vehicle is essential,
expensive, and time-consuming.\13\ Americans rely on their vehicles for
work, school, childcare, groceries, medical visits, and many other
important tasks in their daily lives.\14\ These vehicles have become
increasingly costly: the average price of a new vehicle sold at a new
car dealership in 2022 was more than $46,000,\15\ while the average
price of a used vehicle sold at such dealerships was more than
$30,000.\16\ By the second quarter of 2023, the average monthly payment
for used cars reached $533, and the average monthly payment for new
cars reached $741--both record highs.\17\ Vehicles are now many
consumers' largest expense--on a par with housing, child care and food,
and accounting for 16% of the median annual household income before
taxes.\18\ In 2022 alone, Americans spent more than $720 billion on
motor vehicles and vehicle parts.\19\
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\13\ Unless otherwise indicated, the terms ``auto,''
``automobile,'' ``car,'' ``motor vehicle,'' and ``vehicle,'' as used
in this SBP and the Commission's final regulatory analysis, refer to
``Covered Motor Vehicle'' as defined in this part.
\14\ During 2017 to 2022, an average of 91% of American workers
who did not work from home drove to work. See U.S. Census Bureau,
``American Community Survey: Means of Transportation to Work by
Selected Characteristics, 2022: ACS 1-Year Estimates Subject
Tables'' (2023), https://data.census.gov/table?q=Commuting&tid=ACSST1Y2022.S0802 (reporting 110,245,368
workers 16 years and over who drove alone to work in a car, truck,
or van, and 13,881,067 workers 16 years and over who drove by
carpool to work in a car, truck or van, together accounting for 91%
of the total of 136,196,004 workers 16 years and over who did not
work from home); U.S. Census Bureau, ``American Community Survey:
Means of Transportation to Work by Selected Characteristics, 2021:
2017-2021 ACS 5-Year Estimates Subject Tables'' (2022), https://data.census.gov/table?q=Commuting&tid=ACSST5Y2021.S0802 (reporting
113,724,271 workers 16 years and over who drove alone to work in a
car, truck, or van, and 13,340,838 workers 16 years and over who
drove by carpool to work in a car, truck or van, together accounting
for 91% of the total of 140,223,271 workers 16 years and over who
did not work from home).
\15\ Nat'l Auto. Dealers Ass'n, ``NADA Data 2022'' 7, https://www.nada.org/media/4695/download?inline (noting average retail
selling price of $46,287 for new vehicles sold by dealerships in
2022).
\16\ Id. at 10 (noting average retail selling price of $30,736
for used vehicles sold by new-vehicle dealerships in 2022).
\17\ Lydia DePillis, ``How the Costs of Car Ownership Add Up,''
N.Y. Times (Oct. 6, 2023), https://www.nytimes.com/interactive/2023/10/07/business/car-ownership-costs.html (citing average monthly
payment figures from TransUnion).
\18\ Id. (citing data from AAA and the U.S. Census Bureau).
\19\ Bureau of Econ. Analysis, ``National Data: National Income
and Product Accounts, Personal Consumption Expenditures by Major
Type of Product'' tbl. 2.3.5, https://apps.bea.gov/iTable/?reqid=19&step=2&isuri=1&categories=survey#eyJhcHBpZCI6MTksInN0ZXBzIjpbMSwyLDNdLCJkYXRhIjpbWyJjYXRlZ29yaWVzIiwiU3VydmV5Il0sWyJOSVBBX1RhYmxlX0xpc3QiLCI2NSJdXX0= (last revised July 27, 2023) (listing
estimated annual expenditure rates of between $713.1 billion and
$737.1 billion in 2022).
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Given these costs, many consumers who purchase a motor vehicle rely
on financing to complete their purchases. According to public reports,
81% of new motor vehicle purchases, and nearly 35% of used vehicle
purchases, are financed.\20\ By the first quarter of 2023, Americans
had more than 107 million outstanding auto financing accounts and owed
more than $1.56 trillion thereon,\21\ making auto finance the third-
largest source of debt for U.S. consumers, and the second-largest for
U.S. consumers ages 40 and over.\22\ Servicemembers have an average of
twice as much auto debt as civilians--particularly young
servicemembers, who generally require vehicles for transportation while
living on military bases.\23\ By the age of 24, around 20
[[Page 593]]
percent of young servicemembers have at least $20,000 in auto debt,
which equates to nearly two-thirds of an enlisted soldier's typical
base salary at that age.\24\
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\20\ Melinda Zabritski, Experian Info. Sols., Inc., ``State of
the Automotive Finance Market Q4 2020'' 5, https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf
(on file with the Commission).
\21\ Fed. Rsrv. Bank of N.Y., ``Quarterly Report on Household
Debt and Credit, 2023: Q1'' 3-4 (May 2023), https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2023Q1; Fed. Rsrv. Bank of N.Y., ``Data Underlying Report''
on ``Page 3 Data'' and ``Page 4 Data'' tabs, https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/xls/HHD_C_Report_2023Q1 (last visited Dec. 5, 2023) (listing number
of open ``Auto Loan'' accounts and total outstanding balance in such
accounts).
\22\ Fed. Rsrv. Bank of N.Y., ``Quarterly Report on Household
Debt and Credit, 2023: Q1'' 3, 21 (May 2023), https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2023Q1; Fed. Rsrv. Bank of N.Y., ``Data Underlying Report''
on ``Page 3 Data'' and ``Page 21 Data'' tabs, https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/xls/HHD_C_Report_2023Q1 (last visited Dec. 5, 2023) (listing total
``Auto Loan'' debt balance compared to other product type
categories).
\23\ See Consumer Fin. Prot. Bureau, ``Financially Fit?
Comparing the Credit Records of Young Servicemembers and Civilians''
27 (July 2020), https://files.consumerfinance.gov/f/documents/cfpb_financially-fit_credit-young-servicemembers-civilians_report_2020-07.pdf.
\24\ See Consumer Fin. Prot. Bureau, ``Protecting Servicemembers
from Costly Auto Loans and Wrongful Repossessions'' (July 18, 2022),
https://www.consumerfinance.gov/about-us/blog/protecting-servicemembers-from-costly-auto-loans-and-wrongful-repossessions/.
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In addition to the expense, the process of buying or leasing a
vehicle is often time-consuming and arduous. It can take several hours
or days to finalize a transaction,\25\ on top of the hours it can take,
particularly in rural areas, to drive to a dealership.\26\ Consumers
may need to take time off work or arrange childcare, and families with
a single vehicle may be forced to delay other important appointments
due to the length of the vehicle-buying or -leasing process.
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\25\ Mary W. Sullivan, Matthew T. Jones & Carole L. Reynolds,
Fed. Trade Comm'n, ``The Auto Buyer Study: Lessons from In-Depth
Consumer Interviews and Related Research'' 15 (July 2020)
[hereinafter Auto Buyer Study], https://www.ftc.gov/system/files/documents/reports/auto-buyer-study-lessons-depth-consumer-interviews-related-research/bcpreportsautobuyerstudy.pdf (noting
that the purchase transactions in the FTC's qualitative study often
took 5 hours or more to complete, with some extending over several
days); Cf. Cox Auto., ``2020 Cox Automotive Car Buyer Journey'' 6
(2020) [hereinafter 2020 Cox Automotive Car Buyer Journey], https://b2b.autotrader.com/app/uploads/2020-Car-Buyer-Journey-Study.pdf
(reporting average consumer time spent shopping for a vehicle at 14
hours, 53 minutes); Cox Auto., ``2022 Car Buyer Journey: Top Trends
Edition'' 6 (2023) [hereinafter 2022 Car Buyer Journey], https://www.coxautoinc.com/wp-content/uploads/2023/01/2022-Car-Buyer-Journey-Top-Trends.pdf (reporting average consumer time spent
shopping for a vehicle at 14 hours, 39 minutes).
\26\ For example, consumers have complained about going to a
dealership based on an offer that the dealer refuses to honor only
after they have spent hours driving there and additional time on the
lot. See, e.g., Complaint ]] 23-26, Fed. Trade Comm'n v. N. Am.
Auto. Servs., Inc., No. 1:22-cv-0169 (N.D. Ill. Mar. 31, 2022)
(alleging that many consumers drive hours to dealerships based on
the advertised prices; that test-driving and selecting a vehicle,
and negotiating the price and financing terms, is an often hours-
long process; and that, after this time, dealers falsely told
consumers that add-on products or packages were required to purchase
or finance the vehicle, even though they were not included in the
low prices advertised or disclosed to consumers who called to
confirm prices).
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Most consumers--approximately 70%--finance vehicle purchases
through a motor vehicle dealer,\27\ using what is known as dealer-
provided ``indirect'' financing.\28\ This financing is typically
offered through dealers' financing and insurance (``F&I'') offices,
which may also offer leasing and add-on products or services. In the
dealer-provided financing scenario, the dealer collects financial
information about the consumer and forwards that information to
prospective motor vehicle financing entities. These financing entities
evaluate this information and, in the process, determine whether, and
on what terms, to provide credit.\29\ These terms include the ``buy
rate'': a risk-based finance charge that reflects the interest rate at
which the entity will finance the deal.\30\ Dealers often add a finance
charge called a ``dealer reserve'' or ``markup'' to the buy rate.\31\
Unlike the buy rate, the markup is not based on the underwriting risk
or credit characteristics of the applicant, and dealers retain the
markup as profit.\32\ New vehicle dealers average a gross profit of
about $2,444 per vehicle,\33\ more than half of which comes from the
dealers' F&I offices. Independent used vehicle dealers averaged a gross
profit of more than $6,000 per vehicle, as of 2019.\34\ While some used
vehicle dealerships do not have a separate F&I office, more than half
of such dealerships sell add-on products.\35\
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\27\ Unless otherwise indicated, the terms ``dealer,''
``dealership,'' and ``motor vehicle dealer'' as used in this SBP and
the Commission's final regulatory analysis refer to `` `Covered
Motor Vehicle Dealer' or `Dealer' '' as defined in this part.
\28\ See Nat'l Auto. Dealers Ass'n, ``Dealer-Assisted Financing
Benefits Consumers,'' https://www.nada.org/autofinance/[https://web.archive.org/web/20220416131718/https://www.nada.org/autofinance/
] (Apr. 16, 2022) (noting that 7 out of 10 consumers finance through
their dealership). This is also known as ``dealer financing,''
because consumers obtain financing through the dealer that partners
with other entities in the financing process.
\29\ Dealers often originate the contract governing the
extension of retail credit or retail leases and then sell, or
otherwise assign, these contracts to unaffiliated third-party
finance or leasing sources, including such third parties the dealer
may have contacted in the course of arranging dealer-provided
``indirect'' financing. See Consumer Fin. Prot. Bureau, ``Automobile
Finance Examination Procedures'' 3 (Aug. 2019), https://files.consumerfinance.gov/f/documents/201908_cfpb_automobile-finance-examination-procedures.pdf.
\30\ See Nat'l Auto. Dealers Ass'n, Nat'l Ass'n of Minority
Auto. Dealers & Am. Int'l Auto. Dealers Ass'n, ``Fair Credit
Compliance Policy & Program'' 2 (2015), https://www.nada.org/media/4558/download?inline. (defining ``buy rate'' as ``the rate at which
the finance source will purchase the credit contract from the
dealer'').
\31\ See, e.g., id. at 1 n.4 & accompanying text.
\32\ Id. (describing this as the amount dealers earn for
arranging financing, measured as the difference between the
consumer's annual percentage rate (``APR'') and the wholesale ``buy
rate'' at which a finance source buys the finance contract from the
dealer, and noting that finance sources typically permit dealers to
retain the dealer participation).
\33\ Nat'l Auto. Dealers Ass'n, ``Average Dealership Profile'' 1
(2020), https://www.nada.org/media/4136/download?attachment[http://web.archive.org/web/20220623204158/https://www.nada.org/media/4136/download?attachment] (June 23, 2022).
\34\ Nat'l Indep. Auto. Dealers Ass'n, ``NIADA Used Car Industry
Report 2020'' 21 (2020).
\35\ Id. at 8, 10.
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Six to eight percent of financed vehicle purchases use what is
called ``buy here, pay here'' dealers.\36\ In this scenario, consumers
typically borrow from, and make their payments directly to, the
dealership.
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\36\ Melinda Zabritski, Experian Info. Sols., Inc., ``State of
the Automotive Finance Market Q2 2020'' 8 (2020), https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-q2-safm-final.pdf [http://web.archive.org/web/20201106002015/https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-q2-safm-final.pdf] (Mar. 6, 2023).
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The remainder of financed vehicle transactions use what is commonly
referred to as ``direct'' financing, provided by a credit union, bank,
or other financing entity.\37\ In this scenario, consumers typically
receive an interest rate quote from the financing entity prior to
arriving at a dealership to purchase a vehicle, and use the financing
to pay for their chosen vehicle.\38\ Dealerships do not profit on the
financing portion of the vehicle sale transaction when a consumer
arranges financing directly.
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\37\ Consumer Fin. Prot. Bureau, ``Automobile Finance
Examination Procedures'' 4 (Aug. 2019), https://files.consumerfinance.gov/f/documents/201908_cfpb_automobile-finance-examination-procedures.pdf.
\38\ Consumer Fin. Prot. Bureau, ``Consumer Voices on Automobile
Financing'' 5 (June 2016), https://files.consumerfinance.gov/f/documents/201606_cfpb_consumer-voices-on-automobile-financing.pdf.
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Finally, consumers may choose to lease a vehicle from a dealership
rather than purchase one. In this scenario, consumers may drive a
vehicle for a set period of time--typically around three years \39\--
and for a certain maximum number of miles--typically 10,000-15,000
miles per year--in exchange for an upfront payment, a monthly payment,
and fees before, during, and at the end of the lease, including for
excess wear and usage over the mileage limit.\40\ When consumers lease
a vehicle, they do not own it, and they must return the vehicle when
the lease expires, though they may have the option to purchase
[[Page 594]]
the vehicle at the end of the lease period. Nearly 27% of new vehicles
are leased, as are just over 8% of used vehicles.\41\
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\39\ Melinda Zabritski, Experian Info. Sols., Inc., ``State of
the Automotive Finance Market Q4 2020'' 26 (2020), https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf [http://web.archive.org/web/20210311174922/https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf] (Mar. 6, 2023).
\40\ See Fed. Trade Comm'n, ``Financing or Leasing a Car,''
https://www.consumer.ftc.gov/articles/0056-financing-or-leasing-car
(last visited Dec. 5, 2023) (``The annual mileage limit in most
standard leases is 15,000 or less.''); Consumer Fin. Prot. Bureau,
``What should I know about the differences between leasing and
buying a vehicle?,'' https://www.consumerfinance.gov/ask-cfpb/what-should-i-know-about-the-differences-between-leasing-and-buying-a-vehicle-en-815/ (last visited Aug. 24, 2023) (``Most leases restrict
your mileage to 10,000-15,000 miles per year.'').
\41\ Melinda Zabritski, Experian Info. Sols., Inc., ``State of
the Automotive Finance Market Q4 2020'' 5 (2020), https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf [https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-market.pdf] (Mar. 6,
2023).
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B. Deceptive and Unfair Practices in the Motor Vehicle Marketplace
Section 5 of the Federal Trade Commission Act (``FTC Act''), as
amended (15 U.S.C. 45), authorizes the FTC to address deceptive or
unfair acts or practices in or affecting commerce, including in the
motor vehicle marketplace.
An act or practice is deceptive if there is a representation,
omission, or other practice that is likely to mislead consumers acting
reasonably under the circumstances and is material to consumers--that
is, it is likely to affect consumers' conduct or decisions with regard
to a product or service.\42\ Deceptive conduct can involve omission of
material information, the disclosure of which is necessary to prevent
the claim, practice, or sale from being misleading.\43\
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\42\ See Fed. Trade Comm'n, ``FTC Policy Statement on
Deception'' 2, 5, 103 F.T.C. 174 (1984) [hereinafter FTC Policy
Statement on Deception] (appended to Cliffdale Assocs., Inc., 103
F.T.C. 110, 183 (1984)), https://www.ftc.gov/system/files/documents/public_statements/410531/831014deceptionstmt.pdf.
\43\ Id.
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An act or practice is considered unfair under section 5 of the FTC
Act if: (1) it causes, or is likely to cause, substantial injury to
consumers; (2) the injury is not reasonably avoidable by consumers; and
(3) the injury is not outweighed by countervailing benefits to
consumers or to competition.\44\
---------------------------------------------------------------------------
\44\ 15 U.S.C. 45(n).
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In each of the past four years, the FTC received more than 100,000
complaints regarding motor vehicle sales, financing, service and
warranties, and rentals and leasing.\45\ This industry is also
consistently at or near the top of private sources of consumer
complaints.\46\ Many of these complaints concerned deceptive or unfair
acts or practices affecting U.S. consumers. Complaints about motor
vehicle transactions are regularly in the top ten complaint categories
tracked by the FTC.\47\ For military consumers as well, auto-related
complaints are among the top 10 complaint categories outside of
identity theft.\48\
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\45\ See, e.g., Fed. Trade Comm'n, ``Consumer Sentinel Network
Data Book 2022'' app. B3 at 85 (Feb. 2023) [hereinafter Consumer
Sentinel Network Data Book 2022], https://www.ftc.gov/system/files/ftc_gov/pdf/CSN-Data-Book-2022.pdf (reporting complaints about new
and used motor vehicle sales, financing, service & warranties, and
rentals & leasing, collectively, of more than 100,000 in 2020, 2021,
and 2022); Fed. Trade Comm'n, ``Consumer Sentinel Network Data Book
2021'' app. B3 at 85 (Feb. 2022) [hereinafter Consumer Sentinel
Network Data Book 2021], https://www.ftc.gov/system/files/ftc_gov/pdf/CSN%20Annual%20Data%20Book%202021%20Final%20PDF.pdf (reporting
complaints about new and used motor vehicle sales, financing,
service & warranties, and rentals & leasing, collectively, of more
than 100,000 in 2019, 2020, and 2021).
\46\ According to commenters, complaints to the Better Business
Bureau about new and used auto dealers, when combined, have been
either the first or second highest regarding any industry in the
U.S. for the past twenty years. See Comment of Nat'l Consumer L.
Ctr. et al., Doc. No. FTC-2022-0046-7607 at ii; see also Better Bus.
Bureau, ``BBB Complaint and Inquiry Statistics,'' https://www.bbb.org/all/bbb-complaint-statistics (last visited Dec. 5, 2023)
(listing complaint statistics from 2010 through 2022, sorted by
industry). In addition, for the past seven years annual surveys of
State and local consumer protection agencies have reported that
auto-related complaints were the top complaint received from
consumers. See Comment of Nat'l Consumer L. Ctr. et al., Doc. No.
FTC-2022-0046-7607 at 13; Consumer Fed'n of Am., ``2022 Consumer
Complaint Survey Report'' 4-5 (May 2023), https://consumerfed.org/wp-content/uploads/2023/05/2022-Consumer-Complaint-Survey-Report.pdf
(``For the seventh year in a row, auto sales, leases and repairs are
the #1 complaint category. Consumers filed complaints about add-on
products and services, bait and switch pricing, and mechanical
condition issues.'').
\47\ See Consumer Sentinel Network Data Book 2021, supra note
45, at 8 (listing vehicle-related complaints as the seventh most
common report category, outside of identity theft, in 2021);
Consumer Sentinel Network Data Book 2022, supra note 45, at 8
(listing motor vehicle-related complaints as the fifth most common
report category, outside of identity theft, in 2022).
\48\ See Consumer Sentinel Network Data Book 2021, supra note
45, at 18 (listing vehicle-related complaints as the eighth most
common complaint category for military consumers, outside of
identity theft categories, in 2021); Consumer Sentinel Network Data
Book 2022, supra note 45, at 18 (listing vehicle-related complaints
as the ninth most common complaint category for military consumers,
outside of identity theft categories, in 2022).
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Moreover, law enforcement experience shows that complaints are just
the tip of the iceberg.\49\ The Commission's recent enforcement action
against a large, multistate dealership group is illustrative of this
point in the motor vehicle marketplace: in that matter, the Commission
received 391 complaints--about add-ons and other issues--over a
several-month period prior to filing a complaint against the thirteenth
largest dealership group in the country by revenue as of 2020.\50\
However, in a survey of the dealer's customers over the same time
period, 83% of respondents--or at least 16,848 customers--indicated
they were subject to the dealer's unlawful practices related to add-ons
alone.\51\
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\49\ See, e.g., United States v. Brien, 617 F.2d 299, 308 (1st
Cir. 1980); United States v. Offs. Known as 50 State Distrib. Co.,
708 F.2d 1371, 1374-75 (9th Cir. 1983); Keith B. Anderson, Fed.
Trade Comm'n, ``Consumer Fraud in the United States: An FTC Survey''
80 (2004), https://www.ftc.gov/sites/default/files/documents/reports/consumer-fraud-united-states-ftc-survey/040805confraudrpt.pdf (staff report noting consumers who reported
they were victims of fraud complained to an official source only 8.4
percent of the time, filing complaints with the BBB in 3.5 percent
of incidents and to a Federal agency, including the FTC, in only 1.4
percent of cases).
\50\ See Complaint, Fed. Trade Comm'n v. N. Am. Auto. Servs.,
Inc., No. 1:22-cv-0169 (N.D. Ill. Mar. 31, 2022); see also
WardsAuto, ``WardsAuto 2020 Megadealer 100,'' https://www.wardsauto.com/dealers/wardsauto-2020-megadealer-100-industry-force (last visited Dec. 5, 2023) (listing Napleton Automotive Group
as the 13th-ranked dealership group by total revenue).
\51\ Complaint ] 27, Fed. Trade Comm'n v. N. Am. Auto. Servs.,
Inc., No. 1:22-cv-0169 (N.D. Ill. Mar. 31, 2022) (alleging that
defendants buried charges for add-ons in voluminous paperwork,
making them difficult to detect); see Press Release, Fed. Trade
Comm'n, ``FTC Returns Additional $857,000 To Consumers Harmed by
Napleton Auto's Junk Fees and Discriminatory Practices'' (Nov. 20,
2023), https://www.ftc.gov/news-events/news/press-releases/2023/11/ftc-returns-additional-857000-consumers-harmed-napleton-autos-junk-fees-discriminatory-practices.
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Similarly, in other contexts where companies were charged with
making misrepresentations or engaging in misconduct regarding add-on
products, information obtained after filing has shown widespread harm
far beyond the initial consumer complaint volumes reported prior to
filing.\52\
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\52\ For example, in a recent action involving deceptive pre-
approval claims, the FTC had received roughly 30 complaints about
the company's pre-approval conduct in the five-year period prior to
announcing its action. But in the five months following announcement
of the action, more than 900 additional consumers came forward with
complaints about the conduct. See Press Release, Fed. Trade Comm'n,
``FTC Announces Claims Process for Consumers Harmed by Credit Karma
`Pre-Approved' Offers for Which They Were Denied'' (Dec. 5, 2023),
https://www.ftc.gov/news-events/news/press-releases/2023/12/ftc-announces-claims-process-consumers-harmed-credit-karma-pre-approved-offers-which-they-were (``[W]ithin five months of that announcement,
the agency received nearly 900 more such complaints'').
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As examined in greater detail in the paragraphs that follow,
consumers in the motor vehicle marketplace are confronted with chronic
deceptive or unfair practices, including bait-and-switch tactics and
hidden charges.\53\
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\53\ While other issues exist in the motor vehicle sales,
financing, and leasing space, including issues involving
discrimination, financing application falsification, data privacy
and security, and yo-yo financing, this Rule's core focus is on
misrepresentations and add-on and pricing practices.
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1. Bait-and-Switch Tactics
Advertisements for motor vehicles are often consumers' first
contact in the vehicle-buying or -leasing process. Dealers utilize a
variety of means to
[[Page 595]]
reach consumers, including social media and online advertisements,
television and radio commercials, and direct mail marketing. New
vehicle dealers spend an average of more than $700 on advertising per
vehicle sold \54\--more than two-thirds of which goes toward online
advertising.\55\
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\54\ Nat'l Auto. Dealers Ass'n, ``NADA Data 2022'' 15, https://www.nada.org/media/4695/download?inline (listing average dealership
advertising per new vehicle sold of $718 in 2022, and $602 in 2021).
\55\ Id. at 16 (listing 68.2% of estimated advertising
expenditures by medium as internet expenditures).
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The FTC has brought many law enforcement actions involving motor
vehicle dealers' deceptive advertising and other unlawful tactics. Such
actions have charged dealers with, inter alia, making
misrepresentations regarding the price of a vehicle, the availability
of discounts and rebates, the monthly payment amount for a financed
purchase or lease, the amount due at signing, and whether an offer
pertains to a purchase or a lease.\56\ Other such actions have charged
dealers with misrepresentations regarding whether the dealer or
consumer is responsible for paying off ``negative equity,'' i.e., the
outstanding debt on a vehicle that is being ``traded in'' as part of
another vehicle purchase.\57\ And in other FTC actions, some dealers
have lured potential buyers through financial incentives incidental to
the purchase, such as deceptive promises of a valuable prize that is
redeemable only by visiting the dealership.\58\
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\56\ See, e.g., Complaint, Timonium Chrysler, Inc., No. C-4429
(F.T.C. Jan. 28, 2014) (alleging dealership advertised internet
prices and dealer discounts that were only available through rebates
not applicable to the typical consumer); Complaint, Ganley Ford
West, Inc., No. C-4428 (F.T.C. Jan. 28, 2014) (alleging dealership
advertised discounts on vehicle prices, but failed to disclose that
discounts were only available on the most expensive models);
Complaint, Progressive Chevrolet Co., No. C-4578 (F.T.C. June 13,
2016) (alleging deceptive failure to disclose material conditions of
obtaining the lease monthly payment in their online and print
advertising); Complaint ]] 38-46, Fed. Trade Comm'n v. Tate's Auto
Ctr. of Winslow, Inc., No. 3:18-cv-08176-DJH (D. Ariz. July 31,
2018) (alleging that company issued advertisements for attractive
terms but concealed that the terms were only applicable to lease
offers); Complaint ]] 36-38, United States v. New World Auto
Imports, Inc., No. 3:16-cv-02401-K (N.D. Tex. Aug. 18, 2016)
(alleging misrepresentation that terms were for financing instead of
leasing); Complaint ]] 85-87, Fed. Trade Comm'n v. Universal City
Nissan, Inc., No. 2:16-cv-07329 (C.D. Cal. Sept. 29, 2016) (alleging
that dealerships claimed consumers could finance the purchase of
vehicles with attractive terms and buried disclosures indicating
that such terms were applicable to leases only).
\57\ Complaint ]] 82-84, Fed. Trade Comm'n v. Universal City
Nissan, Inc., No. 2:16-cv-07329 (C.D. Cal. Sept. 29, 2016) (alleging
misrepresentation that dealer would pay off a consumer's trade-in
when in fact consumers were still responsible for outstanding debt
on trade-in vehicles); Complaint ]] 17-19, TXVT Ltd. P'ship, No. C-
4508 (F.T.C. Feb. 12, 2015) (alleging misrepresentation in leasing
advertising that the dealership would pay off the negative equity of
a consumer's trade in vehicle, when in fact, it was merely rolled
into the financed amount for the consumer's newly financed vehicle).
\58\ See, e.g., Complaint ]] 12, 17-19, Traffic Jam Events, LLC,
No. 9395 (F.T.C. Aug. 7, 2020); Complaint ]] 4, 7-9, Fowlerville
Ford, Inc., No. C-4433 (F.T.C. Feb. 20, 2014).
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Deceptive tactics can cause significant consumer harm and impede
competition, competitively disadvantaging law-abiding dealers. When
dealerships advertise prices, discounts, or other terms that are not
actually available to typical consumers, consumers who select that
dealership instead of others spend time visiting the dealership or
otherwise interacting with the dealership under false pretenses.
2. Unlawful Practices Relating to Add-On Products or Services and
Hidden Charges
Another key consumer protection concern is the sale of add-on
products or services in a deceptive or unfair manner. Add-ons in
connection with the sale or financing of motor vehicles include
extended warranties, service and maintenance plans, payment programs,
guaranteed automobile or asset protection (``GAP'') agreements,
emergency road service, VIN etching and other theft protection devices,
and undercoating. Individual add-ons can cost consumers thousands of
dollars and can significantly increase the overall cost to the consumer
in the transaction.\59\ Moreover, in the past two years, dealers have
substantially increased prices for these add-ons, notwithstanding that
such products or services largely are not constrained by supply.\60\
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\59\ See, e.g., Complaint ]] 25, 27-28, Fed. Trade Comm'n v. N.
Am. Auto. Servs., Inc., No. 1:22-cv-0169 (N.D. Ill. Mar. 31, 2022).
\60\ See Ben Eisen, ``Car Dealer Markups Helped Drive Inflation,
Study Finds,'' Wall St. J., Apr. 23, 2023, https://www.wsj.com/articles/car-dealer-markups-helped-drive-inflation-study-finds-7c1d5a2d; U.S. Bureau of Labor Statistics, ``Automotive Dealerships
2019-2022: Dealer Markup Increases Drive New-Vehicle Consumer
Inflation'' (Apr. 2023), https://www.bls.gov/opub/mlr/2023/article/automotive-dealerships-markups.htm.
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A significant consumer protection concern is consumers paying for
add-ons without knowing about, or expressly agreeing to, these products
or services.\61\ This type of payment packing has been a particular
concern in the military community.\62\ The protracted and paperwork-
heavy vehicle-buying or -leasing process can make it difficult for
consumers to spot add-on charges, particularly when advertised prices
or payment terms do not mention add-ons.\63\ If consumers are financing
or leasing the vehicle, they undergo a separate financing process after
selecting a vehicle, which can include wading through a thick stack of
dense paperwork filled with fine print.\64\ For example, according to
an FTC law enforcement action, consumers visiting one large dealership
group were required to complete a stack of paperwork that ran more than
sixty pages and required more than a dozen signatures.\65\ This
paperwork can include hidden charges for add-on products or services,
causing consumers
[[Page 596]]
to purchase those add-ons without knowing about or agreeing to them, or
without knowing or agreeing to their costs or other key terms.\66\
Unscrupulous dealers are able to slip the often considerable additional
costs for these items past consumers unnoticed and into purchase
contracts through a variety of means, including by not mentioning them
at all,\67\ or by focusing consumers' attention on other aspects of the
complex transaction, such as monthly payments, which might increase
only marginally with the addition of prorated add-on costs, or may even
be made to decrease if the financing term is extended.\68\ This type of
conduct can target immigrants, communities of color, and
servicemembers.\69\ In other instances, dealers might wait until late
in the transaction to mention add-ons, and then do so in a misleading
manner. For example, participants in an FTC qualitative study on
consumers' car-buying experiences cited situations where dealers waited
until the financing stage to mention add-ons, after consumers believed
they had agreed on terms, and even though many add-ons have nothing to
do with financing and were not mentioned at all during the sales
process or when prices were initially negotiated.\70\ According to FTC
enforcement actions, dealers also have represented that add-ons are
required when in fact they are not,\71\ have misrepresented the
purported benefits of add-ons, and have failed to disclose material
limitations.\72\
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\61\ See Nat'l Consumer L. Ctr., ``Auto Add-ons Add Up: How
Dealer Discretion Drives Excessive, Arbitrary, and Discriminatory
Pricing'' (Oct. 1, 2017), https://www.nclc.org/images/pdf/car_sales/report-auto-add-on.pdf; Adam J. Levitin, ``The Fast and the
Usurious: Putting the Brakes on Auto Lending Abuses,'' 108 Geo. L.J.
1257, 1265-66 (2020), https://www.law.georgetown.edu/georgetown-law-journal/wp-content/uploads/sites/26/2020/05/Levitin_The-Fast-and-the-Usurious-Putting-the-Brakes-on-Auto-Lending-Abuses.pdf
(discussing ``loan packing'' as the sale of add-on products that are
falsely represented as being required in order to obtain financing);
Complaint ]] 12-19, Fed. Trade Comm'n v. Liberty Chevrolet, Inc.,
No. 1:20-cv-03945 (S.D.N.Y. May 21, 2020) (alleging deceptive and
unauthorized add-on charges in consumers' transactions); Complaint
]] 59-64, Fed. Trade Comm'n v. Universal City Nissan, Inc., No.
2:16-cv-07329 (C.D. Cal. Sept. 29, 2016) (alleging deceptive and
unauthorized add-on charges in consumers' transactions); Complaint
]] 6, 9, TT of Longwood, Inc., No. C-4531 (F.T.C. July 2, 2015)
(alleging misrepresentations regarding prices for added features);
see also Auto Buyer Study, supra note 25, at 14 (``Several
participants who thought that they had not purchased add-ons, or
that the add-ons were included at no additional charge, were
surprised to learn, when going through the paperwork, that they had
in fact paid extra for add-ons. This is consistent with consumers'
experiencing fatigue during the buying process or confusion with a
financially complex transaction, but would also be consistent with
dealer misrepresentations.'').
\62\ Consumers for Auto Reliability and Safety, Comment Letter
on Motor Vehicle Roundtables, Project No. P104811 at 2-3 (Apr. 1,
2012), https://www.ftc.gov/sites/default/files/documents/public_comments/public-roundtables-protecting-consumers-sale-and-leasing-motor-vehicles-project-no.p104811-00108/00108-82875.pdf
(citing a U.S. Department of Defense data call summary that found
that the vast majority of military counselors have clients with auto
financing problems and cited ``loan packing'' and yo-yo financing as
the most frequent auto lending abuses affecting servicemembers).
\63\ Complaint ]] 17-19, Fed. Trade Comm'n v. Liberty Chevrolet,
Inc., No. 1:20-cv-03945 (S.D.N.Y. May 21, 2020); Complaint ] 60,
Fed. Trade Comm'n v. Universal City Nissan, Inc., No. 2:16-cv-07329
(C.D. Cal. Sept. 29, 2016); Carole L. Reynolds & Stephanie E. Cox,
Fed. Trade Comm'n, ``Buckle Up: Navigating Auto Sales and
Financing'' (2020) [hereinafter Buckle Up], https://www.ftc.gov/reports/buckle-navigating-auto-sales-financing.
\64\ See, e.g., Buckle Up, supra note 63, at 10-11 (noting the
long, complex transaction process); Complaint ]] 23-28, Fed. Trade
Comm'n v. N. Am. Auto. Servs., Inc., No. 1:22-cv-01690 (N.D. Ill.
Mar. 31, 2022) (same).
\65\ Complaint ] 24, Fed. Trade Comm'n v. N. Am. Auto. Servs.,
Inc., No. 1:22-cv-01690 (N.D. Ill. Mar. 31, 2022); see also Buckle
Up, supra note 63, at 10-11.
\66\ Complaint ]] 25, 27, 29-32, Fed. Trade Comm'n v. N. Am.
Auto. Servs., Inc., No. 1:22-cv-01690 (N.D. Ill. Mar. 31, 2022); see
also Complaint ]] 17-19, Fed. Trade Comm'n v. Liberty Chevrolet,
Inc., No. 1:20-cv-03945 (S.D.N.Y. May 21, 2020); Dale Irwin, Slough
Connealy Irwin & Madden LLC, Comment Letter on Public Roundtables:
Protecting Consumers in the Sale and Leasing of Motor Vehicles,
Project No. P104811, Submission No. 558507-00060 (Dec. 29, 2011),
https://www.regulations.gov/comment/FTC-2022-0036-0051 (consumer
protection lawyer noting ``payment packing'' among problems ``that
cry out for scrutiny and regulation''); Michael Archer, Comment
Letter on Public Roundtables: Protecting Consumers in the Sale and
Leasing of Motor Vehicles, Project No. P104811, Submission No.
558507-00041 at 3 (Aug. 6, 2011), https://www.regulations.gov/comment/FTC-2022-0036-0014 (workshop panelist stating, ``I have seen
cases wherein the dealer uses financing to pack in extra costs or to
wipe out trade-in value.''); Dawn Smith, Comment Letter on Public
Roundtables: Protecting Consumers in the Sale and Leasing of Motor
Vehicles, Project No. P104811, Submission No. 558507-00027 (July 27,
2011), https://www.regulations.gov/comment/FTC-2022-0036-0043
(``Confusing or misleading sales terms[.] Extra fees was [sic] added
at the time of purchase and to this day I still do not understand
what the fee was for; it made the payment higher.''); Carrie
Ferraro, Legal Servs. of N.J., Comment Letter on Public Roundtables:
Protecting Consumers in the Sale and Leasing of Motor Vehicles,
Project No. P104811, Submission No. 558507-00061 (Dec. 29, 2011),
https://www.regulations.gov/comment/FTC-2022-0036-0059 (citing
``[d]ealers engage[d] in packing'' as an example of the common
consumer complaints of car-sales-related fraud received by LSNJ's
legal advice hotline); Rosemary Shahan, Consumers for Auto
Reliability and Safety, Comment Letter on Public Roundtables:
Protecting Consumers in the Sale and Leasing of Motor Vehicles,
Project No. P104811, Submission No. 558507-00069 at 3 (Jan. 31,
2012), https://www.regulations.gov/comment/FTC-2022-0036-0069
(noting that ``[m]any common auto scams do not generate complaints
in proportion to how pervasive or costly the practices are, simply
because the consumers generally remain unaware they have been
scammed,'' including as a result of ``[l]oan packing''); Mary W.
Sullivan, Matthew T. Jones & Carole L. Reynolds, Fed. Trade Comm'n,
``The Auto Buyer Study: Lessons from In-Depth Consumer Interviews
and Related Research,'' Supplemental Appendix: Redacted Interview
Transcripts at 525 (2020) [hereinafter Auto Buyer Study: Appendix],
https://www.ftc.gov/system/files/documents/reports/buckle-navigating-auto-sales-financing/bcpstaffreportautobuyerstudysuppappendix.pdf (Study participant
169810: consumer had ``additional items'' charges on contract that
consumer could not identify); id. at 730, 740-42 (Study participant
188329: dealer did not tell consumer about GAP or service contract
but consumer was charged $599 and $1,950 for those add-ons,
respectively); Press Release, N.Y. State Att'y Gen., ``A.G.
Schneiderman Announces Nearly $14 Million Settlement with NYC and
Westchester Auto Dealerships for Deceptive Practices that Resulted
in Inflated Car Prices'' (June 17, 2015), https://ag.ny.gov/press-release/2015/ag-schneiderman-announces-nearly-14-million-settlement-nyc-and-westchester-auto (``This settlement is part of the [New
York] attorney general's wider initiative to end the practice of
`jamming,' unlawfully charging consumers for hidden purchases by car
dealerships.'').
\67\ Under the Truth in Lending Act (``TILA'') and its
implementing Regulation Z, required add-on products or services must
be factored into the APR and the finance charge disclosed during the
transaction. See 15 U.S.C. 1605, 1606, 1638; 12 CFR 226.4,
226.18(b), (d), (e), and 226.22. It is legally impermissible for
dealers to include charges for such products in a consumer's
contract without disclosing them. See, e.g., Complaint ]] 57-60,
Fed. Trade Comm'n v. Stewart Fin. Co. Holdings, Inc., No. 1:03-CV-
2648 (N.D. Ga. Sept. 4, 2003) (alleging violations for failure to
include the cost of required add-on products in the finance charge
and annual percentage rate disclosed to consumers).
\68\ See, e.g., Buckle Up, supra note 63, at 6; Fed. Trade
Comm'n, Military Consumer Financial Workshop, Panel 1, Tr. 19:25-41
(July 19, 2017), https://www.ftc.gov/news-events/events-calendar/military-consumer-workshop; Fed. Trade Comm'n, ``The Road Ahead:
Selling, Financing & Leasing Motor Vehicles,'' Public Roundtable,
Session 2, Tr. at 40-41 (Aug. 2 2011), https://www.ftc.gov/news-events/events/2011/08/road-ahead-selling-financing-leasing-motor-vehicles (noting that optional products and services are often
already included in the monthly payment prices advertised or
quoted); Christopher Kukla, Ctr. for Responsible Lending, Comment
Letter on Public Roundtables: Protecting Consumers in the Sale and
Leasing of Motor Vehicles, Project No. P104811, Submission No.
558507-00071 at 10 (Feb. 1, 2012), https://www.regulations.gov/comment/FTC-2022-0036-0068 (discussing how dealers conceal packing
by expressing an increase in price in terms of monthly payment);
Att'ys General of 31 States & DC, Comment Letter on Public
Roundtables: Protecting Consumers in the Sale and Leasing of Motor
Vehicles, Project No. P104811, Submission No. 558507-00112 at 5
(Apr. 13, 2012), https://www.regulations.gov/comment/FTC-2022-0036-0124 (discussing the ``age-old auto salesperson's trick'' of quoting
monthly payment prices without disclosing that the quote includes
the cost of optional items that the customer has not yet agreed to
purchase).
\69\ See, e.g., Complaint ]] 9, 26, Fed. Trade Comm'n v. Liberty
Chevrolet, Inc., No. 1:20-cv-03945 (S.D.N.Y. May 21, 2020) (charging
defendants with discriminating on the basis of race, color, and
national origin by charging higher interest rates and inflated
fees); Press Release, N.Y. State Att'y Gen., ``Attorney General
James Delivers Restitution to New Yorkers Cheated by Auto
Dealership'' (Nov. 17, 2020), https://ag.ny.gov/press-release/2020/attorney-general-james-delivers-restitution-new-yorkers-cheated-auto-dealership (dealership targeted Chinese speakers for unlawful
payment packing or ``jamming''); Military Consumer Financial
Workshop, Tr. 19:21 (July 19, 2017), https://www.ftc.gov/news-events/events/2017/07/military-consumer-workshop (panelist
discussing servicemembers experiencing payment packing); see also
Fed. Trade Comm'n, ``Staff Perspective: A Closer Look at the
Military Consumer Financial Workshop'' 2-3 (Feb. 2018), https://www.ftc.gov/system/files/documents/reports/closer-look-military-consumer-financial-workshop-federal-trade-commission-staff-perspective/military_consumer_workshop_-_staff_perspective_2-2-18.pdf (explaining the unique situation of servicemembers whose
steady paychecks make them attractive customers for dealers, while
having no or minimal credit history, meaning they qualify for less
advantageous credit terms and higher interest rate financing).
\70\ See, e.g., Buckle Up, supra note 63, at 6 (observing that
the introduction of ``add-ons during financing discussions caused
several participants' total sale price to balloon from the cash
price''); id. at 9 (observing that, for most consumers in the study,
``add-ons did not come up until the financing process, if at all,
after a long car-buying process and at a time when the consumer
often felt pressure to close the deal''); id. (noting that most
study participants' contracts included add-ons charges, but that
many ``were unclear what those add-ons included, and sometimes did
not realize they had purchased any add-ons at all''); id. at 7
(explaining situations where the consumer reached the financing
office after negotiating with the sales staff and were then told
that the agreed upon price was not compatible with key financing
terms--for example, a promised rebate or discount could not be
combined with an advertised interest rate).
\71\ Complaint ]] 12-19, Fed. Trade Comm'n v. Liberty Chevrolet,
Inc., No. 1:20-cv-03945 (S.D.N.Y. May 21, 2020) (alleging deceptive
and unauthorized add-on charges in consumers' transactions);
Complaint ]] 59-64, Fed. Trade Comm'n v. Universal City Nissan,
Inc., No. 2:16-cv-07329 (C.D. Cal. Sept. 29, 2016) (alleging
deceptive and unauthorized add-on charges in consumers'
transactions); Complaint ]] 6, 9, TT of Longwood, No. C-4531 (F.T.C.
July 2, 2015) (alleging misrepresentations regarding prices for
added features); see also Auto Buyer Study, supra note 25, at 14.
\72\ Complaint ]] 4-14, Nat'l Payment Network, Inc., No. C-4521
(F.T.C. May 4, 2015) (alleging failure to disclose fees associated
with financing program; misleading savings claims in
advertisements); Complaint ]] 4-13, Matt Blatt Inc., No. C-4532
(F.T.C. July 2, 2015) (alleging failure to disclose fees associated
with financing program; misleading savings claims); Buckle Up, supra
note 63, at 10 (noting that some Auto Buyer Study participants did
not fully understand material aspects of extended warranties or
service plans they purchased and ``were surprised to discover during
the interview that their plans had unexpected limitations'' or that
``they had to pay out-of-pocket for repairs or services that were
not covered''; for example, one ``consumer purchased a `Lifetime'
maintenance plan, only to discover later that he received a one-year
plan that covered periodic oil changes''). Cf. Consent Order ]] 10-
16, Santander Consumer USA, Inc., CFPB No. 2018-BCFP-0008 (Nov. 20,
2018) (finding that defendant sold GAP product allegedly providing
``full coverage'' to consumers with loan-to-value ratios (``LTVs'')
above 125%, when in fact coverage was limited to 125% of LTV).
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[[Page 597]]
Indeed, as previously noted, in a recent FTC enforcement action,
the Commission cited a survey finding that 83% of consumers from the
named dealers were charged for add-on products or services that they
did not authorize or as a result of deceptive claims.\73\
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\73\ Complaint ] 27, Fed. Trade Comm'n v. N. Am. Auto. Servs.,
Inc., No. 1:22-cv-01690 (N.D. Ill. Mar. 31, 2022).
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One participant in an FTC qualitative study of consumers' car-
buying experiences summed up these issues during an interview after
having purchased a vehicle.\74\ The consumer purchased a $2,000 service
contract that the dealer falsely said was free, and a $900 GAP
agreement that the dealer falsely said was mandatory. The consumer only
learned about these purchases during the study interview. This consumer
remarked:
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\74\ The study is described in the Commission's reports: Auto
Buyer Study, supra note 25, and Buckle Up, supra note 63. Some
industry commenters critiqued the FTC's reliance on this qualitative
study. The Commission notes that the study provides helpful
qualitative insight from consumer interviews regarding their recent
motor vehicle purchases and is one of the many sources the
Commission has considered, including consumer complaints,
enforcement actions, outreach and dialogue with stakeholders and
consumer groups, among others, as described in this SBP and in the
NPRM.
I feel I've been taken advantage of, to be honest with you. Even
though I thought that I was getting a great deal with the interest
rate, but I know [sic] see that they're also very sneaky about
putting stuff on your paperwork. They only let you skim through the
paperwork that you have to sign and they just kind of tell you what
it is. This is this, this is that, this is this, and then you just
sign it away. You're so tired, you're so worn down, you don't want
to be there no more. You just want to get it done and over with.
They take advantage of that. Yes, they still play this friendly
card, you know, thank you for your business card kind of thing. Like
I said, they never lose. They never lose.\75\
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\75\ Auto Buyer Study: Appendix, supra note 66, at 130 (Study
participant 152288); see also id. at 202-03 (Study participant
180267: dealership included a charge for GAP in the final paperwork
but not in retail sales contract); id. at 296 (Study participant
146748: consumer learned during interview with FTC that consumer
purchased GAP: ``maybe they're just throwing that in there without
telling you'').
Similarly, in response to the Commission's notice of proposed
rulemaking, thousands of commenters described issues they faced when
purchasing, financing, or leasing a vehicle. Many comments the
Commission received in support of the NPRM were from self-identified
military consumers and dealership employees. Examples of supportive
comments include the following:
As a young Marine stationed in a military town I was taken
advantage of by a dealership when purchasing my first car. It set me
back financially for years. I know of many young military people who
purchased vehicle[]s and we[]re instantly so far upside down after
leaving the dealership with thousands of dollars in add on junk charges
. . . . Please make it more difficult for dishonest dealers like these
to financially burden young Americans and Americans of any age for that
matter.\76\
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\76\ Individual commenter, Doc. No. FTC-2022-0046-4648.
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Imagine going to a restaurant franchise and order[ing] a
burger and fries for $10 and the franchise employees say[,] `Sorry that
will be $25 dollars, there is a $10 restaurant adjustment price due to
market conditions and $5 for us to place and document your order.' You
would walk away without hesitation because that would [be] absolutely
ridiculous. Yet, dealerships are allowed to do exactly that. . . . IT
IS TIME TO CHANGE AND PROTECT CONSUMERS[.]\77\
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\77\ Individual commenter, Doc. No. FTC-2022-0046-0016.
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As in many other areas, it is the vulnerable in our
society who are probably most affected by such deceptive practices. . .
. Sadly, it is often these very people who desperately need a
dependable, affordable car for transportation to work, school,
shopping, or medical care. To entice, pressure, or trick people into
buying a car that is more than they can afford sets them up for
financial failure, not only in possibly having a needed car
repossessed, but in long-term damage to their credit. . . . In closing,
I would be extremely happy to see rules such as those described above
enacted, and don't think these could come a day too soon. It's a step
in the right direction for the protection of the consumer.\78\
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\78\ Individual commenter, Doc. No. FTC-2022-0046-1216.
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None of us working here at the dealership in sales benefit
from [unfair and deceptive practices]. We cringe as much as every
customer and have to show up to work every[ ]day and hope we are not
forced to screw someone with these BS products. . . . I would hope when
[t]he regulators are making their decisions, they understand the
positive implications this would have for dealership employees both
financially and mentally.\79\
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\79\ Individual commenter, Doc. No. FTC-2022-0046-3615.
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Generally, I'm not a person in favor of government
regulation. However, as a potential customer and cash buyer, I feel
there is certainly a need to bring car dealers back into check. I'm
just looking for a more honest and transparent process. I don't want to
be taken advantage of. I certainly don't want my family members or
[s]oldiers to be taken advantage of. Therefore, I feel it is in the
best interest of future customers to support this regulation.\80\
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\80\ Individual commenter, Doc. No. FTC-2022-0046-7366.
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I cannot stress enough my support for these new rules.
Currently, dealerships across the US, including the one I work for,
have made the car buying process needlessly confusing, expensive, and
frustrating by engaging in false advertising and hidden add-on
products.\81\
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\81\ Individual commenter, Doc. No. FTC-2022-0046-3693.
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I can tell you after many years of car buying I have NEVER
walked out of a dealership feeling good. Even worse, I've never
purchased a car feeling like I fully understood what I was getting. . .
. Looking forward to seeing the change happen SOON! \82\
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\82\ Individual commenter, Doc. No. FTC-2022-0046-3678.
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When I buy a gallon of milk from the store, the price is
written next to the milk. When I go pay, I pay the price advertised
next to the milk. Would it be OK if I go up to pay and that gallon of
milk had anywhere between 1% and 1,200% markup depending on the day,
what you look like, what you drove to the store in, if you're a man or
a woman? \83\
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\83\ Individual commenter, Doc. No. FTC-2022-0046-1479.
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We ended up having to drive 3 hours to the [vehicle we]
wanted. Upon arriving to pick[ ]up the car we were told there was a
[$]4,300 increase over MSRP. We were told if we didn't take it they had
someone else waiting to purchase it. We needed the car and didn't have
time to hunt down another one so ended up purchasing it. Very
disappointed in the long and awful process.\84\
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\84\ Individual commenter, Doc. No. FTC-2022-0046-1878.
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The worst is dealing with car dealers. You never know what
the real price is on a vehicle until you spend a few hours with them.
Mandatory add[-] on[ ]s, market availability surcharges, doc fees that
vary from dealer to dealer. . . . Then dealing with the finance manager
who tr[ie]s to sell you everything you don't[ ]need. They high pressure
the consumer on purchasing extend[ed] warranties. There
[[Page 598]]
needs [to be] some sort of policing [of] these unscrupulous car dealers
to protect the buyers.\85\
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\85\ Individual commenter, Doc. No. FTC-2022-0046-0825.
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This is a good start to making car purchasing a better
experience. . . . I remember looking at a Lexus and being told by the
dealership, the only one in the state, that [S]cotchguard and
undercoating were mandatory and they refused to sell any vehicles
without them. There were two Acura dealerships in town and one of them
included `free' lifetime oil changes that I didn't learn about until
negotiating the price and had already spent two hours in negotiations.
All of these services/price adjustments were not disclosed at the start
of the negotiation and were only revealed either in the manager's
office or when the purchase agreement was presented to me by the
salesperson. After spending time on the test drive and negotiating the
price, it felt that these last minute price adjustments were being
revealed that late in the process so that I wouldn't leave.\86\
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\86\ Individual commenter, Doc. No. FTC-2022-0046-4833.
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Please enact and enforce these regulations to protect
vulnerable consumers from predatory business practices enjoyed by
dealers. Our family experienced such practices when trying to purchase
a vehicle in early 2022. It was only after five hours at the dealership
that we discovered the dealer had added on a $3,000 market adjustment
and $3,100 in other add-ons (nitrogen-filled tires, LoJack, paint
protection) to MSRP. This raised the price by about $6,000 and caused
us to use extra PTO over that week to find a new vehicle at a price
within our budget. Greater transparency in the car-buying process is
desperately needed to protect vulnerable consumers--who usually lack
any bargaining power--against power dealer networks and their special
interest groups. . . .\87\
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\87\ Individual commenter, Doc. No. FTC-2022-0046-1690.
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C. Law Enforcement and Other Responses
The Commission has taken action to protect consumers from deceptive
and unfair acts or practices in the motor vehicle marketplace. As noted
in the NPRM, the Commission has brought more than 50 auto law
enforcement actions; \88\ led two law enforcement sweeps, including one
that involved 181 State enforcement actions; \89\ published two reports
on a qualitative study of consumer experiences while purchasing motor
vehicles; and held workshops with various stakeholders to discuss the
motor vehicle marketplace.\90\
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\88\ Complaint, Fed. Trade Comm'n v. Rhinelander Auto Ctr.,
Inc., No. 3:23-cv-00737 (W.D. Wis. Oct. 24, 2023); Complaint, Fed.
Trade Comm'n v. Passport Auto. Grp., Inc., No. 8:22-cv-02670-GLS (D.
Md. Oct. 18, 2022); Complaint, Fed. Trade Comm'n v. N. Am. Auto.
Servs., Inc., No. 1:22-cv-01690 (N.D. Ill. Mar. 31, 2022);
Complaint, Traffic Jam Events, LLC, No. 9395 (F.T.C. Aug. 7, 2020);
Complaint, Fed. Trade Comm'n v. Liberty Chevrolet, Inc., No. 1:20-
cv-03945 (S.D.N.Y. May 21, 2020); Complaint, Federal-Mogul
Motorparts LLC, No. C-4717 (F.T.C. May 12, 2020); Complaint,
LightYear Dealer Techs., LLC, No. C-4687 (F.T.C. Sept. 3, 2019);
Complaint, Fed. Trade Comm'n v. Passport Imports, Inc., No. 8:18-cv-
03118 (D. Md. Oct. 10, 2018); Complaint, Fed. Trade Comm'n v. Tate's
Auto Ctr. of Winslow, Inc., No. 3:18-cv-08176-DJH (D. Ariz. July 31,
2018); Complaint, Cowboy AG, LLC, No. C-4639 (F.T.C. Jan. 4, 2018);
Complaint, Fed. Trade Comm'n v. Norm Reeves, Inc., No. 8:17-cv-01942
(C.D. Cal. Nov. 3, 2017); Complaint, Asbury Auto. Grp., Inc., No. C-
4606 (F.T.C. Mar. 22, 2017); Complaint, CarMax, Inc., No. C-4605
(F.T.C. Mar. 22, 2017); Complaint, West-Herr Auto. Grp., Inc., No.
C-4607 (F.T.C. Mar. 22, 2017); Complaint, Fed. Trade Comm'n v.
Volkswagen Grp. of Am., Inc., No. 3:16-cv-01534 (N.D. Cal. Jan. 31,
2017); Complaint, Fed. Trade Comm'n v. Uber Techs., Inc., No. 3:17-
cv-00261 (N.D. Cal. Jan. 19, 2017); Complaint, Gen. Motors LLC, No.
C-4596 (F.T.C. Dec. 8, 2016); Complaint, Jim Koons Mgmt. Co., No. C-
4598 (F.T.C. Dec. 8, 2016); Complaint, Lithia Motors, Inc., No. C-
4597 (F.T.C. Dec. 8, 2016); Complaint, Fed. Trade Comm'n v.
Universal City Nissan, Inc., No. 2:16-cv-07329 (C.D. Cal. Sep. 29,
2016); Complaint, United States v. New World Auto Imports, Inc., No.
3:16-cv-02401-K (N.D. Tex. Aug. 18, 2016); Complaint, Progressive
Chevrolet Co., No. C-4578 (F.T.C. June 13, 2016); Complaint, BMW of
N. Am., LLC, No. C-4555 (F.T.C. Oct. 21, 2015); Complaint, United
States v. Tricolor Auto Acceptance, LLC, No. 3:15-cv-3002 (N.D. Tex.
Sept. 15, 2015); Complaint, JS Autoworld, Inc., No. C-4535 (F.T.C.
Aug. 13, 2015); Complaint, TC Dealership, L.P., No. C-4536 (F.T.C.
Aug. 13, 2015); Complaint, Matt Blatt Inc., No. C-4532 (F.T.C. July
2, 2015); Complaint, TT of Longwood, Inc., No. C-4531 (F.T.C. July
2, 2015); Complaint, Fin. Select, Inc., No. C-4528 (F.T.C. June 2,
2015); Complaint, First Am. Title Lending of Ga., LLC, No. C-4529
(F.T.C. June 2, 2015); Complaint, City Nissan Inc., No. C-4524
(F.T.C. May 4, 2015); Complaint, Jim Burke Auto., Inc., No. C-4523
(F.T.C. May 4, 2015); Complaint, Nat'l Payment Network, Inc., No. C-
4521 (F.T.C. May 4, 2015); Complaint, TXVT Ltd. P'ship, No. C-4508
(F.T.C. Feb. 12, 2015); Complaint, Fed. Trade Comm'n v. Regency Fin.
Servs., LLC, No. 1:15-cv-20270-DPG (S.D. Fla. Jan. 26, 2015);
Complaint, United States v. Billion Auto, Inc., No. 5:14-cv-04118-
MWB (N.D. Iowa Dec. 11, 2014); Complaint, Fed. Trade Comm'n v. Ramey
Motors, Inc., No. 1:14-cv-29603 (S.D. W. Va. Dec. 11, 2014);
Complaint, Fed. Trade Comm'n v. Consumer Portfolio Servs., Inc., No.
14-cv-00819 (C.D. Cal. May 28, 2014); Complaint, Nissan N. Am.,
Inc., No. C-4454 (F.T.C. May 1, 2014); Complaint, TBWA Worldwide,
Inc., No. C-4455 (F.T.C. May 1, 2014); Complaint, Bill Robertson &
Sons, Inc., No. C-4451 (F.T.C. Apr. 11, 2014); Complaint, Paramount
Kia of Hickory, LLC, No. C-4450 (F.T.C. Apr. 11, 2014); Complaint,
Fed. Trade Comm'n v. Abernathy Motor Co., No. 3:14-cv-00063-BRW
(E.D. Ark. Mar. 12, 2014); Complaint, Fowlerville Ford, Inc., No. C-
4433 (F.T.C. Feb. 20, 2014); Complaint, Infiniti of Clarendon Hills,
Inc., No. C-4438 (F.T.C. Feb. 20, 2014); Complaint, Luis Alfonso
Sierra, No. C-4434 (F.T.C. Feb. 20, 2014); Complaint, Mohammad
Sabha, No. C-4435 (F.T.C. Feb. 20, 2014); Complaint, Norm Reeves,
Inc., No. C-4436 (F.T.C. Feb. 20, 2014); Complaint, Ganley Ford
West, Inc., No. C-4428 (F.T.C. Jan. 28, 2014); Complaint, Timonium
Chrysler, Inc., No. C-4429 (F.T.C. Jan. 28, 2014); Complaint,
Courtesy Auto Grp., Inc., No. 9359 (F.T.C. Jan. 7, 2014); Complaint,
Franklin's Budget Car Sales, Inc., No. C-4371 (F.T.C. Oct. 3, 2012);
Complaint, Fed. Trade Comm'n v. Matthew J. Loewen, No. 2:12-cv-
01207-MJP (W.D. Wash. July 13, 2012); Complaint, Key Hyundai of
Manchester, LLC, No. C-4358 (F.T.C. May 4, 2012); Complaint, Billion
Auto, Inc., No. C-4356 (F.T.C. May 1, 2012); Complaint, Frank Myers
AutoMaxx, LLC, No. C-4353 (F.T.C. Apr. 19, 2012); Complaint, Ramey
Motors, Inc., No. C-4354 (F.T.C. Apr. 19, 2012); Complaint, Fed.
Trade Comm'n v. Hope for Car Owners, LLC, No. 2:12-cv-00778-GEB-EFB
(E.D. Cal. Mar. 27, 2012); Complaint, Fed. Trade Comm'n v. NAFSO
VLM, Inc., No. 2:12-cv-00781-KJM-EFB (E.D. Cal. Mar. 27, 2012);
Complaint, Fed. Trade Comm'n v. Stewart Fin. Co. Holdings, Inc., No.
1:03-CV-2648 (N.D. Ga. Sept. 4, 2003); Complaint, Pacifico Ardmore,
Inc., No. C-3920 (F.T.C. Feb. 7, 2000).
\89\ Operation Steer Clear and Operation Ruse Control, brought
with State law enforcement partners around the nation and Canada,
encompassed 252 enforcement actions. See Press Release, Fed. Trade
Comm'n, ``Multiple Law Enforcement Partners Announce Crackdown on
Deception, Fraud in Auto Sales, Financing and Leasing'' (Mar. 26,
2015), https://www.ftc.gov/news-events/press-releases/2015/03/ftc-multiple-law-enforcement-partners-announce-crackdown.
\90\ For example, the FTC has held public workshops: (1) in
conjunction with the National Highway Traffic Safety Administration
to examine the consumer privacy and security issues posed by
automated and connected motor vehicles, see Fed. Trade Comm'n,
``Connected Cars: Privacy, Security Issues Related to Connected,
Automated Vehicles'' (June 28, 2017), https://www.ftc.gov/news-events/events-calendar/2017/06/connected-cars-privacy-security-issues-related-connected; (2) to explore competition and related
issues in the U.S. motor vehicle distribution system including how
consumers and businesses may be affected by State regulations and
emerging trends in the industry, see Fed. Trade Comm'n, ``Auto
Distribution: Current Issues & Future Trends'' (Jan. 19, 2016),
https://www.ftc.gov/news-events/events-calendar/2016/01/auto-distribution-current-issues-future-trends; (3) on military consumer
financial issues, including automobile purchases, financing, and
leasing, see Fed. Trade Comm'n, ``Military Consumer Workshop'' (July
19, 2017), https://www.ftc.gov/news-events/events-calendar/military-consumer-workshop; and (4) through a series of three roundtables on
numerous issues in selling, financing, and leasing automobiles, see
Fed. Trade Comm'n, ``The Road Ahead: Selling, Financing & Leasing
Motor Vehicles'' (Apr. 12, 2011), https://www.ftc.gov/news-events/events-calendar/2011/04/road-ahead-selling-financing-leasing-motor-vehicles; Fed. Trade Comm'n, ``The Road Ahead: Selling, Financing &
Leasing Motor Vehicles'' (Aug. 2, 2011), https://www.ftc.gov/news-events/events-calendar/2011/08/road-ahead-selling-financing-leasing-motor-vehicles; Fed. Trade Comm'n, ``The Road Ahead: Selling,
Financing & Leasing Motor Vehicles'' (Nov. 17, 2011), https://www.ftc.gov/news-events/events-calendar/2011/11/road-ahead-selling-financing-leasing-motor-vehicles; see also Consumers for Auto
Reliability and Safety, Comment Letter on Motor Vehicle Roundtables,
Project No. P104811, at 6 (Apr. 1, 2012), https://www.ftc.gov/sites/default/files/documents/public_comments/public-roundtables-protecting-consumers-sale-and-leasing-motor-vehicles-project-no.p104811-00108/00108-82875.pdf (stating that the Director of the
Navy-Marine Corps Relief Society in San Diego indicated before the
California Assembly Committee on Banking and Finance that ``the
number one issue they are confronted with is used car dealers who
are taking advantage of military personnel''). These events, and
others, have included speakers representing consumers, dealers,
regulators, and other industry stakeholders.
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[[Page 599]]
As discussed in the NPRM, the Commission's law enforcement partners
have also brought actions addressing unfair, abusive, and deceptive
practices in the motor vehicle industry. For example, the Consumer
Financial Protection Bureau (``CFPB'') has taken action against third-
party motor vehicle financing entities in matters that raise similar,
and sometimes identical, claims of deceptive and unfair acts or
practices as have been at issue in FTC enforcement actions.\91\
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\91\ The CFPB has brought at least 23 enforcement actions
involving motor vehicles, financing, or add-on products or services.
See Consent Order ]] 3, 13-57, Toyota Motor Credit Corp., CFPB No.
2023-CFPB-0015 (Nov. 20, 2023) (finding auto lender engaged in
unfair or abusive acts or practices by making it unreasonably
difficult for consumers to cancel unwanted add-ons; failing to
ensure consumers received refunds of payments they had made for
certain add-ons that had become void and worthless; and failing to
provide refunds owed to consumers who canceled their vehicle service
agreements);
Complaint ]] 75-104, CFPB v. USASF Servicing, LLC, No. 1:23-cv-
03433-VMC (N.D. Ga. Aug. 2, 2023) (alleging auto loan servicer
illegally disabled and repossessed consumers' vehicles, wrongfully
double-billed consumers, misapplied payments, and failed to ensure
refunds of unearned GAP premiums to which consumers were entitled);
Consent Order ]] 7-33, TMX Finance LLC, CFPB No. 2023-CFPB-0001
(Feb. 23, 2023) (finding auto lender understated and inaccurately
disclosed the finance charge and annual percentage rate on loans and
unfairly charged borrowers for a product that provided no benefit);
Complaint ]] 33-135, 171-226, CFPB v. Credit Acceptance Corp., No.
1:23-cv-00038 (S.D.N.Y. Jan. 4, 2023) (alleging indirect auto lender
misrepresented key terms of loans provided to subprime and deep-
subprime consumers and substantially assisted dealers in the
deceptive sale of add-on products); Consent Order ]] 7-22, Wells
Fargo Bank, N.A., CFPB No. 2022-CFPB-0011 (Dec. 20, 2022) (finding
bank incorrectly applied borrowers' auto loan payments, erroneously
assessed fees and interest, wrongly repossessed borrowers' vehicles,
and failed to ensure borrowers received refunds of unearned GAP fees
at early payoff); Consent Order ]] 4-55, Hyundai Capital America,
CFPB No. 2022-CFPB-0005 (July 26, 2022) (finding auto finance
company furnished inaccurate information about consumers to credit
reporting agencies); Consent Order ]] 4-14, 3rd Generation, Inc.,
CFPB No. 2021-CFPB-0003 (May 21, 2021) (finding subprime auto loan
servicer charged interest on late payments of fees without the
knowledge or consent of consumers); Consent Order ]] 8-50, Santander
Consumer USA Inc., CFPB No. 2020-BCFP-0027 (Dec. 22, 2020) (finding
auto finance company provided inaccurate records to credit reporting
agencies); Consent Order ]] 11-52, Nissan Motor Acceptance Corp.,
CFPB No. 2020-BCFP-0017 (Oct. 13, 2020) (finding auto finance
company misrepresented financing extension agreements,
repossessions, and limitations to consumer bankruptcy protections);
Consent Order ]] 8-22, Lobel Fin. Corp., CFPB No. 2020-BCFP-0016
(Sept. 21, 2020) (finding auto-loan servicer unfairly charged
delinquent consumers add-on charges in the form of Loss Damage
Waiver premiums); Consent Order ]] 6-30, Santander Consumer USA
Inc., CFPB No. 2018-BCFP-0008 (Nov. 20, 2018) (finding auto finance
company sold GAP to consumers with LTV over 125%, misrepresenting
that such consumers would be fully covered with total loss);
Consent Order ]] 27-39, Wells Fargo Bank, N.A., CFPB No. 2018-
BCFP-0001 (Apr. 20, 2018) (finding bank imposed duplicative or
unnecessary forced-placed auto loan insurance on consumers); Consent
Order ]] 12-23, Toyota Motor Credit Corp., CFPB No. 2016-CFPB-0002
(Feb. 2, 2016) (finding auto finance company engaged in
discriminatory pricing markup for motor vehicle financing, without
regard to creditworthiness); Consent Order ]] 73-75, Y King S Corp.,
CFPB No. 2016-CFPB-0001 (Jan. 21, 2016) (finding used car dealer
failed to disclose mandatory add-ons as financing charges); Consent
Order ]] 12-51, Interstate Auto Grp., Inc., CFPB No. 2015-CFPB-0032
(Dec. 17, 2015) (finding dealership and financing company reported
information they knew or had reasonable cause to believe was
inaccurate to credit reporting entities, harming consumer credit);
Consent Order ]] 7-90, Westlake Servs., LLC, CFPB No. 2015-CFPB-0026
(Sept. 30, 2015) (finding indirect auto financing entity used
illegal debt collection tactics); Consent Order ]] 8-23, Fifth Third
Bank, CFPB No. 2015-CFPB-0024 (Sept. 28, 2015) (finding
discrimination against loan applicants in credit applications based
on characteristics such as race and national origin); Consent Order
]] 9-24, Am. Honda Fin. Corp., CFPB No. 2015-CFPB-0014 (July 14,
2015) (same);
Consent Order ]] 4-60, DriveTime Auto. Grp., Inc., CFPB No.
2014-CFPB-0017 (Nov. 19, 2014) (finding buy-here-pay-here dealership
made harassing debt collection calls and provided inaccurate credit
information to credit reporting agencies); Consent Order ]] 4-37,
First Investors Fin. Servs. Grp., Inc., CFPB No. 2014-CFPB-0012
(Aug. 20, 2014) (finding auto financing company provided inaccurate
records to credit reporting agencies); Consent Order ]] 7-27, Ally
Fin. Inc., CFPB No. 2013-CFPB-0010 (Dec. 20, 2013) (finding auto
lender engaged in discriminatory pricing); Consent Order ]] 14-29,
U.S. Bank Nat'l Ass'n, CFPB No. 2013-CFPB-0004 (June 26, 2013)
(finding bank failed to properly disclose all the fees charged to
participants in the companies' Military Installment Loans and
Educational Services auto loans program, and misrepresented the true
cost and coverage of add-on products financed along with the auto
loans); Consent Order ]] 10-22, Dealers' Fin. Servs., LLC, CFPB No.
2013-CFPB-0004 (June 26, 2013) (finding financing company made
deceptive statements regarding the cost of add-on products and the
scope of coverage of the vehicle service contract).
In addition, States have engaged in enforcement actions alleging
similar dealer misconduct in the motor vehicle dealer marketplace, and
have implemented legislative and regulatory measures to address
corresponding consumer protection issues. With regard to law
enforcement, State regulators and Attorneys General have participated
in law enforcement sweeps with the FTC, and have filed hundreds of
actions alleging unlawful conduct by motor vehicle dealerships across
the country.\92\ Furthermore, with regard to legislative and regulatory
efforts, at least four States have enacted consumer protection measures
relating to pricing or add-ons by motor vehicle dealers.\93\ For
example, to ``ensure that dealers do not add in hidden or undisclosed
costs after the price for a vehicle has been advertised,'' Oregon
promulgated a rule that requires dealerships to state an ``offering
price'' that is the actual offer and amount the consumer can pay to own
the vehicle, excluding only taxes and other specific items.\94\
California and Wisconsin have similarly enacted laws that make it
unlawful for dealerships to advertise a total price without including
additional costs to the purchaser outside the mandatory tax, title, and
registration fees.\95\ Other States, such as Indiana, have enacted
codes that prohibit the sale of add-ons in certain circumstances.\96\
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\92\ Operation Steer Clear and Operation Ruse Control, brought
with State law enforcement partners around the nation and Canada,
encompassed 252 enforcement actions. See Press Release, Fed. Trade
Comm'n, ``Multiple Law Enforcement Partners Announce Crackdown on
Deception, Fraud in Auto Sales, Financing and Leasing'' (Mar. 26,
2015), https://www.ftc.gov/news-events/press-releases/2015/03/ftc-multiple-law-enforcement-partners-announce-crackdown. Separately,
the California Attorney General's office sued a dealership chain
under State consumer protection laws for deceiving consumers about
add-on product charges and misrepresenting consumers' income on
credit applications; the alleged practices specifically targeted
low-income consumers with subprime credit. Complaint ]] 37-86,
People v. Paul Blanco's Good Car Co. Auto Grp., No. RG-19036081
(Cal. Super. Ct. Sept. 23, 2019).
\93\ See, e.g., Cal. Veh. Code 11713.1(b), (c); Or. Admin. R.
137-020-0020(3)(c); Wis. Admin. Code Trans. 139.03(3); Ind. Code 24-
4.5-3-202.
\94\ Or. Admin. R. 137-020-0020(3)(c); Official Commentary, Or.
Admin. R. 137-020-0020(3)(c).
\95\ Cal. Veh. Code 11713.1(b), (c); Wis. Admin. Code Trans.
139.03(3).
\96\ Ind. Code 24-4.5-3-202(3)(e)(ix) (prohibiting the sale of
any GAP coverage when the LTV is less than 80%); Cal. Civ. Code
2982.12(a)(5)(B) (prohibiting the sale of any GAP waiver in three
scenarios, including when the amount financed for the vehicle
exceeds the amount covered by the GAP waiver).
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The Commission and its law enforcement partners also regularly
provide business guidance and consumer education regarding the motor
vehicle marketplace. The Commission has compiled its motor vehicle
business guidance into a portal on its website, with links to guidance
documents, frequently asked questions, and legal resources.\97\
Likewise, the Commission provides a web page for consumers to learn
more about buying, financing, and leasing motor vehicles.\98\ Several
States have published similar such guidance manuals for motor vehicle
dealers,\99\
[[Page 600]]
while others have provided online consumer education resources.\100\
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\97\ See Fed. Trade Comm'n, Business Guidance, ``Automobiles,''
https://www.ftc.gov/business-guidance/industry/automobiles (last
visited Dec. 5, 2023).
\98\ See Fed. Trade Comm'n, ``Buying and Owning a Car,'' https://consumer.ftc.gov/shopping-and-donating/buying-and-owning-car (last
visited Dec. 5, 2023).
\99\ See, e.g., Ill. Sec'y of State Police, Dealer Handbook
(Apr. 2022), https://www.ilsos.gov/publications/pdf_publications/sos_dop66.pdf; Wis. DOT--Div. of Motor Vehicles, Motor Vehicle
Salesperson Manual--2020, https://wisconsindot.gov/Documents/dmv/shared/salesmanual-20.pdf; Enf't Div. of the Tex. Dep't of Motor
Vehicles, Motor Vehicle Dealer Manual (2017), https://www.txdmv.gov/sites/default/files/body-files/Motor_Vehicle_Dealer_Manual.pdf.
\100\ See, e.g., Cal. Dept. of Just., ``Buying and Maintaining a
Car,'' https://oag.ca.gov/consumers/general/cars (last visited Dec.
5, 2023); Fla. Highway Safety & Motor Vehicles, ``Buying from a
Licensed Dealer,'' https://www.flhsmv.gov/safety-center/consumer-education/buying-vehicle-florida/buying-licensed-dealer (last
visited Dec. 5, 2023); Or. Dep't of Just., ``Buying a Vehicle,''
https://www.doj.state.or.us/consumer-protection/motor-vehicles/buying-a-vehicle/ (last visited Dec. 5, 2023).
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While some commenters stated that existing Federal and State
efforts are sufficient, recent Commission and partner actions indicate
that misconduct has persisted despite prior law enforcement and other
efforts, and despite the NPRM's detailed description of chronic
problems relating to bait-and-switch tactics and hidden add-on and
other charges. For example, in a recent enforcement action, filed after
publication of the NPRM, the Commission charged several auto dealer
locations in an auto dealership group with misrepresenting the price of
vehicles. According to the complaint, the dealers advertised one price
to lure consumers to their dealerships, then charged them hundreds to
thousands of dollars more than the advertised price by tacking on bogus
extra fees for inspection, reconditioning, preparation, and
certification.\101\ The action also addressed the practice of dealers
charging Black and Latino consumers these fees more often and in higher
amounts.\102\
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\101\ Complaint ] 17, Fed. Trade Comm'n v. Passport Auto. Grp.,
Inc., No. 8:22-cv-2670 (D. Md. Oct. 18, 2022).
\102\ Id. ] 18. Recent actions outside the auto marketplace,
even in transactions that may not be as complex and time consuming
as motor vehicle transactions, further illustrate unfair and
deceptive practices related to advertising, add-ons, and hidden
charges. In one such action, the court noted ``the realities of the
disparate bargaining power'' between the corporate defendant and its
customers, adding that customers ``might have believed the [add-on]
fees were mandatory,'' and ``might not have had the time'' to
negotiate or complain about them. Fed. Trade Comm'n v. FleetCor
Techs., Inc., 1:19-cv-5727, 2022 WL 3350066, at *13 (N.D. Ga. Aug.
9, 2022) (granting the Commission's motion to exclude the
defendant's expert testimony); see also Fed. Trade Comm'n v.
FleetCor Techs., Inc., 620 F. Supp. 3d 1268, 1337 (N.D. Ga. 2022)
(finding on summary judgment that (1) defendants did not tell
consumers about fees at sign-up; (2) disclosures about fees in
contractual documents were inadequate; and (3) defendants failed to
get consent to add-on charges); id. at 1334 (concluding that
defendants had ``charged a slew of fees that: were never
discoverable to customers [and] were obscured by undecipherable
language''); Complaint ]] 41-43, Fed. Trade Comm'n v. Harris
Originals of NY, Inc., No. 2:22-cv-4260 (E.D.N.Y. July 20, 2022)
(alleging that a jewelry company charged military consumers for add-
on products without their consent or under false pretenses);
Complaint ]] 61-73, Fed. Trade Comm'n v. Benefytt Techs., Inc., No.
8:22-cv-1794 (M.D. Fla. Aug. 8, 2022) (alleging illegal add-on
charges by healthcare companies); Complaint ]] 1-4, Fed. Trade
Comm'n v. First Am. Payment Sys., LP, No. 4:22-cv-654 (E.D. Tex.
July 29, 2022) (alleging that a payment processing company
misrepresented the terms and costs of its services, resulting in
unexpected and unauthorized fees); Fed. Trade Comm'n, Notice of
Proposed Rulemaking, Trade Regulation Rule on Unfair or Deceptive
Fees, 88 FR 77420, 77435-37 (released Oct. 11, 2023; published Nov.
9, 2023), https://www.govinfo.gov/content/pkg/FR-2023-11-09/pdf/2023-24234.pdf.
Multiple actions by partners since publication of the Commission's
NPRM have involved auto add-ons. The Commission and the State of
Wisconsin alleged that a dealership group, its current and former
owners, and its general manager deceived consumers by tacking on
hundreds or even thousands of dollars for add-ons without those
consumers' authorization or by leading the consumers to believe the
add-ons were mandatory, and doing so disproportionately more frequently
with American Indian customers.\103\ The CFPB and the New York State
Office of the Attorney General alleged that a subprime auto lender knew
or recklessly disregarded that dealers were tricking borrowers into
purchasing add-on products without their knowledge or consent and had
incentivized such behavior.\104\ In addition, the Commonwealth of
Massachusetts has brought two recent cases involving unfair add-on
pricing practices.\105\ In one such case, Massachusetts emphasized the
dynamics of auto transactions that frequently lead to deceptive and
unfair practices, particularly with respect to add-ons, noting that
add-on products ``are often sprung on consumers in the final steps of
completing a transaction'' after ``multiple rounds of negotiation on
the price of a car and/or car financing.'' \106\
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\103\ Complaint ]] 3-5, 11-18, 33-43, 48-51, Fed. Trade Comm'n
v. Rhinelander Auto Ctr., Inc., No. 3:23-cv-00737 (W.D. Wis. Oct.
24, 2023).
\104\ Complaint ]] 128-30, CFPB v. Credit Acceptance Corp., No.
1:23-cv-38 (S.D.N.Y. Jan. 4, 2023).
\105\ Complaint ] 3, Massachusetts v. Jaffarian's Serv., Inc.,
No. 2277-cv-881 (Mass. Super. Ct. Sept. 15, 2022); Assurance of
Discontinuance ]] 7-9, In re Hometown Auto Framingham, Inc., No.
2384-cv-116 (Mass. Super. Ct. Jan. 17, 2023).
\106\ Complaint ] 5, Massachusetts v. Jaffarian's Serv., Inc.,
No. 2277-cv-881 (Mass. Super. Ct. Jan. 17, 2023).
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Efforts to combat deceptive and unfair practices in the motor
vehicle industry since the NPRM have gone beyond enforcement actions.
The CFPB announced that it uncovered several unlawful practices through
supervisory examinations, including auto loan servicers charging for
add-ons that provide no benefit to the consumer \107\ and failing to
ensure consumers received refunds for add-on products that no longer
offered any benefits.\108\ In addition, the State of California enacted
new legislation that regulates a particular type of add-on product--GAP
agreements.\109\ A press release introducing the legislation cited
concerns about unfair practices in the sale of GAP agreements, stating
that this add-on has little value and is often targeted at consumers
with lower incomes and subprime credit.\110\ California's law requires
several disclosures related to GAP agreements, including disclosures
pertaining to their financed cost and informing consumers that such
products are optional.\111\ The law also prohibits the sale of GAP
agreements that will not actually cover consumers' debt.\112\
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\107\ Consumer Fin. Prot. Bureau, ``Supervisory Highlights:
Issue 24, Summer 2021'' 3-4 (June 2021), https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-24_2021-06.pdf (finding servicers added and
maintained unnecessary collateral protection insurance (CPI) when
consumers had adequate insurance and thus the CPI provided no
benefit to the consumers, and also when consumers' vehicles had been
repossessed even though no actual insurance protection was provided
after repossession).
\108\ Consumer Fin. Prot. Bureau, ``Supervisory Highlights:
Issue 28, Fall 2022'' 4-5 (Nov. 2022), https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-28_2022-11.pdf (finding consumers paid off their
vehicle financing early but servicers failed to ensure consumers
received refunds for unearned fees related to add-on products which
no longer offered any possible benefit to consumers after payoff).
\109\ Cal. Civ. Code 2982.12.
\110\ Press Release, Off. of the Att'y Gen. of Cal., ``Attorney
General Bonta and Assemblymember Maienschein Announce Legislation to
Strengthen Protections for Car Buyers'' (Feb. 16, 2022), https://oag.ca.gov/news/press-releases/attorney-general-bonta-and-assemblymember-maienschein-announce-legislation.
\111\ Cal. Civ. Code 2982.12.
\112\ Id.
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Despite the array of actions by the Commission and its partners,
unfairness and deception continue in the motor vehicle marketplace,
including (1) deceptive or unfair sales and advertising tactics and (2)
hidden charges, particularly with respect to add-on products or
services. To address the harm these issues inflict on consumers and on
law-abiding dealers, the Final Rule, in general:
Prohibits dealers from making misrepresentations regarding
material information, including about the cost of the vehicle, the
financing terms, and the availability of rebates or discounts;
Requires dealers to disclose the offering price of the
vehicle--its full cash price, provided that dealers may exclude
required government charges; that optional add-ons are not required;
the total of payments for the vehicle when making a representation
about monthly payment; and that a discussed lower monthly payment will
increase
[[Page 601]]
the total amount the consumer will pay, if true;
Prohibits dealers from charging for add-on products or
services that provide no benefit to the consumer; and
Requires dealers to obtain express, informed consent from
the consumer for any charge.
As discussed in the section-by section analysis in SBP III and in
response to comments, the Commission is declining to finalize certain
provisions proposed in the NPRM, including the provision that dealers
must disclose a list of prices for all optional add-on products or
services, and the provision that dealers must obtain certain signed
declinations from consumers prior to charging for optional add-on
products or services. The Commission also is finalizing the defined
terms ``Covered Motor Vehicle'' and ``Covered Motor Vehicle Dealer'' to
reflect edits to narrow the scope of these definitions compared to the
scope of the terms ``Motor Vehicle'' and ``Motor Vehicle Dealer'' in
the NPRM.
III. Section-by-Section Analysis
The following discussion provides a section-by-section analysis
that states the provisions proposed in the NPRM, and discusses the
comments received, the Commission's responses to comments, and the
provisions adopted in the Final Rule.\113\
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\113\ Regarding the thousands of comments received, the
Commission notes that many commenters raised similar concerns or
addressed overlapping issues. To avoid repetition, the Commission
has endeavored to respond to issues raised in similar comments
together. Responses provided in any given section apply equally to
comments addressing the same subject in the context of other
sections. Moreover, throughout the SBP, the Commission discusses
justifications for the Final Rule that are informed by its careful
consideration of all comments received, even where that discussion
is not linked to a particular comment.
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A. Sec. 463.1: Authority
Section 463.1 states that the Final Rule is promulgated pursuant to
section 1029 of the Dodd-Frank Act, and that it is an unfair or
deceptive act or practice within the meaning of section 5(a)(1) of the
FTC Act to violate, directly or indirectly, any provision of the Final
Rule, including the recordkeeping requirements, which are necessary to
prevent such unfair or deceptive acts or practices and to enforce this
Rule.\114\ The prohibition against violating any applicable provision
``directly or indirectly'' applies to each section of part 463. As
discussed in SBP I.A, section 1029 authorizes the FTC to prescribe
rules under Sections 5 and 18(a)(1)(B) of the FTC Act with respect to
motor vehicle dealers predominantly engaged in the sale and servicing
of motor vehicles, the leasing and servicing of motor vehicles, or
both.\115\
[[Page 602]]
The Final Rule defines with specificity certain unfair or deceptive
acts or practices; the Final Rule provisions are also ``prescribed for
the purpose of preventing such acts or practices.'' \116\
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\114\ The proposed authority provision in the NPRM omitted the
second reference to ``unfair'' acts or practices with regard to the
proposed recordkeeping requirements; the Final Rule consistently
refers to both ``unfair'' and ``deceptive'' acts or practices
together.
\115\ One industry group argued that the proposed rule violated
the APA because it did not comply with the FTC's rule requiring
publication of an Advance Notice of Proposed Rulemaking (``ANPR''),
16 CFR 1.10. Section 1.10, however, like the rest of subpart B of
part 1 of the Commission's Rules of Practice, applies only to
``proceedings for the promulgation of rules as provided in section
18(a)(1)(B) of the Federal Trade Commission Act.'' 16 CFR 1.7. The
ANPR requirement in section 1.10 implements section 18(b)(2) of the
FTC Act, which requires an ANPR when the Commission promulgates
rules under the procedures set forth in that section. In this case,
the FTC is acting under statutory authority under section 1029(d) of
the Dodd-Frank Act, see NPRM at 42031, which authorizes the
Commission to promulgate rules using the APA's informal notice-and-
comment procedure, see 5 U.S.C. 553, notwithstanding the additional
procedural requirements set forth in section 18. Accordingly, this
rulemaking is governed by subpart C of part 1 of the Commission's
Rules of Practice, which ``sets forth procedures for the
promulgation of rules under authority other than section 18(a)(1)(B)
of the FTC Act.'' 16 CFR 1.21. Neither subpart C nor the APA
requires publication of an ANPR.
This is consistent with Commission practice in prior notices to
issue or amend regulations, including with the Made in USA Labeling
Rule, the Children's Online Privacy Protection Act Rule, and the
Telemarketing Sales Rule. See, e.g., Fed. Trade Comm'n, Notice of
Proposed Rulemaking, Made in USA Labeling Rule, 85 FR 43162 (July
16, 2020), https://www.govinfo.gov/content/pkg/FR-2020-07-16/pdf/2020-13902.pdf (issuing original notice of proposed rulemaking that
was not preceded by an advance notice of proposed rulemaking); Fed.
Trade Comm'n, Notice of Proposed Rulemaking, Children's Online
Privacy Protection Rule, 64 FR 22750 (Apr. 27, 1999), https://www.govinfo.gov/content/pkg/FR-1999-04-27/pdf/99-10250.pdf (same);
Fed. Trade Comm'n, Notice of Proposed Rulemaking, Telemarketing
Sales Rule, 60 FR 8313 (Feb. 14, 1995), https://www.govinfo.gov/content/pkg/FR-1995-02-14/pdf/95-3537.pdf (same); Fed. Trade Comm'n,
Notice of Proposed Rulemaking, Telemarketing Sales Rule, 78 FR 41200
(July 19, 2013), https://www.govinfo.gov/content/pkg/FR-2013-07-09/pdf/2013-12886.pdf (issuing notice of proposed rulemaking for rule
amendment that was not preceded by an advance notice of proposed
rulemaking); Fed. Trade Comm'n, Proposed Rule, Children's Online
Privacy Protection Rule, 76 FR 59804 (Sept. 27, 2011), https://www.govinfo.gov/content/pkg/FR-2011-09-27/pdf/2011-24314.pdf (same);
Fed. Trade Comm'n, Notice of Proposed Rulemaking, Telemarketing
Sales Rule, 74 FR 41988 (Aug. 19, 2009), https://www.govinfo.gov/content/pkg/FR-2009-08-19/pdf/E9-19749.pdf (same); Fed. Trade
Comm'n, Notice of Proposed Rulemaking, Children's Online Privacy
Protection Rule, 70 FR 2580 (Jan. 14, 2005), https://www.govinfo.gov/content/pkg/FR-2005-01-14/pdf/05-877.pdf (same);
Fed. Trade Comm'n, Notice of Proposed Rulemaking, Telemarketing
Sales Rule, 69 FR 67287 (Nov. 17, 2004), https://www.govinfo.gov/content/pkg/FR-2004-11-17/pdf/04-25470.pdf (same); Fed. Trade
Comm'n, Notice of Proposed Rulemaking, Telemarketing Sales Rule, 69
FR 7330 (Feb. 13, 2004), https://www.govinfo.gov/content/pkg/FR-2004-02-13/pdf/04-3287.pdf (same); Fed. Trade Comm'n, Notice of
Proposed Rulemaking, Telemarketing Sales Rule, 67 FR 4492 (Jan. 30,
2002), https://www.govinfo.gov/content/pkg/FR-2002-01-30/pdf/02-1998.pdf (same); Fed. Trade Comm'n, Notice of Proposed Rulemaking,
Children's Online Privacy Protection Rule, 66 FR 54963 (Oct. 31,
2001), https://www.govinfo.gov/content/pkg/FR-2001-10-31/pdf/01-27390.pdf (same). This is also true of regulation amendments
pursuant to the authority under which this Final Rule is
promulgated--that which Congress granted to the Commission under
section 1029 of the Dodd-Frank Act, 15 U.S.C. 5519, pertaining to
motor vehicle dealers. See, e.g., Fed. Trade Comm'n, Notice of
Proposed Rulemaking, Used Motor Vehicle Trade Regulation Rule, 77 FR
74746, 74748 (Dec. 17, 2012), https://www.govinfo.gov/content/pkg/FR-2012-12-17/pdf/2012-29920.pdf (``Because the Dodd-Frank Act
authorized the Commission to use APA procedures for notice and
public comment in issuing or amending rules with respect to motor
vehicle dealers, the FTC will not use the procedures set forth in
Section 18 of the FTC Act, 15 U.S.C. 57a, with respect to these
proposed revisions to the Used Car Rule and the Used Car Buyers
Guide. Accordingly, the Commission is publishing this Notice of
Proposed Rulemaking pursuant to Section 553 of the APA.''); see also
Fed. Trade Comm'n, Notice of Proposed Rulemaking, Privacy of
Consumer Financial Information Rule Under the Gramm-Leach-Bliley Act
(``Privacy Rule''), 84 FR 13150 (Apr. 4, 2019), https://www.govinfo.gov/content/pkg/FR-2019-04-04/pdf/2019-06039.pdf
(issuing notice of proposed rulemaking for rule amendment that was
not preceded by an advance notice of proposed rulemaking).
This same commenter argued the FTC had not complied with the
``Principles of Regulation'' enumerated in section 1(b) of Executive
Order 12866. See Comment of Nat'l Auto. Dealers Ass'n, Doc. No. FTC-
2022-0046-8368 at 34-36 & n.123; E.O. 12866 3(b) (defining
``Agency'' to mean an authority of the United States ``other than
those considered to be independent regulatory agencies''). This
provision of the Executive Order does not apply to independent
agencies such as the FTC. Regardless, the Commission did take into
account the principles set forth in section 1(b), as is evident
throughout the NPRM. See, e.g., NPRM at 42015-17 (identifying
problems in the marketplace); id. at 42028-42031 (soliciting
comments on alternative approaches); id. at 42036-42044 (assessing
costs and benefits).
The same commenter also argued that the Commission's denial of
its request to extend the comment period prejudiced the commenter's
ability to collect and provide data pertaining to the proposed rule
and was inconsistent with the Commission's grant of extensions in
other rulemakings. As described in its letter, the Commission also
received requests opposing an extension of the comment period. See
Letter, Fed. Trade Comm'n, ``Duration of the Public Comment Period
in Matter No. P204800'' (Aug. 23, 2022), https://www.ftc.gov/system/files/ftc_gov/pdf/Matter%20No.%20204800%20-%20Letter%20re%20Extension%20for%20publication.pdf. In the letter,
the Commission noted its ongoing engagement with stakeholders on
issues relating to the sale, financing, and lease of motor vehicles,
since before its 2011 Federal Register notice inviting stakeholder
feedback on these issues and continuing since that time. See Fed.
Trade Comm'n, Public Roundtables: Protecting Consumers in the Sale
and Leasing of Motor Vehicles, 76 FR 14,014 (Mar. 15, 2011), https://www.federalregister.gov/documents/2011/03/15/2011-5873/public-roundtables-protecting-consumers-in-the-sale-and-leasing-of-motor-vehicles. The Commission determined that a sixty-day comment period,
along with an additional twenty days following the public
announcement and release of the NPRM and prior to its publication in
the Federal Register, provided meaningful opportunity to comment.
See also Steven J. Balla, ``Public Commenting on Federal Agency
Regulations: Research on Current Practices and Recommendations to
the Administrative Conference of the United States'' App. A (2011),
https://www.acus.gov/sites/default/files/documents/Consolidated-Reports-%2B-Memoranda.pdf (reporting data from a pool of 703 comment
periods associated with actions by dozens of Federal agencies, and
finding that the average duration of comment periods for proposed
agency actions was 38.7 days, and 45.1 days for actions that are
economically significant).
\116\ 15 U.S.C. 57a(a)(1)(B) (the Commission ``may include
requirements prescribed for the purpose of preventing'' unfair or
deceptive acts or practices).
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B. Sec. 463.2: Definitions
1. Overview
The proposed rule included definitions for the following terms:
``Add-on'' or ``Add-on Product(s) or Service(s)''; ``Add-on List'';
``Cash Price without Optional Add-ons''; ``Clearly and Conspicuously'';
``Dealer'' or ``Motor Vehicle Dealer''; ``Express, Informed Consent'';
``GAP Agreement''; ``Government Charges''; ``Material'' or
``Materially''; ``Motor Vehicle''; and ``Offering Price.'' In the
definition-by-definition analysis in SBP III.B.2, the Commission
discusses each definition proposed in the NPRM, relevant comments that
are not otherwise addressed in the discussion of the corresponding
substantive provisions of the Final Rule, and the definition the
Commission is finalizing.
2. Definition-by-Definition Analysis
(a) Add-On or Add-On Product(s) or Service(s)
The proposed rule defined ``Add-on'' or ``Add-on Product(s) or
Service(s)'' as ``any product(s) or service(s) not provided to the
consumer or installed on the vehicle by the motor vehicle manufacturer
and for which the Motor Vehicle Dealer, directly or indirectly, charges
a consumer in connection with a vehicle sale, lease, or financing
transaction.'' This term appeared in the following definitions and
substantive provisions of the rule proposal: the definitions of ``Add-
on List'' and ``Cash Price without Optional Add-ons''; the Prohibited
Misrepresentations provision at proposed Sec. 463.3(b); the add-on
list disclosure provision at proposed Sec. 463.4(b); the requirement
to disclose that add-ons are not required at proposed Sec. 463.4(c);
the prohibition against charging for add-ons that provide the consumer
no benefit at proposed Sec. 463.5(a); and the proposed provision
relating to undisclosed or unselected add-ons at Sec. 463.5(b). As
discussed in the following paragraphs, in response to stakeholder
comments, the Commission declines to finalize certain of these
provisions; in the Final Rule, this term appears in paragraph (a) of
the Prohibited Misrepresentations section (Sec. 463.3); the Disclosure
Requirements provision in paragraph (c) of Sec. 463.4; and the
provision in Sec. 463.5(a) titled ``Dealer Charges for Add-ons and
Other Items'' and subtitled ``Add-ons that provide no benefit.''
For the following reasons, the Commission adopts the definition of
``Add-on'' or ``Add-on Product(s) or Service(s)'' largely as proposed,
with conforming modifications to reflect changes to the defined terms
```Covered Motor Vehicle' or `Vehicle''' and ```Covered Motor Vehicle
Dealer' or ``Dealer''' as described in more detail in the discussion of
Sec. 463.2(e) and (f), in SBP III.B.2(e) and (f).
The Commission received several comments relating to the scope of
its proposed definition for ``Add-on'' or ``Add-on Product(s) or
Service(s).'' Industry association and other commenters recommended
that the Commission broaden the definition to include manufacturer-
provided products or services, expressing concern that exclusion of
such products or services would put other companies that provide such
items at a competitive disadvantage. Products or services provided by
manufacturers, however, are already covered by several provisions of
the Final Rule. Under the substantive provisions the Commission is
finalizing, dealers are prohibited from making misrepresentations
regarding material information, including about the ``costs or terms of
purchasing, financing, or leasing a Vehicle'' (Sec. 463.3(a)); must
disclose the vehicle's true ``Offering Price,'' which includes any
amounts dealers charge for items already installed or provided by the
manufacturer (Sec. Sec. 463.4(a) and 463.2(k)); and are required to
obtain ``Express, Informed Consent'' for charges for any item
(Sec. Sec. 463.5(c) and 463.2(g)). The additional substantive add-on-
specific provisions \117\ address harms associated with products or
services not provided to the consumer or installed on the vehicle by
the motor vehicle manufacturer. Commenters did not provide evidence
that the proposed provisions covering manufacturer-provided products or
services would be insufficient to address consumer harm. Accordingly,
the Commission has determined not to include manufacturer-provided
products or services within this defined term. The Commission will
continue to monitor this issue to determine whether additional action
is warranted.
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\117\ Sec. Sec. 463.3(b), 463.4(c), 463.5(a).
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One individual commenter expressed concern that, under the
Commission's proposed definition, dealers could raise the price of a
vehicle by advertising additional products or services, such as ``free
lifetime benefits'' with the vehicle, and that dealers could mislead
consumers by charging more for the vehicle based on a supposedly
``free'' add-on.\118\ The Commission notes that the Rule the Commission
is finalizing contains several provisions relating to this concern. For
example, dealers are prohibited from making misrepresentations under
Sec. 463.3, including misrepresentations regarding ``costs,
limitation, benefit, or any other aspect'' of add-ons.\119\
Furthermore, dealers are required to disclose a vehicle's offering
price, which must include charges for required add-ons; this disclosure
will allow consumers to know the true price of the vehicle and
comparison shop before selecting and visiting a particular
dealership.\120\
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\118\ Individual commenter, Doc. No. FTC-2022-0046-7445 at 10-
11.
\119\ Sec. 463.3(b) (emphasis added).
\120\ See Sec. Sec. 463.2(k) (defining Offering Price),
463.4(a) (requiring disclosure of Offering Price); see also Sec.
463.3(p) (prohibiting misrepresentations regarding the disclosures
required by the Final Rule).
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Several dealership association commenters expressed concern that
the proposed definition was too broad, contending that it might apply
to hundreds of items and include fees, such as a processing or document
fee, that a dealer charges a consumer. As discussed in SBP III.B.2(b),
III.D.2(b), and III.E.2(b), upon careful review of comments, including
comments regarding the breadth of this requirement, the Commission has
determined not to finalize the provision that would have required
listing all optional add-ons--the ``Add-on List'' definition and the
associated requirement that dealers disclose such a list--as well as
proposed Sec. 463.5(b) relating to undisclosed or unselected add-
ons.\121\ The remaining substantive provisions that use the term ``Add-
ons'' prohibit misrepresentations (Sec. 463.3(b)); require dealers to
disclose, if true, that add-ons are not required (Sec. 463.4(c)); and
prohibit charges for add-ons that provide the consumer no benefit
(Sec. 463.5(a)). The law already prohibits misrepresentations,
regardless of the product or service at issue; dealers that offer
consumers additional products or services are already required to ask
[[Page 603]]
consumers if they want such products, rather than suggesting that such
products or services are mandatory, when they are not; and any hardship
associated with refraining from charging for products or services that
provide consumers no benefits are outweighed by the harms to consumers
and competition from permitting this practice, as explained in the
analysis of Sec. 463.5(a).
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\121\ See NPRM at 42044, 42046 (proposed Sec. Sec. 463.2(b),
463.4(b), 463.5(b)).
---------------------------------------------------------------------------
Commenters including an industry association suggested limiting the
definition to products or services sold at the ``point of vehicle
purchase'' to clarify that indirect charges, such as the inclusion of a
one-year subscription to a satellite radio service, need not be
separately itemized.\122\ The industry association commenter suggested
that, as proposed, the definition would include charges for which
dealers and consumers ``would otherwise not account.'' \123\ The
Commission has determined not to finalize the add-on list and form
requirements in proposed Sec. Sec. 463.4(b) and 463.5(b). For the
provisions being finalized, excluding subscription charges, or
including only items added to the vehicle at the ``point of vehicle
purchase,'' would narrow the definition of ``Add-on'' and the
corresponding requirements in a manner that would allow for deceptive
or unfair practices, including by allowing dealers to represent a price
that is not the offering price, or to deceptively state that add-ons
are required. In the example provided by the commenter, if the
satellite radio subscription service is mandatory, it needs to be
included in the offering price of the vehicle, as required by Sec.
463.4(a) of the Final Rule; if it is not mandatory, the dealer needs to
disclose, when making any representations about the service, that it is
not required under Sec. 463.4(c). Further, regardless of whether such
a product or service is mandatory or optional, dealers must follow
other aspects of the Final Rule, including by not making any
misrepresentations about the subscription under Sec. 463.3 and by
obtaining the express, informed consent of the consumer for the
associated charges under Sec. 463.5(c).
---------------------------------------------------------------------------
\122\ Comment of Serv. Cont. Indus. Council, Guaranteed Asset
Prot. All., & Motor Vehicle Prot. Prods. Ass'n, Doc. No. FTC-2022-
0046-8113 at 13-14.
\123\ Id. at 13.
---------------------------------------------------------------------------
Another industry association commenter contended that add-ons sold
in the marine industry are typically different than those offered in
the context of automobile sales and described in the NPRM. While all
motor vehicle dealers must refrain from engaging in deceptive or unfair
conduct relating to add-ons, the Commission is excluding recreational
boats and marine equipment from the Final Rule's definition of ``
`Covered Motor Vehicle' or `Vehicle,' '' as discussed in additional
detail in the definition-by-definition analysis of Sec. 463.2(e) in
SBP III.B.2(e).
An industry association commenter and comments from a number of
dealership associations noted that certain State laws already regulate
the sale of add-ons, including, for example, laws in many States that
regulate vehicle sales contracts or deceptive sales practices generally
or that regulate insurance products. To the extent that the Final
Rule's add-on provisions may duplicate State law, commenters have
provided no evidence that any such duplication in the provisions that
incorporate this defined term--which prohibit misrepresentations,
require disclosures in the event add-ons are not required, and prohibit
charges for add-ons from which the consumer would not benefit--will
harm consumers or competition. Moreover, the Final Rule provides
additional remedies that will benefit consumers who encounter conduct
that is already illegal under State or Federal law, including by adding
a mechanism for the Commission to redress consumers injured by a
dealer's violation of the rule, and will assist law-abiding dealers
that presently lose business to competitors that act unlawfully. Under
the Final Rule, State laws may provide more or less specific
requirements as long as such requirements are not inconsistent with
part 463, as set forth at Sec. 463.9, and in the event of an
inconsistency, the Rule only affects such State law to the extent of
the inconsistency.\124\
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\124\ See, e.g., English v. Gen. Elec. Co., 496 U.S. 72, 79
(1990).
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A few dealership association commenters expressed concern that the
proposed definition of ``Add-on Products or Services'' would include
insurance-related products, such as credit life and credit disability
insurance, and as such, could implicate the McCarran-Ferguson Act's
reverse-preemption of certain Federal laws that ``invalidate, impair,
or supersede'' State laws enacted ``for the purpose of regulating the
business of insurance.'' \125\ Commenters have provided no evidence
that the Rule will invalidate, impair, or supersede State laws enacted
for the purpose of regulating the business of insurance.\126\ To the
contrary, the Final Rule addresses deceptive or unfair conduct--it
prohibits dealers, inter alia, from making misrepresentations regarding
material information about add-ons, from failing to disclose when add-
ons are not required, and from charging for add-ons from which the
consumer would not benefit. Nor has the Commission been presented with
evidence that the Rule's other substantive provisions (prohibiting
misrepresentations; requiring disclosures of a vehicle's offering price
and about total of payments; and requiring consumers' express, informed
consent before charging them) invalidate, impair, or supersede State
laws enacted for the purpose of regulating insurance.\127\
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\125\ See 15 U.S.C. 1012(b).
\126\ See Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 129
(1982) (setting forth test for whether an activity constitutes the
``business of insurance''); Humana Inc. v. Forsyth, 525 U.S. 299,
307-08 (1999) (establishing criteria for whether a Federal law
operates to ``invalidate, impair, or supersede'' State law).
\127\ The Supreme Court has refused to interpret the McCarran
Ferguson Act to invalidate Federal law when applied to remedy a
misrepresentation and undo the harm caused by alleged deception. See
SEC v. Nat'l Sec., Inc., 393 U.S. 453, 462 (1969). Moreover, lower
courts have rejected precisely the concern raised by the commenter
about credit life insurance. See Fed. Trade Comm'n. v. Dixie Fin.
Co., 695 F.2d 926, 930 (5th Cir. 1983) (McCarran Ferguson Act does
not preclude FTC investigation of ``whether the sale of insurance is
a precondition to the arrangement of credit''); Fed. Trade Comm'n v.
Mfrs. Hanover Consumer Servs., Inc., 567 F. Supp. 992, 94 (E.D. Pa.
1983) (same).
---------------------------------------------------------------------------
A number of industry and dealership association commenters
contended that, as proposed, this definition may extend to products or
services that are provided by the manufacturer but that are installed
by a distributor of motor vehicles, or alternatively, by the dealer, at
the instruction of the manufacturer. Relatedly, a State governmental
association commenter expressed concern that the proposed definition
could create confusion with regard to the sale of used vehicles, where
a prior owner of a vehicle may have added a product to the vehicle. The
commenter contended that a motor vehicle dealer selling the used
vehicle may be unaware of the added product, and further, that listing
any such items may confuse buyers.
To the extent the commenters' concerns stem from the proposed
provisions related to add-on lists and proposed Sec. 463.5(b)'s
provisions related to separate disclosures, the Commission is not
finalizing those provisions. Under the provisions being finalized, if a
product is provided to the dealer by the manufacturer or another
entity, and a consumer chooses to have the product
[[Page 604]]
installed and pay for it, the dealer may install it and charge for it,
as long as the dealer complies with the provisions of the Final Rule,
including by disclosing that the product is not required and by
obtaining the consumer's express, informed consent for the charge. If
the manufacturer requires the dealer to install the product or if the
dealer chooses to install the product, and the dealer requires any
consumer to pay charges for it, the amount of the charge must be
included in the vehicle's offering price, and the dealer must comply
with other aspects of the Final Rule, including the express, informed
consent requirement. Relatedly, regarding used vehicles, if a prior
owner of such a vehicle installed an add-on, and the dealer that
subsequently sells such a vehicle requires any consumer to pay charges
for the add-on, the amount of those charges must be included in the
vehicle's offering price and the dealer must comply with other aspects
of the Final Rule, including the express, informed consent requirement
at Sec. 463.5(c). If, alternatively, the dealer does not require any
consumers to pay for the pre-installed add-on, then the dealer does not
have to add that amount to the vehicle's offering price, and there is
no charge for that add-on for which the dealer must obtain express,
informed consent. Thus, the definition of ``Add-on'' and the Rule
requirements being finalized address deceptive or unfair price and add-
on disclosures and hidden charges without requiring dealers to list or
itemize charges that they do not impose on consumers. For the reasons
explained in this section, the Commission is finalizing the definition
of ``Add-on'' or ``Add-on Product(s) or Service(s)'' largely as
proposed, with conforming modifications to reflect changes to the
defined terms ```Covered Motor Vehicle' or `Vehicle''' and ```Covered
Motor Vehicle Dealer' or `Dealer''' as described in more detail in the
discussion of Sec. 463.2(e) and (f), in SBP III.B.2(e) and (f).
(b) Add-On List
The NPRM proposed defining the term ``Add-on List,'' which appeared
in the associated Add-on List disclosure provision at proposed Sec.
463.4(b), as well as in the recordkeeping provision at proposed Sec.
463.6(a)(2). Based on the following, the Commission has determined not
to include this definition in its Final Rule.
Several commenters supported the substantive add-on list proposal
and its associated definition, and commenters including consumer
advocacy organizations urged the Commission to finalize additional
related restrictions or disclosures, such as requiring add-on prices to
be fixed and non-negotiable, or requiring a distinct add-on list for
each vehicle sold. Other commenters, including dealership associations,
raised concerns that, as proposed, the add-on list definition could
impose significant economic burdens on dealerships for a disclosure
that, in some circumstances, might be too voluminous to be optimally
meaningful to consumers, or permit price ranges that could be too broad
to prevent abuses and effectively inform consumers.
After careful consideration, and in light of the concerns raised by
commenters, the Commission has determined not to include the add-on
list disclosure provision at proposed Sec. 463.4(b) or the
recordkeeping provision at proposed Sec. 463.6(a)(2) in its Final
Rule, and therefore will not include a definition of the term ``Add-on
List'' in its Final Rule. Here, as elsewhere, the Commission remains
committed to promoting fair, non-deceptive, and competitive markets for
consumer products and services; it will continue to monitor the
marketplace for add-on-related acts or practices that are unfair or
deceptive, and will evaluate whether to propose additional measures
pertaining to such products and services.
(c) Cash Price Without Optional Add-Ons
The NPRM proposed defining the term ``Cash Price without Optional
Add-ons,'' which appeared in the proposed provision addressing
undisclosed or unselected add-ons at Sec. 463.5(b). Based on the
following, the Commission is declining to finalize this definition.
A number of commenters favored the proposed provision and
definition, and several, including consumer advocacy organizations,
urged the Commission to include additional requirements, such as
requiring the proposed disclosure documents associated with this
proposed definition to be available in different languages, while
others, including a dealership association, raised concerns that the
definition and relevant provision were burdensome or confusing for
dealers.
As explained in additional detail in SBP III.E.2(b) with respect to
Sec. 463.5(b), in light of commenter concerns that the proposed
provision using this term would increase costs for legitimate dealers
and add to the time and paperwork for consumers in an already lengthy,
paperwork-heavy transaction, the Commission has elected not to include
a Cash Price without Optional Add-ons disclosure requirement in its
Final Rule. Thus, after careful consideration, and in light of the
concerns raised by commenters, the Commission has determined not to
include a definition of ``Cash Price without Optional Add-ons'' in its
Final Rule.
(d) Clearly and Conspicuously
The proposed rule defined the term ``Clearly and Conspicuously'' as
``in a manner that is difficult to miss (i.e., easily noticeable) and
easily understandable,'' including in all of seven enumerated ways,
listing proposed requirements for ``any communication that is solely
visual or solely audible,'' ``[a] visual disclosure,'' ``[a]n audible
disclosure,'' and ``any communication using an interactive electronic
medium,'' and providing, inter alia, that such disclosures ``must use
diction and syntax understandable to ordinary consumers and must appear
in each language in which the representation that requires the
disclosure appears'' and ``must not be contradicted or mitigated by, or
inconsistent with, anything else in the communication.'' Based on the
following, the Commission is finalizing this definition largely as
proposed, with a modification to clarify that the definition applies
whether the term appears as an adjective or an adverb, by adding the
parentheses in the following manner to the defined term: ``Clear(ly)
and Conspicuous(ly).''
Some consumer advocacy organization commenters favored the
Commission's proposed definition while also suggesting that the
Commission include a provision requiring translation of any deal
consummating documents, including buyer's orders and retail installment
sales contracts, into the language in which the negotiations were
conducted. This issue, however, is addressed by Sec. 463.5(c) of the
Rule, which requires express, informed consent for each item
charged.\128\ As explained in additional detail in the paragraph-by-
paragraph analysis of Sec. 463.5(c) in SBP III.E.2(c), if a deal-
consummating document is provided in a language that the consumer does
not understand, and the document's contents are not otherwise clearly
understood by the consumer, then the consumer is in no position to give
unambiguous assent to the charges described therein. The Commission
therefore has determined not to add
[[Page 605]]
such a provision to its ``Clear(ly) and Conspicuous(ly)'' definition.
However, the Commission will continue to monitor the marketplace and
determine whether further language requirements or additional measures
are warranted to address deceptive or unfair practices--particularly
those that target or otherwise disproportionately impact language-
minority communities.
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\128\ The language requirements, as they relate to obtaining
express, informed consent, are further explained in the discussion
of Sec. 463.5(c) in SBP III.E.2(c).
---------------------------------------------------------------------------
Commenters, including consumer advocacy organizations, expressed
concern that proposed Sec. 463.2(d)(5) may be read to apply only to
certain disclosures with triggering representations and only to
disclosures that are in writing. These commenters also requested that
the Commission incorporate into its Final Rule the FTC's policy
statement regarding foreign language advertising and sales materials,
which is separately codified at 16 CFR 14.9.\129\ In response, the
Commission notes that to be clear and conspicuous, the disclosure must
be ``easily understandable,'' as stated in the definition. If a
disclosure is being made in a language the consumer does not
understand, it does not meet this requirement. Further, the disclosures
highlighted by the commenters are indeed subject to the language
requirements of Sec. 463.2(d)(5), which requires that disclosures
``appear in each language in which the representation that requires the
disclosure appears.'' With regard to the offering price disclosure in
Sec. 463.4(a)(1), the applicable ``representation that requires the
disclosure'' is the ``advertisement that references . . . a specific
Vehicle''; thus, for example, if an advertisement that references a
specific vehicle is in Spanish, the offering price disclosure must also
be in Spanish. Similarly, in Sec. 463.4(a)(2), the applicable
representation that requires the disclosure is an ``advertisement that
represents . . . any monetary amount or financing term for any
Vehicle.'' In Sec. 463.4(a)(3), the applicable representation is ``any
communication . . . that includes a reference . . . regarding a
specific Vehicle, or any monetary amount or financing term for any
Vehicle.'' In Sec. 463.4(c) and (d), ``any representation'' regarding
an add-on product or service or a monthly payment for any vehicle,
respectively, triggers the language requirement of Sec. 463.2(d)(5).
The monthly payments comparison disclosure in Sec. 463.4(e) is
required when there is a ``comparison between payment options . . .
that includes discussion of a lower monthly payment.'' Thus, the
language requirements in Sec. 463.2(d)(5) apply.
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\129\ 16 CFR 14.9 is an enforcement policy statement that
provides information to advertisers about clear and conspicuous
disclosures in foreign language advertisings and sales materials,
including ensuring the language of the disclosure matches the
language in the publication. See 16 CFR 14.9.
---------------------------------------------------------------------------
In response to this concern regarding the applicability of Sec.
463.2(d)(5) to disclosures that are not in writing, the Commission
notes that its use of the word ``appear'' in Sec. 463.2(d)(5)
incorporates common meanings, such as ``to show up,'' ``to come into
existence,'' or ``to become evident or manifest,'' which cause this
provision to apply whether the representation requiring the disclosure
appears visually, orally, or otherwise.\130\ Where the Commission
instead intended a provision to be limited to a visual disclosure, as
in Sec. 463.2(d)(2), the Rule states so explicitly.
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\130\ See Appear (defs. 1b, 4, 6), Merriam-Webster.com
Dictionary, https://www.merriam-webster.com/dictionary/appear (last
visited Dec. 5, 2023); see also Order ]] 2-3, Asbury Auto. Grp.,
Inc., No. C-4606 (F.T.C. Mar. 22, 2017) (identical usage in
definition provision); Order ] 2, Lithia Motors, Inc., No. C-4597
(F.T.C. Dec. 8, 2016) (same); Order ]] 2-3, Jim Koons Mgmt. Co., No.
C-4598 (F.T.C. Dec. 8, 2016) (same).
---------------------------------------------------------------------------
In response to the request that the Commission incorporate into
this Rule its policy statement regarding foreign language advertising
and sales materials, separately codified at 16 CFR 14.9, the Commission
emphasizes that the enforcement statement sets out what is already
impermissible under current law and is consistent with the requirements
the Commission is finalizing. To the extent dealers take actions that
are inconsistent with Commission statements about such law, they are
risking enforcement proceedings by the Commission or others.
Accordingly, the Commission has determined not to add to the Rule
further requirements regarding foreign language advertising. The
Commission will continue to monitor the market to determine whether
further action is warranted.
Industry association commenters raised concerns about how the
Commission's proposed definition interacts with other Federal laws,
such as Regulations Z and M, which implement the Truth in Lending Act
and the Consumer Leasing Act, respectively, and contended that it
conflicts with a clear and conspicuous definition in Commodity Futures
Trading Commission regulations.\131\ Industry and dealership
association commenters contended that State advertising standards
already address what constitutes ``clear and conspicuous'' advertising
and provide guidance on disclosures, such that the FTC's proposal will
cause confusion or possible conflict with State law.
---------------------------------------------------------------------------
\131\ 17 CFR 162.2.
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The Commission's definition of ``Clear(ly) and Conspicuous(ly)'' is
not inconsistent with the existing Federal legal requirements raised by
these commenters. Dealers can comply with these laws to the extent they
apply as well as with the requirements that follow from the
Commission's definition. Regarding State law, commenters did not
provide examples of actual conflicts. Further, to the extent there is
truly an inconsistency between the operation of the Commission's
definition and any State law, the Commission notes that the definition
is based on decades of Commission experience policing deceptive and
unfair conduct; addresses harmful practices including those related to
hidden disclosures and charges; and that Sec. 463.9 of the Final Rule
sets out the Rule's relation to State laws.
Other industry association commenters also contended that the
proposed definition of ``Clearly and Conspicuously'' would be overly
broad and challenging for compliance, but did not explain why or
suggest alternative language. In addition, some dealership association
commenters requested more guidance to understand the definition. The
Commission's definition spells out, in seven subparts, what clear and
conspicuous means, using simple terms that provide additional
information about how dealers can make a disclosure in a manner that is
easily understandable and easily noticeable to the consumer. The
definition elaborates basic, common-sense principles, including that
visual disclosures be in a size that consumers will easily notice and
that audible disclosures be in a volume, speed, and cadence such that
consumers will easily hear it. Thus, for example, disclosures in an
illegible font, or that consumers cannot hear, are not clear and
conspicuous. The Commission also notes that it did not mandate specific
fonts, volumes, or other prescriptive measures. Thus, dealers have the
flexibility to determine the best way to meet the definition's
requirements for their consumers under the circumstances.
A dealership association commenter contended that the proposed
definition does not include a reasonableness standard and may be
interpreted as prohibiting any limitations and exclusions, given the
requirement in proposed Sec. 462.3(d)(7) that a disclosure must not be
contradicted or mitigated by or inconsistent with anything else in the
communication. The commenter further asked whether a statement such as
``with approved credit'' would
[[Page 606]]
impermissibly mitigate an offer of low financing under this proposed
definition.\132\ The Commission responds as follows. The standard is an
objective one, evaluated from the perspective of a reasonable
consumer.\133\ The definition does not prohibit all advertising that
contains limitations and exclusions, but it does provide that if
dealers are advertising offers that are limited in some way, they may
not misrepresent such offers. Thus, if a dealer presents consumers with
an unqualified representation of low financing terms, those terms must
be available to typical consumers. Alternatively, a dealer may offer
low financing terms to consumers with particular credit characteristics
if that requirement is presented in a manner that does not deceive
reasonable consumers. For example, a dealer may offer ``0% annual
percentage rate (APR) for consumers with a credit score above 800.'' By
contrast, it would be deceptive if the dealer offered ``0% APR,'' and
then separately disclosed in fine print that such terms are only
available to consumers with a credit score above 800, because the
qualifying disclosure is inconsistent with an offer of ``0% APR'' that
contained no limitations and thus indicated that 0% APR is available to
the typical consumer regardless of credit score.\134\ Further, the
Commission notes that to qualify as clear and conspicuous,
``disclaimers or qualifications in any particular ad are not adequate
to avoid liability unless they are sufficiently prominent and
unambiguous to change the apparent meaning of the claims and to leave
an accurate impression. Anything less is only likely to cause confusion
by creating contradictory double meanings.'' \135\
---------------------------------------------------------------------------
\132\ Comment of Ohio Auto. Dealers Ass'n, Doc. No. FTC-2022-
0046-6657 at 4.
\133\ See FTC Policy Statement on Deception, supra note 42, at
2-5.
\134\ Complaint ]] 5-7, Progressive Chevrolet Co., No. C-4578
(F.T.C. June 13, 2016) (alleging ads touting attractive terms
deceptively failed to disclose high credit score requirement).
\135\ Removatron Int'l Corp. v. Fed. Trade Comm'n, 884 F.2d
1489, 1496-97 (1st Cir. 1989); see also Fed. Trade Comm'n v. Brown &
Williamson Tobacco Corp., 778 F.2d 35, 42-43 (D.C. Cir. 1985)
(finding that a disclosure in virtually illegible form, placed in an
inconspicuous corner of Barclay advertisements, did not eliminate
deception); see Fed. Trade Comm'n v. Cap. Choice Consumer Credit,
Inc., 2003 U.S. Dist. LEXIS 29086, at *5 (S.D. Fla. June 2, 2003)
(finding that, where advertisements promised a general purpose
credit card, such as VISA or MasterCard, ``fine print on reverse
side'' of ad clarifying that the credit card was a ``merchandise
card and not a major bank card'' was inadequate to modify net
impression); Fed. Trade Comm'n v. Cyberspace.com LLC, 453 F.3d 1196,
1200 (9th Cir. 2006) (rejecting defendant's argument that truthful
fine print notices on reverse side of checks, invoices, and
marketing inserts cured deception that check/invoice was a refund
rather than offer for services); Fed. Trade Comm'n v. Alcoholism
Cure Corp., No. 3:10-cv-266-J-34JBT, 2011 WL 13137951, at * 51 (M.D.
Fla. Sept. 16, 2011) (finding that ``not MD'' disclaimers were
inadequate to dispel net impression regarding professional
qualifications of defendant and other employees as advertised); Fed.
Trade Comm'n v. Wash. Data Res., 856 F. Supp. 2d 1247, 1274-75 (M.D.
Fla. 2012) (rejecting defendants' argument that retainer agreement
contained sufficient disclaimer to dispel a misrepresentation about
whether a home loan was guaranteed).
---------------------------------------------------------------------------
Lastly, another dealership association commenter asked how the
proposed definition translates to visual, audible, and electronic media
disclosures and expressed concern about subjectivity, characterizing
the terms ``easily'' understood and ``unavoidable'' within the proposed
definition as subjective and open to different interpretations,
particularly in the context of websites and internet promotions. Here,
the Commission declines to mandate more prescriptive language
regarding, for example, font sizes, what volumes are to be used, and
where exactly the language should appear on a website, such as on an
overlay with mandated color, size, and location.\136\ As courts \137\
have recognized, whether a disclosure is clear and conspicuous is an
objective standard rather than a subjective one. While more
prescriptive language would provide additional objective criteria, the
Commission is concerned such language might constrain dealers from
determining the best way to meet the definition's requirements for
their consumers under the circumstances involved, and might require
dealers that are already making clear and conspicuous disclosures to
change their existing disclosure materials.
---------------------------------------------------------------------------
\136\ The Commission has included such requirements elsewhere.
See, e.g., Order ] 6, United States v. Sunkey Publ'g, Inc., No:
3:18-cv-1444-HNJ (N.D. Ala. Sept. 6, 2018).
\137\ See. e.g., Palmer v. Champion Mortg., 465 F.3d 24, 28 (1st
Cir. 2006) (applying an objective standard in evaluating Truth in
Lending Act claim regarding clear and conspicuous disclosure); Smith
v. Check-N-Go of Ill., Inc., 200 F.3d 511, 515 (7th Cir. 1999)
(same); Zamarippa v. Cy's Car Sales, Inc., 674 F.2d 877, 879 (11th
Cir. 1982) (same); Bustamante v. First Fed. Sav. & Loan Ass'n, 619
F.2d 360, 364 (5th Cir. 1980) (same); see also Herrera v. First N.
Sav. & Loan Ass'n, 805 F.2d 896, 900 (10th Cir. 1986) (resolving
question of clear and conspicuous disclosure under Truth in Lending
Act as a legal, rather than factual, matter); Dixey v. Idaho First
Nat'l Bank, 677 F.2d 749 (9th Cir. 1982) (same).
---------------------------------------------------------------------------
The Commission reiterates that the definition of ``Clear(ly) and
Conspicuous(ly)'' elaborates basic, common-sense principles, such as
requiring visual disclosures in a size consumers can see and audible
disclosures in a volume they can hear. Regarding the requirement that
internet disclosures be unavoidable, this language requires evaluating
an objective standard--whether or not consumers could have avoided the
disclosure. In addition, the disclosure must be easily noticeable and
easily understandable, as set forth expressly in the definition.
Disclosures that do not meet this standard include those that are
buried in other text, including as illustrated by many FTC actions
against dealers.\138\ Regarding the requirement that disclosures be
``easily'' noticeable and understandable, the standard is also an
objective one, evaluated from the perspective of a reasonable consumer.
Determining how reasonable consumers are likely to respond may be
resolved on the basis of the advertisement, context, or disclosure
itself, or based on extrinsic evidence, such as consumer
complaints.\139\ To this end, as noted previously, the definition
enumerates in seven subparts the meaning of clear and conspicuous using
simple terms that provide additional guidance on how dealers may make
disclosures that are easily understandable and easily noticeable to the
consumer.
---------------------------------------------------------------------------
\138\ Complaint ]] 6-14, Jim Burke Auto., Inc., No. C-4523
(F.T.C. May 4, 2015); Complaint ]] 6, 9, TT of Longwood, Inc., No.
C-4531 (F.T.C. July 2, 2015); Complaint ] 13, City Nissan Inc., No.
C-4524 (F.T.C. May 4, 2015); Complaint ]] 17-19, Fed. Trade Comm'n
v. Liberty Chevrolet, Inc., No. 1:20-cv-03945 (S.D.N.Y. May 21,
2020); Complaint ]] 4-9, 12-15, 18-20, Billion Auto, Inc., No. C-
4356 (F.T.C. May 1, 2012) (alleging false ads promising to pay off
consumers' existing motor vehicle debt and failing to disclose
legally required financing and leasing terms); see also Complaint ]]
57-60, Fed. Trade Comm'n v. Stewart Fin. Co. Holdings, Inc., No.
1:03-CV-2648 (N.D. Ga. Sept. 4, 2003) (alleging violations for
failure to include the cost of required add-on products in the
finance charge and annual percentage rate disclosed to consumers).
\139\ See FTC Policy Statement on Deception, supra note 42, at
2-5 (describing application of reasonable consumer standard).
---------------------------------------------------------------------------
After carefully considering the comments, the Commission adopts
Sec. 463.2(d) with a modification to clarify, through the addition of
parentheses--``Clear(ly) and Conspicuous(ly)''--that the definition
applies whether the term is used as an adjective or adverb. Consistent
with the Commission's experience addressing unfair or deceptive
conduct, the Commission has defined the term ``Clear(ly) and
Conspicuous(ly)'' to include disclosures that are easily understandable
and easily noticeable, while also providing dealers with additional
information on how to meet those requirements.\140\
---------------------------------------------------------------------------
\140\ See, e.g., Decision and Order, JS Autoworld, Inc., No. C-
4535 (F.T.C. Aug. 13, 2015); Decision and Order, Nat'l Payment
Network, Inc., No. C-4521 (F.T.C. May 4, 2015); Decision and Order,
Matt Blatt Inc., No. C-4532 (F.T.C. July 2, 2015); Decision and
Order, Ganley Ford West, Inc., No. C-4428 (F.T.C. Jan. 28, 2014).
---------------------------------------------------------------------------
[[Page 607]]
(e) Motor Vehicle (Finalized as `` `Covered Motor Vehicle' or `Vehicle'
'')
The proposed rule defined the term ``Motor Vehicle'' as ``(1) any
self-propelled vehicle designed for transporting persons or property on
a street, highway, or other road; (2) Recreational boats and marine
equipment; (3) Motorcycles; (4) Motor homes, recreational vehicle
trailers, and slide-in campers, as those terms are defined in
Sec. Sec. 571.3(b) and 575.103(d) of title 49, Code of Federal
Regulations, or any successor thereto; and (5) Other vehicles that are
titled and sold through Dealers.'' The Commission has determined to
finalize the definition with the modifications discussed in the
following paragraphs.
The Commission received several comments regarding the substance
and scope of this proposed definition. A number of industry association
commenters requested that certain vehicle types, including marine
vehicles, motorcycles, RVs, and other recreational vehicles be excluded
from coverage. These commenters contended that the dealerships that
sell such vehicles function differently from automobile dealerships,
and that recreational vehicles are discretionary, rather than
essential, purchases. After careful consideration, the Commission is
excluding recreational boats and marine equipment; motorcycles; and
motor homes, recreational vehicle trailers, and slide-in campers from
the definition of `` `Covered Motor Vehicle' or `Vehicle.' '' Moving
forward, the Commission will continue to monitor for unfair and
deceptive practices to determine whether further action is warranted to
protect consumers, through law enforcement, a future rulemaking, or
other measures. The Commission notes that no dealer may misrepresent
material terms; deceive customers about prices, add-ons, or payments;
charge for products that provide no benefit; or charge consumers
without express, informed consent. To the extent that dealers engage in
such conduct, they are in violation of the FTC Act.
Another commenter contended it was unclear whether all-terrain
vehicles, go-carts, snowmobiles, scooters, electric bicycles, and golf
carts were covered by the proposed definition. In response, the
Commission has modified the first enumerated subpart of the definition
to refer only to vehicles designed for use on a ``public'' street,
highway, or road, and to expressly exclude scooters, electric bicycles,
and golf carts. The definition of `` `Covered Motor Vehicle' or
`Vehicle' '' in the Final Rule does not cover all-terrain vehicles, go-
carts, or snowmobiles because such vehicles are not designed for use on
a ``public'' street, highway, or road.\141\
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\141\ According to the National Highway Traffic Safety
Administration, ``Public road means any road under the jurisdiction
of and maintained by a public authority and open to public travel.''
23 CFR 1300.3.
---------------------------------------------------------------------------
A number of industry association commenters claimed that the
proposed definition conflicts with definitions of motor vehicle under
various State laws, and one such commenter requested that, rather than
finalize a definition of ``Motor Vehicle,'' the Commission defer to the
definitions promulgated by each State's department of motor vehicles.
The commenters did not explain how the Rule's definition may actually
conflict with any laws, or how any alleged duplication would harm
consumers or competition. To the extent that States have broader or
narrower definitions, it is not clear why motor vehicle dealers covered
by the Rule cannot comply with the Rule's provisions and applicable
State laws. Moreover, the Final Rule provides additional remedies that
will benefit consumers who encounter conduct that is already illegal
under State or Federal law, including by adding a mechanism for the
Commission to redress consumers injured by a dealer's violation of the
rule, and will assist law-abiding dealers that presently lose business
to competitors that act unlawfully. Section 463.9 provides further
discussion of State laws.
Thus, after careful consideration of the comments, the Commission
is finalizing the definition of ``Motor Vehicle'' with modifications,
including adding the word ``Covered'' to the definition to reflect the
fact that the definition is narrower than the term ``Motor Vehicle'' in
the NPRM and adding ``or Vehicle'' to the definition to clarify that
all references in the Rule to the term ``Covered Motor Vehicle'' and
``Vehicle'' refer to the defined term.
(f) Dealer or Motor Vehicle Dealer (Finalized as `` `Covered Motor
Vehicle Dealer' or `Dealer' '')
The proposed rule defined the term ``Dealer'' or ``Motor Vehicle
Dealer'' as ``any person or resident in the United States, or any
territory of the United States, that: (1) Is licensed by a State, a
territory of the United States, or the District of Columbia to engage
in the sale of motor vehicles; (2) Takes title to, holds an ownership
interest in, or takes physical custody of motor vehicles; and (3) Is
predominantly engaged in the sale and servicing of motor vehicles, the
leasing and servicing of motor vehicles, or both.'' Based on the
following, the Commission is finalizing this definition in the Final
Rule with modifications for clarity.
Many stakeholders commented in support of the proposed rule and
expressed no concern over this definition. Other commenters expressed
views that the Commission examines in the following paragraphs.
A few industry association commenters contended that parts of the
proposed definition may have captured certain financial entities, such
as financial entities that maintain licenses to engage in the sale of
motor vehicles, and requested that the Commission make clear that any
rule does not apply to such entities. In response, the Commission notes
that only entities that meet all three components of the definition are
covered ``Dealers.'' Thus, an entity that maintains an applicable
license to engage in the sale of Covered Motor Vehicles but is not, for
example, predominantly engaged in the sale or leasing of motor vehicles
would not be a covered ``Dealer.''
Another industry association commenter similarly requested a
``carve-out'' from any definition of ``Dealer'' for trusts and trusts'
investors.\142\ This commenter asserted that trusts and their investors
do not satisfy two of the definition's components and did not describe
how any part of the definition creates concerns or is unclear. The
Commission reiterates that if an entity meets the three parts of the
``Covered Motor Vehicle Dealer'' definition, then it is covered; if an
entity does not meet these three parts, it is not covered. The
Commission sees no benefit to adding language stating that entities
that do not meet the definition are not covered.
---------------------------------------------------------------------------
\142\ Comment of Structured Fin. Ass'n, Doc. No. FTC-2022-0046-
7646 at 3.
---------------------------------------------------------------------------
Other commenters, including vehicle association commenters, claimed
that dealerships specializing in RV, marine, motorcycles, and other
recreational vehicles, including certain high-end recreational
vehicles,\143\ should be excluded from coverage, generally contending
that such dealerships operate differently from automobile dealerships,
and that these types of vehicles are used for different purposes than
are automobiles. As explained in the section-by-section analysis of the
definition of ``Covered Motor Vehicle'' in SBP III.B.2(e), after
considering stakeholder comments, the Commission
[[Page 608]]
is removing marine, motorcycle, RV, and certain other vehicles from the
definition in Sec. 463.2(e), and to reflect this change, finalizing
the defined term as `` `Covered Motor Vehicle' or `Vehicle,' '' thereby
excluding from the Final Rule entities who otherwise would have
qualified as ``Dealers'' solely based on their sale and servicing, or
leasing and servicing, of such vehicles. The Commission underscores
that, regardless of the definition of ``Covered Motor Vehicle'' under
the Final Rule, unfair and deceptive practices remain unlawful under
the FTC Act. The Commission will continue to monitor all vehicle
markets to determine whether additional action is warranted to protect
consumers.
---------------------------------------------------------------------------
\143\ The Marine Retailers Association of the Americas requested
that transactions in excess of $70,000 be excluded from coverage, as
an alternative to excluding marine transactions altogether. See
Comment of Marine Retailers Ass'n of the Ams., Doc. No. FTC-2022-
046-9291 at 4.
---------------------------------------------------------------------------
Some dealership association commenters argued that, under the
Commission's proposal, this definition exempted dealers subject to the
jurisdiction of the CFPB. Other such commenters similarly contended
that, under the proposal, used car dealers that do not engage in
extensive post-sale repairs do not ``service'' vehicles or that do not
have separate service departments may have been excluded from coverage,
contending further that excluding such dealers would put other dealers
at a competitive disadvantage. Contrary to these commenters'
assertions, the definition does not contain such exclusions. By its
plain terms, the definition applies to dealers that meet its three
enumerated components. Nowhere does the definition limit coverage of
dealers based on CFPB jurisdictional considerations. Likewise, the
definition does not condition coverage on whether a dealership has a
service department or include any other requirement or limitation
beyond those enumerated in Sec. 463.2(f). By its plain meaning, the
term ``servicing'' covers, for instance, ``checking and repairing a
vehicle, machine, etc. to keep it in good condition.'' \144\ As the
Commission has previously stated, the term ``servicing'' ``captures
activities undertaken by essentially all used car dealers.'' \145\
Thus, the definition does not place dealers with separate servicing
departments at a competitive disadvantage, and the Commission need not
remove the term ``servicing of motor vehicles'' from the Final Rule.
---------------------------------------------------------------------------
\144\ The Oxford Advanced American Dictionary defines
``servicing'' as ``the act of checking and repairing a vehicle,
machine, etc. to keep it in good condition''; see also 15 U.S.C.
5519(b)(3) (referring to ``the sale, financing, leasing, rental,
repair, refurbishment, maintenance, or other servicing of motor
vehicles, motor vehicle parts, or any related or ancillary product
or service'').
\145\ Used Motor Vehicle Trade Regulation Rule (``Used Car
Rule''), 81 FR 81664, 81667 (Nov. 18, 2016).
---------------------------------------------------------------------------
One such commenter further contended that the proposed definition
did not cover certain entities, including certain direct sellers or
manufacturers or others not licensed in a particular State, or lenders
who offer add-on products such as GAP agreements and debt suspension
products. As previously discussed, the Final Rule applies to all
dealers that meet the three parts of this definition.\146\ To the
extent that the definition does not apply to specific entities, this
reflects the scope and bounds of the rulemaking authority Congress
delegated to the Commission under the Dodd-Frank Act.\147\
---------------------------------------------------------------------------
\146\ See 12 U.S.C. 5519(a), (f).
\147\ Section 1029(d) of the Dodd-Frank Act defines ``motor
vehicle dealer'' as ``any person or resident in the United States,
or any territory of the United States, who--(A) is licensed by a
State, a territory of the United States, or the District of Columbia
to engage in the sale of motor vehicles; and (b) takes title to,
holds an ownership in, or takes physical custody of motor
vehicles.'' 15 U.S.C. 5519(f)(2).
Parts (A) and (B) of this definition are identical to parts (1)
and (2) of the definition of `` `Covered Motor Vehicle Dealer' or
`Dealer' '' in the Final Rule.
Section 1029(d) of the Dodd-Frank Act states that the Commission
``is authorized to prescribe rules under sections 5 and 18(a)(1)(B)
of the Federal Trade Commission Act in accordance with section 553
of title 5, United States Code, with respect to a person described
in subsection (a).'' 15 U.S.C. 5519(d). Section 1029(a) in turn,
provides the CFPB ``may not exercise any rulemaking, supervisory,
enforcement or any other authority . . . over a motor vehicle dealer
that is predominantly engaged in the sale and servicing of motor
vehicles, the leasing and servicing of motor vehicles, or both.'' 15
U.S.C. 5519(a). The last clause is identical to part (3) of the
definition in the Final Rule.
Several commenters requested that the Commission allow consumers
to buy vehicles directly from manufacturers. Nothing in the Rule
prohibits consumers from doing so.
---------------------------------------------------------------------------
Finally, some industry and dealership association commenters
posited that the proposal conflicted with Federal and State law or
duplicated the regulatory authority of State enforcement agencies.
These commenters did not provide information regarding how duplicative
laws prohibiting misrepresentations, requiring disclosures, or
prohibiting charges for items that would not benefit the consumer or
for items without express, informed consent would create harmful
consequences, and the Commission is not aware of any laws that allow
such conduct by those that the Rule defines as ``Covered Motor Vehicle
Dealer[s].'' Moreover, the Final Rule provides additional remedies that
will benefit consumers who encounter conduct that is already illegal
under State or Federal law, including by adding a mechanism for the
Commission to redress consumers injured by a dealer's violation of the
Rule, and will assist law-abiding dealers that presently lose business
to competitors that act unlawfully. To the extent the Rule may overlap
with State law, dealers can comply with these laws and also with the
requirements that follow from the operation, in the Rule, of the
Commission's definition. To the extent there is truly an inconsistency
between the provisions of the Final Rule and a State law, Sec. 463.9
sets out the Rule's relation to State laws.
Thus, after careful consideration of the comments, the Commission
is finalizing the definition of `` `Covered Motor Vehicle Dealer' or
`Dealer' '' with modifications for clarity. The definition in the Final
Rule incorporates the phrase ``including any individual or entity'' to
confirm that the term ``person,'' like all undefined terms in this
part, is used according to its ordinary meaning and includes
individuals and corporate entities and adds the word ``Covered'' to the
definition to reflect the narrowed scope of ``Covered Motor Vehicle.''
\148\
---------------------------------------------------------------------------
\148\ See, e.g., Person, Black's Law Dictionary (11th ed. 2019)
(defining ``person'' to include ``[a] human being'' and ``[a]n
entity (such as a corporation) that is recognized by law as having
most of the rights and duties of a human being.''); Person, Merriam-Webster.com Dictionary, https://www.merriam-webster.com/dictionary/person (last visited Dec. 5, 2023) (defining ``person'' to include
``human'' and ``one (such as a human being, a partnership, or a
corporation) that is recognized by law as the subject of rights and
duties''); see also 12 U.S.C. 5481(19) (Dodd-Frank Act statutory
authority for the Final Rule defining ``person'' as ``an individual,
partnership, company, corporation, association (incorporated or
unincorporated), trust, estate, cooperative organization, or other
entity''); 1 U.S.C. 1 (Dictionary Act defining ``person'' to include
``corporations, companies, associations, firms, partnerships,
societies, and joint stock companies, as well as individuals''). The
application of covered motor vehicle dealer and dealer to entities
also is consistent with these terms' use in the NPRM and commenter
understanding of these terms in the course of public comment.
---------------------------------------------------------------------------
(g) Express, Informed Consent
The proposed rule defined the term ``Express, Informed Consent'' as
``an affirmative act communicating unambiguous assent to be charged,
made after receiving and in close proximity to a Clear and Conspicuous
disclosure, in writing, and also orally for in-person transactions'' of
``(1) What the charge is for'' and ``(2) The amount of the charge,
including, if the charge is for a product or service, all fees and
costs to be charged to the consumer over the period of repayment with
and without the product or service.'' The proposed rule also included
in this definition three examples of what does not constitute express,
informed consent: ``(i) A signed or initialed document, by itself; (ii)
Prechecked
[[Page 609]]
boxes; or (iii) An agreement obtained through any practice designed or
manipulated with the substantial effect of subverting or impairing user
autonomy, decision-making, or choice.'' In both the NPRM and in the
provisions the Commission is finalizing, this definition is used
exclusively in Sec. 463.5(c). As such, comments regarding the
definition are examined in the discussion of that provision in SBP
III.E.2(c). As stated therein, the Commission is finalizing this
definition substantively as proposed.
(h) GAP Agreement
The proposed rule defined the term ``GAP Agreement'' as ``an
agreement to indemnify a vehicle purchaser or lessee for any of the
difference between the actual cash value of the insured's vehicle in
the event of an unrecovered theft or total loss and the amount owed on
the vehicle pursuant to the terms of a loan, lease agreement, or
installment sales contract used to purchase or lease the vehicle, or to
waive the unpaid difference between money received from the purchaser's
or lessee's motor vehicle insurer and some or all of the amount owed on
the vehicle at the time of the unrecovered theft or total loss.'' The
proposed definition also noted that this included ``products or
services otherwise titled `Guaranteed Automobile Protection Agreement,'
`Guaranteed Asset Protection Agreement,' `GAP insurance,' or `GAP
Waiver[ ].' '' This term appeared in two sections of the rule proposal:
in the provision regarding dealer charges for add-ons from which the
consumer would not benefit at proposed Sec. 463.5(a), and in the
recordkeeping provision at proposed Sec. 463.6(a)(4). Comments
regarding the proposed definition are examined in the discussion of
Sec. 463.5(a) in SBP III.E.2(a). As stated therein, the Commission is
finalizing this definition substantively as proposed, with
typographical modifications to correct a misplaced period in the
original proposal and a modification removing the extraneous term
``insured's'' from the phrase ``actual cash value of the insured's
Vehicle.'' In addition, the Final Rule capitalizes the defined term
``Vehicle'' to conform with the revised definition of `` `Covered Motor
Vehicle' or `Vehicle' '' at Sec. 463.2(e).
(i) Government Charges
The proposed rule defined ``Government Charges'' as ``all fees or
charges imposed by a Federal, State or local government agency, unit,
or department, including taxes, license and registration costs,
inspection or certification costs, and any other such fees or
charges.'' This term appeared in two provisions of the rule proposal:
in the proposed definition of ``Offering Price'' at Sec. 463.2(k),
which pertains to the proposed offering price disclosure provision at
Sec. 463.4(a); as well as in the proposed provision relating to
undisclosed or unselected Add-ons at Sec. 463.5(b). As explained in
further detail in the paragraph-by paragraph analysis of Sec. 463.5(b)
in SBP III.E.2(b), the Commission has determined not to finalize Sec.
463.5(b), and as such will refrain from examining this proposed
definition in relation to that provision. Comments regarding the
proposed definition are examined in the discussion of Sec. 463.4(a) in
SBP III.D.2(a). As stated therein, the Commission is finalizing this
definition substantively as proposed, with a typographical modification
to include a serial comma for consistency.
(j) Material or Materially
The proposed rule defined ``Material'' or ``Materially'' as
``likely to affect a person's choice of, or conduct regarding, goods or
services.'' This term appeared in the prohibited misrepresentations
provisions at Sec. 463.3(b) and (g), and in the recordkeeping
provision at Sec. 463.6(a). As described in detail in the section-by-
section analysis of Sec. 463.3 in SBP III.C, the Final Rule modifies
the introductory paragraph of Sec. 463.3 from the Commission's
original proposal to add the word ``Material,'' such that the
Commission's materiality standard applies to all subparts of Sec.
463.3. The Final Rule accordingly removes the word ``Material'' from
Sec. 463.3(b) and (g) so as to avoid duplication. Based on the
following, the Commission is finalizing this definition, now at Sec.
463.2(j), substantively as proposed.
A dealership association commenter noted that the proposed
definition did not use the term ``significance,'' and asserted that
``Material'' information should be significant and not ``rooted in
personal preference.'' \149\ The Commission notes that this definition
adopts the meaning of the term as articulated through decades of
enforcement actions \150\ instead of using a different term such as
``significance,'' and does not use the term ``personal preference'' or
rely on ``personal preference'' any more than the phrase ``likely to
affect'' or ``significant'' does. Thus, the Commission is finalizing
this definition substantively as proposed.
---------------------------------------------------------------------------
\149\ Comment of Ga. Auto. Dealers Ass'n, Doc. No. FTC-2022-
0046-10806 at 4.
\150\ See FTC Policy Statement on Deception, supra note 42, at
1-2, 5; see also Fed. Trade Comm'n v. Fleetcor Techs., Inc., 620 F.
Supp. 3d 1268, 1303 (N.D. Ga. 2022); Fed. Trade Comm'n v. Crescent
Pub. Grp., Inc., 129 F. Supp. 2d 311, 321 (S.D.N.Y. 2001); Thompson
Med. Co., Inc., 104 F.T.C. 648, 816 (1984).
---------------------------------------------------------------------------
(k) Offering Price
The proposed rule defined ``Offering Price'' as ``the full cash
price for which a Dealer will sell or finance the motor vehicle to any
consumer, excluding only required Government Charges.'' This term
appeared in two provisions of the rule proposal: in the proposed
offering price disclosure provision at Sec. 463.4(a), as well as in
the proposed provision relating to undisclosed or unselected add-ons at
Sec. 463.5(b). As explained in further detail in the paragraph-by-
paragraph analysis of Sec. 463.5(b) in SBP III.E.2(b), the Commission
has determined not to finalize Sec. 463.5(b), and as such, will
refrain from examining this proposed definition in relation to that
provision. Comments regarding the proposed definition are examined in
the discussion of Sec. 463.4(a) in SBP III.D.2(a).\151\ As stated
therein, the Commission is finalizing this definition largely as
proposed, with a modification to clarify that dealers may, but need
not, exclude required government charges from a motor vehicle's
offering price. In addition, the definition in the Final Rule
substitutes ``Vehicle'' for ``motor vehicle'' to clarify that the term
conforms with the revised definition of `` `Covered Motor Vehicle' or
`Vehicle' '' at Sec. 463.2(e).
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\151\ Some commenters, including certain industry associations,
requested that the Rule include additional definitions, including
for the terms ``charged,'' ``item,'' ``discount,'' ``rebate,''
``trade-in value,'' and ``online service.'' In response, the
Commission notes that for terms not defined in the Rule, the plain
meaning of the terms apply.
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C. Sec. 463.3: Prohibited Misrepresentations
1. General Comments
The proposed rule set forth prohibitions against certain
misrepresentations by motor vehicle dealers. Based on the following,
the Commission has determined to finalize these prohibitions, with
minor revisions.
The following paragraphs discuss comments relating to Sec. 463.3
generally and Commission responses to such comments, followed by
comments relating to each paragraph of Sec. 463.3 and Commission
responses to such comments.
The NPRM proposed prohibiting dealers from making any
misrepresentation, expressly or by implication, regarding specific
listed categories. The Commission received many comments regarding this
[[Page 610]]
proposal, including comments supporting such a provision, comments
urging the Commission to broaden the provision, and comments urging the
Commission to limit or forgo the provision.
Thousands of commenters expressed support for the proposed
rule.\152\ Many of these commenters specifically expressed concern
about misleading advertisements and deceptive pricing. Many individual
commenters cited examples of such conduct from their own experiences
purchasing or leasing vehicles, and many commenters with experience
operating or working for a dealership shared their observations or
experiences. For example:
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\152\ See Motor Vehicle Dealers Trade Regulation Rule, Comment
Docket, https://www.regulations.gov/document/FTC-2022-0046-0001/comment.
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I have been looking for a car at MSRP and most dealers[']
websites will list it at that price. [T]hen when you drive there the[y]
will say well there is a market adjustment from 5,000 to 20,000
dollars. [N]ow . . . you need a car and have wasted 3-4 hours and
picked out what you thought was your next car.\153\
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\153\ Individual commenter, Doc. No. FTC-2022-0046-0036.
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I am currently in discussions with two dealerships for a
new car. Both assure me there is absolutely no dealer markup, come to
find out they are adding 3/5k of ``mandatory'' add-ons respectively
once I get in the door.\154\
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\154\ Individual commenter, Doc. No. FTC-2022-0046-0099.
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The last vehicle I purchased 2 years ago was a nightmare.
Drove 5 hrs[.] to a dealer in Southern California. I called the dealer
and confirmed the price on their website was what I was going to pay.
When I arrived there, they had a list of $2500 [i]n additional charges
that were not disclosed when I called and before I started driving.
Purchasing a vehicle shouldn't be such a stressful process.\155\
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\155\ Individual commenter, Doc. No. FTC-2022-0046-0906.
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Most recently I started looking myself for a new lease,
and looked at the RAV 4 prime. Went to my local dealer after seeing an
ad on their site for $450 a month. Not only did they not honor the
deal, but wouldn't even discuss that it was on their own site. I was
told the SE model was [$5000] over MSRP and the XSE was [$8000]
over.\156\
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\156\ Individual commenter, Doc. No. FTC-2022-0046-1878.
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I have contacted 10 different car dealerships in the past
month looking to purchase a new or used SUV. 9 out of the 10
dealerships I contacted online or visited in-person in California
changed or lied about the online advertised price of the vehicle I was
inquiring about or said the car was sold or not available and tried to
sell me a more expensive vehicle.\157\
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\157\ Individual commenter, Doc. No. FTC-2022-0046-3686.
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Once I was led to the F&I office I was told that I HAD to
buy a $995 paint protection product that I didn[']t want or need. I
asked to see the contract for this product which clearly stated in bold
letters `ACCEPTANCE OF THIS CONTRACT IS VOLUNTARY AND DOES NOT AFFECT
THE FINANCING OF THE VEHICLE' I pointed this out to the salesman and
told him that I didn't want this product[.] [H]e looked me in the eyes
with my wife present and said ``You have to buy it[.]'' \158\
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\158\ Individual commenter, Doc. No. FTC-2022-0046-4752.
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At the dealership, the salesman offered a price of
$38,000, over $8,000 more than the advertised price. When I challenged
the extra cost, he said the advertisement included every possible
rebate and discount and no one could receive them together (some were
exclusionary with other discounts).\159\
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\159\ Individual commenter, Doc. No. FTC-2022-0046-5580.
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While there are good honorable dealerships, far too many
play games. Rarely is the price of [a] car advertised online or via
mail EVER the actual price. Far too often in the F&I office the finance
manager tries to [gloss] over add[-]ons that they just arbitrarily
added on without telling you OR state I cannot get your loan approved
without an extended warranty as an example I experienced. . . . I
worked for a Toyota dealership many years ago and left the industry
because it made me sick seeing the games played taking advantage of
people. Change is needed and sooner than later.\160\
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\160\ Individual commenter, Doc. No. FTC-2022-0046-2378.
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I work as a salesperson at a local Nissan dealership. . .
. Currently, dealerships across the US, including the one I work for,
have made the car buying process needlessly confusing, expensive, and
frustrating by engaging in false advertising and hidden add-on
products. While these practices are very unscrupulous, they are
incredibly effective at what they are designed to do: drive revenue for
the store. If these regulations are passed, they would certainly take a
significant toll on my personal finances. But the longer I work in my
position, the more I realize that no one should be allowed to engage in
such exploitative conduct in the course of running a business.\161\
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\161\ Individual commenter, Doc. No. FTC-2022-0046-3693.
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I am in the auto industry and work at a very transparent
and honest dealership. I think most of these rules are great. I hear
horror stories about honest people seeing a car advertised for one
price, only to be told there are additional a[d]d-ons and markups once
they arrive. I think this is unfair. I'm also shocked every time I hear
about a dealership charging for mandatory window etching and nitrogen
filled tires. I even know of reputable dealerships that add GPS
tracking and theft recovery devices to every new car, even though these
cars come with GPS theft recovery from the manufacturer. Stopping these
practices will help restore consumers' faith in car dealerships, save
them money, and lead to a more honest and ethical industry. . . .\162\
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\162\ Individual commenter, Doc. No. FTC-2022-0046-4959.
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Other commenters expressed support for transparent pricing
generally, stating, for example:
A consumer should be able to see a price, walk into a
dealership, and pay that price. Plain and simple, just like ANY OTHER
RETAILER.'' \163\
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\163\ Individual commenter, Doc. No. FTC-2022-0046-0017.
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If I walk into Best Buy and see a price they HAVE to sell
it to me for that price or cheaper. These rules are long over due.\164\
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\164\ Individual commenter, Doc. No. FTC-2022-0046-0034.
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I believe if they advertise a car, it should be available
for sale--at the advertised price--just as a supermarket can't
advertise a price for something they don't have, or add a `coupon
redemption fee' to it. I believe these rules are an extremely
reasonable approach to a long-standing problem and urge you to adopt
them.\165\
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\165\ Individual commenter, Doc. No. FTC-2022-0046-0005.
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I used to work in the retail auto industry and these
proposed rules will help everyone (including the dealers who are
fighting them). Consumers will benefit from the transaction
transparency, and over the long term even the shady dealers will
benefit by treating consumers fairly and developing long term
relations.\166\
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\166\ Individual commenter, Doc. No. FTC-2022-0046-1935.
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These regulations would be the best thing to happen for
consumer protection since the Mo[n]roney Label. I not only have had to
navigate and negotiate erroneous fees at dealers, but I've also
[[Page 611]]
worked at dealers whose transparency and forthrightness put them at a
disadvantage. Many dealers advertise vehicles that can not [sic] be
purchased or leased at the advertised price due to deceptive adverts
either not disclosed or in a print so fine it can't be read. Please
pass this ruling. My grandma shouldn't have to pay more than someone
else just because she's not a good negotiator.\167\
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\167\ Individual commenter, Doc. No. FTC-2022-0046-10441.
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Consumer advocacy organization commenters and individual commenters
urged the FTC to include additional specific provisions in Sec. 463.3,
including a prohibition against misrepresentations regarding the
safety, mechanical or structural condition, odometer reading, or
history of a vehicle. Similarly, commenters including a municipal
regulator urged the Commission to specifically prohibit
misrepresentations regarding certification of used vehicles, citing
enforcement actions it brought against dealers that misrepresented used
vehicles as ``certified pre-owned'' or ``manufacturer certified.'' The
FTC takes seriously deception relating to the safety or condition of a
vehicle and the practice of charging consumers more based on false
claims or reassurances.\168\ Depending on the claim made by the
dealership and the specific facts at issue, deceptive conduct in either
of these areas may be covered by the enumerated misrepresentation
paragraphs the Commission is finalizing, such as by Sec. 463.3(a) if
it relates to the terms of the purchase, lease, or financing. The FTC
will continue to monitor dealer misrepresentations to determine whether
additional action is needed.
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\168\ See, e.g., Complaint, CarMax, Inc., No. C-4605 (F.T.C.
Mar. 22, 2017) (alleging Defendants misled consumers by representing
that the used motor vehicles Defendants sold had been subject to
rigorous inspection but omitting important safety information about
recalls); Complaint, West-Herr Auto. Grp., Inc., No. C-4607 (F.T.C.
Mar. 22, 2017) (alleging Defendants failed to disclose, or disclose
adequately, that used motor vehicles it sold were subject to open
recalls for safety issues); Complaint, Asbury Auto. Grp., Inc., No.
C-4606 (F.T.C. Mar. 22, 2017) (alleging deceptive failure to
disclose material information about the safety of used motor
vehicles sold by Defendants); Complaint ]] 20-24, Fed. Trade Comm'n
v. Passport Imports, Inc., No. 8:18-cv-03118 (D. Md. Oct. 10, 2018)
(alleging Defendants misled consumers by mailing ``Urgent Recall''
notices that were similar to and had the same color scheme as
notices manufacturers are required by the U.S. Department of
Transportation's NHTSA to use when sending information about vehicle
recalls, even though in the ``vast majority of instances'' the
recipients' cars were not subject to an open recall).
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In addition, a number of credit union commenters requested that the
Commission explicitly address misrepresentations involving dealers'
refusal to accept outside financing to purchase a vehicle. These
commenters cited several examples of consumers being told that they
could not use outside financing, that they would not receive a lower
interest rate from an outside financial institution, or that a
particular interest rate was the best rate the consumer can get. The
Rule already covers such conduct. For example, Sec. 463.3(a) of the
Rule, which prohibits dealers from misrepresenting the cost or terms of
financing a vehicle, covers these and other misrepresentations
regarding financing, including the availability of outside or
``indirect'' financing terms, or the costs of such financing as
compared to those of any dealer-provided financing.
Two individual commenters posited that any language prohibiting
misrepresentations should explicitly include the word ``omissions,'' in
order to ensure that dealers do not sneak in additional costs without
consumers' consent or understanding. The Commission appreciates this
concern, and notes that the Rule has many provisions prohibiting such
misconduct, including the required disclosures regarding price, add-
ons, and total amount of payments in Sec. 463.4 of the Final Rule, as
well as the requirement in Sec. 463.5(c) to obtain consumers' express,
informed consent before charging for any items.
Other commenters, including dealership associations, individual
commenters, and a United States Representative, questioned whether
certain of the proposed misrepresentation provisions were duplicative
of other laws, such as the Truth in Lending Act (``TILA''), the
Consumer Leasing Act (``CLA''), or State regulations, and in some
instances whether compliance with State regulations should act as a
safe harbor. The Commission notes that another statute--the FTC Act--
already prohibits misrepresentations in or affecting commerce, and to
the extent there is duplication between the FTC Act and other existing
statutes pertaining to deception, there is no evidence that duplicative
misrepresentation prohibitions have harmed consumers or
competition.\169\ The Commission further notes that the Final Rule
provides additional remedies that will benefit consumers who encounter
conduct that is otherwise already illegal under Federal law, and will
aid law-abiding dealers that lose business to competitors that act
unlawfully.\170\ State laws may provide more or less specific
requirements as long as those requirements are not inconsistent with
part 463, as set forth in Sec. 463.9, and in the event of an
inconsistency, the Rule only affects such State law to the extent of
the inconsistency. Because dealers are already prohibited from engaging
in ``deceptive acts or practices'' under the FTC Act, dealers should be
able to comply with these provisions without the need for a safe
harbor.
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\169\ One commenter expressed concern that the prohibited
misrepresentations would cause dealerships to provide less
information, because discussing pricing and quotes would result in
providing further documentation for every conversation. However, as
the FTC Act already prohibits misrepresentations, and given that
pricing and financing information are among the most salient aspects
of a consumer's shopping for a vehicle, the Commission considers it
unlikely that Sec. 463.3 would result in less information or the
creation of additional documentation.
\170\ Under section 19(a)(1) of the FTC Act, the Commission may
sue in Federal district court ``any person, partnership, or
corporation'' that ``violates any rule under [the FTC Act]
respecting unfair or deceptive acts or practices.'' 15 U.S.C.
57b(a)(1). Where such liability is found, under section 19(b) a
court may ``grant such relief as [it] finds necessary to redress
injury . . . resulting from the rule violation,'' including the
``rescission or reformation of contracts, the refund of money or
return of property, [or] the payment of damages.'' Id. 57b(b).
A few commenters requested that the Rule go further in providing
remedies, including by allowing for a private right of action to
enforce Rule violations. The Commission notes that, depending on
State law, consumers may be able to use State statutes that prohibit
unfair or deceptive practices to challenge conduct that violates
this Rule.
There is nothing in the FTC Act or this Rule that would preclude
consumers from exercising any such legal rights under State law. The
Commission will continue to monitor the market to determine whether
additional steps are needed.
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Industry association commenters also claimed that the prohibited
misrepresentation proposal ignored the materiality prong of the
Commission's deception standard, and further observed that some of the
prohibited misrepresentations in the proposed rule explicitly included
a materiality requirement,\171\ while others did not. As the NPRM made
clear, the Commission's proposed misrepresentation section, at Sec.
463.3, addressed misrepresentations that are all material.\172\ The
Commission need not explicitly specify materiality in its description
of these misrepresentations; indeed, the Commission has long considered
certain categories of information, express claims, and intended implied
claims to be presumptively material.\173\ Nevertheless, rather than
using the term ``Material'' in certain individual enumerated
paragraphs, the Commission has determined to modify the introductory
text of Sec. 463.3 from the Commission's original proposal in order
[[Page 612]]
to specifically prohibit misrepresentations regarding material
information about the enumerated paragraphs. As such, the Commission is
also removing what would otherwise be redundant references to the term
``Material'' within paragraphs (b) and (g) of Sec. 463.3.
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\171\ See NPRM at 42045 (proposed Sec. 463.3(b), (g)).
\172\ NPRM at 42019.
\173\ FTC Policy Statement on Deception, supra note 42, at 5 &
nn.47-55.
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A national dealership association incorrectly asserted that this
section is problematic because there is no requirement that the
representation or omission be material or be viewed from the
perspective of a consumer acting reasonably under the circumstances. As
adopted in the final rule, this section adds the term ``Material,''
stating that it is an unfair or deceptive practice for any motor
vehicle dealer to make any misrepresentation, expressly or by
implication, regarding material information about the specific
categories enumerated in Sec. 463.3.\174\ The Commission is not aware
of situations where dealers have made misrepresentations expressly or
by implication regarding material information about these specific
categories that are not deceptive or unfair, nor did commenters
describe any such situations.
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\174\ The Final Rule prohibits misrepresentations in specific
categories. In contrast, some FTC rules go further by prohibiting
misrepresentations of ``any material aspect'' of the transaction.
See, e.g., Mortgage Assistance Relief Services Rule, 16 CFR
322.3(b); Telemarketing Sales Rule, 16 CFR 310.3(a)(2)(x).
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The Commission further notes that, by the terms of this section, a
court must find that the dealer made an express or implied
misrepresentation regarding material information for Sec. 463.3 to be
violated. For an express or implied misrepresentation regarding
material information to be made in violation of the FTC Act and this
Rule, there must be a representation that misleads consumers acting
reasonably under the circumstances regarding material information.
Whether such a representation has occurred depends on the facts. In the
case of implied representations, whether a representation has occurred
is often evident from an examination of the representation itself,
including, for example, an evaluation of the document in which a
representation is made, the juxtaposition of language in that document,
the nature of the representation, and the nature of the
transaction.\175\ In other situations, extrinsic evidence that it is
reasonable for consumers to reach the implied representation may be
helpful, such as consumer testimony, surveys, or other reliable
evidence of consumer interpretation.\176\
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\175\ FTC Policy Statement on Deception, supra note 42, at 2
(citing Am. Home Prods., 98 F.T.C. 136, 374 (1981), aff'd, 695 F.2d
681, 687 (3d Cir. 1982) (evaluation of the entire document); Warner
Lambert, 86 F.T.C. 1398, 1489-90 (1975), aff'd 562 F.2d 749 (D.C.
Cir. 1977), cert. denied, 435 U.S. 950 (1978) (juxtaposition of
phrases); Firestone Tire & Rubber Co., 81 F.T.C. 398, 456 (1972),
aff'd, 481 F.2d 246 (6th Cir.), cert. denied, 414 U.S. 1112 (1973)
(nature of the claim); see also Kraft, Inc. v. Fed. Trade Comm'n,
970 F.2d 311, 319 (7th Cir. 1992) (``Commission may rely on its own
reasoned analysis to determine what claims, including implied ones,
are conveyed in a challenged advertisement, so long as those claims
are reasonably clear from the face of the advertisement.'').
\176\ FTC Policy Statement on Deception, supra note 42, at 2
n.8.
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For example, if a dealer offers discounted coffee for customers who
visit its dealership before 10 a.m. and honors that offer, but makes no
representations, expressly or by implication, about discounted cars,
the dealer will not have violated Sec. 463.3(d), which prohibits
express or implied misrepresentations regarding rebates and discounts,
even if a consumer holds an unreasonable belief that the offer was for
discounted cars. On the other hand, if a dealership's advertisement
depicts a car with a consumer standing next to it holding a cup of
coffee, and states, ``10% discount available before 10 a.m.,'' such an
advertisement can convey several representations that may mislead
reasonable consumers,\177\ including that the car is available at a 10%
discount.
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\177\ The interpretation or reaction does not have to be the
only one; when a seller's representation conveys more than one
meaning to reasonable consumers, one of which is false, the seller
is liable for the misleading interpretation. See FTC Policy
Statement on Deception, supra note 42, at 3. Further, an
interpretation will be presumed reasonable if it is the one the
respondent intended to convey. Id.
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Commenters including industry associations opined on the term
``implied,'' contending for example that the idea that a
misrepresentation can be implied is overly broad, and a dealership
association commenter expressed concern that the inclusion of
``implied'' creates too much uncertainty. As has been recognized under
the law for decades, however, representations can mislead consumers,
even without making express claims.\178\ Take, for example, an
advertisement that shows a picture of a new sedan for sale. Even if the
advertisement does not expressly state that consumers could use the
vehicle to drive at speeds higher than 25 miles per hour, there is an
implied representation that a product is fit for the purposes for which
it is sold.\179\ Thus, limiting the Rule to prohibit only express
misrepresentations would significantly hamper its usefulness to
consumers.
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\178\ The FTC's Policy Statement on Deception and scores of FTC
cases make clear that both express and implied claims can be
deceptive. See, e.g., ECM Biofilms, Inc. v. Fed. Trade Comm'n, 851
F.3d 599 (6th Cir. 2017) (affirming Commission's finding that an
additive manufacturer's unqualified biodegradability claim conveyed
an implied claim that its plastic would completely biodegrade within
five years); POM Wonderful LLC, No. C-9344 (F.T.C. Jan. 10, 2013)
(Opinion of the Commission), aff'd as modified, POM Wonderful, LLC
v. Fed. Trade Comm'n, 777 F.3d 478 (D.C. Cir. 2015) (finding that
company's advertisements would reasonably be interpreted by
consumers to contain an implied claim that POM products treat,
prevent, or reduce the risk of certain health conditions and for
some ads that these effects were clinically proven); Kraft, Inc. v.
Fed. Trade Comm'n, 970 F.2d 311 (7th Cir. 1992) (affirming finding
of deception where Kraft ads juxtaposed references to the milk
contained in Kraft singles and the calcium content of the milk, the
combination of which implied that each Kraft single contained the
same amount of calcium as five ounces of milk).
\179\ FTC Policy Statement on Deception, supra note 42, at 2;
Int'l Harvester Co., 104 F.T.C. 949, 1057-58 (1984).
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One industry association commenter further argued that the proposed
rule created a new deception standard that ignored intent and reliance.
This argument, however, misstates the law, which does not require
intent \180\ or reliance \181\ to establish deception.
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\180\ See Fed. Trade Comm'n v. Freecom Commc'ns, 401 F.3d 1192,
1202 (10th Cir. 2005) (``Because the primary purpose of Sec. 5 is
to protect the consumer public rather than punish the wrongdoer, the
intent to deceive the consumer is not an element of a Sec. 5
violation.'').
\181\ See Fed. Trade Comm'n v. Figgie Int'l, Inc., 994 F.2d 595,
605-06 (9th Cir. 1993) (holding that section 19 of the FTC Act does
not require proof of individual consumer reliance; rather, there is
a ``presumption of actual reliance'' that arises once the Commission
has proved that a defendant made material misrepresentations, that
they were widely disseminated, and that consumers purchased the
defendant's product).
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Thus, the Commission is finalizing the introductory paragraph of
Sec. 463.3 largely as proposed, with a modification stating that it
applies to misrepresentations regarding material information. For
consistency with other parts of the Rule, the Commission is also
removing the shorthand ``FTC Act'' that appeared in parentheses after
``the Federal Trade Commission Act'' in the introductory paragraph of
the proposed rule. For clarity and consistency with the revised
definition of ``Covered Motor Vehicle Dealer'' (at Sec. 463.2(f) and
discussed in SBP III.B.2(f)), the Commission is adding the word
``Covered'' to ``Motor Vehicle Dealer'' in the introductory paragraph.
Finally, without changing any substantive requirements for covered
entities, the Commission is adding the following sentence to the end of
Sec. 463.3, at newly designated paragraph (q): ``The requirements in
this section also are prescribed for the purpose of preventing the
unfair or deceptive acts or practices
[[Page 613]]
defined in this part, including those in Sec. Sec. 463.4 and 463.5.''
The Commission examines each paragraph of Sec. 463.3, including by
examining related comments and Commission responses to those comments.
The Commission then discusses the corresponding provisions of the Final
Rule.
2. Paragraph-by-Paragraph Analysis of Sec. 463.3
(a) The Costs or Terms of Purchasing, Financing, or Leasing a Vehicle
Proposed Sec. 463.3(a) prohibited misrepresentations regarding the
cost or terms of purchasing, financing, or leasing a vehicle. The
Commission is finalizing this provision largely as proposed, with the
minor modification of capitalizing the defined term ``Vehicle'' to
conform with the revised definition at Sec. 463.2(e) (explained in SBP
III.B.2(e)). As previously discussed, the addition of ``material'' to
the introductory paragraph of Sec. 463.3 will apply to this paragraph
and to all paragraphs of Sec. 463.3 that follow.
A number of commenters expressed support for this proposed
provision, contending, inter alia, that it would level the playing
field for car buyers and address unfair and deceptive practices related
to financing terms and conditions.
The Commission received a number of industry association comments
requesting that the Commission clarify the operation of proposed Sec.
463.3(a), including for example, by clarifying whether it would require
dealers to discuss all purchase, finance, or lease terms, or whether it
would require dealers to read aloud all the terms of the buyer's order
and finance or lease agreement. Dealership association commenters
expressed a related concern that this proposed provision lacked
specific guidance on dealer compliance.
To begin, misrepresentations regarding ``costs or terms of
purchasing, financing, or leasing a vehicle'' refer to the ordinary
plain meaning of the words used in the provision.\182\ Second, as the
language in the introductory paragraph of Sec. 463.3 makes clear, its
paragraphs--including paragraph (a) of Sec. 463.3--prohibit
misrepresentations regarding material information. By its terms, this
paragraph requires no particular affirmative disclosures, whether
written or oral; rather, this paragraph obligates dealers to refrain
from misrepresentations regarding material information about the costs
or terms of purchasing, financing, or leasing a vehicle.\183\
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\182\ Examples of ``costs or terms of purchasing, financing, or
leasing a vehicle'' include, among other things, express or implied
representations regarding a vehicle's total cost, down payments,
interest rates, repayment schedules, the price for added features,
other charges, certainty or finality of terms, and the availability
of discounts. The Commission has brought numerous enforcement
actions where, for example, dealers have misrepresented the total
price a consumer could pay for vehicles, or concealed a required
down payment or other restrictions on the offer. See, e.g.,
Complaint ]] 10-11, Fed. Trade Comm'n v. Liberty Chevrolet, Inc.,
No. 1:20-cv-03945 (S.D.N.Y. May 21, 2020) (alleging false ads
stating a certain price but charging consumers higher prices);
Complaint ]] 38-46, Fed. Trade Comm'n v. Tate's Auto Ctr. of
Winslow, Inc., No. 3:18-cv-08176-DJH (D. Ariz. July 31, 2018)
(alleging false ads touting attractive terms but concealing (i) ads
were for lease offers only and required substantial initial payment,
(ii) discounts were subject to material limitations, or (iii) other
legally required disclosures); Complaint ]] 7-16, Cowboy AG, LLC,
No. C-4639 (F.T.C. Jan. 4, 2018) (alleging false ads touting
attractive terms, but concealing substantial down payments, offers
were for leases and not purchases, material eligibility
restrictions, and other legally required disclosures).
\183\ Some commenters repeat this and similar questions,
regarding what types of disclosures are required, through provision
(o); the same response applies--provisions (a) through (o) do not
affirmatively require particular disclosures. As with all
misrepresentations prohibited by the Rule, and under section 5 of
the FTC Act, misrepresentations are barred whether they are made
expressly or by implication.
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The Commission received comments from industry associations
requesting that the Final Rule provide a safe harbor from liability
stemming from dealers' violations of the Rule to vehicle credit
contract assignees, who take or receive these contracts subject to all
claims and defenses consumers could assert against the dealer under the
Commission's Trade Regulation Rule Concerning Preservation of
Consumers' Claims and Defenses, also known as the ``Holder Rule.''
\184\ The Rule, however, does not create liability for these entities
under the Holder Rule where it did not previously exist; the Rule
addresses conduct that is unfair or deceptive under the FTC Act. When
enacting the Holder Rule, the Commission did not include a safe harbor
or exceptions involving any specific deceptive or unfair conduct, and
the Commission declines to do so through this Rule.
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\184\ See Trade Regulation Rule Concerning Preservation of
Consumers' Claims and Defenses, 16 CFR 433.2 [hereinafter Holder
Rule].
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A comment from a motor vehicle industry association argued that
this provision would likely be inapplicable, or less impactful, with
regard to RV sales because the RV industry rarely offers leases, if at
all, and because RV sales are usually not financed through RV
manufacturer-controlled financing companies. To the extent that
specific provisions do not apply to specific entities, such provisions
do not impose any obligations upon those entities. Nevertheless, as
explained in the analysis of the ``Covered Motor Vehicle'' definition,
Sec. 463.2(e), the Commission is excluding recreational vehicle
dealers from the definition of ``Covered Motor Vehicle.''
After carefully considering the comments, the Commission is
finalizing paragraph (a) of Sec. 463.3 with the minor modification of
capitalizing ``Vehicle.'' This provision prohibits misrepresentations
regarding ``[t]he costs or terms of purchasing, financing, or leasing a
Vehicle.'' Misrepresentations of the price, discounts, or other terms
are likely to cause consumers to waste time pursuing unavailable or
inapplicable offers and to spend more money on a vehicle rather than
undergoing the hours-long process to begin the vehicle search and
shopping process anew at another dealership. Prohibiting these
misrepresentations will save consumers time and money and ensure that
dealers compete on a level playing field.\185\
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\185\ The National Automobile Dealers Association commissioned a
survey, released in May of 2023, that asserted the Commission's
proposed rule would lead to an increase in consumer transaction
time. Edgar Faler et al., Ctr. for Auto. Rsch., ``Assessment of
Costs Associated with the Implementation of the Federal Trade
Commission Notice of Proposed Rulemaking (RIN 2022--14214), CFR part
463'' (2023), https://www.cargroup.org/wp-content/uploads/2023/05/CAR-Report_CFR-Part-463_Final_May-2023.pdf. This survey was released
more than seven months after the closure of the comment period for
the notice of proposed rulemaking on September 12, 2022, and is not
part of this rulemaking record. These facts notwithstanding, the
Commission observes that each respondent to this survey was
presented with a leading statement at the beginning of the survey
asserting, inter alia, that the proposed rule would impose ``new
duties [that] are expected to create additional monitoring,
training, forms, and compliance review responsibilities as well as a
modification of record keeping systems and coordination with outside
IT and other vendors'' and ``increase the time of a motor vehicle
transaction, inhibit online sales, limit price disclosures, and
increase customer confusion and frustration.'' Id. at 34, 36
(introductory instructions on the survey instrument sent to
respondents). In addition, this survey did not explain its selection
process or criteria for the 60 dealers it surveyed, nor why only 40
such dealerships provided fully completed survey responses.
Moreover, the survey report attributed much of this estimated
increase to proposed rule provisions that the Commission is not
finalizing.
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(b) Any Costs, Limitation, Benefit, or Any Other Aspect of an Add-On
Product or Service
Proposed Sec. 463.3(b) prohibited misrepresentations concerning
any costs, limitation, benefit, or any other material aspect of an add-
on product or service. Section 463.3(b) of the Final Rule adopts this
provision without substantive modification. As described in detail in
SBP III.C.1, the Commission
[[Page 614]]
is modifying Sec. 463.3 from the Commission's original proposal to
include the term ``Material'' in the introductory paragraph rather than
in paragraphs (b) or (g) of Sec. 463.3. Section 463.3(b) of the Final
Rule therefore deletes reference to the term ``Material.''
The Commission received a number of comments expressing support for
prohibiting misrepresentations about add-ons, including comments that
requested specific additional add-on-related misrepresentation
prohibitions. For example, an auto dealer commenter expressed support
for prohibiting misrepresentations about whether or not a car has add-
ons already installed. Consumer advocacy organization commenters
recommended that the Commission include a new paragraph in Sec. 463.3
prohibiting misrepresentations regarding the consumer's right to cancel
add-on products or services. This provision, however, already covers
such conduct: It prohibits misrepresentations regarding material
information about any costs, limitation, benefit, or any other aspect
of an add-on product or service. ``Material'' means likely to affect a
consumer's conduct or choices.\186\ A consumer's right to cancel is
likely to affect the consumer's conduct regarding an add-on product or
service. Thus, Sec. 463.3(b) includes representations about a
consumer's right to cancel an add-on product or service.
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\186\ See FTC Policy Statement on Deception, supra note 42, at
2, 5; see also Fed. Trade Comm'n v. Crescent Publ'g Grp., Inc., 129
F. Supp. 2d 311, 321 (S.D.N.Y. 2001).
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A number of dealership association commenters argued that the
language used in this provision is vague or confusing. The terms
``Material'' and ``Add-on Product or Service,'' however, are
specifically defined in Sec. 463.2. The remaining terms in this
provision are commonly used and can be understood according to their
plain meaning.\187\ The NPRM examined misrepresentations regarding the
coverage and costs of add-ons, and enforcement actions by the
Commission and other agencies have documented many instances of such
misrepresentations.\188\ Examples of the type of conduct prohibited
include misrepresenting whether add-ons are required in order to
purchase or lease a vehicle, including by representing that such
charges are required when in fact they are not, or misrepresenting that
advertised prices do not include fees beyond routine taxes and fees
only to subsequently require the purchase of add-ons; misrepresenting
what is, or is not, covered by, among others, an extended warranty,
service or maintenance plan, or GAP agreement; \189\ and
misrepresenting that consumers have provided express, informed consent
to be charged for add-ons.
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\187\ E.g., Cost, Cambridge Dictionary, https://dictionary.cambridge.org/us/dictionary/english/cost (``Cost'' is
defined as ``the amount of money needed to buy, do, or make
something''); Limitation, Cambridge Dictionary, https://dictionary.cambridge.org/us/dictionary/english/limitation
(``Limitation'' is defined as ``something that controls or reduces
something''); Benefit, Cambridge Dictionary, https://dictionary.cambridge.org/us/dictionary/english/benefit (``Benefit''
is defined as ``a helpful or good effect, or something intended to
help'').
\188\ See, e.g., Complaint ]] 26-27, 70-71, Fed. Trade Comm'n v.
N. Am. Auto. Servs., Inc., No. 1:22-cv-01690 (N.D. Ill. Mar. 31,
2022) (alleging deceptive and unauthorized add-on charges; unfair
discrimination against minority consumers); Complaint ]] 12-19, Fed.
Trade Comm'n v. Liberty Chevrolet, Inc., No. 1:20-cv-03945 (S.D.N.Y.
May 21, 2020) (alleging deceptive and unauthorized add-on charges in
consumers' transactions); Complaint ]] 59-64, Fed. Trade Comm'n v.
Universal City Nissan, Inc., No. 2:16-cv-07329 (C.D. Cal. Sept. 29,
2016) (deceptive and unauthorized add-on charges in consumers'
transactions); Complaint ]] 4-14, Nat'l Payment Network, Inc., No.
C-4521 (F.T.C. May 4, 2015) (alleging failure to disclose fees
associated with financing program; misleading savings claims in
advertisements); Complaint ]] 4-13, Matt Blatt Inc., No. C-4532
(F.T.C. July 2, 2015) (alleging failure to disclose fees associated
with financing program; misleading savings claims). Cf. Consent
Order ]] 10-16, Santander Consumer USA, Inc., CFPB No. 2018-BCFP-
0008 (Nov. 20, 2018) (finding defendant sold GAP product allegedly
providing ``full coverage'' to consumers with loan-to-value ratios
(``LTVs'') above 125%, when in fact coverage is limited to 125% of
LTV).
\189\ See, e.g., Consumer Fin. Prot. Bureau, ``Supervisory
Highlights: Issue 12, Summer 2016'' 5 (June 2016), https://files.consumerfinance.gov/f/documents/Supervisory_Highlights_Issue_12.pdf (finding that one or more auto
lenders deceptively advertised the benefits of their GAP agreement
products, leaving the impression that these products would fully
cover the remaining balance of a consumer's loan in the event of
vehicle loss when, in fact, the product only covered amounts below a
certain loan to value ratio).
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Commenters including a number of motor vehicle dealership
associations requested that the Commission clarify how extensive
disclosures would need to be to satisfy this provision. One such
commenter requested that the Commission explain what conduct would be
required under this paragraph, and expressed concern that, if the
paragraph required disclosures, such a requirement would affect the
length of the transaction. Another industry association commenter
suggested that, in the event dealers provide consumers with a verbal or
written disclosure stating that such products have costs, limitations,
or benefits, and stating information about other material aspects, the
Commission modify its proposal to shift to consumers the burden of
proving any relevant dealer misrepresentation. An individual commenter
expressed support for applying Sec. 463.3(a) and (b) to dealer
advertisements of free lifetime benefits programs and requiring dealers
to make disclosures about any costs, limitations, benefits, or any
other aspect of an add-on product or service. The Commission notes that
paragraphs (a) and (b) of Sec. 463.3 already apply to free lifetime
benefits programs. Regarding disclosures, the Commission is concerned
about including additional disclosure requirements beyond the few areas
included in the Rule, or shifting the burden to consumers to hunt for
and decipher disclosures, given that the auto finance and lease process
is already lengthy, complex, document-heavy, and dense. Accordingly, as
discussed in regard to Sec. 463.3(a), these provisions do not mandate
set disclosures or allow for disclosures to be used as a shield when
there are misrepresentations to consumers; rather, they prohibit
express or implied misrepresentations.\190\
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\190\ It is well-settled that, if one makes a claim that, absent
additional information, would mislead a consumer acting reasonably
under the circumstances about a material fact, such conduct would
violate the law. See FTC Policy Statement on Deception, supra note
42, at 2; Int'l Harvester Co., 104 F.T.C. 949, 1057-58 (1984).
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Several dealership association commenters pointed to State laws
that, they contended, may already prohibit misrepresentations about
add-ons or may otherwise protect consumers. As discussed previously, to
the extent there may be duplication between the provisions the
Commission is finalizing and other laws, there is no evidence that
duplicative misrepresentation prohibitions have harmed consumers or
competition. Moreover, the Final Rule provides additional remedies that
will benefit consumers who encounter conduct that is already illegal
under State or Federal law and will assist law-abiding dealers that
presently lose business to competitors that act unlawfully. Under Sec.
463.9, States may provide more or less specific requirements relating
to motor vehicle dealers so long as those requirements are not
inconsistent with part 463, and in the event of an inconsistency, the
Rule only affects such State law to the extent of the inconsistency.
Based on a review of the comments and the responses discussed, the
Commission adopts paragraph (b) of Sec. 463.3 without substantive
modification. As discussed in SBP III.C.1, the Commission has
determined to modify the introductory paragraph of Sec. 463.3 from the
Commission's original proposal so that each paragraph of Sec. 463.3
prohibits misrepresentations regarding material information. As such,
the Commission is finalizing a version of Sec. 463.3(b) that removes
what would
[[Page 615]]
otherwise be redundant explicit reference to the term ``Material.''
This provision prohibits misrepresentations regarding ``[a]ny costs,
limitation, benefit, or any other aspect of an Add-on Product or
Service.'' Misrepresentations regarding add-ons are likely to affect a
consumer's conduct, including the consumer's decision to purchase the
product or service.
(c) Whether Terms Are, or Transaction Is, for Financing or a Lease
Proposed Sec. 463.3(c) prohibited misrepresentations regarding
whether the terms are, or the transaction is, for financing or a lease.
Upon review and consideration of public comments, the Commission is
finalizing paragraph (c) of Sec. 463.3 without modification from the
Commission's original proposal.
A few industry association and individual commenters posited that
this proposed provision was unnecessary, either because other statutes
or regulations, including TILA and some State regulations, address this
issue, or because vehicle manufacturers already monitor such
misrepresentations. As noted in SBP III.C.1, even given the possibility
of overlap between this provision and existing Federal or State law,
there is no evidence that duplicative misrepresentation prohibitions
have harmed consumers or competition. Further, given that the conduct
covered by this provision is already unlawful under the FTC Act and may
duplicate other laws, or be prohibited by manufacturer rules, it should
not be difficult to follow this provision.\191\
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\191\ The FTC has alleged that misrepresentations that
particular terms are available for financing or for a lease violate
the FTC Act. See Complaint ]] 38-39, Fed. Trade Comm'n v. Tate's
Auto Ctr., No. 3:18-cv-08176-DJH (D. Ariz. July 31, 2018) (alleging
false ads touting attractive terms but concealing ads were for lease
offers only); Complaint ]] 10, 13, TC Dealership, L.P., No. C-4536
(F.T.C. Aug. 13, 2015) (same); Complaint ]] 9-12, Cowboy AG, LLC,
No. C-4639 (F.T.C. Jan. 4, 2018) (same); Complaint ]] 36-38, United
States v. New World Auto Imports, Inc., No. 3:16-cv-02401-K (N.D.
Tex. Aug. 18, 2016) (alleging misrepresentation that terms were for
financing instead of leasing); Complaint ]] 28-37, 44, Fed. Trade
Comm'n v. Universal City Nissan, Inc., No. 2:16-cv-07329 (C.D. Cal.
Sept. 29, 2016) (alleging advertisements with key terms that were
not generally available).
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Accordingly, after careful consideration, the Commission adopts
paragraph (c) of Sec. 463.3 as proposed. Misrepresentations regarding
whether terms are, or a transaction is, for financing or a lease are
likely to affect a consumer's conduct, including by causing consumers
to enter into a monetary transaction for a product they do not want,
or, if the true circumstances are revealed prior to consummation of the
transaction, to waste time traveling to, and potentially spending hours
at, the dealership.
(d) The Availability of Any Rebates or Discounts That Are Factored Into
the Advertised Price but Not Available to All Consumers
Proposed Sec. 463.3(d) prohibited misrepresentations concerning
the availability of any rebates or discounts that are factored into the
advertised price but not available to all consumers. Upon review and
consideration of public comments, the Commission is finalizing
paragraph (d) of Sec. 463.3 without modification from the Commission's
original proposal.
Comments in support of this proposed provision, including those
from a group of State attorneys general and from two United States
Senators, generally contended that the proposed provision would
increase the transparency of the purchase transaction by requiring
dealers to be honest when they advertise the availability of discounts.
An individual commenter suggested that the Commission modify
proposed Sec. 463.3(d) to require dealers to disclose all
representations regarding rebates or discounts in writing, in a clear
and conspicuous manner. The Commission notes this paragraph prohibits
misrepresentations regardless of the medium. Further, this paragraph
focuses on misrepresentations; disclosures regarding price, add-ons,
and total of payments are addressed in the discussion of Sec. 463.4,
as is a discussion of why the Commission has determined not to include
additional disclosure requirements in this Final Rule. The same
commenter also requested that the Final Rule text include examples of
situations where discounts or rebates may not be available. The
Commission describes examples here rather than adding them to the Final
Rule text, as it would be difficult to anticipate all such examples and
the text would become unwieldy. Examples include where an advertised
rebate or discount applies only to the most expensive version of a
particular vehicle make and model or is only available to consumers
with high credit scores.
The Commission received comments from a dealership association and
an individual commenter asking for additional detail about proposed
Sec. 463.3(d), pointing to a State regulation that includes
disclosures and asking which types of rebates the provision covers.
Here, the Commission notes that, as the language in Sec. 463.3(d)
states, this provision applies to ``any rebates and discounts''
advertised by dealers, and is not limited to any particular type of
rebate or discount.\192\ The terms in this provision may be interpreted
according to their plain meaning, as they are commonly used and
understood.\193\ Additionally, the language of this provision, the
NPRM, and Commission enforcement actions provide further context. In
proposing Sec. 463.3(d) to specifically address the availability of
discounts and rebates, the Commission included additional language
(``that are factored into the advertised price but not available to all
consumers'') to describe the manner in which such misrepresentations
often occur: a dealer represents an advertised price which includes a
discount or rebate that is not generally available to consumers.\194\
The NPRM's discussion of proposed Sec. 463.3(d) described both a
scenario in which a dealer advertised a rebate or discount separately,
and one in which rebates or discounts are factored into the advertised
price but the rebates and discounts are not available to a typical
consumer. The conduct in either such scenario would violate this
provision and, depending on the circumstances, may violate other
provisions the Commission is finalizing, such as paragraph (a) of Sec.
463.3. Enforcement actions cited in the NPRM provide further
illustration of deceptive practices involving rebates and
discounts.\195\ The Commission declines
[[Page 616]]
to add additional requirements, such as disclosure requirements, to its
Final Rule, given the already lengthy, complex, and document-heavy
nature of auto transactions.
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\192\ Section 463.3(d) (emphasis added).
\193\ See, e.g., Rebate, Cambridge Dictionary, https://dictionary.cambridge.org/us/dictionary/english/rebate (last visited
Dec. 5, 2023) (defining ``rebate'' as ``an amount of money that is
returned to you, especially by the government, for example when you
have paid too much tax'' or ``an amount of money that is paid back
to you after you have paid too much''); Discount, Cambridge
Dictionary, https://dictionary.cambridge.org/us/dictionary/english/discount (last visited Dec. 5, 2023) (``[A] reduction in the usual
price'').
\194\ See NPRM section IV.C, 87 FR at 42020 (proposed Sec.
463.3(d) prohibited misrepresentations concerning ``[t]he
availability of any rebates or discounts that are factored into the
advertised price but not available to all consumers,'' and the NPRM
explained ``[w]hen dealers advertise rebates and discounts, or offer
prices that factor in such rebates and discounts, but in fact those
rebates and discounts are not available to the typical consumer, but
only a select set of customers, such conduct induces the consumer to
select and transact with the dealer under false pretenses'').
\195\ See, e.g., Complaint ]] 6-13, Jim Burke Auto., Inc., No.
C-4523 (F.T.C. May 4, 2015) (alleging promises of prices and
discounts not generally available to consumers); Complaint ]] 6, 9,
TT of Longwood, Inc., No. C-4531 (F.T.C. July 2, 2015) (alleging
promises of prices and discounts not generally available to
consumers); Complaint ]] 8-9, JS Autoworld, Inc., No. C-4535 (F.T.C.
Aug. 13, 2015) (alleging false ads touting prices but concealing
discounts with material eligibility limitations); Complaint ]] 7-9,
TC Dealership, L.P., No. C-4536 (F.T.C. Aug. 13, 2015) (alleging
false ads touting attractive prices but concealing discounts were
subject to material eligibility limitations and trade-in
requirement); Complaint ]] 4-5, Timonium Chrysler, Inc., No. C-4429
(F.T.C. Jan. 28, 2014) (alleging dealership advertised internet
prices and dealer discounts but failed to disclose consumer would
have to qualify for multiple rebates not generally available to
them); Complaint ]] 4-5, Ganley Ford West, Inc., No. C-4428 (F.T.C.
Jan. 28, 2014) (alleging dealership advertised discounts on vehicle
prices, but failed to disclose discounts were only available on the
most expensive models).
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A number of dealership association commenters contended that the
proposed paragraph would prohibit dealers from displaying beneficial
information to consumers or would prohibit dealers from advertising
rebates and incentives of limited availability. In addition, commenters
including one such dealership association requested that the Commission
adopt an approach the commenter contended is used in some States:
allowing dealers to display, below the advertised sales price, a rebate
or incentive that is not available to all purchasers. Moreover, a
number of industry association and dealership association commenters
argued that the proposed paragraph was more stringent than, and
inconsistent with, the Commission's prior articulation of the deception
standard, further noting the existence of Commission orders that
prohibit defendants from representing that a price, discount, rebate,
or other incentive is available, unless it is in fact available to all
or unless a defendant provides a clear and conspicuous disclosure of
any qualifications or restrictions. Section 463.3(d) prohibits
misrepresentations; it does not prohibit a dealer from advertising, in
a truthful manner, rebates or discounts with limitations. Thus, this
paragraph allows for the representation of limited offers, as long as
such representation is truthful, and any limitations are clear and
conspicuous to consumers. The paragraph is also consistent with the
Commission's prior enforcement order practice in this area, which both
prohibits misrepresentations regarding rebates and prohibits
representations regarding rebates without disclosing any material
qualifications or restrictions.\196\ The paragraph simply contains one
of these prohibitions but not the second.
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\196\ See, e.g., Decision and Order, Timonium Chrysler, Inc.,
No. C-4429 (F.T.C. Jan. 28, 2014).
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A dealership association commenter expressed concern that this
proposed provision would penalize dealers if consumers were to confuse
a rebate or discount offered for one vehicle with a vehicle that does
not contain such an offer. As under current law, dealers are prohibited
under Sec. 463.3(d) from both express and implied misrepresentations.
If, for example, a dealer states or implies that a discount is
available on several types of vehicles when, in truth, the discount is
only available on one such type of vehicle, such conduct would violate
this paragraph. If, alternatively, the dealer does not state or imply
that a discount is available for several types of vehicles, and offers
a discount for one type of vehicle, this conduct would not violate this
paragraph, as long as the dealer makes no other express or implied
misrepresentations.
After careful review of the comments, the Commission is adopting
paragraph (d) of Sec. 463.3 as proposed. When dealers advertise
rebates or discounts in a misleading manner, including when such
rebates or discounts are not available to the typical consumer, or
apply only to the most expensive versions of the make and model,\197\
such conduct induces consumers to select and transact with the dealer
under false pretenses.\198\
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\197\ See Complaint ]] 4-5, Ganley Ford West, Inc., No. C-4428
(F.T.C. Jan. 28, 2014) (alleging false ads touting price discount
but concealing offer was limited to certain high-end models).
\198\ See Complaint ]] 8-9, JS Autoworld, Inc., No. C-4535
(F.T.C. Aug. 13, 2015) (alleging false ads touting prices but
concealing discounts with material eligibility limitations);
Complaint ]] 7-9, TC Dealership, L.P., No. C-4536 (F.T.C. Aug. 13,
2015) (alleging false ads touting attractive prices but concealing
discounts were subject to material eligibility limitations and
trade-in requirement); Complaint ] 14, TXVT Ltd. P'ship, No. C-4508
(F.T.C. Feb. 12, 2015) (alleging false ads failed to disclose that
it would match consumers' income tax refunds only up to $1,000);
Complaint ]] 4-5, Timonium Chrysler, Inc., No. C-4429 (F.T.C. Jan.
28, 2014) (alleging false ads touting pricing and discounts but
concealing material qualifications and restrictions); Complaint ]]
6, 9, TT of Longwood, Inc., No. C-4531 (F.T.C. July 2, 2015)
(alleging promises of prices and discounts not generally available
to consumers); Complaint ]] 6-13, Jim Burke Auto., Inc., No. C-4523
(F.T.C. May 4, 2015) (alleging promises of prices and discounts not
generally available to consumers); see also Auto Buyer Study, supra
note 25, at 8 (``A number of [study] participants were attracted by
promotional offers in ads that they did not qualify for, but did not
realize that they did not qualify until they got to the dealer. Some
did not learn that they did not qualify until they got to the
financing stage of the transaction.'').
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(e) The Availability of Vehicles at an Advertised Price
Proposed Sec. 463.3(e) prohibited misrepresentations regarding the
availability of vehicles at an advertised price. Upon reviewing the
comments pertaining to this provision, the Commission is finalizing
paragraph (e) of Sec. 463.3 largely as proposed, with the minor
modification of capitalizing the defined term ``Vehicles.''
One individual commenter recommended that proposed Sec. 463.3(e)
be expanded to prohibit certain specific misrepresentations about
advertised vehicle availability, including whether any specific vehicle
is already reserved for another consumer; whether the availability is
subject to a requirement that the consumer pay a deposit; and regarding
the amount of time until the vehicle becomes available. Another
individual commenter recommended that the Rule require disclosure of
how long each vehicle has been in the dealer's inventory, to prevent
dealers from misrepresenting that a vehicle recently became available.
Here, the Commission notes that, to the extent any such
misrepresentations regarding the availability of vehicles were made
with express or implied reference to the price of the vehicle, each
would be prohibited by Sec. 463.3(e).\199\ Furthermore, to the extent
such misrepresentations included reference to the subject of another
paragraph of Sec. 463.3, they would be prohibited by the Final Rule.
For example, if an advertisement were to make a claim about the monthly
payment for a specific vehicle, but the vehicle is not actually
available, it would be covered under the bar against misrepresentations
regarding costs or terms in paragraph (a) of Sec. 463.3. In addition,
under the Final Rule, dealers are also subject to disclosure
requirements under Sec. 463.4, including the requirement at Sec.
463.4(a) to disclose the vehicle's offering price in any advertisement
that references a specific vehicle, or any monetary amount or financing
term for any vehicle. And if a dealer discloses the offering price for
a vehicle, but the vehicle is not available to consumers, Sec.
463.3(e) applies. Beyond this, the Commission will continue to monitor
whether other misrepresentations regarding availability are being made
without reference to price, or to the subject of another paragraph of
Sec. 463.3, to determine whether additional action is warranted.
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\199\ The commenter also expressed concern about
misrepresentations regarding the refundability of deposits and
recommended that the Commission include language in Sec. 463.3(e)
addressing this issue. Because representations and practices
regarding the refundability of deposits are related to the costs or
terms of purchasing, financing, or leasing a vehicle, this issue is
covered by Sec. 463.3(a). Thus, the Commission declines to adopt
the commenter's recommendation.
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The Commission received comments from a number of dealership
associations and individuals requesting that the Final Rule limit
dealers' responsibility for unanticipated delays, or otherwise
expressing concern about
[[Page 617]]
how dealers would be able to comply with this proposed provision. One
industry association commenter stated that unanticipated delays could
result from factors beyond the reasonable control of the dealer, such
as shipping or production issues. Other dealership association
commenters contended that, because of supply chain disruptions,
adjustments to inventory and other information may not always be
displayed on a retailer's website instantaneously.
As is the case under current law, under this provision, dealers may
not make claims about the availability of vehicles at an advertised
price without a reasonable basis at the time the claims are made.\200\
Objective claims about products or services represent, explicitly or by
implication, that an advertiser has a reasonable basis to support those
claims.\201\ Consumers would be less likely to be affected by claims
for products and services if they knew the advertiser did not have a
reasonable basis for believing them to be true.\202\ If a dealer has a
reasonable basis to make a claim about the availability of vehicles at
the time the claim is made, the dealer would not be in violation of the
provision if a vehicle later becomes unavailable because of
circumstances that a dealer could not reasonably anticipate or control.
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\200\ FTC Policy Statement on Deception, supra note 42, at 1 n.5
(``Advertising that lacks a reasonable basis is also deceptive.'')
(citing Firestone Tire & Rubber Co., 81 F.T.C. 398, 451-52 (1972)
(additional citations omitted)); see Fed. Trade Comm'n v. US Sales
Corp., 785 F. Supp. 737, 748 (N.D. Ill. 1992) (``Apart from
challenging the truthfulness of an advertiser's representations, the
FTC may challenge the representation as unsubstantiated if the
advertiser lacked a reasonable basis for its claims.''); see also
Fed. Trade Comm'n v. Am. Screening, LLC, 4:20-CV-01021-RLW (E.D. Mo.
July 14, 2022) (granting summary judgment for the FTC upon finding
that American Screening's claim that its COVID-19 protective
equipment was available and would ship quickly was false and lacked
a reasonable basis); Fed. Trade Comm'n v. John Beck Amazing Profits,
LLC, 865 F. Supp. 2d 1052 (C.D. Cal. 2012) (finding that the
defendants' representations were unsubstantiated in violation of
section 5, because Defendants conceded that during the time period
in which their infomercial was aired they did not have evidence
supporting their representations that consumers who purchased their
product would be able to earn money easily and because survey
results revealed that less than one percent of consumers actually
generated any revenue or profits); Fed. Trade Comm'n v. Elegant
Sols., Inc., 8:19-cv-01333-JVS-KES (C.D. Cal., July 6, 2020)
(finding that defendants made false or unsubstantiated
representations, including representing that consumers would be
enrolled in a repayment plan that may be forgiven after a specific
number of years even though there were no Federal loan forgiveness
programs with those repayment terms).
\201\ Fed. Trade Comm'n, ``FTC Policy Statement Regarding
Advertising Substantiation,'' (appended to In re Thompson Med. Co.,
Inc., 104 F.T.C. 648, 839 (1984)); Fed. Trade Comm'n v. John Beck
Amazing Profits, LLC, 865 F. Supp. 2d 1052, 1067 (C.D. Cal. 2012).
\202\ Fed. Trade Comm'n, ``FTC Policy Statement Regarding
Advertising Substantiation,'' (appended to In re Thompson Med. Co.,
Inc., 104 F.T.C. 648, 839 (1984)); see Fed. Trade Comm'n v. Am.
Screening, LLC, 4:20-CV-01021-RLW (E.D. Mo., July 14, 2022)
(granting FTC's motion for summary judgment and finding that
Defendants' representations that it had protective equipment in
stock and would ship it to consumers within seven to ten business
days were material to consumers seeking such equipment during a
global pandemic).
---------------------------------------------------------------------------
A few dealership association commenters claimed that promulgation
of Sec. 463.3(e) would cause regulatory confusion because State
guidelines or rules already address issues about the availability of
vehicles, including, for example, by requiring dealers to note the
location of the vehicle.\203\ As described in SBP III.C.1, States may
provide more or less specific requirements relating to motor vehicle
dealers so long as those requirements are not inconsistent with part
463, and in the event of an inconsistency, the Rule only affects such
State law to the extent of the inconsistency. To the extent there are
actual inconsistencies, Sec. 463.9 is clear that this Rule's
prohibition against misrepresentations controls.
---------------------------------------------------------------------------
\203\ This provision would not prohibit dealers from advertising
a vehicle with limitations on availability in a truthful manner,
such that any limitations are clear and conspicuous to the consumer.
For example, dealers should not affirmatively represent that a
vehicle is available on its lot without a reasonable basis that the
vehicle is on the lot or without clearly and conspicuously noting
that the vehicle will be made available after transfer from an
affiliate's lot.
---------------------------------------------------------------------------
After careful consideration of the comments, the Commission is
adopting paragraph (e) of Sec. 463.3 largely as proposed, with the
minor modification of capitalizing the defined term ``Vehicles.'' This
paragraph prohibits dealers from promoting low prices for specific
vehicles, but then later misrepresenting, among other things, that the
advertised vehicle is no longer available or no longer available at the
advertised price. Such misrepresentations are likely to induce
consumers to waste their time traveling to a particular dealership to
pursue a specific offer on a specific vehicle when the offer or vehicle
itself may not actually be available.
(f) Whether Any Consumer Has Been or Will Be Preapproved or Guaranteed
for Any Product, Service, or Term
Proposed Sec. 463.3(f) prohibited misrepresentations regarding
whether a consumer has been or will be preapproved or guaranteed for
any product, service, or term. Upon reviewing public comments, the
Commission is finalizing paragraph (f) of Sec. 463.3 without
modification from the Commission's original proposal.
One dealership association commenter recommended that compliance
with a State law that prohibits certain misleading statements, such as
``we finance anyone'' and ``no credit rejected'' and similar
statements, should function as a safe harbor against liability under
this proposed paragraph.\204\ Yet, while compliance with the State law
cited may require dealers to refrain from using certain frequently
misleading statements, as described by the commenter, that law does not
generally prohibit all misrepresentations regarding material
information about consumer preapprovals or guarantees; even if it did,
there is no evidence that duplicative laws prohibiting
misrepresentations harm consumers or competition, and no evidence of
benefits to consumers or competition in allowing one such law to act as
a safe harbor against another such law. Further, given that current law
already prohibits deceptive conduct generally, dealers should be able
to comply with the Commission's Rule, which provides further
protections for consumers and law-abiding dealers. Thus, the Commission
declines to adopt the recommended safe harbor.
---------------------------------------------------------------------------
\204\ Comment of Tex. Auto. Dealers Ass'n, Doc. No. FTC-2022-
0046-8102 at 21; see 43 Tex. Admin. Code 215.247(2) (2023).
---------------------------------------------------------------------------
Therefore, after careful consideration, the Commission is
finalizing paragraph (f) of Sec. 463.3. Misrepresentations regarding
preapproval or guarantees for a product, service, or term--as with
misrepresentations about availability and price, described previously--
are likely to impact consumers' conduct with regard to motor vehicle
sales, financing, or leasing transactions, including by inducing
consumers to waste time pursuing illusory offers.
(g) Any Information on or About a Consumer's Application for Financing
Proposed Sec. 463.3(g) prohibited dealers from misrepresenting any
material information on or about a consumer's application for
financing. After carefully reviewing public comments, the Commission is
adopting paragraph (g) of Sec. 463.3 without substantive modification.
As with Sec. 463.3(b), the only adopted modification is the deletion
of the term ``Material,'' which nonetheless applies to the operation of
each of the misrepresentation paragraphs in Sec. 463.3, including
paragraph (g), through the addition of the term in the introductory
paragraph of Sec. 463.3.
[[Page 618]]
The Commission received a number of comments regarding this
provision, including comments that expressed support for prohibiting
misrepresentations about a consumer's application for financing.
A credit union commenter requested that, in addition to this
proposal, the Commission consider implementing a requirement to clearly
and conspicuously disclose any potential financing limitations prior to
vehicle purchase negotiations, contending that such a measure would
better enable consumers to choose a motor vehicle dealer and financing
option that best serves their needs. To the extent a dealer
misrepresents a consumer's financing options or limitations, including
prior to or during the process of selling, leasing, or arranging
financing for a vehicle, such conduct is prohibited by this provision,
and depending on the circumstances, may also violate other provisions
of the Rule. For example, as discussed in this paragraph-by-paragraph
analysis, Sec. 463.3(a) of the Final Rule prohibits misrepresentations
regarding the cost or terms of financing a vehicle; this prohibition
includes misrepresentations about available vehicle financing.
Furthermore, this provision pertains to misrepresentations; comments
pertaining to proposed disclosures regarding price, add-ons, and total
of payments are examined in the Commission's discussion of Sec. 463.4,
wherein the Commission explains its determination not to finalize any
additional disclosure requirements not included in its NPRM.
An individual commenter, while expressing support for regulation of
such misrepresentations, also noted concern for the ``grave
consequences of falsifying information on a customer's application for
financing,'' and urged the Commission to consult with other law
enforcement agencies to further address such problems.\205\ The
Commission appreciates the concern and the seriousness of falsifying
information on a consumer's application for financing, and coordinates
regularly with other law enforcement agencies regarding areas of shared
jurisdiction and responsibility, including motor vehicle sales and
financing. The Commission will continue to monitor financing
application falsification issues to determine whether any additional
action, beyond Sec. 463.3(g), is needed.
---------------------------------------------------------------------------
\205\ Individual commenter, Doc. No. FTC-2022-0046-7445 at 12.
---------------------------------------------------------------------------
A number of dealership association commenters contended that the
proposed language was vague and did not adequately explain the type of
behavior this paragraph would prohibit. Relatedly, some dealership
association commenters contended that this provision lacked specific
guidance about what a motor vehicle dealer must or must not disclose.
This provision, however, utilizes terms which are commonly used and
understood, and which may be interpreted according to their plain
meaning. Read together with the introductory paragraph of Sec. 463.3,
Sec. 463.3(g) prohibits misrepresentation . . . regarding material
information about ``[a]ny information on . . . a consumer's application
for financing.'' By its terms, this prohibition includes any
misrepresentations of material information on a financing application.
For example, dealers would make misrepresentations in violation of this
provision by including, on a consumer's application that is submitted
to a third-party financing institution, consumer income information
that is different from what the consumers have stated to the dealer
that the consumers actually earn, or by representing a different down
payment amount than the amount the consumer has actually provided, or
by misrepresenting that the vehicle is being sold or leased with
certain add-on products.\206\ Moreover, as described in detail with
regard to other paragraphs of Sec. 463.3, this provision does not
require any particular affirmative disclosures, instead obligating
dealers to refrain from certain misrepresentations.
---------------------------------------------------------------------------
\206\ See Complaint ]] 18-36, Fed. Trade Comm'n v. Tate's Auto
Ctr. of Winslow, Inc., No. 3:18-cv-08176-DJH (D. Ariz. July 31,
2018); Consumer Fin. Prot. Bureau, ``Supervisory Highlights: Issue
30, Summer 2023'' 5 (July 2023), https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-30_2023-07.pdf
(finding that dealers ``fraudulently included'' in financing
documents add-ons, such as undercoating, that were not actually
present on the vehicle, creating ``improperly inflated loan
amounts'' that caused consumers to pay improper additional
interest).
---------------------------------------------------------------------------
One dealership association commenter questioned whether a dealer
would be held responsible for a customer's false statement about his or
her income. If a consumer falsely states they have a higher income,
that consumer would not be misled into thinking he has a higher income.
If, however, a consumer's application falsely states a higher income
because a dealer has altered the information, that consumer would be
misled into thinking that the application they are signing accurately
reflects the information the consumer provided, and Sec. 463.3(g)
would be violated. Additionally, if a dealer advises a consumer to
include other sources of payment as income or advises the consumer to
list a higher income in other ways, such conduct may mislead the
consumer into thinking that it is proper to calculate income for auto
retail installment contracts in a particular way, and there may be a
violation of Sec. 463.3(g).
After careful review and consideration of the comments, the
Commission adopts paragraph (g) of Sec. 463.3 without substantive
modification, prohibiting misrepresentations regarding material
information about any information on or about a consumer's application
for financing. It is likely to affect a consumer's choices if the
consumer knows a dealer is misrepresenting the consumer's income, or
other aspects of financing applications. If, for example, a consumer
knew the truth--that the dealer is inflating the consumer's income such
that the consumer would not otherwise obtain financing for a particular
vehicle--the consumer might opt to finance a less expensive car, rather
than risking repossession. Material misrepresentations on consumers'
financing paperwork are also likely to cause consumers substantial
injury, including by causing them to take on debt beyond that which the
financing company would have approved, and increasing the risk of
repossession and harmful consequences to consumers' credit. Consumers
cannot avoid the injury from dealers misrepresenting the information
consumers provide them, and this practice provides no countervailing
benefits to consumers or competition.
(h) When the Transaction Is Final or Binding on All Parties
(i) Keeping Cash Down Payments or Trade-In Vehicles, Charging Fees, or
Initiating Legal Process or Any Action If a Transaction Is Not
Finalized or If the Consumer Does Not Wish To Engage in a Transaction
Proposed Sec. 463.3(h) prohibited dealers from misrepresenting
when the transaction is final or binding on all parties. Proposed Sec.
463.3(i) prohibited dealers from making misrepresentations about
keeping cash down payments or trade-in vehicles, charging fees, or
initiating legal process or any action if a transaction is not
finalized or if the consumer does not wish to engage in a transaction.
After careful review and consideration of the comments, the Commission
is finalizing paragraphs (h) and (i) of Sec. 463.3 with the minor
modification of capitalizing the defined term ``Vehicles'' in Sec.
463.3(i) to conform with the revised definition at Sec. 463.2(e).
Some commenters, including a group of State attorneys general and
consumer
[[Page 619]]
advocacy organizations, generally supported prohibiting
misrepresentations about when the transaction is final or binding on
all parties but urged the Commission to include additional requirements
or prohibitions. For instance, several commenters, including consumer
advocacy organizations and individual commenters, requested that the
Commission add to its Final Rule a provision requiring dealers to
include, in every consumer credit contract, a finality clause stating
that the transaction is final as soon as the consumer credit contract
is signed, or alternatively, a provision requiring dealers to include
in retail installment contracts a clause prohibiting financing-
contingent sales. Commenters including a group of State attorneys
general recommended that the Commission require any dealer that does
not ultimately secure financing under previously presented terms to
unwind the transaction, return any down payment in full, and return any
traded-in vehicle. Such commenters also recommended that the Commission
implement restrictions, such as requiring dealers to be reasonably
certain that a consumer will qualify for quoted financing terms;
requiring a written disclosure that the consumer must sign advising the
consumer that financing is not final; or setting a short deadline by
which the dealer must either arrange financing or cancel the
transaction. Other commenters, including a State consumer protection
agency, also supported requiring the contractual contingency to be
disclosed conspicuously and limiting the contingency to a short period
of time. A number of these commenters, including consumer advocacy
organizations, provided examples of how spot delivery transactions can
harm consumers.
The provision's prohibitions and requirements address many of these
commenters' concerns regarding spot delivery and yo-yo financing. Spot
delivery and yo-yo financing refer to situations where a dealer
delivers a vehicle to a consumer on the spot before the financing or
leasing has been finalized, leads a consumer to believe that the
transaction is final, and then later directs the consumer to return the
vehicle and engages in certain tactics, such as failing to return the
consumer's trade-in vehicle while refusing to honor the finance or
lease transaction, or pressuring the consumer to enter into a new
transaction.\207\ Paragraphs (h) and (i) of Sec. 463.3 prohibit
misrepresentations regarding the finality of the transaction and return
of down payments and trade-in vehicles. Under these provisions, if a
consumer is under the impression that the transaction is final, and the
dealer subsequently causes the consumer to return the vehicle to the
lot because the transaction was not final, or the dealer takes or
threatens to take possession of the vehicle but refuses to return the
down payment or trade-in vehicle, the dealer has violated either Sec.
463.3(h), by misrepresenting the finality of the transaction, or Sec.
463.3(i), by falsely representing, expressly or by implication, that
the dealer has a legal basis to keep the down payment or trade-in
vehicle in the event the transaction is not finalized, or both.\208\
---------------------------------------------------------------------------
\207\ Complaint ]] 67-72, Fed. Trade Comm'n v. Universal City
Nissan, Inc., No. 2:16-cv-07329 (C.D. Cal. Sept. 29, 2016); State ex
rel. Dewine v. Dads Car Lot Inc., No. 13-cv-4036, 2014 BL 468717, at
* 1 (Ohio Com. Pl. June 6, 2014) (finding defendant violated State
consumer sales practices act by including ``spot delivery'' document
that allowed defendant to keep ``all funds on deposit''); Att'ys
Gen. of 31 States & DC, Comment Letter on Public Roundtables:
Protecting Consumers in the Sale and Leasing of Motor Vehicles,
Project No. P104811, Submission No. 558507-00112 at 4 (Apr. 13,
2012), https://www.ftc.gov/sites/default/files/documents/public_comments/public-roundtables-protecting-consumers-sale-and-leasing-motor-vehicles-project-no.p104811-00112/00112-82927.pdf
(recommending, among other rules aimed at deterring yo-yo sales, FTC
adopt rules that would require dealers to disclose the consumer's
``right to walk away'' if financing is rejected and, in the context
of spot delivery, to disclose financing has not been finalized as
well as the responsibilities and potential consequences for
consumers); Legal Aid Just. Ctr., Comment Letter on Public
Roundtables: Protecting Consumers in the Sale and Leasing of Motor
Vehicles, Project No. P104811, Submission No. 558507-00066 at 26, 29
(Jan. 30, 2012), https://downloads.regulations.gov/FTC-2022-0036-0062/attachment_2.pdf (explaining that in a yo-yo sale the dealer
misrepresents to the consumer that credit has been finalized, when
in fact the dealer treats the sale as contingent, retaining the
ability to call off or seize the vehicle later; a ``yo[hyphen]yo
case can result in substantial distress to the person who has been
tricked''; and ``[t]he harm to the marketplace occurs when the
consumer believes a credit sale has been completed and stops
shopping for a car on credit''); Nat'l Consumer L. Ctr., ``In Harm's
Way--At Home: Consumer Scams and the Direct Targeting of America's
Military and Veterans'' 41 (May 2003), https://filearchive.nclc.org/special_projects/military/report-scams-facing-military.pdf (listing
``Spot Delivery'' or ``yo-yo sales'' among scams commonly aimed at
military members).
\208\ See Orkin Exterminating Co., Inc., 108 F.T.C. 263 (1986),
aff'd sub nom. Orkin Exterminating Co. v. F.T.C., 849 F.2d 1354
(11th Cir. 1988) (finding that defendant's practice of unilaterally
raising consumers' annual renewal fees where the consumers'
contracts contained a ``lifetime guarantee'' as to the amount of the
fee was unfair under section 5 of the FTC Act); see also First
Amended Complaint ]] 59-61, Fed. Trade Comm'n v. BF Labs, Inc., No.
4:14-cv-00815 (W.D. Mo. May 14, 2015) (alleging as unfair
defendants' practice of unilaterally failing to provide paid-for
services while refusing to refund consumers' upfront payments).
---------------------------------------------------------------------------
Regarding the recommendation to include a requirement that dealers
be reasonably certain that consumers will qualify for quoted financing
terms, the Rule the Commission is finalizing already contains several
provisions in addition to Sec. 463.3(h) and (i) that address this
conduct. For example, the Rule prohibits misrepresentations regarding
material information about the costs or terms of financing (Sec.
463.3(a)), or about whether any consumer has been or will be
preapproved or guaranteed for any product, service, or term (Sec.
463.3(f)). As explained in the paragraph-by-paragraph analysis of Sec.
463.3(e) in SBP III.C.2(e), existing law requires dealers to have a
reasonable basis for their claims. Objective claims about products or
services represent, explicitly or by implication, that an advertiser
has a reasonable basis to support those claims.\209\ Thus, to avoid
misrepresentation, dealers must reasonably believe that consumers will
qualify for quoted financing terms, or that the transaction will be
finalized on the terms presented, in order to represent such terms to
consumers.
---------------------------------------------------------------------------
\209\ Fed. Trade Comm'n, ``FTC Policy Statement Regarding
Advertising Substantiation,'' (appended to In re Thompson Med. Co.,
Inc., 104 F.T.C. 648, 839 (1984)); Fed. Trade Comm'n v. John Beck
Amazing Profits, LLC, 865 F. Supp. 2d 1052, 1067 (C.D. Cal. 2012).
---------------------------------------------------------------------------
Regarding additional provisions that would require certain
contractual measures, such as finality clauses or prohibitions against
financing-contingent sales, the Commission is concerned that requiring
specific contract provisions would obligate dealers that are not
engaged in spot delivery to change their contracts even though their
customers do not experience harm stemming from spot delivery practices.
Before requiring any such changes, the Commission has determined to
continue to monitor the market to evaluate whether additional steps are
warranted.\210\
---------------------------------------------------------------------------
\210\ On May 31, 2023, the Commission received a petition for
rulemaking under 16 CFR 1.31 regarding yo-yo financing. Petition for
Rulemaking Concerning the Finality of a Car Purchase (Yo-Yo
Financing), Doc. No. FTC-2023-0035-0002. The Commission will address
this petition separately.
---------------------------------------------------------------------------
Some commenters, including dealership associations, requested that
the Commission clarify how dealers could document compliance with these
proposed provisions, such as how dealers could establish that
appropriate disclosures had been made. One such commenter, for
instance, asked whether written agreements required by State law were
sufficient to satisfy the requirements of these provisions. As noted
elsewhere in this paragraph-by-paragraph analysis of Sec. 463.3 in SBP
III.C.2, these provisions do not require any particular affirmative
disclosures, instead obligating dealers to refrain from
[[Page 620]]
certain misrepresentations. Section 463.6 discusses records dealers
need to keep to demonstrate compliance with the requirements of the
Final Rule, and enumerates five such categories of records, including
copies of finance and lease documents signed by the consumer, whether
or not final approval is received for a financing or lease transaction.
The Commission declines to include in this Final Rule additional
requirements regarding any specific documents dealers must keep in
order to demonstrate compliance with Sec. 463.3(h) or (i).
One individual commenter requested that the Commission include in
the CFR the examples of harmful conduct related to yo-yo financing that
it published in the NPRM.\211\ The Commission has determined that each
such example describes conduct that violates this rulemaking. Rather
than adding them to the text of the Final Rule, the Commission repeats
those examples in this paragraph-by-paragraph analysis of Sec.
463.3(h) and (i), in order to avoid voluminous modifications to the
Rule text itself.
---------------------------------------------------------------------------
\211\ See NPRM at 42020-21. Individual commenter, Doc. No. FTC-
2022-0046-9469 at 5-6.
---------------------------------------------------------------------------
Commenters including a dealership association asserted that the
issue of when a contract is final or binding is one of State law, and
thus it is within the purview of each State to determine when a
contract is final or binding, arguing that Sec. 463.3(h) therefore
should be removed from the Final Rule. Another such commenter contended
that even courts experienced in contract interpretation have difficulty
determining when an agreement is final, and that dealers therefore are
likely to transgress this prohibition in proposed Sec. 463.5(h)
accidentally. This provision, however, requires that a dealer's express
or implied representations regarding material information be truthful,
which is consistent with current law and with the Commission's
authority to prohibit unfair or deceptive acts or practices. Moreover,
under Sec. 463.9, this Rule does not affect State law pertaining to
contracts so long as State law is not inconsistent with part 463, and
in the event of an inconsistency, the Rule only affects such State law
to the extent of the inconsistency.\212\ In the case of Sec. 463.3(h),
for example, an inconsistency would include State law allowing material
misrepresentations regarding whether transactions are final; the
Commission is unaware of any such law. Further, to the extent dealers
are concerned they may transgress this prohibition because courts have
had difficulty interpreting their contracts, then, as they should be
doing under current law prohibiting misrepresentations, dealers should
carefully consider the net impression they are conveying with the
language they use, both in their contracts and in the context in which
these contracts are presented, as such language may confuse consumers
as well.
---------------------------------------------------------------------------
\212\ One commenter questioned whether this section would
prohibit a dealer from retaining a down payment on a special order
vehicle where the customer refuses to take delivery of the vehicle.
Comment of Minn. Auto. Dealers Ass'n, Doc. No. FTC-2022-0046-8670 at
10. Sections 463.3(h) and (i) prevent misrepresentations, including
misrepresenting that a dealer can keep a down payment when a dealer
does not have a legal basis to do so. If the dealer does not make a
misrepresentation, this provision would not be violated.
---------------------------------------------------------------------------
Several dealership association commenters claimed that State law
already prohibits misrepresentations about spot delivery transactions
or otherwise protects consumers in such transactions. One such
commenter asserted that Massachusetts law prohibits spot deliveries,
and cautioned the FTC not to create uncertainty with its Rule such that
one might think spot deliveries are allowed in Massachusetts. Another
such commenter asked whether this provision applies in addition to
State law or instead of it. Other commenters, including consumer
advocacy organizations, asserted that less than half of the States have
statutes, regulations, or administrative pronouncements about yo-yo
transactions; that there are significant variations in such law from
State to State; and that State regulation often does not provide
sufficient protections for consumers. As described throughout the
paragraph-by-paragraph analysis of Sec. 463.3 in SBP III.C.2, State
law may provide more or less specific requirements than those under the
Final Rule as long as those requirements are not inconsistent with part
463, and in the event of an inconsistency, the Rule only affects such
State law to the extent of the inconsistency. As for any States that
prohibit spot delivery, such prohibitions are consistent with the
provisions of this Rule. Finally, as to whether additional provisions
are warranted to protect consumers, the Commission will continue to
monitor the market to make this determination.
Commenters including an industry association contended that the
Commission should not take action to disrupt spot delivery transactions
to consumers, stating that there may be reasons to keep down payments
even when consumers are not permitted to keep the vehicle, or claiming
that although abusive spot deliveries have occurred, they are not a
systemic problem in the marketplace. The Commission, however, need not
show that abusive spot deliveries are systemic in order to finalize
these provisions barring misrepresentations.\213\ Further, these
misrepresentation prohibitions do not alter requirements under current
law prohibiting dealers from making express or implied
misrepresentations.
---------------------------------------------------------------------------
\213\ See SBP I.A, n.3.
---------------------------------------------------------------------------
After careful consideration of the recommendations and record, the
Commission has determined to finalize paragraphs (h) and (i) of Sec.
463.3 largely as proposed, with the minor modification of capitalizing
the defined term ``Vehicles'' in Sec. 463.3(i). The Commission notes,
however, that it has significant concerns about consumer harm due to
yo-yo financing and will continue to examine these issues even as it
finalizes these prohibitions against certain misrepresentations.
Misrepresentations about when the transaction is final or binding on
all parties, as well as about keeping down payments or trade-in
vehicles, charging fees, or initiating legal process or any action, are
likely to affect consumer conduct, including regarding whether to enter
into a new transaction with less beneficial terms for the consumer, and
are likely to mislead consumers.
(i) Keeping Cash Down Payments or Trade-In Vehicles, Charging Fees, or
Initiating Legal Process or Any Action If a Transaction Is Not
Finalized or If the Consumer Does Not Wish To Engage in a Transaction
Proposed Sec. 463.3(i) is discussed with Sec. 463.3(h).
(j) Whether or When a Dealer Will Pay Off Some or All of the Financing
or Lease on a Consumer's Trade-in Vehicle
Proposed Sec. 463.3(j) prohibited misrepresentations regarding
whether or when a motor vehicle dealer will pay off some or all of the
financing or lease on a consumer's trade-in vehicle. The Commission is
finalizing paragraph (j) of Sec. 463.3 largely as proposed, with minor
modifications--substituting ``Dealer'' for ``Motor Vehicle Dealer'' and
capitalizing ``Vehicle''--to conform with the revised definitions of ``
`Covered Motor Vehicle' or `Vehicle' '' and `` `Covered Motor Vehicle
Dealer' or `Dealer' '' at Sec. 463.2(e) and (f).
The Commission received several comments in response to this
paragraph, including from individual commenters who expressed support
for prohibiting dealers from misrepresenting whether they would pay off
outstanding balances
[[Page 621]]
remaining on a trade-in vehicle.\214\ Other commenters, including an
industry association and dealership associations, requested that the
Commission limit dealer responsibility under this provision for
unanticipated delays stemming from circumstances beyond a dealer's
reasonable control, arguing that proposed Sec. 463.3(j) made no
exception for unanticipated delays such as a previous financing source
declining to accept a payoff or refusing to release the vehicle title
after receiving a payoff.\215\ The Commission notes that, as is the
case under current law, under this provision, dealers are not permitted
to make claims about whether or when they will pay off some or all of
the financing or lease on a consumer's trade-in vehicle if the truth of
those claims depends on circumstances outside their control and the
dealer does not possess a reasonable basis for such claims.\216\
---------------------------------------------------------------------------
\214\ See, e.g., Individual commenter, Doc. No. FTC-2022-0046-
3770 (``I agree that these changes need to take place. No one should
have to pay what was owed on a trade in after the dealership said
they would pay off the trade in . . . .'').
\215\ For example, commenters stated that occasionally the
previous finance or lease source will not provide a timely payoff
for a traded vehicle or will refuse to accept a payoff claiming more
money is due; or a previous finance or lease source may accept a
payoff, but will refuse to credit its former customer's account and
release the title promptly. In addition, an industry association
commenter requested that the Commission narrow this prohibition to
specifically address the fact patterns giving rise to it that the
Commission sets forth in the NPRM, and, in so doing recognize that
it is in a dealer's business interest to pay off the existing loan
quickly so that the vehicle can be more easily and quickly retailed.
\216\ See paragraph-by-paragraph analysis of Sec. 463.3(e) in
SBP III.C.2(e) (discussing deception and reasonable basis).
---------------------------------------------------------------------------
An individual commenter contended that requiring additional
disclosures about this provision would confuse the consumer.\217\ This
provision, however, does not necessitate any affirmative disclosures
from dealers. Instead, it prohibits dealers from misleading consumers
about whether or when they will pay off some or all of the financing or
lease on a consumer's trade-in vehicle.
---------------------------------------------------------------------------
\217\ See Individual commenter, Doc. No. FTC-2022-0046-7905 at
1.
---------------------------------------------------------------------------
One State consumer protection agency commenter requested that the
Commission require, in situations where a buyer's credit information or
trade-in vehicle are evidently insufficient to support a deal, that the
dealer require additional down payment or other security, or
affirmatively disclose that the dealer is not responsible for paying
off liens.\218\ Without further information on the costs and benefits
of such a proposal, the Commission declines to add such requirements to
this Final Rule. The Commission notes, however, that the Rule prohibits
dealers from misleading consumers regarding when trade-in vehicles have
negative equity and from otherwise failing to obtain the consumer's
express, informed consent prior to charging the consumer for any item,
including any amounts associated with trading in a vehicle. The
Commission will continue to monitor this area to determine whether any
such additional measures are warranted to protect consumers or
competition.
---------------------------------------------------------------------------
\218\ See Comment of State of S.C. Dep't of Consumer Affs., Doc.
No. FTC-2022-0046-7891 at 6.
---------------------------------------------------------------------------
The Commission also received a number of comments from dealership
associations arguing that existing State and Federal laws address
dealers' obligations in connection with informing consumers how much
each consumer is responsible for financing. The Commission notes that
commenters presented no actual conflicts between this provision and
other laws, and to the extent duplicative laws prohibit
misrepresentations in this area, the Commission has not observed
harmful consequences to consumers or competition. Further, as noted
elsewhere in the section-by-section analysis, State laws may provide
more or less specific requirements as long as those requirements are
not inconsistent with part 463, under Sec. 463.9, and in the event of
an inconsistency, the Rule only affects such State law to the extent of
the inconsistency.
After carefully considering the comments, the Commission is
finalizing this provision with the two minor modifications to conform
with the defined terms `` `Covered Motor Vehicle' or `Vehicle' '' and
`` `Covered Motor Vehicle Dealer' or `Dealer.' '' This provision
prohibits dealers from making misrepresentations about paying off the
financing or lease on a trade-in vehicle. Such conduct includes
misrepresenting to consumers who trade in a vehicle that the dealer
will pay off any outstanding balance owed on the trade-in vehicle when
the consumer purchases a vehicle from the dealer. For example, when
such a dealer takes a trade-in, if the dealer remits payment to the
entity to whom the trade-in payment is owed, as consumers would expect,
but also adds this payment to the amount the consumer owes on the
vehicle the consumer is purchasing from the dealer, the consumer is the
party that has ultimately paid off the trade-in amount, contrary to the
impression made by the dealer. This provision also prohibits dealers
that are going out of business from representing expressly or by
implication that they will pay off liens if they do not, in fact, pay
off the liens, or do not pay them off in a timely manner. Such
misrepresentations are likely to affect a consumer's choice to visit a
particular dealership or select a particular vehicle.
(k) Whether Consumer Reviews or Ratings Are Unbiased, Independent, or
Ordinary Consumer Reviews or Ratings of the Dealer or the Dealer's
Products or Services
Proposed Sec. 463.3(k) prohibited misrepresentations about whether
``consumer reviews or ratings are unbiased, independent, or ordinary
consumer reviews or ratings of the Dealer or its products or
services.'' Upon careful review and consideration of the comments, the
Commission is finalizing paragraph (k) of Sec. 463.3 with one
technical clarification to replace ``its'' with ``the Dealer's.'' The
Rule's requirements apply to all individuals and entities that meet the
definition of ``Dealer.''
An individual commenter recommended that the Commission modify this
provision to include language explicitly prohibiting dealers from
creating, editorializing, modifying, or removing consumer reviews.\219\
Here, the Commission notes that if such acts or practices would result
in reviews that are not independent or do not otherwise reflect
ordinary consumer experience, they already would violate this
provision. For example, if a dealer created a positive review, edited
or modified negative reviews to make them sound positive, or removed
negative reviews while keeping positive reviews, such practices would
violate this provision.
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\219\ Individual commenter, Doc. No. FTC-2022-0046-2364 (``Many
favorable ([i.e.] 5 star) Dealer reviews I have read appear suspect
with generic, similar wording (or no wording at all) seemingly
provided to offset lower Dealer ([i.e.] 1 star) ratings. I recommend
that for [Sec. 463.3(k)] the following (or similar) be appended:
Additionally, consumer reviews may not be created, editorialized,
modified or removed by any Dealer or third party acting at the
direction of any Dealer. Consumer reviews should be modifiable or
removable by the originating author.'').
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A few individual commenters recommended that the Rule include
additional provisions related to consumer reviews, including a
requirement for the creation of an online database for consumer reviews
and complaints about dealerships, and a requirement for dealers to post
consumer reviews online and in the dealership location. The Commission
notes that while some reviews are available online, additional
information could assist consumers, and the Commission will consider
whether such
[[Page 622]]
measures are needed as it continues to monitor the marketplace,
including after the Rule goes into effect.
Several dealership associations asked what type or format of
reviews or ratings would be covered by this proposed provision. As
proposed, Sec. 463.3(k) applied to all reviews or ratings, in any
format or wherever displayed, that are likely to mislead consumers as
to whether such reviews or ratings are unbiased, independent, or
ordinary consumer reviews or ratings. Relatedly, industry and
dealership associations contended that the language used in the
proposed provision was vague and confusing, and requested that the
Commission further define the phrase, ``unbiased, independent, or
ordinary consumer reviews or ratings.'' To begin, the operative terms
in this phrase are commonly used and understood and may be interpreted
according to their plain meaning without further definition. Moreover,
the Commission has, for decades, provided information and guidance on
avoiding deception through the use of endorsements, testimonials, and
online reviews.\220\ Enforcement actions by the Commission have
documented examples of the types of misrepresentations that would be
covered by this provision.\221\ For example, dealerships and their
employees have posted positive, five-star online reviews that falsely
purport to be objective or independent.\222\ As these sources make
clear, a person who is unbiased, independent, and an ordinary consumer
would be someone who was not paid or given something of value to write
a review and who has no employment or familial relationship or other
unexpected material connection to the dealership.\223\
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\220\ See, e.g., Fed. Trade Comm'n, Notice of Proposed
Rulemaking, Trade Regulation Rule on the Use of Consumer Reviews and
Testimonials, 88 FR 49364 (July 31, 2023) (to be codified at 16 CFR
465), https://www.govinfo.gov/content/pkg/FR-2023-07-31/pdf/2023-15581.pdf; Fed. Trade Comm'n, Guides Concerning Use of Endorsements
and Testimonials in Advertising, 16 CFR 255; Fed. Trade Comm'n,
``FTC's Endorsement Guides: What People are Asking,'' https://www.ftc.gov/business-guidance/resources/ftcs-endorsement-guides-what-people-are-asking; Fed. Trade Comm'n, ``Soliciting and Paying
for Online Reviews: A Guide for Marketers,'' https://www.ftc.gov/business-guidance/resources/soliciting-paying-online-reviews-guide-marketers; Fed. Trade Comm'n, ``Disclosures 101 for Social Media
Influencers,'' https://www.ftc.gov/business-guidance/resources/disclosures-101-social-media-influencers.
\221\ See Complaint ]] 73-78, Fed. Trade Comm'n v. Universal
City Nissan, Inc., No. 2:16-cv-07329 (C.D. Cal. Sept. 29, 2016); see
also Fed. Trade Comm'n, Notice of Proposed Rulemaking, Trade
Regulation Rule on the Use of Consumer Reviews and Testimonials, 88
FR 49364, 49371-75 (July 31, 2023) (to be codified at 16 CFR 465),
https://www.govinfo.gov/content/pkg/FR-2023-07-31/pdf/2023-15581.pdf
(discussing such enforcement actions).
\222\ See Complaint ]] 73-78, Fed. Trade Comm'n v. Universal
City Nissan, Inc., No. 2:16-cv-07329 (C.D. Cal. Sept. 29, 2016).
\223\ One commenter conducted a study of Google reviews of U.S.
car dealerships from April 2008 to September 2022. The commenter
found by examining a 2% sample of these reviews that consumers gave
on average 4.47 stars out of 5 stars and made several other
conclusions about consumer satisfaction with the auto transaction
experience based on that methodology. Comment of Inst. for Regul.
Analysis & Engagement, Doc. No. FTC-2022-0046-10164 at 2-5. The
Commission notes that, consistent with its enforcement experience,
there is no guarantee that those reviews are a genuine reflection of
consumer experience. Moreover, the Commission notes that oftentimes
consumers do not realize that they have been charged without their
authorization. See SBP II.B. Thus, such a study that relies on
Google star ratings is not conclusive of consumer experience.
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An industry association commenter expressed concern that this
proposed provision did not appear to be limited to misrepresentations
that may occur when a dealership, and not an unrelated third party,
affirmatively publishes consumer reviews. To the extent an independent
third party that does not have a material connection with the
dealership makes any such claims, those claims would not be covered by
this provision. This provision concerns situations where there is such
a relationship between the third party and the dealer. For example, if
a dealer were to pay a third party or consumer to post positive reviews
that misrepresent their status as unbiased, independent, or ordinary
consumer reviews, the dealer would be violating this provision.\224\
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\224\ See Sec. 463.1 (``It is an unfair or deceptive act or
practice within the meaning of section 5(a)(1) of the Federal Trade
Commission Act (15 U.S.C. 45(a)(1)) to violate any applicable
provision of this part, directly or indirectly . . . .'').
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One industry association commenter contended that the Consumer
Review Fairness Act \225\ already prohibits the conduct covered by this
provision. The Consumer Review Fairness Act makes it illegal for
businesses to have form contracts that disallow or restrict consumers
from posting negative reviews. Section 463.3(k) prohibits
misrepresentations regarding the authenticity of consumer reviews
generally. These provisions are not in conflict, and as discussed in
SBP III.C.1, to the extent the provision creates any duplication, the
Commission has seen no harm to consumers or competition from
duplicative prohibitions of deceptive conduct.
---------------------------------------------------------------------------
\225\ See 15 U.S.C. 45b.
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Whether reviews or ratings about a seller or the seller's products
or services are from unbiased, independent, or ordinary consumers is
material to consumers' decision-making because a consumer is more
likely to interact with a particular dealership if the dealership has
positive reviews or ratings from unbiased, independent, or ordinary
consumers. Thus, after careful review of all the comments, the
Commission is finalizing paragraph (k) of Sec. 463.3 without
substantive modification from the Commission's original proposal.
(l) Whether the Dealer or Any of the Dealer's Personnel or Products or
Services Is or Was Affiliated With, Endorsed or Approved by, or
Otherwise Associated With the United States Government or Any Federal,
State, or Local Government Agency, Unit, or Department, Including the
United States Department of Defense or Its Military Departments
Proposed Sec. 463.3(l) prohibited misrepresentations that ``the
Dealer or any of its personnel or products or services is or was
affiliated with, endorsed or approved by, or otherwise associated with
the United States government or any Federal, State, or local government
agency, unit, or department, including the United States Department of
Defense or its Military Departments.'' Upon careful review and
consideration of the comments, the Commission is finalizing paragraph
(l) of Sec. 463.3 with one technical clarification to replace ``its''
with ``the Dealer's.'' The Rule's requirements apply to all individuals
and entities that meet the definition of ``Dealer.''
One individual commenter recommended that the Commission
additionally prohibit dealers from ``causing any person to impersonate
a police officer for any purpose.'' \226\ The commenter contended that
such a prohibition would address a common yo-yo financing tactic,
wherein dealers exert pressure on consumers to return vehicles by
calling the consumers on the phone, falsely claiming to be police
officers, and falsely representing that there is a warrant for the
consumers' arrest or that the dealer has reported the consumers'
vehicles as stolen. The Commission is likewise concerned about such
conduct, and notes that it would be covered by the language in this
paragraph, which applies broadly to misrepresentations of affiliation
with, endorsement or approval by, or association with ``any Federal,
State, or local government agency, unit, or department,'' including
State or local police officials.\227\ By misrepresenting
[[Page 623]]
police involvement in potential vehicle repossession, such conduct
would also violate paragraph (o) of Sec. 463.3 of the Final Rule.
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\226\ Individual commenter, Doc. No. FTC-2022-0046-7445 at 17.
\227\ The Commission discussed government impersonation scams in
its Notice of Proposed Rulemaking for a Trade Regulation Rule on
Impersonation of Government and Business. See 87 FR 62741 (Oct. 17,
2022). The Commission observed, inter alia, ``ongoing widespread
fraud schemes in which scammers impersonate law enforcement or
government officials in attempts to extort money or steal personally
identifiable information.'' See id. at 62742 (citing announcements
on March 7, 2022, and May 20, 2022, by the Federal Bureau of
Investigation and the Social Security Administration's Office of the
Inspector General, in coordination with other Federal law
enforcement agencies, respectively).
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A number of dealership association commenters contended that some
States address this type of deception.\228\ As noted in response to
similar commenter contentions regarding other proposed provisions, the
Commission has seen no harm to consumers or competition from
duplicative misrepresentation prohibitions, and overlap between the
Commission's Rule provisions and existing law is indicative of dealers'
ability to comply with these provisions. Moreover, including such a
provision in the Final Rule additionally benefits consumers who
encounter such conduct, and aids law-abiding dealers that otherwise
lose business to competitors that act unlawfully. Further, Sec. 463.9
discusses part 463's relation to State laws.
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\228\ One commenter further opined that ``the Department of
Defense has itself dealt with this situation in the case of military
lending and sales.'' Comment of Kan. Auto. Dealers Ass'n, Doc. No.
FTC-2022-0046-4510 at 7.
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A dealership association commenter claimed that many dealerships in
the commenter's State work with military personnel to promote
charitable causes, and questioned whether a banner listing a dealership
at a charitable military event would be considered a misrepresentation
that the dealership is ``associated'' with the military.\229\ Here, the
Commission notes that a banner that conveys true participation in a
charitable military event, and does not deceptively represent an
affiliation with, endorsement or approval by, or association with the
military, would not violate this provision. The Commission's law
enforcement practice provides further guidance on this point: the
Commission's many enforcement actions alleging misrepresentation of
government affiliation provide examples of the types of conduct that
would violate this provision.\230\
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\229\ Comment of N.C. Auto. Dealers Ass'n, Doc. No. FTC-2022-
0046-11223 at 9.
\230\ See, e.g., Complaint ]] 5-6, 9-11, 14, Traffic Jam Events,
LLC, No. 9395 (F.T.C. Aug. 7, 2020) (alleging auto marketer
misrepresented that it provided COVID-19 stimulus relief to
consumers); Complaint ]] 14-26, Fed. Trade Comm'n v. Ponte Invs.,
LLC, No. 1:20-cv-00177 (D.R.I. Apr. 17, 2020) (alleging
misrepresentation of government affiliation by company that
impersonated the U.S. Small Business Administration with business
names ``SBA Loan Program'' and ``SBA Loan Program.com'' and claimed
to help businesses obtain access to coronavirus relief programs
administered by the agency); Complaint ]] 24-36, Fed. Trade Comm'n
v. DOTAuthority.com, Inc., No. 0:16-cv-62186 (S.D. Fla. Sept. 13,
2016) (alleging defendants misrepresented affiliation with U.S.
Department of Transportation by claiming to be the ``Compliance
Unit'' of ``DOTAuthority'' and providing a telephone number with a
Washington, DC area code).
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Representations about whether a seller or any of its personnel,
products, or services is or was affiliated with, endorsed or approved
by, or otherwise associated with the government are likely to affect
consumers' conduct. Consumers are more likely to visit a dealership and
select a vehicle or product if they believe that a specific dealer or a
dealer's personnel, products, or services have been approved by a
government entity. The Commission thus adopts paragraph (l) of Sec.
463.3 without substantive modification from the Commission's original
proposal.
(m) Whether Consumers Have Won a Prize or Sweepstakes
Proposed Sec. 463.3(m) prohibited misrepresentations about whether
consumers have won a prize or sweepstakes. Upon careful review and
consideration of the comments, the Commission is finalizing paragraph
(m) of Sec. 463.3 without modification from its original proposal.
Comments from dealership associations contended that some States or
municipalities address this type of deception. As discussed in SBP
III.C.1, the Commission has not seen harm to consumers or competition
from multiple prohibitions against misrepresentations. Furthermore, any
significant overlap between the Commission's Rule provisions and
existing law is indicative of dealers' ability to comply with these
provisions. Finally, Sec. 463.9 discusses part 463's relation to State
laws.
Misrepresentations about whether consumers have won a prize or
sweepstakes harm consumers by inducing consumers to choose and transact
with a particular dealership under false pretenses. Thus, the
Commission adopts paragraph (m) of Sec. 463.3 without modification
from the Commission's original proposal.
(n) Whether, or Under What Circumstances, a Vehicle May Be Moved,
Including Across State Lines or Out of the Country
Proposed Sec. 463.3(n) prohibited misrepresentations regarding
whether, or under what circumstances, a vehicle may be moved, including
across State lines or out of the country. Upon careful review and
consideration of the comments, the Commission is finalizing paragraph
(n) of Sec. 463.3 largely as proposed, with the minor modification of
capitalizing the word ``State,'' as well as the defined term
``Vehicle'' to conform with the revised definition at Sec. 463.2(e).
The Commission received comments including from dealership
associations arguing that proposed Sec. 463.3(n) would pose issues for
dealers who must comply with limitations imposed by manufacturers or
distributors on the export of new motor vehicles. These commenters
requested clarification about liability under this provision in the
event dealers communicate any such export limitations to consumers or
take other steps to prevent the export of new vehicles. Section
463.3(n), however, does not prohibit dealers from accurately and non-
deceptively communicating whether, or under what circumstances, a
vehicle may be moved--it instead prohibits representations that mislead
consumers about this information.
Commenters including a dealership association objected to this
proposed provision by asserting that a State or insurance company may
prescribe, and the parties to a contract may agree upon, whether a
leased or purchased vehicle may be driven to a particular area. This
provision, however, does not prevent parties from discussing and
agreeing to whether a vehicle may be moved. Instead, Sec. 463.3(n)
prohibits misrepresentations about whether, or under what
circumstances, a vehicle may be moved, including regarding any liens or
other restrictions that would prevent or hinder consumers' ability to
move the vehicle beyond certain boundaries. Furthermore, interaction
with State laws is explained in the section-by-section analysis of
Sec. 463.9.
Representations about whether, and under what circumstances, a
consumer may move a vehicle are material as they are likely to affect a
reasonable consumer's decision to purchase a vehicle, including
decisions of military consumers who may frequently need to move.\231\
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\231\ See, e.g., Fed. Trade Comm'n, ``The Road Ahead: Selling,
Financing, & Leasing Motor Vehicles,'' Public Roundtable, Panel 1:
Military Consumers and the Auto Sales and Financing Process, Remarks
by Hollister K. ``Holly'' Petraeus, Dir., Off. of Servicemember
Affs., CFPB, Tr. at 11 (Aug. 2, 2011), https://www.ftc.gov/system/files/documents/public_events/52654/080211_ftc_sess1.pdf
(``[S]ervicemembers don't always realize if they buy and finance a
car here in the U.S., they can't take it out of the country unless
they have a letter of permission from the lienholder to do so. And
some of the lienholders won't give that permission. . . . [W]e
[heard from] a JAG in Germany saying, `I see a number of people who
end up having to do what you would call ``voluntary repossession''
on their car because they bought this car, they're excited about it,
and . . . the person who made them the loan didn't say ``Oh, by the
way, if you go overseas, we're not gonna let you take it with
you.''' And . . . sometimes, they'll find that their warranty is no
good overseas, either.'').
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[[Page 624]]
Based on a review of the comments and for the reasons previously
discussed, the Commission is finalizing paragraph (n) of Sec. 463.3
largely as proposed, with the minor modification of capitalizing
``State'' and the defined term ``Vehicle.''
(o) Whether, or Under What Circumstances, a Vehicle May Be Repossessed
Proposed Sec. 463.3(o) prohibited misrepresentations regarding
whether, or under what circumstances, a vehicle may be repossessed.
After careful review and consideration of the comments, the Commission
is finalizing paragraph (o) of Sec. 463.3 with the minor modification
of capitalizing the defined term ``Vehicle'' to conform with the
revised definition at Sec. 463.2(e).
A number of commenters, including consumer advocacy organizations
and a group of State attorneys general, expressed concern about
electronic disablement of vehicles, including through the use of
starter interrupt devices, which are sometimes utilized for vehicle
repossession. Many of these commenters expressed concern about the
potential for harm to consumers if such devices are activated without
regard to the location or operational state of the vehicle, and
recommended that the Commission restrict their use. Alternatively, one
such commenter recommended that the Commission add a provision to part
463 that would require dealers to disclose any such technology, obtain
the consumer's express, informed consent to its use, and limit its use
to one time, not to exceed 30 days, once a consumer is in default.
Finally, the comment from a group of State attorneys general
recommended that the Commission require additional disclosures any time
a starter interrupt device is installed, provide advance notice to
consumers prior to activating such devices, and enable consumers to
restart their vehicles in emergency or unsafe situations.\232\
---------------------------------------------------------------------------
\232\ Comment of 18 State Att'ys Gen., Doc. No. FTC-2022-0046-
8062 at 13.
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The Commission recognizes the potential for abuse with regard to
vehicle disablement technology.\233\ It is already illegal under
section 5 of the FTC Act to engage in deception, including regarding
vehicle disablement technology, and to unfairly cause substantial
injury to consumers, such as by disabling a vehicle while it is being
operated on the highway.\234\ This provision will further provide
protection for consumers from unfair or deceptive conduct surrounding
the repossession of vehicles. Moving forward, the Commission will
continue to monitor the motor vehicle marketplace for developments in
this area to determine whether additional restrictions are warranted.
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\233\ See, e.g., Complaint ]] 10-21, CFPB v. USASF Servicing,
LLC, No. 1:23-cv-03433-VCM (N.D. Ga. Aug. 2, 2023); Consumer Fin.
Prot. Bureau, ``Supervisory Highlights: Issue 28, Fall 2022'' 6-7
(Nov. 2022), https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-28_2022-11.pdf (finding that, in
certain instances, auto servicers engaged in unfair acts or
practices by activating vehicle disabling devices in consumers'
vehicles when consumers were not past due on payment, contrary to
relevant contracts and disclosures, including by causing the devices
to sound late payment warning beeps and by preventing consumers from
starting their vehicles).
\234\ See 15 U.S.C. 45; see also, e.g., Int'l Harvester Co., 104
F.T.C. 949, 1064-67 (1984) (finding that manufacturer's failure to
adequately disclose that its tractors had a serious safety hazard
constituted unfair conduct, where the hazard caused serious injury
to a small number of consumers, consumers could not have reasonably
avoided the harm because the respondent did not adequately disclose
the serious risk, and the cost of the respondent disclosing the risk
was very small in relation to the substantial injury).
---------------------------------------------------------------------------
A number of dealership association commenters contended that this
provision would inhibit dealers from making representations about their
lawful rights to repossess vehicles, positing that, upon making any
such representations, this provision might require dealers to carry out
repossessions without exception or risk violating this provision. This
provision, however, does not prevent dealers from providing accurate
information to consumers about when a vehicle can, or will, be
repossessed. Even where dealers have a lawful right to repossess a
vehicle, current law, as well as this provision, prohibit dealers from
misrepresenting whether or when they may take such action. Current law,
including at the Federal level, imposes some such restrictions in this
regard: for example, the Servicemembers Civil Relief Act prohibits
repossession of vehicles during a servicemember's period of military
service without a court order, as long as the servicemember either
placed a deposit for the vehicle or made at least one installment
payment on the contract before entering military service.\235\ This
provision prevents dealers from representing that they may repossess
military consumers' vehicles under such circumstances. However, dealers
may still accurately and non-deceptively inform a consumer about the
circumstances under which a vehicle can be repossessed or when the
dealer may take action. In providing consumers with such information,
however, dealers must refrain from representing, including by
implication, that repossession is likely when in truth it is not.
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\235\ See 50 U.S.C. 3952(a).
---------------------------------------------------------------------------
After considering the comments, the Commission is finalizing
paragraph (o) of Sec. 463.3 largely as proposed, with the minor
modification of capitalizing the defined term ``Vehicle.'' This
provision prohibits dealers from making misrepresentations regarding
material information about repossession of a vehicle. Information about
whether, or under what circumstances, a vehicle may be repossessed is
likely to affect consumers' conduct, including by impacting military
consumers' conduct regarding which payments to prioritize while serving
our country.
(p) Any of the Required Disclosures Identified in This Part
Proposed Sec. 463.3(p) prohibited misrepresentations of any of the
required disclosures identified in this part. As the Commission noted
in its NPRM, this was including but not limited to representations that
limit or contradict the required disclosures.\236\ Upon careful review
and consideration of the comments, the Commission is finalizing
paragraph (p) of Sec. 463.3 as proposed.
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\236\ NPRM at 42022.
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The Commission received a dealership association comment that
contended generally that the proposed prohibited misrepresentations in
this provision were already addressed in State statutes and
regulations, and asserted that such State measures should suffice given
that, according to the commenter, State regulators are more readily
available to the public. As discussed in SBP III.C.1, the Commission
has seen no harm to consumers or competition from duplicative
prohibitions of deceptive conduct, and commenters did not cite State
laws that permit misrepresentations or otherwise present a possible
conflict with the Rule. Moreover, the Final Rule provides additional
remedies that will benefit consumers who encounter conduct that is
already illegal under State or Federal law, including by adding a
mechanism for the Commission to redress consumers injured by a dealer's
violation of the rule, and will assist law-abiding dealers that
presently lose business to competitors that act unlawfully.
Furthermore, State laws
[[Page 625]]
may provide more or less specific requirements, as long as those
requirements are not inconsistent with part 463, and in the event of an
inconsistency, the Rule only affects such State law to the extent of
the inconsistency. Accordingly, the Commission adopts this provision
without modification from its original proposal.
The Commission hereby determines it is an unfair or deceptive act
in violation of the FTC Act for any dealer to make any
misrepresentations, expressly or by implication, regarding material
information about the subjects set forth in the paragraphs of Sec.
463.3. Such misrepresentations are likely to cause consumers to waste
significant time or money beyond what dealers led them to believe would
be necessary to purchase or lease a vehicle. Thus, these
misrepresentations are material and are likely to cause substantial
injury to consumers. This injury is not reasonably avoidable by
consumers themselves because information about the truth or falsity of
the dealer's misrepresentations is within the control of the dealer,
and there are no countervailing benefits to consumers or to competition
from the illegal practice of making misrepresentations. Further, these
provisions also serve to help prevent dealers from failing to make
disclosures required by Sec. 463.4, and from charging for add-ons that
provide no benefit and from failing to obtain express, informed consent
for charges, as required by Sec. 463.5, including by prohibiting
misrepresentations regarding costs and terms.\237\ To reflect this, and
without changing any substantive requirements for covered entities, the
Commission is adding the following sentence to the end of Sec. 463.3,
at newly designated paragraph (q): ``The requirements in this section
also are prescribed for the purpose of preventing the unfair or
deceptive acts or practices defined in this part, including those in
Sec. Sec. 463.4 and 463.5.'' Thus, this Rule requires dealers to
refrain from making material misrepresentations about the topics
enumerated in Sec. 463.3. The prohibitions contained in Sec. 463.3
help protect consumers from deceptive representations and promote the
ability of honest dealers to compete on honest terms.
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\237\ See 15 U.S.C. 57a(a)(1)(B) (the Commission ``may include
requirements prescribed for the purpose of preventing'' such unfair
or deceptive acts or practices).
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D. Sec. 463.4: Disclosure Requirements
1. Overview
The proposed rule included five disclosure requirements for motor
vehicle dealers regarding certain pricing and financing information (in
proposed Sec. 463.4(a) through (e)). These provisions proposed to
require dealers to disclose a vehicle's offering price; an add-on list
with each optional add-on for which the dealer charges consumers and
the price of each such add-on; that such add-ons are not required and
that the consumer can purchase or lease a vehicle without the add-ons;
and information about a vehicle's total of payments when making certain
representations about monthly payments.
In its NPRM, the Commission specifically requested comments
regarding key aspects of the proposed disclosures. In response, various
stakeholder groups and individuals provided comments regarding the
proposed provisions. In this section, the Commission discusses the
comments, responses to the comments, and any changes made to this
section based on the comments.
The Commission received many comments in favor of its proposal,
including from consumer groups, financial services groups, dealerships
and dealership employees, individual consumers, and others. These
comments supported the proposed disclosures as addressing bad actors
and unlawful practices in the automotive marketplace while promoting
transparency, reducing consumer confusion, and refraining from
inhibiting consumer choice or materially increasing the time or
paperwork required.
A number of such comments, however, urged the Commission to adopt
additional disclosures, both in the areas covered by its proposal and
elsewhere. Regarding disclosures covered in the proposal, for example,
commenters suggested more detailed requirements, including regarding
specific disclosure language and specific placement of disclosures. The
Commission agrees with commenters that key information affecting
pricing, add-ons, and costs must be disclosed clearly and conspicuously
to consumers in order to address consumer deception and unauthorized
charges during the motor vehicle buying and leasing process. To provide
flexibility for dealers and room for disclosures to be made in a manner
that is clear and conspicuous to consumers in particular circumstances,
however, the Commission declines to include additional prescriptive
language about the form of such disclosures. Further, the Commission
emphasizes that, in accordance with the provision being finalized at
Sec. 463.3(p), any material misrepresentations regarding the
disclosures in the Final Rule violate section 5 of the FTC Act \238\
and part 463.
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\238\ 15 U.S.C. 45.
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The additional disclosures recommended by commenters included,
inter alia: a disclosure regarding the installation and use of any
electronic disabling devices; a disclosure explaining the fees certain
lenders may charge to accept a consumer's loan application; a
disclosure of the invoice price, or the price a dealer paid the
manufacturer for the vehicle; a disclosure of any potential value gap
between a vehicle's price and its appraised value; a disclosure, prior
to purchase negotiations, of any potential financing limitations
imposed by the dealer; a disclosure of credit characteristics relied
upon by the dealer and certain terms; a disclosure that, as with a
mortgage loan settlement statement, itemizes all the elements of the
sale for car purchases; \239\ and disclosure signage in dealership
showrooms or on sales desks explaining that add-ons are not required.
As for disclosures in additional areas, the Commission recognizes that
vehicle purchase and lease transactions are lengthy and document-heavy,
and while consumers may benefit from additional information, each
additional disclosure requirement could increase the cost to comply
with part 463 and would risk crowding out the information in the
Commission's proposed disclosures. Accordingly, the Commission has
determined not to expand Sec. 463.4 of this Final Rule to include
additional disclosures.\240\ The Commission will
[[Page 626]]
continue to monitor the marketplace to evaluate the efficacy and
sufficiency of the present disclosures.
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\239\ Comment of Or. Consumer Just., Doc. No. FTC-2022-0046-8492
at 4; cf. Individual commenter, Doc. No. FTC-2022-0046-0144
(recommending the disclosed offering price separately list MSRP,
markup, all fees, and add-on costs); Comment of Legal Aid Just.
Ctr., Doc. No. FTC-2022-0046-7833 at 2 (``[D]ealers should be
required to verbally disclose and explain in a language the customer
understands the material terms of the contact [sic] (including APR,
total number of monthly payments required, etc.) before customers
sign[] the contract and receive the customers' consent that they
understand these terms. After this verbal disclosure, a consent form
should be required. This form should be provided in the language
preferred by the customer, and should ensure that the customer was
provided with accurate and agreed-upon terms prior to signing.'');
Individual commenter, Doc. No. FTC-2022-0046-1641 (``Mortgage
lenders are required to give a borrower a disclosure document prior
to closing to show all costs and expenses; car dealers should have
to do the same thing.'').
\240\ In addition to the disclosures noted, a few commenters
requested additional provisions to address concerns regarding
transparency in pricing, including related to interest rates, and
that the Rule require dealers to maintain a fiduciary relationship
to customers. The Commission recognizes the concerns regarding
pricing transparency and deceptive conduct related to pricing, and
will continue to monitor such issues, including after this provision
(Sec. 463.4(a), offering price disclosure) and the
misrepresentation provisions (Sec. 463.3) are in effect.
---------------------------------------------------------------------------
In addition, the Commission received a number of comments
requesting that it publish forms for the disclosures proposed in this
section. These comments requested either that the use of such forms be
required or that the Commission provide a ``safe harbor'' from
liability under part 463 for dealerships that utilize them.\241\ The
Commission did not receive, in the course of public comment, evidence
sufficient to conclude that uniform formatting for the delivery of such
disclosures would be necessary to make them effective. Nor has the
Commission received evidence to establish that mandating use of a
particular form disclosure would obviate deceptive and unfair conduct
in all circumstances. For example, forms that were required or that
provided a ``safe harbor'' from liability could be presented (1) with
other elements that are distracting or confusing, (2) with information
that modifies or contradicts the form disclosures, (3) with
instructions, discouragement, or time pressure that causes consumers
not to review the forms or that makes such review impracticable or
impossible, or (4) through the use of forms that are pre-completed in
whole or in part, to the extent this makes the information therein easy
for consumers to miss. The end result of such an approach would be to
enable deception while also making such deception more difficult to
detect. Accordingly, the Commission declines to mandate particular
disclosure forms as a requirement across all transactions or to shield
against liability even where dealers otherwise engage in deceptive or
unfair conduct. The Commission also notes that, because it is not
mandating particular disclosure forms, dealers that are already
complying with the law will avoid additional compliance costs
associated with using a new form, and all dealers will have the
flexibility to convey the disclosures in a manner that is clear and
conspicuous under the particular circumstances of their transactions.
---------------------------------------------------------------------------
\241\ Comment of Nat'l Auto. Dealers Ass'n, Doc. No. FTC-2022-
0046-8368 at 104, 122; Comment of Ohio Auto. Dealers Ass'n, Doc. No.
FTC-2022-0046-6657 at 6, 9; see Comment of Compliance Sys., Doc. No.
FTC-2022-0046-7836 at 1.
---------------------------------------------------------------------------
The Commission also received comments that expressed opposition to
this section. Some individual commenters argued that the required
disclosures were unduly extensive, prescriptive or untested, or that
the substance of these disclosures is already conveyed to consumers
before the consummation of the transaction. In response, the Commission
stresses that this section is limited in both its scope and its
requirements. Each of the disclosures in Sec. 463.4 is focused on one
key category of information: vehicle price, add-on optionality, or
total of payments. This section requires the clear and conspicuous
disclosure of this information but does not include prescriptive
requirements. So, for example, a written disclosure would have to be in
a size that stands out, but a specific font or font size is not
mandated, nor are the specific terms or format used, nor are any
particular uses of capitalization, punctuation, ink color, or paper
color or size. The proposal refrained from additional formal mandates
in order to provide dealers with flexibility, within the bounds of the
law, to provide this essential information, including so that dealers
already conveying this information in a non-deceptive manner may
continue to do so. Accordingly, the Commission also finds that testing
of these requirements is unnecessary. Furthermore, each of the
disclosure requirements being finalized addresses the unfair or
deceptive act or practice of withholding essential information from
consumers or presenting such information to them in a deceptive manner.
After reviewing comments, including those that contended the proposal
was not prescriptive enough, the Commission concludes that this is the
correct approach, and as such, has determined not to adopt any
additional specifications dictating the form or manner in which the
disclosures must be presented to consumers. Here, as elsewhere, the
Commission will continue its long track record of working to assist
with legal compliance.\242\ Further, for dealers already conveying this
information clearly and conspicuously, complying with this provision
should not be burdensome.
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\242\ Each year since FY2002, the Small Business
Administration's Office of the National Ombudsman has rated the
Federal Trade Commission an ``A'' on its small business compliance
assistance work. See U.S. Small Bus. Admin., ``National Ombudsman's
Annual Reports to Congress,'' https://www.sba.gov/document/report--
national-ombudsmans-annual-reports-congress (providing reports from
FY2013-FY2020); Letter from Edith Ramirez, Chairwoman, Fed. Trade
Comm'n, to Senator David Vitter, Chairman, Comm. on Small Bus. and
Entrepreneurship at 1 (Nov. 16, 2015), https://www.ftc.gov/system/files/documents/reports/federal-trade-commission-rule-compliance-guides-small-businesses-other-small-entities-commission/eighth_section_212_report_to_congress_july_2014-june_2015.pdf
(citing Commission's ``A'' rating for ``Compliance Assistance'' by
the Nat'l Ombudsman from FY2002-FY-2014).
---------------------------------------------------------------------------
Other commenters, including an industry association, contended that
these disclosures would have the effect of limiting the products and
services consumers are offered or otherwise restrict lawful sales
practices. In response, the Commission reiterates that this section
focuses on one of the most foundational pieces of information regarding
the sale of vehicles, add-ons, and financing: their cost. Dealers
already providing this information in a non-deceptive manner will need
to make minimal, if any, changes to their disclosure practices. The
Commission has seen no evidence that disclosing cost information has
caused dealers to cease offering products.
Some commenters, including dealership associations, contended that
the presence of some State standards in this area makes Federal
regulation unnecessary or contradictory. In response, the Commission
notes that it drew from several State statutory and regulatory
provisions in formulating its proposal, and it observes that the
existence and functioning of such standards demonstrates the
practicability of such disclosure measures. Dealers can comply with any
State laws requiring the same conduct as well as this section.
Similarly, to the extent a State requires additional disclosures
regarding vehicle price, add-ons, or total of payments, nothing
prevents dealers from providing those disclosures as well as those
required under Sec. 463.4 so long as the State disclosures are not
inconsistent with part 463. To the extent there is truly a conflict
between this section and State law, Sec. 463.9 provides that part 463
will govern, but only to the extent of the inconsistency, and only if
the State statute, regulation, order, or interpretation affords
consumers less protection than does the corresponding provision of part
463. Moreover, a number of States do not have existing standards in the
areas covered by this part; in such States, the Commission's
disclosures will operate as a key safeguard.
Other commenters, including an industry association, argued that
requiring disclosures would increase the time and paperwork for
consumers to
[[Page 627]]
buy or lease a vehicle. In response, the Commission notes that the
section includes requirements for the disclosure of salient, material
information early in the process, thus eliminating the time consumers
would otherwise spend pursuing misleading offers--time which can then
be spent pursuing truthful offers in the absence of deception. These
measures will further allow consumers to compare dealerships in advance
based on truthful terms; thus, dealerships will earn business based on
the actual terms offered, and not lose business to dealers who compete
by omitting or hiding actual terms. Moreover, the disclosures required
by this section are limited to key information affecting pricing, add-
ons, and total of payments, needed to address consumer deception and
unauthorized charges during the vehicle-buying and leasing process, and
are required to be in writing only where the dealer is responding to
written consumer communications or already providing consumers with
representations in writing.\243\ As explained in detail in the
paragraph-by-paragraph analysis of Sec. 463.4(e) in SBP III.D.2(e), in
order to avoid any additional written disclosure requirements, the
Commission is declining to mandate that its required disclosures be
made in writing in every instance.
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\243\ See Sec. 463.4(a) (stating that Offering Price must be
disclosed in writing if the communication with the consumer, or the
dealer's response, is in writing); Sec. 463.4(c), (d), (e)
(requiring that disclosures be in writing if the dealer's associated
representation is in writing).
---------------------------------------------------------------------------
An industry association commenter argued that the proposed
disclosure requirements in Sec. 463.4 of the NPRM violate the First
Amendment. This commenter contended that the proposed disclosures
constituted compelled speech; that they would be subject to
intermediate judicial scrutiny were they to be challenged in court; and
that, in the event of such a challenge, the Commission's actions would
fail to satisfy that standard of scrutiny, or a less stringent one.
The Commission first addresses the applicable First Amendment
standard of review for this rulemaking effort in the event of a
judicial challenge. If so challenged, the disclosures in Sec. 463.4
would not be subject to intermediate judicial scrutiny, but instead to
the less rigorous review standard set forth in Zauderer v. Office of
Disciplinary Counsel, 471 U.S. 626, 651 (1985). When, as is the case
here, a regulation ``impose[s] a disclosure requirement rather than an
affirmative limitation on speech,'' and is ``directed at misleading
commercial speech,'' Zauderer governs.\244\
---------------------------------------------------------------------------
\244\ Milavetz, Gallop & Milavetz, P.A. v. United States, 559
U.S. 229, 249 (2010) (emphasis original).
---------------------------------------------------------------------------
Under that standard, a commercial speaker's rights ``are adequately
protected as long as disclosure requirements are reasonably related to
the State's interest in preventing deception of consumers.'' \245\ In
Zauderer, the Court upheld a rule requiring attorneys who advertised on
a contingency-fee basis to disclose that clients who did not prevail in
litigation might nevertheless be liable for significant costs.\246\ The
Court found that ``the possibility of deception is [] self-evident''
when an advertisement discloses only one type of charge (fees) without
mentioning another (costs).\247\ In upholding the challenged rule as
reasonable, the Court emphasized that the rule merely mandated
disclosure of ``purely factual and uncontroversial information about
the terms under which . . . services will be available,'' and that the
``constitutionally protected interest in not providing [such]
information . . . is minimal.'' \248\
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\245\ Zauderer v. Off. of Disciplinary Couns., 471 U.S. 626, 651
(1985).
\246\ Id. at 652.
\247\ Id. at 652-53.
\248\ Id. at 651.
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As in Zauderer, Sec. 463.4 requires only ``purely factual and
uncontroversial information about the terms under which [commercial
goods or services] will be available.'' \249\ These material facts
include the offering price of the motor vehicle; that add-on products
or services are not required and the consumer can purchase or lease the
vehicle without the add-on, if true; the total amount the consumer will
pay to purchase or lease the vehicle and, if that amount assumes the
consumer will provide consideration, the amount of such consideration;
and when a lower monthly payment will increase the total amount the
consumer will pay to purchase or lease the vehicle. As in Zauderer, any
``constitutionally protected interest'' a motor vehicle dealer might
have ``in not providing [this] factual information . . . is minimal.''
\250\
---------------------------------------------------------------------------
\249\ See id. at 651.
\250\ Zauderer v. Off. of Disciplinary Couns., 471 U.S. 626, 651
(1985) (emphasis original).
---------------------------------------------------------------------------
Courts applying Zauderer have repeatedly affirmed the
constitutionality of regulations requiring disclosures of complete
information about the cost of a purchase, which are similar to the
required disclosures in Sec. 463.4. For example, courts upheld a
regulation requiring schools to ``disclose the `total cost' of . . .
tuition, fees, books, and supplies for its programs,'' finding that
this information was ``purely factual and uncontroversial.'' \251\ In
another instance, a court upheld under Zauderer a rule requiring
airlines to prominently disclose the ``total, final price'' of airfare,
finding it was ``reasonably related to the government's interest in
preventing deception of consumers.'' \252\ In yet another case, a court
upheld a rule requiring hospitals to disclose their rates to consumers,
finding they were `` `factual and uncontroversial' and directly
relevant to `the terms under which [hospitals'] services will be
available' to consumers.'' \253\ The disclosure provisions the
Commission is finalizing in Sec. 463.4, like the provisions upheld in
these cases, merely require factual and uncontroversial disclosures to
provide consumers with accurate and timely pricing and financing
information as they consider motor vehicle purchases and leases.\254\
---------------------------------------------------------------------------
\251\ Ass'n of Priv. Sector Colls. & Univs. v. Duncan, 110 F.
Supp. 3d 176, 199 (D.D.C. 2015), aff'd, 640 F. App'x 5 (D.C. Cir.
2016).
\252\ Spirit Airlines, Inc. v. U.S. Dep't of Transp., 687 F.3d
403, 412-15 (D.C. Cir. 2012) (internal brackets omitted).
\253\ Am. Hosp. Ass'n v. Azar, 983 F.3d 528, 540 (D.C. Cir.
2020) (quoting Zauderer v. Off. of Disciplinary Couns., 471 U.S.
626, 650-651 (1985)).
\254\ Further, as explained in the paragraph-by-paragraph
analysis of Sec. 463.4 in SBP III.D.2, the failure to disclose this
information is itself a deceptive or unfair practice.
---------------------------------------------------------------------------
As discussed, Zauderer applies here because Sec. 463.4 would
``impose a disclosure requirement rather than an affirmative limitation
on speech.'' \255\ The Commission notes, however, that disclosure
requirements in Sec. 463.4 likewise would pass muster even if, as the
commenter suggested, they were evaluated under the intermediate
scrutiny standard formulated in Central Hudson Gas & Electric Corp. v.
Public Service Commission of New York, 447 U.S. 557 (1980), and
subsequent cases applying that standard.\256\ As an initial matter,
Central Hudson applies not to disclosure requirements, such as those
the commenter challenges, but to affirmative limitations on
speech.\257\ The Central Hudson test requires restrictions on lawful,
non-misleading speech to satisfy three remaining criteria. First, there
must be a substantial governmental interest in the restriction; second,
the restriction must directly advance that interest; and third, the
restriction may not be more
[[Page 628]]
extensive than necessary to advance the interest.\258\ Under the
Central Hudson test, it is not necessary that ``the manner of
restriction is absolutely the least severe that will achieve the
desired end.'' \259\ Rather, there merely must be a `` `fit' between
the [restriction's] ends and the means chosen to accomplish those
ends--a fit that is not necessarily perfect, but reasonable.'' \260\ In
other words, the restriction should be ``one whose scope is `in
proportion to the interest served.' '' \261\
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\255\ Milavetz, Gallop & Milavetz, P.A. v. United States, 559
U.S. 229, 249 (2010).
\256\ The commenter attributes the intermediate scrutiny test to
Pagan v. Fruchey, 492 F.3d 766, 771 (6th Cir. 2007), though it was
in fact formulated by the Supreme Court in Central Hudson.
\257\ Milavetz, Gallop & Milavetz, P.A. v. United States, 559
U.S. 229, 249 (2010).
\258\ See Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm'n of
N.Y., 447 U.S. 557, 566 (1980). Although the Supreme Court in
Central Hudson treated the question whether regulated speech is
truthful and non-misleading as one of four criteria, it has
alternately treated this question as a threshold inquiry, after
which the three remaining criteria are evaluated. See Fla. Bar v.
Went For It, Inc., 515 U.S. 618, 623-24 (1995). Because the
government is ``free to prevent the dissemination of commercial
speech that is false, deceptive, or misleading,'' Zauderer v. Off.
of Disciplinary Couns., 471 U.S. 626, 638 (1985), if a challenged
restriction fails this threshold inquiry, Central Hudson does not
apply.
\259\ Bd. of Trs. of State Univ. of N.Y. v. Fox, 492 U.S. 469,
480 (1989).
\260\ Id. (citation omitted).
\261\ Id. (quoting In re R.M.J., 455 U.S. 191, 203 (1982)).
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The disclosure provisions the Commission is finalizing in Sec.
463.4 satisfy these criteria. First, the disclosure provisions serve a
substantial governmental interest by requiring motor vehicle dealers to
provide accurate terms, and in particular, accurate pricing
information, in advertising and sales discussions.\262\ As the Supreme
Court has made clear, the government's ``interest in ensuring the
accuracy of commercial information in the marketplace is substantial.''
\263\ And as explained in the paragraph-by-paragraph analysis of Sec.
463.4 in SBP III.D.2, the disclosure requirements set forth there are
aimed at ensuring that consumers receive accurate pricing information
and other material transaction terms, and that dealers refrain from the
unfair or deceptive act or practice of failing to provide this
information.\264\ The required disclosures directly advance, ``fit''
reasonably with, and are proportionate to, their intended ends of
prohibiting and preventing unfair or deceptive conduct in motor vehicle
transactions. They prevent dealers from luring consumers to dealerships
with unfair or deceptive advertising tactics, from padding prices with
unwanted add-on products or services, and from misdirecting consumers
about the true cost of a vehicle through discussions of monthly payment
amounts. The disclosure requirements effectively ``impose[] no burden
on speech other than requiring [motor vehicle dealers] to disclose the
total price consumers will have to pay. This the First Amendment
plainly permits.'' \265\
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\262\ NPRM at 42012.
\263\ Edenfield v. Fane, 507 U.S. 761, 769 (1993).
\264\ Nothing could be more directly relevant to accurate
pricing than disclosure of the actual price itself. See Spirit
Airlines, Inc. v. U.S. Dep't of Transp., 687 F.3d 403, 415 (D.C.
Cir. 2012) (substantial governmental interest ``is clearly and
directly advanced by a regulation requiring that the total, final
price be'' prominently disclosed).
\265\ Id. Further, the Commission has taken into account prior
enforcement work and other initiatives. See NPRM at 42022-25
(explaining rationale behind disclosure requirements and extensively
citing prior enforcement experience and record evidence); see also
Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 555 (2001) (``We do
not . . . require that empirical data come accompanied by a surfeit
of background information. We have permitted litigants to justify
speech restrictions by reference to studies and anecdotes . . . or
even . . . based solely on history, consensus, and simple common
sense.'' (internal quotation marks and alterations omitted)); Fla.
Bar v. Went For It, Inc., 515 U.S. 618, 628, (1995) (same); Burson
v. Freeman, 504 U.S. 191, 211 (1992) (finding speech restrictions
justified even under strict scrutiny based on a ``long history, a
substantial consensus, and simple common sense''); Milavetz, Gallop
& Milavetz, P.A. v. United States, 559 U.S. 229, 251 (2010) (``When
the possibility of deception is as self-evident as it is in this
case, we need not require the State to conduct a survey of the
public before it may determine that the advertisement had a tendency
to mislead.'' (internal quotation marks and alterations omitted));
Am. Hosp. Ass'n v. Azar, 983 F.3d 528, 540 (D.C. Cir. 2020) (finding
reasonable relationship between rule and governmental interests
where ``the Secretary, relying on complaints from consumers, studies
of state initiatives, and analysis of industry practices, reasonably
concluded that the rule's disclosure scheme will help the vast
majority of consumers'').
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After careful consideration of the comments, the Commission has
determined to finalize the introductory paragraph of Sec. 463.4 and
certain of the disclosure requirements included in its NPRM, with some
minor textual changes. The introductory paragraph of the NPRM proposed
that it would be ``a violation of this part and an unfair or deceptive
act or practice in violation of section 5 of FTC Act for any Motor
Vehicle Dealer to fail to make any disclosure required by this section,
Clearly and Conspicuously.'' The Commission is finalizing this
paragraph with the minor textual change of substituting ``Federal Trade
Commission Act'' for ``FTC Act'' for clarity and conformity with other
parts of the Rule. The Commission is also adding the word ``Covered''
to the defined term ``Covered Motor Vehicle Dealer'' to conform with
the revised definition at Sec. 463.2(f), discussed in SBP III.B.2(f).
The Commission is finalizing the specific disclosure requirements
proposed at Sec. 463.4(a), (c), (d), and (e), with modifications noted
in the paragraph-by-paragraph analysis in SBP III.D.2(a), III.D.2(c),
III.D.2(d), and III.D.2(e).
In the paragraphs that follow, the Commission discusses the
disclosure requirements proposed in the NPRM, the comments relating to
the specific disclosures, responses to the comments, and the disclosure
requirements adopted in Sec. 463.4.
2. Paragraph-by-Paragraph Analysis of Sec. 463.4
(a) Offering Price
The offering price disclosure provision in proposed Sec. 463.4(a)
required dealers to disclose a vehicle's offering price in
advertisements that reference a specific vehicle or represent a
monetary amount or financing term for any vehicle, as well as upon
receipt of a consumer communication about a specific vehicle or any
monetary amount or financing term for any vehicle. The Commission
proposed defining ``Offering Price,'' in Sec. 463.2(k), as ``the full
cash price for which a Dealer will sell or finance the motor vehicle to
any consumer, excluding only required Government Charges.'' The
Commission also proposed defining the term ``Government Charges,'' then
in Sec. 463.2(h), to mean ``all fees or charges imposed by a Federal,
State or local government agency, unit, or department, including taxes,
license and registration costs, inspection or certification costs, and
any other such fees or charges.'' For the reasons discussed in the
following paragraphs, the Commission is finalizing the offering price
disclosure provision at Sec. 463.4(a), as well as the corresponding
``Offering Price'' and ``Government Charges'' definitions in Sec.
463.2 (finalized at Sec. 463.2(k) and (i), respectively), largely as
proposed. The Commission is including a modification to the offering
price definition to clarify that dealers may, but need not, exclude
required government charges from a motor vehicle's offering price, and
is substituting ``Vehicle'' for ``motor vehicle'' to conform with the
revised definition at Sec. 463.2(e), discussed in SBP III.B.2(e).
Additionally, the Commission is including a typographical modification
to the ``Government Charges'' definition to include a serial comma for
consistency. The Commission also is capitalizing the defined terms
``Vehicle'' throughout, in its singular, plural, and possessive forms,
and is adding language to the end of Sec. 463.4(a)(3)(ii) clarifying
that the requirements in Sec. 463.4(a) ``also are prescribed for the
purpose of preventing the unfair or deceptive acts or practices defined
in this part, including those in Sec. Sec. 463.3(a) and (b) and
463.5(c).''
The Commission received a significant number of comments on its
[[Page 629]]
proposed offering price disclosures. Many commenters supported the
Commission's proposal to require dealers to provide uniform,
comprehensive, and accurate pricing information. These commenters
noted, inter alia, that despite laws generally prohibiting unfair or
deceptive acts or practices, present market conditions fail to balance
the ``playing field'' of information between consumers and motor
vehicle dealers, allowing dealers to take advantage of consumers by
hiding information about pricing, imposing surprise price increases, or
using pricing advertising tactics that systematically deceive
consumers.\266\ Many consumers also underscored the need for the
proposed disclosure requirements. Commenters in support noted, for
instance:
---------------------------------------------------------------------------
\266\ See, e.g., Comment of Nat'l Consumer L. Ctr. et al., Doc.
No. FTC-2022-0046-7607 at 17-20.
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Buying a car has always been a horrible experience for me.
The endless driving to dealerships who advertise vehicles for a sale
price only to find that the vehicle does not exist, or the price
advertised for the specific vehicle is not what they had posted. The
salespersons['] tactics, always attempting to put you in a vehicle
based on a car payment, along with dancing around the simple question
of the actual out the door price of the vehicle. . . . It is such a
shame that the dealerships just do not give the customer the price of
the vehicle without them wanting to start a ``folder'' and take all of
your information, a copy of your drivers license, ect [sic] . . . .
Please regulate the automobile dealerships, especially now when it
seems they are at their worst with these ridiculous add on fees (paint
and upholstery protector, ect [sic] which was not added at the
manufacturer) along with adjustments on top of the MSRP.\267\
---------------------------------------------------------------------------
\267\ Individual commenter, Doc. No. FTC-2022-0046-6649.
---------------------------------------------------------------------------
Buying a car in the US is now akin to what I used to do in
the Army: Before going into the dealership, I have to spend hours
conducting ``intelligence prep of the battlefield'' to understand the
tactics the dealership's sales and finance & incentives staff will
throw at me. . . . It has been made increasingly worse by dealerships
that advertise a false price to entice a buyer but ``bait-and-switch''
with Additional Dealer Mark-Ups (ADM), and bogus fees and charges for
supposedly dealer-installed items tha[t] the consumer doesn't want in
the first place. . . . Unless the FTC passes this proposed rule, things
will get worse before they get better.\268\
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\268\ Individual commenter, Doc. No. FTC-2022-0046-6225.
---------------------------------------------------------------------------
Though I am not usually a fan of adding layers of
governmental regulations to what should be a simple transaction, there
definitely needs to be a change in what is allowed in the car buying
process. . . . As consumers we should not have to spend hours reading
tiny print in obscure sections of a website in order to validate a
posted price. The price should not be elevated at the last minute in a
hidden line item such as a mandatory detailing package or service plan
you do not want or need to the tune of thousands of dollars. . . . We
should not have to spend hours at a dealer and go through mounds of
paperwork with a fine tooth comb in order to simply see the ACTUAL
price of the vehicle. It is a ridiculous ploy to confuse people into
purchasing things they do not want or need.\269\
---------------------------------------------------------------------------
\269\ Individual commenter, Doc. No. FTC-2022-0046-6089.
---------------------------------------------------------------------------
I have been trying to buy a new car for the last two years
but with unexpected costs I am not able to have a clear written
contract on the car and its pricing. I have contacted several dealers
in my area and many of them have issues that prevent me from commited
[sic] to buying from them. This ranges from them not being able to give
me a written sheet of the cost of the car, fees, ect [sic] showing me
how much I will be paying in the end. . . . Most of the dealerships I
spoke to would not give me a sales sheet of the vehicle I want to
purchase to show me how much I will be paying in total. I would have to
put a down payment and just trust them over the phone. If I can't get
it in writing it is hard to commit to a down payment I could lose.\270\
---------------------------------------------------------------------------
\270\ Individual commenter, Doc. No. FTC-2022-0046-6656.
---------------------------------------------------------------------------
Vehicles are typically the second largest purchase made by
people. Given the choices available according to respective needs/
wants, purchasing a vehicle should be the same as going to any other
mass-market retailer and picking that appliance with a set price. So
why do we need to haggle or expend additional intellectual and
emotional bandwidth towards ensuring that the transaction is as
initially stated? There are instances where I'd rather be back
conducting combat operations in Iraq than go through the dealer
process, as it incenses me that this corrupt way of doing business is
given a free pass. . . . If you are a reputable and honest dealership,
then there should be no worry; it will be business as usual.\271\
---------------------------------------------------------------------------
\271\ Individual commenter, Doc. No. FTC-2022-0046-5238.
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Think of us, the car buying public. We are mad as hell.
Please start fixing this crooked business model where nobody even knows
what they are supposed to be paying.\272\
---------------------------------------------------------------------------
\272\ Individual commenter, Doc. No. FTC-2022-0046-5227.
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As a consumer, I fully support this new proposed rules
update. The dealership experience has been an anxiety provoking event
everytime [sic] I attempt to purchase a car. I have multiple friends
and family that all report shady practices, bait and switch, and up
charging at point of sale during their car buying process. Please pass
these regulations! \273\
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\273\ Individual commenter, Doc. No. FTC-2022-0046-5228.
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I am writing in FULL support of the FTC rules and
regulations. . . . Buyers deserve to know Out the door prices and not
be hassled by nonsensical add-ons for the dealership's benefit. People
should feel comfortable and excited to buy their 1st car rather than
the dread I feel.\274\
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\274\ Individual commenter, Doc. No. FTC-2022-0046-5219.
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We find the vehicle we came to see and see a sticker
beside the manufacture[r] one with added prices. These typically
include car alarms, VIN etching, protection packages, floor mats,
market adjustment, etc. We go to purchase the vehicle now and they say
that none of these can be removed from the price of the car (even
though they advertised them without them at a much lower price). We
attempt to negotiate them off and find out their [sic] is an additional
addon like reconditioning fee. We fail at getting the price of the
vehicle down to the advertised price and leave.\275\
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\275\ Individual commenter, Doc. No. FTC-2022-0046-0900.
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I have financed all of my cars, and the total cost for the
vehicle has always been hidden, either physically or through the dealer
trying to move focus onto other numbers such as the monthly payment.
Since monthly payments will vary due to credit history, down payments,
interest rates, taxes, and more, it is not an effective tool for
measuring a deal. $300 a month could be a great deal on one car, and a
horrible deal on another. I would greatly benefit from the proposal[']s
provision to clearly list and advertise the price of the car without
additional add[-]ons. It would greatly reduce the work of finding the
right car at the right dealership. In each of the 3 cases, I have gone
to multiple dealers, wanting to purchase a specific vehicle on their
lot, and walked away because of the hidden
[[Page 630]]
costs being added to the price of the car.\276\
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\276\ Individual commenter, Doc. No. FTC-2022-0046-6490.
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I work as a salesperson at a local Nissan dealership. . .
. Currently, dealerships across the US, including the one I work for,
have made the car buying process needlessly confusing, expensive, and
frustrating by engaging in false advertising and hidden add-on
products. While these practices are very unscrupulous, they are
incredibly effective at what they are designed to do: drive revenue for
the store. If these regulations are passed, they would certainly take a
significant toll on my personal finances. But the longer I work in my
position, the more I realize that no one should be allowed to engage in
such exploitative conduct in the course of running a business. . . .
Good, ethical dealers will not have to make any changes if these rules
are put into place. I also happen to know that several of the comments
in opposition to the proposed regulations are solicited by dealerships
and their management. The dealership group I work for, for example,
sent out a company-wide email encouraging employees to post comments on
this site in opposition to these rules. But there's no question: The
American people want these regulations. They need these regulations.
The only ones that don't want them are crooked auto dealerships across
the US. It's been far too long that such dealerships have run amuck
with underhanded sales practices and deception. I would urge the FTC to
stand strong against . . . dealership groups[]or any lobbyists and get
these rules passed! I know there will be stiff resistance but it's of
the utmost importance to good dealerships, transparent salespeople,
and, most importantly, the average American consumer! \277\
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\277\ Individual commenter, Doc. No. FTC-2022-0046-3693.
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A number of commenters supported the offering price disclosure
requirement and associated definitions; some expressed support while
urging additional protections. A number of commenters, including
consumer advocacy organizations as well as individual commenters,
requested that the Commission require a vehicle's offering price to
include additional items, such as charges for add-ons attached to the
vehicle when it is offered, and charges for add-ons required by the
dealer to be sold with the vehicle; to exclude rebate information,
including rebates contingent upon the use of a certain financing
company or upon qualifying for any other rebate; and to prohibit the
exclusion of certain charges, including the advertisement of an
offering price that factors out a down payment amount.\278\
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\278\ A number of these commenters further requested that the
term ``Offering Price'' include additional dealer fees that are
known to the dealer at the time they are advertised and imposed by
the dealer rather than a government entity. These requests are
addressed in the discussion of the Commission's definition of
``Government Charges'' in SBP III.B.2(i).
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To begin, the Commission notes that by the terms of the proposed
``Offering Price'' definition, the only charges a dealer was permitted
to exclude from a vehicle's offering price were required government
charges. Thus, under the proposal, if a dealer were to charge any
consumer for a preinstalled add-on, or require any consumer to pay for
an add-on to purchase or finance the vehicle, then the charges for such
add-ons would be required to be included in the vehicle's offering
price.\279\ In addition, while the proposed provision did not prevent
dealers from presenting consumers with accurate and non-misleading
additional information, including terms of limited availability, the
required offering price disclosure needed to remain clearly and
conspicuously presented to consumers, and could not be based on
discounts or rebates that are not available to ``any consumer,''
including rebates contingent upon the use of a certain financing
company or upon qualifying for any other rebate. Similarly, under the
proposal, if the dealer required a down payment amount to sell or
finance the vehicle, the offering price could not factor out such an
amount.
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\279\ If a dealer does not require any consumer to pay for an
add-on, current law, as well as provisions in this Rule, require
dealers to refrain from deception in this regard. See, e.g., Sec.
463.3(a), (b) (prohibiting material misrepresentations regarding the
costs or terms of purchasing, financing, or leasing a vehicle, as
well as any costs, limitation, benefit, or any other material aspect
of add-ons); Sec. 463.4(c) (requiring disclosures regarding
optional add-ons).
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With respect to the proposed definition of ``Government Charges,''
which is used in the definition of ``Offering Price,'' a number of
consumer advocacy organization commenters contended the definition
should be narrow to accomplish the Commission's goal of ensuring that
consumers have access to accurate pricing information before they enter
a dealership, emphasizing that only charges that are imposed by, and
payable to, a government entity should be permitted to be excluded from
a vehicle's offering price, and that document fees that some States
allow dealers to charge should not be excluded from the offering price.
The Commission notes that, as proposed, the term ``Government Charges''
is limited to those charges ``imposed by a Federal, State or local
government agency, unit, or department.'' The Commission specified in
this proposed definition that such charges need be ``imposed by'' a
government entity rather than, for instance, having merely been
``authorized by'' or ``allowed by'' such an entity. This language does
not reach charges that are authorized by a government entity but not
required, since such charges have not been ``imposed'' \280\ by the
government. This distinction therefore excludes from the definition of
``Government Charges'' fees, such as dealership document preparation
fees that State or local law does not require consumers to pay.
Furthermore, the definition of ``Offering Price'' at Sec. 463.2(k)
permits only ``required'' government charges to be excluded from a
vehicle's offering price. Thus, charges the government does not require
consumers to pay, but allows the dealer to charge or to pass along to
the consumer, such as document fees, must be included in the disclosed
offering price if the dealer requires such charges of any consumer.
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\280\ See, e.g., Impose, Cambridge Advanced Learner's Dictionary
& Thesaurus, https://dictionary.cambridge.org/us/dictionary/english/impose (``to officially force a rule, tax, punishment, etc. to be
obeyed or received'').
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Relatedly, an individual commenter suggested that the Commission
delete the phrase ``inspection or certification costs'' from the
definition of ``Government Charges'' in order to avoid confusion about
the status of inspection or certification charges that ``are NOT
imposed by the Government,'' as well as explicitly state in the
definition that the term does ``not include dealer document or document
processing fees (``doc fees''), or electronic titling and registration
fees, which are not imposed by the Government.'' \281\ Regarding the
phrase ``inspection or certification costs,'' such costs that are not
``imposed'' by the government are excluded from the definition of
``Government Charges,'' as the plain language makes clear. Similarly,
as noted, dealer document or document processing fees and any other
fees that are not imposed by the government are excluded from the
definition, as the plain language states.
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\281\ Individual commenter, Doc. No. FTC-2022-0046-7445 at 15-
16.
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Some commenters, including a group of State attorneys general,
likewise recommended that a vehicle's offering price include
``anticipated'' or
[[Page 631]]
``estimated'' government charges.\282\ The Commission agrees that
consumers would benefit from knowing this information early on in their
shopping experience, and notes that dealers are permitted under this
Final Rule to provide additional, truthful information along with a
vehicle's offering price. Rather than requiring that anticipated
government charges be included in the offering price, the Commission is
modifying the definition from its original proposal to make clear that
dealers need not exclude any such charges from the offering price. The
Commission will evaluate whether the definition, as finalized, as well
as its associated disclosure, effectively address deceptive and unfair
market conduct, and will consider future modifications as market
practices evolve.
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\282\ See, e.g., Comment of 18 State Att'ys Gen., Doc. No. FTC-
2022-0046-8062 at 7; Comment of Consumer Att'ys & Advocs., Doc. No.
FTC-2022-0046-7695 at 2-3 (requesting that the vehicle's offering
price include ``an estimate of government fees and charges such as
sales tax and registration based on the dealer's location'').
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Thus, the Commission is finalizing a definition of ``Offering
Price'' that clarifies that dealers may, but need not, exclude required
government charges from a vehicle's offering price that meets the
requirements of Sec. 463.2(k). In particular, the Commission is
finalizing a definition of ``Offering Price'' that removes the phrase
``excluding only'' and adds the phrase ``provided that the Dealer may
exclude only'' in its place. The definition also substitutes
``Vehicle'' for ``motor vehicle'' to conform with the revised
definition of ```Covered Motor Vehicle' or `Vehicle''' at Sec.
463.2(e), such that the definition reads as follows: ``Offering Price
means the full cash price for which a Dealer will sell or finance the
Vehicle to any consumer, provided that the Dealer may exclude only
required Government Charges.''
Other commenters, including consumer advocacy organizations,
proposed additional requirements to the disclosure at Sec. 463.4(a):
prescribing formatting, posting, and presentation requirements for
offering price information, such as attaching a written offering price
to each vehicle, providing written offering price information in
response to consumer communications regardless of whether the
communications are written, and requiring offering price to be the most
conspicuous piece of information displayed to consumers. Regarding the
manner in which the offering price must be presented, the Commission
proposed that all disclosures under Sec. 463.4, including the offering
price disclosure, be presented clearly and conspicuously. As previously
discussed, the proposed disclosure provisions were directed at
addressing unlawful conduct while providing dealers with flexibility to
present such disclosures in a manner that is clear and conspicuous to
their consumers under the particular circumstances. Thus, the
Commission has determined not to adopt further formatting, posting, or
presentation requirements for its offering price disclosure.
Some commenters, including consumer advocacy organizations and a
consumer protection agency, proposed that the Commission adopt an
additional requirement providing that dealers must accept an offer from
a buyer of the offering price. In response, the Commission notes that,
under its proposal, if a dealer were requiring any consumer to pay a
price that was higher than the disclosed offering price, or adding
other conditions--such as requiring the use of a particular finance
company or the purchase of an add-on--to obtain the vehicle at the
offering price, such practices would violate part 463, including the
offering price provision, which requires disclosure of the full cash
price for which the dealer will sell or finance the vehicle to any
consumer,\283\ and the related requirement the Commission is finalizing
under Sec. 463.3(p), which prohibits misrepresentations regarding the
required disclosures in part 463.\284\
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\283\ See Sec. 463.2(k) (defining ``Offering Price'' as ``the
full cash price for which a Dealer will sell or finance the Vehicle
to any consumer, provided that the Dealer may exclude only required
Government Charges'').
\284\ Some commenters described situations in which a dealer may
decline to sell or finance a vehicle to a particular consumer,
including due to legal requirements, irrespective of whether the
dealer otherwise intends to honor its offering price disclosures.
These situations include, for example, a consumer who presented
identity theft indicia under the Commission's Red Flags Rule, 16 CFR
681; a consumer on the Specially Designated Nationals List
maintained by the Office of Foreign Assets Control; a consumer who
cannot produce the required proof of insurance or license to
complete the transaction; or a consumer who is abusive or violent at
the dealership. The Commission's offering price provision is a
pricing disclosure; it will not otherwise alter the status quo on
whether a given sale or financing transaction must be consummated.
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An individual commenter proposed that the Commission adopt
additional requirements requiring dealers to itemize and disclose each
sub-component of the offering price, including any applicable document
fee. The Commission notes that it has not been presented with any
evidence that the benefits of such additional disclosure requirements
outweigh the costs to consumers and competition. The Commission may
consider additional such restrictions or additional guidance in the
future, based on stakeholder experience with part 463 and whether it
effectively remediates unlawful conduct.
Other individual commenters proposed that the Commission impose
limitations on the price of the vehicle--for example, prohibiting
dealers from charging more than MSRP for the vehicle--or prohibit or
limit particular charges, such as dealer fees, document fees, and
destination charges. The Commission notes that several Rule provisions
will prohibit hidden charges and deception related to pricing,
including Sec. 463.4(a) (offering price disclosure) and Sec. 463.3(a)
(prohibition against misrepresenting the costs or terms of purchasing,
financing, or leasing a vehicle). Before including additional
provisions, the Commission will continue studying the market, including
after the Rule is in effect, to determine whether additional steps are
needed.
Other commenters opposed the offering price disclosure and related
definitions. Commenters including an industry association contended
that, by defining ``Offering Price'' in Sec. 463.2(k) as the price
``for which a Dealer will sell or finance the motor vehicle to any
consumer,'' the Commission would prohibit dealers from changing vehicle
prices as market conditions change, thereby making vehicle pricing less
dynamic than under current industry practice.
Section 463.4 and the offering price definition in Sec. 463.2(k),
however, do not alter the current status quo on pricing accuracy or
pricing changes. Consistent with the law, the offering price--as with a
presently advertised price--must be truthful and non-misleading. If the
offering price is only available for a certain period of time, the
advertisement must convey that fact clearly and conspicuously, and if
it is no longer available, the dealer must cease advertising the
offering price.\285\
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\285\ As is the case under current law, under part 463, any
qualifying information necessary to prevent deception regarding a
material fact must be conveyed clearly and conspicuously. See FTC
Policy Statement on Deception, supra note 42, at 1 n.4, 4.
---------------------------------------------------------------------------
Some commenters expressed a related concern that the Commission's
offering price disclosure requirement could require dealers to change
their practices when an advertised vehicle is no longer available. For
example, one industry commenter asked whether, under such
circumstances, a dealer would somehow be obligated to sell some other
vehicle
[[Page 632]]
to that consumer at the offering price. Here, the offering price
disclosure requirement does not alter the status quo: Under Sec.
463.4(a), as under current law, if an offer is limited to a particular
period of time, the offer must convey that fact, and once a price is no
longer available, the dealer must cease advertising that price.
Regarding which vehicles to sell at an advertised offering price, under
the Commission's proposal, the dealer must disclose the offering price
for the vehicles advertised. If the dealer charges a different price,
then the dealer has not disclosed the offering price for which the
dealer will sell or finance the vehicle, and the dealer has
misrepresented the price of the vehicle, in violation of several
provisions, including Sec. Sec. 463.3(b) and (p) and 463.4(a). For
example, if a dealer conveys that all vehicles of a certain nature or
in a certain category are available at a particular offering price, but
charges a higher offering price for any vehicle of that nature or in
that category, the dealer has violated the Rule.
Other comments, including from a member of Congress and from
dealership associations, raised concerns that the Commission's proposal
would limit dealers from advertising rebates, discounts, or incentives
of limited availability, including when qualifications for such
rebates, discounts, or incentives are identified in the advertising,
further contending that such a result would contradict prior FTC
practice. Relatedly, commenters including an industry association
questioned whether the Commission's proposal prohibited dealers from
advertising additional vehicle prices, contending that such a result
would conflict with the longstanding obligation under Federal law to
disclose a vehicle's Manufacturer's Suggested Retail Price, or MSRP.
The Commission notes, however, that the offering price disclosure
requirement does not prevent dealers from presenting accurate and non-
misleading additional information, including terms of limited
availability, so long as the required offering price disclosure remains
clearly and conspicuously presented to consumers.\286\ If, however, a
dealer's disclosure were to give consumers a net pricing impression
that is contrary to that which is actually available, then the
disclosure would violate Sec. 463.4(a), and the related requirement
under Sec. 463.3(p).\287\
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\286\ A number of dealership associations expressed a related
concern that the Commission, through its offering price proposal,
was somehow seeking to restrict competition between dealers to being
only about the price of vehicles. The associations described other
areas, beyond vehicle price, by which dealerships currently
distinguish themselves (e.g., their range of products and services;
their service availability; the convenience of their locations; and
the nature of their sales staffing and process). In response, the
Commission notes that it has long recognized the importance of
protecting competition across both price and quality metrics,
including providing consumers with truthful, nondeceptive
advertising. See, e.g., Cal. Dental Ass'n v. Fed. Trade Comm'n, 526
U.S. 756, 766-68 (1999) (affirming Commission exercise of law
enforcement authority against industry guidelines that unlawfully
restricted both price advertising and advertising relating to the
quality of dental services). As noted, the offering price disclosure
requirement does not prevent dealers from presenting accurate and
non-misleading additional information, including information about
any such distinguishing characteristics, so long as the offering
price is presented clearly and conspicuously.
\287\ For reference, Sec. 463.3(p), which the Commission is
finalizing, see SBP III.C.2(p), prohibits dealers from making
material misrepresentations regarding ``[a]ny of the required
disclosures'' under the Final Rule.
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Some commenters, including dealership associations, generally
concluded the Commission's proposed offering price definition, or its
associated disclosure provision, were unnecessary, confusing,
burdensome, or likely to hinder comparison shopping. Some commenters,
for instance, contended that their respective States already prohibit
misrepresenting price terms, rendering the Commission's proposal
redundant. The Commission notes, however, that a simple disclosure of
the offering price, using the same definition across States, addresses
multiple issues, including: the promotion of prices based on dealer
discounts, rebates, or other price reductions when such benefits are in
fact subject to hidden or undisclosed restrictions that render them
unavailable to typical customers; the concealment or omission of
additional dealer charges, such as for document preparation fees,
amounting to several hundred dollars; the advertisement of a price
without disclosing material limitations or additional charges required
by the dealer that are fixed and thus can be readily included in the
price at the outset; and the inducement to pursue pricing offers that
are not actually available or to pay more for a vehicle due to
inadequate or nonexistent disclosures. Moreover, this disclosure and
the associated definitions should produce the corollary benefit of
increasing price competition among dealers, who will be able to compete
on truthful, standard terms.\288\ The Commission also concludes that
the claim that its offering price disclosure requirement would limit
comparison shopping appears to follow from the mistaken notion that the
offering price disclosure prohibits dealerships from conveying accurate
additional information to consumers, including information about
rebates, discounts, or other limited-availability incentives.
---------------------------------------------------------------------------
\288\ See NPRM at 42023.
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Relatedly, some dealership association commenters contended there
are areas of overlap, or potential conflict, with State law. Pursuant
to Sec. 463.9 of part 463, where it is possible for dealers to comply
with both State law and the provisions of this regulation, or where
State law affords greater consumer protection, part 463 will not
displace existing State pricing or disclosure regimes. This addresses
many of the commenters' concerns about State law. Some dealership
associations, for instance, contend that their respective States
require dealers to separately disclose a dealer document fee and not
represent that the fee is required by the State, or that they allow
dealers, with certain limitations, to incorporate rebates into an
advertised price. Regarding document fees, dealers can simultaneously
comply with part 463, which requires document fees to be included in
the offering price unless they are ``required'' government charges, and
with State law that permits but does not require document fees to be
excluded from a vehicle's advertised price, or that requires disclosure
of the amount of the document fee and that such a fee is not required
by the State, by disclosing the offering price and any additional
State-required information, such as the amount of the dealer document
fee. Similarly, regarding rebates, in addition to the offering price,
dealers may provide consumers with additional pricing information,
including regarding rebates or other incentive pricing, so long as the
offering price remains clear and conspicuous, and any additional
information is truthful and non-misleading and otherwise complies with
part 463 and existing law.
Another dealership association commenter urged the Commission to
consider using an existing definition, including a State-law definition
of ``sales price'' or the definition of ``cash price'' under the Truth
in Lending Act's Regulation Z, in lieu of its proposed offering price
definition.\289\ The Commission notes that its offering price
definition overlaps substantially with the commenter's suggested State-
law ``sales price'' definition, which, according to the commenter,
requires that a vehicle's advertised price be one at which ``the dealer
must be willing to sell the motor vehicle . . . to any retail
[[Page 633]]
buyer''; which ``must'' include certain additional charges that are
fixed and thus can be readily included in the price at the outset,
including ``[d]estination and dealer preparation charges''; and which
permits only certain categories of costs and charges to be
excluded.\290\ Based on the commenter's description, unlike the
Commission's definition, this State-law definition permits the
exclusion of fees ``allowed'' by law or those which the law has
``prescribed.'' \291\ Again, the Rule permits only charges that the
government requires the consumer to pay to be excluded from a vehicle's
offering price, by defining ``Offering Price'' to allow only ``required
Government Charges'' to be excluded. This difference from the State law
described by the commenter, however, creates no conflict--a dealer
governed by that State law will be able to comply with both
requirements by disclosing an offering price that excludes only
required government charges and includes allowable government charges.
---------------------------------------------------------------------------
\289\ Comment of Tex. Auto. Dealers Ass'n, Doc. No. FTC-2022-
0046-8102 at 29-30.
\290\ Id.; see also 43 Tex. Admin. Code 215.250(a), (b) (2023).
\291\ Comment of Tex. Auto. Dealers Ass'n, Doc. No. FTC-2022-
0046-8102 at 29-30; see also 43 Tex. Admin. Code 215.250(b)(3)
(2023).
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Similarly, commenters have not demonstrated any actual conflicts
between the proposed offering price definition and TILA's definition of
``cash price.'' \292\ Dealers can comply with both requirements by
disclosing an offering price that excludes only required government
charges. And the Rule's definition addresses specific unfair and
deceptive conduct in the auto marketplace. Were offering prices to
exclude additional categories, the resulting disclosure provision at
Sec. 463.4(a) would permit dealers to lure consumers to dealership
lots based on a price that is not actually the price the dealer would
require the consumer to pay, a result that would require consumers to
spend time traveling to the dealership and time on the lot to attempt
to discover the true price, and that would place dealerships that
choose to advertise the price truthfully at a competitive disadvantage.
---------------------------------------------------------------------------
\292\ See 12 CFR 226.2(a)(9).
---------------------------------------------------------------------------
Relatedly, commenters including an industry association contended
that no additional regulation of pricing or credit and lease
advertising was necessary beyond that provided by existing practice or
by the Truth in Lending Act, the Consumer Leasing Act, and their
implementing Regulations Z and M, and relatedly, that the Commission's
offering price disclosure requirement duplicated, modified, or ignored
such existing law. The disclosure requirement, however, is consistent
with these existing legal obligations and does not disturb them;
dealers can and should make the disclosures required under TILA and
other laws as well as the offering price disclosure required by the
Final Rule. The provision requires dealers to disclose simple and
highly material pricing information under certain circumstances.\293\
Providing consumers with accurate and timely pricing and financing
information is critical, especially in the context of motor vehicle
sales.\294\
---------------------------------------------------------------------------
\293\ The industry association commenter further contended that
this provision would apply to dealers based on whether they have a
service department, but this is incorrect, as explained in the
analysis of the definition of `` `Covered Motor Vehicle Dealer' or
`Dealer' '' in SBP III.B.2(f).
\294\ See, e.g., Buckle Up, supra note 63, at 5 (noting consumer
confusion about how the vehicle price they were offered was
determined and that consumers did not understand they could
negotiate price); id. at 9 (observing add-on products or services,
which typically increase a vehicle's purchase price, were ``the
single greatest area of confusion'' in the study); Att'ys Gen. of 31
States & DC, Comment Letter on Public Roundtables: Protecting
Consumers in the Sale and Leasing of Motor Vehicles, Project No.
P104811, Submission No. 558507-00112-1 at 5-6 (Apr. 13, 2012),
https://www.ftc.gov/sites/default/files/documents/public_comments/public-roundtables-protecting-consumers-sale-and-leasing-motor-vehicles-project-no.p104811-00112/00112-82927.pdf.
---------------------------------------------------------------------------
Several commenters requested modifications to limit or expand the
proposed definition of ``Government Charges,'' or clarification
regarding this term's application to certain fees. For example,
commenters, including a dealership association, urged the Commission to
modify this proposed definition to include charges that are ``allowed
to be charged but not required or imposed by a Federal, State, or local
government agency, unit, or department.'' \295\ One such commenter
provided the example of certain registration and title charges, which
it described as ``not necessarily imposed or mandatory fees'' and for
which ``the amount may vary, depending on the county'' and the
dealership, and within a governmentally determined range.\296\
Regarding registration and title charges, to the extent such charges
are required by a government agency, unit, or department, then they
fall within the ``Government Charges'' definition as charges ``imposed
by'' such agency, unit, or department. If, however, there are title,
registration, or other fees, beyond any title and registration fees
required by the government, that dealers are allowed, but not required,
to charge, such fees do not fall within the ``Government Charges''
definition, and to the extent a dealer imposes such allowable charges
on any consumer, such fees must be included in the offering price. Were
the Commission to categorize such allowed, but not required, amounts as
``Government Charges,'' dealers would be allowed to exclude them from a
vehicle's offering price but then require consumers to pay them anyway,
thereby allowing dealers to lure consumers to their lots based on a
price that is not actually the price the dealer would require the
consumer to pay--a fact that consumers would not learn until they have
spent time traveling to the dealership and time on the lot, if they
learn this fact at all.\297\ Further, under such circumstances,
dealerships that choose to advertise the price truthfully would be at a
competitive disadvantage. The Commission therefore declines to finalize
the definition with such a modification.
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\295\ Comment of Tex. Auto. Dealers Ass'n, Doc. No. FTC-2022-
0046-8102 at 14.
\296\ Id.
\297\ Indeed, as the Commission also noted in its NPRM, an
entity that induces the first contact through false or misleading
representation is liable under the FTC Act, regardless if the buyer
later becomes fully informed. See, e.g., Resort Car Rental Sys.,
Inc. v. Fed. Trade Comm'n, 518 F.2d 962, 964 (9th Cir. 1975); Fed.
Trade Comm'n v. Gill, 71 F. Supp. 2d 1030, 1046 (C.D. Cal. 1999),
aff'd, 265 F.3d 944 (9th Cir. 2001).
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Commenters, including a number of dealership associations,
contended there were burdens associated with the Commission's offering
price disclosure requirement, claiming it would cause dealers to
require documenting every contact with a consumer in which a specific
vehicle was mentioned, thereby lengthening the sales process and
increasing the recordkeeping burden. Comments regarding recordkeeping
requirements, including records that must be created and maintained
under this Rule, are addressed in the section-by-section analysis of
Sec. 463.6. Here, the Commission notes that accurate pricing
communication is already required by law. Section 463.4(a) does not
require a complex or lengthy disclosure, is based on similar provisions
already in operation in certain States,\298\ will operate as a key
safeguard in States without such provisions, and, as discussed in the
following paragraphs, addresses deceptive and unfair conduct. Further,
this offering price requirement will save consumers time when
[[Page 634]]
shopping for a vehicle by requiring the provision of salient, material
information early in the process and eliminating time otherwise spent
pursuing misleading offers. For dealers already disclosing accurate
pricing information upfront, this provision allows them to compete on
an even playing field.
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\298\ For example, California and Wisconsin have similarly
enacted laws that make it unlawful for dealerships to advertise a
total price without including additional costs to the purchaser
outside the mandatory fees such as tax, title, and registration
fees. Cal. Veh. Code 11713.1(b), (c) (2023); Wis. Admin. Code.
Trans. 139.03(3) (2023). In Louisiana, the advertised price must be
the full cash price for which a vehicle will be sold to any and all
members of the buying public. La. Admin. Code tit. 46, pt. V, 719
(2023).
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Another industry association commenter contended that, by requiring
offering price to be disclosed when an advertisement references a
specific vehicle or represents a monetary amount or financing term ``by
implication,'' the Commission's disclosure requirement could apply to
advertisements that merely list a dealer's website, on which specific
vehicles and their prices appear. Under the Commission's proposal, an
advertisement that does not expressly reference a specific vehicle or
expressly refer to a monetary amount or financing term would not do so
``by implication'' solely by referring to a website, document, or other
destination where such information may otherwise be available, absent
evidence that the net impression of a reasonable consumer is that the
advertisement implicitly references such terms.\299\ The phrasing in
the Commission's requirement--``expressly or by implication''--refers
to the nature of the claims conveyed by a dealer's advertisement (i.e.,
whether such claims are made expressly or by implication). For more
than three decades, the Commission has explained express and implied
claims as follows:
---------------------------------------------------------------------------
\299\ See FTC Policy Statement on Deception, supra note 42, at
2, 5 (describing the Commission's ``net impression'' standard for
determining the meaning of an advertisement).
Express claims directly state the representation at issue.
Implied claims are any claims that are not express. They range on a
continuum from claims that would be ``virtually synonymous with an
express claim through language that literally says one thing but
strongly suggests another to language which relatively few consumers
would interpret as making a particular representation.'' \300\
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\300\ Kraft, Inc., 114 F.T.C. 40, 120 (1991) (quoting Thompson
Med. Co., Inc., 104 F.T.C. 648, 788 (1984), aff'd, 791 F. 2d 189
(D.C. Cir. 1986), cert. denied, 479 U.S. 1086 (1987)).
This same industry association commenter contended that its
aforementioned concerns--that the disclosure requirement would prohibit
dynamic pricing, and that the requirement would extend to
advertisements simply by virtue of their referencing a dealer's
website--would together cause dealers to curb their pricing
representations in advertising, either by limiting such representations
to a vehicle's MSRP or by factoring out pricing altogether. As
previously discussed, these concerns appear to misunderstand either
existing legal requirements or the fact that an offering price
disclosure would operate consistent with those requirements. The
Commission's requirement simply requires dealers to disclose an
offering price and does not alter the current status quo on pricing
accuracy. To the extent there is a concern that requiring accurate
pricing information limits dealers to advertising MSRP or forgoing
advertising pricing information altogether, such concerns apply equally
under current law--including in States with pricing disclosure
requirements that resemble the Commission's offering price disclosure
requirement. The Commission, however, has not been presented with
evidence suggesting that dealers will not want to distinguish
themselves from other dealers on price, and will instead default to
advertising a price that is offered by all of their competitors.
Another concern raised by this same industry association commenter
was that, by requiring an offering price ``in the Dealer's first
response'' to a consumer communication that references a specific
vehicle or a monetary amount or financing term for any vehicle, the
requirement would prohibit dealers from explaining the offering price
and why it is being provided, and that as a result, consumers may
understand the offering price to be non-negotiable. Under Sec. 463.4,
however, dealers continue to be permitted to communicate accurate
additional information, including the availability of discounts or the
dealer's willingness to negotiate, as long as the offering price
disclosure remains clear and conspicuous.
The same industry association commenter asserted that mandating the
disclosure of the offering price in connection with ``any communication
with a consumer'' would result in excessive and non-responsive
disclosures. The commenter provided the example of a consumer who
contacts a dealership to ask whether the dealership has ``a silver
[Ford] F-150 in stock,'' arguing that the Commission's proposal would
require the dealer to respond with offering price information for each
of the numerous (in the commenter's example, 40) silver F-150 vehicles
the dealer has in stock. To begin, if the entire communication simply
asks, ``Do you have a silver Ford F-150 in stock?,'' it does not
concern a ``specific vehicle''; it concerns a group of vehicles--silver
Ford F-150s--and, under Sec. 463.4, the dealer is not required to
disclose an offering price, so long as the dealer's reply does not
reference either (1) a specific vehicle or (2) a monetary amount or
financing term for any vehicle, whether a specific vehicle or a group
of vehicles.\301\ If, however, the dealer chooses to respond by
discussing a specific vehicle--whether by describing that vehicle,
referring to a stock or VIN number, or using other means--the dealer is
required to disclose the offering price for that specific vehicle. If
the dealer chooses to respond by discussing several specific vehicles,
the offering price disclosure requirement applies for each such
vehicle. Finally, the offering price disclosure requirement applies if
the dealer's response references a monetary amount or financing term,
such as a down payment or monthly payment amount, for a specific
vehicle or a group of vehicles. This requirement applies only to the
dealer's first response regarding the specific vehicle. It does not
apply to subsequent communications about that specific vehicle.
---------------------------------------------------------------------------
\301\ See Any (def. 1), Merriam-Webster.com Dictionary, https://www.merriam-webster.com/dictionary/any (defining ``any'' as ``one or
some indiscriminately of whatever kind'').
---------------------------------------------------------------------------
The failure to disclose a vehicle's offering price in an
advertisement or other communication that references a specific
vehicle, or a monetary amount or financing term for any vehicle, is
likely to cause substantial injury to consumers who waste time and
effort pursuing offers that are not actually available or end up paying
more for a vehicle than they expected or being subject to hidden
charges.
Buying or leasing a vehicle is time-consuming and often the most
expensive purchase a consumer makes without knowing the actual price of
the product at the outset. Consumers can spend hours driving to a
dealership.\302\ Once at the dealership, it can then take several hours
to days to finalize a transaction \303\ before the consumer learns the
price of the vehicle. And many consumers never learn the true price at
all; part of the finalization process includes signing dense paperwork,
where information regarding the price of the vehicle and charges for
[[Page 635]]
other items is easily obscured, especially if consumers are not
provided with baseline price information around which to anchor the
lengthy, dense discussions and process. When consumers are not provided
with such price information, they are susceptible to hidden charges
such as ``junk fees'' or unnecessary add-ons that can cost consumers
thousands of dollars and significantly increase their overall
expense.\304\ These hidden charges substantially injure consumers by
increasing their total cost as well as their debt burden in the many
instances where vehicle purchases are financed.\305\
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\302\ See, e.g., Complaint ]] 23-26, Fed. Trade Comm'n v. N. Am.
Auto. Servs., Inc., No. 1:22-cv-01690 (N.D. Ill. Mar. 31, 2022)
(alleging that many consumers drive hours to dealerships).
\303\ See, e.g., Auto Buyer Study, supra note 25, at 15 (noting
that the purchase transactions in the FTC's qualitative study often
took 5 hours or more to complete, with some extending over several
days); Cf. 2020 Cox Automotive Car Buyer Journey, supra note 25, at
6 (reporting average consumer time spent shopping for a vehicle at
14 hours, 53 minutes, including 1 hour, 49 minutes visiting
dealerships/sellers).
\304\ See Nat'l Consumer L. Ctr., ``Auto Add-Ons Add Up: How
Dealer Discretion Drives Excessive, Arbitrary and Discriminatory
Pricing'' (2017), https://www.nclc.org/wp-content/uploads/2022/09/auto_add_on_charts.pdf; Complaint ]] 25, 27-28, Fed. Trade Comm'n v.
N. Am. Auto. Servs., Inc., No. 1:22-cv-01690 (N.D. Ill. Mar. 31,
2022) (alleging defendants charged thousands of consumers hundreds
to thousands of dollars each for unauthorized add-ons, totaling in
aggregate over $70 million since 2017); Complaint ]] 59, 61, Fed.
Trade Comm'n v. Universal City Nissan, Inc., No. 2:16-cv-07329 (C.D.
Cal. Sept. 29, 2016) (alleging unauthorized add-on charges costing
thousands of dollars).
\305\ According to public reports, 81% of new motor vehicle
purchases, and nearly 35% of used vehicle purchases, are financed.
See Melinda Zabritski, Experian Info. Sols., Inc., ``Automotive
Industry Insights: Finance Market Report Q4 2020'' at 4, https://www.autofinancenews.net/wp-content/uploads/2021/03/2020-Q4-Auto-Finance-News-Industry-Pulse.pdf.
---------------------------------------------------------------------------
Moreover, the consumer injury caused by the lack of price
information is not reasonably avoidable. The dealer has sole control
over pricing information and the timing of when it is provided to
consumers. Even if the consumer learns of the price of the vehicle
before finalizing the transaction, the consumer has already spent time
and effort traveling to the dealer, on the dealership lot, and in the
financing office, and for many, the immediate need for the vehicle for
work, school, childcare, groceries, medical visits, and other vital
household reasons makes it infeasible to start the process anew at a
different dealership. Further, during the lengthy vehicle-buying
process and in complex, dense paperwork, it is especially easy to hide
or alter price information or include hidden charges when consumers are
not provided with baseline price information around which to anchor the
discussion of vehicles, monetary amounts, or financing terms.\306\
---------------------------------------------------------------------------
\306\ See, e.g., Complaint ]] 17-19, 44, Fed. Trade Comm'n v.
Liberty Chevrolet, Inc., No. 1:20-cv-03945 (S.D.N.Y. May 21, 2020)
(dealers inflated the car price on paperwork in the middle of the
sale without the consumer's knowledge or authorization, a practice
they internally referred to as adding ``air money''); Complaint ]]
24-27, Fed. Trade Comm'n v. N. Am. Auto. Servs., Inc., No. 1:22-cv-
01690 (N.D. Ill. Mar. 31, 2022) (alleging that defendants buried
charges for add-ons in voluminous paperwork, making it difficult to
detect).
---------------------------------------------------------------------------
The injury to consumers from a lack of price information is not
outweighed by benefits to consumers or competition from withholding
this basic information. Instead, upfront information about the offering
price protects consumers from lost time and effort, supracompetitive
prices, and unexpected charges while increasing price competition among
dealers, who should be able to compete on truthful, standard terms. The
costs of providing price information--which the dealer determines and
can calculate upfront--are minimal for dealers that are already
advertising a specific vehicle, monetary amount, or financing term,
especially when compared to the injury to consumers.
Thus, the failure to disclose a vehicle's offering price in an
advertisement or other communication that references a specific
vehicle, or a monetary amount or financing term for any vehicle is an
unfair practice.
The Commission notes that Sec. 463.4(a)(1) and (2) affects only
dealers that are already advertising about specific vehicles or
monetary amounts or financing terms; it does not affect businesses that
do not expend funds on advertising specific vehicles, monetary amounts,
or financing terms. The Commission will continue to monitor the market
to assess whether this approach is sufficient to address the harms
associated with a lack of price and charge information. If not, the
Commission will revisit whether additional measures are necessary, such
as requiring price information in all advertising, requiring total
charge estimates, or prohibiting charges for additional items along
with a vehicle sale.
Regarding deception, price is one of the most material pieces of
information for a consumer in making an informed purchasing
decision.\307\ Yet, including as illustrated by the Commission's law
enforcement efforts, it can be difficult for consumers to uncover the
actual price for which a dealer will sell an advertised vehicle until
visiting the dealership and spending hours on the lot. When an
advertisement or other communication references a monetary amount or
financing term, it is reasonable for a consumer to expect that those
amounts and terms are available at other standard terms. If instead,
for example, a dealer advertises a low monthly payment based on an
unexpectedly long financing term or an unexpectedly high interest rate
that results in a higher price than standard terms would have, then the
consumer is lured to the dealership based on a misimpression of what
they reasonably expect the total price to be.
---------------------------------------------------------------------------
\307\ See, e.g., Fed. Trade Comm'n. v. Windward Mktg., Inc.,
1997 WL 33642380, at *10 (N.D. Ga. Sept. 30, 1997)) (``[A]ny
representations concerning the price of a product or service are
presumptively material.''); Thompson Med. Co., Inc., 104 F.T.C. 648,
817 (1984); see also Fed. Trade Comm'n v. Crescent Pub. Grp., Inc.,
129 F. Supp. 2d 311, 321 (S.D.N.Y. 2001) (``Information concerning
prices or charges for goods or services is material, as it is
`likely to affect a consumer's choice of or conduct regarding a
product.' '').
---------------------------------------------------------------------------
If a dealer advertises a specific vehicle, it is reasonable for a
consumer to expect to learn the true offering price of the vehicle upon
visiting the dealership. Consumers are misled when dealers misrepresent
or otherwise obscure price information or charge for items beyond the
advertised vehicle during the long and complex sales, financing, and
leasing process.\308\
---------------------------------------------------------------------------
\308\ Consumers who expect particular prices, based on the MSRP
or Kelley Blue Book, are also misled when true pricing information
is not disclosed upfront. See, e.g., Individual commenter, Doc. No.
FTC-2022-0046-1878 (``We ended up having to drive 3 hours to get the
[vehicle we] wanted. Upon arriving to pickup the car we were told
there was a 4300 increase over MSRP.''); Individual commenter, Doc.
No. FTC-2022-0046-1690 (``It was only after five hours at the
dealership that we discovered the dealer had added on a $3000 market
adjustment and $3100 in other add-ons (nitrogen-filled tires,
LoJack, paint protection) to MSRP.''). The average transaction price
of a new vehicle exceeded the average manufacturer's suggested
retail price (MSRP) for twenty consecutive months between 2021 and
2023. See Cox Auto., ``After Nearly Two Years, New-Vehicle
Transaction Prices Fall Below Sticker Price in March, According to
New Data from Kelley Blue Book'' (Apr. 11, 2023), https://www.coxautoinc.com/market-insights/kbb-atp-march-2023/; see also
Edmunds, ``8 Out of 10 of Car Shoppers Paid Above Sticker Price for
New Vehicles in January, According to Edmunds'' (Feb. 15, 2022),
https://www.edmunds.com/industry/press/8-out-of-10-of-car-shoppers-paid-above-sticker-price-for-new-vehicles-in-january-according-to-edmunds.html; iSeeCars, ``10 New Cars Priced the Highest Over MSRP,
Even as Peak Pricing Eases'' (Mar. 19, 2023), https://www.yourerie.com/news/10-new-cars-priced-the-highest-over-msrp-even-as-peak-pricing-eases/ (finding the average new car price was 8.8%
over MSRP).
---------------------------------------------------------------------------
If consumers knew that the true price was beyond what was expected
or that the prices and charges were for unwanted items, that would
likely affect their choice to visit one dealership over another
dealership. Thus, misleading consumers about price information is
material. See, e.g., Fed. Trade Comm'n v. Windward Mktg., Inc., No.
Civ.A. 1:96-CV-615F, 1997 WL 33642380, at *10 (N.D. Ga. Sept. 30, 1997)
(``[A]ny representations concerning the price of a product or service
are presumptively material.'' (citing Removatron Int'l Corp., 111
F.T.C. 206, 309 (1988));
[[Page 636]]
Thompson Med. Co., Inc., 104 F.T.C. 648, 817 (1984)); see also Fed.
Trade Comm'n v. Crescent Pub. Grp., Inc., 129 F. Supp. 2d 311, 321
(S.D.N.Y. 2001) (``Information concerning prices or charges for goods
or services is material, as it is `likely to affect a consumer's choice
of or conduct regarding a product.' '').\309\
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\309\ Even if some consumers were not misled by the failure to
disclose the offering price, to show deception under the FTC Act,
``the FTC need not prove that every consumer was injured. The
existence of some satisfied customers does not constitute a defense.
. . .'' Fed. Trade Comm'n v. Amy Travel Serv., Inc., 875 F.2d 564,
572 (7th Cir. 1989), vacated in part on other grounds, Fed. Trade
Comm'n v. Credit Bureau Ctr., LLC, 937 F.3d 764 (7th Cir. 2019);
accord Fed. Trade Comm'n v. Stefanchik, 559 F.3d 924, 929 n.12 (9th
Cir. 2009).
---------------------------------------------------------------------------
Thus, it is an unfair or deceptive act or practice for dealers to
fail to disclose the offering price in an advertisement or other
communication that references, expressly or by implication, a specific
vehicle or any monetary amount or financing term for any vehicle.
Furthermore, this provision also serves to prevent the
misrepresentations prohibited by Sec. 463.3--including
misrepresentations regarding costs or add-ons--by requiring consumers
to be told the true price of the vehicle in advertisements and other
communications. It also helps prevent dealers from failing to obtain
the express, informed consent of consumers for charges, as addressed by
Sec. 463.5(c).\310\ Thus, the Commission is requiring dealers to
disclose a vehicle's offering price when advertising or otherwise
communicating about a specific vehicle or monetary amount or financing
term for any vehicle. This provision allows consumers to compare offers
based on the same price terms and to select dealers that truly offer
the lowest price rather than dealers that advertise deceptively low
prices but charge more. When price information in the market is
distorted or concealed--especially in document- and time-intensive
vehicle transactions--consumers are unable to effectively differentiate
between sellers, and sellers trying to deal honestly with consumers are
put at a competitive disadvantage.
---------------------------------------------------------------------------
\310\ See 15 U.S.C. 57a(a)(1)(B) (the Commission ``may include
requirements prescribed for the purpose of preventing'' unfair or
deceptive acts or practices).
---------------------------------------------------------------------------
For the foregoing reasons, and having considered the comments that
it received on this proposed provision, the Commission is finalizing
the offering price provision at Sec. 463.4(a) with modifications to
capitalize the defined term ``Vehicle'' in its singular, plural, and
possessive forms, to correspond to the revised definition at Sec.
463.2(e), and to add language clarifying that the provision is also
prescribed for the purpose of preventing unfair or deceptive acts or
practices defined in this Rule. The Commission is finalizing the
corresponding ``Offering Price'' and ``Government Charges'' definitions
in Sec. 463.2 largely as proposed, with modifications to the
``Offering Price'' definition to conform with the defined term
``Vehicle'' and to clarify that dealers may, but need not, exclude
required government charges from a vehicle's offering price, and a
typographical modification to the ``Government Charges'' definition to
include a serial comma for consistency.
(b) Add-On List
The Commission's proposed add-on list disclosure provision
(proposed Sec. 463.4(b)) required the disclosure, both online and at
each dealership, of a list of all optional add-ons for which the dealer
charges consumers and the price of each such add-on.\311\ As proposed,
if the price of the add-on varies based on the specifics of the
transaction, the add-on list would have to include the range the
typical consumer will pay.\312\ Due to space constraints, dealer
advertisements presented not online but in another format--such as in
print, radio, or television--would not be required to include the add-
on list, disclosing instead the website, online service, or mobile
application where consumers can access the add-on list.\313\
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\311\ To the extent any add-on charges are required by a
dealership, and thus are not optional, such charges would have to be
included in the offering price, pursuant to Sec. Sec. 463.2(k) and
463.4(a).
\312\ See NPRM at 42044 (noting, in the definition of ``Add-on
List'' at proposed Sec. 463.2(b) that ``[i]f the Add-on price
varies, the disclosure must include the price range the typical
consumer will pay instead of the price''); see also Fed. Trade
Comm'n v. Five-Star Auto Club, Inc., 97 F. Supp. 2d 502, 528
(S.D.N.Y. 2000) (``at the very least it would have been reasonable
for consumers to have assumed that the promised rewards were
achieved by the typical Five Star participant''); Complaint ]] 28-
50, Fed. Trade Comm'n v. Universal City Nissan, Inc., No. 2:16-cv-
07329 (C.D. Cal. Sept. 29, 2016) (alleging unlawful deception where
a dealer's ads list prominent terms not generally available to
consumers, including where those terms are subject to various
qualifications or restrictions); Complaint ]] 8-10, Progressive
Chevrolet Co., No. C-4578 (F.T.C. June 13, 2016) (alleging
advertised offer was deceptive because the typical consumer would
not qualify for the offer).
\313\ Working in tandem, proposed Sec. 463.4(b)(1) and (2)
would mean that dealers who engage in advertising and charge for
optional add-ons must have a website, online service, or other
mobile application by which to disclose an add-on list.
---------------------------------------------------------------------------
Many commenters, including consumer advocacy organizations,
supported the proposal to require dealers to provide consumers with
clear, accurate pricing information for add-on products or services
altogether in one list. Some commenters raised concerns that, without
significant modification, the Commission's proposal to allow for the
disclosure of price range information where the price of an add-on
varies based on the specifics of the transaction would allow for
significant abuses, including by permitting dealers to disclose ranges
so broad they would be meaningless. Such commenters urged the
Commission to modify its definition of ``Add-on List'' to require,
where a price range is listed for a given add-on, the add-on list
further indicate the low, median, and high prices charged to consumers
for each such add-on over the preceding two years; or that the
Commission require dealers to create individualized add-on lists for
each vehicle sold, containing one fixed, non-negotiable price for each
add-on. Relatedly, other commenters, including industry organizations,
expressed concerns regarding the add-on list proposal, including that
the proposal to allow for price range information was vague or
confusing, and that certain aspects of the proposed definition,
including the scope of add-ons covered, as well as the requirement to
keep such add-on lists updated, would impose extensive economic
burdens.
After careful review of the comments, the Commission has determined
not to finalize its proposed add-on list provision (proposed Sec.
463.4(b)). Here, the Commission believes its proposal would benefit
from further review and refinement. The Commission nevertheless
emphasizes that, under existing law, dealers are prohibited from
misrepresentations regarding material information about any costs,
limitation, benefit, or any other aspect of an add-on, and from
charging for add-ons without obtaining the express, informed consent of
the consumer--conduct which the Final Rule prohibits as well, including
in Sec. Sec. 463.3(b) and Sec. 463.5(c). The Commission also
emphasizes that, in addition to the Rule's prohibitions, industry
guidance and effective self-regulatory efforts can serve a role in
helping prevent problematic dealer behavior in this area. The
Commission will continue to monitor the motor vehicle marketplace for
issues pertaining to add-ons and will consider implementing additional
measures in the future if it determines such measures are warranted to
address deceptive or unfair acts or practices related to add-on
products or services.
(c) Add-Ons Not Required
For optional add-on products or services, the Commission's proposed
Sec. 463.4(c) required dealers to disclose, when making any
representation about
[[Page 637]]
an optional add-on, that the add-on is not required and the consumer
can purchase or lease the vehicle without the add-on. For the reasons
discussed in the paragraphs that follow, the Commission is finalizing
the required disclosure at Sec. 463.4(c) largely as proposed. The
Commission is capitalizing the defined term ``Vehicle'' to conform with
the definition at Sec. 463.2(e). The Commission also is adding
language to the end of Sec. 463.4(c) clarifying that the requirements
in Sec. 463.4(c) ``also are prescribed for the purpose of preventing
the unfair or deceptive acts or practices defined in this part,
including those in Sec. Sec. 463.3(a) and (b) and 463.5(c).''
A number of commenters, including a group of State attorneys
general, supported this proposed requirement, contending that
unscrupulous dealers have exploited the vehicle sales process to saddle
consumers with unwanted add-on products or services, and that such a
disclosure would importantly help consumers avoid discovering these
additional charges only after completing the purchase, assenting to
them because they believed the add-ons to be required in order to
purchase the vehicle, or paying for them unknowingly because they never
uncovered the charges. Many individual commenters also stressed the
need for add-on disclosure requirements. For example:
Salespeople such as myself are responsible for selling the
car and all aftermarket/add-on products. This has put me in a unique
position to see how these proposed regulations would impact automotive
sales. I cannot stress enough my support for these new rules. . . . The
payments calculated by management include add-ons, but the price of the
add-ons and how they affect the payments are not shown. The add-ons
``packed'' in the first payment often include an extended warranty, GAP
insurance, tire and wheel protection, an oil change package, a theft
recovery device, and sometimes more depending on the situation.\314\
---------------------------------------------------------------------------
\314\ Individual commenter, Doc. No. FTC-2022-0046-3693.
---------------------------------------------------------------------------
Car buying is one of the most miserable consumer
experiences in existence. Frankly, I'm disappointed that this issue
hasn't been addressed decades ago. It's well past time that the
deceptive practices that car dealers use to manipulate and take
advantage of customers is made illegal. What other business can legally
lie about the price of the product that they sell, and slip extra
unwanted products into the deal that they don't reveal and won't remove
upon request? These practices are arcane and unfair, especially
considering the absurd cost of automobiles today. I wholeheartedly
approve of what the proposed rules are attempting to accomplish. Please
do not allow a powerful lobbying group to limit or change good
legislation that benefits tens of millions of Americans who currently
dread the car buying experience for far more reasons than just
price.\315\
---------------------------------------------------------------------------
\315\ Individual commenter, Doc. No. FTC-2022-0046-5268.
---------------------------------------------------------------------------
. . . I am not against business making a profit, in fact
most Americans understand businesses need to make money too, however
most dealers will not disclose additional costs to the purchaser until
it is time to sign paperwork for purchase. Rather than simply being
upfront with what their desired price is and how much they make from
the sale rather they are fed lines about ``common practices'', [sic]
``these are normal fees'' or simply not being forthright about
additional costs on items only installed on location at the dealerships
to drive the price up. Even more insulting is when buyer[s] ask to have
options removed from the vehicle dealers stall or flat out refuse to do
so.\316\
---------------------------------------------------------------------------
\316\ Individual commenter, Doc. No. FTC-2022-0046-1365.
---------------------------------------------------------------------------
It is about time something like this is brought up. This
will have no effect on the honest dealers out there. . . . This will
really help the consumer. . . . We will be able to compare apples to
apples. You won't show up at the dealership with the lowest price only
to find out that they have all these other fees that make them the
least desirable of the choices. Also, adding stuff like pinstriping for
large fees will come to an end. . . . I have no problem with a dealer
making money. They are a business and have overhead. I have a problem
when they try [to] gloss over everything they are trying to charge you
for. This ruling needs to take effect. Anyone posting against it is
someone working for a dealer. Like I mentioned before, if you are doing
everything on the up and up, not only do you get good reviews and
repeat business, but this ruling will not even effect [sic] you.\317\
---------------------------------------------------------------------------
\317\ Individual commenter, Doc. No. FTC-2022-0046-9883; see
also Individual commenter, Doc. No. FTC-2002-0046-9632 (``I was told
that GAP insurance was required to be included. . . . I [later]
contacted and asked for copies of my contracts. On September 5 [the
dealer] sent me an email with a credit contract attached. I am
including it here. It says my monthly payment is over $370. It also
shows the cash price as close to $17,000.00. I can also see it says
the GAP is optional. I never saw this contract. I never signed this
contract.'').
---------------------------------------------------------------------------
I also agree that Enhanced Informed Consent in F & I
office is necessary. One of my cohort was almost coerced into non-
equivalent decision-making scenarios in the finance office with their
car purchases. The finance officer flat out ask[ed] them, ``did you
want the 2 year, 30[,000] mile extended warrant[y], or the 4 year
50[,000] mile extended warranty?'' The wife sat there and asked, ``I'm
confused. Do I HAVE to pick one of those?'' Her husband said, ``No,
he's trying to trick you into buying one. You don't need any at all.''
They then promptly threatened to walk out and the finance manager came
out and did their paperwork without further conflict.\318\
---------------------------------------------------------------------------
\318\ Individual commenter, Doc. No. FTC-2022-0046-6816.
---------------------------------------------------------------------------
Several commenters offered support while also proposing that the
Commission adopt additional measures to further ensure that consumers
understand that optional add-ons are not required. One dealership
group, for example, commenting in support of disclosures that optional
add-ons are not required, recommended that dealers be required to
include signage on their websites and in their showrooms or on their
sales desks that set out both components of the Commission's proposal:
that add-ons are not required, and that consumers may purchase or lease
the vehicle without add-ons. Other commenters, including a consumer
protection agency and a consumer advocacy organization, suggested that
the Commission modify the language in proposed Sec. 463.4(c) to strike
the ``if true'' language, asserting that all add-ons should be optional
and not required to consummate the sale or lease of a vehicle. At least
one individual commenter recommended that the Commission prohibit
dealers from pre-installing add-ons.
In response to these comments, the Commission notes that, were it
to require signage stating, generally, that add-ons are optional, or to
strike the ``if true'' language from this disclosure, it would cause
consumers to be presented with information that may not be accurate in
all circumstances. Some add-ons might already be installed on the
vehicle or otherwise required by the dealer. As explained in SBP
III.D.2(a) with regard to Sec. 463.4(a), charges for such add-ons must
be included in the vehicle's offering price.\319\ In such cases,
representing that add-ons are categorically optional would mislead
[[Page 638]]
the consumer. Relatedly, by requiring that charges for mandatory items
be included in the vehicle's offering price, the Final Rule allows
dealers to customize the vehicles they are selling while protecting
consumers by requiring dealers to disclose the offering price for such
customized vehicles. Accordingly, the Commission declines to prohibit
the practice of pre-installing add-ons in this Final Rule, but will
continue to monitor the market to determine whether pre-installed add-
ons require further regulation. At the same time, the Commission
emphasizes that the protections contemplated here and elsewhere in this
Final Rule prohibit dealers from obscuring price information and
whether an add-on is optional, and further require dealers to obtain
the express, informed consent of the consumer to charge a consumer for
any add-on.
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\319\ In such cases, however, Sec. 463.4(a) of the Final Rule
requires these non-optional add-ons to be included in a vehicle's
offering price; if the dealer requires the consumer to pay for them,
they are part of the full cash price for which a dealer will sell or
finance the vehicle to any consumer. See SBP III.D.2(a).
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Additionally, several commenters indicated their support for the
Commission's proposal while also recommending that the Commission
consider further steps to protect consumers from deceptive or unfair
practices pertaining to the inclusion of add-ons in consumer vehicle
sales or leases. Some commenters, including a group of State attorneys
general and a dealership association, requested that the Commission
require dealers to disclose any mandatory add-ons and whether those
add-ons are required in order to obtain financing, including by
requiring such disclosure in an addendum sticker affixed to the motor
vehicle. In response, the Commission notes that other provisions of the
Final Rule prohibit misconduct in this area, including by requiring, at
Sec. 463.4(a), that charges for such add-ons must be included in the
vehicle's offering price. While consumers may benefit from repeated or
additional disclosures, each additional disclosure requirement would
increase both the cost to comply with the regulation and the risk of
crowding out other important information. Given these risks, the
Commission declines to include additional requirements regarding the
content or form of its add-on disclosure at Sec. 463.4(c). The
Commission will continue to monitor the market to gather additional
information on this issue and will consider whether to modify or expand
this or other sections in the future based on stakeholder experience
with this provision and whether it effectively halts unlawful conduct.
Other commenters, including consumer advocacy organizations and
consumer attorneys and advocates, urged the Commission to adopt a
thirty-day ``cooling-off'' period for the sale of vehicle-related add-
ons, similar to that required by the Commission for door-to-door and
other off-premises sales,\320\ which would grant consumers time to
review the paperwork after the transaction, and to cancel unexpected or
otherwise unwanted add-ons for a full refund. As explained in greater
detail in the discussion of Sec. 463.5(c), in SBP III.E.2(c), the
Commission also has determined not to include in this Final Rule a
``cooling-off'' period in which add-on products or services may be
canceled. In this regard, the Commission would benefit from additional
information, including the length of time needed for such ``cooling
off'' rights to be effective. The Commission may consider revisiting
this decision in the future based on actual stakeholder experience with
the provisions of the Final Rule and whether they effectively halt
unlawful conduct.
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\320\ See Rule Concerning Cooling-Off Period for Sales Made at
Homes or at Certain Other Locations, 16 CFR 429.
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Other commenters presented questions or critiques regarding this
proposed disclosure. As with the Commission's proposed disclosures
generally, some commenters, including an industry association and a
dealership association, contended that existing requirements in a
number of States to disclose that add-ons are optional make Federal
regulation in this area unnecessary or contradictory. As described in
detail in SBP III.D.1, the Commission first observes that the
functioning of such standards demonstrates the practicability of its
proposed disclosure that add-ons are not required. To the extent a
State requires additional disclosures regarding add-ons, nothing
prevents dealers from providing those disclosures as well as those
required under part 463 so long as the State disclosures are not
inconsistent with those required under part 463. To the extent there is
truly an inconsistency between this part and State law, Sec. 463.9
provides that part 463 will govern, but only to the extent of the
inconsistency, and only if the State statute, regulation, order, or
interpretation affords consumers less protection than does the
corresponding provision of this part. Finally, a number of States do
not have existing standards in this area; in such States, the
Commission's disclosures operate as a key safeguard.
Commenters, including dealership associations, argued that dealers
would develop and use an additional form to demonstrate compliance with
this disclosure requirement, thereby burdening the vehicle sales and
delivery process. The Commission begins by noting that any such steps
are not required by part 463; on the contrary, the Commission
structured this disclosure to provide dealers with flexibility, within
the bounds of the law, to provide this essential information in a
manner that is clear and conspicuous under the particular circumstances
of their transactions. This requirement does not require a complex or
lengthy disclosure, is based on similar provisions already in operation
in certain States,\321\ and for dealers already disclosing accurate
add-on information, this provision requires no significant additional
burden.
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\321\ See, e.g., California Car Buyer's Bill of Rights, Cal.
Civ. Code 2981 (requiring dealers to provide a written list of
specified items purchased and their effect on monthly payments,
including GAP, theft deterrent devices, and surface protection
products); Minn. Stat. 59D.06(b) (requiring any person offering a
GAP waiver to disclose that the waiver is not required for a
consumer to buy or lease the vehicle); Wash. Rev. Code.
48.160.050(9) (mandating that GAP waivers disclose that ``neither
the extension of credit, the terms of the credit, nor the terms of
the related motor vehicle sale or lease, may be conditioned upon the
purchase of the waiver.''); La. Stat. Ann. 32:1261(A)(2)(a)
(declaring it unlawful for a dealer to require, as a condition of
sale and delivery, for a consumer to purchase ``special features,
appliances, accessories, or equipment not desired or requested by
the purchaser.'').
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When making a representation about an add-on product or service,
the failure to disclose that the add-on is not required and the
consumer can purchase or lease the vehicle without the add-on, if true,
is likely to cause substantial injury to consumers who end up paying
more for a vehicle sales or lease transaction than they expected by
being subject to charges of which they are not aware or which they
believe are required because they were never told they could decline
the charges.
Absent this information, consumers cannot reasonably avoid the
injury of being charged for these products because they are not aware
that they have an option to begin with. When consumers are presented
with motor vehicle transaction documents that include a variety of
charges, it is difficult to detect any charges that are added to the
contract beyond those that are required or have been agreed upon,
especially in a stack of lengthy, complex, highly technical, and often
pre-populated documents, at the close of a long sales, financing or
leasing process after an already-lengthy process of selecting the
vehicle and negotiating over its price or payment terms. Consumers
cannot reasonably avoid charges of which they are unaware, or regarding
which they do not know they have a choice.
[[Page 639]]
The injury to consumers from a lack of information about add-on
optionality is not outweighed by benefits to consumers or competition
from withholding this basic information. Instead, information about the
optional nature of these products or services protects consumers from
lost time and effort, supracompetitive transaction costs, and
unexpected charges while increasing competition among dealers, who are
able to compete on truthful, standard terms. Moreover, the cost of
providing this threshold information is minimal, especially when
compared to the injury to consumers, and providing such information is
consistent with existing industry guidance.\322\
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\322\ See Nat'l Auto. Dealers Ass'n et al., ``Voluntary
Protection Products: A Model Dealership Policy'' 4 (2019), https://www.nada.org/regulatory-compliance/voluntary-protection-products-model-dealership-policy (stating dealerships should ``prominently
display to customers a poster stating that [add-on products or
services] offered by the dealership are optional and are not
required to purchase or lease a vehicle or obtain warranty coverage,
financing, financing on particular terms, or any other product or
service offered by the dealership. . . .'').
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This provision addresses deceptive conduct as well. Throughout the
lengthy vehicle sales, financing, or leasing process, dealers often
discuss various different charges at various different times. Such
charges include charges the government requires the consumers to pay
and financing costs. Dealers then often present consumers a total
amount to pay that differs from the advertised or sticker price. Given
that some additional charges are required, if a dealer also discusses
charges for items that are not required, such as optional add-ons, it
is reasonable for consumers to believe that charges for such items are
required. In the course of a lengthy transaction involving extensive
negotiations, dealers can obscure such products and their associated
charges in dense paperwork. Moreover, the omitted information is highly
material: if consumers knew that a particular optional add-on was not
required to purchase the vehicle, it would likely affect their choice
about whether to purchase the add-on.\323\
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\323\ See, e.g., Fed. Trade Comm'n. v. Windward Mktg., Inc.,
1997 WL 33642380, at *10 (N.D. Ga. Sept. 30, 1997)) (``[A]ny
representations concerning the price of a product or service are
presumptively material.''); Thompson Med. Co., Inc., 104 F.T.C. 648,
817 (1984); see also Fed. Trade Comm'n v. Crescent Pub. Grp., Inc.,
129 F. Supp. 2d 311, 321 (S.D.N.Y. 2001) (``Information concerning
prices or charges for goods or services is material, as it is
`likely to affect a consumer's choice of or conduct regarding a
product.' '').
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Thus, it is an unfair or deceptive act or practice for dealers to
fail to disclose, when making a representation about an add-on product
or service, that the add-on is not required and the consumer can
purchase or lease the vehicle without the add-on, if true. Further,
this provision also serves to prevent the misrepresentations prohibited
by Sec. 463.3--including misrepresentations regarding material
information about the costs or terms of purchasing, financing, or
leasing a vehicle, or about any costs, limitations, benefits, or any
other aspect of an add-on--by requiring consumers to be told whether
represented add-ons are optional. It also helps prevent dealers from
failing to obtain the express, informed consent of the consumer for
charges, as addressed by Sec. 463.5(c).\324\ Thus, the Commission is
requiring dealers to disclose, when making representations about add-
ons, that the add-ons are not required and the consumer can purchase or
lease the vehicle without the add-ons, if true.
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\324\ See 15 U.S.C. 57a(a)(1)(B) (the Commission ``may include
requirements prescribed for the purpose of preventing'' unfair or
deceptive acts or practices).
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For the foregoing reasons, and having considered all of the
comments that it received on this proposal, the Commission is
finalizing the required disclosure at Sec. 463.4(c) largely as
proposed, with the minor modifications of capitalizing the defined term
``Vehicle'' and clarifying that the requirements of Sec. 463.4(c) also
are ``prescribed for the purpose of preventing the unfair or deceptive
acts or practices defined in this part, including those in Sec. Sec.
463.3(a) and (b) and 463.5(c).''
(d) Total of Payments and Consideration for a Financed or Lease
Transaction
Section 463.4(d) of the Commission's proposed rule required
dealers, when making any representation about a monthly payment for any
vehicle, to disclose the total amount the consumer will pay to purchase
or lease the vehicle at that monthly payment after making all payments
as scheduled. If the total amount disclosed assumes the consumer will
provide consideration, the proposed rule required dealers to disclose
the amount of consideration to be provided by the consumer. For the
reasons discussed in the following paragraphs, the Commission is
finalizing the required disclosure at Sec. 463.4(d) largely as
proposed. The Commission is capitalizing the defined term ``Vehicle''
to conform with the definition at Sec. 463.2(e), and making the minor
grammatical correction of replacing the semicolon and the word ``and''
at the end of Sec. 463.4(d)(1) with a period. The Commission also is
adding language to the end of Sec. 463.4(d), at newly designated
(d)(3), clarifying that the requirements in Sec. 463.4(d) ``also are
prescribed for the purpose of preventing the unfair or deceptive acts
or practices defined in this part, including those in Sec. Sec.
463.3(a) and 463.5(c).''
A number of commenters, including consumer advocacy organizations,
supported this proposed requirement, contending it would provide
essential information to the consumer while not contributing to
information overload, and noting the information to be disclosed would
have been calculated by the dealer in the process of determining the
proposed monthly payment. Many individual commenters also stressed the
need for the Commission's proposal:
Small businesses are a cornerstone of our economy.
Automotive dealers, like other retailers, deserve to make a reasonable
profit in order to maintain their physical plants, to purchase
inventory, and to pay their staff. That being said, some auto dealers
have for years used misleading and often out-and-out deceptive sales
tactics (i.e., lies) to generate sales. . . . Sometimes the unwary
consumer may not even realize that the actual price differs from the
quoted price, because the automobile finance agent speaks only in terms
of monthly payments rather than the total cost. The consumer may not
even realize that he or she has been ``taken'' until a friend with an
amortization table runs the numbers.\325\
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\325\ Individual commenter, Doc. No. FTC-2022-0046-1216.
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At most dealerships, including the one I work at, when a
customer asks to see figures on a car after a test drive, management
goes out of their way to make sure the customer only sees the monthly
payment. The typical numbers presented to the customer initially show
the price of the car, the trade-in value, the down payment, and the
monthly payment options in bold numbers at the bottom. The payments
calculated by management include add-ons, but the price of the add-ons
and how they affect the payments are not shown. . . . Compounding this
issue of hidden add-ons is that salespeople are instructed to figure
out the customer's budget beforehand (e.g., $450 per month). If the
monthly payment with the car and add-ons comes out to be less than $450
per month, management will often raise the price of the add-ons to get
the payment to $450 or even slightly above.\326\
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\326\ Individual commenter, Doc. No. FTC-2022-0046-3693.
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I wholeheartedly support the proposed regulation changes
for car dealerships and the car buying process.
[[Page 640]]
As an average consumer who has bought 3 vehicles with financing and 2
without, I can see the obvious benefit these proposed regulations would
have on the car buying process. The vast quantities of paperwork and
add [-]ons make it easy for car dealers to switch things around to
their benefit. I had one dealership . . . change the term of my auto
loan from 72 to 84 months in the middle of reprinting the final sales
sheet because of another obvious error in the first copy. In the midst
of all the distractions and misdirection going on, [I] didn't notice
[`]til[l] after the fact. I felt powerless and cheated. . . .\327\
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\327\ Individual commenter, Doc. No. FTC-2022-0046-5567.
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There is no reason that buying a car has to be a chore and
so ambiguous on price. The dealer was also so twisted up on getting me
to focus on the monthly payment and not the total price of the car and
that is where they were able to sneak the price up. Practices like this
are also why people have such a disdain for purchasing a new/used
car.\328\
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\328\ Individual commenter, Doc. No. FTC-2022-0046-2176.
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I have experienced many of the ``typical'' tactics that
one hears about when negotiati[ng] with an automobile dealership, like
the salesperson always wanting to talk about the monthly payment and
never the actual trade-in price and sales price. . . . I agree that the
whole car buying process could be made easier and I see no reasons that
any fair and honest car dealership would object to these proposed
changes/rules as they, in my estimation are all things that a fair and
honest car dealer should be doing anyway. The only car dealers that
should be objecting to these new rules should be the unscrupulous
dealers.\329\
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\329\ Individual commenter, Doc. No. FTC-2022-0046-4034.
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When buying a car dealers try to negotiate the monthly
payment, so the actual total cost is hidden from the buyer until they
get into the ``financing office'' where all kinds of unexpected add-ons
are sprung on the consumer.\330\
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\330\ Individual commenter, Doc. No. FTC-2022-0046-4911.
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I am trying to buy a new car, from the factory, with no
modifications or alterations, is it so much to ask for? The process of
figuring out the price of the car is impossible. The sales people are
all about the monthly payment, when I asked them what the car price is
the answer is always what payment are you looking for.\331\
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\331\ Individual commenter, Doc. No. FTC-2022-0046-5958.
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They only want to gain the amount you can be
``comfortable'' on your monthly payment so that they can stretch out
the term and hammer you with hidden fees and other expenses you won[']t
be able to see right away.\332\
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\332\ Individual commenter, Doc. No. FTC-2022-0046-8847.
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Dealerships always want you to come in so they can
manipulate you into a car you can[']t afford and pay for things you
don't need by hiding them in a monthly payment.\333\
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\333\ Individual commenter, Doc. No. FTC-2022-0046-6405.
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If we had to do our grocery shopping the same way dealers
want us to buy a car, most Americans would starve before sunset. ``What
kind of monthly payment are you looking for in a banana?'' is a
conversation I should never be forced to have. . . .\334\
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\334\ Individual commenter, Doc. No. FTC-2022-0046-3860.
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One individual commenter requested that the Commission make clear
that handwritten negotiation notes made by a dealer would trigger the
requirement that this proposed disclosure be made in writing.\335\ In
response, the Commission affirms such representations have been made
``in writing,'' \336\ and thus, where dealers represent a monthly
payment in such notes, this provision requires them to provide the
disclosures in Sec. 463.4(d) in writing.
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\335\ Individual commenter, Doc. No. FTC-2022-046-9469 at 6-7.
\336\ See, e.g., Writing, Black's Law Dictionary (11th ed. 2019)
(defining ``writing'' as ``[a]ny intentional recording of words in a
visual form, whether in handwriting, printing, typewriting, or any
other tangible form that may be viewed or heard with or without
mechanical aids.''); cf. Fed. R. Evid. 1001(a) (defining ``writing''
as letters, words, numbers, or their equivalent set down in any
form'').
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Other commenters, including industry associations and individual
commenters, questioned whether the proposal would require a disclosure
in every place a monthly payment appears on a dealer's website, or
otherwise would be difficult or infeasible given the frequency with
which dealers provide consumers with monthly payment information,
suggesting that such a requirement could either overwhelm consumers or
dissuade dealers from providing monthly payment information, or arguing
\337\ that the proposal overlapped with other laws such as the Truth in
Lending Act or the Consumer Leasing Act. Regarding monthly payment
amounts appearing more than once or in multiple places, the Commission
notes that, as proposed, this section would require disclosure of the
total purchase or lease amount for a vehicle including any assumed
consumer-provided consideration, and only when making a representation
about the vehicle's monthly payment amount; it would not require a
complex or lengthy disclosure. Consumers shop for vehicles and interact
with online interfaces, and other advertising in many different ways;
thus, it is important for this simple disclosure to accompany a monthly
payment representation however a consumer might encounter it. Moreover,
the Commission has taken into account existing disclosure
obligations.\338\ Monthly payment amounts for motor vehicle sales or
leases constitute so-called ``triggering terms'' under the Truth in
Lending Act, the Consumer Leasing Act, and their implementing
Regulations Z and M. As such, dealers currently providing such
information, including on their websites or other online interfaces,
are bound by existing laws that require providing consumers with
additional terms in a clear and conspicuous way: in the case of vehicle
credit transaction offers, this includes the terms of repayment, which
reflect the repayment obligations over the full term of the loan; \339\
in the case of vehicle lease offers, this includes the number, amounts,
and due dates or periods of scheduled payments under the lease.\340\
The Commission's disclosure requirement takes into account these
existing obligations, requiring, specifically: the total amount the
consumer will pay to purchase or lease the vehicle at a represented
monthly payment amount including any assumed consumer-provided
consideration. Similarly, regarding the feasibility of providing this
disclosure as often as dealers provide consumers with monthly payment
information: once dealers choose to make a representation about a
monthly payment, they are capable of disclosing a total of payments for
the consumer based on the same inputs needed to arrive at that
voluntary monthly payment representation.
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\337\ These association commenters made these contentions
regarding the monthly payment disclosures at both Sec. 463.4(d) and
(e). The Commission responds to these contentions in this section.
\338\ One industry commenter, in expressing concern that Sec.
463.4(d) and (e) may conflict with Regulations Z and M, questioned
whether the FTC coordinated with the Federal Reserve Board. Several
Senators similarly questioned whether the FTC consulted with the
Federal Reserve Board, CFPB, or other agencies. Although the
Commission cannot comment on specific interactions, it coordinates
regularly with other Federal agencies, including the Federal Reserve
Board and the CFPB.
\339\ See 12 CFR 1026.24(b), (d)(2)(ii).
\340\ See 12 CFR 1013.7(b), (d)(2)(iii).
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The Commission further notes that, in the event a monthly payment
is already being disclosed, the associated total of payment would be
calculated with the same financing or leasing estimates used
[[Page 641]]
to calculate the monthly payment. Dealers already must be prepared to
calculate such a total to satisfy their obligations under TILA, the
CLA, or their implementing regulations.\341\
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\341\ As is currently the case under Federal law and the Final
Rule, the terms must be the terms available to the typical consumer.
See, e.g., Fed. Trade Comm'n v. Five Star Auto Club, 97 F. Supp. 2d
502, 528 (S.D.N.Y. 2000) (``[A]t the very least it would have been
reasonable for consumers to have assumed that the promised rewards
were achieved by the typical Five Star participant.''). This is
consistent with prior FTC enforcement actions. See, e.g., Complaint
]] 48-53, 82-84, Fed. Trade Comm'n v. Universal City Nissan, Inc.,
No. 2:16-cv-07329 (C.D. Cal. Sept. 29, 2016) (alleging unlawful
deception where a dealer's advertisements list prominent terms not
generally available to consumers, including where those terms are
subject to various qualifications or restrictions); Complaint ]] 8-
10, Progressive Chevrolet Co., No. C-4578 (F.T.C. June 13, 2016)
(alleging advertised offer was deceptive because the typical
consumer would not qualify for the offer).
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Regarding Sec. 463.4(d)'s similarity to existing laws, as
discussed previously, this provision is indeed consistent with other
laws, and commenters have not indicated how providing truthful
information about total payment amounts along with information they
already provide about monthly payment amounts would unduly burden them
or harm consumers, or how providing such information in writing before
providing consumers with the contract, if they are already providing
monthly payment information in writing prior to the contract, would do
so.
Some dealership associations described certain elements of the
proposal as vague or unclear, requesting that the Commission clarify
its use of the term ``by implication'' with regard to a monthly
payment, or alternatively, that the Commission omit the terms ``any''
(as it pertains to ``any representation''), ``by implication,'' and
``indirectly'' from the proposed disclosure provision.\342\ Regarding
the use of the term ``by implication'' with regard to a monthly
payment, as discussed in the section-by-section analysis of Sec. 463.3
in SBP III.C with respect to the prohibition on express or implied
misrepresentations, the Commission notes that such language is
consistent with longstanding law, and given that representations can
mislead reasonable consumers even without making express claims, the
provision could be rendered meaningless without it.\343\ Variations of
the phrase ``expressly or by implication'' appear frequently in
existing Commission guides and regulations,\344\ and implied claims are
treated extensively in the longstanding FTC Policy Statement on
Deception, which the Commission issued in 1983 to provide guidance to
the public on the meaning of deception.\345\ Furthermore, this language
serves to help ensure that dealers may not avoid this disclosure
requirement by making only implied reference to monthly payments,
including by referring to a monthly payment amount that is not
explicitly identified as such, or by referring to a regular periodic
payment made on a different installment basis (e.g., a biweekly
payment) to indirectly illustrate a consumer's monthly payment
obligations.
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\342\ One commenter requested clarification or deletion of
``any,'' ``by implication'' and ``indirectly'' from Sec. 463.4(c)
and (e) for the same reasons it articulated with regard to Sec.
463.4(d): that the terms are too vague. The explanation provided in
the text pertains to these sections as well.
\343\ The FTC Policy Statement on Deception and FTC cases make
clear that both express and implied claims can be deceptive. See,
e.g., ECM Biofilms, Inc. v. Fed. Trade Comm'n, 851 F.3d 599 (6th
Cir. 2017) (affirming Commission's finding that an additive
manufacturer's unqualified biodegradability claim conveyed an
implied claim that its plastic would completely biodegrade within
five years); POM Wonderful LLC, Doc. No. C-9344 (F.T.C. Jan. 10,
2013) (Opinion of the Commission), generally aff'd by POM Wonderful,
LLC v. Fed. Trade Comm'n, 777 F.3d 478 (D.C. Cir. 2015) (finding
that company's advertisements would reasonably be interpreted by
consumers to contain an implied claim that POM products treat,
prevent, or reduce the risk of certain health conditions and for
some ads that these effects were clinically proven); Kraft, Inc. v.
Fed. Trade Comm'n, 970 F.2d 311 (7th Cir. 1992) (affirming finding
of deception where Kraft advertisements juxtaposed references to the
milk contained in Kraft singles and the calcium content of the milk,
the combination of which implied that each Kraft single contained
the same amount of calcium as five ounces of milk). Further, to be
considered reasonable, the interpretation or reaction does not have
to be the only one; when a seller's representation conveys more than
one meaning to reasonable consumers, one of which is false, the
seller is liable for the misleading interpretation. See FTC Policy
Statement on Deception, supra note 42, at 3. Further, an
interpretation will be presumed reasonable if it is the one the
respondent intended to convey. Id.
\344\ See, e.g., Telemarketing Sales Rule, 16 CFR 310.3(a)(2)
(prohibiting ``[m]isrepresenting, directly or by implication, in the
sale of goods or services'' a list of ten categories of material
information); 16 CFR 310.2(o) (defining ``debt relief service'' as
any program or service ``represented, directly or by implication, to
renegotiate, settle, or in any way alter'' certain terms); 16 CFR
310.5(a)(2) (requiring telemarketers to keep records of certain
prize and prize-recipient information ``for prizes that are
represented, directly or by implication, to have a value of $25.00
or more''); Business Opportunity Rule, 16 CFR 437.1(c) (defining a
``(b)usiness opportunity'' as a commercial arrangement in which,
among other criteria, ``[t]he seller, expressly or by implication,
orally or in writing, represents that'' it will provide, inter alia,
business locations, outlets, accounts, or customers); Disclosure
Requirements and Prohibitions Concerning Franchising, 16 CFR
436.1(e) (defining ``(f)inancial performance representation'' as any
representation to a prospective franchisee that states, ``expressly
or by implication, a specific level or range'' of sales, income, or
profits); Military Credit Monitoring Rule, 16 CFR 609.3(e)
(describing as prohibited materials those that ``expressly or by
implication'' represent certain ``interfering, detracting,
inconsistent, and/or undermining'' information); Rules and
Regulations Under Fur Products Labeling Act, 16 CFR 301.14
(requiring an ``unknown'' origin disclosure when ``no
representations are made directly or by implication'' regarding the
origin of used furs); 16 CFR 301.18 (regulating the ``passing off''
of domestic furs as imported by prohibiting labeling, invoicing, or
advertising that ``represent[s] directly or by implication'' that
such furs have been imported); 16 CFR 301.43 (regulating the use of
deceptive trade or corporate names by prohibiting any
``representation which misrepresents directly or by implication''
certain information); Power Output Claims for Amplifiers Utilized in
Home Entertainment Products, 16 CFR 432.1(a) (defining the
regulation's scope when certain amplifier features or
characteristics are ``represented, either expressly or by
implication, in connection with the advertising, sale, or offering
for sale'').
\345\ See FTC Policy Statement on Deception, supra note 42, at
2.
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These same reasons also counsel against deleting the terms ``any''
and ``indirectly'' from this proposed disclosure provision. To begin,
one dealership association commenter suggested deleting these terms
from the regulatory text, but did not explain the nature of its
specific concern regarding its use of the term ``any,'' instead
claiming generally that the terms with which the commenter took issue
were ``broad,'' ``vague,'' and ``imprecise.'' As proposed, the
Commission's total payments disclosure would be required when a dealer
makes ``any representation . . . about a monthly payment for any
vehicle.'' These disclosure circumstances are markedly similar to those
under Regulation Z and Regulation M: Regulation Z requires the
disclosure of additional payment terms when ``any'' of a number of
terms is set forth, including ``[t]he amount of any payment''; \346\
Regulation M similarly requires the disclosure of additional terms when
``any'' of a number of items is stated, including ``[t]he amount of any
payment.'' \347\ The use of the term ``any'' is consistent with
existing law, and thus is not confusing or impracticable. Furthermore,
as with representations made ``by implication,'' the Commission has a
longstanding practice of regulating representations made ``indirectly''
in the same manner as those made directly,\348\
[[Page 642]]
and it does so to help ensure that its requirements are effective and
not easily avoided. The Commission thus declines to modify their usage
in Sec. 463.4(d).
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\346\ 12 CFR 1026.24(d) (emphasis added).
\347\ 12 CFR 1013.7(d) (emphasis added).
\348\ See, e.g., Business Opportunity Rule, 16 CFR 437.6
(prohibiting ``any seller, directly or indirectly through a third
party'' from engaging in certain prohibited practices); Credit
Practices Rule, 16 CFR 444.2 (prohibiting as unfair ``a lender or
retail installment seller directly or indirectly'' taking or
receiving certain obligations from a consumer); 16 CFR 444.3
(prohibiting as deceptive ``a lender or retail installment seller,
directly or indirectly'' misrepresenting cosigner liability, and
prohibiting as unfair ``a lender or retail installment seller,
directly or indirectly'' obligating a cosigner under certain
circumstances); 16 CFR 444.4 (prohibiting as unfair the act or
practice of ``a creditor, directly or indirectly'' levying or
collecting certain late charges); Telemarketing Sales Rule, 16 CFR
310.3(a)(3) (prohibiting as deceptive the act or practice of
``[c]ausing billing information to be submitted for payment, or
collecting or attempting to collect payment for goods or services or
a charitable contribution, directly or indirectly'' without express
verifiable authorization); 16 CFR 310.4(a)(7) (prohibiting as
abusive the act or practice of ``[c]ausing billing information to be
submitted for payment, directly or indirectly, without the express
informed consent of the customer or donor''); Mail, internet, or
Telephone Order Merchandise Rule, 16 CFR 435.1(f) (defining
``Telephone'' as ``any direct or indirect use of the telephone to
order merchandise. . . .''); Preservation of Consumers' Claims and
Defenses, 16 CFR 433.2 (prohibiting as an unfair or deceptive act or
practice ``for a seller, directly or indirectly'' to take or receive
a consumer credit contract which does not contain the Commission's
``Holder Rule'' provision); Prohibition of Energy Market
Manipulation Rule, 16 CFR 317.3 (declaring ``[i]t shall be unlawful
for any person, directly or indirectly'' to engage in certain energy
market manipulation practices); Trade Regulation Rule Pursuant to
the Telephone Disclosure and Dispute Resolution Act of 1992, 16 CFR
308.7(i) (declaring that regulated persons may not ``report or
threaten directly or indirectly to report adverse information'' on a
consumer report under certain circumstances).
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Some commenters, including a dealership association, questioned
whether the disclosure requirement would require dealers to obtain
individuals' consumer reports before providing monthly payment
information. In response, the Commission notes that Sec. 463.4(d) does
not alter the status quo regarding the information a dealer must have
in order to represent a monthly payment amount. As previously
discussed, this provision does not require disclosure of a monthly
payment; instead, if a dealer chooses to represent a monthly payment
amount, Sec. 463.4(d) requires a corresponding disclosure of ``the
total amount the consumer will pay to purchase or lease the vehicle at
that monthly payment.'' As previously explained in detail, dealers are
capable of disclosing a total of payments for the consumer based on
such voluntary monthly payment representations. Furthermore, to the
extent a dealer may be providing consumers with estimated monthly
payment information, the dealer may use the same assumptions used for
estimating the monthly payment in order to determine the total of
payments. Further, as is required under other law and this Rule, the
dealer must refrain from deception, including by avoiding assumptions
that the consumer would not reasonably expect or for which the consumer
would not reasonably qualify.\349\
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\349\ Importantly, as is the case under current law, a dealer
may not mislead the consumer about the likelihood of qualifying for
any particular credit or leasing terms in the course of providing
this disclosure. Generally speaking, such deception is less likely
where the dealer communicates to the consumer any assumptions it may
have made, along with the basis for any such assumptions, in a
manner in which the consumer understands this information.
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When making a representation, expressly or by implication, directly
or indirectly, about a monthly payment for any vehicle, the failure to
disclose the total amount the consumer will pay, inclusive of any
consideration, to purchase or lease the vehicle at that monthly payment
after making all payments as scheduled is likely to cause substantial
injury to consumers who waste time and effort pursuing offers that are
not actually available at reasonably expected terms; or who pay more
for a vehicle sales or lease transaction than they expected by being
subject to hidden charges or an unexpected down payment or trade-in
requirement; or who are subject to the higher financing or leasing
costs and greater risk of default associated with an unexpectedly
lengthy loan or lease term. Moreover, when a consumer pays for his or
her vehicle over a longer period of time, there is an increased
likelihood that negative equity will result when the consumer needs or
wants to purchase or lease another vehicle, because a vehicle's value
tends to decline faster than the amount owed.\350\ Longer motor vehicle
financing term lengths also have higher rates of default, potentially
posing greater risks to both borrowers and financing companies.\351\
Even if a consumer eventually learns the true total payment, or later
learns that the terms being discussed are based on a previously
undisclosed requirement that the consumer provide consideration, such
as a down payment, the consumer cannot recover the time spent pursuing
the offer that the consumer had expected.
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\350\ Buckle Up, supra note 63, at 7.
\351\ Consumer Fin. Prot. Bureau, ``Quarterly Consumer Credit
Trends: Growth in Longer-Term Auto Loans'' 7-8 (Nov. 2017), https://files.consumerfinance.gov/f/documents/cfpb_consumer-credit-trends_longer-term-auto-loans_2017Q2.pdf; see also Zhengfeng Guo et
al., Off. of the Comptroller of the Currency, ``A Puzzle in the
Relation Between Risk and Pricing of Long-Term Auto Loans'' 2, 4-5,
20 (June 2020), https://www.occ.gov/publications-and-resources/publications/economics/working-papers-banking-perf-reg/pub-econ-working-paper-puzzle-long-term-auto-loans.pdf (finding motor vehicle
financing with six-plus-year terms have higher default rates than
shorter-term financing during each year of their lifetimes, after
controlling for borrower and loan-level risk factors).
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The injury caused by the failure to disclose the total amount and
consideration is not reasonably avoidable. As the Commission has
observed previously, withholding total payment information enables
dealers to focus consumers on the monthly payment amount in isolation.
Under such circumstances, dealers may add unwanted, undisclosed, or
even fictitious add-on charges more easily, since consumers may not
notice the relatively small changes an add-on charge makes when
secreted within a monthly vehicle payment, despite the fact that such
hidden charges can cost a consumer more than a thousand dollars over
the course of an auto financing or lease term.\352\ The absence of
information concerning the total of payments--which is within the sole
control of the dealership--also enables dealers to use claims regarding
monthly payment amounts to falsely imply savings or parity between
different offers where reduced monthly payments increase the total
vehicle cost due to an increased payment term or annual percentage
rate.
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\352\ See Auto Buyer Study, supra note 25, at 14 (``[T]he dealer
can extend the maturity of the financing to reduce the effect of the
add-on on the monthly payment, obscuring the total cost of the add-
on''); Auto Buyer Study: Appendix, supra note 66, at 229, 233 (Study
participant 457481) (dealership pitching add-ons at the end of the
negotiation, and in terms of consumer's monthly price); Auto Buyer
Study: Appendix, supra note 66, at 701 (Study participant 437175)
(dealership pitching add-ons in terms of monthly price); see also
Complaint ]] 12-19, Fed. Trade Comm'n v. Liberty Chevrolet, Inc.,
No. 1:20-cv-03945 (S.D.N.Y. May 21, 2020) (alleging dealership
included deceptive and unauthorized add-on charges in consumers'
transactions); Complaint ]] 21-28, Fed. Trade Comm'n v. Ramey
Motors, No. 1:14-cv-29603 (S.D. W. Va. Dec. 11, 2014) (alleging
dealer emphasized attractive terms such as low monthly payments but
concealed substantial cash down payments or trade-in requirements);
Complaint ]] 38-46, Fed. Trade Comm'n v. Billion Auto, Inc., No.
5:14-cv-04118-MWB (N.D. Iowa Dec. 11, 2014) (alleging dealer touted
attractive terms such as low monthly payments but concealed
significant extra costs).
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The injury to consumers from a lack of total payment information is
not outweighed by benefits to consumers or competition from withholding
this basic information. Instead, the burden of disclosing this
information--which the dealer determines and can calculate upfront--is
minimal for dealers who are already making representations about a
monthly payment for a vehicle, especially when compared to the injury
to consumers.
Regarding deception, as detailed in the NPRM and in this SBP, cost
is one of the most material pieces of information for a consumer in
making an informed purchasing decision.\353\ Yet it can be difficult
for consumers to uncover the actual costs, and their
[[Page 643]]
actual associated terms, for which a dealer will sell or lease an
advertised vehicle until visiting the dealership and spending hours on
the lot. When an advertisement or other communication references a
monetary amount or financing term, it is reasonable for a consumer to
expect that those amounts and terms are available for a vehicle at
other standard terms, and, in the absence of information to the
contrary, that no down payment or other consideration is required. If
instead, for example, a dealer advertises a low monthly payment based
on an unexpectedly long financing term or unexpectedly high interest
rate that results in a higher total payment than standard terms would
have yielded, or based on an expected but undisclosed down payment or
other consideration to be provided by the consumer, the consumer will
be induced to visit the dealership based on a misimpression of what
they reasonably expect the total payment to be.
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\353\ See, e.g., Fed. Trade Comm'n v. Windward Mktg., Inc., No.
Civ.A. 1:96-CV-615F, 1997 WL 33642380, at *10 (N.D. Ga. Sept. 30,
1997) (``[A]ny representations concerning the price of a product or
service are presumptively material.''); Removatron Int'l Corp., 111
F.T.C. 206, 309 (1988) (``The Commission presumes as material
express claims and implied claims pertaining to a product's . . .
cost.'' (citing Thompson Med. Co., Inc., 104 F.T.C. 648, 817
(1984)).
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If consumers knew that the true terms were beyond what was
expected, or their transaction included charges for unwanted items,
that would likely affect their choice to visit a particular dealership
over another dealership. Thus, misleading consumers about cost
information is material. A lack of total payment information therefore
is likely to affect a consumer's decision to purchase or lease a
particular vehicle and is material, and paying an increased total cost
causes substantial consumer injury.
Thus, it is an unfair or deceptive act or practice for dealers to
fail to disclose when making any representation about a monthly payment
for any vehicle, the total amount the consumer will pay to purchase or
lease the vehicle at that monthly payment after making all payments as
scheduled, inclusive of assumed consideration. Further, this provision
also addresses the misrepresentations prohibited by Sec. 463.3--
including misrepresentations regarding material information about the
costs or terms of purchasing, financing, or leasing a vehicle--by
requiring consumers to be provided with the total payment amount
associated with any represented monthly payment amount. It also helps
prevent dealers from failing to obtain the express, informed consent of
the consumer for charges, as required by Sec. 463.5(c).\354\ To
address these unfair or deceptive acts or practices, the Commission is
requiring dealers to disclose, when making any representation about a
monthly payment for any vehicle, the total amount the consumer will pay
to purchase or lease the vehicle at that monthly payment after making
all payments as scheduled, inclusive of assumed consideration. As with
a vehicle's price, when cost information in the market is distorted or
concealed--especially in document- and time-intensive vehicle
transactions--consumers are unable to effectively differentiate between
sellers, and sellers trying to deal honestly with consumers are put at
a competitive disadvantage.
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\354\ See 15 U.S.C. 57a(a)(1)(B) (the Commission ``may include
requirements prescribed for the purpose of preventing'' unfair or
deceptive acts or practices).
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For the foregoing reasons, and having considered all of the
comments that it received, the Commission is finalizing the required
disclosure at Sec. 463.4(d) largely as proposed, with the minor
modifications of capitalizing the defined term ``Vehicle,''
substituting a period for a semi-colon and the word ``and'' at the end
of Sec. 463.4(d)(1), and clarifying that the requirements of Sec.
463.4(d) also are ``prescribed for the purpose of preventing the unfair
or deceptive acts or practices defined in this part, including those in
Sec. Sec. 463.3(a) and 463.5(c).''
(e) Monthly Payments Comparison
Proposed Sec. 463.4(e) required dealers, when making any
comparison between payment options that includes discussion of a lower
monthly payment, to disclose that the lower monthly payment will
increase the total amount the consumer will pay to purchase or lease
the vehicle, if true. For the reasons discussed in the following
paragraphs, the Commission is finalizing the required disclosure at
Sec. 463.4(e) largely as proposed. The Commission is capitalizing the
defined term ``Vehicle'' to conform with the definition at Sec.
463.2(e). The Commission also is adding language to the end of Sec.
463.4(e) clarifying that the requirements in Sec. 463.4(e) ``also are
prescribed for the purpose of preventing the unfair or deceptive acts
or practices defined in this part, including those in Sec. Sec.
463.3(a) and 463.5(c).''
A number of institutional commenters supported such a provision,
emphasizing that it would provide an appropriate amount of helpful
information and help make the true terms of a car deal much clearer to
consumers. Many individual commenters also stressed the need for the
Commission's proposal:
My car buying experience involving dealers has include
[sic] many of the issues identified, such as: . . . Negotiating a 4
year loan with a known loan payment (did math prior to final steps).
Presented paperwork with a similar but lesser monthly payment. Dealer
had changed terms to 5 year loan without open disclosure. Happy to
hear, ``the bank gave you a better rate, you got a smaller payment,''
almost didn't catch what they'd done.\355\
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\355\ Individual commenter, Doc. No. FTC-2022-0046-0141.
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I have purchased about 10 new vehicles in my lifetime. . .
. They prey on monthly payments as a tool, saying they can lower the
monthly payment but not telling customers they added months or years to
the term. Anything that forces them to be honest is a great justice for
consumers! \356\
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\356\ Individual commenter, Doc. No. FTC-2022-0046-0985.
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Sometimes, when you are in negotiations with a car dealer,
they engage in deceptive practices by lowering your monthly payment
amount without telling you how they lowered it. They may have increased
your down payment or increased your interest rate or increased your
term of the loan. This can lead [t]o much higher costs for the
consumer. I had reached an agreement with a dealer to lower my monthly
payments, but what they didn't tell me until I got into the F & I
manager's office is that my deal [was] for 6 years, not 4, and they
increased my interest rate.\357\
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\357\ Individual commenter, Doc. No. FTC-2022-0046-1652.
---------------------------------------------------------------------------
. . . I was quoted a payment at 72 months with adding
aftermarket warranty but come to find out they extended my term to 76
months in order to meet what I wanted to pay monthly. I did not find
this out until after I bought the car. Very dishonest dealership. This
last minute bait and switch has to stop.\358\
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\358\ Individual commenter, Doc. No. FTC-2022-0046-7569.
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I purchased a truck from a Tennessee truck dealer. After
agreeing on a monthly payment of $920 for 72 months, I travelled to the
dealership to complete the purchase, but the finance office changed the
terms to 84 months with the same monthly payment, effectively adding
$11,000 to their profit! \359\
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\359\ Individual commenter, Doc. No. FTC-2022-0046-0115.
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I just want to walk in to a dealership, find a car that
fits my needs and buy it. And what is up with these RIDUCULOUSLY [sic]
long loan terms? 72 MONTHS? If someone cannot afford a car dealers
shouldn't extend the loan, they should steer them to a more affordable
car! \360\
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\360\ Individual commenter, Doc. No. FTC-2022-0046-0050.
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The Commission received numerous comments relating to the scope and
[[Page 644]]
terms of its proposed monthly payments comparison disclosure. A number
of institutional and individual commenters urged the Commission to
require that such disclosures uniformly be provided to consumers in
writing. The Commission agrees with commenters that many monthly
payment comparisons happen verbally, in the course of discussions with
consumers. As proposed, the Commission's monthly payment comparison
disclosure made clear that such discussions are covered, and that
dealers would be required to inform consumers in the course of such
discussions--``[w]hen making any comparison between payment options''--
if a represented lower monthly payment will increase the total amount
the consumer will pay to purchase or lease the vehicle. The Commission
believes there are significant consumer benefits when such disclosures
are made verbally, close in time to when monthly payment options are
discussed. Given that car-buying and leasing transactions are already
lengthy and paperwork-heavy, the Commission believes it must be
judicious with any additional written disclosure requirements to avoid
crowding out other disclosures or other important information.
Accordingly, the Commission has determined not to modify Sec. 463.4(e)
from its original proposal in order to mandate that the required
disclosure always be made in writing. The Commission will continue to
monitor the market for any further developments in this area and will
consider whether to modify this or other Final Rule provisions in the
future.
Some commenters, including consumer advocacy organizations, urged
the Commission to adopt specific proposed language rather than a
general disclosure requirement, or a requirement that this disclosure
include the total amount the consumer will pay at the lower monthly
payment under discussion. Regarding the proposal to require particular,
uniform disclosure language, the Commission did not receive, in the
course of public comment, evidence sufficient to conclude that uniform
formatting for the delivery of such disclosures would be necessary to
make them effective. The Commission currently lacks information to
evaluate whether any particular form disclosure would effectively
communicate the required information to consumers in a manner that in
all circumstances obviates deceptive or unfair conduct. Moreover,
regarding the proposal to require that the monthly payment comparison
disclosure additionally require dealers to disclose the new total
amount that the consumer will pay, the Commission emphasizes that part
463 will require such a disclosure without the need to modify this
provision from the Commission's original proposal. As noted in the
paragraph-by-paragraph analysis of Sec. 463.4(d) in SBP III.D.2(d),
the Commission is finalizing Sec. 463.4(d), which requires dealers
making any representation about a monthly payment for a vehicle to
disclose the total amount the consumer will pay to purchase or lease
the vehicle at a given monthly payment amount after making all payments
as scheduled, inclusive of assumed consideration, largely as proposed.
The monthly payment comparison discussions covered by Sec. 463.4(e)
are those that ``include[] discussion of a lower monthly payment.'' To
the extent a dealer, in the course of such discussions, makes a
representation ``about a monthly payment for any Vehicle,'' Sec.
463.4(d) will require the dealer to disclose the total amount the
consumer will pay at that monthly payment amount.
Comments, including those from a number of dealership associations
\361\ and an individual commenter, characterized the Commission's
proposal as burdensome and likely to lead to excessive disclosures
while providing little additional assistance to consumers. In response,
the Commission emphasizes the streamlined nature of proposed Sec.
463.4(e). In its proposal, the Commission refrained from additional
formal mandates in order to provide dealers with flexibility, within
the bounds of the law, to provide this essential information--that a
given lower monthly payment will increase the total amount the consumer
will pay--including so that dealers already conveying this information
in a non-deceptive manner may continue to do so.
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\361\ As previously indicated, some such association commenters
contended generally that the proposed total of payments disclosures
at Sec. 463.4(d) and (e) overlapped with the Truth in Lending Act
or other laws. The Commission responds to this point in the context
of the discussion of Sec. 463.4(d), in SBP III.D.2(d).
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Thus, after careful review of the comments, the Commission has
determined to finalize Sec. 463.4(e) largely as proposed. When making
any comparison between payment options, expressly or by implication,
directly or indirectly, that includes discussion of a lower monthly
payment, the failure to disclose that the lower monthly payment will
increase the total amount the consumer will pay to purchase or lease
the vehicle, if true, is likely to mislead consumers regarding the
total terms associated with the lower monthly payment amount. When a
dealer elects to compare between different monthly payment options, if
the lower monthly payment would result in a higher total transaction
cost, discussion of this fact is necessary to prevent the comparison
from being misleading. Absent this information, it is reasonable for a
consumer who is presented with a monthly payment comparison to expect
that the lower monthly payment amount would correspond to lower total
transaction cost. This is because the opposite can only be true if the
dealer has created a so-called ``apples to oranges'' comparison, in
which an undisclosed element of the transaction--such as the length of
the payment term, or the existence of a balloon payment--has not been
kept constant across the two monthly payment scenarios being compared.
Under such circumstances, without providing the consumer with further
information, the dealer's claims regarding monthly payment amounts
falsely imply saving or parity between different offers where reduced
monthly payments increase the total vehicle cost. Thus, where a lower
monthly payment amount represents a more expensive transaction, the
dealer must, at a minimum, disclose this simple but counterintuitive
fact to not deceive consumers.\362\
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\362\ Depending on the circumstances, a dealer may need to take
additional measures, such as disclosing the specific basis for any
increase in total costs, or amount of any such increase, in order to
avoid deceiving consumers.
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Furthermore, as explained in the NPRM and in the paragraph-by-
paragraph discussion of Sec. 463.4(d) in SBP III.D.2(d), cost is one
of the most material pieces of information for a consumer in making an
informed purchasing decision.\363\
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\363\ See, e.g., Fed. Trade Comm'n v. Windward Mktg., Inc., No.
Civ.A. 1:96-CV-615F, 1997 WL 33642380, at *10 (N.D. Ga. Sept. 30,
1997) (``[A]ny representations concerning the price of a product or
service are presumptively material.''); Removatron Int'l Corp., 111
F.T.C. 206, 309 (1988) (``The Commission presumes as material
express claims and implied claims pertaining to a product's . . .
cost.'' (citing Thompson Med. Co., Inc., 104 F.T.C. 648, 817
(1984)); see also Fed. Trade Comm'n v. Crescent Pub. Grp., Inc., 129
F. Supp. 2d 311, 321 (S.D.N.Y. 2001) (``Information concerning
prices or charges for goods or services is material, as it is
`likely to affect a consumer's choice of or conduct regarding a
product.' '').
---------------------------------------------------------------------------
Regarding unfairness, when making any comparison between payment
options, expressly or by implication, directly or indirectly, that
includes discussion of a lower monthly payment, the failure to disclose
that the lower monthly payment will increase the total
[[Page 645]]
amount the consumer will pay to purchase or lease the vehicle, if true,
is likely to cause substantial injury to consumers who waste time and
effort pursuing offers that are not actually available at the total
payment amount they expect; or who pay more for a vehicle sales or
lease transaction than they expected by being subject to hidden charges
or an unexpected down payment or trade-in requirement; or who are
subject to the higher financing costs and greater risk of default
associated with an unexpectedly lengthy loan term.
Furthermore, the injury caused by withholding this information is
not reasonably avoidable by consumers. During negotiations, if dealers
agree to a lower monthly payment, consumers have no reason to expect
that this apparent ``concession'' in fact means an increased total
vehicle cost due to an increased payment term or annual percentage
rate. Under such circumstances, dealers can also add unwanted,
undisclosed, or even fictitious add-on charges more easily, by
increasing the payment term enough that including add-on charges would
still result in a lower monthly payment as a ``concession'' to the
consumer. The injury to consumers from a lack of price information is
not outweighed by any benefits to consumers or competition from
withholding this basic information. Instead, information about
increased cost protects consumers from lost time and effort, and
unexpected charges while increasing competition among dealers, who
would be able to compete on truthful, standard terms. The costs of
stating that the total payment has increased--which the dealer
determines and can calculate upfront--are minimal for dealers that are
already making representations about a monthly payment for a vehicle,
especially when compared to the injury to consumers.
Thus, it is an unfair or deceptive act or practice for dealers to
fail to disclose, when making any comparison between payment options,
expressly or by implication, directly or indirectly, that includes
discussion of a lower monthly payment, that the lower monthly payment
will increase the total amount the consumer will pay to purchase or
lease the vehicle, if true. Further, this provision also serves to
prevent the misrepresentations prohibited by Sec. 463.3--including
misrepresentations regarding material information about the costs or
terms of purchasing, financing, or leasing a vehicle--by requiring
consumers to be given accurate information that the total payment will
increase when presented with a lower monthly payment. It also helps
prevent dealers from failing to obtain the express, informed consent of
the consumer for charges, as addressed by Sec. 463.5(c), including
charges relating to the financing or lease of a vehicle.\364\ Thus, the
Commission is requiring dealers to disclose, when making any comparison
between payment options, expressly or by implication, directly or
indirectly, that includes discussion of a lower monthly payment, that
the lower monthly payment will increase the total amount the consumer
will pay to purchase or lease the vehicle, if true. As with a vehicle's
price, when cost information in the market is distorted or concealed--
especially in document- and time-intensive vehicle transactions--
consumers are unable to effectively differentiate between sellers, and
sellers trying to deal honestly with consumers are put at a competitive
disadvantage.
---------------------------------------------------------------------------
\364\ See 15 U.S.C. 57a(a)(1)(B) (the Commission ``may include
requirements prescribed for the purpose of preventing'' unfair or
deceptive acts or practices).
---------------------------------------------------------------------------
For the foregoing reasons, and having considered all of the
comments that it received on this proposed provision, the Commission is
finalizing the required disclosure at Sec. 463.4(e) largely as
proposed, with the minor modifications of capitalizing the defined term
``Vehicle'' additional language clarifying that the requirements in
Sec. 463.4(e) ``also are prescribed for the purpose of preventing the
unfair or deceptive acts or practices defined in this part, including
those in Sec. Sec. 463.3(a) and 463.5(c).''
E. Sec. 463.5: Dealer Charges for Add-Ons and Other Items
1. Overview
Proposed Sec. 463.5 prohibited motor vehicle dealers from charging
for add-on products or services from which the consumer would not
benefit; from charging consumers for undisclosed or unselected add-ons
unless certain requirements were met; and from charging for any item
unless the dealer obtains the express, informed consent of the consumer
for the item.
In response to the NPRM, various stakeholder groups and individuals
submitted comments regarding these proposed provisions. Among these
were comments in favor of the provisions; comments that urged the
Commission to include additional restrictions on add-on charges; and
comments questioning or recommending against the proposed provisions.
After careful consideration of the comments, the Commission has
determined to finalize Sec. 463.5(a) and (c) without substantive
modification and has determined not to finalize Sec. 463.5(b)
regarding undisclosed or unselected add-ons. The Commission also is
making minor textual edits to the introductory language in Sec. 463.5
for clarity and consistency: substituting ``Federal Trade Commission
Act'' for ``FTC Act''; adding ``Covered'' to ``Motor Vehicle Dealer''
to conform with the defined term at Sec. 463.2(f) (`` `Covered Motor
Vehicle Dealer' or `Dealer' ''), and capitalizing ``Vehicles'' to
conform with the defined term at Sec. 463.2(e) (`` `Covered Motor
Vehicle' or `Vehicle' '').
In the following analysis, the Commission examines each proposed
provision in Sec. 463.5; the substantive comments relating to each
provision; responses to these comments; and the Commission's final
determination with regard to each proposed provision.
2. Paragraph-by-Paragraph Analysis of Sec. 463.5
(a) Add-Ons That Provide No Benefit
Section 463.5(a) of the proposed rule prohibited motor vehicle
dealers from charging for add-ons if the consumer would not benefit
from such an add-on, including a pair of enumerated examples. For the
following reasons, the Commission is finalizing this provision largely
as proposed, with modifications to correct a misplaced hyphen; add the
word ``that'' before ``are duplicative of warranty coverage''; and
capitalize the defined term ``Vehicle'' to conform with the revised
definition at Sec. 463.2(e). The Commission also is adding language to
the end of Sec. 463.5(a), at newly designated (a)(3), clarifying that
the requirements in Sec. 463.5(a) ``also are prescribed for the
purpose of preventing the unfair or deceptive acts or practices defined
in this part, including those in Sec. 463.3(a) and (b) and paragraph
(c) of this section.'' Relatedly, the Commission is finalizing the
definition of the term ``GAP Agreement,'' which is referenced in this
provision and defined in Sec. 463.2(h) of the Final Rule,
substantively as proposed, with minor modifications to correct a
misplaced period, substitute ``Vehicle'' for both ``vehicle'' and
``motor vehicle'' to conform with the revised definition at Sec.
463.2(e), and remove an extraneous term--``insured's''--without
changing the definition's operation.
Many commenters, including a number of industry participants and
associations, stated that products that provide no benefit to the
consumer should not be sold in connection with the sale or financing of
vehicles. Many commenters that supported the
[[Page 646]]
provision stated, inter alia, that the examples the Commission
enumerated in this paragraph were obvious \365\ and particularly
helpful for less-experienced buyers who may be led to believe that a
particular product or service would be beneficial.\366\ Some individual
commenters, for instance, noted that they had no way to confirm whether
the ``nitrogen-filled'' tires they purchased with their vehicle
actually had more nitrogen than naturally exists in the air, even
though they were told the purchase of this service was mandatory.\367\
At least one individual commenter described requesting to see the
nitrogen tank after such a purchase and being denied by the dealer.
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\365\ See, e.g., Individual commenter, Doc. No. FTC-2022-0046-
1608 at 6.
\366\ See, e.g., Comment of 18 State Att'ys Gen., Doc No. FTC-
2022-0046-8062 at 9.
\367\ See, e.g., Individual commenter, Doc. No. FTC-2022-0046-
0565.
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Examples of public comments about add-ons include the following:
I would argue that this does not go far enough but it [is]
a good start. As someone who is trying to purchase a new vehicle, there
is a[n] endless supply of ``perk packages'' or ``Family deals'' that I
``must purchase'' if I would like to acquire a car from a dealer. These
include a variety of dubious products such as insurance policies that
pay out $3,500 if your car is stolen (and can't be found) in the first
90 days of ownership, if your car is totaled by your insurance company
in the first 90 days they'll pay $3,500. Nitrogen in the tires (A $196
value). Vin Etching on the windows, plastic stickers on the door
handles to prevent scratches. These items are a requirement to bundle
with the vehicle and a deal that provides ``over $7,000 in value'' for
$2,995. These tricks ignore the obvious, such as your car can not be
both stolen (unrecovered) AND totaled so it's impossible to collect on
both policies so the cumulative ``value'' of this package is
overstated.\368\
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\368\ Individual commenter, No. FTC-2002-0046-0565.
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One of the latest scams is to force you to buy a $1,000
gps unit so they can recover the car if you miss payments. This
shouldn't be allowed.\369\
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\369\ Individual commenter, No. FTC-2002-0046-4552.
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Second vehicle I purchased had a $1,650 ``protection pkg''
plus the usual nitrogen in the tires BS. This time I asked to be shown
the nitrogen tank they fill the tires with, they refused saying due to
insurance rules customers aren't allowed in the shop. I asked them to
take off the paint and fabric protection charge also, they declined at
first until I reminded them they just got the vehicle the night before
and there was still plastic factory coverings on the seats and strips
of plastic on the vehicles body protecting certain areas. This time
they mumbled some excuse about the addendum added to the price is put
on the vehicle as soon as it arrives and they hadn't had ``time'' to
apply all the overpriced add[-]ons.\370\
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\370\ Individual commenter, Doc. No. FTC-2022-0046-0854.
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I'm a former carsalesperson [sic]. . . . Dealers should be
banned from selling . . . special paints to protect from rust . . . .
No coatings are added.\371\
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\371\ Individual commenter, Doc. No. FTC-2022-0046-1393.
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I worked at a Dodge/Ram dealership for three years at the
make ready (carwash) department. When new vehicles arrived their tires
were rarely deflated and then filled with nitrogen. It is my
understanding that the manufacture initially paid for the nitrogen fill
and the customer was later charged.\372\
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\372\ Individual commenter, Doc. No. FTC-2022-0046-5493.
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[O]ne of my previous purchases almost ended . . . with GAP
that was so unnecessary, the lender called us a few days later after we
already had the car and told us we'd be experiencing a lower monthly
payment unless we wanted the price of the product back in a check
because of the price we negotiated and the sizable down payment, it was
impossible for GAP to ever be required.\373\
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\373\ Individual commenter, Doc. No. FTC-2022-0046-6816.
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A number of individual commenters indicated they did not consider
nitrogen tires a valuable purchase and expressed no desire to purchase
them. Many commented that, when they informed their respective dealers
that they did not want these add-ons, the dealers would represent,
inter alia, that nitrogen tires were required by law, that their
insurance premium would increase without the add-on, that new foreign
vehicles coming into the country must have nitrogen-filled tires under
the law, or that the consumer needed to purchase nitrogen tires to meet
fuel economy standards.
Other commenters supported this proposed provision while also
recommending that the Commission broaden its scope to prohibit the sale
of add-on products or services that provide only ``minimal'' benefit to
consumers.\374\ One such commenter, for instance, suggested the
provision be expanded to prohibit dealers from charging for an add-on
unless it provides a ``substantial, material benefit'' to
consumers.\375\ Another commenter contended that there are a number of
add-ons not meeting such standards being sold in connection with the
sale or financing of vehicles, including future servicing packages for
vehicle tune-ups and oil changes that are sold to remote or out-of-
State consumers who are exceedingly unlikely to return to the
dealership for such services; tracking devices that are used almost
exclusively for electronic repossession; and ``vendor's single
interest'' or ``VSI'' insurance, which protects the financing entity,
but not the consumer, in the event that the vehicle is damaged or
destroyed.\376\
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\374\ See, e.g., Legal Aid Just. Ctr., Doc. No. FTC-2022-0046-
7833 at 3.
\375\ Comment of Legal Action Chi., Doc. No. FTC-2022-0046-8097
at 10.
\376\ See also Consumer Fin. Prot. Bureau, ``What Is Vendor's
Single Interest (VSI) insurance? '' (Aug. 16, 2016), https://www.consumerfinance.gov/ask-cfpb/what-is-vendors-single-interest-vsi-insurance-en-731/.
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The Commission acknowledges the considerable consumer harm that
results from the sale of such add-ons and notes that several provisions
in the Rule it is finalizing will address misconduct related to these
and other add-ons, including many of the practices described by those
commenters recommending further action. For example, to the extent that
dealers make misrepresentations about any benefit of an add-on, such
conduct would violate Sec. 463.3(b) of the Final Rule. Thus, were a
dealer, for instance, to promote the sale of an add-on--such as a
tracking device that is used almost exclusively for electronic
repossession--based on its supposed benefit to the consumer, when the
product primarily benefits another party, such conduct would violate
the Rule even if the product otherwise provides an ancillary or
marginal benefit to consumers. And if the add-on provided no benefit to
the consumer and only a benefit to another party, Sec. 463.5(a) would
prohibit the dealer from charging the consumer for it. Further, to the
extent that dealers charge for add-ons without express, informed
consumer consent for the charge, such conduct would violate Sec.
463.5(c).
The Commission recognizes that there may be significant consumer
benefits from implementing additional restrictions on the sale of add-
on products or services. However, without additional information on
costs and benefits to consumers or competition associated with such
restrictions, the Commission has determined not to implement such
restrictions in this Final Rule. The Commission will continue to
monitor the motor vehicle
[[Page 647]]
marketplace to gather additional information on this issue and will
consider whether to modify or expand Sec. 463.5(a) in the future,
including on the basis of stakeholder experience with this provision
and whether it effectively addresses unlawful conduct.
Commenters also urged the Commission to adopt a number of
additional measures regarding the sale of such add-ons. A consumer
advocacy organization, for instance, proposed that the Commission
require dealers to list coverage limitations for add-ons that may
overlap with a vehicle's warranty coverage, observing that consumers
commonly are not aware of important limitations until the add-on, such
as a warranty or service contract, is needed, and only then does the
consumer learn the add-on does not provide the anticipated benefits. A
State consumer protection agency recommended that the Commission
require affirmative disclosures for the sale of add-ons that may
provide only ``nominal'' benefit, offering a list of what they
characterized as such products for the Commission to consider in
conjunction with this recommendation.
In response, the Commission notes that other provisions in part 463
address misconduct relating to these issues, including by prohibiting
misrepresentations regarding material information about add-ons, by
requiring disclosures about optional add-ons, and by requiring dealers
to obtain the express, informed consent of the consumer for add-on
charges. Thus, misrepresenting the coverage limitations of an add-on;
making representations regarding an optional add-on without disclosing
that it is not required and that the consumer can purchase or lease the
vehicle without the add-on; and charging for an add-on under false
pretenses or without the consumer's express, informed consent would
violate other provisions the Commission is finalizing. The Commission
is concerned that requiring additional disclosures may have the effect
of reducing the saliency of key information in what is already a
lengthy, paperwork-heavy transaction. Accordingly, the Commission has
determined not to adopt additional such disclosure measures in this
Final Rule.
In addition, at least one consumer protection agency commenter
asked the Commission to consider deeming it an unfair or deceptive act
or practice to sell any add-on product for a price greater than the
value of the product itself. The Commission declines to restrict the
sale of add-on products at a price higher than the value of the product
itself, absent additional information, including information regarding
the costs and benefits to consumers and competition of such a
restriction.\377\
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\377\ One consumer attorney commenter requested that the
Commission clarify that warranty disclaimers are not a valid defense
to common law fraud and statutory consumer fraud, and that, if fraud
is proven, warranty disclaimers are not an allowable defense to UCC
actions. In response, the Commission notes that none of the
provisions the Commission is finalizing state that warranty
disclaimers are a defense to common law fraud or in UCC actions.
---------------------------------------------------------------------------
A number of industry association commenters claimed the provision
was vague and requested the Commission set forth how to calculate the
loan-to-value (``LTV'') ratio at which a GAP agreement would be non-
beneficial, given that there could be fluctuation of the vehicle value
in the future. Some suggested that the Commission adopt a presumption
or safe harbor that dealers complying with an LTV calculation set by
the Commission be deemed in compliance with the portion of the proposal
related to GAP agreements.
Other industry association commenters argued against adopting a set
LTV ratio as the basis for determining whether a consumer would benefit
from a GAP agreement, claiming that the vehicle financing entity is
best positioned to determine whether such an add-on would be
beneficial. Relatedly, some industry association commenters contended
that certain GAP agreements sold on a low-LTV loan, or that limit
benefits based on a consumer's LTV ratio, could still provide
additional benefits.
A financing association commenter contended that any final rule
should not create rules around the calculation of the LTV ratio.
Another financing group proposed that the Commission require dealers to
provide disclosures that would inform consumers of any potential value
gap between a vehicle's purchase price and its appraised value.
With regard to establishing LTV ratio parameters for the sale of
GAP agreements, without further information from commenters regarding
the costs and benefits of establishing a particular LTV ratio as the
basis for determining whether a consumer would benefit from a GAP
agreement, or a particular method for calculating the LTV ratio, and
given the Commission's previously stated information saliency concerns
about finalizing additional disclosures in an already lengthy
transaction, the Commission has determined not to establish in this
Final Rule a particular numeric threshold or calculation regarding the
sale of GAP agreements to consumers, or to require additional
associated disclosures. Regarding the benefits of certain GAP
agreements, this provision restricts sales of GAP agreements where the
consumer would not benefit. If there are benefits to the consumer,
dealers must abide by other provisions in the Final Rule, including the
requirements that the dealer represents the extent of those benefits
accurately (Sec. 463.3(b)) and obtains express, informed consent from
the consumer for the charges for this item (Sec. 463.5(c)).
The Commission also received some industry association comments
claiming that each State imposes differing requirements as to coverage,
disclosures, exceptions, and product terms of GAP agreements. One such
commenter asked for guidance on how a bright-line, State-law rule on
LTV ratios would interact with the FTC's proposal. Another such
commenter requested the FTC reconcile different State-law approaches to
the sale of GAP agreements, particularly regarding how this proposed
provision would interact with a State law that, according to the
commenter, only requires a dealer to have a reasonable belief that the
customer may be eligible for a benefit. In response, the Final Rule
does not disturb State law unless it is inconsistent with part 463, and
then only to the extent of the inconsistency. Where, for example, State
laws restrict the sale of GAP agreements if the LTV ratio for the
transaction is below a certain threshold, or require that dealers have
a ``reasonable belief'' that the GAP agreement would benefit the
consumer, dealers in that State can, and must, comply with the State
law and with the Rule. Pursuant to such State law, dealers would be
prohibited from selling the product if the LTV ratio is below the
established threshold or if they do not reasonably believe the GAP
agreement would benefit the consumer and, pursuant to the Final Rule,
if the LTV ratio would result in the consumer not benefitting
financially. To the extent there is an actual conflict between the
Commission's Final Rule and a State law--and the Commission is
skeptical that there is such a State law that explicitly allows for the
sale of a product that does not benefit the consumer--the Commission
refers commenters to Sec. 463.9, which sets forth the Rule's relation
to State laws.
With respect to the proposed definition of ``GAP Agreement,'' an
industry association commenter contended that the phrase ``the actual
cash value of the insured's vehicle in the event of an unrecovered
theft or total loss'' meant the value of the vehicle at some point in
the future, and asserted that future vehicle values cannot be
accurately determined at the
[[Page 648]]
time of sale. The proposed definition, however, did not prescribe how
dealers must calculate a vehicle's cash value; rather, it explains that
the term ``GAP Agreement'' means an agreement to indemnify a vehicle
purchaser for any difference between such value, however determined, in
the event of an unrecovered theft or total loss, and the amount owed,
regardless of what that difference may be. Upon examination of this
phrase, however, the Commission has determined to remove the term
``insured's'' because it is extraneous and does not affect the
operation of this definition: with or without the term, the phrase
describes the manner in which a qualifying GAP agreement determines the
amount to indemnify a vehicle purchaser or lessee. In context in this
definition, it is clear without the term ``insured's'' that the
applicable ``Vehicle'' is the one covered by the GAP agreement.
Omitting this unnecessary term thus avoids confusion without
substantively changing this definition.
One industry association commenter argued that reference to ``GAP
insurance'' should be removed from the definition of ``GAP Agreement''
because of the McCarran-Ferguson Act's reverse-preemption of certain
Federal laws that ``invalidate, impair, or supersede'' State laws
enacted ``for the purpose of regulating the business of insurance.''
\378\ As previously discussed with regard to the definition of ``Add-
on,'' however, commenters have provided no evidence that the proposed
or Final Rule would invalidate, impair, or supersede State laws enacted
for the purpose of regulating insurance. Rather than affecting any
State's regulation of insurance, the Final Rule prohibits dealers from
making misrepresentations regarding add-ons, from failing to disclose
when add-ons are not required, and from charging for add-ons that
provide no benefit or for which the consumer has not provided express,
informed consent. The Commission therefore finalizes the definition of
``GAP Agreement'' largely as proposed in its NPRM with minor
modifications to correct a misplaced period, substitute ``Vehicle'' for
both ``vehicle'' and ``motor vehicle'' to conform with the revised
definition at Sec. 463.2(e), and remove an extraneous term--
``insured's''--without changing the definition's operation.
---------------------------------------------------------------------------
\378\ 15 U.S.C. 1012(b).
---------------------------------------------------------------------------
While acknowledging that products or services that provide no
benefit to consumers should not be sold, commenters including an
industry association also argued that the Commission's proposed
provision was vague and required more research. Some industry
association commenters expressed concern regarding how the Commission
would determine whether an item would not benefit the consumer. In
response, the Commission provides the following information. Proposed
Sec. 463.5(a) included enumerated examples of add-ons from which
consumers would not benefit: (1) nitrogen-filled tires that contain no
more nitrogen than normally found in the air, and (2) products or
services that do not provide coverage for the vehicle, the consumer, or
the transaction, or are duplicative of warranty coverage for the
vehicle, including a GAP agreement if the consumer's vehicle or
neighborhood is excluded from coverage or the LTV ratio would result in
the consumer not benefitting financially.\379\ As these examples
illustrate, determining that a consumer would not benefit from an add-
on involves analyzing objective standards under the circumstances, such
as whether the add-on provides benefits; whether the consumer is
eligible to use the add-on; whether the add-on's coverage excludes the
vehicle at issue; and whether the add-on is incompatible with the
vehicle at issue. Thus, additional examples of add-ons that would be
prohibited by this provision include the following: purported rust-
proofing add-ons that do not actually prevent rust; purported theft-
prevention or theft-deterrent add-ons that do not prevent or deter
theft; and add-ons that the vehicle itself cannot support, including
engine oil-change services for a vehicle, such as an electric vehicle,
that does not use engine oil, or software or audio subscription
services for a vehicle that cannot support the software or utilize the
subscription.\380\
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\379\ See Consumer Fin. Prot. Bureau, ``Supervisory Highlights:
Issue 19, Summer 2019'' 3-4 (Sept. 2019), https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-19_092019.pdf (finding instances in which auto
lenders sold ``a GAP product to consumers whose low LTV meant that
they would not benefit from the product'').
\380\ See, e.g., Shannon Osaka, ``Electric vehicles are hitting
a road block: Car dealers,'' Wash. Post (Nov. 9, 2023), https://www.washingtonpost.com/climate-solutions/2023/11/09/car-dealerships-ev-sales (describing a dealership salesperson offering an electric
vehicle-buyer a plan for oil changes and an extended warranty for a
gas-powered car); see also Consumer Fin. Prot. Bureau, ``Supervisory
Highlights: Issue 24, Summer 2021'' 3-4 (June 2021), https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-24_2021-06.pdf (finding servicers added and
maintained unnecessary collateral protection insurance (CPI) when
consumers had adequate insurance and thus the CPI provided no
benefit to the consumers, and also when consumers' vehicles had been
repossessed even though no actual insurance protection was provided
after repossession).
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One association commenter argued that the phrase ``nitrogen-filled
tire related-products or services that contain no more nitrogen than
naturally exists in the air'' in proposed Sec. 463.5(a)(1) would
create a standard with which it may be impossible to comply because
``no individual set of tires could have a higher total quantity of
nitrogen than that in `the air' that stretches around the planet.''
\381\ This commenter requested that the Commission clarify to avoid
this possible reading. Here, the Commission notes that the phrase does
not prohibit such tires if they do not contain a ``higher total
quantity of nitrogen than that in the air''; instead, charging for a
nitrogen-filled tire would fail by this standard if it contains ``no
more nitrogen than'' the proportion that ``naturally exists in the
air.''
---------------------------------------------------------------------------
\381\ Comment of Competitive Enter. Inst., Doc. No. FTC-2022-
0046-7670 at 6.
---------------------------------------------------------------------------
One industry association commenter requested more explanation from
the Commission regarding what would be considered ``duplicative of
warranty coverage'' under proposed Sec. 463.5(a)(2), while another
contended that vehicle service contracts that overlap with a
manufacturer's warranty may still provide additional, beneficial
coverage, such as after the manufacturer's warranty expires. In
response, the Commission notes that this provision prohibits the sale
of warranties that are duplicative. A dealer may offer a warranty add-
on that has some overlap in coverage with existing warranty coverage
for the vehicle, but the add-on must provide additional protection.
Moreover, other provisions of the Final Rule address misconduct
relating to warranties, including by prohibiting misrepresentations
regarding material information about any costs, limitation, benefit, or
any other aspect of the warranty product or service. For example, under
the Final Rule, a dealer may not mislead a consumer as to the benefits
or conditions of the warranty, including amount or length of coverage
(Sec. 463.3(b)). In addition, under Sec. 463.5(c), the dealer must
obtain the express, informed consent of the consumer for the charge for
the warranty (Sec. 463.5(c)).
Other commenters, including an industry association, asserted that
this proposed provision would cause dealers to stop offering beneficial
products or services. The Commission notes that its proposal did not
require such a result and emphasizes that this provision would prevent
charges to consumers for products or services that provide them
[[Page 649]]
no benefit. To the extent that a prohibition against charging consumers
for items that provide no benefit to the consumer may cause some
dealers to discontinue offering beneficial products, consumers would be
free to instead visit other dealerships or to seek the same or similar
offerings from other providers. Dealers, of course, continue to be free
under the Final Rule to offer beneficial add-ons to consumers--
consistent with existing law and with other provisions of this Rule.
Some commenters, including industry associations and a dealership
association, raised concerns about compliance administrability for this
proposed provision in the case of products attached to a vehicle by
manufacturers that may provide no benefit, questioning whether, if this
proposal went into effect, dealers would be prohibited from charging
for such products. In response, the Commission refers commenters to the
definition of ``Add-on'' or ``Add-on Product(s) or Service(s)'' in
Sec. 463.2(a). Notably, ``Add-on'' is defined, in relevant part, as
any ``product(s) or service(s) not provided to the consumer or
installed on the Vehicle by the Vehicle manufacturer . . .'' Thus, if
an add-on product or service is installed on the vehicle by the motor
vehicle manufacturer, it falls outside the scope of this definition,
and concomitantly, outside the scope of the provision at Sec.
463.5(a). Nonetheless, other provisions in the Final Rule address
misconduct relating to this issue. For instance, as examined in
additional detail in the discussion of Sec. 463.4, in SBP III.D, the
offering price for the vehicle would be required to incorporate the
charges for any such items if the dealer requires the consumer to pay
for them. In addition, as described in additional detail in the
discussion of Sec. 463.5(c), in SBP III.E.2(c), a dealer may not
charge for any such item unless the dealer obtains the express,
informed consent of the consumer for the charge.
Another industry association commenter incorrectly stated that this
provision was beyond the FTC's authority and correctly noted that the
Commission has the authority to see that products are marketed and
advertised fairly and honestly. As the commenter acknowledged, the
Commission has the authority to address unfair and deceptive conduct;
that is precisely what this provision does. Dealerships charging
consumers for add-ons from which the consumers would not benefit is
both a deceptive and unfair act or practice in violation of the FTC
Act, as discussed in the following paragraphs. To address this
deception or unfairness, the Commission is finalizing this provision
with minor modifications, including one to correct a typographical
error in the placement of a hyphen in a phrase in proposed Sec.
463.5(a)(1). In the NPRM, the relevant phrase appeared as, ``(1)
Nitrogen-filled tire related-products or services''; in the Final Rule,
the corrected phrase will now read as follows: ``(1) Nitrogen-filled
tire-related products or services.'' For clarity, the Commission is
also adding the word ``that'' before ``are duplicative of warranty
coverage;'' capitalizing the defined term ``Vehicle'' to conform with
the revised definition at Sec. 463.2(e); and adding language
clarifying that the requirements of Sec. 463.5(a) also are
``prescribed for the purpose of preventing the unfair or deceptive acts
or practices defined in this part, including those in Sec. 463.3(a)
and (b) and paragraph (c) of this section.''
Dealerships charging consumers for add-ons from which the consumers
would not benefit involves deceptive conduct. When a dealer charges
consumers for add-ons that would not benefit the consumers, the dealer
either (1) discusses the add-on charges or (2) is silent about these
items. In the first scenario, if a dealer discusses add-on charges,
consumers typically would not agree to pay such charges for additional
products from which they could not benefit unless they are led to
believe, directly or by omission, that these products would in fact be
beneficial to them. Thus, the dealer would be misleading consumers,
even in the event the dealer subsequently provides a disclaimer
indicating the add-on would not benefit the consumer.\382\ In the
second scenario, it is reasonable for consumers to believe that the
terms they have agreed to are what was negotiated, and do not include
additional charges for optional, undisclosed items--particularly items
that would not benefit the consumer. If a dealer charges consumers for
such items under such circumstances, the dealer is misleading the
consumer. Misleading consumers about cost information is material.\383\
If consumers knew that a dealership was charging them for items from
which they would not benefit, such knowledge likely would affect their
commercial choices, including whether to continue with, or ultimately
consummate, the vehicle sale or financing transaction.\384\
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\382\ Removatron Int'l Corp. v. Fed. Trade Comm'n, 884 F. 2d
1489, 1497 (1st Cir. 1989) (``Disclaimers or qualifications . . .
are not adequate to avoid liability unless they are sufficiently
prominent and unambiguous to change the apparent meaning of the
claims and to leave an accurate impression. Anything less is only
likely to cause confusion by creating contradictory double
meanings.'').
\383\ See, e.g., Fed. Trade Comm'n v. Windward Mktg., Ltd., No.
Civ.A. 1:96-CV-615F, 1997 WL 33642380, at *10 (N.D. Ga. Sept. 30,
1997) (``[A]ny representations concerning the price of a product or
service are presumptively material.''); Removatron Int'l Corp., 111
F.T.C. 206, 309 (1988) (``The Commission presumes as material
express claims and implied claims pertaining to a product's . . .
cost.'' (citing Thompson Med. Co., Inc., 104 F.T.C. 648, 817
(1984)); see also Fed. Trade Comm'n v. Crescent Pub. Grp., Inc., 129
F. Supp. 2d 311, 321 (S.D.N.Y. 2001) (``Information concerning
prices or charges for goods or services is material, as it is
`likely to affect a consumer's choice of or conduct regarding a
product.' '').
\384\ Even under a hypothetical scenario wherein a consumer
understood an add-on would not benefit them but wanted to pay extra
for the add-on anyway, in the case of an act or practice challenged
by the agency as deceptive or unfair, ``the FTC need not prove that
every consumer was injured. The existence of some satisfied
customers does not constitute a defense . . . .'' Fed. Trade Comm'n
v. Amy Travel Serv., Inc., 875 F.2d 564, 572 (7th Cir. 1989),
vacated in part on other grounds, Fed. Trade Comm'n v. Credit Bureau
Ctr., LLC, 937 F.3d 764 (7th Cir. 2019); accord Fed. Trade Comm'n v.
Stefanchik, 559 F.3d 924, 929 n.12 (9th Cir. 2009).
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Such charges are also unfair. When charges for any add-on accompany
the already lengthy and complex car-buying process, it is difficult to
obtain consent that is truly express and informed.\385\ Rather than
prohibiting all such charges or taking other measures, as specifically
contemplated in the NPRM,\386\ however, this provision focuses on
charges for add-ons that would not benefit the consumer. Charges for
add-ons that would not benefit the consumer can cost consumers
thousands of dollars and significantly increase the overall cost to the
consumer in the transaction, including by increasing the amount
financed and total of payments, thereby increasing the risk the
consumer will ultimately default on repayment
[[Page 650]]
obligations.\387\ This injury is not reasonably avoidable by consumers
when dealers are silent about such charges and simply include them in
dense, lengthy contracts, as explained in detail in SBP II.B.2.\388\ If
a dealer instead describes what the charges are for, such a description
either deceptively states or implies that the add-on would benefit the
consumer, or acknowledges the add-on would not benefit the consumer,
the latter of which would create ``contradictory double meanings''
\389\ and, if discovered, would still result in the dealer wasting the
consumers' time.\390\ Further, there are no benefits to consumers or to
competition from charging consumers for add-ons that would not benefit
them. Moreover, charging for non-beneficial products is inconsistent
with industry guidance,\391\ and dealerships that profit from such
sales place dealerships that do not at a competitive disadvantage.
Thus, it is an unfair or deceptive act or practice for dealers, in
connection with the sale or financing of vehicles, to charge for an
add-on product or service if the consumer would not benefit from such
an add-on product or service. This provision also serves to prevent
misrepresentations prohibited by Sec. 463.3 of the Final Rule,
including misrepresentations regarding material information about the
costs or terms of purchasing, financing, or leasing a vehicle, and
about any costs, limitation, benefit, or other aspect of an add-on.
This provision further helps prevent dealers from failing to obtain
express, informed consent for charges, as prohibited by Sec.
463.5(c).\392\
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\385\ See, e.g., Consumer Fin. Prot. Bureau, ``Supervisory
Highlights: Issue 19, Summer 2019'' 3-4 (Sept. 2019), https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-19_092019.pdf (describing findings, from
supervisory examinations, of lenders selling GAP agreements to
consumers whose low LTV meant that they would not benefit from the
product: ``By purchasing a product they would not benefit from,
consumers demonstrated that they lacked an understanding of a
material aspect of the product. The lenders had sufficient
information to know that these consumers would not benefit from the
product. These sales show that the lenders took unreasonable
advantage of the consumers' lack of understanding of the material
risks, costs, or conditions of the product.'').
\386\ See, e.g., NPRM at 42030 (Question 33) (``In particular,
the Commission is contemplating whether any final Rule should
restrict dealers from selling add-ons (other than those already
installed on the vehicle) in the same transaction, or on the same
day, the vehicle is sold or leased.''); id. (Question 38)
(discussing proposed Sec. 463.5(c) and asking ``Does the proposal
provide a meaningful way to obtain consent in an already disclosure-
heavy transaction? If it would result in too many disclosures, what
other measures could be taken to protect consumers from unauthorized
charges? '').
\387\ See, e.g., Complaint ]] 25-28, Fed. Trade Comm'n v. N. Am.
Auto. Servs., Inc., No. 1:22-cv-01690 (N.D. Ill. Mar. 31, 2022).
\388\ See, e.g., Auto Buyer Study, supra note 25, at 13-15, 17-
18.
\389\ See Removatron Int'l Corp. v. Fed. Trade Comm'n, 884 F. 2d
1489, 1497 (1st Cir. 1989) (``Disclaimers or qualifications . . .
are not adequate to avoid liability unless they are sufficiently
prominent and unambiguous to change the apparent meaning of the
claims and to leave an accurate impression. Anything less is only
likely to cause confusion by creating contradictory double
meanings.'').
\390\ Even in the hypothetical scenario where some consumers
could have avoided the injury because they understood that an add-on
would not benefit them but wanted to pay extra for the add-on
anyway, the dealer's conduct in selling non-beneficial add-ons would
still be unfair because it substantially injures other consumers who
do not wish to pay for items that would not benefit them and, as
discussed in the SBP text, cannot reasonably avoid the harm, and no
countervailing benefits outweigh the costs. See FTC v. Amazon.com,
Inc., 2016 U.S. Dist. LEXIS 55569, *15, *18-21 (W.D. Wash. Apr. 26,
2016) (finding unfairness even though some consumers could have
avoided the charge). Additionally, consumers who truly wish to
purchase add-ons that do not benefit them may still be able to do so
directly from the add-on provider.
\391\ See Nat'l Auto. Dealers Ass'n et al., ``Voluntary
Protection Products: A Model Dealership Policy'' 5 (2019), https://www.nada.org/regulatory-compliance/voluntary-protection-products-model-dealership-policy (explaining that when determining which
voluntary protection products to offer to customers, ``the
dealership should have confidence in the value that the product
offers to customers,'' including that the dealership should
understand ``whether its coverage is already provided by another
product being purchased by the customer,'' and stating ``[i]t is
essential that customers have a clearly defined path to receiving
such benefits.'').
\392\ See 15 U.S.C. 57a(a)(1)(B) (the Commission ``may include
requirements prescribed for the purpose of preventing'' unfair or
deceptive acts or practices).
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(b) Undisclosed or Unselected Add-Ons
The Commission's proposed provisions relating to undisclosed or
unselected add-on products or services, at Sec. 463.5(b), prohibited
dealers from charging for optional add-ons before undertaking certain
measures. Specifically, proposed Sec. 463.5(b)(1) prohibited dealers
from charging for optional add-ons unless the dealers disclosed, and
offered to consummate the transaction for, the cash price at which a
consumer may purchase the vehicle without such add-ons. This proposed
provision also required the consumer to decline to purchase the vehicle
for the cash price without the add-on by means of a written
declination, with date and time recorded, and signed by the consumer
and a manager of the motor vehicle dealer. The proposed requirements of
Sec. 463.5(b)(1) applied before the dealer referenced any aspect of
financing for a specific vehicle, aside from the offering price, or
before consummating a non-financed sale. Proposed Sec. 463.5(b)(2)
required similar steps before charging for any optional add-on in a
financed transaction, including that the dealer disclose, and offer to
consummate the transaction for, a vehicle's cash price without optional
add-ons plus the finance charge for such transaction, separately
itemizing the components of the offer. This proposed provision also
required a written, dated, time-stamped, and signed declination.
Finally, proposed Sec. 463.5(b)(3) required dealers to disclose the
cost of the transaction, whether financed or not, without any optional
add-ons, as well as the charges for the optional add-ons selected by
the consumer, separately itemized. Each proposed provision required
clear and conspicuous disclosure of specific information relating to
optional add-ons and their associated costs.
As discussed in the following paragraphs, the Commission has
determined not to finalize the proposed provisions at Sec. 463.5(b)
regarding undisclosed or unselected add-ons. Many commenters described
the likely benefits of such proposed provisions, and a number of
commenters indicated how such provisions would be feasible, including
by reference to similar disclosure regimes already in effect at the
State or local level. Commenters also credited the Commission's goals
for such provisions.
However, other commenters opposed these proposed provisions,
contending they would be burdensome and time-consuming. Others
similarly expressed concern that, given the duration, complexity, and
paperwork-heavy nature of motor vehicle sales and financing
transactions, these provisions would not effectively resolve the
problem of add-ons being sold without express, informed consumer
consent.\393\
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\393\ See, e.g., Comment of Nat'l Consumer L. Ctr. et al., Doc.
No. FTC-2022-0046-7607 at 30-31. Instead, advocates recommended that
the Commission require a cooling-off period for add-ons, similar to
that required by the Commission for door-to-door and other off-
premises sales, which would grant consumers time to review the
paperwork after the transaction, and to cancel unexpected or
otherwise unwanted add-ons for a full refund. Id. This comment is
addressed when discussing Sec. 463.5(c) in SBP III.E.2(c).
---------------------------------------------------------------------------
Having considered the comments, the Commission declines to include
in this Final Rule the proposed provisions relating to undisclosed or
unselected add-on products or services at Sec. 463.5(b). The
Commission notes that various commenters were concerned about the
extent to which this proposal would add documents and time to the
transaction. If finalized, this would have been the sole provision in
the Final Rule that affirmatively requires the dealer and consumer, in
all circumstances, to view and sign additional documentation during the
purchase, finance, or lease process, in what is already a document-
heavy, time-consuming, and complicated transaction. The Commission
further notes that, as a matter of existing law, dealers are already
prohibited from engaging in misrepresentations regarding add-ons and
from charging for add-ons without express, informed consent--conduct
which the Final Rule prohibits as well. Accordingly, the Commission has
determined not to include this provision in its Final Rule.
The Commission will continue to monitor the motor vehicle
marketplace for issues pertaining to unselected or undisclosed add-ons,
and will consider implementing additional measures in the future if it
determines such measures are necessary to address deceptive or unfair
practices relating to add-ons.
[[Page 651]]
(c) Any Item Without Express, Informed Consent
Section 463.5(c) of the proposed rule prohibited motor vehicle
dealers, in connection with the sale or financing of vehicles, from
charging consumers for any item unless the dealer obtains the express,
informed consent of the consumer for the charge. Upon careful review
and consideration of the comments, the Commission is finalizing this
provision with one modification from its original proposal: the
addition of language to the end of Sec. 463.5(c) clarifying that the
requirements in Sec. 463.5(c) ``also are prescribed for the purpose of
preventing the unfair or deceptive acts or practices defined in this
part, including those in Sec. Sec. 463.3(a) and (b), 463.4, and
paragraph (a) of this section.'' In addition, the Commission is
finalizing the corresponding definition of ``Express, Informed
Consent,'' now at Sec. 463.2(g).
Many commenters favored the proposed provision and expressed the
need for such a provision. For example:
In one instance a salesman who appeared busy and trying to
help me efficiently navigate the process rushed me to sign a small
paper, ``just sign this quickly and we'll be on our way,'' I was told,
without disclosure that they were selling me something that I did not
want. I found it later and felt cheated.\394\
---------------------------------------------------------------------------
\394\ Individual commenter, Doc. No. FTC-2022-0046-0794.
---------------------------------------------------------------------------
They made me sign the sales bill on an electronic device,
but the finance guy never pointed to me any number I was getting
charge[d] for, and never pointed to me the total amount I was getting
billed for. He seem[ed] to be in a hurry and he even told me he had
people waiting for him to see. I think it was all planned to push the
buyer to blindly sign the bill of sale without explaining anything
because he was scrolling the electronic pages in a hurry and going
straight to the sign box line. I thought I signed the agreed amount, I
trust them, but, instead, they charge me for things I never agreed on.
I went back to the dealer in less than 48 hours when I discovered the
fraud and asked them to remove the extra fees they charged me for, they
refused and they forced me to pay for it, I asked them and requested
them to take the car back, they refused it again, at the end, they gave
me a little bit of a discount, but, not compared to what I got charged
for. . . .\395\
---------------------------------------------------------------------------
\395\ Individual commenter, Doc. No. FTC-2022-0046-0671.
---------------------------------------------------------------------------
I am an attorney in private practice in NY representing
consumers for 33 years. It never ceases to amaze me how car dealers
defraud honest trusting consumers substantial sums of money through
various common deceptive and fraudulent practices ranging from altering
documents, concealing documents, having consumers sign blank documents,
lying about the material terms of the deal, altering the prices, adding
on other contracts or items never discussed and selling vehicles with
undisclosed damages and defects.\396\
---------------------------------------------------------------------------
\396\ Individual commenter, Doc. No. FTC-2022-0046-0073.
---------------------------------------------------------------------------
I have worked in the automotive business for many year[s].
I realize there are plenty of dealers around the US that have deceptive
business practices, however this isn't the case for all dealers. I
believe there can be laws that can be put in place to help prevent
dealers from adding additional backend products without consent or
knowledge.\397\
---------------------------------------------------------------------------
\397\ Individual commenter, Doc. No. FTC-2022-0046-9917.
---------------------------------------------------------------------------
Others supported the proposed provision and urged the Commission to
include additional measures, such as a thirty-day ``cooling-off''
period within which consumers would be able to receive a full refund
for any add-ons. A number of commenters, including consumer advocacy
organizations, contended that such an additional time frame to review,
and potentially cancel, any add-ons would counter the high-pressure,
confusing environment of the dealership F&I office and undermine any
efforts to misrepresent add-on charges and coverage. Such commenters
also indicated that such a provision would allow consumers the
opportunity to compare prices and providers, and ultimately help
increase competition in the marketplace. A few individual commenters
requested that the Commission provide a cooling-off period not only for
add-ons, but for the full vehicle purchase, and a prohibition on
charging non-refundable deposits.
The Commission agrees that a ``cooling off'' provision could offer
consumers additional protection from unwanted add-ons; however,
additional information would assist the Commission in evaluating the
potential benefits of such a provision. Such information might include,
for example, what length a cooling-off period would need to be in order
to offer adequate protection to consumers and to competition, or how
consumers would most effectively be made aware of such a cooling-off
period in the course of the complicated, lengthy, and document-heavy
vehicle sale or financing transaction. Such information would be
particularly relevant given that, in the Commission's law enforcement
experience, consumers have paid unauthorized charges on years-long
contracts without learning of the charges.\398\ Accordingly, the
Commission will continue to monitor the market to determine whether,
after adoption of this Rule, it appears that a cooling-off period or
other measures would be warranted.
---------------------------------------------------------------------------
\398\ See discussion in SBP II.B.2.
---------------------------------------------------------------------------
Other commenters, including consumer advocacy organizations,
emphasized the importance of having disclosures and other documents
available in the language used to negotiate the sale or lease. Here,
the Commission notes that a dealer does not obtain the express,
informed consent of the consumer if the consumer's assent to a charge
is ambiguous or based on a disclosure the consumer does not easily
understand.\399\ Thus, if a dealer uses one language during
negotiations and a different language in its contracts, and the
consumer does not understand and assent to the charges, the dealer is
violating Sec. 463.5(c). Furthermore, the Commission notes that the
definition of ``Express, Informed Consent'' it is finalizing at Sec.
463.2(g) requires, inter alia, a clear and conspicuous disclosure of
what the charge is for and the amount of the charge, and the
Commission's definition of ``Clear(ly) and Conspicuous(ly),'' at Sec.
463.2(d)(5), requires disclosures to appear ``in each language in which
the representation that requires the disclosure appears.''
---------------------------------------------------------------------------
\399\ See Sec. 463.2(g) (defining ``Express, Informed Consent''
to include an affirmative act communicating ``unambiguous assent to
be charged''); Sec. 463.2(d) (defining ``Clear(ly) and
Conspicuous(ly)'' to include a manner that is ``easily
understandable'').
---------------------------------------------------------------------------
Other commenters, including a consumer advocacy organization and a
consumer protection agency, recommended the Commission prescribe
additional requirements for obtaining express, informed consent for
charges, such as boxes for signatures and date-and-time recordings, and
a requirement that dealers comply with the E-Sign Act. Other commenters
also discussed obtaining consent through electronic signatures.
Commenters including consumer advocacy organizations, for instance,
reported cases wherein documents that were signed and supposedly
provided electronically to consumers, were never actually delivered to
the consumer, or delivered days later. According to these commenters,
some consumers would sign on a small signature pad where they could not
see the terms of the document being signed. Other practitioner
commenters reported that
[[Page 652]]
consumers' electronic signatures were applied to contracts with very
different terms from what the consumers believed they were accepting.
An individual commenter recommended that dealers be required to provide
paper documents where requested and consumers be allowed to consent on
paper documents only, noting that elderly consumers or those for whom
English is a second language may have difficulty with electronic
signatures. Another individual commenter expressed the view that anyone
needing assistance understanding the sales price or disclosures should
be provided independent legal counsel at the dealership's expense.
While the Commission agrees that additional measures to promote
express, informed consent could reduce the incidence of unauthorized
charges and aid with enforcement efforts, the Commission has determined
not to include in this Final Rule provisions that would require new
forms during the vehicle sale or financing transaction. This way, law-
abiding dealers would not have to change their practices for obtaining
express, informed consent. Thus, the Commission declines to add further
requirements, including those involving signature boxes or date-and-
time recordings. Regarding the E-Sign Act, nothing in the Rule modifies
compliance obligations under this Act. Instead, the Final Rule requires
that, regardless of whether any given signature may have been obtained
through electronic or other means, the dealer must obtain the express,
informed consent of the consumer to any item for which the dealer
charges the consumer. Furthermore, the Commission notes that a dealer
has not obtained express, informed consent if a dealer has consumers
sign an electronic keypad without seeing and understanding the terms,
or applies their electronic signatures on contracts with terms
different from those to which the consumer agreed.\400\ In such
circumstances, the consumer has not demonstrated informed consent, or
unambiguous assent to be charged, including because the signatures are
not in close proximity to clear and conspicuous disclosures regarding
the charges.
---------------------------------------------------------------------------
\400\ See Sec. 463.2(g) (defining ``Express, Informed Consent''
to include requiring clear and conspicuous disclosures of what the
charge is for and the amount of the charge).
---------------------------------------------------------------------------
Other commenters, including industry and dealership associations,
claimed that the Commission did not provide enough information
regarding what would constitute express, informed consent to charges,
contending that additional detail was needed, or that the provision and
associated definition of ``Express, Informed Consent'' were too vague.
The Commission notes, however, that the phrase ``Express, Informed
Consent'' is consistent with existing legal standards.\401\ Commission
enforcement actions over the years have challenged as deceptive or
unfair the failure to get express, informed consent to charges,
including in actions involving motor vehicle dealers and others:
---------------------------------------------------------------------------
\401\ See, e.g., Fed. Trade Comm'n v. Amazon.com, Inc., 71 F.
Supp. 3d 1158, 1163 (W.D. Wash. 2014).
---------------------------------------------------------------------------
Rushing consumers through stacks of auto paperwork more
than 60 pages deep and requiring over a dozen signatures, where the
paperwork included charges for unwanted add-ons.\402\
---------------------------------------------------------------------------
\402\ Complaint ]] 24-25, 29-49, 76, Fed. Trade Comm'n v. North
Am. Auto. Servs., Inc., No. 1:22-cv-01690 (N.D. Ill. Mar. 31, 2022).
---------------------------------------------------------------------------
Double charging certain fees without consumers' knowledge
or consent in highly technical documents presented at the close of a
long financing process after an already lengthy process of selecting a
vehicle and negotiating over its price.\403\
---------------------------------------------------------------------------
\403\ Complaint ]] 17-19, 44, Fed. Trade Comm'n v. Liberty
Chevrolet, No. 1:20-cv-03945 (S.D.N.Y. May 21, 2020).
---------------------------------------------------------------------------
Presenting consumers with preprinted sales and financing
forms that included add-ons consumers had not requested, and rushing
consumers through the closing process while directing them where to
sign forms, including forms that were blank.\404\
---------------------------------------------------------------------------
\404\ Complaint ]] 59-64, 91, Fed. Trade Comm'n v. Universal
City Nissan, No. 2:16-cv-07329 (C.D. Cal. Sept. 29, 2016).
---------------------------------------------------------------------------
Charging consumers more for a product or service than they
agreed to pay.\405\
---------------------------------------------------------------------------
\405\ See, e.g., Complaint ]] 29, 47, Fed. Trade Comm'n v.
Yellowstone Cap. LLC, No. 1:20-cv-06023-LAK (S.D.N.Y. Aug. 3, 2020).
---------------------------------------------------------------------------
Charging consumers for more products than they
requested.\406\
---------------------------------------------------------------------------
\406\ See, e.g., Complaint ]] 11-14, 21, Bionatrol Health, LLC,
No. C-4733 (F.T.C. Mar. 5, 2021).
---------------------------------------------------------------------------
Cramming charges onto consumers' bills for services that
the consumers did not request without the consumers' knowledge or
consent.\407\
---------------------------------------------------------------------------
\407\ See, e.g., Complaint ]] 8-9, 42, Fed. Trade Comm'n v. T-
Mobile USA, Inc., No. 2:14-cv-00967-JLR (W.D. Wash. July 1, 2014);
Complaint ]] 9, 49, Fed. Trade Comm'n v. AT&T Mobility, LLC, No.
1:14-cv-03227-HLM (N.D. Ga. Oct. 8, 2014).
---------------------------------------------------------------------------
Courts have found the failure to obtain express, informed consent
to be a violation of the FTC Act.\408\ Other statutes and rules
enforced by the Commission include express, informed consent
requirements for consumer purchases,\409\ and similar provisions have
appeared in Commission orders resolving charges that motor vehicle
dealers or other sellers have levied unauthorized charges on
consumers.\410\ In short, the prohibition in Sec. 463.5(c) against
charging consumers for products or services without their express,
informed consent, and the corresponding definition of ``Express,
Informed Consent'' in Sec. 463.2(g) are consistent with existing law
in articulating what motor vehicle dealers must do--and already should
be doing.
---------------------------------------------------------------------------
\408\ See, e.g., Fed. Trade Comm'n v. FleetCor Techs., Inc., 620
F. Supp. 3d 1268, 1333-38 (N.D. Ga. 2022); Fed. Trade Comm'n v.
Amazon.com, Inc., No. C14-1038-JCC, 2016 WL 10654030, at *8 (W.D.
Wash. July 22, 2016); Fed. Trade Comm'n v. Inc21.com Corp., 745 F.
Supp. 2d 975, 1005 (N.D. Cal. 2010), aff'd, 475 F. App'x 106 (9th
Cir. 2012).
\409\ 15 U.S.C. 8402(a)(2), 8403(2) (Restore Online Shoppers'
Confidence Act); 16 CFR 310.4(a)(7) (Telemarketing Sales Rule).
\410\ The Commission has required express, informed consent
provisions in orders against motor vehicle dealers and others. See
Stipulated Order at Art. IV, Fed. Trade Comm'n v. Passport Auto.
Grp., Inc., No. 8:22-cv-02670-TDC (D. Md. Oct. 18, 2022); Stipulated
Order at Art. II, Fed. Trade Comm'n v. North Am. Auto. Servs., Inc.,
No. 1:22-cv-01690 (N.D. Ill. Mar. 31, 2022) Stipulated Order at Art.
II, Fed. Trade Comm'n v. Liberty Chevrolet, No. 1:20-cv-03945
(S.D.N.Y. May 22, 2020); Stipulated Order at Art. III, Fed. Trade
Comm'n v. Consumer Portfolio Servs., No. 14-cv-00819 (C.D. Cal. June
11, 2014). Similarly, the Commission has required such provisions in
orders in other contexts. See, e.g., Stipulated Order at Art. III,
Fed. Trade Comm'n v. Yellowstone Cap. LLC, No. 1:20-cv-06023-LAK
(S.D.N.Y. May 4, 2021); Stipulated Order at Art. IV, Fed. Trade
Comm'n v. Prog. Leasing, No. 1:20-cv-1668-JPB (N.D. Ga. Apr. 22,
2020); Decision and Order at Art. VI, Bionatrol Health, LLC, No. C-
4733 (F.T.C. Mar. 5, 2021); Stipulated Order at Art. I.E, Fed. Trade
Comm'n v. BunZai Media Grp., Inc., No. CV 15-4527-GW (PLAx) (C.D.
Cal. June 27, 2018); Stipulated Order at Art. I, Fed. Trade Comm'n
v. T-Mobile USA, Inc., No. 2:14-cv-00967-JLR (W.D. Wash. Dec. 19,
2014); Stipulated Order at Art. I, Fed. Trade Comm'n v. AT&T
Mobility, LLC, No. 1:14-cv-03227-HLM (N.D. Ga. Oct. 8, 2014);
Decision and Order at Art. I, Google, Inc., No. C-4499 (F.T.C. Dec.
2, 2014); Consent Order, Apple Inc., No. C-4444 (F.T.C. Mar. 27,
2014); cf. Fed. Trade Comm'n v. Kennedy, 574 F. Supp. 2d 714, 720-21
(S.D. Tex. 2008) (consumers charged without express, informed
consent for web services could not reasonably avoid harm when told
that websites were ``free'').
---------------------------------------------------------------------------
The Commission further notes that the proposed definition of
``Express, Informed Consent'' provided information regarding what was
required by Sec. 463.5(c): an affirmative act by the consumer
communicating unambiguous assent to be charged, made after receiving
and in close proximity to a clear and conspicuous disclosure, in
writing, and also orally for in-person transactions, of the following:
(1) what the charge is for; and (2) the amount of the charge,
including, if the charge is for a product or service, all fees and
costs to be charged to the consumer over the period of repayment with
and without the product or service. As is evident from this language,
there
[[Page 653]]
must be an affirmative act that itself conveys the consumer's
unambiguous assent to the specific charge: it must clearly and
expressly communicate both that the consumer has been informed about
the charge and consents to the charge. This act cannot be susceptible
to alternative interpretations, i.e., that the consumer meant to
communicate something other than the consumer's authorization to be
charged for the specific add-on or other item in question. For example,
a consumer might ask, ``how much would it cost to get the car with [a
specific add-on]? '' Such a statement does not convey unambiguous
assent to be charged for the mentioned add-on; rather, it could merely
convey curiosity, interest, or a desire to evaluate options. Similarly,
if a consumer responds to a salesperson's description of an add-on by
saying ``OK,'' this response may merely confirm that the consumer had
heard or understood information and does not indicate the consumer's
unambiguous assent to purchase, let alone be charged for, such an item.
Relatedly, some commenters, including dealership associations,
suggested that the addition, by the consumer, of a signature or set of
initials, accompanied by a corresponding date can be partial evidence
of an affirmative, or ``Express,'' act. The Commission notes that the
extent to which these, or other, acts indicate ``Express, Informed
Consent'' depends on circumstances and context. A consumer signing a
lengthy document with pre-checked boxes does not, by itself,
demonstrate express, informed consent. This is particularly so at the
end of an hours-long transaction, at which point actions that, under
other circumstances, may indicate assent are increasingly less likely
to do so unambiguously, given that at the close of a transaction,
consumers expect to be finalizing previously agreed-upon terms instead
of discussing new products or services hours into the deal. For
express, informed consent to be effective, the consumer must understand
what a charge is for and the amount of the charge, including all costs
and fees over the length of the payment period. A signed and dated
document would not satisfy the requirement for express, informed
consent, for example, if the consumer was directed to sign the final
page of a contract or an electronic signature pad and the signed and
dated document did not reflect the terms to which the consumer had
agreed. In such cases, the signed and dated document does not represent
the consumer's unambiguous assent to be charged, made after receiving,
and in close proximity to, a clear and conspicuous disclosure of what
the charges are for and the amount of the charges.
Some industry association commenters argued that the proposed
definition was too prescriptive, and would require, for instance, video
records to demonstrate compliance, or that the proposed language was
overreaching, and requiring express, informed consent for every item on
a contract would be complicated and time-consuming. The Commission
notes again that, under current law, dealerships are already required
to obtain consumers' express, informed consent to charges. If dealers
are already obtaining such consent, as is required by law, they need
not take additional steps, such as by using a separate disclosure form
or videos, or by spending additional time during the transaction to
comply with this provision.
A dealership association commenter requested examples of
recordkeeping and best practices evidencing oral disclosures that would
satisfy the requirement to obtain express, informed consent. The
express, informed consent requirement and definition require the
disclosure to be made in writing in addition to orally for in-person
transactions. Furthermore, under other provisions of the Rule, such as
the definition of ``Clear(ly) and Conspicuous(ly)'' at Sec.
463.2(d)(7), dealers are prohibited from contradicting information that
is required to be disclosed; thus, for example, dealers' oral
representations must be consistent with the written disclosure required
for obtaining express, informed consent. Best practices for satisfying
the requirement to obtain express, informed consent include presenting
key information and finalizing actual terms early in the transaction--
for example, by including full cost information, such as estimated
taxes, costs of any selections made by the consumer, and any other
components of cost, on dealer websites--and maintaining records that
this was done. The Commission notes that, as a transaction progresses,
consumers expect to be finalizing previously agreed-upon terms instead
of discussing new charges and new products or services. In lieu of
finalizing additional formal mandates in the Rule regarding
recordkeeping and best practices evidencing express, informed consent,
the Commission recognizes that industry members and other stakeholders
will have significant room to develop self-regulatory programs and
guidance tailoring these and other topics to the specifics of their
business operations.
Some dealership association commenters expressed concern that such
a provision would be inconsistent with State laws and would complicate
the car buying experience. While the Commission is not aware of any
laws that allow dealers to charge consumers without their express,
informed consent, and thus is not aware of any inconsistences with this
provision, Sec. 463.9 of the Final Rule specifies what dealers must do
in the case of actual conflicts with State law. State laws may provide
more or less specific requirements--including requirements that provide
greater protection--as long as they do not conflict with the Final
Rule, as set forth in Sec. 463.9. The Commission also notes that to
the extent there is overlap with existing law, there is no evidence
that duplicative prohibitions against deceptive and unfair conduct,
including prohibitions against charging consumers without express,
informed consent, have harmed consumers or competition.
Commenters, including an industry association, inquired whether the
term ``item,'' as used in this proposed provision, differed from the
term ``Add-on Product or Service'' defined in Sec. 463.2 of the
Commission's proposal. The industry association also argued that
requiring express, informed consent is beyond what is required under
the Truth in Lending Act. The Commission responds as follows:
Consistent with its plain meaning, the term ``item'' is broader than,
and thereby encompasses, the term ``Add-on Product(s) or Service(s),''
which is limited by its definition in Sec. 463.2 of the Final
Rule.\411\ As proposed, Sec. 463.5 addressed ``Dealer Charges for Add-
ons and Other Items.'' \412\ It did so in recognition of the fact that
add-ons are one type of ``item,'' but that ``Other Items'' for which a
dealer might charge exist as well. Thus, as proposed, Sec. 463.5
applied to charges generally, whether such charges were for an add-on
or for another item. As previously discussed, charging consumers
without their express, informed consent to the charge has long been an
unfair or deceptive practice under the FTC Act. This has been the case
regardless of what the charge is for. Accordingly, dealers already
should be obtaining consumers' express, informed
[[Page 654]]
consent for charges, whether it is for an Add-on or any other item,
regardless of what may be required under other laws.
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\411\ See NPRM at 42046. The term ``item'' includes ``a distinct
part in an enumeration, account, or series'' as well as ``a separate
piece of news or information.'' See Item (defs. 1, 3), Merriam-Webster.com Dictionary, https://www.merriam-webster.com/dictionary/item (last visited Sept. 14, 2023).
\412\ See NPRM at 42046 (emphasis added).
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Commenters, including this same industry association commenter,
also questioned how a dealership would calculate ``the amount of the
charge . . . with and without the product or service'' as would be
required under proposed Sec. 463.2(g)(2), as well as how this proposed
provision would work in a non-financed transaction.\413\ Conversely, an
individual commenter stated that current F&I practices already
routinely disclose the proposed charges with and without the product or
service. The Commission notes that its proposed definition of
``Express, Informed Consent'' plainly required disclosure of the
``amount of the charge, including, if the product is for a product or
service, all fees and costs to be charged to the consumer over the
period of repayment with and without the product or service.'' \414\
The amount the dealer will charge the consumer over the period of
repayment with the product or service is the total charge for that
product or service. In the event the charge is for an optional product
or service, the amount the dealer will charge the consumer without the
product or service is zero; in the event the charge is for a non-
optional item, the dealer's disclosure must clearly indicate as such.
Regarding non-financed transactions, as with a financed transaction,
the amount the dealer will charge the consumer over the period of
repayment with the product or service is the total charge for that
product or service. If the period of repayment is such that full
payment is due upon receipt of the vehicle, the amount required to be
disclosed is the total charge for that product or service to be paid
upon receipt of the vehicle. The amount the dealer will charge the
consumer without the product or service, if it is optional, is zero; in
the event the charge is for a non-optional item, the dealer's
disclosure must clearly indicate such. Sharing this basic information
with consumers--how much they will pay for the item and how much they
will pay without it--addresses practices, such as hiding add-on
charges, misrepresenting whether such charges are required in
connection with the vehicle sale or financing transaction, or
misrepresenting how such charges influence the total of payments for
the transaction.
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\413\ This commenter also contended that this provision would
result in many disclosures when combined with proposed Sec.
463.5(b). Comment of Nat'l Auto. Dealers Ass'n, Doc. No. FTC-2022-
0046-8368 at 98-99. As discussed previously, the Commission declines
to finalize proposed Sec. 463.5(b).
\414\ See NPRM at 42045.
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An industry association comment stated that, were the Commission's
proposal to become final, the Commission would be able to obtain
monetary relief from dealers for harmed consumers, and argued that
Holder Rule protections for such consumers thus would be
unnecessary.\415\ Accordingly, it urged the Commission to modify its
proposal to include a safe harbor for contract assignees, which it
argued would be incapable of detecting deficiencies in sale or lease
transactions, such as dealer misrepresentations or a lack of consumer
consent, unless those deficiencies were apparent from the face of the
contract. Here, the Commission emphasizes that no provision of the
Final Rule changes the status quo regarding the responsibilities of
assignees or other subsequent holders of motor vehicle financing under
the Holder Rule. The Commission did not include, when enacting the
Holder Rule, a safe harbor from liability for claims or defenses based
on their capability of detection by such assignees or other subsequent
holders, and the Commission does not believe on the basis of comments
received in the course of this rulemaking that such a change would be
warranted as a consequence of finalizing this Rule. The Holder Rule
provides important protections for harmed consumers, even when there is
law that allows the Commission or other law enforcers to obtain
remedies for harmed consumers, including where the consumers are
seeking recourse from, or defending themselves against, parties that
have not been the subject of law enforcement actions.\416\ Furthermore,
while the Commission understands that dealers are often in the best
position to ensure they have, in the first instance, obtained a
consumer's express, informed consent for charges, there are steps an
assignee or other subsequent holder of the consumer credit contract,
such as a third-party financing entity, can take to address concerns
about contracts obtained without express, informed consent. For
example, if a financing entity receives complaints from consumers or
others that specific charges were obtained without authorization or
sees that charges for a particular item are occurring substantially
more frequently at a given dealership than at others, the financing
company can take steps to make sure the dealer is obtaining express,
informed consent. Further, if a financing entity is concerned that a
dealership may be acting in violation of the Final Rule, it may arrange
its business relationships accordingly, including by altering or
withdrawing its business from the dealership.\417\
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\415\ See Holder Rule, 16 CFR 433.2.
\416\ See Holder Rule, 16 CFR 433.2; see also Fed. Trade Comm'n,
Advisory Opinion Regarding F.T.C. Trade Regulation Rule Concerning
Preservation of Consumers' Claims and Defenses (May 3, 2012),
https://www.ftc.gov/system/files/documents/advisory_opinions/16-c.f.r.part-433-federal-trade-commission-trade-regulation-rule-concerning-preservation-consumers-claims/120510advisoryopinionholderrule.pdf (last visited Dec. 5, 2023).
\417\ See Complaint ]] 29-32, Fed. Trade Comm'n v. Tate's Auto
Ctr. of Winslow, Inc., No. 3:18-cv-08176-DJH (D. Ariz. July 31,
2018) (alleging a financing entity ceased business with Tate's Auto
Center after concerns about loan falsification and substantial
losses).
---------------------------------------------------------------------------
Another industry association commenter asked for clarification
regarding the extent to which particular rules are necessary to obtain
customer authorization for charges, thus reflecting what is already
necessary under State or Federal law, as opposed to preventative
measures that the Commission otherwise deems necessary. The Commission
notes that this provision is consistent with the requirements of the
FTC Act, which already prohibits charging consumers without express,
informed consent, and is needed to address unfair and deceptive
conduct. As the Commission set forth in its NPRM, the length and
complexity of motor vehicle transactions has created an environment
rife with deceptive and unfair conduct. Consumer complaints and the
Commission's extensive law enforcement experience, among other sources,
indicate that some dealers have added thousands of dollars in
unauthorized charges to motor vehicle transactions, including for add-
ons consumers had already rejected.\418\ Such issues are exacerbated
when, for example, preprinted dealer contracts automatically include
charges for optional add-ons that the consumer has not selected; when
dealers rush consumers through stacks of paperwork with buried charges
after a lengthy process; when dealers misinform consumers that the
documents they are signing represent agreed-upon terms; or when dealers
ask consumers to sign blank documents.
---------------------------------------------------------------------------
\418\ See SBP II.B.2.
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Charging consumers without their express, informed consent causes
substantial injury to consumers in the amount of the unauthorized
charge. This injury is not reasonably avoidable when dealers do not
clearly and conspicuously disclose to the consumer what the charge is
for and the amount of the charge, since this information is within the
unilateral control of the
[[Page 655]]
dealer. There are no countervailing benefits to consumers or to
competition that outweigh this injury. To the contrary, if all dealers
obtained express, informed consent to charges, they would not lose
business to dealers who do not do so.
Charging for an item without obtaining the consumer's express,
informed consent is also a deceptive practice under section 5 of the
FTC Act.\419\ When a dealer presents a consumer with whom the dealer
has negotiated a finalized sale or financing contract, the dealer is
representing that the contract includes only charges that were
negotiated and to which the consumer agreed. If the dealer failed to
obtain the consumer's express, informed consent, however, such a
representation is false or misleading. It is also material: if
consumers knew that they had not, in fact, authorized a charge that the
dealer nonetheless included in their sales or financing contract, this
information likely would have affected the consumers' willingness to
continue to engage with the dealership, as well as consumers'
willingness to select and pay for any such item. The express, informed
consent requirement also serves to prevent the misrepresentations
prohibited by Sec. 463.3 of the Final Rule--including
misrepresentations regarding material information about the costs or
terms of purchasing, financing, or leasing a vehicle, and about any
costs, limitation, benefit, or other aspect of an add-on.\420\ The
requirement also serves to prevent violations of the disclosure
requirements in Sec. 463.4 and the prohibition against charging for
non-beneficial add-ons in Sec. 463.5(a). By operation of the
definition of ``Express, Informed Consent'' at Sec. 463.2(g), this
requirement reduces the likelihood that dealers will fail to disclose
what a given charge is for and the amount of the charge including all
fees and costs to be charged to the consumer over the period of
repayment with and without the charged item, thereby making the
disclosures of information required by Sec. 463.4 more likely. The
same is true regarding the requirements of Sec. 463.5(a): the
requirement that dealers obtain informed and unambiguous assent to be
charged for each product or service makes it less likely that dealers
will charge consumers for items from which they would not benefit;
consumers typically do not provide informed, unambiguous assent to be
charged for additional products from which they could not benefit
unless they are led to believe, directly or by omission, that these
products would be beneficial.
---------------------------------------------------------------------------
\419\ See, e.g., Fed. Trade Comm'n v. FleetCor Techs., Inc., 620
F. Supp. 3d 1268, 1334-39 (N.D. Ga. Aug. 9, 2022); Fed. Trade Comm'n
v. Inc21.com Corp., 745 F. Supp. 2d 975, 1001-03 (N.D. Cal. Sept.
21, 2010).
\420\ See 15 U.S.C. 57a(a)(1)(B) (the Commission ``may include
requirements prescribed for the purpose of preventing'' unfair or
deceptive acts or practices).
---------------------------------------------------------------------------
Thus, the Commission has determined to finalize proposed Sec.
463.5(c), prohibiting dealers from charging a consumer for any item
unless the dealer obtains the express, informed consent of the consumer
for the charge, with the addition of language clarifying that the
requirements in Sec. 463.5(c) ``also are prescribed for the purpose of
preventing the unfair or deceptive acts or practices defined in this
part, including those in Sec. Sec. 463.3(a) and (b), 463.4, and
paragraph (a) of this section.'' In addition, the Commission has
determined to finalize its definition of ``Express, Informed Consent,''
now at Sec. 463.2(g), substantively as proposed.
F. Sec. 463.6: Recordkeeping
Proposed Sec. 463.6 required motor vehicle dealers to create and
retain, for a period of twenty-four months from the date the record is
created, all records necessary to demonstrate compliance with the Final
Rule, including those in five enumerated paragraphs. This proposed
section further provided that dealers may retain such records in any
legible form, and in the same manner, format, or place as they may
already keep such records in the ordinary course of business, and that
failure to keep all required records required will be a violation of
the Rule. As examined in additional detail in the following analysis,
several commenters supported the proposal; several urged the Commission
to adopt broader recordkeeping requirements; and several other
commenters argued that the proposed requirements were too broad. After
careful consideration, the Commission has determined to adopt these
recordkeeping requirements largely as proposed, with two conforming
modifications to remove references to proposed provisions not adopted
in the Final Rule; one typographical modification to include a serial
comma for consistency; and minor textual changes to ensure consistency
with the defined terms at Sec. 463.2(e) and (f) by replacing ``Motor
Vehicle Dealer'' with ``Covered Motor Vehicle Dealer'' or ``Dealer,''
replacing ``Motor Vehicle'' with ``Vehicle,'' and capitalizing
``vehicle.'' In the following paragraphs, the Commission discusses each
proposed recordkeeping requirement, the comments the Commission
received on each such requirement as well as the Commission's responses
to such comments, and the provisions the Commission is finalizing.
Section 463.6(a) of the proposed rule required motor vehicle
dealers to create and retain, for a period of twenty-four months from
the date the record is created, all records necessary to demonstrate
compliance with the Final Rule, including (1) copies of materially
different advertisements, sales scripts, training materials, and
marketing materials regarding the price, financing, or lease of a motor
vehicle that the dealer disseminated during the relevant time period;
(2) copies of all materially different add-on lists and all documents
describing such products or services that are offered to consumers; (3)
copies of all purchase orders; financing and lease documents with the
dealer signed by the consumer, whether or not final approval is
received for a financing or lease transaction; and all written
communications relating to sales, financing, or leasing between the
dealer and any consumer who signs a purchase order or financing or
lease contract with the dealer; (4) records demonstrating that add-ons
in consumers' contracts meet the requirements of Sec. 463.5, including
copies of all service contracts, GAP agreements, and calculations of
loan-to-value ratios in contracts including GAP agreements; and (5)
copies of all written consumer complaints relating to sales, financing,
or leasing, inquiries related to add-ons, and inquiries and responses
about vehicles referenced in Sec. 463.4.
Proposed Sec. 463.6(b) provided that a motor vehicle dealer may
keep the required records ``in any legible form, and in the same
manner, format, or place as they may already keep such records in the
ordinary course of business.'' This proposed paragraph also specified
that failure to keep all records required under paragraph (a) of this
section would be a violation of the Final Rule.
Many commenters, including State regulators, legal aid groups,
consumer advocacy organizations, and individual commenters, endorsed
the Commission's proposed rule generally, without criticism of its
proposed recordkeeping requirements. In addition, one such association
commenter expressly stated that it supported each of the proposed
recordkeeping provisions, explaining that these proposed provisions
were needed to address ``bait and switch'' tactics, provide evidence of
whether required disclosures are made, and identify consumers harmed by
illegal
[[Page 656]]
practices.\421\ Here, the Commission notes that record retention
requirements are necessary to preserve written materials that reflect
the transactions between the dealer and purchasing consumers, and to
assist the Commission to enforce its Rule by enabling it to ascertain
whether dealers are complying with its requirements; to identify
persons who are involved in any challenged practices; and to identify
consumers who may have been injured. Such requirements are particularly
important in the case of complicated, lengthy, and document-heavy
vehicle sale or financing transactions, in which law violations may be
more difficult for consumers and others to detect. Indeed, the
Commission routinely includes recordkeeping requirements in its
rules.\422\
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\421\ Comment of Nat'l Consumer L. Ctr. et al., Doc. No. FTC-
2022-0046-7607 at 48-49; see also Comment of N.Y.C. Dep't of
Consumer and Worker Prot., Doc. No. FTC-2022-0046-7564 at 6 (noting
retention requirements are vital to investigations, particularly
with respect to mandatory disclosures).
\422\ See, e.g., Telemarketing Sales Rule, 16 CFR 310.5;
Business Opportunity Rule, 16 CFR 437.7.
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Several commenters, including consumer advocacy organizations,
consumer protection agencies, a group of State attorneys general, and
individual commenters, urged the Commission to consider expanding the
proposed twenty-four-month record retention period, noting that the
contract period for most retail installment contracts is much longer
than twenty-four months, and that State limitations periods for claims
relating to the subject matter of the Commission's proposed rule often
extend well beyond this proposed timeframe. Numerous such commenters,
for instance, recommended a record retention period of the longer of
seven years or the length of the consumer's financing contract.
The Commission understands that there would be benefits to a longer
period, especially given that vehicle financing repayment terms are
often far longer than twenty-four months, and that many dealers likely
already maintain, in the ordinary course of business, the types of
records set forth in proposed Sec. 463.6. The Commission, however, is
also mindful that other commenters raised concerns about the costs
associated with record retention, including costs that would increase
with any extension of the retention period. Rather than limiting the
types of records to be maintained, and thus hampering the Commission's
ability to ensure compliance with the Final Rule, the Commission has
determined to adopt a retention period that is shorter than the time
period of many motor vehicle financing contracts, in order to minimize
burdens. In the event the Commission subsequently determines that a
twenty-four-month retention period is insufficient to ensure compliance
with this Rule, the Commission may consider other measures in the
future.
In addition, a number of commenters, including consumer advocacy
organizations, recommended additional provisions, including an explicit
requirement to retain language-translated versions of required records,
and a requirement to make retained records available to consumers upon
request. Regarding language-translated versions of required records,
Sec. 463.6(a)(3), (a)(4), and (a)(5) require dealers to retain copies
of ``all'' listed records, while Sec. 463.6(a)(1) mandates that
dealers retain ``Materially different'' copies of records. Thus, for
the records listed in Sec. 463.6(a)(3), (a)(4), and (a)(5), any
translations are required to be retained; in the case of Sec.
463.4(a)(1), the Rule requires materially different translations to be
maintained.\423\ The Commission therefore has determined not to add to
the recordkeeping section of the Rule a standalone requirement to
retain translated versions. The Commission will continue to monitor the
marketplace to determine whether additional action or protections are
warranted.
---------------------------------------------------------------------------
\423\ See Sec. 463.2(j).
---------------------------------------------------------------------------
The Commission also declines to include in this Final Rule an
additional requirement that dealers provide retained records to
consumers upon request. Such a requirement may be beneficial; however,
it is not clear to what extent dealers currently refuse to provide
consumers with such records, and there is insufficient information in
the rulemaking record to assess the impact of--or need for--such a
modification of the existing requirement to retain and preserve
materials in the Rule. The Commission will continue to monitor the
motor vehicle marketplace, including issues relating to information
access, to determine whether additional action or protections are
warranted.
Other commenters--particularly auto industry participants--objected
to the proposed recordkeeping requirements.\424\ Several such
commenters contended that the proposed requirements were new
obligations that went beyond specific State recordkeeping requirements.
Some dealership associations argued that existing State recordkeeping
requirements are sufficient and that a Commission rule was unnecessary.
One such commenter argued that the existence of overlapping, but
different, State and Federal standards may make compliance difficult
for motor vehicle dealers.
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\424\ One industry commentor questioned the utility of records
in FTC actions. This commenter also stated that the FTC is not a
supervisory agency and thus should not be seeking to create a
records inspection scheme. As noted previously, recordkeeping
requirements are necessary here to prevent unfair and deceptive
practices by mandating preservation of written materials that
reflect dealer transactions and to enable effective enforcement of
the Rule. The Commission has the authority to prescribe rules for
the purpose of preventing unfair or deceptive acts or practices. See
15 U.S.C. 57a(a)(1)(B). The Commission routinely includes
recordkeeping requirements in rules, see, e.g., Telemarketing Sales
Rule, 16 CFR 310.5; Business Opportunity Rule, 16 CFR 437.7, and
courts have ordered companies to maintain records in FTC orders,
see, e.g., Final Judgment at 20-21, Fed. Trade Comm'n v. Elegant
Sols., Inc., No. 8:19-cv-01333-JVS-KES (C.D. Cal., July 17, 2020);
Order for Permanent Injunction and Monetary Judgment at 27-28, Fed.
Trade Comm'n. v. Consumer Defense, LLC, No. 2:18-cv-00030-JCM-BNW
(D. Nev. Dec. 5, 2019).
---------------------------------------------------------------------------
In response, the Commission notes that the recordkeeping
requirement is necessary to ensure motor vehicle dealer compliance with
the Final Rule, and therefore may have different requirements than
State standards. To provide dealers with flexibility and to minimize
burden, however, the proposed rule permitted dealers to retain records
``in any legible form,'' including ``the same manner, format, or
place'' in which records are kept in the ordinary course of business.
To the extent dealers have fashioned their ordinary record retention
practices around State recordkeeping standards, the proposed rule thus
allowed for record retention in the form required by State
recordkeeping standards. Additionally, as discussed in the following
paragraphs, the Commission is not finalizing recordkeeping requirements
that dealers maintain Add-on Lists and Cash Price without Optional Add-
ons disclosures and declinations, further reducing burdens.
One industry association commenter suggested that this requirement
would increase risks of identity theft and raise privacy concerns. The
Commission notes that many dealers already have obligations to retain
customer records under State law.\425\ Dealers are required to have
systems in place to protect this information, given that the failure to
adequately protect such information violates existing law, including
section 5 of the FTC Act and the Commission's Standards for
Safeguarding Customer Information, also known as the
[[Page 657]]
Safeguards Rule.\426\ Thus, to the extent the Final Rule requires
dealers to collect personal information beyond that which they are
already collecting, they should already have systems in place to
protect such information.
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\425\ See, e.g., Va. Code sec. 46.2-1529 (requiring retention
for five years of ``all dealer records'' regarding, among other
things, vehicle purchases, sales, trades, and transfers of
ownership).
\426\ 15 U.S.C. 45; 16 CFR 314; see also Decision and Order,
LightYear Dealer Techs., LLC, No. C-4687 (F.T.C. Sept. 3, 2019)
(consent order); FTC Business Guidance, ``FTC Safeguards Rule: What
Your Business Needs to Know,'' https://www.ftc.gov/business-guidance/resources/ftc-safeguards-rule-what-your-business-needs-know
(last visited Dec. 5, 2023).
---------------------------------------------------------------------------
Some commenters raised concerns about the requirement in proposed
Sec. 463.6(a)(1) to preserve, inter alia, materially different
advertisements, sales scripts, and marketing materials. One such
dealership association commenter argued that dealers should not be
required to retain sales scripts, training materials, and marketing
materials, while another dealership association commenter argued that
dealers should not be required to maintain advertisements, positing
that these materials are publicly available and could be requested from
advertisers as concerns arise with respect to particular ads.
Commenters including two dealership organizations argued that digital
advertisements would be difficult to retain, with one such commenter
urging the Commission to adopt an approach that would permit dealers to
retain a representative example of a vehicle advertisement and the
underlying data used to populate vehicle ads. The other such commenter
suggested that the proposed recordkeeping requirement could be unduly
burdensome because ``all materials'' related to its online inventory
``could be deemed some version of materially different advertisements
and marketing materials regarding price or financing of a motor
vehicle.'' Another dealership organization commenter raised a similar
concern about website listings and questioned whether the term
``advertisement'' includes television ads and email campaigns.
After considering these comments, the Commission has determined
that the proposed recordkeeping requirements in Sec. 463.6(a)(1)
strike an appropriate balance by requiring the retention of materials
needed to enable effective enforcement while only requiring such
records to be retained for twenty-four months and in any legible form.
Advertisements and marketing materials regarding the price, financing,
or lease of a motor vehicle are critical to determining compliance with
virtually every provision in the Final Rule, as they are often
consumers' first contact in the vehicle-buying or -leasing process, and
often contain key representations about pricing, payments, and other
terms. Scripts and training materials are important evidence of a
dealer's compliance program regarding the Final Rule's requirements,
including of the information and instructions that dealership staff are
given with respect to the areas that are addressed by the Final Rule.
Furthermore, regarding the contention that advertisements are available
publicly or could be requested separately, a core purpose of the
recordkeeping requirement is to ensure that disseminated
representations are preserved for a sufficient period of time to allow
for compliance concerns to be addressed. A compliance regime that,
contrary to the Commission's proposal, allowed the destruction of
advertisements after they have been publicly presented, or that
requires the Commission to try to obtain materials from advertisers or
third parties, would not serve this purpose.
With respect to the scope of advertisements that must be retained,
the recordkeeping requirement does not differ with respect to the form
of the advertisement, since the same enforcement concerns are raised
regardless of whether an ad is presented in digital, hardcopy, email,
audio, televised, or other format. The recordkeeping requirement does
not require all advertisements to be retained, however, as Sec.
463.6(a)(1) specifically includes the proviso that ``a typical example
of a credit or lease advertisement may be retained for advertisements
that include different Vehicles, or different amounts for the same
credit or lease terms, where the advertisements are otherwise not
Materially different.'' Regarding the commenter's proposal to allow
dealers to retain a ``representative'' example of an advertisement with
digital data that can recreate different versions of the advertisement,
this provision, as proposed, permitted dealers to preserve typical
examples of advertisements in this manner so long as such records are
already kept in in the ordinary course of business, capture all
differences that would be material to consumers, and accurately show
how the offers have been presented to consumers. Materially different
website listings, television advertisements, and email campaigns must
be preserved, consistent with the plain meaning of the terms used in
the section.
With respect to proposed Sec. 463.6(a)(2)'s requirement to
maintain copies of all materially different add-on lists, an industry
association commenter contended that retaining materially different
add-on lists would be difficult, given the scope of the term ``Add-on''
and the consequent size of the list as well as its dynamic nature. One
dealership association commenter argued that the proposed requirement
to retain add-on lists was unnecessary, contending that concerns could
be addressed as they arise, and requesting to replace this proposed
requirement with a requirement to retain a master copy of each
insurance product, service contract, or other add-on in the dealer's
general business file. After carefully considering the comments, the
Commission has determined not to finalize the proposed requirement at
Sec. 463.4(b) to disclose an add-on list, and consequently will not be
finalizing the proposed requirement at Sec. 463.6(a)(2) that dealers
retain materially different add-on lists.
Several commenters, including industry associations, argued that
certain of the proposed requirements to preserve written material,
including written communications under proposed Sec. 463.6(a)(3) and
written consumer complaints, and inquiries and responses about vehicles
referenced in Sec. 463.4, under proposed Sec. 463.6(a)(5), would be
unduly burdensome. Generally, these commenters contended that the
various ways consumers may communicate with dealers--including chat
features on a dealer's website, emails and text messages with
salespersons, and social media posts--would require the development of
new and onerous preservation systems. A dealership organization
commenter raised concerns about retaining text messages and emails,
contending that salespeople may use their personal phones and email
addresses, even if the dealership has policies against such use. One
industry association commenter argued that third parties might have
records related to add-ons and that this provision should only apply to
``complaints'' relating to add-ons instead of ``inquiries'' relating to
add-ons. One dealership association commenter argued that dealers
should not be required to retain consumer complaints, contending it
should be the businesses' decision whether to maintain such materials,
and also arguing that the Rule should not require, under proposed Sec.
463.6(a)(4), the preservation of materials such as pricing options
presented to consumers, contending that such materials should be
limited to the two parties to the agreement.
After considering these comments, the Commission has determined to
finalize requirements to retain written materials
[[Page 658]]
under Sec. 463.6(a)(3), (4), and (5), with a limiting modification to
Sec. 463.6(a)(4). These requirements are necessary to address unfair
and deceptive practices by mandating that dealers preserve written
materials that reflect the transactions between the dealer and
purchasing consumers, and to assist the Commission in its enforcement
of the Rule.\427\ Such materials are particularly important given that
the vast majority of consumers do not file a complaint, and with hidden
charges, many consumers never know about the illegal conduct in the
first place.\428\ For instance, as explained in SBP II.B, a survey of
one dealership group's customers showed that 83% of the respondents
were subject to the dealer's unlawful practices related to add-ons.
This equals 16,848 consumers--far more than the 391 complaints received
against the dealer over the time period covered by the survey.
---------------------------------------------------------------------------
\427\ As noted previously, a dealership association commenter
argued that dealers should not be required to preserve complaints
and certain add-on materials, contending that it should be a
business decision whether to retain such records. The Commission
declines to substantively modify these requirements from the
Commission's original proposal, given the importance of these
materials in ensuring compliance with the other requirements of the
Rule.
\428\ See SBP II.B (discussing how complaints represent the tip
of the iceberg in terms of actual consumer harm).
---------------------------------------------------------------------------
To minimize burden, as previously noted, the retention requirements
are for a period of twenty-four months. Further, as stated previously,
Sec. 463.6(b) permits dealers to retain records ``in any legible
form,'' which could, for example, include using the backup and export
features that already exist in many social media services, email
platforms, chat platforms, and text systems, instead of creating
entirely new systems. Regarding dealers that use third parties to
administer add-ons, commenters did not explain why they cannot access
records related to add-ons from these parties.\429\ Further, altering
the language in the provision to apply to ``complaints'' rather than
``inquiries'' related to add-ons could invite arguments that consumer
statements, such as, ``Why was I charged for this add-on that I did not
know about?'' are not ``complaints,'' but simply ``inquiries.'' With
respect to the use of salespeople's personal devices to conduct motor
vehicle dealer activities, including the sale, financing, or leasing of
vehicles, as with any business, dealers should ensure that their
employees are communicating with consumers through appropriate channels
that can be monitored and controlled by the dealership.
---------------------------------------------------------------------------
\429\ This is consistent with the Commission's prior enforcement
order practice. See, e.g., Stipulated Order at 25, Fed. Trade Comm'n
v. N. Am. Auto. Servs., Inc., No. 1:22-cv-0169 (N.D. Ill. Mar. 31,
2022) (requiring retention of ``records of all consumer complaints
and refund requests, whether received directly or indirectly, such
as through a third party, and any response'').
---------------------------------------------------------------------------
Some commenters, including an industry association and a dealership
organization, also raised concerns about how to determine what would
constitute ``written consumer complaints'' under proposed Sec.
463.6(a)(5). For purposes of the Rule, the Commission refers commenters
to the plain meaning of the terms used in the phrase, which terms are
commonly used and understood.\430\
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\430\ The term ``written'' means ``made or done in writing.''
See Written, Merriam-Webster.com Dictionary, https://www.merriam-webster.com/dictionary/written (last visited Dec. 5, 2023). The term
``consumer'' includes ``one that utilizes economic goods.'' See
Consumer (def. a), Merriam-Webster.com Dictionary, https://www.merriam-webster.com/dictionary/consumer (last visited Dec. 5,
2023). The term ``complaint'' includes an ``expression of grief,
pain, or dissatisfaction,'' ``something that is the cause or subject
of protest or outcry,'' and ``a formal allegation against a party.''
See Complaint (defs. 1, 2a, 3), Merriam-Webster.com Dictionary,
https://www.merriam-webster.com/dictionary/complaint (last visited
Dec. 5, 2023).
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Two industry association commenters argued that the proposed
requirement to retain written communications would be particularly
burdensome for recreational vehicle dealers, contending that that this
was particularly so given that many RV dealers are small businesses. In
response, the Commission notes that, as explained in the paragraph-by-
paragraph analysis of Sec. 463.2(e) and (f) in SBP III.B.2(e) and (f),
it has determined not to finalize the Rule with respect to dealers
predominantly engaged in the sale, leasing, or servicing of RVs, but it
will continue to monitor the marketplace to determine whether
modifications or revisions may be warranted in the future.
Finally, one industry association commenter argued that the
proposed recordkeeping requirements and costs were unwarranted given
that the Commission has brought an average of fewer than four
enforcement actions a year against motor vehicle dealers in the past
decade. In response, the Commission notes that its experience indicates
that the number of enforcement actions is not remotely reflective of
the total violations of law in the auto marketplace. To uncover
misconduct and bring actions, law enforcement agencies and officials
often rely on complaints from affected parties. As previously
discussed, however, consumer complaints typically represent just the
``tip of the iceberg'' in terms of actual violations, and the vast
majority of consumers who are subjected to unlawful practices in this
area may not realize they are being victimized.\431\ Further, the
Commission has limited law enforcement resources and jurisdiction over
a broad range of commerce.\432\ The number of actions it brings
relating to motor vehicle dealers--as with actions in any area--is
necessarily limited by these resource constraints, even when there are
ongoing, chronic problems that cause substantial consumer harm. Despite
these constraints, the Commission and its law enforcement partners have
taken significant action aimed at addressing unfair and deceptive
practices in the motor vehicle marketplace, as explained in SBP II.C.
Given that problems with bait-and-switch advertising, add-ons, and
other aspects of vehicle-buying and -leasing have continued to be a
source of consumer harm despite this action, additional measures are
warranted. And the Commission has taken steps to minimize burden,
including by declining to finalize the add-on list disclosure
requirements in proposed Sec. 463.4(b), as well as the itemized
disclosures required in proposed Sec. 463.5(b) and their corresponding
proposed recordkeeping requirements. Moreover, the recordkeeping
provisions permit dealers to retain records in any legible form,
providing a flexible standard that permits the use of ordinary and
standard forms of data and document retention.
---------------------------------------------------------------------------
\431\ See SBP II.B.
\432\ See 15 U.S.C. 45(a).
---------------------------------------------------------------------------
The Commission adopts in the Final Rule recordkeeping requirements
largely as they were set forth in the proposed rule, with two
substantive modifications. After careful consideration, the Commission
is removing the requirements to retain copies of add-on lists required
by proposed Sec. 463.6(a)(2) and records showing compliance with the
cash price without optional add-ons disclosures and declinations
required by proposed Sec. 463.6(a)(4). These changes will reduce
record creation and retention burdens for dealers. As previously
described, the Final Rule also contains one typographical modification
of adding a serial comma and conforming edits for consistency with the
defined terms in Sec. 463.2(e) and (f).
The Commission adopts these recordkeeping requirements to promote
effective and efficient enforcement of the Rule, thereby deterring and
preventing deception and unfairness. As discussed throughout this SBP,
the rulemaking record, including the
[[Page 659]]
Commission's law enforcement experience, indicates that there are
chronic problems confronting consumers in the motor vehicle sales,
financing, and leasing process, which include advertising
misrepresentations and unlawful practices related to add-ons and hidden
charges.\433\ The recordkeeping requirements in the Final Rule will
assist the Commission in investigating and prosecuting law violations
and help the Commission identify injured consumers for paying consumer
redress. The recordkeeping requirements are flexible, allowing dealers
to retain materials in any legible form, and are limited to a period of
twenty-four months from the date the record is created. The
recordkeeping requirements are consistent with, and similar to, the
recordkeeping requirements in other Commission rules, as tailored to
individual industries and markets.\434\
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\433\ Some enforcement actions have specifically alleged that a
defendant failed to maintain documents required under a prior order
with the FTC. Complaint ]] 42-45, Fed. Trade Comm'n v. Norm Reeves,
Inc., No. 8:17-cv-01942 (C.D. Cal. Nov. 3, 2017) (alleging dealer
failed to keep records of previous advertisements needed to
demonstrate compliance with prior order); Complaint ]] 32-35, Fed.
Trade Comm'n v. New World Auto Imports, Inc., No. 3:16-cv-22401 at
(N.D. Tex. Aug. 18, 2016) (same).
\434\ See, e.g., 16 CFR 310.5 (Telemarketing Sales Rule); 16 CFR
437.7 (Business Opportunity Rule); 16 CFR 453.6 (Funeral Industry
Practices Rule); 16 CFR 301.41 (Fur Products Labeling Rule).
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G. Sec. 463.7: Waiver Not Permitted
Proposed Sec. 463.7 prohibited waiver of the requirements of the
Final Rule by providing that it constituted a violation of the Rule
``for any person to obtain, or attempt to obtain, a waiver from any
consumer of any protection provided by or any right of the consumer
under'' the Rule. Comments that addressed this proposed provision
generally either supported it or expressed no opinion on it. Comments
in support noted that the provision would help provide consistency in
the protection it would provide to consumers and emphasized that it
would prohibit unscrupulous dealers from causing consumers to sign away
their rights. This proposed provision was modeled on a similar
provision in the Mortgage Assistance Relief Services (``MARS'') Rule,
which was originally promulgated by the Commission and subsequently
republished by the CFPB.\435\ Moreover, at least one State has a
similar waiver provision in its rule covering motor vehicle dealer
practices.\436\ The Commission concludes that this provision is
necessary to prevent circumvention of the Rule, and, after review of
the comments, adopts this prohibition as it was originally proposed.
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\435\ See MARS Rule (Regulation O), 12 CFR 1015.8, previously
published by the Commission at 16 CFR 322.1.
\436\ See, e.g., Wis. Admin. Code Trans. 139.09 (similar waiver
prohibition clause in Wisconsin's Motor Vehicle Trade Practices
rule).
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H. Sec. 463.8: Severability
Proposed Sec. 463.8 provided that the provisions of the Final Rule
``are separate and severable from one another. If any provision is
stayed or determined to be invalid, it is the Commission's intention
that the remaining provisions will continue in effect.'' This proposed
provision was modeled on similar provisions in other rules, including
the Commission's Telemarketing Sales Rule and the MARS Rule.\437\ A
number of commenters, including dealership associations, raised general
concerns that the proposed provisions may be too integrated with each
other for severability to be possible. Such commenters, however, did
not provide examples of any such instances wherein they believed
certain provisions could not remain in effect if other provisions were
stayed or determined to be invalid. Upon consideration of the comments,
the Commission concludes that severability is possible in the event any
provision is stayed or determined to be invalid. The Rule the
Commission is finalizing includes prohibitions against
misrepresentations regarding material information (Sec. 463.3),
required disclosures (Sec. 463.4), and prohibitions against charging
for add-ons that provide no benefit or any item without express,
informed consent (Sec. 463.5)--each of which dealers are capable of
abiding by independently, as well as by the provisions that
independently support their operation, including Authority (Sec.
463.1), Definitions (Sec. 463.2), Recordkeeping (Sec. 463.6), Waiver
not permitted (Sec. 463.7), and Relation to State laws (Sec. 463.9).
Thus, the Commission has determined to adopt this provision in the
Final Rule as it was originally proposed.
---------------------------------------------------------------------------
\437\ See MARS Rule, 16 CFR 322.8 (Commission Rule), 12 CFR
1015.11 (CFPB Rule); Telemarketing Sales Rule, 16 CFR 310.9.
---------------------------------------------------------------------------
I. Sec. 463.9: Relation to State Laws
Proposed Sec. 463.9 provided that the Rule does not supersede,
alter, or affect ``any other State statute, regulation, order, or
interpretation relating to Motor Vehicle Dealer requirements, except to
the extent that such statute, regulation, order, or interpretation is
inconsistent with'' the Rule, ``and then only to the extent of the
inconsistency.'' Proposed Sec. 463.9 further provided that, for
purposes of this provision, a State statute, regulation, order, or
interpretation is not ``inconsistent'' if the protection such statute,
regulation, order, or interpretation affords any consumer ``is greater
than the protection provided under'' the Rule. After carefully
considering the comments, the Commission adopts Sec. 463.9 largely as
proposed in the Final Rule.
Numerous State regulator commenters contended that the proposed
rule would create a uniform baseline of protection that would
complement State standards. A comment from a group of eighteen State
attorneys general contended that many of the Proposed rule's
requirements were similar to, or the same as, requirements that
currently exist under State laws or regulations, and highlighted the
benefit to law enforcement from establishing a consistent Federal
baseline while providing States with flexibility to impose heightened
consumer protections.\438\
---------------------------------------------------------------------------
\438\ Comment of 18 State Att'ys Gen., Doc. No. FTC-2022-0046-
8062 at 11.
---------------------------------------------------------------------------
One municipal licensing entity commenter that expressed general
support of the Commission's proposed rule also posited that the
Commission should broaden proposed Sec. 463.9 to expressly include
municipalities. With respect to the applicability of the provision to
municipalities, the Commission notes that State political subdivisions
exercise delegated power of their State, and as such, Sec. 463.9
applies to municipal standards as well.\439\
---------------------------------------------------------------------------
\439\ See City of Columbus v. Ours Garage & Wrecker Serv., Inc.,
536 U.S. 424, 433 (2002) (``The principle is well settled that local
governmental units are created as convenient agencies for exercising
such of the governmental powers of the State as may be entrusted to
them in its absolute discretion.'') (quoting Wis. Pub. Intervenor v.
Mortier, 501 U.S. 597, 607-08 (1991)).
---------------------------------------------------------------------------
Other commenters, including dealership associations, referred
generally to potential conflicts between the Commission's proposed rule
and State laws, but such commenters typically did not point to any
specific purported conflicts with State law. To the extent some such
commenters argued that certain proposed provisions would conflict with
State laws, such arguments are addressed in the SBP's corresponding
paragraph-by-paragraph analysis of the relevant Rule provision.
Generally, the Commission is not aware of State laws that allow dealers
to make misrepresentations regarding material information; prohibit the
disclosure of
[[Page 660]]
accurate information regarding a vehicle's offering price, optional
vehicle add-ons, or total payment information; or permit dealers to
charge consumers for add-ons that provide no benefit to the consumer or
to charge for items without consumers' express, informed consent. To
the extent there truly are conflicts, as discussed in the following
paragraphs, Sec. 463.9 establishes the framework for addressing any
such inconsistencies.
Commenters including dealership associations also argued that
existing State standards are sufficient and identified State
requirements that the commenters argued would be redundant with, or
superior to, one or more provisions in the Commission's proposed rule.
To the extent the Rule prohibits conduct that is already prohibited by
State laws, the Commission has not seen evidence that State and Federal
standards prohibiting the same misconduct has harmed consumers or
competition. Moreover, such overlap is indicative of dealers' ability
to comply with the relevant provisions in the Rule. To the extent State
laws have additional requirements that provide greater protections or
are not otherwise inconsistent with part 463, dealers must continue to
follow those laws.
Several dealership association commenters expressed concern
regarding how to determine whether a State statute, regulation, order,
or interpretation affords ``greater protection'' than a provision in
the Commission's proposed rule. One such commenter, for example, raised
concerns that proposed Sec. 463.5(a) may conflict with a pending
California bill that would prohibit the sale of GAP when a vehicle has
less than a 70% loan-to-value ratio. An industry association commenter
claimed that the Commission's proposed definitions of ``Dealer or Motor
Vehicle Dealer'' would conflict with analogous State definitions. In
response, the Commission emphasizes that Sec. 463.9 would be triggered
only if there were an actual inconsistency between State law and the
Final Rule, and in the event of an inconsistency, the Rule only affects
such State law to the extent of the inconsistency. The commenter
examples did not present any such inconsistencies because it is
possible to comply with both the cited State law examples and with the
Final Rule. For instance, a dealer operating in a State that prohibits
the sale of a GAP agreement when a vehicle transaction involves a loan-
to-value ratio below 70% would need to abide by the ratio set forth by
State law and also by the Rule's prohibition against charging for the
product if the consumer would not benefit from it. Similarly,
notwithstanding a commenter's claims that the proposed rule's
definition of ``Dealer or Motor Vehicle Dealer'' would conflict with
analogous State standards, the commenter did not identify any actual
conflicts; nevertheless, to the extent State and Federal standards
cover independent areas or actors, each actor must comply with the
standards--whether State, Federal, or both--under which the actor is
covered.\440\ Further discussion of how State laws interact with
specific sections of the Rule are explained in the corresponding
section-by-section analysis for the relevant sections.
---------------------------------------------------------------------------
\440\ See, e.g., Pirouzian v. SLM Corp., 396 F. Supp. 2d 1124,
1131 (S.D. Cal. 2005) (reasoning that the more inclusive definition
of ``debt collector'' under California law is not ``inconsistent''
with the Fair Debt Collection Practices Act because by ``enlarging
the pool of entities who can be sued'' the State law offered greater
protection).
---------------------------------------------------------------------------
Some such commenters also questioned whether more coordination with
States and Federal agencies was needed, without explaining what
coordination was needed. In any event, the Commission coordinates
regularly with States and Federal counterparts.
Many commenters' concerns focused on the written disclosures
proposed in Sec. 463.5(b), which the Commission has determined not to
include in this Final Rule. For instance, a substantial number of
commenters, including industry associations, argued that proposed Sec.
463.5(b) would have created different Federal and State requirements
for written disclosures that would result in duplicative paperwork. A
dealership association specifically argued that proposed Sec. 463.5(b)
may have conflicted with a State pre-contract disclosure requirement
pertaining to six categories of add-ons because it would have required
an additional disclosure about a broader category of add-ons. An
industry association similarly pointed to this State's pre-contract
disclosure requirement as a reason that additional disclosures under
this Rule, including those required by proposed Sec. 463.5(b), could
result in consumer confusion. At least four commenters, including
industry associations and a dealership organization, argued that the
proposed rule's requirement under Sec. 463.5(b) to create new
documentation may conflict with the ``single document'' requirements,
in effect in many States, which mandate that the entire motor vehicle
sale, financing, or lease agreement--including any add-on products or
services--be within one document. As discussed in the paragraph-by-
paragraph analysis of Sec. 463.5 in SBP III.E.2, the Commission has
determined not to finalize the written disclosures requirement under
this provision.
After carefully considering the comments regarding proposed Sec.
463.9, the Commission is finalizing this section largely as proposed,
with one minor modification: the Commission is adding ``Covered'' to
the term ``Motor Vehicle Dealer'' in Sec. 463.9(a) to conform with the
revised definition in Sec. 463.2(f). Section 463.9 provides a uniform
floor of protection with the Commission's Final Rule, while also
permitting States to enact stronger protections, using a standard that
has been applied in other laws and regulations for several
decades.\441\ This provision is necessary to address unfair and
deceptive practices and to enable the Commission to enforce the Rule.
---------------------------------------------------------------------------
\441\ See, e.g., 10 U.S.C. 987(d)(1) (Military Lending Act); 15
U.S.C. 1692n (Fair Debt Collection Practices Act); 12 CFR 1006.104
(Regulation F); 15 U.S.C. 1693q (Electronic Funds Transfer Act); see
also 21 U.S.C. 387p(a)(1) (Family Smoking Prevention and Tobacco
Control Act).
---------------------------------------------------------------------------
IV. Effective Date
The Final Rule becomes effective on July 30, 2024. One industry
association commenter objected that the NPRM did not include an
effective date or inquire into the timing for feasibly implementing the
Rule. Another such commenter requested at least 18 months for
stakeholders to prepare for Rule compliance, but did not explain why it
would take 18 months to refrain from conduct that is already illegal,
such as making misrepresentations. Rules are generally required to be
published 30 to 60 days before their effective date, though in some
circumstances, agencies may cite good cause for the rule to become
effective sooner than 30 days from publication.\442\ Given the
significant harm to consumers and law-abiding dealers from deceptive or
unfair acts or practices; and the fact that, for dealers already
complying with the law, compliance with the Rule the Commission is
finalizing should not be onerous; the NPRM did not propose or
contemplate any additional delay. Nevertheless, after a review of
comments, the Commission is providing dealers until July 30, 2024 to
make
[[Page 661]]
changes to their operations, if needed, in light of the Rule's
requirements.
---------------------------------------------------------------------------
\442\ See 5 U.S.C. 553(d) (requiring publication of a
substantive APA rule ``not less than 30 days before its effective
date'' except ``as otherwise provided by the agency for good cause
found and published with the rule''). Significant rules defined by
Executive Order 12866 and major rules defined by the Small Business
Regulatory Enforcement Fairness Act are required to have a 60-day
delayed effective date. See E.O. 12866, 58 FR 51735 (Oct. 4, 1993);
5 U.S.C. 801(a)(3)).
---------------------------------------------------------------------------
V. Paperwork Reduction Act
On July 13, 2022, the Commission submitted the NPRM and an
accompanying Supporting Statement to the Office of Management and
Budget (``OMB'') for review under the Paperwork Reduction Act
(``PRA''), 44 U.S.C. 3501-3521. On July 29, 2022, OMB directed the
Commission to resubmit its request when the proposed rule was
finalized.\443\
---------------------------------------------------------------------------
\443\ OMB assigned the rulemaking control number 3084-0172 for
PRA review purposes.
---------------------------------------------------------------------------
The Commission is now submitting the Final Rule and a Supplemental
Supporting Statement to OMB. The disclosure and recordkeeping
requirements of the Rule constitute ``collection[s] of information''
for purposes of the PRA.\444\ The associated burden analysis
follows.\445\
---------------------------------------------------------------------------
\444\ 44 U.S.C. 3502(3); 5 CFR 1320.3(c).
\445\ One commenter suggested the FTC did not comply with
several provisions of the PRA, specifically those contained in 5 CFR
1320.5(a)(1)(iv), 1320.8(d)(1), 1320.11(a), 1320.11(b), and
1320.11(d). The commenter does not explain the basis for the
purported deficiencies. These provisions generally relate to the
submission of a collection of information to OMB, and solicitation
and consideration of public comments. The FTC has complied with
these provisions. The FTC submitted an Information Collection
Request to Office of Management and Budget on July 13, 2022,
concurrently with publication of the NPRM, in accordance with 5 CFR
1320.11(b). See Motor Vehicle Dealers Trade Regulation Rule, ICR
202202-3084-001, OMB 3084-0172, https://omb.report/icr/202202-3084-001. Because the FTC complied with this requirement, the collection
of information proposed in the NPRM is not, as the commenter
contends, subject to disapproval under 5 CFR 1320.11(d).
The Commission also did not violate 5 CFR 1320.5(a)(1)(iv) and
1320.11(a), providing for comments to be submitted to OMB, as the
commenter contends. Those provisions are limited by 5 CFR
1320.8(d)(3), which provides that the agency need not direct
comments to OMB ``if the agency provides notice and comment through
the notice of proposed rulemaking . . . for the same purposes as are
listed under'' 5 CFR 1320.8(d)(1). The Commission solicited comments
in the NPRM on the subjects enumerated in 5 CFR 1320.8(d)(1), see
NPRM at 42028-31, 42035-43, and it was not necessary for the
Commission to also direct those same comments to OMB. The Commission
thus did not violate 5 CFR 1320.5(a)(iv) or 1320.11(a).
Further, contrary to the commenter's assertion, the Commission
demonstrated throughout the NPRM that the information collection-
related requirements it embodies are necessary, offer utility and
public benefit, and minimize burdens. See, e.g., NPRM at 42027,
42043. Moreover, the Commission requested comments on the necessity,
utility, benefits, and burdens of the proposed rule, see NPRM at
42028-31, 42035-43, and has further taken into consideration and
addressed comments in this SBP.
---------------------------------------------------------------------------
In the NPRM, the Commission provided estimates and solicited
comments regarding the proposed rule, including regarding (1) the
proposed add-on list disclosure requirement; (2) the proposed cash
price without optional add-ons disclosure requirement; (3) other
proposed provisions prohibiting certain misrepresentations and
requiring certain disclosures; (4) the proposed recordkeeping
provisions; and (5) estimated capital and other non-labor costs. As
previously discussed, after carefully reviewing the comments, the
Commission has made certain changes to the relevant provisions in the
Final Rule. Specifically, the Commission has determined not to finalize
requirements, pursuant to proposed Sec. 463.4(b), that dealers
disclose an add-on list or, pursuant to proposed Sec. 463.5(b), that
dealers refrain from charging for optional add-ons unless enumerated
requirements relating to the vehicle's cash price without optional add-
ons are met.
In the NPRM, the Commission estimated that the disclosure and
recordkeeping requirements would impact approximately 46,525 franchise,
new motor vehicle and independent/used motor vehicle dealers in the
U.S.\446\ In the NPRM, the Commission explained that this figure was
exclusive to automobile dealers, and invited comments regarding market
information for dealers of other types of motor vehicles, such as
boats, RVs, and motorcycles.\447\ In response, one industry association
commenter noted the absence of such other motor vehicle dealers from
the Commission's estimate. Another commenter also noted the absence of
such dealers in the estimate and argued that the Commission's estimate
also erroneously included independent used motor dealers which the
commenter contended do not perform any servicing work, but stated that
the Commission's estimate was fairly accurate numerically. As discussed
in the paragraph-by-paragraph analysis of Sec. 463.2(e) in SBP
III.B.2(e), the Commission has determined to expressly exclude
``Recreational boats and marine equipment,'' ``Motorcycles, scooters,
and electric bicycles,'' ``Motor homes, recreational vehicle trailers,
and slide-in campers,'' and ``Golf carts'' from the Final Rule's
definition of ``Covered Motor Vehicle.'' Further, as examined in the
paragraph-by-paragraph analysis of Sec. 463.2(f) in SBP III.B.2(f),
the plain meaning of the term ``servicing'' covers activities that are
undertaken by independent used car dealers.\448\ Thus, the Commission
bases its estimate of the entities covered by the Final Rule on the
same North American Industry Classification System (``NAICS'') \449\
categories--``new car dealers'' and ``used car dealers''--as it did in
the NPRM.\450\ As with other figures in this section, the NAICS data
assembled by the U.S. Census Bureau have been revised since the
publication of the Commission's NPRM with more recent data. Based on
these revisions, the Commission now estimates that the Final Rule's
disclosure and recordkeeping requirements will impact approximately
47,271 franchise, new motor vehicle and independent/used motor vehicle
dealers in the United States.\451\
---------------------------------------------------------------------------
\446\ NPRM at 42031.
\447\ NPRM at 42031 n.154, 42036.
\448\ See also Used Car Rule, 81 FR at 81668 (noting that the
term ``servicing'' used in this same context ``captures activities
undertaken by essentially all used car dealers,'' including by
preparing vehicles for sale by addressing any obvious mechanical
problems and by undertaking the general industry practice of
appearance reconditioning).
\449\ NAICS is the standard used by Federal statistical agencies
in classifying business establishments for the purpose of
collecting, analyzing, and publishing statistical data related to
the U.S. business economy. North American Industry Classification
System, U.S. Census Bureau, https://www.census.gov/naics/.
\450\ U.S. Census Bureau, ``All Sectors: County Business
Patterns, including ZIP Code Business Patterns, by Legal Form of
Organization and Employment Size Class for the U.S., States, and
Selected Geographies: 2019,'' https://data.census.gov/cedsci/
table?q=CBP2019.CB1900CBP&n=44111%3A44112&tid=CBP2019.CB1900CBP&hideP
review=true&nkd=EMPSZES~001,LFO~001 (listing 21,427 establishments
for ``new car dealers,'' NAICS code 44111, and 25,098 establishments
for ``used car dealers,'' NAICS code 44112). See NPRM at 42031.
\451\ U.S. Census Bureau, ``All Sectors: County Business
Patterns, including ZIP Code Business Patterns, by Legal Form of
Organization and Employment Size Class for the U.S., States, and
Selected Geographies: 2021,'' https://data.census.gov/
table?q=CB2100CBP&n=44111:44112&tid=CBP2021.CB2100CBP&nkd=EMPSZES~001
,LFO~001 (listing 21,622 establishments for ``new car dealers,''
NAICS code 44111, and 25,649 establishments for ``used car
dealers,'' NAICS code 44112).
---------------------------------------------------------------------------
The estimated overall annual hours burden for the Final Rule's
collections of information is 1,595,085 hours. The estimated overall
annual labor cost for the Final Rule's collections of information is
$51,904,537. The estimated overall annual capital and other non-labor
cost for the Final Rule's collections of information is $14,181,300.
A. Add-On List Disclosures
Section 463.4(b) of the proposed rule required motor vehicle
dealers that charge for optional add-on products or services to
disclose clearly and conspicuously in advertisements and on any
website, online service, or mobile application through which they
market motor vehicles, and at any dealership, an itemized add-on list
of such products
[[Page 662]]
or services and their prices. In the NPRM, the Commission estimated
costs for the add-on list disclosure and solicited comments on its
burden analysis.\452\ One industry association made several arguments,
including that the Commission underestimated the time and resources
required because an add-on list can be lengthy, vary by vehicle and
over time, and require working with several third parties. This
commenter also argued that periodic revision of such lists would take
more than the estimated one hour of clerical time per dealer, per year.
The commenter, however, did not offer any specific estimates for such
periodic revision activities.
---------------------------------------------------------------------------
\452\ NPRM at 42032-33, 40235, 42040.
---------------------------------------------------------------------------
As explained in the section-by-section analysis of Sec. 463.4 in
SBP III.D.2, after careful consideration, the Commission has determined
not to finalize its proposed add-on list provision at Sec. 463.4(b).
B. Disclosures Relating to Cash Price Without Optional Add-Ons
Section 463.5(b) of the proposed rule required motor vehicle
dealers that charge for optional add-on products or services to provide
certain itemized disclosures regarding pricing and cost information
without such add-ons. In response to the Commission's estimates with
respect to this proposed provision, one industry association argued
that the Commission did not provide adequate explanation of the
assumptions it used to arrive at its cost estimates for this proposed
provision, and contended that the Commission underestimated the costs
associated with developing, printing, and presenting the proposed
disclosures. This commenter also contended that the proposed
requirement would have required significant training costs; that
multiple forms would have been required for each motor vehicle
transaction; and that aspects of the required disclosures would be
duplicative of information already provided by dealerships in the
ordinary course of business. The commenter estimated that developing a
disclosure form for this proposed provision would cost dealers at least
$750 and suggested that other attendant costs would be in the hundreds
of millions or billions of dollars, without explaining how it arrived
at such estimated figures.
As explained in the section-by-section analysis of Sec. 463.5 in
SBP III.E, after careful consideration, the Commission has determined
not to include in this Final Rule the itemized disclosure provisions at
proposed Sec. 463.5(b). The Commission notes that imposing
unauthorized charges--including charges buried in lengthy contracts or
included in contracts that consumers are rushed through--is a violation
of both the Final Rule's Sec. 463.5(c) and of the FTC Act. The
Commission will continue to monitor the market to determine whether
additional steps are warranted to combat unauthorized charges for add-
ons or other items in the motor vehicle marketplace.
C. Prohibited Misrepresentations and Required Disclosures
Section 463.3 of the Final Rule prohibits dealers from making any
misrepresentation regarding material information about the categories
enumerated in the section.
The provisions in this section have been adopted largely without
modification from the NPRM, wherein the Commission estimated that any
additional costs associated with the proposed misrepresentation
prohibitions would be de minimis.\453\ One industry association
commenter argued that a bar on misrepresentations in the Final Rule
would require increased training and compliance costs and result in
longer transaction times and costs related to working with vehicle
manufacturers about online advertisements. This section, however, does
not require any additional disclosures or information collection. Thus,
while dealers might elect to enhance their training and
compliance,\454\ refraining from making misrepresentations does not
require additional training or compliance costs or transaction time.
The Commission therefore affirms its prior estimate that any additional
costs associated with the prohibitions in Sec. 463.3 against making
misrepresentations would be de minimis.
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\453\ NPRM at 42033, 42039.
\454\ The Commission produced and considered alternative cost
estimate scenarios for the Rule provisions in its preliminary
regulatory analysis, see NPRM at 42036-44, and its final regulatory
analysis in section VII. The Commission also invited comments on the
accuracy of its PRA burden estimates, including the validity of the
methodology and assumptions used, see NPRM at 42035. The Commission
provides a single estimate per Rule provision for this separate
Paperwork Reduction Act burden analysis in conformity with the PRA.
See 44 U.S.C. 3506(c)(1)(A)(iv) (providing, for each collection of
information, including those arising from rules published as final
rules in the Federal Register, that agencies shall conduct a review
that includes ``a specific, objectively supported estimate of
burden'').
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Section 463.4(a) of the Final Rule requires dealers to clearly and
conspicuously disclose a vehicle's offering price in advertisements and
other communications that reference a specific vehicle, or any monetary
amount or financing term for any vehicle. ``Offering Price'' is defined
in Sec. 463.2(k) of the Rule as ``the full cash price for which a
Dealer will sell or finance the Vehicle to any consumer, provided that
the Dealer may exclude only required Government Charges.'' The
information required by Sec. 463.4(a) is necessary to address unfair
or deceptive conduct associated with the failure to provide such price
information and unfairly charging unexpected prices or for hidden items
that can add hundreds or thousands of dollars to a vehicle sale.\455\
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\455\ Some commenters suggested that providing an Offering Price
may be difficult due to pricing changes over time. As explained in
SBP III.D.2(a), limited-time offers should be clearly disclosed as
such. Advertising prices without disclosing material limitations
that would mislead consumers is a deceptive or unfair practice.
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This provision is being adopted largely as proposed.\456\ In
response to the NPRM, one industry association commenter claimed there
would be an average of three offering price disclosures per
transaction, since, according to the commenter, consumers, on average
discuss three specific motor vehicles per transaction. This commenter
also contended that the number of required offering price disclosures
would obligate dealers to incur additional training costs. As the
Commission explained in its NPRM, vehicle pricing activities and
representations are usually and customarily performed by dealers in the
course of their regular business activities. While this provision may
increase the importance of those activities, or alter when in the
course of business they are undertaken, the Commission estimates that
any additional attendant costs are de minimis.\457\
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\456\ As stated in SBP III.B.2(k) and SBP III.D.2(a), the
Commission is finalizing this Offering Price definition at Sec.
463.2(k) largely as proposed, with a modification to clarify that
dealers may, but need not, exclude required government charges from
a vehicle's offering price. In addition, this definition in the
Final Rule substitutes ``Vehicle'' for ``motor vehicle'' to clarify
that the term is consistent with the revised definition of
```Covered Motor Vehicle' or `Vehicle' '' at Sec. 463.2(e). The
Commission also added language to the end of Sec. 463.4(a)
clarifying that the requirements in Sec. 463.4(a) ``also are
prescribed for the purpose of preventing the unfair or deceptive
acts or practices defined in this part, including those in
Sec. Sec. 463.3(a) and (b) and Sec. 463.5(c).''
\457\ See NPRM at 42033, 42039-40.
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Section 463.4(d) of the Final Rule require dealers, when making any
representation about a monthly payment for any vehicle, to disclose the
total amount the consumer will pay to purchase or lease the vehicle at
that monthly payment after making all
[[Page 663]]
payments as scheduled, as well as the amount of consideration to be
provided by the consumer if the total amount disclosed assumes the
consumer will provide consideration. Section 463.4(e) of the Final Rule
requires dealers, when making any comparison between payment options
that includes discussion of a lower monthly payment to disclose, if
true, that a lower monthly payment will increase the total amount the
consumer will pay to purchase or lease the vehicle.
These provisions have been adopted largely as proposed.\458\ In
response to the Commission's estimates with respect to these proposed
provisions, one commenter raised concerns that these disclosures would
intrude on existing disclosures, and that any associated paperwork
burden would be confusing, duplicative, and unnecessary. The commenter
also argued that these disclosures would add time to the transaction
process and require additional staff training. No commenters provided
alternative estimates of the costs associated with this provision.
---------------------------------------------------------------------------
\458\ These provisions in the Final Rule capitalize the defined
term ``Vehicle'' to conform with the revised definition of ``
`Covered Motor Vehicle' or `Vehicle' '' at Sec. 463.2(e). The
Commission also substituted a period for a semi-colon and the word
``and'' at the end of Sec. 463.4(d)(1), and added language to the
end of Sec. 463.4(d) and (e) clarifying that the requirements in
these paragraphs ``also are prescribed for the purpose of preventing
the unfair or deceptive acts or practices defined in this part,
including those in Sec. Sec. 463.3(a) and Sec. 463.5(c).''
---------------------------------------------------------------------------
Failing to disclose information about the total of payments for a
vehicle when representing monthly payment information is deceptive or
unfair, as set forth in SBP III.D.2(d). Dealers already generate the
required information during the normal course of business, and
disclosing this total of payments information provides consumers with
fundamental information that is readily available to the dealer when
making representations regarding monthly payments, at which time such
disclosures are required. Nevertheless, there may be upfront labor
costs associated with developing procedures to provide these
disclosures consistently at the appropriate point in the transaction
and with training employees. The Commission estimates such upfront
costs as follows: 8 compliance manager hours per dealer on implementing
a template disclosure script that contains the required information and
on ensuring sales staff consistently deliver the disclosure at an
appropriate time during the transaction, for an upfront hours burden of
378,168 (8 hours x 47,271). Applying labor cost-rates of $31.21 per
hour yields $11,802,623.28 ($31.21 x 378,168 hours).\459\ After a
review of comments, the Commission is adding ongoing training costs.
Specifically, the Commission estimates annual ongoing costs of 1 hour
of training time for sales and related employees per year, for an
annual hours burden of 417,110 (1 hour x 417,110 sales and related
employees). Applying labor cost-rates of $29.43 per hour, the total
estimated ongoing labor cost burden is $12,275,547.30 across the
industry (417,110 sales and related employees x 1 hour x $29.43).
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\459\ The estimates throughout this section have been updated
with more recent data since the publication of the NPRM. Labor rates
are based on new data from the Bureau of Labor Statistics. See U.S.
Bureau of Labor Statistics, ``May 2022 National Industry-Specific
Occupational Employment and Wage Estimates NAICS 441100--Automobile
Dealers'' (Apr. 25, 2023), https://www.bls.gov/oes/current/naics4_441100.htm. The number of dealerships has been updated to
reflect new data from Census County Business Patterns. See U.S.
Census Bureau, ``All Sectors: County Business Patterns, including
ZIP Code Business Patterns, by Legal Form of Organization and
Employment Size Class for the U.S., States, and Selected
Geographies: 2021,'' https://data.census.gov/
table?q=CB2100CBP&n=44111:44112&tid=CBP2021.CB2100CBP&nkd=EMPSZES~001
,LFO~001.
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Further, Sec. 463.4(c) of the Final Rule requires dealers that
sell optional add-on products or services to disclose to consumers that
these add-ons are not required, and that the consumer can purchase or
lease the vehicle without these add-ons. This requirement has been
adopted largely as proposed, and is necessary to address deceptive and
unfair practices regarding these products or services, including
misrepresentations that these products are required when they are not,
and charging consumers for such products without the consumers'
express, informed consent.\460\ It requires a simple disclosure of
information that is known to the dealer, and the Commission anticipates
that the information collection burdens associated with this
requirement is de minimis.\461\
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\460\ This provision in the Final Rule capitalizes the defined
term ``Vehicle'' to conform with the revised definition of ``
`Covered Motor Vehicle' or `Vehicle' '' at Sec. 463.2(e). The
Commission also added language to the end of Sec. 463.4(c)
clarifying that the requirements in this paragraph ``also are
prescribed for the purpose of preventing the unfair or deceptive
acts or practices defined in this part, including those in
Sec. Sec. 463.3(a) and (b) and Sec. 463.5(c).''
\461\ As with Sec. 463.3, Sec. 463.5(a) does not require any
additional disclosures or information collection. Thus, while
dealers might elect to enhance their training and compliance
policies, or to take steps to document compliance with Sec.
463.5(a), any such additional measures are not required by this
provision.
---------------------------------------------------------------------------
Similarly, Sec. 463.5(c) of the Final Rule requires dealers to
refrain from charging consumers for any item unless the dealer obtains
the express, informed consent of the consumer for the charge.\462\ In
response to the Commission's estimates with respect to these proposed
provisions, some commenters generally discussed burdens, as addressed
in the section-by-section analysis in SBP III, that they contended
would accompany this proposed provision, but none provided sufficient
detail for cost estimates. The Commission notes that this provision
addresses the unfair or deceptive practice of charging consumers for
items they do not know about or to which they have not agreed, or in
amounts beyond those to which the consumer has agreed. As dealers must
currently have policies in place to prevent charges without consent in
order to comply with current law, the Commission anticipates that any
burdens associated with this provision will be de minimis.\463\
---------------------------------------------------------------------------
\462\ See SBP III.E.2(c).
\463\ In its NPRM, the Commission noted that it anticipated this
section would require dealers to provide readily available
information to consumers in direct communications with customers,
and that dealers complying with existing law have policies in place
to prevent charges without consent, thereby estimating minimal
additional resulting costs. See NRPM at 42033, 42036-44. The
Commission did not receive comments discussing attendant burdens in
sufficient detail for revised cost estimates, and thus affirms its
prior estimate regarding additional costs associated with Sec.
463.5(c).
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D. Recordkeeping
Section 463.6 of the Final Rule requires dealers to create and
retain, for a period of twenty-four months from the date the record is
created, all records necessary to demonstrate compliance with the Rule,
including with its disclosure requirements. This provision has been
adopted with revisions to account for other changes in the Final Rule,
as explained in SBP III.F.\464\ These recordkeeping provisions are
necessary to promote effective and efficient enforcement of the Rule,
thereby deterring dealers from engaging in deceptive or unfair acts or
practices.
---------------------------------------------------------------------------
\464\ The Final Rule also contains one typographical
modification to Sec. 463.6--adding a serial comma--and minor
textual changes to ensure consistency with the defined terms at
Sec. 463.2(e) and (f).
---------------------------------------------------------------------------
In the NPRM, the Commission provided cost estimates and solicited
comment on its recordkeeping burden analysis.\465\ The Commission
anticipated that dealers would incur certain incremental costs related
to: (i) recordkeeping systems; and (ii) calculations of loan-to-value
ratios for contracts with GAP agreements.
---------------------------------------------------------------------------
\465\ NPRM at 42033-34, 42043.
---------------------------------------------------------------------------
Several commenters, including industry associations, dealership
organizations, and a dealership
[[Page 664]]
association, generally contended that the Commission underestimated the
burdens of compliance relating to the changes dealers would need to
make to their existing recordkeeping systems. These commenters,
however, did not provide the Commission with alternative estimates
regarding such burdens. As explained in the section-by-section analysis
of the Recordkeeping section, Sec. 463.6, in SBP III.F, this provision
gives dealers the flexibility to retain materials in any legible form,
including in the same manner, format, and place as they may already
keep such records in the ordinary course of business. The Commission
nonetheless has determined, in response to comments, to revise its
estimates regarding incremental storage expenses that may be associated
with the recordkeeping requirements in the Final Rule, and, as provided
in the capital and other non-labor costs discussion in the following
paragraphs, the Commission is adding an estimate of incremental
additional storage costs to its estimate.
Further, the Commission notes that its initial recordkeeping cost
estimates were based on a proposal that required records regarding add-
on list disclosures and cash price without optional add-on
disclosures--records that the Rule the Commission is finalizing does
not require dealers to retain. Given that the Commission is not
finalizing these additional record-related requirements, the estimates
provided in its NPRM may overestimate attendant costs resulting from
the Rule's recordkeeping requirements. Notwithstanding this
possibility, the Commission maintains its prior calculations of the
time required to modify existing recordkeeping systems.\466\ The
Commission anticipates that it will take covered motor vehicle dealers
approximately 15 hours to modify their existing recordkeeping systems
to retain the required records for the 24-month period specified in the
Rule. This yields a general recordkeeping burden of 709,065 hours
annually (47,271 motor vehicle dealers x 15 hours per year).
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\466\ In its NPRM, the Commission estimated costs to create and
implement a loan-to-value calculation process. NPRM at 42034. Such
costs are already accounted for in the Commission's estimates for
the time required to modify existing recordkeeping systems, and thus
are not separately itemized here.
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The Commission anticipates that programming, administrative,
compliance, and clerical staff are likely to perform the tasks
necessary to comply with the recordkeeping requirements in Sec. 463.6
of its Rule. In particular, the Commission estimates this 15-hour per-
dealer labor hours burden to design, implement, or update systems for
record storage and create the templates necessary to accommodate
retention of all relevant materials, as follows: 8 hours of time for a
programmer, at a cost-rate of $40.24 per hour; 5 hours of additional
clerical staff work, at a cost-rate of $20.16 per hour; 1 hour of sales
manager review, at a cost-rate of $80.19 per hour; and 1 hour of review
by a compliance officer, at a cost-rate of $31.21 per hour.\467\
Applying these cost-rates to the estimated per-dealer hours burden
described previously, the total estimated initial labor cost burden is
$534.12 per average dealership (($40.24 per hour x 8 hours) + ($20.16
per hour x 5 hours) + ($80.19 per hour x 1 hour) + ($31.21 per hour x 1
hour)), totaling $25,248,386.52 across the industry ($534.12 per
average dealership x 47,271 dealerships).
---------------------------------------------------------------------------
\467\ Applicable wage rates are based on data from the Bureau of
Labor Statistics. See U.S. Bureau of Labor Statistics, ``May 2022
National Industry-Specific Occupational Employment and Wage
Estimates NAICS 441100--Automobile Dealers'' (Apr. 25, 2023),
https://www.bls.gov/oes/current/naics4_441100.htm.
---------------------------------------------------------------------------
The Commission also received comments regarding its cost estimates
relating to the records of loan-to-value ratios for transactions that
include GAP agreement sales. One industry association commenter argued
that this recordkeeping requirement would also require additional
training, that creating a loan-to-value calculator template for GAP
agreements would be difficult given the variation of loan-to-value
ratios, and that this recordkeeping requirement would lengthen the time
to conduct vehicle sale or financing transactions.\468\ No commenter
provided alternative estimates of the costs associated with the
Commission's proposed recordkeeping requirements.
---------------------------------------------------------------------------
\468\ These arguments are addressed in the section-by-section
analysis of Sec. 463.5. See SBP III.E.
---------------------------------------------------------------------------
As explained in the paragraph-by-paragraph analysis of Sec. 463.5
in SBP III.E.2, the Commission is not mandating a particular LTV
threshold or method of calculation, but rather requiring that dealers
not charge a consumer for GAP agreements or other products or services
if the consumer would not benefit from the product or service. The
Commission anticipates that, to the extent dealers do not currently
retain any materials used to make such an assessment, dealers may incur
certain additional costs. Specifically, the Commission anticipates that
dealers will expend one minute per sales or financing transaction for a
salesperson to perform the calculation contemplated by this
requirement, at a cost rate of $28.41 per hour. The Commission
estimates that covered motor vehicle dealers sell approximately
31,562,959 vehicles each year, and that approximately 17% of such sales
include GAP agreements, for an estimated total of 5,444,502 covered
vehicle sales.\469\ While the number of motor vehicles sold will vary
by dealership, this yields an average sales volume of 115 sales
transactions per average dealership per year that include a GAP
agreement (5,444,502 covered vehicle sales/47,271 dealerships). This
yields an estimated annual hours burden for all dealers of 90,742 hours
(5,444,502 covered transactions x 1/60 hours). Applying the associated
labor rates yields an estimated annual labor cost for all dealers of
$2,577,980.22 (90,742 hours x $28.41 per hour).
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\469\ In response to comments, the Commission has revised the
number of transactions across the industry from the NPRM to exclude
private party and fleet transactions. The estimated percentage of
sales including GAP agreements is derived from data provided by an
industry commenter. Comment of Nat'l Auto. Dealers Ass'n, Doc. No.
FTC-2022-0046-8368 at 12.
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E. Capital and Other Non-Labor Costs
The Commission anticipates that the Final Rule will impose limited
capital and non-labor costs. The Commission presented estimates in the
NPRM with respect to such costs and solicited comments on its burden
analysis. Here, the Commission discusses its estimates for the capital
and non-labor costs associated with the Rule's disclosure and
recordkeeping requirements. While some commenters generally discussed
burdens that they contended would accompany these proposed provisions,
none provided any alternative cost estimates regarding capital and
other non-labor costs.\470\
---------------------------------------------------------------------------
\470\ One commenter claimed generally that the Commission
underestimated these costs, referring to arguments the commenter
made with respect to the Commission's burden analysis of specific
disclosure and recordkeeping provisions. The Commission has
responded to those arguments in the foregoing analysis, with the
exception of recordkeeping storage costs, which are addressed in the
following discussion.
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1. Disclosures
The Commission anticipates that the Rule's disclosure requirements
will impose de minimis capital and other non-labor costs. As the
Commission noted in the NPRM, dealers already have in place existing
systems for providing sales- and contract-related disclosures to buyers
and lessees, as well as to consumers seeking information during the
vehicle-shopping process.\471\ While the Final Rule's disclosure
requirements may result in limited additions to the
[[Page 665]]
information that must be provided during the transaction process,
depending on a dealer's current business operations, the Commission
anticipates that these changes will not require substantial investments
in new systems.\472\ Further, many dealers may elect to furnish some
disclosures electronically, further reducing total costs.\473\
---------------------------------------------------------------------------
\471\ NPRM at 42034.
\472\ Id.
\473\ Id.
---------------------------------------------------------------------------
The Commission previously estimated non-labor costs for providing
disclosures in written or electronic form. This estimate was based on
proposed Sec. 463.5(b), which required written disclosures in all
transactions in which dealers charge for optional add-ons. As discussed
in the paragraph-by-paragraph analysis of Sec. 463.5 in SBP III.E.2,
the Commission has determined not to finalize the proposed provision at
Sec. 463.5(b). While some commenters generally discussed burden with
respect to disclosure requirements being finalized by the Commission,
no commenter estimated non-labor costs associated with such
requirements. The Commission estimates that the non-labor costs related
to disclosures, which relate to fundamental information (the vehicle
offering price, that optional add-ons are not required, and regarding
the total amount to purchase or lease the vehicle), will be de minimis.
2. Recordkeeping
In the NPRM, the Commission observed that dealers already have in
place existing recordkeeping systems for the storage of documentation
they would retain in the ordinary course of business irrespective of
the Rule's requirements.\474\ Commenters including industry
associations, a dealership organization, and a dealership association
argued that the Commission underestimated the burdens associated with
the Commission's proposed requirements to retain written
communications, as well as the need to develop new systems to capture
these materials. The Commission disagrees that the recordkeeping
requirements in Sec. 463.6 mandate the creation of new recordkeeping
systems. As explained in the section-by-section analysis of Sec.
463.6, this provision gives dealers the flexibility to retain materials
in any legible form, including in the same manner, format, or place as
they may already keep such records in the ordinary course of business.
---------------------------------------------------------------------------
\474\ Id.
---------------------------------------------------------------------------
The Commission is, however, revising its estimates regarding
incremental storage expenses that may be associated with the
recordkeeping requirements in the Final Rule to add such recordkeeping
storage costs to its estimate. The Commission previously noted, and
continues to believe, that dealers that store records in hard copy are
unlikely to require extensive additional storage for physical document
retention, and, due to the low cost of electronic storage options, that
expanding electronic storage capacity would impose minimal costs.\475\
The Commission also invited comments on estimated storage costs; while
some commenters generally discussed burdens, as addressed in the
section-by-section analysis of the recordkeeping requirements in Sec.
463.6, that they contended would accompany the proposed provisions, the
Commission did not receive any comments that provided estimates. The
Commission nevertheless has conducted additional research, and now
estimates that each dealer will need to spend approximately $300 per
year in investment in additional IT systems and hardware for additional
storage (either on premises or electronically) to retain records, the
annual cost for which would be $14,181,300 for all covered dealers
($300 x 47,271 covered dealers).\476\
---------------------------------------------------------------------------
\475\ NPRM at 42034-35.
\476\ Our review of dealer transaction records suggests that a
typical transaction generates 3.4 MB of data under the status quo.
Given the average number of transactions per dealer, this suggests
that storing all these records would require dedicated space of
roughly 4.2 GB per year. With a two-year retention window, this
corresponds to 8.4 GB of storage at any given time. We estimate that
the (annual) amount budgeted here should be sufficient to maintain
at least 1 TB of storage--either on premises or through a cloud
storage vendor--which is sufficient for more than 100 times the data
storage capacity necessary to retain all transaction files generated
by a typical dealership in a year under the status quo. The
Commission anticipates that this amount of data storage capacity
will be more than sufficient to also allow for dealers to keep any
necessary records of correspondence with consumers who ultimately do
not complete transactions at the dealership.
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VI. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA''), as amended by the Small
Business Regulatory Enforcement Fairness Act of 1996,\477\ requires an
agency to provide an Initial Regulatory Flexibility Analysis (``IRFA'')
and Final Regulatory Flexibility Analysis (``FRFA'') of any rule
subject to notice-and-comment requirements,\478\ unless the agency head
certifies that the regulatory action will not have a significant
economic impact on a substantial number of small entities.\479\ In the
NPRM, the Commission provided an IRFA, stated its belief that the
proposal will not have a significant economic impact on small entities,
and solicited comments on the burden on any small entities that would
be covered.\480\ In addition to publishing the NPRM in the Federal
Register, the Commission announced the proposed rule through press
releases, social media posts, and blog articles directed toward
businesses and consumers, as well as through other outreach,\481\ in
keeping with the Commission's history of small business guidance and
outreach.\482\
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\477\ See Public Law 104-121 (1996).
\478\ 5 U.S.C. 603(a), 604(a).
\479\ 5 U.S.C. 605(b).
\480\ NPRM at 42035.
\481\ See, e.g., Press Release, Fed. Trade Comm'n, ``FTC
Proposes Rule to Ban Junk Fees, Bait-and-Switch Tactics Plaguing Car
Buyers'' (June 23, 2022), https://www.ftc.gov/news-events/news/press-releases/2022/06/ftc-proposes-rule-ban-junk-fees-bait-switch-tactics-plaguing-car-buyers; Lesley Fair, ``Proposed FTC Rule Looks
Under the Hood at the Car Buying Process,'' Fed. Trade Comm'n
Business Blog (June 23, 2022), https://www.ftc.gov/business-guidance/blog/2022/06/proposed-ftc-rule-looks-under-hood-car-buying-process; Alan S. Kaplinsky, A Close Look at The Federal Trade
Commission's Proposed Rule for Motor Vehicle Dealers, with Special
Guests Sanya Shahrasbi and Daniel Dwyer, Staff Attorneys, FTC Bureau
of Consumer Protection, Division of Financial Practices, Consumer
Finance Monitor (Aug. 11, 2022), https://www.ballardspahr.com/Insights/Blogs/2022/08/Podcast-The-FTCs-Proposed-Rule-Motor-Vehicle-Dealer-Guests-Sanya-Shahrasbi-and-Daniel-Dwyer.
\482\ Each year since FY2002, the Small Business
Administration's Office of the National Ombudsman has rated the
Federal Trade Commission an ``A'' on its small business compliance
assistance work. See U.S. Small Business Administration, ``2013-2020
SBA Nat'l Ombudsman's Ann. Reps. to Cong.,'' https://www.sba.gov/
document/report--national-ombudsmans-annual-reports-congress
(providing reports from FY2013-FY2020); Letter from Joseph J.
Simons, Chairman of the Federal Trade Commission, to Senator James
Risch, Chairman of the Committee on Small Business and
Entrepreneurship, U.S. Senate, and to Congressman Steve Chabot,
Chairman of the Committee on Small Business, U.S. House of
Representatives, https://www.ftc.gov/system/files/documents/reports/federal-trade-commission-rule-compliance-guides-small-businesses-other-small-entities-commission/tenth_section_212_report_to_congress_july_2016-june_2017_1_0.pdf
(citing Commission's ``A'' rating for ``Compliance Assistance'' by
the National Ombudsman from FY2002-FY2016).
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The Commission thereafter received over 27,000 public comments,
many of which identified themselves as being from small dealers,
industry associations that represent small dealers, and employees of
small dealers.\483\ The Commission greatly
[[Page 666]]
appreciates, and thoroughly considered, the feedback it received from
such stakeholders in developing the Final Rule; made changes from the
proposed rule in response to such feedback; and will continue to engage
with stakeholders moving forward to facilitate implementation of the
Rule.
---------------------------------------------------------------------------
\483\ The Commission received 27,349 comment submissions filed
in response to its NPRM. See Gen. Servs. Admin., Doc. No. FTC-2022-
0046-0001, Proposed Rule, Motor Vehicle Dealers Trade Regulation
Rule (July 13, 2022), https://www.regulations.gov/document/FTC-2022-0046-0001 (noting comments received). To facilitate public access,
11,232 such comments have been posted publicly at
www.regulations.gov. Id. (noting posted comments). Posted comment
counts reflect the number of comments that the agency has posted to
Regulations.gov to be publicly viewable. Agencies may choose to
redact or withhold certain submissions (or portions thereof) such as
those containing private or proprietary information, inappropriate
language, or duplicate/near duplicate examples of a mass-mail
campaign. Gen. Servs. Admin., Regulations.gov Frequently Asked
Questions, https://regulations.gov/faq.
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As previously discussed, after reviewing comments, the Commission
has determined, as an alternative to finalizing the proposed rule in
its entirety, to finalize a Rule that does not contain the proposed
add-on list disclosure requirements at Sec. 463.4(b), or the proposed
disclosures and declinations pertaining to a vehicle's cash price
without optional add-ons at Sec. 463.5(b). Furthermore, as discussed
in the paragraph-by-paragraph analysis of Sec. 463.2(e) in SBP
III.B.2(e), in response to public comments and after careful
consideration, the Commission has determined to exclude recreational
boats and marine equipment; motorcycles; and motor homes, recreational
vehicle trailers, and slide-in campers from the Rule's definition of
``Covered Motor Vehicle.'' After careful consideration of the comments
and following its determination not to finalize the proposed rule in
its entirety, the Commission is certifying that the Final Rule will not
have a significant economic impact on a substantial number of small
entities. In the following paragraphs, the Commission discusses
comments from the public, as well as from the U.S. Small Business
Administration Office of Advocacy (``SBA Advocacy''), and the reasons
for the Commission's conclusion that the Rule will not have a
significant economic impact on a substantial number of small
entities.\484\ Given, however, that the Commission believes that the
vast majority of covered entities are small entities and provided an
IRFA in the NPRM, in the interest of thoroughness, the Commission has
also performed an FRFA, as described in SBP VI.B.2.
---------------------------------------------------------------------------
\484\ The Office of Advocacy has emphasized that, while it is
housed within SBA, it is an independent, stand-alone office that has
its own statutory charter, leadership structure, and appropriations
account. SBA Advocacy, ``Background Paper: Office of Advocacy 2017-
2020'' 111-19 (Jan. 2021), https://advocacy.sba.gov/wp-content/uploads/2021/02/Background-Paper-Office-of-Advocacy-2017-2020-web.pdf; see also 15 U.S.C. 634a through 634g. SBA Advocacy's Chief
Counsel is appointed from civilian life by the President, with the
advice and consent of the Senate, and most of SBA Advocacy's
professionals serve at the pleasure of the Chief Counsel. 15 U.S.C.
634a, 634d(1) (empowering Chief Counsel for Advocacy to employ and
fix the compensation of additional staff personnel); SBA Advocacy,
``Background Paper: Office of Advocacy 2017-2020'' 95 (Jan. 2021),
https://advocacy.sba.gov/wp-content/uploads/2021/02/Background-Paper-Office-of-Advocacy-2017-2020-web.pdf. SBA Advocacy does not
circulate its work for clearance with the SBA Administrator, OMB, or
any other Federal agency prior to publication. 15 U.S.C. 634f.
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A. Significant Impact Analysis
1. Comments on Significant Impact
In the NPRM, the Commission stated its belief that the proposed
rule would not have a significant economic impact on a substantial
number of small entities, and invited comments.\485\ Several
commenters, including industry associations and a dealership
association, generally argued that the Rule would impose substantial
economic burdens on small entities, and some suggested that small
entities may be disproportionately burdened by the Rule given limited
legal and compliance staff. No commenters provided comprehensive
alternative empirical cost or revenue data that could be used to put
costs in context. Commenters, including an industry association and SBA
Advocacy, argued that the Commission did not provide a sufficient
factual basis for, or analysis of, the effects on small entities, and
that the proposed rule would be unduly burdensome for smaller motor
vehicle dealers.\486\ The comment from SBA Advocacy further argued that
the Commission provided no information about the economic impact of the
proposed rule on small entities, but noted that if the total estimated
cost of $1,360,694,552 were divided by the number of dealers estimated
in the NPRM (46,525), the cost would be roughly $29,000 per such
dealer.\487\ The comment from SBA Advocacy also argued that the
Commission failed to include familiarization and training costs or
costs that the Commission could not quantify, such as investments in
additional IT systems and hardware.\488\
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\485\ An industry association commenter argued that the
Commission did not make a formal section 605(b) certification,
publish the certification in the Federal Register, or provide the
certification to the Chief Counsel for Advocacy of the Small
Business Administration. This comment misunderstands the RFA. The
RFA does not require certification when a rule is proposed. See 5
U.S.C. 605(b) (providing that the head of the agency may make the
certification ``at the time of publication of the final rule''). The
Commission's NPRM stated its belief that the proposal would not have
a significant economic impact on a substantial number of small
entities, invited comment on this issue, and also provided an IRFA.
The Commission has carefully reviewed the SBA's and others'
comments, is making changes to the proposal, and is now publishing
the Final Rule and making a formal certification, as is required by
the RFA.
Although the Commission included the NPRM in its Fall 2022
Regulatory Agenda, and explained in its NPRM that the proposed
rulemaking was not included in the Commission's Spring 2022
Regulatory Agenda because the Commission first considered the NPRM
after the publication deadline for the Regulatory Agenda, see NPRM
at 42031 n.153, the same commenter argued that the RFA and Executive
Order 12866 required the Commission to include it in earlier
Regulatory Agendas. As an initial matter, Executive Order 12866 does
not apply to independent agencies such as the FTC. Regardless, as
discussed in SBP II.C, Commission has engaged in a sustained effort
over many years to engage with consumer and dealer groups, and other
stakeholders, regarding the issues addressed in the Rule. See supra
note 90. Neither the RFA nor Executive Order 12866 precludes the
Commission from promulgating the Rule regardless of whether it was
included in an earlier Regulatory Agenda (or even arguably could
have been). Section 602(d) of the RFA explicitly provides that
``[n]othing in this section precludes an agency from considering or
acting on any matter not included in a regulatory flexibility
agenda.'' See Coastal Conservation Ass'n v. Locke, No. 2:09-CV-641-
FTM-29, 2011 WL 4530631, at *38 (M.D. Fla. Aug. 16, 2011), report &
recommendation adopted sub nom. Coastal Conservation Ass'n v. Blank,
No. 2:09-CV-641-FTM-29, 2011 WL 4530544 (M.D. Fla. Sept. 29, 2011)
(denying request for injunction based on allegation of noncompliance
with 5 U.S.C. 602(d)). Similarly, Executive Order 12866 explicitly
provides that it ``does not create any right or benefit, substantive
or procedural, enforceable at law or equity by a party against the
United States,'' let alone one that would preclude adoption of the
Rule. See E.O. 12866, 58 FR 51735, 51744 (Sept. 30, 1993); see also
Trawler Diane Marie, Inc. v. Brown, 918 F. Supp. 921, 932 (E.D.N.C.
1995), aff'd sub nom. Trawler Diane Marie, Inc. v. Kantor, 91 F.3d
134 (4th Cir. 1996) (denying request to invalidate regulation based
on allegation of noncompliance with Executive Order 12866).
\486\ See Comment of SBA Advocacy, Doc. No. FTC-2022-0046-6664
at 3.
\487\ Comment of SBA Advocacy, Doc. No. FTC-2022-0046-6664 at 3.
\488\ Comment of SBA Advocacy, Doc. No. FTC-2022-0046-6664 at 3.
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The Commission has considered these comments carefully and has
taken them into account in setting forth the factual basis for the
certification in SBP VI.A.2, including by modifying its analysis to add
an estimate of familiarization and training costs in response to such
concerns.\489\ The Commission notes, as
[[Page 667]]
SBA Advocacy did in its comment, that the NPRM estimated a total cost
for the proposed rule of $1,360,694,552. This estimate was for costs
over a ten-year time period. Thus, dividing this estimate by the number
of affected dealers estimated in the NPRM yields a cost of roughly
$29,000 per dealer over a ten-year period--or approximately $2,900 per
year per dealer.\490\ This figure--$2,900--is slightly more than the
average gross profit described in the NPRM for a single vehicle sale by
a new vehicle dealer, and less than half of the average gross profit
described in the NPRM for a single vehicle sale by an independent used
vehicle dealer.\491\
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\489\ After additional research, the Commission estimates that
each dealer will need to spend approximately $300 per year on
storage (either on premises or in the cloud) to store the records
the Rule requires them to maintain. Based on a review of the
transaction records the Commission has received from dealers through
investigations, this amount is likely to be more than sufficient.
Commission review suggests that a typical vehicle transaction
generates 3.4 MB of data under the status quo. Given the average
number of transactions per dealer, this suggests that storing all
these records would require dedicated space of roughly 4.2 GB per
year. With a two-year retention window, this corresponds to 8.4 GB
of storage at any given time. The Commission estimates that the $300
annual amount budgeted here should be sufficient to maintain at
least 1 TB of storage--either on premises or through a cloud storage
vendor--which is sufficient for more than 100 times the data storage
capacity necessary to retain all transaction files generated by a
typical dealership in a year under the status quo. The Commission
anticipates that this amount of data storage capacity will be more
than sufficient to also allow for dealers to keep any necessary
records of correspondence with consumers who ultimately do not
complete transactions at the dealership.
\490\ NPRM at 42013.
\491\ As noted in the NPRM, new vehicle dealers averaged a gross
profit of about $2,444 per new vehicle, and about $2,675 per used
vehicle, and independent used vehicle dealerships had an average
gross profit of more than $6,000 per vehicle. See NPRM at 42014
(citing Nat'l Auto Dealers Ass'n, ``Average Dealership Profile'' 1
(2020), https://www.nada.org/media/4136/download?attachment [http://web.archive.org/web/20220623204158/https://www.nada.org/media/4136/download?attachment] (June 23, 2022) and Nat'l Indep. Auto Dealers
Ass'n, ``NIADA Used Car Industry Report 2020'' at 21).
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After carefully reviewing the comments, the Commission does not
conclude that the Final Rule will impose a significant economic burden
on a substantial number of smaller entities.\492\ As described in SBP
VI.A.2(b), the estimated economic impact of the Final Rule, controlling
for firm size based on available census data, is less than or equal to
0.27% of annual sales, 1.49% of the gross margin, and 4.12% of the
gross margin minus operating expense for dealerships of all sizes.\493\
The Commission further notes that, in response to comments from SBA
Advocacy and others, the Paperwork Reduction Act analysis incorporates
additional estimates for training and storage costs beyond those
estimated in the NPRM.
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\492\ Notably, while many industry commenters claimed that the
burden of the Rule would be substantial, none provided data on
revenue or profit.
\493\ U.S. Census Bureau, ``Annual Retail Trade Survey: 2021''
(Dec. 15, 2022), https://www.census.gov/data/tables/2021/econ/arts/annual-report.html. Gross margin minus operating expenses was
determined by deducting total 2021 operating expenses ($144,268
million) from 2021 gross margin ($226,118 million). Gross margin
represents total sales less the cost of goods sold. Operating
expenses include but are not limited to annual payroll, commissions,
data processing, equipment, advertising, lease and rental payments,
utilities, and repair and maintenance. See Glossary, U.S. Census
Bureau, https://www.census.gov/glossary (last visited Dec. 5, 2023).
Note that the operating expenses amount may include some costs--such
as payments for deceptive advertising or commissions earned on
unauthorized charges--that are not legitimate expenses. If these
were excluded, the gross margin minus operating cost figures would
be even lower than those described in the text.
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2. Certification of the Final Rule
The Commission hereby certifies that the Final Rule will not have a
significant economic impact on a substantial number of small entities.
As an initial matter, the Commission believes that a substantial
number of small entities are covered by the Rule. New vehicle dealers
(NAICS code 44111) are classified as small entities if they have an
average of 200 or fewer employees, and used car dealers (NAICS code
44112) are classified as small entities if they have average annual
revenues of $30.5 million or less.\494\ Census data indicate that the
vast majority of dealers classified into these NAICS codes are small
entities.\495\ There are approximately 47,271 covered dealers in the
United States, of which over 93% have fewer than 100 employees. Thus,
while the Commission cannot determine the precise number of small
entities affected by the Rule, census data suggest that the vast
majority of covered dealers are small entities.
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\494\ See North American Industry Classification System, U.S.
Census Bureau, https://www.census.gov/naics/. These standards are
determined by the Small Business Size Standards component of the
NAICS, which is available at https://www.sba.gov/document/support-table-size-standards.
\495\ The census report does not provide sufficient detail to
provide a precise numerical estimate of the number of small entities
covered by the Rule. The census data provide the number of dealers
with fewer than 250 employees, and also provide revenue and gross
margin figures for the motor vehicle dealers industry, without
further breakdown. For that reason, the census data do not provide
sufficient information to calculate the specific number of dealers
that are small entities. Nor did commenters provide comprehensive
alternative firm size data.
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The Commission certifies that the Rule will not have a significant
economic impact on a substantial number of small entities. The
Commission has analyzed the costs of the Rule (1) based on industry
averages and (2) accounting for dealer size based on the number of
employees. Under either measure, the Rule will not have a significant
economic impact on a substantial number of small entities.
(a) Industry Averages
The Commission estimates a total cost for the Final Rule, at the
scenario reflecting the Commission's highest cost estimates, of $1.075
billion to $1.270 billion over a ten-year period.\496\ Using the
highest end of this highest-cost scenario, the Rule will have an
estimated cost of $1.270 billion over ten years using a 3% discount
rate. This translates to an average estimated per-year cost of $127
million ($1.270 billion x 0.1). Census data show that, in 2021,
automobile dealers had annual sales of $1.265 trillion, gross margin of
$226.118 billion,\497\ and gross margin minus operating expenses of
$81.850 billion. Discounting these numbers over a 10-year period using
a 3% discount rate equates to average annual sales of $1.079 trillion,
gross margin of $192.883 billion, and gross margin minus operating
expenses of $69.820 billion. The estimated yearly cost of the Rule
therefore is approximately 0.01% of annual sales ($127 million/$1.079
trillion), 0.07% of gross margin ($127 million/$192.883 billion), and
0.18% of gross margin minus operating expenses ($127 million/$69.820
billion) across the industry.\498\
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\496\ The $1.075 billion figure was determined by summing the
unrounded total highest estimated costs associated with the Final
Rule's total of payments disclosure requirements ($246 million),
offering price disclosure requirements ($46 million), requirements
regarding certain add-ons and express, informed consent ($406
million), prohibitions on misrepresentations ($130 million), and
recordkeeping requirements ($248 million), using a 7% discount rate.
The $1.270 billion figure was determined by summing the unrounded
total highest estimated costs associated with the Final Rule's total
of payments disclosure requirements ($296 million), offering price
disclosure requirements ($46 million), requirements regarding
certain add-ons and express, informed consent ($475 million),
prohibitions on misrepresentations ($157 million), and recordkeeping
requirements ($296 million), using a 3% discount rate.
\497\ U.S. Census Bureau, ``Annual Retail Trade Survey: 2021,
Sales'' (Dec. 15, 2022), https://www2.census.gov/programs-surveys/arts/tables/2021/sales.xlsx (showing $1,264,635 million in estimated
annual sales in 2021 for automobile dealers, NAICS code 4411); U.S.
Census Bureau, ``Annual Retail Trade Survey: 2021, Gross Margin''
(Dec. 15, 2022), https://www2.census.gov/programs-surveys/arts/tables/2021/gm.xlsx (showing $226,118 million in estimated annual
gross margin in 2021 for automobile dealers, NAICS code 4411); U.S.
Census Bureau, ``Annual Retail Trade Survey: 2021, Total Operating
Expenses'' (Dec. 15, 2022), https://www2.census.gov/programs-surveys/arts/tables/2021/exp.xlsx (showing $144,268 million in
estimated annual operating expenses in 2021 for automobile dealers,
NAICS code 4411).
\498\ The calculations in this analysis were performed using
unrounded inputs in order to maintain accuracy. Nevertheless, for
ease of reference, such inputs have been rounded where they are
described in the text.
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(b) Dealer Size Based on the Number of Employees
In addition to considering industry averages, the Commission has
analyzed the cost of the Rule accounting for dealer size based on the
number of employees. Certain costs are fixed (i.e., remain the same
regardless of the number of employees) while other costs scale with
dealer size. We consider both
[[Page 668]]
(1) first-year compliance costs and (2) costs in subsequent years.
(1) First-year compliance costs. First-year compliance costs are
the sum of: (1) upfront fixed costs; (2) one year of annual ongoing
costs that are fixed; and (3) one year of annual ongoing costs that
scale.
The Commission estimates the upfront fixed costs per dealer under
the highest-cost scenario as follows: $963.44 to update policies and
procedures to provide the offering price disclosure required by Sec.
463.4(a) ((8 estimated pricing hours \499\ x $80.19 per hour) + (8
estimated programming hours x $40.24 per hour)); $249.68 to design
disclosures required by Sec. 463.4(d) and (e) and inform associates of
their obligations to provide these disclosures (8 estimated compliance
manager hours x $31.21 per hour); $1,783.56 to cull add-ons with no
consumer benefit from offerings, develop policies regarding when
certain add-ons may or may not be sold, and create nonmandatory
disclosures, in response to the requirements of Sec. 463.5 ((16
estimated compliance manager hours x $31.21 per hour) + (12 estimated
sales manager hours x $80.19 per hour) + (8 estimated programmer hours
x $40.24 per hour)); and $534.12 to upgrade recordkeeping systems and
create the templates necessary to accommodate retention of all relevant
material under Sec. 463.6 ((8 estimated programmer hours x $40.24 per
hour) + (5 estimated clerical hours x $20.16 per hour) + (1 estimated
sales manager hour x $80.19 per hour) + (1 estimated compliance manager
hour x $31.21 per hour)). These figures total $3,530.80 per
dealer.\500\
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\499\ As used here, ``pricing hours'' means time spent by a
sales and marketing manager reviewing dealership policies and
procedures for determining the public-facing prices of vehicles in
inventory.
\500\ Applicable wage rates throughout this section are based on
data from the Bureau of Labor Statistics. See U.S. Bureau of Labor
Statistics, ``May 2022 National Industry-Specific Occupational
Employment and Wage Estimates NAICS 441100--Automobile Dealers''
(Apr. 25, 2023), https://www.bls.gov/oes/current/naics4_441100.htm.
---------------------------------------------------------------------------
The Commission estimates the annual fixed ongoing costs per dealer
for the first year under the highest-cost scenario as follows: $390.13
to conduct a heightened compliance review of public-facing
representations to ensure compliance with Sec. 463.3 (150 estimated
documents per year x 5 estimated minutes of review per document x
$31.21 per hour of compliance officer review); and $300 estimated for
expanded storage to retain records required under Sec. 463.6. These
figures total $690.13 per dealer per year.
The Commission estimates annual ongoing costs that scale with
dealer size based on number of employees as follows. The Commission
estimates that annual costs that scale with dealer size are $76.86 per
employee per year. Annual ongoing costs that scale with dealer size
include: $26.53 per employee to provide the total of payments
disclosures required by Sec. 463.4(d) and (e) (((417,110 sales &
related employees x 1 estimated hour for training x $29.43 per hour) +
(19,228,256 total covered transactions involving monthly payments or
financing x (2/60 estimated disclosure hours per transaction x $28.41
per hour + $0.15 printing costs per disclosure)))/1,257,877 total
employees); $36.40 per employee for training and the delivery of a
disclosure under a regime in which dealers choose to deliver an
itemized disclosure to comply with Sec. 463.5 (((417,110 sales &
related employees x 1 estimated hour for training x $29.43 per hour) +
((10,343,319 new vehicle sales + 21,219,640 used vehicle sales) x (2/60
estimated disclosure hours per sale transaction x $28.41 per hour +
$0.11 physical costs per disclosure)))/1,257,877 total employees); and
$13.93 per employee to generate and store calculations required to be
retained under Sec. 463.6 ((31,562,959 vehicle sales x 1/60 estimated
hours per transaction x $28.41 per hour/1,257,877 total employees) +
(5,444,502 vehicle sales with GAP agreement x 1/60 estimated hours per
transaction x $28.41 per hour/1,257,877 total employees)).
Next, the Commission uses census data on the average number of
employees at dealerships within different dealer size cohorts to
determine the per-dealer cost for each dealer cohort.\501\ Multiplying
the estimated cost per employee ($76.86) by the average number of
employees within different dealer size cohorts yields annual ongoing
scaled costs per dealer of: $124.59 per dealer with fewer than 5
employees ($76.86 x 1.62 employees); $499.59 per dealer with between 5
and 9 employees ($76.86 x 6.50 employees); $1,058.73 per dealer with
between 10 and 19 employees ($76.86 x 13.77 employees); $2,584.18 per
dealer with between 20 and 49 employees ($76.86 x 33.62 employees);
$5,343.19 per dealer with between 50 and 99 employees ($76.86 x 69.52
employees); $10,784.88 per dealer with between 100 and 249 employees
($76.86 x 140.31 employees); $24,384.79 per dealer with between 250 and
499 employees ($76.86 x 317.25 employees); $44,623.26 per dealer with
between 500 and 999 employees ($76.86 x 580.56 employees); and
$147,085.08 per dealer with 1,000 or more employees ($76.86 x 1,913.60
employees).
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\501\ Based on 2021 census data, dealers with fewer than five
employees have an average of 1.62 employees (34,616 employees at all
dealerships with fewer than five employees/21,356 dealers with fewer
than five employees); dealers with 5-9 employees have an average of
6.50 employees (35,794 employees/5,507 dealers); dealers with 10-19
employees have an average of 13.77 employees (52,852 employees/3,837
dealers); dealers with 20-49 employees have an average of 33.62
employees (253,365 employees/7,536 dealers); dealers with 50-99
employees have an average of 69.52 employees (423,351 employees/
6,090 dealers); dealers with 100-249 employees have an average of
140.31 employees (386,001 employees/2,751 dealers); dealers with
250-499 employees have an average of 317.25 employees (57,105
employees/180 dealers); dealers with 500-999 employees have an
average of 580.56 employees (5,225 employees/9 dealers); and dealers
with 1,000 or more employees have an average of 1,913.60 employees
(9,568 employees/5 dealers). See U.S. Census Bureau, ``All Sectors:
County Business Patterns, Including ZIP Code Business Patterns, by
Legal Form of Organization and Employment Size Class for the U.S.,
States, and Selected Geographies: 2021,'' https://data.census.gov/
table?q=CB2100CBP&n=44111:44112&tid=CBP2021.CB2100CBP&nkd=LFO~001.
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Thus, the total first-year compliance costs based on dealer size
are $4,345.51 ($3,530.80 + $690.13 + $124.59) per dealer with fewer
than 5 employees; $4,720.51 ($3,530.80 + $690.13 + $499.59) per dealer
with between 5 and 9 employees; $5,279.66 ($3,530.80 + $690.13 +
$1,058.73) per dealer with between 10 and 19 employees; $6,805.11
($3,530.80 + $690.13 + $2,584.18) per dealer with between 20 and 49
employees; $9,564.12 ($3,530.80 + $690.13 + $5,343.19) per dealer with
between 50 and 99 employees; $15,005.80 ($3,530.80 + $690.13 +
$10,784.88) per dealer with between 100 and 249 employees; $28,605.72
($3,530.80 + $690.13 + $24,384.79) per dealer with between 250 and 499
employees; $48,844.18 ($3,530.80 + $690.13 + $44,623.26) per dealer
with between 500 and 999 employees; and $151,306.01 ($3,530.80 +
$690.13 + $147,085.08) per dealer with 1,000 or more employees.
To analyze the economic effect of the costs of the Rule by dealer
size, the Commission compares per-dealer costs to per-dealer sales,
gross margin, and gross margin minus operating expenses. The Commission
does not have data on how sales, gross margin, and operating expenses
are apportioned to dealerships based on the number of employees.
Accordingly, the Commission assumes that sales, gross margin, and
operating expenses are apportioned to dealerships pro rata with the
number of employees. Dividing the 2021 industry-wide figures for annual
sales ($1.265 trillion), gross margin ($226.118 billion), and gross
margin minus operating expenses ($81.850 billion) by the total number
of
[[Page 669]]
employees (1,257,877),\502\ each employee represents an additional
$1,005,372.54 in sales ($1.265 trillion/1,257,877 employees),
$179,761.61 in gross margin ($226.118 billion/1,257,877 employees), and
$65,069.96 in gross margin minus operating expenses ($81.850 billion/
1,257,877 employees). Multiplying these per-employee figures by the
average number of employees of dealers within different size cohorts
provides per-dealer sales, gross margin, and gross margin minus
operating expenses for each cohort. For instance, dealers with fewer
than 5 employees have estimated annual sales of $1,629,611.16 (1.62
employees x $1,005,372.54 sales per employee), annual gross margin of
$291,376.10 (1.62 employees x $179,761.61 gross margin per employee),
and annual per-dealer gross margin minus operating expenses of
$105,472.17 (1.62 employees x $65,069.96 gross margin minus operating
expenses per employee).
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\502\ Data on the number of employees comes from the 2021
census. See U.S. Census Bureau, ``All Sectors: County Business
Patterns, Including ZIP Code Business Patterns, by Legal Form of
Organization and Employment Size Class for the U.S., States, and
Selected Geographies: 2021,'' https://data.census.gov/
table?q=CB2100CBP&n=44111:44112&tid=CBP2021.CB2100CBP&nkd=EMPSZES~001
,LFO~001.
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The Commission then divides first-year compliance costs by these
figures to yield cost as a percentage of sales, gross margin, and gross
margin minus operating costs. Applying this method to each of the
dealer size cohorts, first-year compliance costs are equivalent to:
0.27% of annual sales ($4,345.51/$1,629,611.16), 1.49% of gross margin
($4,345.51/$291,376.10), and 4.12% of gross margin minus operating
expenses ($4,345.51/$105,472.07) for dealers with fewer than 5
employees; 0.07% of annual sales ($4,720.51/$6,534,647.69), 0.40% of
gross margin ($4,720.51/$1,168,401.53), and 1.12% of gross margin minus
operating expenses ($4,720.51/$422,936.98) for dealers with 5-9
employees; 0.04% of annual sales ($5,279.66/$13,848,305.89), 0.21% of
gross margin ($5,279.66/$2,476,090.91), and 0.59% of gross margin minus
operating expenses ($5,279.66/$896,293.27) for dealers with 10-19
employees; and less than one-half of one percent of the annual sales,
gross margin, and gross margin minus operating expenses for the
remaining categories of dealers.
(2) Costs in subsequent years. The estimated cost of compliance
with the Rule drops after the first year, given the absence of upfront
costs, which are not incurred after the first year. Compliance costs in
subsequent years--which are limited to annual ongoing costs (both fixed
and those that scale with dealer size)--are therefore a smaller
percentage of annual sales, gross margin, and gross margin minus
operating expenses, equal to less than two percent of these metrics for
dealers of all sizes.\503\
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\503\ Average ongoing compliance costs after the first year
equal: 0.05% of annual sales, 0.28% of gross margin, and 0.77% of
gross margin minus operating expenses for dealers with fewer than 5
employees, and less than one-half of one percent of annual sales,
gross margin, and gross margin minus operating expenses for the
remaining categories of dealers.
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The Commission does not find that these compliance costs represent
a significant economic burden. The Commission therefore certifies that
the Final Rule will not have a significant economic impact on a
substantial number of small entities.
B. Initial and Final Regulatory Flexibility Analysis
The NPRM noted the Commission's belief that the proposed rule would
not have a significant economic impact on small entities, but
nevertheless examined the six IRFA factors, and invited comment on the
proposed rule's burdens on small businesses. In the following
paragraphs, the Commission discusses comments and then sets forth a
FRFA.
1. Comments on the Initial Regulatory Flexibility Analysis
(a) Description of the Reasons Why Action by the Agency Is Being
Considered
The IRFA explained that the Commission proposed the Rule to address
misleading practices and unauthorized charges to consumers during the
vehicle buying or leasing process, and to deter dealer misconduct and
remedy consumer harm. The Commission further noted that its law
enforcement, outreach and other engagement in this area, and the
hundreds of thousands of consumer complaints received by the FTC,
indicated that dealership misconduct and deceptive tactics persisted
despite Federal and State law enforcement efforts. In response, the
comments from SBA Advocacy and one industry group argued that the
number of complaints received by the Commission is insufficient to
support a rulemaking given the total number of vehicle transactions in
the United States.\504\ Similarly, the industry group argued that the
Commission has not filed enough law enforcement actions against motor
vehicle dealers to justify the proposal, and that, where it has brought
enforcement actions, the Commission has managed to obtain redress for
harmed consumers without the need for an additional monetary remedy. As
explained in SBP II.B and in the section-by-section analysis of the
recordkeeping requirements in Sec. 463.6 in SBP III.F,
[[Page 670]]
consumer complaints represent the ``tip of the iceberg'' of actual
misconduct, as many unlawful practices go undetected or unreported by
consumers. Further, the Commission has taken significant action aimed
at addressing law violations in the motor vehicle dealer marketplace,
despite limited resources and a broad mandate to address unlawful
practices across much of the nation's commercial activity,\505\ and,
particularly given the Supreme Court's 2021 ruling limiting the FTC's
ability to obtain redress for consumers, it is difficult to get full
redress for consumers.\506\ Despite these Commission actions, as well
as the hundreds of additional actions brought by other Federal and
State regulators, the deceptive or unfair acts or practices addressed
by the proposed rule persist.
---------------------------------------------------------------------------
\504\ Comment of SBA Advocacy, Doc. No. FTC-2022-0046-6664 at 6.
SBA Advocacy also raised concerns that the proposal could make the
buying process more cumbersome and confusing, noting that the
proposal requires additional disclosures, and the proposal
prohibited dealers from relying on a signed or initialed document,
by itself, or prechecked boxes to establish express, informed
consent. These arguments are addressed in the discussion of
disclosures in Sec. Sec. 463.4, 463.5 and the definition of
``Express, Informed Consent'' in Sec. 463.2.
The industry group also argued that the number of complaints is
overstated because it includes: (1) complaints that are not
applicable to motor vehicle dealers or conduct addressed by the
Rule, and (2) consumers who did not report a loss. This industry
group also argued that the Commission failed to take notice of
survey data indicating that the majority of consumers are satisfied
with their vehicle purchases. See, e.g., Cox Auto., ``2021 Cox
Automotive Car Buyer Journey Study'' (2022) [hereinafter 2021 Cox
Automotive Car Buyer Journey Study], https://www.coxautoinc.com/wp-content/uploads/2022/01/2021-Car-Buyer-Journey-Study-Overview.pdf.
First, in the Commission's experience, complaints understate harm
caused by unlawful conduct in a given category, notwithstanding any
inclusion of complaints that may pertain to ancillary or related
issues. See SBP II.B (discussing how complaints represent the tip of
the iceberg in terms of actual consumer harm and citing case where
prior to FTC action, there were 391 complaints about add-ons and
other issues but survey results during the same period indicted that
at least 16,848 customers were subject to unlawful practices related
to add-ons alone). Moreover, the Commission's reported complaint
numbers may be underinclusive of relevant complaints filed by
consumers (e.g., complaints about vehicle financing issues may be
filed under the ``Banks and Lenders'' category; vehicle repossession
issues may be filed under the ``Debt Collection'' category; and
complaints about deceptive online vehicle shopping may be filed
under the ``Online Shopping and Negative Reviews'' category). With
regard to consumers who did not report a loss, the Commission
disagrees that such consumers were not harmed or that their
experience is not relevant to the Rule. For example, many consumers
experience a law violation or other harmful conduct, but choose not
to consummate the transaction, including consumers who waste time
pursuing misleading offers. Further, survey data indicating that a
majority of customers are ``satisfied'' do not indicate whether
those customers had hidden charges in their contracts and whether
they ever became aware of such charges. Surveys cited by the
Commission have identified situations where customers are unaware of
add-on charges in their contracts; indeed, in one case, 79% of
consumers were unaware of such charges. See SBP II.B (discussing
hidden charges in auto contracts). Consumers might be satisfied with
a purchase until they later learn they are paying for items they did
not authorize, if they learn this at all. Further, ``the FTC need
not prove that every consumer was injured. The existence of some
satisfied customers does not constitute a defense . . . .'' Fed.
Trade Comm'n v. Amy Travel Serv., Inc., 875 F.2d 564, 572 (7th Cir.
1989), vacated in part on other grounds, Fed. Trade Comm'n v. Credit
Bureau Ctr., LLC, 937 F.3d 764 (7th Cir. 2019); accord Fed. Trade
Comm'n v. Stefanchik, 559 F.3d 924, 929 n.12 (9th Cir. 2009).
\505\ One industry group argued that the majority of the FTC's
enforcement actions have pertained to deceptive advertising, and few
have alleged unlawful conduct involving add-ons. The Commission
agrees that many of its actions have alleged deceptive pricing. In
focusing on certain actions that involved allegations that dealers
placed unauthorized charges for add-ons, however, the commenter
leaves out other unlawful conduct related to add-ons. Such conduct
includes, for example, misrepresentations regarding the pricing of
add-ons (Complaint ]] 6-12, TT of Longwood, Inc., No. C-4531 (F.T.C.
July 2, 2015)), or failing to disclose that mandatory add-ons were
included in the cost of credit (Consent Order ]] 73-75, Y King S
Corp., CFPB No. 2016-CFPB-0001 (Jan. 21, 2016)). In addition,
unauthorized charges are likely to go unnoticed by consumers, which
can hamper enforcement efforts. See, e.g., Auto Buyer Study, supra
note 25, at 14 (describing several study participants who thought
they had not purchased add-ons, or that add-ons were free, and only
learned during the study that they were charged for add-ons).
\506\ See AMG Cap. Mgmt., LLC v. Fed. Trade Comm'n, 141 S. Ct.
1341 (2021).
---------------------------------------------------------------------------
(b) Succinct Statement of the Objectives of, and Legal Basis for, the
Proposed Rule
The objectives of the Rule and its legal basis, including the
specific grant of rulemaking authority under section 1029 of the Dodd-
Frank Act, 12 U.S.C. 5519, were set forth in the IRFA.\507\ The
objectives and legal basis, and comments on these topics, additionally
have been discussed throughout this SBP.
---------------------------------------------------------------------------
\507\ NPRM at 42035.
---------------------------------------------------------------------------
(c) Description of and, Where Feasible, Estimate of the Number of Small
Entities to Which the Proposed Rule Will Apply
In its IRFA, the Commission estimated that there were approximately
46,525 franchise, new motor vehicle, and independent/used motor vehicle
dealers.\508\ As discussed in the Paperwork Reduction Act analysis in
SBP III.V, the Commission received comments from SBA Advocacy and
others on this estimate, and the Commission has responded to those
comments by making certain changes to the proposal in light of the
comments received. The Commission has revised its estimate of covered
dealers to 47,271 franchise, new motor vehicle, and independent/used
motor vehicle dealers based on newly available NAICS data assembled by
the U.S. Census Bureau.\509\
---------------------------------------------------------------------------
\508\ Id. at 42035. The Commission explained that, because of
the relative size of the automobile market compared to other types
of motor vehicle dealers, and the greater availability of relevant
information for this market, its NPRM analysis exclusively
considered automobile dealers. The Commission invited submissions of
market information for other types of motor vehicles such as boats,
RVs, and motorcycles that would allow expansion of the scope of its
analysis. See NPRM at 42035-36.
\509\ U.S. Census Bureau, ``All Sectors: County Business
Patterns, Including ZIP Code Business Patterns, by Legal Form of
Organization and Employment Size Class for the U.S., States, and
Selected Geographies: 2021,'' https://data.census.gov/
table?q=CB2100CBP&n=44111:44112&tid=CBP2021.CB2100CBP&nkd=EMPSZES~001
,LFO~001 (listing 21,622 establishments for ``[n]ew car dealers,''
NAICS code 44111, and 25,649 establishments for ``[u]sed car
dealers,'' NAICS code 44112).
---------------------------------------------------------------------------
Regarding the estimate of the number of small entities affected by
the Final Rule, as noted in the Certification of the Final Rule,\510\
while the Commission cannot determine the precise number of small
entities, the data the Commission does have reinforce the Commission's
initial view that most covered entities are small entities.
---------------------------------------------------------------------------
\510\ See SBP VI.A.2.
---------------------------------------------------------------------------
(d) Description of the Projected Reporting, Recordkeeping, and Other
Compliance Requirements of the Proposed Rule
An industry association commenter argued that the Commission did
not ``accurately'' lay out the proposed rule's projected requirements.
The commenter did not provide an explanation of what it alleged to be
inaccurate in the Commission's description. This comment
notwithstanding, the NPRM described the proposed rule's projected
requirements, including by elaborating on the proposed recordkeeping
requirements and providing estimates regarding the anticipated
recordkeeping time and resource obligations for programmers, clerical
staff, sales managers, and compliance officers.\511\ The NPRM also
provided a detailed description of the recordkeeping requirements for
entities to be covered by the Rule.\512\
---------------------------------------------------------------------------
\511\ NPRM at 42035; see also id. at 42033-34 (describing
recordkeeping requirements and analyzing cost burden). To avoid
duplicative or unnecessary analysis, the information required by the
IRFA can be provided with or as part of any other analysis required
by any other law. 5 U.S.C. 605(a).
\512\ See NPRM at 42027, 42035 (enumerating records to be
retained and time period for retention).
---------------------------------------------------------------------------
(e) Duplicative, Overlapping, or Conflicting Federal Rules
An industry association commenter argued that the Commission failed
to identify relevant Federal rules that may duplicate, overlap, or
conflict with the proposal. This commenter's arguments that the
proposed rule conflicts with Federal statutes are addressed in the
section-by-section analysis in SBP III. Commenters provided no examples
of actual conflicts between the proposals and Federal law. Further,
there is no evidence that duplicative laws prohibiting
misrepresentations or unfair acts or practices have harmed consumers or
competition. Moreover, the additional remedies provided by the Final
Rule will benefit consumers who encounter conduct that is already
illegal and will assist law-abiding dealers that presently lose
business to competitors that act unlawfully.
(f) Description of Any Significant Alternatives to the Proposed Rule
Which Accomplish the Stated Objectives of Applicable Statutes and Which
Minimize Any Significant Economic Impact of the Proposed Rule on Small
Entities
Statutory examples of ``significant alternatives'' include
different requirements or timetables that take into account the
resources available to small entities; the clarification,
consolidation, or simplification of compliance and reporting
requirements under the Rule for small entities; the use of performance
rather than design standards; and an exemption from coverage of the
Rule, or any part thereof, for small entities.\513\ Comments from SBA
Advocacy and from a national industry association argued that the
Commission did not set forth alternatives to the proposed rule.\514\
---------------------------------------------------------------------------
\513\ See 5 U.S.C. 603(c)(1)-(4).
\514\ Comment of SBA Advocacy, Doc. No. FTC-2022-0046-6664.
---------------------------------------------------------------------------
In its Regulatory Flexibility Act compliance guidance to Federal
agencies, the SBA Office of Advocacy provides that, ``[i]f an agency is
unable to analyze small business alternatives separately, then
alternatives that reduce the impact for businesses of all sizes must be
considered.'' \515\ As the
[[Page 671]]
Commission explained in its NPRM, it ``envisioned and drafted this Rule
mindful that most motor vehicle dealers are small entities,'' and
drafted its proposal in the first instance to minimize economic impact
on all motor vehicle dealers.\516\ For example, the Rule prohibits
conduct that already violates the FTC Act, but still takes steps to
minimize burdens for dealers of all sizes, by, for example, allowing
records to be kept in any legible form already kept in the ordinary
course of business, and by limiting recordkeeping requirements to
twenty-four months from the date the record is created despite the fact
that motor vehicle financing terms are generally years longer than this
period. Commenters generally appear to understand the relevant market
in a similar manner. For instance, the possible alternatives raised by
the comment from SBA Advocacy would apply uniformly to both large and
small businesses. These alternatives included excluding vehicle dealers
that do not sell automobiles, regardless of the size of the dealer, and
creating a carve-out for banks and other financing companies that would
cover multi-billion dollar institutions.\517\ Comments from SBA
Advocacy and a national industry association also discussed the
proposed rule's disclosure requirements in an industry-wide manner, not
limiting their comments to businesses under any particular size
threshold.\518\ Nevertheless, the Commission has reviewed these
comments carefully, has responded to comments on alternatives in the
corresponding sections of its section-by-section analysis, and has
determined to modify the definition of ``Covered Motor Vehicle'' at
Sec. 463.2(e) and not to finalize the requirements proposed in
Sec. Sec. 463.4(b) and 463.5(b).\519\
---------------------------------------------------------------------------
\515\ Off. of Advoc., U.S. Small Bus. Admin., ``A Guide for
Government Agencies: How to Comply with the Regulatory Flexibility
Act'' 39 (2017), https://advocacy.sba.gov/wp-content/uploads/2019/06/How-to-Comply-with-the-RFA.pdf.
\516\ NPRM at 42036-37; see also id. at 42029-30 (indicating, in
Questions for Comment 26.b, 28.a, & 30 that the Commission was
considering alternative approaches).
\517\ See Comment of SBA Advocacy, Doc. No. FTC-2022-0046-6664
at 4-6. As addressed in SBP III.C.2(a) and SBP III.E.2(c), in
responding to a similar comment by financial institutions, the Final
Rule does not change the status quo regarding the responsibilities
of contract assignees or other subsequent holders of motor vehicle
financing under the Holder Rule, and the Commission declines to
create a safe harbor for contract assignees where it did not
previously exist.
Similarly, one comment recommended that the Commission add a
rule provision authorizing an alternative compliance mechanism,
stating that such a provision would aid not just smaller entities
but larger entities as well. Under this alternative mechanism,
independent accountability organizations could apply to the
Commission for authorization to review and assess auto dealers'
adherence to a set of rule compliance guidelines that would be
created. See Comment of BBB Nat'l Programs, Doc. No. FTC-2022-0046-
8452 at 1-3. This comment suggested that such an alternative
compliance mechanism would have several benefits, including
educating industry participants and allowing for industry oversight
beyond the capacity of the FTC. The Commission agrees with the goals
of educating stakeholders and maximizing resources used to ensure
compliance with the Rule but notes that these goals can be furthered
without adding alternate mechanisms with as-yet unknown guidelines,
that may or may not be sufficient to protect consumers, to the Rule
that the Commission is finalizing. The Commission notes that the
Rule finalizes certain baseline protections that should already be
in place under the law. The Commission encourages stakeholders, such
as auto dealer trade associations, BBB, and others, to educate their
members and the public about the Rule and encourage compliance, as
such groups have done when issuing guidance on other aspects of the
law.
\518\ Comment of SBA Advocacy, Doc. No. FTC-2022-0046-6664 at 5-
6; see generally Comment of Nat'l Auto. Dealers Ass'n, Doc. No. FTC-
2022-0046-8368. The National Automobile Dealers Association also
argues that the Commission should have considered whether to do a
rule in the first instance. The NPRM provides a detailed explanation
of why, more than a decade after Congress granted the FTC APA
rulemaking authority with respect to motor vehicle dealers, and
continued enforcement, outreach, and other initiatives, a rule is
needed to address ongoing problems related to bait-and-switch
tactics and hidden charges.
\519\ Separately, the Commission notes that the NPRM identified
and solicited comments on alternatives to every substantive
requirement, including the areas specifically addressed by the
commenters. See, e.g., NPRM at 42028-30 (Q4-7, Q10, Q16, Q28, Q33,
Q36-38); id. at 42040-41.
---------------------------------------------------------------------------
2. Final Regulatory Flexibility Analysis
Although the Commission is certifying that the Rule will not have a
significant economic impact on a substantial number of small entities,
the Commission has prepared the following FRFA with this Final Rule. In
the following paragraphs, the Commission provides the information
required for a FRFA: (1) a statement of the need for, and objectives
of, the Rule; (2) a statement of the significant issues raised by
public comments in response to the IRFA, including any comments filed
by the Chief Counsel for Advocacy of the Small Business Administration
in response to the proposed rule, the Commission's assessment and
response, and any resulting changes; (3) a description of and an
estimate of the number of small entities to which the Rule will apply
or an explanation of why no such estimate is available; (4) a
description of the projected reporting, recordkeeping, and other
compliance requirements; and (5) a description of the steps the agency
has taken to minimize the significant economic impact on small entities
consistent with the stated objectives of applicable statutes, including
a discussion of any significant alternatives for small entities.\520\
---------------------------------------------------------------------------
\520\ 5 U.S.C. 604(a)(1)-(6).
---------------------------------------------------------------------------
(a) Statement of the Need for, and Objectives of, the Rule
The FTC issues this Final Rule to address deceptive and unfair acts
or practices during the vehicle buying or leasing process, and to
provide an additional enforcement tool to remedy consumer harm and
assist law-abiding dealers. As detailed in SBP II.B.1, these deceptive
and unfair practices include bait-and-switch tactics, such as dealers
advertising deceptively low prices or other deceptive terms to induce
consumers to visit the dealership, and charging such consumers
additional, unexpected amounts, including after the consumers have
invested significant time and effort traveling to, and negotiating at,
the dealership premises. At present, consumers may never learn that
they are paying substantial unexpected charges, given the complexity
and length of the motor vehicle sale, financing, or lease transaction
and its attendant contracts and other documents. Law enforcement,
outreach and other engagement in this area, as well as the number of
consumer complaints each year regarding motor vehicle dealer practices,
indicate that unlawful conduct persists despite Federal and State law
enforcement efforts.
(b) Issues Raised by Comments, Including Comments by the Chief Counsel
for Advocacy of the SBA, the Commission's Assessment and Response, and
Any Changes Made as a Result
The comments regarding the IRFA are addressed in SBP VI.B, and the
comments regarding the other provisions of the NPRM are discussed in
the SBP's section-by-section analysis in SBP III. As noted, the
Commission has made certain changes to the Rule after carefully
reviewing the comments. These changes include modification of the
definition of ``Covered Motor Vehicle'' at Sec. 463.2(e), removal of
the add-on list disclosure requirement in proposed Sec. 463.4(b) and
the requirements in proposed Sec. 463.5(b), and removal of the
corresponding recordkeeping requirements in proposed Sec. 463.6(a)(2)
and (a)(4).
(c) Description and Estimate of the Number of Small Entities to Which
the Final Rule Will Apply or an Explanation of Why No Such Estimate Is
Available
The Final Rule applies to covered motor vehicle dealers, as defined
in Sec. 463.2(f), of covered motor vehicles at Sec. 463.2(e): ``any
self-propelled vehicle designed for transporting persons or property on
a public street, highway, or
[[Page 672]]
road,'' and, in light of comments received, excludes specific
categories as detailed in Sec. 463.2(e).\521\ As explained in the
Certification,\522\ the Commission cannot determine the precise number
of small entities to which the Final Rule applies, but census data
indicate that the vast majority of the estimated 47,271 dealers covered
by the Rule are small entities according to the applicable U.S. Small
Business Administrator's relevant size standards.
---------------------------------------------------------------------------
\521\ The Commission is authorized to prescribe rules with
respect to a motor vehicle dealer that is predominantly engaged in
the sale and servicing of motor vehicles, the leasing and servicing
of motor vehicles, or both, as defined in 12 U.S.C. 5519(a).
\522\ See SBP VI.A.2.
---------------------------------------------------------------------------
(d) Description of the Projected Reporting, Recordkeeping, and Other
Compliance Requirements
The Final Rule prohibits certain unfair or deceptive acts or
practices and contains recordkeeping requirements. The Final Rule
contains no reporting requirements.
The Final Rule requires covered motor vehicle dealers to clearly
and conspicuously disclose the offering price of a vehicle in certain
advertisements and in response to consumer communications. It also
requires dealers to make certain other disclosures during the sale,
financing, or leasing process. To enforce the Rule and prevent the
unfair or deceptive practices prohibited by the Rule, the Rule further
requires dealers to retain records necessary to demonstrate compliance
with the Rule. Such records include advertising materials and copies of
purchase orders and financing and lease documents. The Rule requires
such records to be retained for a period of twenty-four months from the
date they are created and provides that they may be kept in any legible
form, and in the same manner, format, or place as they may already be
kept in the ordinary course of business. Further details on these
provisions are discussed throughout this SBP, including in the section-
by-section analysis of the recordkeeping requirements in Sec. 463.6,
as well as in the preceding Paperwork Reduction Act analysis.
(e) Description of the Steps the Commission Has Taken To Minimize the
Significant Economic Impact on Small Entities Consistent With the
Stated Objectives of Applicable Statutes
The Final Rule addresses certain unfair or deceptive acts or
practices in motor vehicle sales, financing, and leasing. In drafting
its NPRM, reviewing public comments, and modifying the Rule from its
original proposal, the Commission has taken specific steps to avoid
unduly burdensome requirements for small entities. The Commission
believes that the Final Rule--including the prohibitions against making
specific misrepresentations and against charging consumers for any item
unless the dealer obtains the express, informed consent of the consumer
for the charge--is necessary to protect consumers, including small-
business consumers that purchase, finance, or lease motor vehicles. By
addressing these practices, the Rule also will benefit competition by
preventing law-abiding dealers, many of which are small businesses,
from losing business due to unlawful practices by other dealers.
For each provision in the Rule, the Commission has attempted to
reduce the burden on businesses, including small entities. For example,
the Commission limited the number of disclosures that dealers are
required to make under the Final Rule, and in response to comments,
further limited such disclosures by determining not to finalize the
disclosures in proposed Sec. Sec. 463.4(b) and 463.5(b). Similarly,
the Commission has limited the duration of the Rule's recordkeeping
requirements to twenty-four months from the date the relevant record is
created, even though this period is far shorter than the length of many
financing contracts.
As previously noted, the Commission does not believe the Final Rule
imposes a significant economic impact on a substantial number of small
entities. Nonetheless, the Commission has taken care to avoid extensive
requirements related to form. For example, the Commission does not
specify the form in which records required by the Final Rule must be
kept. Moreover, the Rule's disclosure requirements do not mandate
specific font sizes. In sum, the Commission has worked to minimize any
significant economic impact on small businesses.
VII. Final Regulatory Analysis Under Section 22 of the FTC Act
A. Introduction
The Federal Trade Commission (FTC) is finalizing a Rule to address
unfair or deceptive acts or practices by covered motor vehicle dealers
when engaging with consumers who are shopping for covered motor
vehicles. The Rule contains several provisions targeted at addressing
price-related deception and unfairness for consumers with respect to
purchasing, leasing, and financing new and used motor vehicles. The
Final Rule prohibits misrepresentations regarding material information
about certain aspects of motor vehicles and motor vehicle financing.
The Final Rule also mandates certain disclosures about vehicle price,
payments, and add-ons, while prohibiting charges for add-on products
and services that would not benefit the consumer or for any item unless
the dealer obtains the express, informed consent of the consumer for
the charge.
Section 22 of the FTC Act, 15 U.S.C. 57b-3, requires the Commission
to issue a final regulatory analysis when publishing a final rule. The
final regulatory analysis must contain (1) a concise statement of the
need for, and objectives of, the final rule; (2) a description of any
alternatives to the final rule which were considered by the Commission;
(3) an analysis of the projected benefits, any adverse economic
effects, and any other effects of the final rule; (4) an explanation of
the reasons for the determination of the Commission that the final rule
will attain its objectives in a manner consistent with applicable law
and the reasons the particular alternative was chosen; and (5) a
summary of any significant issues raised by the comments submitted
during the public comment period in response to the preliminary
regulatory analysis, and a summary of the assessment by the Commission
of such issues.
As discussed previously, the FTC issues this Final Rule to address
deceptive and unfair acts or practices during the vehicle buying or
leasing process, and to provide an additional enforcement tool to
remedy consumer harm and assist law-abiding dealers. These deceptive
and unfair practices include bait-and-switch tactics, such as dealers
advertising deceptively low prices or other deceptive terms to induce
consumers to visit the dealership; and charging such consumers
additional, unexpected amounts, including after the consumers have
invested significant time and effort traveling to, and negotiating at,
the dealership premises. At present, consumers may never learn that
they are paying substantial unexpected charges, given the complexity
and length of the motor vehicle sale, financing, or lease transaction
and its attendant contracts and other documents. Law enforcement,
outreach, and other engagement in this area, as well as the number of
consumer complaints each year regarding motor vehicle dealer practices,
indicate that unlawful conduct persists despite Federal and State law
enforcement efforts.
In response to public comments, the Commission considered and made
a number of revisions from the proposed
[[Page 673]]
rule, which in turn have necessitated revisions to the regulatory
analysis, resulting in this final regulatory analysis.\523\ The most
significant revisions to the proposed rule impacting the regulatory
analysis are the removal of proposed Sec. Sec. 463.4(b) (requiring the
disclosure of add-on lists) and 463.5(b) (requiring various itemized
disclosures relating to undisclosed or unselected add-ons). As a result
of the Commission's determination not to finalize these sections of the
proposed rule, costs and benefits associated with those provisions have
been excluded from the final regulatory analysis. The Commission also
has made revisions in response to public comments, the availability of
newer data, the identification of additional relevant data, and the
application of newer scholarly research. The final regulatory analysis
thus builds upon the preliminary regulatory analysis, while
incorporating several updates:
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\523\ These revisions and alternatives the Commission considered
are described in detail in the Commission's Statement of Basis and
Purpose, as is the Commission's explanation why the Final Rule will
attain its objectives in a manner consistent with applicable law.
---------------------------------------------------------------------------
The analysis of consumer time savings has been revised in
response to public comments and changes following the NPRM.
A section quantifying the reduction in deadweight loss
resulting from the Rule has been added, based upon recent research that
allows the Commission to quantify both how dealer markups will respond
to price transparency and how new and used vehicle quantities will
respond to changes in price.
Training costs have been added for some provisions in
response to public comments.
Information systems costs have been added to the
Recordkeeping section in response to public comments, based on
estimates of how much data would be required and the cost of cloud or
on-premises data storage.
Wages used to monetize labor costs have been updated to
reflect new data from the Bureau of Labor Statistics.
The number of dealers has been updated to reflect new data
from Census County Business Patterns.
The number of transactions subject to the Rule has been
revised in response to public comments, and the Commission's
identification of additional data sources that can be used to exclude
private party and fleet transactions.
The Final Rule contains requirements in the following areas:
1. Prohibited misrepresentations;
2. Required disclosure of offering price in certain advertisements
and in response to inquiry;
3. Required disclosure of total of payments for financing and
leasing transactions;
4. Prohibition on charging for add-ons in certain circumstances;
5. Requirement to obtain express, informed consent before any
charges; and
6. Recordkeeping.
In the following analysis, we describe the anticipated impacts of
the Final Rule. Where possible, we quantify the benefits and costs and
present them separately by provision. If a benefit or cost is
quantified, we indicate the sources of the data relied upon. If an
assumption is needed, the text makes clear which quantities are being
assumed.
A period of 10 years is used in the baseline scenario because FTC
rules are generally subject to review every 10 years.\524\ Quantifiable
aggregate benefits and costs across three different sets of assumptions
are summarized as the net present value over this 10-year time frame in
Table 1.1. Quantifiable benefits include time savings from a more
efficient shopping and sales process and a reduction in deadweight
loss, both of which ultimately result from greater transparency under
the Rule. Quantifiable costs primarily reflect the resources expended
by automobile dealers in developing the systems necessary to comply
with the provisions of the Rule. In addition, we expect additional
benefits and costs that we are presently unable to quantify. Among the
unquantified benefits are time savings that accrue to individuals who
abandon vehicle transactions entirely; additional time savings on
activities that individuals engage in digitally under the status quo;
reductions in deadweight loss resulting from direct price effects in
the markets for used vehicles or vehicle add-ons; and the benefit of
reduced stress, discomfort, and unpleasantness experienced by motor
vehicle consumers under the status quo. Among the unquantified costs
would be any potential reductions in consumer information resulting
from changes in dealers' policies regarding marketing and
advertisements. The discount rate reflects society's preference for
receiving benefits earlier rather than later; a higher discount rate is
associated with a greater preference for benefits in the present. The
present value is obtained by multiplying each year's net benefit by a
discount factor a number of times equal to the number of years in the
future the net benefit accrues.\525\
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\524\ See Fed. Trade Comm'n, Notification of Intent to Request
Public Comment, Regulatory Review Schedule, 87 FR 47947 (Aug. 5,
2022), https://www.govinfo.gov/content/pkg/FR-2022-08-05/pdf/2022-16863.pdf.
\525\ While whole calendar years are used here for ease of
reference, this analysis estimates costs and benefits over a ten-
year period running from the Rule's effective date. For the purposes
of discounting, the Commission assumes that any upfront costs or
benefits occur immediately upon the effective date of the Rule and
are therefore not discounted. The Commission further assumes that
ongoing costs and benefits occur at the end of each period, such
that even ongoing costs/benefits that occur in year 1 are
discounted.
Table 1.1--Present Value of Net Benefits (in Millions), 2024-2033
--------------------------------------------------------------------------------------------------------------------------------------------------------
Low estimate Base case High estimate
-----------------------------------------------------------------------------------------------
3% Discount 7% Discount 3% Discount 7% Discount 3% Discount 7% Discount
rate rate rate rate rate rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
Benefits:
Time Savings........................................ $7,463 $6,145 $14,926 $12,290 $24,036 $19,790
Deadweight Loss Reduction........................... 568 468 1,298 1,069 2,307 1,899
-----------------------------------------------------------------------------------------------
Total Benefits.................................. 8,031 6,613 16,224 13,359 26,343 21,690
Costs:
Finance/Lease Total of Payments Disclosure.......... 296 246 296 246 117 98
Offering Price Disclosure........................... 46 46 46 46 0 0
Prohibition re: Certain Add-ons & Express, Informed 475 406 475 406 147 128
Consent............................................
[[Page 674]]
Prohibition on Misrepresentations................... 157 130 157 130 0 0
Recordkeeping....................................... 296 248 296 248 296 248
-----------------------------------------------------------------------------------------------
Total Costs..................................... 1,270 1,075 1,270 1,075 559 474
-----------------------------------------------------------------------------------------------
Net Benefits.................................... 6,761 5,538 14,954 12,284 25,784 21,216
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: ``Low Estimate'' reflects all lowest benefit estimates and high cost scenarios and ``High Estimate'' reflects all highest benefit estimates and
low cost scenarios. ``Base Case'' reflects base case benefit estimates and high cost scenarios. Not all impacts can be quantified; estimates only
reflect quantified costs and benefits.
B. Estimated Benefits of Final Rule
In this section, we describe the beneficial impacts of the Rule, by
(1) providing quantitative estimates where possible, (2) identifying
quantitative benefits that cannot be estimated at this time due to a
lack of data, and (3) describing benefits that can only be assessed
qualitatively. The benefits cut across multiple areas addressed by the
Rule and these benefits are impossible to identify separately by area.
As a result, we enumerate the benefits of the Rule not by provision,
but by category.
1. Consumer Time Savings When Shopping for Motor Vehicles
Several provisions of the Rule would benefit consumers by saving
them time as they complete motor vehicle transactions. Required
disclosures of relevant prices and prohibitions of misrepresentations,
inter alia, would save consumers time when shopping for a vehicle by
requiring the provision of salient, material information early in the
process and eliminating time spent pursuing misleading offers. The
Commission's enforcement record shows that consumer search and shopping
is sometimes influenced by unfair or deceptive advertising that draws
consumers to a dealership in pursuit of an advertised deal, only to
find out at some point later in the process (if at all) that the
advertised deal is not actually available to them.\526\ This bait-and-
switch advertising has the effect of wasting consumers' time traveling
to and negotiating with unscrupulous dealerships, time which would
otherwise be spent pursuing truthful offers in the absence of deception
and unfairness. If consumers are faced with hard constraints on their
time or other resources, this wasted time may mean that they are unable
to find the deal that best fits their needs and preferences.
Additionally, motor vehicle consumers frequently begin the process of
shopping for a motor vehicle (e.g., by visiting a dealership in
response to an ad or initiating negotiations in response to a quoted
price that is incomplete) and then later abandon the nascent
transaction entirely when additional information is revealed. In these
instances, consumers do not purchase or lease a vehicle at all. The
Rule would also save consumers time by avoiding these abandoned
transactions. However, because the Commission has been unable to
identify data to determine the quantity of such abandoned transactions
and the amount of time spent pursuing them, this benefit remains
unquantified in the analysis.
---------------------------------------------------------------------------
\526\ See SBP II.B-C.
---------------------------------------------------------------------------
Obviously, many consumers end up purchasing and leasing vehicles
under the status quo--either because full revelation of prices and
terms still results in a mutually beneficial transaction or because
full revelation never occurs and consumers are deceived into completing
a transaction that is not mutually beneficial. These consumers also
spend additional, unnecessary time discovering information that dealers
would be required to disclose earlier once the Rule is in effect. The
Commission expects the Rule's required disclosures and prohibitions
against misrepresentations to improve information flows and consumer
search efficiency, including but not limited to, addressing the
influence of deception and unfairness on consumer search and shopping
behavior.
The Commission's preliminary analysis estimated that the proposed
rule would allow consumers to spend 3 fewer hours completing each motor
vehicle transaction and result in (quantifiable) overall time savings
valued at between $30 billion and $35 billion. In this final regulatory
analysis, the Commission takes into account the effects of revisions to
the proposed rule and additional data, addresses industry comments, and
employs an alternative analytical approach with a sensitivity analysis.
This sensitivity analysis reflects a ``high-end'' estimate that
consumers will save as many as 3.3 hours per completed transaction; a
``base case'' estimate--representing the most likely scenario--that
consumers will save 2.05 hours per transaction; and a possible ``low-
end'' savings estimate of 1.02 hours. Using a 7% discount rate, these
time savings estimates result in a range of between $6.1 billion and
$19.8 billion in total savings, with a base case of $12.3 billion.
In its preliminary analysis, the Commission relied on results from
the 2020 Cox Automotive Car Buyer Journey study, which showed that
consumers spent roughly 15 hours researching, shopping, and visiting
dealerships for each motor vehicle transaction.\527\ Based on the
proposed rule provisions prohibiting misrepresentations and requiring
price transparency, the Commission assumed each consumer who
consummated a vehicle transaction would spend 3 fewer hours shopping
online, corresponding with dealerships, visiting dealer locations, and
negotiating with dealer employees. The 3 hours corresponded to 20% of
an average consumer's time spent on such activities in 2019 (pre-
COVID).
---------------------------------------------------------------------------
\527\ NPRM at 42037 & n.180.
---------------------------------------------------------------------------
The Commission received a number of comments emphasizing the
unnecessary time consumers must spend to ascertain the price and terms
when attempting to consummate a vehicle transaction. One group of
commenters, for example, asserted that ``[t]he most important factor
for consumers purchasing a vehicle is its price, yet the price is
almost impossible to ascertain without spending hours at the
dealership.'' \528\ Another group of commenters provided a compilation
of numerous consumer complaints, including many that described
consumers spending hours at a
[[Page 675]]
dealership trying to ascertain the final price and terms of the
transaction.\529\ The improved information flow under the Final Rule
will provide quantifiable benefits for consumers by reducing or
eliminating this unnecessary need to spend time penetrating opaque
pricing and terms, and will provide qualitative benefits by reducing
frustration and stress in the car buying process.
---------------------------------------------------------------------------
\528\ Comment of Am. for Fin. Reform et al., Doc. No. FTC-2022-
0046-7607.
\529\ Comment of Consumer Reps. et al., Doc. No. FTC-2022-0046-
7520 at 3, 11, 12, 16, 38 (including story from Illinois consumer
describing ``[spending] about 4 hours at the dealership while the
salesman kept changing the terms of the deal . . . .''; story from
Connecticut consumer describing how, ``[a]fter nearly three hours of
paperwork . . . I was finally presented with the official bill to
pay the balance. The price was now higher than the original adjusted
sticker.''; story from New Jersey consumer describing how, ``[a]fter
4 hours of negotiations . . . I finally got nearly the same price as
the verified offer [for the vehicle] but about $1000 less on my
trade-in[ ] (that was also part of the verified offer). The [dealer]
also added on Accessories `other products' [of] $474.00 . . . .'';
story from Texas consumer describing how ``[t]he [dealership]
finance manager kept me there for two hours, and said the deal was
done. I went to get my wife, when we got back the price had gone up
$3,000.00.'').
---------------------------------------------------------------------------
Some industry commenters questioned the appropriateness of the data
and assumptions used to quantify the time savings benefit. A number of
industry association commenters argued that the 15-hour figure did not
represent a reasonable base from which time savings attributable to the
Rule could be derived. One such commenter criticism asserted that the
publication from which it was sourced only surveyed consumers who used
the internet during research and shopping and therefore could not be
representative of the time spent by consumers who do not use the
internet. Still other commenters noted that additional data from the
same organization were available. The Commission disagrees that the 15-
hour estimate is an unreasonable base from which to derive time savings
from the Rule. While the Cox Automotive Study acknowledges only
internet users were surveyed, the study also indicates its ``[r]esults
are weighted to be representative of the buyer population.'' \530\
Also, while more recent data were available at the time of the analysis
for the NPRM, those data were from an extraordinary period (the COVID-
19 pandemic). The Commission expects that the data used for the
preliminary analysis are more representative of consumer experiences
over the analysis window than the more recent data. While not
dispositive, the limited data available since the NPRM was published
bears this hypothesis out. In the 2021 Cox Automotive Car Buyer Journey
Study, consumers spent roughly 12-and-a-half hours researching,
shopping, and visiting dealerships for each motor vehicle
transaction.\531\ In contrast, in the 2022 Car Buyer Journey study,
consumers spent roughly 14-and-a-half hours researching, shopping, and
visiting dealerships for each motor vehicle transaction.\532\ This
admittedly short trend suggests that the COVID-19 pandemic had a
significant effect on motor vehicle shopping, reducing the amount of
time the typical consumer spent on these activities, and that time
spent on these activities has already rebounded to previous
levels.\533\
---------------------------------------------------------------------------
\530\ 2020 Cox Automotive Car Buyer Journey, supra note 25, at
1.
\531\ See 2021 Cox Automotive Car Buyer Journey Study, supra
note 504, at 16.
\532\ See 2022 Car Buyer Journey, supra note 25, at 6.
\533\ Interestingly, consumer satisfaction with the car buying
process, as measured by this same survey, was highest during the
COVID-19 pandemic when the time spent on research, shopping, and
visiting dealerships was lowest, and has since dropped back to pre-
pandemic levels. 2022 Car Buyer Journey, supra note 25, at 5.
---------------------------------------------------------------------------
Another industry association commenter suggested that the figure
included categories of time use that could not conceivably be affected
by the proposed rule, such as online research into vehicle features,
and that attention should be restricted to time spent shopping. The
Commission finds that several provisions in the Rule clearly have the
potential to reduce time spent across most categories covered by the
15-hour figure, including the largest category (``Researching and
Shopping Online''). This category of time use would include comparing
listed vehicle prices across dealerships that, under the Rule, would be
transparent and comparable in a way that they were not in the status
quo, thus saving consumers time.
Some commenters also noted that the total base of transactions
reported in the preliminary analysis appeared to overstate the number
of transactions to which the proposed rule would apply. First,
commenters asserted that the 62.1 million transactions double-counted
new vehicle leases in the data source from which it was obtained (2019
National Transportation Statistics, Table 1-17). Second, commenters
asserted that the number included private party transactions that would
be entirely unaffected by the proposed rule. Finally, commenters argued
that the transactions number contained wholesale and fleet
transactions, where the amount of time spent researching, shopping, and
visiting dealers is likely to be substantially different relative to a
household consumer.
The Commission has verified that the source data were revised to
fix the erroneous double-counting of leases between the time they were
accessed by the Commission for the drafting of the preliminary analysis
and the time that comments were received. The final analysis uses the
revised data. In addition, in response to comments that private party
transactions should be excluded from the analysis, the Commission is
revising its analysis. Additional data would be necessary to quantify
any time savings benefits for wholesale and fleet transactions.
Accordingly, the Commission has excluded all transactions occurring
through non-retail channels from the final analysis.\534\
---------------------------------------------------------------------------
\534\ When the transaction volume from the preliminary analysis
is applied to the Commission's current methodology and sensitivity
analysis, time savings under the Final Rule ranges from a high-end
of $35 billion to a low-end of $11 billion, with a base case of $22
billion (assuming a 7% discount rate). In comparison, the
preliminary analysis computed savings under the proposed rule as
approximately $31 billion (also assuming a 7% discount rate). The
residual difference in base case savings is attributable to less
time saved per transaction--partially explained by additional
provisions in the NPRM that the Commission is not finalizing--as
well as updates to the underlying wages used to monetize the
consumer time savings.
---------------------------------------------------------------------------
A number of comments raised concerns about the foundations of the
3-hour time-savings assumption. One industry organization noted that
the Cox Automotive study cited in the NPRM does not itself address the
proposals in the NPRM (which the survey, of course, predated) and does
not estimate time savings.\535\ Another organization
[[Page 676]]
expressed confusion as to whether the assumption was intended as a flat
3-hour time savings or a 20% time savings, asserting that dynamism in
automotive retailing will likely lead to evolution in the total amount
of time spent shopping.
---------------------------------------------------------------------------
\535\ This same organization commissioned a study that was
recently released asserting the proposed rule would lead to an
increase in consumer transaction time. This survey, however, had
numerous methodological shortcomings rendering its results
unreliable. For example, the survey presented each respondent at the
outset with a leading statement telling them the rule would impose
``new duties [that] are expected to create additional monitoring,
training, forms, and compliance review responsibilities as well as a
modification of record keeping systems and coordination with outside
IT and other vendors'' and ``increase the time of a motor vehicle
transaction, inhibit online sales, limit price disclosures, and
increase customer confusion and frustration.'' Edgar Faler et al.,
Ctr. for Auto. Rsch., ``Assessment of Costs Associated with the
Implementation of the Federal Trade Commission Notice of Proposed
Rulemaking (RIN 2022-14214), CFR part 463'' 34-36 (2023), https://www.cargroup.org/wp-content/uploads/2023/05/CAR-Report_CFR-Part-463_Final_May-2023.pdf (introductory instructions on the survey
instrument sent to respondents). Moreover, the survey started with a
sample size of 60 dealers (id. at 7) in an industry with an
estimated 46,525 dealers, NPRM at 42,031 & n.154, but only 40
dealers actually completed responses to many key questions (id. at
29). The survey does not describe how these 40-60 dealers were
chosen. Although the survey estimates that the proposed rule would
require consumers to spend additional time on motor vehicle
transactions, this conclusion is based on the responses of just 40
dealers and included no consumers. Id. at 29-32. Moreover, the
survey report attributed much of this estimated increase to proposed
rule provisions that are not in the Final Rule. Id. at 25.
---------------------------------------------------------------------------
While the Commission believes its 3-hour time-saving assumption in
the NPRM remains reasonable, the Commission has conducted additional
analyses, the results of which demonstrate the positive net benefits of
the Rule even when applying more conservative assumptions around time
savings and adjusting for the removal of certain proposed provisions
from the NPRM.\536\ Using recent figures from Cox Automotive's Car
Buyer Journey 2019 study, the Commission notes that consumers who do
various activities in the vehicle buying process digitally (``digital
consumers'') save time at the dealership relative to those who do not
(``non-digital consumers'').\537\ The Commission's revised base case
time savings calculation assumes that only the fraction of consumers
who are not currently shopping digitally will experience time savings,
and that these savings will be proportional to the time savings found
in the Car Buyer Journey 2019 study for digital consumers.\538\ Because
the Commission expects the provisions of the Rule to emulate some of
the time-saving features of completing these activities digitally, the
time savings benefits of the Rule are assumed to be a proportion of the
time saved by status quo digital consumers, with the proportion
determined by how closely the status quo digital shopping experience is
expected to resemble the shopping experience for all consumers once the
Rule is in effect. Additionally, because these numbers only reflect
time saved at the dealership of purchase, we assume that these same
consumers will also save time on these activities to the extent that
they are initiated at dealerships visited prior to the dealership at
which they purchase (``non-purchase dealerships''). Based on 2020 data
from Cox Automotive, the average consumer visits 1 non-purchase
dealership for each transaction.\539\ Table 2.1 documents both the
fraction of consumers performing activities digitally under the status
quo and the time saved at the dealership by these consumers on each
activity.
---------------------------------------------------------------------------
\536\ In fact, the sensitivity analysis in Table 2.3 of this
final regulatory analysis presents a range of reasonable estimates
for time savings that includes the 3-hour time-saving assumption
from the preliminary analysis in the NPRM.
\537\ Cox Auto. et al., ``Car Buyer Journey 2019'' (2019)
[hereinafter Car Buyer Journey 2019], https://www.coxautoinc.com/wp-content/uploads/2019/06/2019-Car-Buyer-Journey-Study-FINAL-6-11-19.pdf. While Cox Automotive has released subsequent Car Buyer
Journey studies, none of these subsequent studies quantify time
savings from shopping digitally. In addition, to the extent that
shoppers compensate by spending more time at home on these
activities, these time savings should be reduced to reflect net time
savings from performing these activities digitally. We believe that
the nature of performing these activities digitally vs. at the
dealership suggests these offsets should be small.
\538\ The 2020 Cox Automotive Digitization of End-to-End Retail
study reports the fraction of consumers who are already engaging in
various activities online under the status quo. Cox Auto.,
``Digitization of End-to-End Retail'' (2021) [hereinafter
Digitization of End-to-End Retail], https://www.coxautoinc.com/wp-content/uploads/2021/01/2020-Digitization-of-End-to-End-Retail-Study-FINAL.pdf. While the activities listed across studies do not
match perfectly, we map the activity categories to the closest
corresponding activity in the other study and, in our final
analysis, exclude from the time savings calculation the percentage
of transactions corresponding to the fraction of consumers already
engaging in that activity online. While it is likely that consumers
shopping digitally under the status quo will also experience some
additional time savings under the Rule, there is insufficient data
to estimate this marginal savings and so we leave this benefit
unquantified in the analysis.
\539\ 2020 Cox Automotive Car Buyer Journey, supra note 25, at
15 (noting an average of 2.2 dealerships visited among new car
buyers).
Table 2.1--Completing Activities Digitally
------------------------------------------------------------------------
Time saved at
% of Consumers dealership (2019
Activity digital (2020 journey)
digitization) (minutes)
------------------------------------------------------------------------
Negotiating the Purchase Price.... 20 43
Select F&I Add-Ons................ 18 33
Discussing and Signing Paperwork.. 13 45
Get a Trade-In Offer.............. 31 26
------------------------------------------------------------------------
Source: Car Buyer Journey 2019 and Digitization of End-to-End Retail.
Based on the description of these activities and the anticipated
effects of the Rule, our base case estimates assume that non-digital
consumers will save an amount of time negotiating a vehicle purchase
price equal to the amount of time saved by those negotiating purchase
price digitally under the status quo (43 minutes). For non-digital
consumers, it is currently time-consuming to obtain comparable price
quotes from dealerships. Many dealerships will not initiate price
negotiations in earnest without a competing price quote in writing,
which can only be obtained by visiting a dealership for the non-digital
consumer. Mandating offering price disclosures--which are comparable
across dealerships by definition--early in the shopping process will
emulate the price discovery function of negotiating prices online, in
which comparable price quotes can be obtained (with effort) via
email.\540\
---------------------------------------------------------------------------
\540\ Shoppers who negotiate purchase price digitally under the
status quo will likely also obtain time savings from mandatory
offering price disclosures, corresponding to the time and effort
they put into contacting and exchanging email with dealerships. We
lack sufficient data on the time spent on these activities to
quantify these benefits, however.
---------------------------------------------------------------------------
The Commission anticipates that the impact of the Rule on time
spent selecting F&I add-ons and discussing and signing paperwork will
be moderate. In our base case estimates, non-digital consumers will
save an amount of time doing these activities equal to the half the
amount of time saved by those doing these activities digitally under
the status quo (33 x 0.5 = 16.5 minutes and 45 x 0.5 = 22.5 minutes,
respectively). Time saved selecting add-ons flows primarily from the
prohibitions on various misrepresentations, the mandatory disclosures
regarding whether add-ons are required, and the prohibition on charging
for add-ons under certain circumstances.\541\ Time saved discussing and
signing paperwork also flows from the prohibitions on various
misrepresentations, several disclosures mandated by the Rule, and the
[[Page 677]]
prohibition on charging for items without express, informed
consent.\542\ For non-digital consumers, considerable time must be
spent at the dealership both closely reviewing paperwork (e.g., to
ensure that unwanted optional add-ons are not being added to the
transaction; to ensure that the financing terms, including monthly
payments, total payments, and term length, are as expected; and to
confirm that terms in the contract generally conform to what was
discussed) and waiting for sales and F&I staff at the dealership to
consult with managers and revise paperwork as needed. Digital
consumers, however, may have access outside the dealership to add-on
menus where they can select their desired F&I products affirmatively
without worry that dealership staff will misrepresent the products or
pressure them into selecting something unwanted. In addition, digital
consumers may receive and review paperwork before arriving at the
dealership. This way, any necessary revisions can be performed by the
dealership asynchronously so that the consumer is free to spend that
time as they wish instead of being stuck in an F&I office. The noted
Rule provisions will give consumers confidence that the add-on options
presented to them are non-deceptive and the contract paperwork they are
asked to review will not yield any unpleasant surprises. As a result,
on average they will neither need to engage in such close scrutiny of
their contract documents, nor spend as much time waiting for dealership
staff to speak to managers or make changes as the first draft will be
more likely to conform to their expectations.\543\
---------------------------------------------------------------------------
\541\ See Sec. Sec. 463.3(a), (b), and (f); 463.4(c); and
463.5(a) and (c). The Commission notes that time savings would
likely be higher in this category had it determined to finalize
proposed Sec. 463.4(b), which would have required disclosure of an
add-on list.
\542\ See Sec. Sec. 463.3; 463.4(c), (d), and (e); and Sec.
463.5(c).
\543\ Again, status quo digital shoppers will likely obtain time
savings on these activities as well, to the extent that their
paperwork will also be less likely to require close scrutiny and
revisions. We lack sufficient data on the time spent on these
activities to quantify these benefits, however.
---------------------------------------------------------------------------
The Commission assumes that the Rule will likely not assist
consumers much (if at all) in reducing time spent obtaining a trade-in
offer. In our base case estimates, we assume non-digital consumers will
not save additional time on obtaining a trade-in offer under the Rule.
There are various provisions in the Rule that touch trade-in offers
made by dealerships \544\ and may increase consumer confidence in
dealer contracts as discussed previously. In addition, trade-in values
are an important piece of transaction pricing, so greater price
transparency may save consumers time on the trade-in aspect of
transactions that involve them. There is a concern, however, that
dealers may spend more time trying to extract maximum value out of any
given trade-in opportunity once the Rule is in effect. Because the
Commission believes that greater transparency in vehicle pricing and
add-ons will lead to reduced markups on these products (see
``Reductions in Deadweight Loss''), it is possible that dealers will
attempt to make up these lost profits by maximizing trade-in margins,
which may lead to increased time spent on negotiations. Since we do not
have sufficient data to determine the balance of these two effects, we
assume in the base case that they offset. In sensitivity analyses where
we explore alternative assumptions, note that time savings from this
activity only apply to the roughly 50% (by one estimate) of vehicle
purchase transactions at dealerships where consumers trade in a
vehicle.\545\
---------------------------------------------------------------------------
\544\ See Sec. Sec. 463.3(i) and (j); 463.4(d).
\545\ See Progressive, ``Consumers embrace online car buying,''
http://www.progressive.com/resources/insights/online-car-buying-trends/ (last visited Dec. 5, 2023).
---------------------------------------------------------------------------
Finally, data from the 2021 Cox Automotive Car Buyer Journey Study
reveal that consumer time spent at non-purchase dealerships is roughly
82% of the time spent at the dealership of purchase.\546\ Additionally,
the average consumer visits 1 non-purchase dealership for each
transaction, so under the dual assumptions that (1) the proportions of
time spent at dealerships across these activities is consistent across
purchase and non-purchase dealerships and (2) the noted time savings
are constant as a fraction of time spent, we multiply the time savings
numbers by this ratio to obtain the additional time saved at non-
purchase dealerships.
---------------------------------------------------------------------------
\546\ See 2021 Cox Automotive Car Buyer Journey Study, supra
note 504, at 16 (noting total time of 2:09 spent ``Visiting Other
Dealerships/Sellers'' and total time of 2:37 spent ``With the
Dealership/Seller Where Purchased'').
---------------------------------------------------------------------------
Proceeding as in the preliminary analysis, we assume that motor
vehicle purchase, financing, and lease transactions will be stable at
the 2019 level of 57.9 million transactions per year.\547\ As discussed
previously, the final analysis excludes private party, fleet, and
wholesale transactions. According to Edmunds Automotive Industry Trends
2020, 19.3% of new vehicle sales in 2019 were fleet sales.\548\ This
fraction of the 17.1 million new vehicle sales and leases in the data
are excluded from the analysis. An Automotive News article from January
2023 (citing data from Cox Automotive) states that 48% of all used
vehicle sales occurred outside of the retail channel.\549\ As with new
vehicle sales, this fraction of the 40.8 million used vehicle
transactions in the data are excluded from the analysis. Adding up the
covered transactions (35 million) \550\ and applying the time savings
calculated from the base case assumptions, we anticipate that the Rule
will generate a total time savings of more than 72 million hours per
year. According to the Bureau of Labor Statistics Occupational
Employment Statistics, the average hourly wage of U.S. workers in 2021
was $29.76, and recent research suggests that individuals living in the
U.S. value their non-work time at 82% of average hourly earnings.\551\
Thus, the value of non-work time for the average U.S. worker would be
$24.4 per hour. As a result, our final analysis refines the estimate to
a present value of between $12.3 billion and $14.9 billion as described
in Table 2.2, which translates to savings of roughly $1.75 billion per
year.\552\
---------------------------------------------------------------------------
\547\ See U.S. Dep't. of Transp., Off. of the Sec'y of Transp.,
Bureau of Transp. Stat., ``National Transportation Statistics 2021,
50th Anniversary Edition'' 21 (2021), https://www.bts.dot.gov/sites/bts.dot.gov/files/2021-12/NTS-50th-complete-11-30-2021.pdf (Table 1-
17).
\548\ See Edmunds, ``Automotive Industry Trends 2020'' 7 (2020),
https://static.ed.edmunds-media.com/unversioned/img/industry-center/insights/2020-automotive-trends.pdf.
\549\ See Auto. News, ``Used-vehicle volume hits lowest mark in
nearly a decade'' (Jan. 13, 2023), https://www.autonews.com/used-cars/used-car-volume-hits-lowest-mark-nearly-decade (estimating
19,100,000 of used vehicle sales in the year 2022 occurred within
the retail channel). The same Automotive News source reports a total
used vehicle sales number of approximately 40 million for 2019. Id.
The conclusions of the analysis are robust to using this total
figure instead.
\550\ A recent report by the Center for Automotive Research
estimates that there approximately 43 million non-fleet, non-private
party sales in 2019 based on privately sourced data. Edgar Faler et
al., Ctr. for Auto. Rsch., ``Assessment of Costs Associated with the
Implementation of the Federal Trade Commission Notice of Proposed
Rulemaking (RIN 2022-14214), CFR part 463'' 5 (2023), https://www.cargroup.org/wp-content/uploads/2023/05/CAR-Report_CFR-Part-463_Final_May-2023.pdf. While this would result in a savings
estimate approximately 22% higher, the Commission relies on its
analysis of the publicly available data described herein.
\551\ Daniel S. Hamermesh, ``What's to Know About Time Use? ''
30 J. Econ. Survs. 198, 201 (2016), https://onlinelibrary.wiley.com/doi/epdf/10.1111/joes.12107.
\552\ Note that we assume only one consumer is involved in each
transaction; to the extent that multiple members of a household may
visit dealerships for each transaction, these calculations are
likely to underestimate the total time savings.
[[Page 678]]
Table 2.2--Estimated Benefits of Time Savings for Completed Transactions
------------------------------------------------------------------------
2024-2033
------------------------------------------------------------------------
Completed Transactions
------------------------------------------------------------------------
Avg. minutes saved at
dealership of purchase/other
dealers (by activity): \a\
Negotiating the Purchase ................ 34/28
Price.
Select F&I Add-Ons....... ................ 14/11
Discussing and Signing ................ 20/16
Paperwork.
Get a Trade-In Offer..... ................ 0/0
Hours saved per transaction.. ................ 2.05
Number of covered vehicle ................ 34,986,253
transactions per year \b\.
Value of time for vehicle- ................ $24.40
shopping consumers \c\.
------------------------------------------------------------------------
Abandoned Transactions Unquantified
------------------------------------------------------------------------
Total Quantified Benefits (in 3% discount rate $14,926
millions).
Total Quantified Benefits.... 7% discount rate $12,290
------------------------------------------------------------------------
Note: Benefits have been discounted to the present at both 3% and 7%
rates.
\a\ Averages are across all retail transactions; transactions where
consumers performed activity digitally under the status quo will have
a time savings of 0 for that activity.
\b\ For total volume, National Transportation Statistics Table 1-17. For
retail/non-fleet fraction, Edmunds Automotive Industry Trends 2020
(for new vehicles), supra note 548548, and Cox Automotive via
Automotive News (for used vehicles), supra note 549549.
\c\ BLS Occupational Employment Statistics (May 2022) and Hamermesh
(2016).
Due to the uncertainty surrounding how the Rule will translate into
time savings for consumers and to which activities it will most
strongly apply, we explore a range of alternative assumptions regarding
what fraction of the documented time savings digital consumers
experience will be received by non-digital consumers under the Rule. In
our low-end scenario, we assume that the Rule will result in half the
consumer time savings of the base case. In our high-end scenario, we
assume that all the time savings experienced by digital consumers under
the status quo--including time saved getting a trade-in offer--will be
received by non-digital consumers under the Rule. The low-end
assumptions correspond to a total time savings of more than 35.85
million hours per year while the upper bound assumptions correspond to
a total time savings of more than 115.47 million hours per year. The
results of this analysis are presented in Table 2.3. Importantly, over
the whole range of these alternative assumptions we find that benefits
exceed costs. In fact, holding other benefit and cost estimates
constant, the time savings generated by the Rule could be de minimis
and the implied benefits would still exceed the costs. While there are
some activities in the car buying process that the Rule may not affect
(e.g., test driving vehicles, etc.), the data discussed suggest that
there is ample room for the Rule to eliminate unnecessary time across
various activities. And even though digital consumers spend less time
on these activities, results across several studies suggest that this
reduction in time leads to a better experience for consumers.\553\
---------------------------------------------------------------------------
\553\ See Car Buyer Journey 2019, supra note 537, at 9
(Consumers who negotiate (88% vs. 64%) and complete paperwork online
(74% vs. 65%) are more satisfied with their dealership experience.);
2022 Car Buyer Journey, supra note 25, at 22 (``More [financing]
steps completed online = higher satisfaction & less time at the
dealership''); Cox Auto., ``Cox Automotive Car Buyer Journey Study:
Pandemic Edition'' 22 (2021), https://www.coxautoinc.com/wp-content/uploads/2021/02/Cox-Automotive-Car-Buyer-Journey-Study-Pandemic-Edition-Summary.pdf (``Heavy Digital Buyers were the Most
Satisfied'').
Table 2.3--Sensitivity Analysis of Time Savings
----------------------------------------------------------------------------------------------------------------
Low end Base case High end
----------------------------------------------------------------------------------------------------------------
Avg. minutes saved at dealership of
purchase/other dealers (by activity):
\a\
Negotiating the Purchase Price.... ........................ 17/14 34/28 34/28
Selecting F&I Add-Ons............. ........................ 7/6 14/11 27/22
Discussing and Signing Paperwork.. ........................ 10/8 20/16 39/32
Get a Trade-In Offer.............. ........................ 0/0 0/0 18/15
Hours saved per transaction \b\....... ........................ 1.02 2.05 3.3
-----------------------------------------------
Total Quantified Benefits (in 3% discount rate........ $7,463 $14,926 $24,036
millions).
Total Quantified Benefits............. 7% discount rate........ $6,145 $12,290 $19,790
----------------------------------------------------------------------------------------------------------------
Note: Benefits have been discounted to the present at both 3% and 7% rates.
\a\ Averages are across all retail transactions; transactions where consumers performed activity digitally under
the status quo will have a time savings of 0 for that activity.
\b\ Time savings for ``Get a Trade-In Offer'' assumed to be zero for lease transactions or sales without trade-
ins (estimated at 50%).
2. Reductions in Deadweight Loss
The status quo in this industry features consumer search frictions,
shrouded prices, deception, and obfuscation. As a result, dealers
likely charge higher prices for a number of products and services than
could be supported once the Rule is in effect. Recent research suggests
that when
[[Page 679]]
consumers are able to observe prices for vehicles before visiting
dealerships--as is intended by the Rule--prices and dealer profits are
likely to fall.\554\ When not accompanied by changes in quantity (due
to a fixed supply of the good), price adjustments serve to transfer
welfare from one side of the market (e.g., dealers) to the other (e.g.,
consumers), which typically have no net effect on the outcome in a
regulatory analysis.\555\ A decrease in vehicle prices, however, will
likely also lead to an increase in the number sold as the supply is not
fixed. As a result, this quantity expansion effect unambiguously
increases welfare by reducing the deadweight loss that occurs when
firms can charge prices that are marked up over marginal costs.
---------------------------------------------------------------------------
\554\ Marco A. Haan et al., ``A Model of Directed Consumer
Search,'' 61 Int'l J. Indus. Org. 223, 223-55 (2018), https://doi.org/10.1016/j.ijindorg.2018.09.001; Jos[eacute] Luis Moraga-
Gonzalez et al., ``Consumer Search and Prices in the Automobile
Market.'' 90 Rev. Econ. Stud. 1394-1440 (2023), https://doi.org/10.1093/restud/rdac047.
\555\ See Off. of Mgmt. & Budget, Exec. Off. of the President,
``Circular A-4'' 38 (2003), https://www.transportation.gov/sites/dot.gov/files/docs/OMB%20Circular%20No.%20A-4_0.pdf: ``A regulation
that restricts the supply of a good, causing its price to rise,
produces a transfer from buyers to sellers. The net reduction in the
total surplus (consumer plus producer) is a real cost to society,
but the transfer from buyers to sellers resulting from a higher
price is not a real cost since the net reduction automatically
accounts for the transfer from buyers to sellers.'' To the extent
any price changes caused by the Rule result in transfers to
consumers from dealers who were in violation of existing laws, such
transfers would be consistent with the agency's mission of providing
redress to injured consumers and its history of doing so in
enforcement actions.
---------------------------------------------------------------------------
3. Framework
When a policy reduces the price of a good--either through a
reduction in firm costs or, as in this case, a reduction in firm market
power--the quantity of the good sold will typically increase. If a
distortion exists in the market causing the product in question to be
sold at a price above the marginal (social) cost of production (e.g., a
tax, an externality, or a markup enabled by market power), this
quantity expansion has the effect of reducing deadweight loss in that
market. In the simple case where there is one good subject to the
policy and that good has no close substitutes or complements, this
welfare effect can be easily illustrated as in Figure 1.
[GRAPHIC] [TIFF OMITTED] TR04JA24.001
The solid line reflects the demand for the good, where some
quantity is purchased at a market price of p0 (point A),
which is higher than marginal costs (MC). Because of this wedge between
price and marginal costs, there is a reduction in welfare relative to
the outcome where prices equal marginal costs; this deadweight loss is
illustrated on the graph by the bordered triangle (ACD). Holding
everything else constant, when prices fall from p0 to
p1, this deadweight loss is reduced to some extent. Part of
this increase in welfare will go to consumers, and part will go to
producers.
Imagine that this graph depicts the market for new automobiles. The
Final Rule will increase price competition, thus reducing market power
and shifting prices closer to marginal costs in the new automobile
market. If this market satisfied the criteria for the simple case
described herein (i.e., no close substitutes or complements), the only
data we would need to estimate this change in total welfare would be
the predicted change in price, the predicted change in quantity (which
can be calculated from an estimate of the slope or elasticity of the
demand curve for new vehicles), and some information or assumption
about the shape of the demand curve between points A and B. Of course,
the new automobile market is closely linked to the used automobile
market, so this simple picture does not capture the entire story.
When a good has a close substitute (like used versus new vehicles),
a price decrease for that good will cause demand for the related good
to decrease. Also, in the case of automobiles, there is a long-run link
between the new and
[[Page 680]]
used vehicle markets as a new vehicle purchased today becomes a
potentially available used vehicle tomorrow. These linkages between the
markets will dampen the demand response to any given price change in
the primary market. In practice, this means that our estimates of the
responsiveness of new vehicle purchases to price changes (i.e., the
price elasticity of demand for new vehicles) will overstate the change
in quantity resulting from a change in prices, because such estimates
typically assume that all other prices remain constant. In addition, if
there are distortions present in the market for related goods (i.e.,
used vehicles are also sold at a markup over marginal costs) only
examining the welfare effect in the primary market will understate the
total welfare effect, as there will be an analogous reduction in
deadweight loss in the market for the related good. These linkages
between markets for related goods become difficult to explain
graphically. However, we have included in the technical appendix an
algebraic derivation of the total welfare effect in new and used
vehicle markets resulting from the finalization of the Rule. The
resulting formula requires estimates of seven parameters in order to
compute the welfare effect: two ``policy elasticities'' that reflect
the responsiveness of quantities of new and used vehicles sold to a
change in prices in the new vehicle market after all adjustments have
occurred in both markets, two baseline markups that represent the
differences between prices and marginal costs for new and used
vehicles, two quantities that reflect the aggregate costs of all new
and used vehicles sold under the status quo, and the predicted change
in prices due to the Rule.
4. Estimation
To obtain ``policy elasticities'' we reference a U.S. Environmental
Protection Agency report titled ``The Effects of New-Vehicle Price
Changes on New- and Used-Vehicle Markets and Scrappage'' (``EPA
Report'').\556\ In this report, the authors ``developed a theoretical
model of the relationships between new- and used-vehicle markets,
scrappage, and total vehicle inventory'' that allows for simulation of
prices and quantities in these markets. The model is calibrated using a
range of demand elasticity estimates from a review of the relevant
literature on auto markets. The resulting simulations examine the long-
run ``steady state'' of vehicle inventories and demand, accounting for
cross-market demand effects as well as the endogenous supply of used
vehicles resulting from changes in demand for new vehicles in previous
periods. Importantly, among the outputs of their simulations are the
``policy price elasticities'' required by our welfare change formula.
Our base case estimates of deadweight loss reduction use the long-run
policy price elasticities that result from calibrating the model with
the EPA Report's intermediate values for the aggregate new vehicle and
outside option demand elasticities, but we explore sensitivity to other
calibration scenarios.
---------------------------------------------------------------------------
\556\ Assmt. & Standards Div., Ofc. of Transp. & Air Quality,
U.S. Env't Prot. Agency, ``The Effects of New-Vehicle Price Changes
on New- and Used-Vehicle Markets and Scrappage'' (2021), https://cfpub.epa.gov/si/si_public_file_download.cfm?p_download_id=543273&Lab=OTAQ.
---------------------------------------------------------------------------
To obtain baseline estimates of new-vehicle markups, we refer to a
recent paper entitled ``The Evolution of Market Power in the US
Automobile Industry'' by Paul Grieco, Charles Murry, and Ali
Yurukoglu.\557\ The authors specify a model of the U.S. new car
industry to explore trends in concentration and markups. The authors
find that markups in the industry have been falling over time
generally, but have been fairly stable since the early 2000s.\558\ As
our baseline, we use their most recent estimate of industry markups,
which was 15% in 2018.\559\ While this estimate reflects markups over
production costs by manufacturers and not markups over wholesale prices
paid by dealers, it is the wedge between retail price and production
cost that matters for welfare. As we are unaware of any publicly
available data measuring used-vehicle markups, we explore two
alternatives that we believe reflect the limiting cases: (1) used
vehicles have no markup and (2) used-vehicle markups are the same as
new-vehicle markups.
---------------------------------------------------------------------------
\557\ See Paul L. E. Grieco et al., ``The Evolution of Market
Power in the US Automobile Industry'' (2022), mimeo.
\558\ Paul L. E. Grieco et al., ``The Evolution of Market Power
in the US Automobile Industry'' 19 (2022), mimeo.
\559\ Paul L. E. Grieco et al., ``The Evolution of Market Power
in the US Automobile Industry'' 19 (2022), mimeo.
---------------------------------------------------------------------------
We obtain both quantities of new- and used-vehicles sold as well as
average prices from National Transportation Statistics, Table 1-17. As
before, we exclude private party, fleet, and wholesale transactions.
This exclusion is likely to bias our estimate of the total welfare
effect downward because, unlike the time savings benefits of the Rule
which may be restricted to dealer-consumer transactions, the price
effects of the Rule are likely to carry over to private party and fleet
transactions. Using these aggregate figures along with an estimate of
baseline markups, we estimate the aggregate cost of new- and used-
vehicles sold in 2019.\560\
---------------------------------------------------------------------------
\560\ Aggregate cost of good i is equal to (1-[mu]i) x pi x Qi,
where [mu]i, pi, and Qi are the markup, price, and quantity sold of
good i, respectively.
---------------------------------------------------------------------------
Finally, based on the academic literature on search costs in the
automobile market, the Rule is expected to reduce prices of new
vehicles by reducing the markup that dealers are able to charge over
marginal costs. We have identified two papers that empirically estimate
the effect of price transparency or reduced search frictions on auto
markups by specifying a structural model of the new-vehicle market,
estimating the structural parameters, and then conducting
counterfactual simulations where search frictions are reduced. Murry
and Zhou (2020) simulate a full information counterfactual in the Ohio
automobile market where search frictions are eliminated entirely and
find that markups are reduced by $333.\561\ Moraga-Gonzalez et al.
(2022) simulate a counterfactual in the Dutch automobile market where
prices are observed prior to costly consumer search (i.e., visiting
dealerships) and find that markups are reduced from 40.52% to
32.59%.\562\ For our base case estimates, we use the smaller Murry and
Zhou (2020) estimate, primarily because their model is estimated using
U.S. data consistent with our setting. However, we note that Moraga-
Gonzalez et al. offers evidence to suggest that significantly larger
changes in markups may result from the Rule.
---------------------------------------------------------------------------
\561\ Charles Murry & Yiyi Zhou, ``Consumer Search and
Automobile Dealer Colocation,'' 66 Mgmt. Sci. 1909-1934 (2020),
https://doi.org/10.1287/mnsc.2019.3307.
\562\ Jos[eacute] Luis Moraga-Gonzalez et al., ``Consumer Search
and Prices in the Automobile Market,'' 90 Rev. Econ. Stud. 1394-1440
(2022), https://doi.org/10.1093/restud/rdac047.
---------------------------------------------------------------------------
Using these parameters obtained from the literature in combination,
we implement the formula for the change in total welfare given in the
technical appendix. For each market--new and used--the formula
multiplies the policy price elasticity by the percent change in price
to get the percent change in quantity, and then multiplies this by the
aggregate markup (as given by the price-cost markup \563\ at baseline
times the aggregate cost of baseline transactions) to get the
approximate change in total welfare per year. As an example, our base
case estimate assumes a policy
[[Page 681]]
price elasticity of new-vehicle demand of -0.25, a policy price
elasticity of used-vehicle demand (with respect to new-vehicle price)
of -0.04, and used car markups equal to new car markups (15%),
resulting in the following calculation:
---------------------------------------------------------------------------
\563\ The baseline new vehicle markup estimate of 15% is defined
as the ratio of the price-cost margin to unit price, i.e. (pi-MCi)/
pi, and is sometimes referred to as the Lerner index. With knowledge
of either price or marginal cost, this can be rearranged to express
the price-cost markup, i.e. (pi-MCi)/MCi, which is used in the
formula referenced here.
[GRAPHIC] [TIFF OMITTED] TR04JA24.002
This annual reduction in deadweight loss is then applied to each
year of the 10-year analysis period and discounted to the present to
yield the total benefit. We highlight this base case (bolded in Table
2.4) but explore several scenarios that vary along two dimensions: (1)
the ``policy elasticity'' of new- and used-vehicle demand with respect
to the change in price and (2) the existence of baseline markups in the
used-vehicle market. In Table 2.4, baseline markups for used vehicles
vary across columns while the relevant policy price elasticities vary
across rows: Scenario A corresponds to new-/used-vehicle elasticities
of -0.14 and 0.01, Scenario B corresponds to new-/used-vehicle
elasticities of -0.17 and -0.04, Scenario C corresponds to new-/used-
vehicle elasticities of -0.23 and -0.10, and Scenario E corresponds to
new-/used-vehicle elasticities of -0.39 and -0.12.
Table 2.4--Reduction in Deadweight Loss (in Millions), 2024-2033
----------------------------------------------------------------------------------------------------------------
No used-vehicle markups Symmetric markups
---------------------------------------------------------------------------
Scenario Total @ 3% Total @ 7% Total @ 3% Total @ 7%
discount discount discount discount
----------------------------------------------------------------------------------------------------------------
A................................... $617 $508 $568 $468
B................................... 749 617 945 778
C................................... 1,014 835 1,504 1,238
D................................... 1,102 907 1,298 1,069
E................................... 1,719 1,415 2,307 1,899
----------------------------------------------------------------------------------------------------------------
Note: Benefits have been discounted to the present at both 3% and 7% rates. Scenarios correspond to those in
Table 7-2 of ``The Effects of New-Vehicle Price Changes on New- and Used-Vehicle Markets and Scrappage.'' New-
vehicle demand elasticities range from -0.4 (Scenarios A, B, and C) to -0.8 (Scenario D) to -1.27 (Scenario
E). Outside option elasticities vary from 0 (Scenario A) to -0.05 (Scenarios B and D) to -0.14 (Scenarios C
and E). New/Used cross-price elasticities are set such that substitution away from new vehicles flows almost
entirely to used-vehicles, with only small effects on the total number of vehicles. All scenarios hold
scrappage elasticity fixed at -0.7.
5. Benefits Related to More Transparent Negotiation
An additional, albeit difficult to quantify, benefit is the
reduction in discomfort and unpleasantness that consumers associate
with negotiating motor vehicle transactions under the status quo.
According to the 2020 Cox Automotive Car Buyer Journey study, filling
out paperwork, negotiating vehicle price, and dealing with salespeople
are three of the top four frustrations for consumers at car
dealerships.\564\ Once the Rule is in effect, all three of these issues
will be mitigated somewhat by the transparency facilitated by the
Rule's required disclosures and the time that consumers spend shopping
and negotiating motor vehicle transactions will be less stressful.
While we expect an increase in social welfare through this channel, due
to a lack of data allowing this more qualitative benefit to be
translated into a quantitative gain, these benefits are left
unquantified in the analysis.
---------------------------------------------------------------------------
\564\ 2020 Cox Automotive Car Buyer Journey, supra note 25, at
37.
---------------------------------------------------------------------------
C. Estimated Costs of Final Rule
In this section, we describe the costs of the Rule provisions as
enumerated in SBP VII.A, provide quantitative estimates where possible,
and describe costs that we can only assess qualitatively. Some industry
commenters questioned the appropriateness of the data and assumptions
used in the NPRM, including the discussion of costs in the preliminary
regulatory analysis. The Commission used a variety of data sources in
its calculations for the NPRM and in the Rule, including wage data from
the Bureau of Labor Statistics Occupational Employment Statistics,
establishment counts from U.S. Census County Business Patterns,
transaction counts from National Transportation Statistics, and
breakdowns of motor vehicle transactions (e.g., by financing, GAP
agreement, F&I add-ons) from numerous industry sources. Where such data
was not available (e.g., regarding time devoted to compliance tasks),
the Commission made assumptions based on a review of previous
regulatory analyses that featured similar requirements, with
adjustments made based on our understanding of the particulars of motor
vehicle dealer operations.\565\
---------------------------------------------------------------------------
\565\ See, e.g., Off. of the Sec'y, Dep't of Transp., Dkt. No.
DOT-OST-2010-0140, ``Enhancing Airline Passenger Protections II--
Final Regulatory Analysis'' (Apr. 20, 2011), https://www.regulations.gov/document/DOT-OST-2010-0140-2046.
---------------------------------------------------------------------------
Throughout this section, the cost of employee time is monetized
using wages obtained from the Bureau of Labor Statistics Industry-
Specific Occupational Employment and Wage Estimates for Automobile
Dealers.\566\
[[Page 682]]
This is valid under the assumption that the opportunity cost of hours
spent in compliance activities is hours spent in other productive
activities, the social value of which is summarized by the employee's
wage.\567\ To the extent that these activities can be accomplished
using time during which employees would otherwise be idle under the
status quo, our estimates will overstate the welfare costs of the Rule.
---------------------------------------------------------------------------
\566\ Applicable wage rates for the Commission's preliminary
regulatory analysis, which was published in its NPRM, were based on
data from the Bureau of Labor Statistics' May 2020 National
Industry-Specific Occupational Employment and Wage Estimates for
NAICS industry category 441100--Automobile Dealers, which is
available at https://www.bls.gov/oes/2020/may/oes_nat.htm. Labor
rates in the present analysis have been updated based on data from
the Bureau of Labor Statistics' May 2022 National Industry-Specific
Occupational Employment and Wage Estimates for NAICS industry
category 441100--Automobile Dealers, which is available at https://www.bls.gov/oes/current/naics4_441100.htm.
\567\ This assumption would hold, for example, if both the
product and labor markets in this industry were competitive.
---------------------------------------------------------------------------
1. Prohibited Misrepresentations
In its preliminary analysis, the Commission presented two scenarios
that estimated the costs associated with the Rule provisions
prohibiting misrepresentations. First, as all the misrepresentations
prohibited by the Rule are material and therefore deceptive under
section 5 of the FTC Act, one scenario assumed that all motor vehicle
dealers are compliant with section 5 under the status quo and will
therefore conduct no additional review.
The second scenario allowed for costs incurred by firms because of
the enhanced penalty associated with violating the Rule (relative to a
de novo violation of section 5 of the FTC Act) under the assumption
that dealers may expend additional resources to ensure compliance. This
``heightened compliance review'' scenario assumed that each of the
46,525 dealers would have a professional spend 5 additional minutes
reviewing each public-facing representation (assumed to be 150 per year
on average). At a labor rate of $26.83 per hour for compliance officers
employed at auto dealers, this cost was estimated to be $15.6 million
per year.
The Commission received comments about the appropriateness of the
data and assumptions used to estimate the cost of complying with this
provision of the Rule. The most specific criticism contended that the
number of documents dealers would need to review would be ``several
times'' the 150 assumed and that review would require at least 15
minutes per document because ``dealers typically do not fully control
the advertising platforms they use given the direct involvement of the
vehicle OEMs . . . and that of other third parties. Also, many dealers,
and especially small business dealers do not employ internal compliance
officers or attorneys who could conduct marketing reviews.'' \568\
---------------------------------------------------------------------------
\568\ Comment of Nat'l Auto. Dealers Ass'n, Doc. No. FTC-2022-
0046-8368 at 299-300.
---------------------------------------------------------------------------
As there is scant empirical evidence provided for these assertions,
the Commission's preliminary estimates remain unchanged (with the
exception of updates to more recent data where available). However, we
have conducted a sensitivity analysis in which all labor hours in the
base case analysis are increased by an order of magnitude, in keeping
with the spirit of the comments discussed; see SBP VII.G. As can be
seen in the results from that analysis, the Rule clearly still
generates net benefits for society.
Table 3.1--Estimated Compliance Costs for Prohibited Misrepresentations
------------------------------------------------------------------------
2024-2033
------------------------------------------------------------------------
Scenario 1--No Review:
No Cost..................... ................... $0
Total Cost.............. ................... $0
Scenario 2--Heightened
Compliance Review:
Number of dealers \a\....... ................... 47,271
Number of documents per ................... 150
dealer per year.
Minutes of review per ................... 5
document.
Cost per hour of review..... ................... $31.21
------------------------------------------------------------------------
Total Cost...................... 3% discount rate... $157,310,579
Total Cost...................... 7% discount rate... $129,526,073
------------------------------------------------------------------------
Note: In scenarios with ongoing expenses, costs have been discounted to
the present at both 3% and 7% rates.
\a\ County Business Patterns 2021, NAICS Code 4411 (Automobile Dealers,
used and new).
2. Required Disclosure of Offering Price in Advertisements and in
Response to Inquiry
The Rule requires all dealers to disclose an offering price in any
advertisement that references an individual vehicle or in response to
any consumer inquiry about an individual vehicle. For this provision,
the Commission's preliminary analysis presented two cost scenarios for
dealers when complying with the Rule. First, because dealers already
price all vehicles in inventory under the status quo, one scenario
assumed that there would be no additional cost of complying with this
provision. This scenario assumes that the initial pricing and any
subsequent re-pricing of vehicles in inventory would take no (or
minimal) additional time under the Rule.
As with the prohibition on misrepresentations, the second scenario
considers the enhanced penalty associated with violating the Rule and
allows for costs given that dealers may expend additional resources to
ensure that the prices they disclose conform to the Rule's definition
of offering price, thus minimizing the risk of penalties should they
fail to conform to that definition. The latter scenario assumed that,
in the first year under the Rule, each of the 46,525 dealers would have
a sales and marketing manager spend 8 hours reviewing their policies
and procedures for determining the public-facing prices of vehicles in
inventory. In addition, each dealer would employ a programmer for 8
hours to update any automated systems that need to be updated in
accordance with these new policies and procedures. At labor rates of
$63.93 per hour and $28.90, respectively, this cost was estimated at
$34.5 million. Both scenarios assume that, once calculated, the time
required to train employees to include prices in response to consumer
inquiries about specific vehicles will either be negligible or be
subsumed by training costs included under other provisions. Finally,
the time required to deliver the disclosures is also negligible, as
prices are already typically disclosed in
[[Page 683]]
advertisements and in interactions with consumers under the status quo;
the Rule just requires the price to conform to a specific definition.
Some commenters raised issues with the assumptions regarding the
time and resources necessary to determine compliant prices as well as
deliver the required disclosures. The comments asserted that vehicle
prices change frequently in response to market conditions, which would
make it difficult to ensure that offering prices are accurate.
Additionally, comments disputed the notion that delivery of the
information to consumers in accordance with the Rule's provisions would
not be costly, in terms of employee time and consumer time. One comment
suggested that ``there would be an average of three Offering Price
disclosures based there [sic] being an average of three dealer-customer
discussions regarding three specific motor vehicles, per transaction,''
\569\ asserting that the frequency of these disclosures would have
implications for the cost estimates that had not been considered in the
preliminary analysis.
---------------------------------------------------------------------------
\569\ Comment of Nat'l Auto. Dealers Ass'n, Doc. No. FTC-2022-
0046-8368 at 300.
---------------------------------------------------------------------------
If indeed the Rule required significant additional employee time
spent per transaction, that would have implications for the cost
estimates. However, as previously discussed, it is the understanding of
the Commission that virtually all dealer-customer discussions regarding
specific motor vehicles that occur under the status quo already include
time devoted to a discussion of the vehicle's price. The only change
under the Rule is that, within that price discussion an offering price
(as defined by the Rule) must be provided. The cost of determining this
price is included under the second scenario in our preliminary
analysis, and sensitivity to the specific assumptions of that scenario
have been explored in the Appendix. The results from our analysis
indicate that the Rule generates net benefits for society under a wide
range of plausible assumptions about the inputs to our cost
calculations.
Commenters also raised concerns about the potential for behavioral
adjustment by dealerships, choosing to refrain from advertising
individual vehicles or responding to consumer inquiries about specific
vehicles and thus increasing consumers' costs of search. The
Commission, however, has not been presented with compelling evidence
that dealers will forego competition with other dealers on price,
choosing instead to default to advertising a focal price (such as
MSRP). Indeed, the Commission's offering price disclosure requirement
is similar to existing requirements in a number of States, and the
Commission is not aware of any such behavioral adjustments (e.g.,
eliminating prices from advertisements, refusing to respond to consumer
inquiries, etc.) having occurred in those States. As a result, the
Commission's preliminary estimates remain unchanged (with the exception
of updates to more recent data where available).
Table 3.2--Estimated Compliance Costs for Offering Price Disclosures
------------------------------------------------------------------------
2024
------------------------------------------------------------------------
Scenario 1--No Review:
No Cost.......................................... $0
------------------
Total Cost................................... $0
Scenario 2--Calculation of Offering Price:
Number of dealers \a\............................ 47,271
Pricing hours per dealer......................... 8
Cost per hour of pricing......................... $80.19
Programming hours per dealer..................... 8
Cost per hour of programming..................... $40.24
------------------
Total Cost................................... $45,542,772
------------------------------------------------------------------------
\a\ County Business Patterns 2021, NAICS Code 4411 (Automobile Dealers,
used and new).
3. Disclosure of Add-On List and Associated Prices
In the NPRM, the proposed rule would have required all dealers to
disclose an itemized menu of all optional add-on products and services
along with prices, or price ranges, on all dealer-operated websites,
online services, and mobile applications as well as at all dealership
locations. Various commenters expressed concern that the add-on list
requirement would have been too complex and potentially confusing, as
discussed in the paragraph-by-paragraph analysis in SBP III.D.2(b). As
a result, the Commission has determined not to finalize Sec. 463.4(b)
of the proposed rule. While the preliminary analysis estimated
compliance costs between approximately $42 million and $43 million for
the disclosure of add-on lists and associated prices, those costs are
not included in the final analysis.
4. Required Disclosure of Total of Payments for Financing/Leasing
Transactions
The Rule requires all dealers to disclose, when representing a
monthly payment, the total of payments for the financing or leasing
contract. In addition, in any comparison of two payment options with
different monthly payments, the dealer is required to disclose that the
option with the lower monthly payment features a higher total of
payments (if true).
The Commission's preliminary analysis presented two cost scenarios,
corresponding to different methods by which dealers may choose to
comply with the Rule. In the first scenario, we assumed that dealers
would incur a one-time, upfront cost of both designing the required
disclosures and informing associates of their obligations to provide
the disclosures. Importantly, ongoing costs on a per transaction basis
were assumed to be negligible, reflecting a compliance regime where
dealers already generate the required information during the normal
course of business and must only convey it to consumers at an
appropriate point in the transaction. In the second scenario, we
assumed that dealers incur an additional ongoing cost per financed or
leased transaction in order to communicate the required disclosures
[[Page 684]]
to consumers in writing, reflecting a compliance regime where dealers
find it necessary to maintain a documentary record of compliance with
the Rule.\570\
---------------------------------------------------------------------------
\570\ While disclosures of this nature are already required to
be present in the financing contract by the Truth in Lending Act
(TILA), the Rule would change the timing of a subset of those
disclosures. As a result, the dealer may have to develop and deliver
a separate document in the event that the standard TILA disclosure
has not yet been generated at the point where disclosure is required
under the Rule.
---------------------------------------------------------------------------
The upfront costs (and total costs under Scenario 1) of complying
with this provision as estimated by the preliminary analysis were
limited to 8 hours spent by a compliance manager (at a rate of $26.83)
on the creation of a template disclosure script that contains the
required information and informing sales staff of their obligations to
deliver the disclosure at an appropriate time during the transaction.
This cost was estimated at $10 million.
The preliminary estimates of additional ongoing costs--as in
Scenario 2--included 2 minutes of sales associate time per financed/
leased transaction (at a rate of $21.84) spent on the process of
populating and delivering a printed version of the disclosure, with
$0.15 per disclosure spent on printing costs. The total additional cost
under this scenario is estimated at $213.4 to $249.5 million.
Comments from industry groups asserted that the preliminary
analysis underestimated training costs and that it would be difficult
to determine the total of payments for financing prior to knowing the
details of the transaction. One comment contended that ``these mandates
. . . necessarily would involve significant annual training
requirements for new employees given that . . . the average dealer
experiences an annual sales consultant turnover rate of 67%.'' \571\
The comment further asserted that dealers cannot determine the total
cost of a financing or leasing agreement without knowing the terms for
which consumers qualify and what terms they want. The comment argued
that as a result, only the scenario with costs incurred on a per
transaction basis should be considered. Finally, the comment argued
that the per-transaction costs in Scenario 2 are too low, both because
the Commission underestimates the time required to deliver, discuss,
and review disclosures and because multiple disclosures would have to
be made per transaction (as terms are changed).
---------------------------------------------------------------------------
\571\ Comment of Nat'l Auto Dealers Ass'n, Doc. No. FTC-2022-
0046-8368 at 301.
---------------------------------------------------------------------------
These comments misunderstand the Commission's analysis with respect
to the costs of complying with this provision. Scenario 1 does not
anticipate that the dealer presents a consumer with the total of
payments for a financing or leasing contract at the outset of the
transaction. It requires only that, at the point where the dealer
engages in discussions regarding different monthly payments for
financing or leasing arrangements, the information that must be
disclosed (i.e., the total of payments and a comparison of these totals
across differing monthly payments) is already available to the dealer
under the status quo. The only additional cost incurred per transaction
would be the delivery of this information to the consumer (the
determination of which is contemplated in the costs estimated under
Scenario 1).
With respect to the comment regarding insufficient allowance for
training costs in light of employee churn in the industry, the
Commission has determined this to be a valid critique of the
preliminary analysis. As a result, the final regulatory analysis
includes an additional ongoing cost for both Scenarios. This ongoing
cost includes training for sales staff and budgets 1 hour of training
for each of the 417,110 sales and related employees across the
industry, at an (average) cost of $29.43 per hour. The resulting
additional ongoing costs in both scenarios amounts to $12.3 million per
year. Further, as discussed in a previous section, the final analysis
excludes private party, fleet, and wholesale transactions.\572\ The
remainder of the Commission's preliminary estimates remain unchanged
(with the exception of updates to more recent data where available).
Concerns about underestimates of the time required to review
disclosures on a per-transaction basis are addressed by the
Commission's sensitivity analyses conducted in the Appendix.
---------------------------------------------------------------------------
\572\ Without cross-tabulations of fleet sales and sales
involving financing, we assume that these are independent such that
the fraction of covered transactions involving financing is equal to
the fraction of covered transaction times the fraction of financed
transactions.
Table 3.4--Estimated Compliance Costs for Financing Costs
----------------------------------------------------------------------------------------------------------------
2024 only 2024-2033
----------------------------------------------------------------------------------------------------------------
Scenario 1--Creation of disclosure and
training only:
Upfront costs:
Number of dealers.................. ............................. 47,271 .................
Compliance manager hours per dealer ............................. 8 .................
Cost per hour of disclosure ............................. $31.21 .................
creation.
--------------------------------------------------------------------
Subtotal....................... ............................. $11,802,623 .................
Ongoing costs:
Number of sales and related ............................. ................. 417,110
employees \a\.
Training hours per employee........ ............................. ................. 1
Cost per hour of training.......... ............................. ................. $29.43
----------------------------------------------------------------------------------------------------------------
Subtotal............................... 3% discount rate............. ................. $104,712,908
7% discount rate............. ................. $86,218,307
Scenario 1--Total Cost................. 3% discount rate............. ................. $116,515,532
7% discount rate............. ................. $98,020,931
----------------------------------------------------------------------------------------------------------------
Scenario 2--Disclosures per transaction:
Covered new vehicle sales per year \b\. ............................. ................. 10,343,319
% New vehicle sales involving financing ............................. ................. 81%
\c\.
Covered used vehicle sales per year.... ............................. ................. 21,219,640
% Used vehicle sales involving ............................. ................. 35%
financing.
Covered new vehicle leases per year.... ............................. ................. 3,423,294
[[Page 685]]
Total transactions involving monthly ............................. ................. 19,228,256
payments/financing.
Disclosure minutes per transaction..... ............................. ................. 2
Cost per hour of disclosure............ ............................. ................. $28.41
Printing cost per disclosure........... ............................. ................. $0.15
----------------------------------------------------------------------------------------------------------------
Subtotal............................... 3% discount rate............. ................. $179,930,957
7% discount rate............. ................. $148,151,196
Total Cost............................. 3% discount rate............. ................. $296,446,489
7% discount rate............. ................. $246,172,126
----------------------------------------------------------------------------------------------------------------
Note: In scenarios with ongoing expenses, costs have been discounted to the present at both 3% and 7% rates.
\a\ Bureau of Labor Statistics Industry-Specific Occupational Employment and Wage Estimates for NAICS Code
441100--Automobile Dealers, May 2021.
\b\ For total volume, National Transportation Statistics Table 1-17. For retail/non-fleet fraction, Edmunds
Automotive Industry Trends 2020 (for new vehicle) and Cox Automotive via Automotive News (for used vehicles).
\c\ Melinda Zabritski, Experian Info. Sols. Inc., ``State of the Automotive Finance Market Q4 2020''.
5. Prohibition on Charging for Add-Ons That Provide No Benefit
The Rule prohibits dealers from charging for add-on products or
services from which the targeted consumer would not benefit. Compliance
with this provision will require dealers to develop policies and
transaction-level rules about when consumers can be charged for add-on
products and services. The Rule as proposed in the NPRM also would have
included additional provisions relating to add-ons that have not been
finalized. These included a prohibition on charging for optional add-on
products or services unless dealership employees made a number of
disclosures at various points before finalizing a transaction. This
provision would have required each dealer to design form disclosures,
create a system for populating these forms, train their sales staff on
the disclosure requirements, and provide the disclosures in writing,
with the appropriate information filled in, to each consumer prior to
completing the transaction.
The Commission's preliminary analysis relating to the cost of
complying with these disclosure requirements budgeted for 8 hours of
compliance manager time (at a cost of $26.83 per hour) and 4 hours of
sales manager time (at a cost of $63.93 per hour) to design disclosure
forms, and an additional 8 hours of programmer time (at a cost of
$28.90) to create a system to populate these forms. The preliminary
analysis also budgeted for 2 minutes of sales associate time (at a rate
of $21.84 per hour) and $0.11 in printing/electronic delivery costs per
disclosure, with the number of disclosures determined by the fraction
of transactions involving optional add-ons and/or financing.
In response to numerous comments, the Commission has determined not
to finalize the proposal in Sec. 463.5(b), which would have required
the delivery of written disclosures and acknowledgement via signature
of those disclosures by consumers. Various commenters were concerned
that the add-on disclosures would add documents and time to the
transaction. In response to these comments, the Commission has
determined to omit what would have been the only provision
affirmatively requiring the dealer and consumer to review additional
documentation during a transaction. As a result, while the preliminary
analysis estimated compliance costs between approximately $883 million
and $1 billion for the disclosure of total costs for cash and financed
transactions with optional add-on products, the cost estimate in the
final analysis is on the order of one-tenth to one-half of the
preliminary estimate (depending on the scenario).
As a result, the Commission has substantially revised the cost
analysis in this section. First, the Commission assumes that each
dealer will employ 8 hours of compliance manager time (at a rate of
$31.21) and 8 hours of sales manager time (at a rate of $80.19) in the
first year under the Rule, to cull add-ons with no value from their
offerings and develop policies regarding when certain add-ons may or
may not be sold. Second, the Commission budgets for 1 hour of training
per year for each of the 417,110 sales and related employees across the
industry, to apprise them of these policies and their obligations under
the Rule. Finally, the Commission includes a second cost scenario in
which dealers will choose to deliver one itemized disclosure to each
customer before the finalization of each transaction. Although this is
not required under the Final Rule, dealers may wish to have
documentation of compliance with the provisions of the Rule. As in the
preliminary analysis, the Commission assumes that each dealer will
employ 8 hours of compliance manager time and 4 hours of sales manager
time creating this disclosure and 8 hours of programmer time creating a
system to populate these forms when provided inputs by sales staff. The
same occupational wage data have been used, but the rates have been
updated to match the most recent data available. We further assume, as
in the preliminary analysis, that sales staff will spend 2 minutes per
disclosure (at a rate of $28.41 per hour) updating, printing, and
delivering these forms to consumers and that the physical costs of
delivering the disclosure are roughly $.11 per disclosure.\573\
Finally, as discussed in a previous section, the final analysis
excludes private party, fleet, and wholesale transactions.
---------------------------------------------------------------------------
\573\ The physical costs are $.15 per paper disclosure and $.02
per electronic disclosure, assuming that 27% are made
electronically. This assumption is informed by a consumer survey
that indicates 73% of consumers with motor vehicles prefer to
receive registration renewal notices by mail as opposed to
electronically. See Consumer Action, ``Your opinion wanted: Paper
vs. electronic bills, statements and other communications'' 4 (2018-
2019), https://www.consumer-action.org/downloads/Consumer_Action_Paper_v_electronic_survey.pdf (showing that 1800 of
2456 respondents who owned and needed to periodically register a
motor vehicle preferred mail notices).
[[Page 686]]
Table 3.5--Estimated Compliance Costs for Prohibition on Certain Add-Ons
----------------------------------------------------------------------------------------------------------------
2024 only 2024-2033
----------------------------------------------------------------------------------------------------------------
Scenario 1--Policies and Training Only:
Upfront costs:
Number of dealers.................. ............................. 47,271 .................
Compliance manager hours per dealer ............................. 8 .................
Cost per hour of compliance manager ............................. $31.21 .................
Sales manager hours per dealer..... ............................. 8 .................
Cost per hour of sales manager..... ............................. $80.19 .................
--------------------------------------------------------------------
Subtotal....................... ............................. $42,127,915 .................
Ongoing costs:
Number of sales and related ............................. ................. 417,110
employees.
Training hours per employee........ ............................. ................. 1
Cost per hour of training.......... ............................. ................. $29.43
--------------------------------------------------------------------
Scenario 1--Subtotal................... 3% discount rate............. ................. $146,840,824
7% discount rate............. ................. $128,346,223
----------------------------------------------------------------------------------------------------------------
Scenario 2--Disclosure creation and
delivery:
Number of dealers...................... ............................. 47,271 .................
Compliance manager hours per dealer.... ............................. 8 .................
Cost per hour of compliance manager.... ............................. $31.21 .................
Sales manager hours per dealer......... ............................. 4 .................
Cost per hour of sales manager......... ............................. $80.19 .................
Programmer hours per dealer............ ............................. 8 .................
Cost per hour of programmer............ ............................. $40.24 .................
--------------------------------------------------------------------
Subtotal........................... ............................. $42,182,750 .................
----------------------------------------------------------------------------------------------------------------
Disclosure delivery (per transaction):
New vehicle sales per year............. ............................. ................. 10,343,319
Used vehicle sales per year............ ............................. ................. 21,219,640
Minutes per disclosure................. ............................. ................. 2
Cost per hour of disclosure............ ............................. ................. $28.41
Physical costs per disclosure.......... ............................. ................. $0.11
--------------------------------------------------------------------
Subtotal........................... 3% discount rate............. ................. $285,904,302
7% discount rate............. ................. $235,407,319
Scenario 2--Total Cost............. 3% discount rate............. ................. $474,927,875
7% discount rate............. ................. $405,936,291
----------------------------------------------------------------------------------------------------------------
Note: In scenarios with ongoing expenses, costs have been discounted to the present at both 3% and 7% rates.
6. Requirement To Obtain Express, Informed Consent Before Any Charges
The Rule requires dealers to obtain express, informed consent
before charging any consumer for any product or service in association
with the sale, financing, or lease of a vehicle. Because we presume
that all dealers who are complying with the law currently have policies
in place to prevent charges without consent, we assume that there will
be no additional costs imposed by this provision.
7. Recordkeeping
The Final Rule requires dealers to retain records of all documents
pertaining to Rule compliance. These recordkeeping requirements
include:
Copies of all materially different marketing materials,
sales scripts, and training materials that discuss sales prices and
financing or lease terms.
Records demonstrating that all add-ons charged for meet
the requirements stated in the Rule, including calculations of loan-to-
value ratios in contracts including GAP agreements.
Copies of all purchase orders, financing and lease
contracts signed by the consumer (whether or not final approval is
received), and all written communications with any consumer who signs a
purchase order or financing or lease contract.
Copies of all written consumer complaints, inquiries
related to add-ons, and inquiries and responses about individual
vehicles.
Most of these documents are already produced in the normal course
of business under the status quo, or the costs of creating them have
already been accounted for in previous sections. In its preliminary
analysis, the Commission assumed that each dealer would incur an
upfront cost, employing 8 hours of programmer time, 5 hours of clerical
time, 1 hour of sales manager time, and 1 hour of compliance officer
time, at hourly rates of $28.90, $18.37, $63.93, and $26.83,
respectively, in order to upgrade their systems and create the
templates necessary to accommodate retention of all relevant materials.
The Commission also assumed that each dealer would employ 1 additional
minute of sales staff time per transaction to populate forms and store
relevant materials.
One industry commenter contended that the proposed rule would
impose substantial and costly recordkeeping mandates, citing primarily
the various channels through which dealers would be required to capture
and retain communications. The Commission believes the recordkeeping
requirements strike an appropriate balance, requiring the retention of
materials needed to allow effective enforcement while being mindful of
dealer burden. In addition, the recordkeeping requirements are similar
to analogous requirements in other Commission disclosure rules, as
[[Page 687]]
tailored to individual industries and markets.\574\
---------------------------------------------------------------------------
\574\ 16 CFR 310.5 (Telemarketing Sales Rule); 16 CFR 437.7
(Business Opportunity Rule); 16 CFR 453.6 (Funeral Industry
Practices Rule); 16 CFR 301.41 (Fur Products Labeling).
---------------------------------------------------------------------------
As such, the Commission's final analysis retains its preliminary
estimates--appropriately updated where more recent data were
available--with a few changes. First, we made adjustments to the cost
estimates associated with the required loan-to-value calculations for
all transactions with GAP agreements. Based on a comment from one
industry group, we revised down the share of covered new and used
vehicle sales with a GAP agreement to 17%.\575\ As in the preliminary
analysis, for these transactions sales staff will spend an additional
minute to generate and store the relevant calculations. As discussed in
a previous section, the final analysis excludes private party, fleet,
and wholesale transactions. In addition, the expansion of the volume of
records that dealers are required to retain and manage will likely
require investment in additional IT systems and hardware, which was
left unquantified in the preliminary analysis. After additional
research, the Commission estimates that each dealer will need to spend
approximately $300 per year on storage (either on premises or in the
cloud) to house the records that the Rule requires them to maintain.
Based on a review of the transaction records we have received from
dealers through investigations, this amount is likely to be more than
sufficient for compliance.\576\
---------------------------------------------------------------------------
\575\ Comment of Nat'l Auto. Dealers Ass'n, Doc. No. FTC-2022-
0046-8368 at 12 n.43 (indicating 15.3% (18.2%) for new (used)
vehicles). These rates were weighted by transactions counts to
calculate an overall rate of 17%.
\576\ Our review of dealer transaction records suggests that a
typical transaction generates 3.4 MB of data under the status quo.
Given the average number of transactions per dealer, this suggests
that storing all these records would require dedicated space of
roughly 4.2 GB per year. With a two-year retention window, this
corresponds to 8.4 GB of storage at any given time. We estimate that
the (annual) amount budgeted here should be sufficient to maintain
at least 1 TB of storage--either on premises or through a cloud
storage vendor--which is sufficient for more than 100 times the data
storage capacity necessary to retain all transaction files generated
by a typical dealership in a year under the status quo. The
Commission anticipates that this amount of data storage capacity
will be more than sufficient to also allow for dealers to keep any
necessary records of correspondence with consumers who ultimately do
not complete transactions at the dealership.
Table 3.6--Estimated Compliance Costs for Recordkeeping
----------------------------------------------------------------------------------------------------------------
2024 only 2024-2033
----------------------------------------------------------------------------------------------------------------
Updating systems:
Number of dealers...................... ............................. 47,271 .................
Programming hours per dealer........... ............................. 8 .................
Cost per hour of programming........... ............................. $40.24 .................
Clerical hours per dealer.............. ............................. 5 .................
Cost per hour of clerical work......... ............................. $20.16 .................
Sales manager hours per dealer......... ............................. 1 .................
Cost per hour of sales manager review.. ............................. $80.19 .................
Compliance manager hours per dealer.... ............................. 1 .................
Cost per hour of compliance review..... ............................. $31.21 .................
--------------------------------------------------------------------
Subtotal........................... ............................. $25,248,387 .................
----------------------------------------------------------------------------------------------------------------
Hardware and Storage (per year):
Number of dealers...................... ............................. ................. 47,271
Cost of hardware/storage............... ............................. ................. $300
----------------------------------------------------------------------------------------------------------------
Recordkeeping (per transaction):
Number of covered motor vehicle sales.. ............................. ................. 31,562,959
% of sales with GAP agreement \a\...... ............................. ................. 17%
Number of motor vehicle sales with GAP ............................. ................. 5,444,502
agreement.
Sales staff minutes per transaction.... ............................. ................. 1
Cost per hour of recordkeeping......... ............................. ................. $28.41
--------------------------------------------------------------------
Subtotal........................... 3% discount rate............. ................. $270,444,391
Subtotal........................... 7% discount rate............. ................. $222,677,967
--------------------------------------------------------------------
Total Cost..................... 3% discount rate............. ................. $295,692,777
Total Cost..................... 7% discount rate............. ................. $247,926,354
----------------------------------------------------------------------------------------------------------------
Note: In scenarios with ongoing expenses, costs have been discounted to the present at both 3% and 7% rates.
\a\ Comment of Nat'l Auto. Dealers Ass'n, Doc. No. FTC-2022-0046-8368 at 12 n.43.
D. Other Impacts of Final Rule
As the status quo in this industry features consumer search
frictions, shrouded prices, deception, and obfuscation, dealers likely
charge higher prices for a number of products and services than could
be supported once the Rule is in effect. SBP VII.B discussed the
Commission's expectation that prices are likely to adjust in response
to the transparency facilitated by the Rule, and quantified the
benefits that result when vehicle quantities increase in response to a
more transparent and less deceptive equilibrium. The price changes in
the new vehicle market discussed in SBP VII.B will also have the effect
of transferring $3.4 billion per year from dealers whose conduct under
the status quo would not have complied with the Rule to consumers. In
addition, other prices may be impacted by the Rule, such as used
vehicle prices and add-on prices. As we have insufficient data to
predict these price effects, neither the transfers associated with
these potential price changes nor the resulting quantity adjustments
and deadweight loss reductions are quantified in the current
[[Page 688]]
analysis. Finally, it may be the case that enhanced transparency of the
Rule leads to fewer of certain types of transactions relative to the
status quo. Recent evidence suggests that price shrouding of the kind
that is prevalent in the motor vehicle market results in consumers
spending more than they would otherwise.\577\ We expect that this
phenomenon may extend especially to the motor vehicle add-on market,
where the Commission has compiled substantial evidence that individuals
frequently inadvertently purchase add-ons that they did not want and
ultimately will not use.\578\ While much of this effect may ultimately
be transfers, we reiterate that to the extent they represent transfers
from dishonest dealers to consumers, this may be considered a benefit
of the Rule.
---------------------------------------------------------------------------
\577\ See Tom Blake et al., ``Price Salience and Product
Choice,'' 40 Mktg. Sci. 619-36 (2021), https://doi.org/10.1287/mksc.2020.1261.
\578\ See Nat'l Consumer Law Ctr., ``Auto Add-ons Add Up: How
Dealer Discretion Drives Excessive, Inconsistent, and Discriminatory
Pricing'' (Oct. 1, 2017), https://www.nclc.org/images/pdf/car_sales/report-auto-add-on.pdf; Consumers for Auto Reliability and Safety,
Comment Letter on Motor Vehicle Roundtables, Project No. P104811 at
2-3 (Apr. 1, 2012), https://www.ftc.gov/sites/default/files/documents/public_comments/public-roundtables-protecting-consumers-sale-and-leasing-motor-vehicles-project-no.p104811-00108/00108-82875.pdf (citing a U.S. Department of Defense data call summary
that found that the vast majority of military counselors have
clients with auto financing problems and cited ``loan packing'' and
yo-yo financing as the most frequent auto lending abuses affecting
servicemembers); Adam J. Levitin, ``The Fast and the Usurious:
Putting the Brakes on Auto Lending Abuses,'' 108 Geo. L.J. 1257,
1265-66 (2020), https://www.law.georgetown.edu/georgetown-law-journal/wp-content/uploads/sites/26/2020/05/Levitin_The-Fast-and-the-Usurious-Putting-the-Brakes-on-Auto-Lending-Abuses.pdf
(discussing ``loan packing'' as the sale of add-on products that are
falsely represented as being required in order to obtain
financing.); Complaint ]] 12-19, Fed. Trade Comm'n v. Liberty
Chevrolet, Inc., No. 1:20-cv-03945 (S.D.N.Y. May 21, 2020) (alleging
deceptive and unauthorized add-on charges in consumers'
transactions); Complaint ]] 59-64, Fed. Trade. Comm'n v. Universal
City Nissan, No. 2:16-cv-07329 (C.D. Cal. Sept. 29, 2016) (alleging
deceptive and unauthorized add-on charges in consumers'
transactions); Complaint ]] 6, 9, TT of Longwood, Inc., No. C-4531
(F.T.C. July 2, 2015) (alleging misrepresentations regarding prices
for added features); see also Auto Buyer Study, supra note 25, at 14
(``Several participants who thought that they had not purchased add-
ons, or that the add-ons were included at no additional charge, were
surprised to learn, when going through the paperwork, that they had
in fact paid extra for add-ons. This is consistent with consumers'
experiencing fatigue during the buying process or confusion with a
financially complex transaction, but would also be consistent with
dealer misrepresentations.'').
---------------------------------------------------------------------------
In addition, deceptive practices by dishonest dealers lead
consumers to engage with those dealers instead of honest dealerships.
Once the Rule is in effect, some business that would otherwise have
gone to dealers using bait-and-switch tactics or deceptive door opening
advertisements will now go to honest dealerships. Again, assuming that
the costs of the firms are similar, any one-for-one diversion of sales
from one set of businesses to another is generally characterized as a
transfer under OMB guidelines. However, in this case, it would
represent a transfer from the set of dishonest dealers to honest
dealers, which may weigh differently if profits from law violations are
not counted towards social welfare in the regulatory analysis.
E. Conclusion
The Commission has attempted to catalog and quantify the
incremental benefits and costs of the provisions included in the Final
Rule. Extrapolating these benefits over the 10-year assessment period
and discounting to the present provides an estimate of the present
value for total benefits and costs of the Rule, with the difference--
net benefits--providing one measure of the value of regulation.
Using our base case estimates, the present value of quantified
benefits for consumers from the Rule's requirements over a 10-year
period using a 7% discount rate is estimated at $13.4 billion. The
present value of quantified costs for covered motor vehicle dealers of
complying with the Rule's requirements over a 10-year period using a 7%
discount rate is estimated at $1.1 billion. This generates an estimate
of the present value of quantified net benefits equal to $12.3 billion
using a discount rate of 7%. Using the best (or worst) case assumptions
discussed in the preceding analysis results in net benefits of $21.2
billion (or $5.5 billion) using a discount rate of 7%.
Given that we expect unquantified benefits to outweigh unquantified
costs for this Rule, this regulatory analysis indicates that adoption
of the Rule would result in benefits to the public that outweigh the
costs.
Present Value of Net Benefits (in Millions), 2024-2033
--------------------------------------------------------------------------------------------------------------------------------------------------------
Low estimate Base case High estimate
-----------------------------------------------------------------------------------------------
3% Discount 7% Discount 3% Discount 7% Discount 3% Discount 7% Discount
rate rate rate rate rate rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
Benefits:
Time Savings........................................ $7,463 $6,145 $14,926 $12,290 $24,036 $19,790
Deadweight Loss Reduction........................... 568 468 1,298 1,069 2,307 1,899
-----------------------------------------------------------------------------------------------
Total Benefits.................................. 8,031 6,613 16,224 13,359 26,343 21,690
Costs:
Finance/Lease Total of Payments Disclosure.......... 296 246 296 246 117 98
Offering Price Disclosure........................... 46 46 46 46 0 0
Prohibition Re Certain Add-ons & Express, Informed 475 406 475 406 147 128
Consent............................................
Prohibition on Misrepresentations................... 157 130 157 130 0 0
Recordkeeping....................................... 296 248 296 248 296 248
-----------------------------------------------------------------------------------------------
Total Costs..................................... 1,270 1,075 1,270 1,075 559 474
-----------------------------------------------------------------------------------------------
Net Benefits.................................... 6,761 5,538 14,954 12,284 25,784 21,216
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: ``Low Estimate'' reflects all lowest benefit estimates and high cost scenarios and ``High Estimate'' reflects all highest benefit estimates and
low cost scenarios. ``Base Case'' reflects base case benefit estimates and high cost scenarios. Not all impacts can be quantified; estimates only
reflect quantified costs and benefits.
[[Page 689]]
F. Appendix: Derivation of Deadweight Loss Reduction
The derivation of the formula for the reduction in deadweight loss
from the Rule follows from ``Sufficient Statistics Revisited'' by
Henrik Kleven.\579\ In the source article, the wedge between costs and
prices is tax rates, but here we consider producer markups; the
fundamental principles are unchanged. We have a mass of consumers i
with utility function ui(xiO, xiN, xiU) over new cars, used cars, and
the numeraire (good 0) who face the following budget constraint:
---------------------------------------------------------------------------
\579\ See Henrik J. Kleven, ``Sufficient Statistics Revisited.''
13 Annual Rev. Econ. 515-38. (2021), https://doi.org/10.1146/annurev-economics-060220-023547.
[GRAPHIC] [TIFF OMITTED] TR04JA24.003
given markups Tij for good j and consumer i and income Yi for consumer
i. Pre-markup prices are normalized to one so xij is the cost of
consumer i's purchase of good j. Total profits from the consumption of
consumer i are Ti = [Sigma]jTijx ij.
Define a policy to be evaluated as [thetas]. Total welfare is
defined as:
[GRAPHIC] [TIFF OMITTED] TR04JA24.004
Here, vi([thetas]) is the indirect utility function for consumer i,
so the first term is consumer surplus and the second term is producer
surplus, while [mu] is the value of a dollar of profit. The change in
welfare from policy [thetas], translated into dollars by dividing by
[mu], is:
[GRAPHIC] [TIFF OMITTED] TR04JA24.005
The first term is the total effect on profit from the reform and
the second term is the ``mechanical'' effect; assuming quantities stay
constant, how much profits will fall if the policy goes into effect. We
can rewrite this as follows:
[GRAPHIC] [TIFF OMITTED] TR04JA24.006
Where
[GRAPHIC] [TIFF OMITTED] TR04JA24.007
is labelled the ``policy elasticity'' for good and consumer with
respect to policy . We make the following additional assumptions/
simplifications:
1. The outside good is priced at cost.
2. All consumers face the same markups so Tik = Tk.
3. For simplicity, all elasticities are assumed to be cost share-
weighted averages of individual effects, so
[GRAPHIC] [TIFF OMITTED] TR04JA24.008
As a result, the welfare change from the Auto Rule ([thetas]) is:
[GRAPHIC] [TIFF OMITTED] TR04JA24.009
Assuming that the Rule affects only markups for new vehicles, we
can rewrite the ``policy elasticities'' as a product of a price
elasticity and the elasticity of price with respect to the Rule, as
follows:
[GRAPHIC] [TIFF OMITTED] TR04JA24.010
where
[GRAPHIC] [TIFF OMITTED] TR04JA24.011
is the long-run ``policy price elasticity'' of demand for good w.r.t.
the price of good , including the effects that a price change has on
the prices of related goods. The formula accounts for demand feedback
effects between the new and used car markets but assumes no dynamics in
the path from the policy to the long-run steady-state. Computing this
formula requires estimates of seven parameters: two ``policy price
elasticities'' that reflect the responsiveness of quantities of new and
used vehicles sold to a change in prices in the new vehicle market
after all adjustments have occurred in both markets, two baseline
markups that represent the differences between prices and marginal
costs for new/used vehicles, two quantities that reflect the aggregate
cost of all new/used vehicles sold under the status quo, and the
predicted change in prices due to the Rule. Calibration of these
parameters is discussed in the main text.
G. Appendix: Uncertainty Analysis
While the main text uses alternative assumptions to explore
sensitivity to a
[[Page 690]]
number of discrete scenarios, in this appendix we allow variation in
most of the assumptions that underlie our model. This Monte Carlo
analysis procedure allows us to more fully characterize the uncertainty
around our central estimate of net benefits, under the assumption that
our basic model is specified correctly. Most of the assumptions in our
analysis refer to amounts of time, either amounts of time dealerships
employees must spend on a compliance task or amounts of time that
consumers save on various activities related to the automobile shopping
process. Deviations for these assumptions are centered on the
parameters used in the main text. Elsewhere, as with assumptions
regarding fractions or proportions, our base case is often an extreme
case (i.e., 0 or 1). In these cases, deviations are typically not
centered on the base case and are allowed to vary across the whole
range as dictated by the parameter. Still, we can expect the average
results from this sensitivity analysis to be similar to the result in
the main text. The object of interest here is the distribution of
estimates, which indicates the expected variation in net benefits if
the true parameters deviate from our predictions (with errors of the
form modeled).
For most assumptions, we draw from a symmetric, triangular
distribution around the base case assumption with a specified upper and
lower bound. In this distribution, the probability of drawing
particular parameter value increases linearly from the lower bound to
the base case assumption before decreasing linearly to the upper bound,
such that the area inscribed by the triangle is equal to 1. We
emphasize this distribution because it is a parsimonious way to
incorporate variation in parameter values over a finite range and
incorporates our preferred estimates as the most likely outcome. For a
few parameters where we think it is appropriate to de-emphasize the
main estimate parameter, we draw from a uniform distribution.
Importantly, all draws are independent; there is no correlation between
the deviations drawn in any given Monte Carlo trial. An additional
sensitivity analysis considers a situation where our errors across all
labor time parameters are correlated; specifically, that all of our
estimates of the time required for compliance tasks are 1/10th of the
true time required.
To incorporate uncertainty in time savings benefits to consumers,
we allow the time saved by digital consumers to vary by up to ten
minutes more or less than the main analysis parameters. The share of
these time savings received by non-digital consumers under the Rule is
modeled as uniformly distributed between zero (no savings) and one
(savings equivalent to what digital consumers receive in the status
quo).
Table A.1--Alternative Parameters: Benefits of Time Savings for Completed Transactions
----------------------------------------------------------------------------------------------------------------
Base case Monte Carlo
----------------------------------------------------------------------------------------------------------------
Distribution Distribution
Parameter Parameter value Modeled distribution lower bound upper bound
----------------------------------------------------------------------------------------------------------------
Price Negotiation Time Savings... 43 Triangular.......... 33 53
Add-on Negotiation Time Savings.. 33 Triangular.......... 23 43
Paperwork Time Savings........... 45 Triangular.......... 35 55
Trade-In Negotiation Time Savings 26 Triangular.......... 16 36
Fraction of Price Time Savings 1.0 Uniform............. 0 1
Under Rule.
Fraction of Add-on Time Savings 0.5 Uniform............. 0 1
Under Rule.
Fraction of Paperwork Time 0.5 Uniform............. 0 1
Savings Under Rule.
Fraction of Trade-In Time Savings 0.0 Uniform............. 0 1
Under Rule.
----------------------------------------------------------------------------------------------------------------
For the deadweight loss reduction component of benefits, we explore
sensitivity only to baseline used-vehicle markups, allowing them to
vary from 0 to the baseline new-vehicle markup of 15%. In the main
text, we explore a number of scenarios for deadweight loss reduction
corresponding to greater and lesser demand elasticities as well.
The following tables describe the distributions we model for cost
parameters in the simulation exercise. All cost parameters are assumed
to be drawn from triangular distributions. The tables follow the same
order as the discussion in the main text.
Table A.2--Alternative Parameters: Costs of Misrepresentation Prohibition Compliance
----------------------------------------------------------------------------------------------------------------
Base case Monte Carlo
----------------------------------------------------------------------------------------------------------------
Distribution Distribution
Parameter Parameter value Modeled distribution lower bound upper bound
----------------------------------------------------------------------------------------------------------------
Document Review Minutes.......... 5 Triangular.......... 0 10
Documents Reviewed............... 150 Triangular.......... 100 200
----------------------------------------------------------------------------------------------------------------
Table A.3--Alternative Parameters: Costs of Offering Price Disclosures
----------------------------------------------------------------------------------------------------------------
Base case Monte Carlo
----------------------------------------------------------------------------------------------------------------
Distribution Distribution
Parameter Parameter value Modeled distribution lower bound upper bound
----------------------------------------------------------------------------------------------------------------
Template Creation Sales Manager 8 Triangular.......... 4 12
Hours.
Template Creation Web Developer 8 Triangular.......... 4 12
Hours.
----------------------------------------------------------------------------------------------------------------
[[Page 691]]
Table A.5--Alternative Parameters: Costs of Financing Disclosures
----------------------------------------------------------------------------------------------------------------
Base case Monte Carlo
----------------------------------------------------------------------------------------------------------------
Distribution Distribution
Parameter Parameter value Modeled distribution lower bound upper bound
----------------------------------------------------------------------------------------------------------------
Disclosure Creation Compliance 8 Triangular.......... 4 12
Manager Hours.
Disclosure Training Hours........ 1 Triangular.......... 0 2
Disclosure Delivery Time Minutes. 2 Triangular.......... 0 4
Printing Costs................... 0.15 Triangular.......... 0.10 0.20
----------------------------------------------------------------------------------------------------------------
Table A.6--Alternative Parameters: Costs of Itemized Disclosures
----------------------------------------------------------------------------------------------------------------
Base case Monte Carlo
----------------------------------------------------------------------------------------------------------------
Distribution Distribution
Parameter Parameter value Modeled distribution lower bound upper bound
----------------------------------------------------------------------------------------------------------------
Electronic Disclosure Share 0.27 Triangular.......... 0.04 0.50
(Scenario 2 only).
Upfront Sales Manager Hours 8 Triangular.......... 4 12
(Scenario 1).
Upfront Compliance Manager Hours 8 Triangular.......... 4 12
(Scenario 1).
Disclosure Training Hours 1 Triangular.......... 0 2
(Scenario 1).
Disclosure Creation Sales Manager 4 Triangular.......... 2 6
Hours (Scenario 2 only).
Disclosure Creation Compliance 8 Triangular.......... 4 12
Manager Hours (Scenario 2 only).
Disclosure Creation Web Developer 8 Triangular.......... 4 12
Hours (Scenario 2 only).
Disclosure Delivery Minutes 2 Triangular.......... 0 4
(Scenario 2 only).
Printing Costs (Scenario 2 only). 0.15 Triangular.......... 0.10 0.20
Electronic Disclosure Costs 0.02 Triangular.......... 0 0.04
(Scenario 2 only).
----------------------------------------------------------------------------------------------------------------
Table A.7--Alternative Parameters: Recordkeeping Costs
----------------------------------------------------------------------------------------------------------------
Base case Monte Carlo
----------------------------------------------------------------------------------------------------------------
Distribution Distribution
Parameter Parameter value Modeled distribution lower bound upper bound
----------------------------------------------------------------------------------------------------------------
GAP Sales Share.................. 0.17 Triangular.......... 0.07 0.27
GAP Sale Minutes................. 1 Triangular.......... 0 2
Upfront Web Developer Hours...... 8 Triangular.......... 4 12
Upfront Clerical Hours........... 5 Triangular.......... 2 8
Upfront Sales Manager Hours...... 1 Triangular.......... 0 2
Upfront Compliance Manager Hours. 1 Triangular.......... 0 2
IT Hardware Costs................ 300 Triangular.......... 100 500
----------------------------------------------------------------------------------------------------------------
We simulate 1,000 scenarios drawing from these parameter
distributions, recording the costs and benefits of each potential
outcome. The distribution of costs and benefits is plotted in the
following table for discount rates of 3% and 7%.
[[Page 692]]
[GRAPHIC] [TIFF OMITTED] TR04JA24.012
Differencing the costs and benefits from each simulation iteration
yields a distribution of net benefits under the various parameter
draws. We again plot this distribution under 3% and 7% discount rates.
[GRAPHIC] [TIFF OMITTED] TR04JA24.013
This exercise finds heterogeneity in net benefits under the
alternative parameter distributions, but the Rule still yields positive
net benefits in all simulated outcomes.
Finally, to examine the sensitivity of the net benefits conclusions
to the possibility of systematic underestimating of labor costs, we
calculate costs and benefits in a scenario where all labor costs turn
out to be ten
[[Page 693]]
times larger than the parameter values in the main text. All non-labor
hours costs (including benefits hours, wage rates, and prevalence
counts) are unchanged in this analysis.
Table A.8--Present Value of Net Benefits (in Millions), Labor Costs x
10, 2024-2033
------------------------------------------------------------------------
Base case
---------------------------------------
3% Discount rate 7% Discount rate
------------------------------------------------------------------------
Benefits:
Time savings................ $14,926 $12,290
Deadweight Loss Reduction... 1,298 1,069
---------------------------------------
Total Benefits.......... 16,224 13,359
Costs:
Prohibition on 1,573 1,295
Misrepresentations.........
Offering Price Disclosure... 455 455
Finance/Lease Total of 2,743 2,279
Payments Disclosure........
Prohibition re: Certain Add- 4,471 3,830
ons & Express, Informed
Consent....................
Recordkeeping............... 1,868 1,583
---------------------------------------
Total Costs............. 11,111 9,443
---------------------------------------
Net Benefits............ 5,114 3,916
------------------------------------------------------------------------
Note: ``Base Case'' reflects base case benefit estimates and high cost
scenarios with ten times the labor costs as in the main analysis. Not
all impacts can be quantified; estimates only reflect quantified costs
and benefits.
VIII. Other Matters
Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.),
the Office of Information and Regulatory Affairs designated this Rule
as a ``major rule,'' as defined by 5 U.S.C. 804(2).
List of Subjects in 16 CFR Part 463
Consumer protection, Motor vehicles, Reporting and recordkeeping
requirements, Trade practices.
0
For the reasons stated in the preamble, the Federal Trade Commission
adds part 463 to subchapter D of Title 16 of the Code of Federal
Regulations to read as follows:
PART 463--COMBATING AUTO RETAIL SCAMS TRADE REGULATION RULE
Sec.
463.1 Authority.
463.2 Definitions.
463.3 Prohibited misrepresentations.
463.4 Disclosure requirements.
463.5 Dealer charges for Add-ons and other items.
463.6 Recordkeeping.
463.7 Waiver not permitted.
463.8 Severability.
463.9 Relation to State laws.
Authority: 15 U.S.C. 41 et seq.; 12 U.S.C. 5519.
Sec. 463.1 Authority.
This part is promulgated pursuant to section 1029 of the Dodd-Frank
Wall Street Reform and Consumer Protection Act of 2010, 12 U.S.C.
5519(d). It is an unfair or deceptive act or practice within the
meaning of section 5(a)(1) of the Federal Trade Commission Act (15
U.S.C. 45(a)(1)) to violate any applicable provision of this part,
directly or indirectly, including the recordkeeping requirements which
are necessary to prevent such unfair or deceptive acts or practices and
to enforce this part.
Sec. 463.2 Definitions.
(a) ``Add-on'' or ``Add-on product(s) or Service(s)'' means any
product(s) or service(s) not provided to the consumer or installed on
the Vehicle by the Vehicle manufacturer and for which the Dealer,
directly or indirectly, charges a consumer in connection with a Vehicle
sale, lease, or financing transaction.
(b)-(c) [Reserved]
(d) ``Clear(ly) and Conspicuous(ly)'' means in a manner that is
difficult to miss (i.e., easily noticeable) and easily understandable,
including in all of the following ways:
(1) In any communication that is solely visual or solely audible,
the disclosure must be made through the same means through which the
communication is presented. In any communication made through both
visual and audible means, such as a television advertisement, the
disclosure must be presented simultaneously in both the visual and
audible portions of the communication even if the representation
requiring the disclosure is made in only one means.
(2) A visual disclosure, by its size, contrast, location, the
length of time it appears, and other characteristics, must stand out
from any accompanying text or other visual elements so that it is
easily noticed, read, and understood.
(3) An audible disclosure, including by telephone or streaming
video, must be delivered in a volume, speed, and cadence sufficient for
ordinary consumers to easily hear and understand it.
(4) In any communication using an interactive electronic medium,
such as the internet or software, the disclosure must be unavoidable.
(5) The disclosure must use diction and syntax understandable to
ordinary consumers and must appear in each language in which the
representation that requires the disclosure appears.
(6) The disclosure must comply with these requirements in each
medium through which it is received.
(7) The disclosure must not be contradicted or mitigated by, or
inconsistent with, anything else in the communication.
(e) ``Covered Motor Vehicle'' or ``Vehicle'' means any self-
propelled vehicle designed for transporting persons or property on a
public street, highway, or road. For purposes of this part, the term
Covered Motor Vehicle does not include the following:
(1) Recreational boats and marine equipment;
(2) Motorcycles, scooters, and electric bicycles;
(3) Motor homes, recreational vehicle trailers, and slide-in
campers; or
(4) Golf carts.
(f) ``Covered Motor Vehicle Dealer'' or ``Dealer'' means any
person, including any individual or entity, or resident in the United
States, or any territory of the United States, that:
[[Page 694]]
(1) Is licensed by a State, a territory of the United States, or
the District of Columbia to engage in the sale of Covered Motor
Vehicles;
(2) Takes title to, holds an ownership interest in, or takes
physical custody of Covered Motor Vehicles; and
(3) Is predominantly engaged in the sale and servicing of Covered
Motor Vehicles, the leasing and servicing of Covered Motor Vehicles, or
both.
(g) ``Express, Informed Consent'' means an affirmative act
communicating unambiguous assent to be charged, made after receiving
and in close proximity to a Clear and Conspicuous disclosure, in
writing, and also orally for in-person transactions, of the following:
(1) What the charge is for; and
(2) The amount of the charge, including, if the charge is for a
product or service, all fees and costs to be charged to the consumer
over the period of repayment with and without the product or service.
The following are examples of what does not constitute Express,
Informed Consent:
(i) A signed or initialed document, by itself;
(ii) Prechecked boxes; or
(iii) An agreement obtained through any practice designed or
manipulated with the substantial effect of subverting or impairing user
autonomy, decision-making, or choice.
(h) ``GAP Agreement'' means an agreement to indemnify a Vehicle
purchaser or lessee for any of the difference between the actual cash
value of the Vehicle in the event of an unrecovered theft or total loss
and the amount owed on the Vehicle pursuant to the terms of a loan,
lease agreement, or installment sales contract used to purchase or
lease the Vehicle, or to waive the unpaid difference between money
received from the purchaser's or lessee's Vehicle insurer and some or
all of the amount owed on the Vehicle at the time of the unrecovered
theft or total loss, including products or services otherwise titled
``Guaranteed Automobile Protection Agreement,'' ``Guaranteed Asset
Protection Agreement,'' ``GAP insurance,'' or ``GAP Waiver.''
(i) ``Government Charges'' means all fees or charges imposed by a
Federal, State, or local government agency, unit, or department,
including taxes, license and registration costs, inspection or
certification costs, and any other such fees or charges.
(j) ``Material'' or ``Materially'' means likely to affect a
person's choice of, or conduct regarding, goods or services.
(k) ``Offering Price'' means the full cash price for which a Dealer
will sell or finance the Vehicle to any consumer, provided that the
Dealer may exclude only required Government Charges.
Sec. 463.3 Prohibited misrepresentations.
It is a violation of this part and an unfair or deceptive act or
practice in violation of section 5 of the Federal Trade Commission Act
for any Covered Motor Vehicle Dealer to make any misrepresentation,
expressly or by implication, regarding Material information about the
following:
(a) The costs or terms of purchasing, financing, or leasing a
Vehicle.
(b) Any costs, limitation, benefit, or any other aspect of an Add-
on Product or Service.
(c) Whether the terms are, or transaction is, for financing or a
lease.
(d) The availability of any rebates or discounts that are factored
into the advertised price but not available to all consumers.
(e) The availability of Vehicles at an advertised price.
(f) Whether any consumer has been or will be preapproved or
guaranteed for any product, service, or term.
(g) Any information on or about a consumer's application for
financing.
(h) When the transaction is final or binding on all parties.
(i) Keeping cash down payments or trade-in Vehicles, charging fees,
or initiating legal process or any action if a transaction is not
finalized or if the consumer does not wish to engage in a transaction.
(j) Whether or when a Dealer will pay off some or all of the
financing or lease on a consumer's trade-in Vehicle.
(k) Whether consumer reviews or ratings are unbiased, independent,
or ordinary consumer reviews or ratings of the Dealer or the Dealer's
products or services.
(l) Whether the Dealer or any of the Dealer's personnel or products
or services is or was affiliated with, endorsed or approved by, or
otherwise associated with the United States government or any Federal,
State, or local government agency, unit, or department, including the
United States Department of Defense or its Military Departments.
(m) Whether consumers have won a prize or sweepstakes.
(n) Whether, or under what circumstances, a Vehicle may be moved,
including across State lines or out of the country.
(o) Whether, or under what circumstances, a Vehicle may be
repossessed.
(p) Any of the required disclosures identified in this part.
(q) The requirements in this section also are prescribed for the
purpose of preventing the unfair or deceptive acts or practices defined
in this part, including those in Sec. Sec. 463.4 and 463.5.
Sec. 463.4 Disclosure requirements.
It is a violation of this part and an unfair or deceptive act or
practice in violation of section 5 of the Federal Trade Commission Act
for any Covered Motor Vehicle Dealer to fail to make any disclosure
required by this section, Clearly and Conspicuously.
(a) Offering Price. In connection with the sale or financing of
Vehicles, a Vehicle's Offering Price must be disclosed:
(1) In any advertisement that references, expressly or by
implication, a specific Vehicle;
(2) In any advertisement that represents, expressly or by
implication, any monetary amount or financing term for any Vehicle; and
(3) In any communication with a consumer that includes a reference,
expressly or by implication, regarding a specific Vehicle, or any
monetary amount or financing term for any Vehicle. With respect to such
communications:
(i) The Offering Price for the Vehicle must be disclosed in the
Dealer's first response regarding that specific Vehicle to the
consumer; and
(ii) If the communication or response is in writing, the Offering
Price must be disclosed in writing. The requirements in this paragraph
(a) also are prescribed for the purpose of preventing the unfair or
deceptive acts or practices defined in this part, including those in
Sec. Sec. 463.3(a) and (b) and 463.5(c).
(b) [Reserved]
(c) Add-ons not required. When making any representation, expressly
or by implication, directly or indirectly, about an Add-on Product or
Service, the Dealer must disclose that the Add-on is not required and
the consumer can purchase or lease the Vehicle without the Add-on, if
true. If the representation is in writing, the disclosure must be in
writing. The requirements in this paragraph (c) also are prescribed for
the purpose of preventing the unfair or deceptive acts or practices
defined in this part, including those in Sec. Sec. 463.3(a) and (b)
and 463.5(c).
(d) Total of payments and consideration for a financed or lease
transaction. (1) When making any representation, expressly or by
implication, directly or indirectly, about a monthly payment for any
Vehicle, the Dealer must disclose the total amount the consumer will
pay to purchase or lease the Vehicle at that monthly payment after
making all payments as scheduled. If the representation is in
[[Page 695]]
writing, the disclosure must be in writing.
(2) If the total amount disclosed assumes the consumer will provide
consideration (for example, in the form of a cash down payment or
trade-in valuation), the Dealer must disclose the amount of
consideration to be provided by the consumer. If the representation is
in writing, the disclosure must be in writing.
(3) The requirements in this paragraph (d) also are prescribed for
the purpose of preventing the unfair or deceptive acts or practices
defined in this part, including those in Sec. Sec. 463.3(a) and
463.5(c).
(e) Monthly payments comparison. When making any comparison between
payment options, expressly or by implication, directly or indirectly,
that includes discussion of a lower monthly payment, the Dealer must
disclose that the lower monthly payment will increase the total amount
the consumer will pay to purchase or lease the Vehicle, if true. If the
representation is in writing, the disclosure must be in writing. The
requirements in this paragraph (e) also are prescribed for the purpose
of preventing the unfair or deceptive acts or practices defined in this
part, including those in Sec. Sec. 463.3(a) and 463.5(c).
Sec. 463.5 Dealer charges for Add-ons and other items.
It is a violation of this part and an unfair or deceptive act or
practice in violation of section 5 of the Federal Trade Commission Act
for any Covered Motor Vehicle Dealer, in connection with the sale or
financing of Vehicles, to charge for any of the following.
(a) Add-ons that provide no benefit. A Dealer may not charge for an
Add-on Product or Service if the consumer would not benefit from such
an Add-on Product or Service, including:
(1) Nitrogen-filled tire-related products or services that contain
no more nitrogen than naturally exists in the air; or
(2) Products or services that do not provide coverage for the
Vehicle, the consumer, or the transaction or that are duplicative of
warranty coverage for the Vehicle, including a GAP Agreement if the
consumer's Vehicle or neighborhood is excluded from coverage or the
loan-to-value ratio would result in the consumer not benefiting
financially from the product or service.
(3) The requirements in this paragraph (a) also are prescribed for
the purpose of preventing the unfair or deceptive acts or practices
defined in this part, including those in Sec. 463.3(a) and (b) and
paragraph (c) of this section.
(b) [Reserved]
(c) Any item without Express, Informed Consent. A Dealer may not
charge a consumer for any item unless the Dealer obtains the Express,
Informed Consent of the consumer for the charge. The requirements in
this paragraph (c) also are prescribed for the purpose of preventing
the unfair or deceptive acts or practices defined in this part,
including those in Sec. Sec. 463.3(a) and (b), 463.4, and paragraph
(a) of this section.
Sec. 463.6 Recordkeeping.
(a) Any Covered Motor Vehicle Dealer subject to this part must
create and retain, for a period of twenty-four months from the date the
record is created, all records necessary to demonstrate compliance with
this part, including the following records:
(1) Copies of all Materially different advertisements, sales
scripts, training materials, and marketing materials regarding the
price, financing, or lease of a Vehicle, that the Dealer disseminated
during the relevant time period; Provided that a typical example of a
credit or lease advertisement may be retained for advertisements that
include different Vehicles, or different amounts for the same credit or
lease terms, where the advertisements are otherwise not Materially
different;
(2) [Reserved]
(3) Copies of all purchase orders; financing and lease documents
with the Dealer signed by the consumer, whether or not final approval
is received for a financing or lease transaction; and all written
communications relating to sales, financing, or leasing between the
Dealer and any consumer who signs a purchase order or financing or
lease contract with the Dealer;
(4) Records demonstrating that Add-ons in consumers' contracts meet
the requirements of Sec. 463.5, including copies of all service
contracts, GAP Agreements and calculations of loan-to-value ratios in
contracts including GAP Agreements; and
(5) Copies of all written consumer complaints relating to sales,
financing, or leasing, inquiries related to Add-ons, and inquiries and
responses about Vehicles referenced in Sec. 463.4.
(b) Any Dealer subject to this part may keep the records required
by paragraph (a) of this section in any legible form, and in the same
manner, format, or place as they may already keep such records in the
ordinary course of business. Failure to keep all records required under
paragraph (a) of this section will be a violation of this part.
Sec. 463.7 Waiver not permitted.
It is a violation of this part for any person to obtain, or attempt
to obtain, a waiver from any consumer of any protection provided by or
any right of the consumer under this part.
Sec. 463.8 Severability.
The provisions of this part are separate and severable from one
another. If any provision is stayed or determined to be invalid, it is
the Commission's intention that the remaining provisions will continue
in effect.
Sec. 463.9 Relation to State laws.
(a) In general. This part will not be construed as superseding,
altering, or affecting any other State statute, regulation, order, or
interpretation relating to Covered Motor Vehicle Dealer requirements,
except to the extent that such statute, regulation, order, or
interpretation is inconsistent with the provisions of this part, and
then only to the extent of the inconsistency.
(b) Greater protection under State law. For purposes of this
section, a State statute, regulation, order, or interpretation is not
inconsistent with the provisions of this part if the protection such
statute, regulation, order, or interpretation affords any consumer is
greater than the protection provided under this part.
By direction of the Commission.
Joel Christie,
Acting Secretary.
[FR Doc. 2023-27997 Filed 12-28-23; 8:45 am]
BILLING CODE P