Andy Nurman
January 12, 2024
The Federal Trade Commission (FTC) has finalized a new rule called the Combating Auto Retail Scams (CARS) Rule to crack down on deceptive sales tactics used by some car dealerships. The rule aims to save consumers time and money when shopping for a new or used vehicle.
The CARS rule targets two common problematic practices – bait-and-switch tactics and junk fees. Bait-and-switch tactics refer to dealers advertising vehicles they don’t actually have or at prices they won’t honor. Junk fees are unnecessary charges tacked onto the final price of the vehicle without the consumer’s consent.
The FTC estimates the new protections will save consumers nationwide more than $3.4 billion and 72 million hours each year spent shopping for cars. The rule also offers specific safeguards for military service members and their families who are frequently targeted by deceptive auto sales practices.
Here are the 4 key things the CARS rule will do:
- Ban misrepresentations about vehicle price, financing terms, availability of rebates, and other key details.
- Require dealers to provide the actual offering price any consumer can pay, clarify that add-ons like extended warranties are optional, and give total payment information when discussing monthly payments.
- Prohibit charging consumers for add-ons that provide no benefit, like duplicate warranties, service contracts for electric vehicles, or software subscriptions the vehicle can’t support.
- Mandate that dealers get express, informed consent from consumers for any fees or charges associated with the vehicle purchase.
The rule goes into effect on July 30, 2024. The FTC has published guidance for both consumers and auto dealers to understand rights and responsibilities under the new protections.
Consumer advocates hope the CARS rule will help level the playing field and shut down exploitative sales tactics that have plagued car buying for decades. Honest dealers also stand to benefit from less competition from those relying on bait-and-switch scams and junk fees to make sales.
Our Thoughts
The Federal Trade Commission’s new rules prohibiting bait-and-switch tactics and junk fees for car purchases represents real progress for consumers after decades of shady practices. We have long advocated that the easiest way for shoppers to protect themselves is to conduct research and even purchase vehicles online whenever possible. There is no reason why the auto market cannot offer the same transparency that consumers have come to expect from other retailers.
A glaring example is Tesla’s direct-to-consumer sales model built around consistent pricing and streamlined purchases without haggling or sneaky add-ons. One major factor holding back wider adoption of electric vehicles is the dreaded tradition of painful negotiations and sales pressure at legacy auto dealers. It should come as no surprise that Tesla is succeeding while avoiding the dealership model entirely.
For consumers still shopping in person due to lack of options, the onus cannot all be on buyers to outsmart manipulative sales tactics. That’s why we applaud the FTC mandating straightforward price disclosures, restricting bogus fees, and gaining affirmative consent before tacking anything extra onto the final bill. This removes informational asymmetry heavily favoring dealers over shoppers.
While the transition may prove challenging for some, auto retailers should view this as an opportunity to embrace honesty and rebuild trust with car buyers. Those already operating transparently stand to gain an advantage over competitors relying on tricks and traps to drive sales. For once, consumers and ethical businesses can unite behind regulatory action aimed at fair treatment for all.
