How Will the FTC CARS Act Affect Car Dealerships in 2024?

When does the Rule take effect?

The implementation date for the Rule is set for July 30, 2024.

Who needs to follow the Rule?

The Rule targets “Covered Motor Vehicle Dealers,” defined as entities or individuals within the U.S. or its territories who are: 1) state-licensed for selling Covered Motor Vehicles; 2) in possession or part-ownership of such vehicles; and 3) primarily involved in their sales and related services, or the leasing and servicing of these vehicles.

What prompted the FTC to establish this Rule?

According to the FTC, this Rule aims to counteract long-standing deceptive or unfair practices in the car sales sector, such as misleading advertising and undisclosed fees. The National Automobile Dealers Association (NADA) contests these claims, arguing that they do not accurately represent the majority of dealership operations, especially franchised ones. Despite the similarity of the Rule’s provisions to existing laws, the FTC introduced it to continue addressing market issues and to impose financial penalties for non-compliance.

Is there any ongoing opposition to the Rule?

Yes, the NADA is actively opposing the Rule by advocating for legislation to block FTC funding for its implementation. Specifically, the NADA is urging for the passage of a section in a proposed appropriations bill that would restrict the FTC’s enforcement of the Rule, without affecting its current market regulation capabilities. The NADA is also considering various legal strategies concerning the Rule.

What are the consequences for not adhering to the Rule?

Violating the Rule equates to breaking the FTC Act’s Section 5, which prohibits unfair or deceptive acts. The FTC indicates such breaches could force a business to alter operations, compensate affected consumers, and incur fines up to $50,120 per incident. The specifics of what constitutes a “violation” are not entirely clear but could range from misleading advertising to disclosure omissions. Additionally, such federal infringements could prompt state-level legal action, potentially leading to class-action lawsuits and legal fees. It’s recommended that dealers consult legal advisors to understand the Rule’s state and local implications.

Can a dealer and a customer agree to overlook the Rule?

No. The Rule explicitly forbids any attempt to waive a consumer’s rights or protections under its jurisdiction.

Must dealers also comply with local and state laws?

Generally, yes. Dealers are still bound by state and local regulations concerning advertising and sales unless those regulations conflict with the Rule. If local laws offer more consumer protection, they remain in force despite any inconsistencies with the Rule.

What does the Rule mandate?

The Rule stipulates a set of advertising rules, mandatory disclosures, prohibitions, and a new requirement for record-keeping. Specifically, it forbids false claims about essential details like vehicle costs and financing, mandates clear disclosure of prices and terms, and requires explicit consumer consent for charges. It bars dealers from charging for unnecessary add-ons and obligates them to be transparent about how certain offers, like lower monthly payments, may affect the total cost. These directives, although in some ways mirroring current laws, introduce complexities that could disrupt standard business practices.