The Combating Auto Retail Scams (CARS) Rule issued by the Federal Trade Commission (FTC) that was set to go into effect July 30, 2024 has been delayed pending litigation. Learn more in this article and, if passed, what the CARS Rule could mean for your dealership.
What Is the FTC CARS Rule?
According to the FTC’s CARS Rule guide, the new rule is designed to offer more consumer protections when purchasing vehicles and is in response to increased reports from both consumers and dealers on deceptive practices and loss of business. Per the FTC, dealers will have new requirements to follow, including “express, informed consent” from customers regarding pricing, financing terms, available rebates and incentives, and add-ons. For example, if a customer is shopping at a dealership and inquires about the pricing of a vehicle, if they aren’t already, the dealership would need to produce a form that shows the offering price, along with any other terms orally discussed. If a customer shows interest in multiple vehicles, oral and written consent must be provided for each vehicle.
The FTC highlights that for “honest” dealers, the rules laid out are already normal practice. Pending litigation headed by the National Automobile Dealers Association (NADA) argues against the above point, stating that the rule forces dealers to provide customers with new written forms for each inquiry on a specific vehicle or payment. In addition, they note the process forces the consumer and dealer to be further bogged down by forms and creates a longer buying process in a fast-paced modern era. Dealers may be able to incorporate the requirements into programs such as docuPAD® to have customers digitally acknowledge. However, the customer also would need to receive a written copy.
What Challenges Are Being Presented?
As the CARS Rule is currently written, the wording of what disclosures suffice is vague, and dealers could face civil penalties of up to $50,120 per violation. Under the new law, dealers also will be required to keep all related records, including ads, marketing materials, consumer complaints, and even text messages, for at least 24 months. For dealers, there are already lengthy retention policies for vehicle and financing contracts.
Clarification of terminology and what constitutes sufficient disclosure to consumers will ultimately determine the operational effect the CARS Rule has on dealers. Per the FTC, if the law goes into effect as is, anything that is represented in writing must be disclosed in writing. Dealers will need to address this in all ads, e.g., TV, social media, print, etc. Dealers also will need to train staff on the operational impacts and new communication requirements. Implementation and compliance monitoring with normal industry turnover and the fast-paced environment could pose a challenge, especially to smaller dealer groups.
In June, the House Appropriations Committee approved the FY25 Financial Services and General Government Appropriations Act (FSGG), which will delay the FTC from implementing the CARS Rule until September 30, 2025. Although this does not end the challenge of the CARS Rule for dealers, it provides more time for dealers and industry associations to formulate strategies.
In the future, if the rule goes into effect, it should be noted the rule does not apply to recreational equipment, motorcycles, scooters, motor homes, and golf carts. If you have questions or need assistance, please contact a professional at Forvis Mazars.