Federal Trade Commission (FTC) has proposed comprehensive rules changes regarding dealership advertising and how finance and insurance offices are handled. However, dealers, specifically the National Automobile Dealers Association (NADA), aren’t happy with these new ideas and have issued formal challenges to the regulatory scheme.
While the FTC is citing an uptick in consumer complaints regarding price as its core justification for wanting some new rules on the books, car buyers seem confused with financing options and why the advertised price of a vehicle never seems to be the number at the bottom of the contract they’re agreeing to pay. It also wants to streamline the car-buying process in an effort to save consumers upwards of three hours per transaction and remove any hidden fees that could be argued as predatory. But NADA says regulators are going too far and is arguing that the FTC is making decisions based on incorrect assumptions that could benefit certain groups unfairly. There are also concerns that a lot of the noise encouraging regulators to act so aggressively is based on surging auto prices.
That makes this one of those issues where it’s hard to decide which team to root for. Plenty of dealerships have acted in a predatory manner since vehicle demand improved. With supplies remaining limited thanks to an industry that now seems incapable of functioning properly, plenty of shops realized there was a window where customers would pay exorbitant fees for vehicles that would have retailed for thousands less just a few months earlier. But we also have to remember that it was the regulatory actions taken by governments across the world over the last two years that set the stage for the ensuing disaster.
NADA is presently seeking an extension for the window for public comment on the rule, which opened on July 13th and is poised to close this September. That gives the group (and you, if you have strong opinions about the issue) a fair bit of time to create a defense for the FTC’s proposals. But a fair amount of reading will be required to get to the bottom of what those changes actually entail because everything is cloaked in feel-good language that doesn’t make it immediately clear what’s at stake.
The FTC says it just wants to “protect consumers and honest dealers by making the car-buying process more clear and competitive.” But the actual changes would only impact businesses exempt from the Consumer Financial Protection Bureau’s (CFPB) jurisdiction and aren’t limited to automotive shops. Stores selling RVs, boats, motorcycles, trailers, or anything else that could loosely qualify as a motorized vehicle will also be on the hook. Though the general premise remains enviable if we take it at face value. The FTC basically claims it wants to prohibit shops from including hidden fees and the true cost of ownership for a given vehicle by making the practice illegal.
Broken down, this means that the FTC wants to make dealers liable for any (1) misrepresentation in the purchasing, financing, or leasing of a vehicle; (2) failures to make any clear and conspicuous disclosures about the offering price, optional add-on products and services, and the total number of payments and the total amount the consumer will need to pay; (3) charging consumers for add-on products/features that provide no tangible benefits, optional add-on products without presenting specific disclosures, or any item without obtaining a consumer’s express, informed consent in advance.
But here’s where things start getting a little tricky. The FTC believes its changes will result in streamlined transactions where customers end the day feeling pleased with their purchase while NADA has argued that getting a buyer’s expressed consent ahead of the final signing is going to force everything to drag on. The group is also arguing that the proposals are sloppy, overly broad, and fail to take into account how the market actually works. Automotive News, which always seems to be fairly chummy with the National Automobile Dealers Association, recently conducted an interview offering its rebuttal to the situation and the general sentiment seems to be that the group believes the FTC is off its rocker here.
“The FTC absolutely needs to go back to the drawing board on this,” said NADA CEO Mike Stanton.
Paul Metrey, NADA senior vice president of regulatory affairs, likewise claimed that the agency’s justification for the updated rules wasn’t based on hard data. Many of the complaints the FTC cited were unverified and some of the studies used qualitative (not quantitative) results to make claims about how confused consumers were about automotive pricing in general. NADA is claiming that the number of valid complaints is likely less than half of a percent for all transactions — even if we assumed every single one was legitimate and not someone blowing off steam after making a bad decision.
From Automotive News:
And the FTC’s auto complaint category goes beyond dealerships, Metrey pointed out. It incorporates customer gripes with auto parts, service and rentals. Just auto finance and sales yielded 84,672 complaints last year.
The FTC cited three motor vehicle roundtables it held in 2011 following enactment of the Dodd-Frank Act to determine whether rules beyond the unfair and deceptive practices law were necessary, Metrey said. The agency wrote last month that at the roundtables, consumers “expressed confusion regarding aspects of the financing process and commented that they were surprised when they reached the dealership that the price advertised was not available to them.”
However, at the time, nothing came of the roundtables.
The agency didn’t even file an advance regulatory notice asking the public whether a rule was warranted. “That record generated nothing,” he said.
But now, Metrey said, the agency is cherry-picking from the old record to justify its new rules.
Another big problem for NADA was a study from 2017 that used qualitative data, rather than quantitative data that would have been accompanied by hard figures and some statistical analysis.
“The study found that many participating consumers were left in the dark about key terms,” read the FTC’s new proposal. “Consumers recalled dealers renegotiating vehicle prices at different stages of the transaction and being confused about the price of the vehicle. Despite the lengthy transaction, many study participants felt review of the final documents was rushed and were surprised to learn of additional add-on charges in their contracts.”
The 2017 research incorporated interviews with 38 borrowers who purchased new or used vehicles in Washington, D.C. and the FTC wrote that it represented “a small, non-representative sample of consumers” in the introduction. This meant it was “not useful for forming quantitative or generalizable conclusions.” But the agency still leveraged it as evidence that the laws surrounding dealer-customer interactions needed to be changed.
NADA’s remaining complaints seem to revolve around how rushed it feels the FTC’s latest actions have been. Metrey is trying to argue that regulators haven’t studied the effectiveness of its proposed solutions to a point where they should be making any big decisions. Dealers want to know exactly how the FTC’s proposals are going to save consumers time, ensure the market is regulated fairly, and avoid creating an abundance of red tape that will make it harder for shops to do their jobs. We’ve already seen smaller showrooms lose ground to the larger franchises that can afford to meet manufacturer demands. Some have even argued this is a step toward nullifying the dealer model entirely and handing over the space to manufacturers that have already signaled an interest in direct-to-consumer sales — even if your author feels that’s probably a bridge too far.
While I have very little sympathy for large dealer groups that have enjoyed record-breaking profits by leveraging economic strife and some less-than-savory tactics the FTC wants to make illegal, NADA does have a few valid points. Very little of what the government is proposing is accompanied by a comprehensive breakdown of exactly how these rule changes will be implemented. Though, assuming you still have faith in federal regulators, I suppose that’s what the public comment is for. Whether this is a well-intentioned initiative or short-sighted regulatory flex, the FTC is still supposed to be in service of the public good and should still provide hard data that supports its agenda. But the industry (not just dealer groups) likewise needs to get its act together because nobody in 2022 is going to believe it’s acting in the best interest of the average car-buyer.
[Image: Gretchen Gunda Enger/Shutterstock]