A federal appellate court vacated a rule last week that advocates argue would have made the car-buying process more transparent and saved consumers billions.
The United States Court of Appeals for the Fifth Circuit struck down the Combating Auto Retail Scams Trade Regulation – or CARS – rule before it could go into effect, arguing that the Federal Trade Commission (FTC) failed to follow its own internal process.
The rule was aimed at fighting two common types of illegal tactics consumers face when buying a car, such as bait-and-switch tactics and hidden junk fees. But it also included provisions specifically protecting military members and their families from deceptive dealers falsely claiming military affiliation, along with addressing other issues unique to service members.
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The FTC estimated in a report that the rule would save consumers more than $3.4 billion and cut down on the time it takes to buy a car by 72 million hours each year. Critics such as the National Automobile Dealers Association (NADA) – an American trade organization representing nearly 16,500 franchised dealers, and the Texas Automobile Dealers Association (TADA) – said the FTC’s research was “rushed” and “poorly researched.”
A slew of changes would have taken effect if the rule had been implemented, including requiring car dealers to disclose the price of the car along with all mandatory fees up front every time they advertise the vehicle, according to Erin Witte, director of Consumer Protection for the Consumer Federation of America.
The FTC, which was granted authority to regulate unfair or deceptive practices by motor vehicle dealers under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, “discovered that throughout the process of buying a car, it is frequently riddled with deception and unfair practices” said Witte.
The price consumers see is “almost never” the price that they pay at the end of the day, said Witte, adding that it’s “remarkably common” for a dealership to tell consumers that they can’t tell them a price over the phone, and they should come in person to discuss what kind of deal they can offer.
Witte said it’s done intentionally to squeeze more out of consumers and that the tactics also rip customers away from “honest car dealers.”
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“Not every car dealer wants to gouge people,” she said. “There are lots of car dealers that want to honestly advertise the price of their car, but they lose out if someone’s advertising the same car for a cheaper price. But they can track someone on their lot for four hours and then jack up the price because they’re there.”
New Jersey car dealership owner Tom Maoli told FOX Business that he was an advocate for the CARS rule because it would have increased consumer confidence in buying cars from franchise car dealerships. Historically, they have “bad view of how they are treated at car dealerships across the country,” said Maoli, whose company Celebrity Motor Car Company runs six dealerships.
Conversely, NADA and TADA argued that the new rule would have “added massive amounts of time, complexity, paperwork and cost to the car-buying and car-shopping experience for virtually every customer.” The industry groups also said it “would have been a nightmare for consumers and dealers alike.”
NADA said consumers would have spent an additional 60 to 80 minutes at the dealership for every transaction, and would have been subject to having to complete at least five new, untested forms during both the shopping and the purchasing process. This “would have driven up costs for vehicle purchases and, beyond that, would have cost consumers $1.3 billion a year collectively in lost time,” the trade group said in a statement to FOX Business.
The court didn’t take sides for or against the rule. Instead, it ruled that the FTC skipped an important part of the notice-and-comment process called the Advance Notice of Proposed Rulemaking (ANPRM). In this initial step, the agency formally requests public input on a proposed regulation. It argued the FTC should have stated that it was considering issuing a rule about car dealers and these practices and left a discussion open for public feedback.
Instead, the FTC started at the second phase, called Notice of Proposed Rulemaking (NPRM), where they outline their plan to change a rule and then open it up for public comment before finalizing it.
Witte argued that the FTC should have been allowed to skip this step since it was given the authority to fast track rulemaking for motor vehicle dealers.
“It also is frankly ridiculous to think that the FTC didn’t do their homework on this to understand the impact of the rule,” Witte said. “This was a decade in the making. The FTC relied on many, many enforcement actions, conversations with car dealers, with NADA, with consumer advocates and with actual consumers. They paid attention to what people were actually telling them about their experiences.”
The FTC has to start this process over again if it wants to finalize the rule. It remains to be seen if that will occur, Witte said.
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