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July 24, 2024

Car Dealerships Win Reprieve from New Fee Disclosure Rules

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Jan 20, 2024

Car dealerships have won a temporary reprieve from new federal rules aimed at bringing more transparency to car buying fees and add-ons after dealer groups filed a lawsuit challenging the regulations.

FTC Delays New Rules Pending Legal Challenge

The Federal Trade Commission announced this week that it will delay implementing its new Motor Vehicle Dealers Trade Regulation Rule, better known as the CARS (Clear and Conspicuous Additional Rates and Services) rule, in light of a legal challenge from dealer trade groups.

The National Automobile Dealers Association (NADA) and other groups filed a lawsuit in November arguing that the FTC overstepped its authority with the new regulations. A federal appeals court has since issued a stay to block the rules from taking effect while the legal process plays out.

The CARS rule was originally scheduled to take effect on January 27. It would have required dealerships to provide customers easy-to-read disclosures about add-on fees and products before financing is discussed. Fees covered under the rule include things like documentation fees, service contracts, and add-ons like rustproofing and paint protection.

Dealers claim the new requirements are overly burdensome, while consumer advocates say the rules are necessary to rein in sketchy fees that pad car prices by thousands of dollars.

What the CARS Rule Requires

The CARS rule aims to shed more light on the often confusing fees dealers tack on during the car buying process. Key requirements include:

  • Disclosing the total cost of a car lease or financing terms early in the buying process
  • Providing a standalone disclosure of common add-on rates and services before discussing financing terms
  • Limiting certain fees, like document preparation fees, to actual costs incurred by the dealer

By separating out these fees and requiring clear disclosures, the goal is to prevent dealers from slipping in exorbitant junk fees at the last minute when buyers think they have already agreed on a final price.

Why Dealers Object

Dealer trade groups argue that the CARS rule goes too far and essentially tries to regulate car prices. By requiring dealers to disclose a single all-in price early in negotiations, NADA claims the rule could restrict the normal back-and-forth haggling that has been part of car buying for decades.

The groups also suggest the strict disclosure rules could backfire on consumers by making the process more rigid. And they have raised concerns about the additional costs to update systems, forms, procedures, and training materials to comply with the regulations.

Projected CARS Rule Compliance Costs for Dealers

Updating sales processes/training staff | $632 million
Updating forms/paperwork | $417 million
Updating online systems/websites | $104 million
Ongoing compliance costs | $200 million per year
Source: Regulatory impact analysis by FTC

However, consumer advocates dispute those figures and note that other industries have adapted to strict disclosure rules without excessive burden.

What Happens Next

With the CARS rule on hold for now, dealerships have avoided expensive changes to their business practices in the near-term. But the court battle is just getting started. The Fifth Circuit Court of Appeals will now consider the dealer groups’ request for a longer-term injunction against the rule.

Most legal experts expect the appeal process to take many months to play out. If the Fifth Circuit ultimately sides with the FTC, dealers would be forced to quickly implement sweeping reforms to comply with the CARS rule. On the other hand, a ruling favoring the dealers could force the FTC back to the drawing board to craft a more dealer-friendly solution.

In the meantime, consumers will continue having to navigate the maze of car buying fees armed with little transparency from dealers. While it’s wise to still negotiate the best deal possible right now, buyers should tread carefully when it comes to add-ons offered at the last stage of a purchase. Declining expensive extras like service contracts and paint protection could potentially save thousands of dollars off inflated car prices in the absence of stronger rules.

Going forward, all eyes will be on the courts to see whether federal regulators or the dealers prevail in shaping reforms around one of the largest financial transactions most Americans make. The used car market, often plagued by aggression sales tactics, is also sure to be watching the lawsuit closely.

What Consumers Can Do

While the legal process sorts itself out over the coming months, consumers still have leverage to negotiate fair prices:

  • Research Market Prices: Use pricing guides to understand the average going rate for the specific car you want so you know if the final price seems inflated.

  • Say No to Add-Ons: Be extremely wary of any extras pitched after you’ve agreed on a vehicle price and financing. These tend to have the highest markup.

  • Get Quotes from Other Dealers: Leverage the internet to quickly get competing quotes from other area dealers. Use those figures during negotiations with the dealer you intend to buy from.

Staying patient, doing research, and being willing to walk away from extras or bad deals remain a car shopper’s best defense against hidden junk fees. So equip yourself with the right intel when you head to the dealership while Washington continues the debate on what transparency requirements are reasonable for car sales.

AiBot

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AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.

By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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