Important Update for New Jersey Auto Dealers: FTC’s New Auto Financing Rules

On December 12, 2023, the Federal Trade Commission (FTC) issued a final rule with a wide range of requirements and restrictions for selling and financing cars to consumers. This new rule is the Combating Auto Retail Scams Rule (the CARS Rule).

What is the CARS Rule?

The CARS Rule aims to clean up the auto sales and financing process by:

• Banning certain misleading statements in the financing process.
• Setting strict guidelines for how dealers advertise and communicate sales.
• Requiring dealers to get clear and informed consent from consumers for any charges.
• Prohibiting the sale of add-on products or services that do not benefit the consumer.

When Does It Take Effect?

The CARS Rule was supposed to go into effect on July 30, 2024. However, several industry groups have filed legal challenges against the rule in federal court. Because of these challenges, the FTC has suspended the effective date until these cases are resolved.

Who Will Enforce the CARS Rule?

The Dodd-Frank Act passed in July 2010, gives the FTC the exclusive responsibility for overseeing auto dealers in financing programs and related issues. But they’re not alone. Other federal agencies, like the Bureau of Consumer Financial Protection (CFPB), and state regulators, also have the power to enforce laws related to auto financing. Over the years, the CFPB and state agencies have been active in making sure auto dealers follow consumer finance and trade practices laws.

What the CARS Rule Covers

The CARS Rule oversees the conduct of covered “motor vehicle dealers” or “dealers” regarding the sale or financing of “covered motor vehicles,” within the meaning given to those terms under the final rule.

The CARS Rule defines a covered “motor vehicle dealer” as any person, including any individual or entity, or resident in the United States, or any territory of the United States, that: (1) is licensed by a state, a territory of the United States, or the District of Columbia to engage in the sale of covered motor vehicles; (2) takes title to, holds an ownership interest in, or takes physical custody of covered motor vehicles; and (3) is predominantly engaged in the sale and servicing of covered motor vehicles, the leasing and servicing of covered motor vehicles, or both.

It is important to note the definition of “covered motor vehicle” under the Final Rule applies only to a certain subset of motor vehicles. The Rule defines a “covered motor vehicle” as any self-propelled vehicle designed for transporting persons or property on a street, highway, or other road. It explicitly excludes motorcycles, motor homes, boats, and marine equipment from this definition. The earlier proposed rule had specifically included each of those vehicles in the definition of covered motor vehicle.

What the CARS Rule Prohibits

The CARS Rule identifies multiple specific misrepresentations involving “material” information that violate the FTC’s prohibitions against unfair or deceptive trade practices. Under the final Rule, “material” information is defined as information which is likely to affect a person’s choice of, or conduct regarding, goods or services.

The CARS Rule prohibits a covered dealer from making any misrepresentation, expressly or by implication, regarding material information about:

• The costs or terms of purchasing, financing, or leasing a vehicle
• Any costs, limitations, benefit, or any other aspect of a VPP or “add-on” product or service
• Whether the terms are, or transaction is, for financing or a lease
• The availability of any rebates or discounts that are factored into the advertised price but not available to all consumers
• The availability of vehicles at an advertised price
• Whether any consumer has been or will be pre-approved or guaranteed for any product, service, or term
• Any information on or about a consumer’s application for financing
• When the transaction is final or binding on all parties
• Keeping cash down payments or trade-in vehicles, charging fees, starting legal processes, or any action if a transaction is not completed or if the consumer does not wish to engage in a transaction
• Whether or when a dealer will pay off some or all of the financing or lease on a consumer’s trade-in vehicle
• Whether consumer reviews or ratings are unbiased, independent, or ordinary consumer reviews or ratings of the dealer or the dealer’s products or services
• Whether the dealer or any of the dealer’s products is associated with the United States government or any state or local government
• Whether consumers have won a prize or sweepstakes
• Whether, or under what circumstances, a vehicle may be moved, including across state lines or out of the country
• Whether, or under what circumstances, a vehicle may be repossessed

In addition to the prohibitions outlined above, the CARS Rule also separately prohibits (1) selling VPPs that provide no benefit to consumers or (2) charging a consumer for any item unless the dealer gets express, informed consent by the consumer for the charge.

New Disclosures Required by the CARS Rule

The rule also discusses several new disclosures dealers will have to make:

Offering Price

In connection with the sale or financing of a specific covered vehicle, a dealer must disclose the offering price in any advertisement for that vehicle and any communication with the consumer that discusses the vehicle.

VPPs Are not Required

When making any representation, expressly or by implication, about a VPP or “add-on” product or service, a dealer must disclose that the additional product or service is not required and that the consumer can purchase the vehicle without it.

Total Payments

When making any representation, expressly or by implication, about a monthly loan or lease payment for any vehicle, a dealer must also disclose the total amount the consumer will pay to purchase or lease a vehicle if making all payments as scheduled.

Penalties

Violations of the CARS Rule will be enforced as violations of Section 5 of the FTC Act. Specifically, violations may result in a company being required to reform its business practices, pay restitution to impacted consumers, and pay civil money penalties in amounts of up to $50,120 per violation.

What Does This Mean for You?

Given the number of regulatory bodies monitoring the auto sales and financing markets, auto dealers, finance companies, and related entities can expect to face regulatory inquiries. It’s essential to stay informed and compliant with these new rules (if they go into effect) to avoid any legal troubles.

Stay tuned for more updates as the situation develops. And remember, understanding and following these new regulations will not only keep you out of trouble but also help build trust with your customers.

New Jersey Auto Dealer Attorneys

Schiller, Pittenger & Galvin, P.C. advises New Jersey motor vehicle dealers in all aspects of their business.

For over 30 years, the firm’s auto dealer lawyers have represented New Jersey auto dealers in consumer fraud actions, advertising violations, compliance matters, and manufacturer disputes.

If you are an auto dealer and have a legal question or issue, contact the New Jersey auto dealer attorneys at Schiller, Pittenger & Gaffney, P.C. You can call them in their Scotch Plains office at 908-402-4770 or email them here.