A Proposed FTC Rule Takes Aim at Car Dealerships (But A Similar Ohio Rule Has Been Around For a While)

The Federal Trade Commission (FTC) is seeking comment on a proposed rule titled the Motor Vehicle Dealers Trade Regulation Rule relating to the sale, financing, and leasing of motor vehicles by car dealerships. The rule has not been put into effect yet, but may affect dealers in the near future. Section 5 of the Federal Trade Commission Act (the “FTC Act”) prohibits “unfair or deceptive acts or practices in or affecting commerce”. The FTC Act gives the FTC the authority to implement rules thereunder, including the proposed Motor Vehicle Dealers Trade Regulation Rule. The proposed rule:

1. Prohibits motor vehicle dealers from making certain misrepresentations when selling or leasing vehicles;
2. Requires accurate pricing disclosures in advertising and sales discussions;
3. Requires dealers to get express and informed consent for charges made to the consumer;
4. Prohibits the sale of services or add-ons that confer no benefit to the consumer; and
5. Requires dealers to keep a record of advertisements and consumer transactions.

Crushing Misrepresentation

The FTC’s primary concerns are car dealerships making misrepresentations to consumers. Misrepresentations include advertisements that offer discounts or rebates that are not actually available, or that falsely state monthly payment amounts or amounts due at signing. These actions concern the FTC because many consumers rely on those misrepresentations to their detriment, and are actually seen by the FTC as “advertising advantages” over law-abiding dealers.

Other common misrepresentations relate to purchase price and debt responsibility for trade-in vehicles. It’s often unclear if the price listed pertains to a lease or an outright purchase. Furthermore, some dealerships do not usually disclose whether the consumer or the dealership is responsible for paying the outstanding debt on a traded-in vehicle.

The final thing the FTC intends to tackle is add-ons that consumers might not know about, or otherwise expressly agree to after having been misled about the add-on’s legal requirements. Buying a car often comes with a mountain of paperwork that consumers are unwilling to read or unable to fully understand. Some dealerships have taken advantage by including add-ons that the consumer never knowingly agreed to when signing the paperwork.

How Does the FTC Rule Work?

The rule creates record-keeping requirements to ensure compliance. All dealerships, for a period of 24 months, are required to keep a record of:

• All materially different advertisements, sales scripts, training materials, and marketing materials regarding vehicle price, financing, or leasing terms;
• All materially different copies of lists of add-on products and services;
• Consumer transaction documents;
• Records to show compliance with monthly payment disclosures and add-on sales requirements;
• Written consumer complaints and consumer inquiries regarding add-ons or individual vehicles; and
• Any other records necessary to demonstrate compliance with the rule.

Current Ohio Consumer Protections

Ohio consumers are protected by Ohio laws that overlap with the FTC’s new proposed rule. The Ohio Consumer Sales Practices Act prohibits “suppliers” (not just car dealers) from committing “unfair or deceptive acts” at any point during a transaction with a consumer. Unfair or deceptive acts include:

• Making something part of the transaction that the consumer does not approve or benefit from;
• Making a representation of a particular style or model of which the product is not; and
• Making a false representation that a specific price advantage exists.

Penalties

There are different penalties for violating the FTC proposed rule and the Ohio Consumer Sales Practices Act. In addition to criminal penalties and fines that the State of Ohio may impose, a consumer can pursue civil remedies for violations of the Ohio Consumer Sales Practices Act. The consumer may either rescind the transaction or seek damages, but not both. A consumer seeking damages may recover actual damages plus non-economic damages up to $5,000. However, a consumer is not required to prove actual damages (i.e., actual monetary loss to the consumer). If the consumer does not have or cannot prove actual damages, the consumer can seek to recover statutory damages of $200 per violation.

Additional penalties apply when a violation is found to be deceptive or unconscionable, allowing the consumer to recover three times the available damages (sometimes referred to as “treble damages”). The recovery of treble damages is less about making the consumer whole and more about punishing the wrongdoer.

The penalty for violating the proposed FTC rule (and thus violating Section 5 of the FTC Act) is a civil penalty that is adjusted annually for inflation. As of 2022, the maximum penalty for Section 5 violations is $46,517.

Conclusion

New legal landscapes can be tricky to navigate, and our attorneys want to ensure you understand how to protect yourself and your business. If you have any questions or concerns about the FTC’s proposed rule or the existing Ohio Consumer Sales Practices Act, please get in touch with your Carlile Patchen & Murphy business attorney.