United States: Crackdown On Consumer Fees Continues At Federal Agencies

A new Federal Trade Commission (FTC) Notice of Proposed Rulemaking (NPRM) concerning advertising, add-on products and new disclosures in the motor vehicle marketplace could have a major impact on industry participants. Using similar negative rhetoric as a recently proposed Consumer Financial Protection Bureau Request for Information, the FTC proposes "Banning Junk Fee Tactics Plaguing Car Buyers."

The NPRM, specifically, would

1. prohibit motor vehicle dealers from making certain misrepresentations in the course of selling, leasing or arranging financing for motor vehicles;
2. require accurate pricing disclosures in dealers' advertising and sales discussions;
3. require dealers to obtain consumers' express, informed consent for charges;
4. prohibit the sale of any add-on product or service that confers no benefit to the consumer; and
5. require dealers to keep records of advertisements and customer transactions.

Who May Be Impacted by This NPRM?

Motor vehicle dealers offering add-on products and engaging in advertising campaigns will be directly impacted. The NPRM would apply to motor vehicle dealers predominantly engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both, as defined in Section 1029 of the Dodd-Frank Act. Those offering add-on products and engaging in advertising campaigns should review closely for a direct impact.

State-chartered credit unions and other covered lenders providing indirect financing, providers, sellers and underwriters of motor vehicle protection products and other market participants who could be considered to have engaged in a deceptive or unfair act in the motor vehicle marketplace may also be impacted. The FTC has enforcement authority over most non-bank entities for numerous consumer protection statutes such as the Holder Rule, as well as Section 5 of the Federal Trade Commission Act (FTC Act), 15 U.S.C. 45, which broadly proscribes unfair or deceptive acts or practices in or affecting commerce..

The proposal also focuses on entities seeking to reach consumers using television and radio commercials, social media and online advertisements and direct mail marketing. It notes that the FTC has brought a number of cases concerning misrepresentations regarding key pricing aspects of a vehicle purchase, including the price of the vehicle, the availability of discounts and rebates, the monthly payment amount for a financed purchase or lease or the amount due at signing. The NPRM also discusses that FTC complaints in this area have focused on whether it is a purchase or a lease and whether the dealer or consumer is responsible for paying off "negative equity," which includes the outstanding debt on a vehicle that is being traded in as part of another vehicle purchase.

Other areas mentioned include financial incentives incidental to the purchase, such as the promise of a valuable prize and "misleading advertisements." The proposal also outlines specific areas of focus for add-on products and services including warranties, service and maintenance plans, payment programs, guaranteed automobile or asset protection ("GAP" or "GAP insurance"), emergency road service, VIN etching and other theft protection devices, and undercoating.

What Does It Seek Comment on?

The FTC is seeking comment on proposed measures that it describes as:

• Ban bait-and-switch claims: The proposal would prohibit dealers from making a number of deceptive advertising claims to lure in prospective car buyers. This deal deception can include the cost of a vehicle or the terms of financing, the cost of any add-on products or services, whether financing terms are for a lease, the availability of any discounts or rebates, the actual availability of the vehicles being advertised, and whether a financing deal has been finalized, among other areas. Once in the door or on the hook, consumers face the fallout of false promises that don't pan out.

• Ban fraudulent junk fees: The proposal would prohibit dealers from charging consumers junk fees for fraudulent add-on products and services that provide no benefit to the consumer (including "nitrogen filled" tires that contain no more nitrogen than normal air).

• Ban surprise junk fees: The proposal would prohibit dealers from charging consumers for an add-on without their clear, written consent and would require dealers to inform consumers about the price of the car without any of optional add-ons.

• Require full upfront disclosure of costs and conditions: The proposal would require dealers to make key disclosures to consumers, including providing a true "offering price" for a vehicle that would be the full price a consumer would pay, excluding only taxes and government fees. It would also require dealers to make disclosures about optional add-on fees, including their price and the fact that they are not required as a condition of purchasing or leasing the vehicle, along with disclosures to consumers with key information about financing terms.

The Bigger Picture

This proposal is notable for several reasons, including serving as another example of an NPRM that was not included in the recently issued Spring 2022 Unified Agenda of Regulatory and Deregulatory Actions, but then issued the same week. This casts further doubt on the accuracy of the agenda after the CFPB similarly issued an Advanced Notice of Proposed Rulemaking related to the Credit Card Accountability Responsibility and Disclosure Act of 2009, which also was not on the agenda. The timing and phraseology mirroring a recent CFPB proposal in this area also indicates that there may be increasing coordination between the agencies, particularly since CFPB Director Rohit Chopra is a former FTC commissioner.

Republican members of Congress have taken issue with similar broad attempts to limit legitimate fees, even sending a letter to the CFPB taking issue with the term "junk fee" in March of 2022. In the letter they stated,

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