The risk of getting scammed when buying a car — the highest purchase many consumers make short of a house — can be as stressful as the risk of a pile-up commute.
At a Friday, December 15 briefing hosted by Ethnic Media Services and the Federal Trade Commission, FTC officials explained how the agency’s Combating Auto Retail Scams (CARS) Rule, requiring transparency from car dealers, will protect buyers from auto scams.
What is CARS and who’s affected?
Malini Mithal, associate director of the FTC Division of Financial Practices said the CARS Rule, announced by the FTC last week, combats two main scams that car buyers experience: bait-and-switch tactics, “where dealers advertise a low price to bring you to the lot, but after you spend hours there you learn that the car is way more expensive than what was advertised,” and junk fees, which are charges hidden by long, complicated auto contracts.
CARS — taking effect July 30, 2024 — will save car buyers facing these tactics an estimated $3.4 billion and 72 million hours a year, she explained. “The rule especially helps honest car dealers who will be able to compete on a level playing field; they won’t have to worry about losing business to a competitor pretending to have a lower price to lure consumers onto their lot, but then charging much more once the consumer gets there.”
The CARS Rule makes this happen four ways, Mithal continued: first, dealers can’t lie about key information like costs, financing terms, add ons and rebates; second, dealers must tell consumers the total price of the car (e.g. the full price of a 10-year contract, not just the first few monthly payments); third, dealers can’t charge junk fees that don’t benefit the consumer (e.g. a second warranty with no coverage, or oil change add-ons incompatible with an electric car); and fourth, “Dealers can only charge for things if consumers know what the charge is for and agree to pay for it — so no more hidden costs in contracts.”
The rule also requires dealers advertising a car in a certain language, like Spanish, to clearly disclose any added costs in that same language “so buyers know what they’re agreeing to,” said Jamie Brooks, an attorney with the FTC’s Division of Financial Practices.
Why bait-and-switch?
The CARS Rule focuses so much on bait-and-switch tactics because of how many actions the FTC has brought against it, “where dealers advertise one price to get consumers in the door, but then charge consumers much more after they’ve invested time on the lot,” said Brooks.
Most of this deceptive advertising involves misrepresenting a car’s full price, its monthly payment, or the dealership’s affiliation with government programs, she added.
For example, in 2014 the FTC sued Casino Auto Sales of La Puente, California for advertising an $18,000 down vehicle while burying an extra $5,000 down payment in fine print specifically targeting Spanish consumers. In 2020, the agency sued dealer ad agency Traffic Jam Events of Kenner, Louisiana for mailers which supposedly directed consumers to a COVID stimulus relief program site, the address of which was really a car lot.
These tactics not only harm car buyers but dealers themselves “who have to beat the bogus prices of dishonest competitors,” Brooks explained. “When a dealership advertises low prices, people end up selecting that dealership over others under false pretenses.”
Junk fees, add-ons
Many of these pretenses also involve “junk fees” for hidden add-ons — “like extended warranties, car or asset protection, or coatings that are supposed to protect the car” — which can easily cause unknowing buyers thousands of dollars, said Sanya Shahrasbi, an attorney with the FTC’s Division of Financial Practices.
“In the past two years alone,” she continued, “dealers have substantially increased prices for these add ons, even though such products and services largely are not constrained by supply.” A 2022 FTC lawsuit against multistate dealer Napleton, the thirteenth-largest dealership group in the country, found that 83% or 16,848 of the dealer’s customers were charged for add-ons that they didn’t agree to; for instance, “one consumer paid for a $2,000 service contract that the dealer said was free.”
This Napleton action found not only that buyers were being charged for add-ons they didn’t agree to, but also that these buyers were disproportionately Black and Latino, added Mithal. A 2023 action against Wisconsin-based dealer group Rhinelander Auto Center found analogous targeting of local Native American consumers.
Much of the vulnerability of these racial and ethnic groups owes to language access obstructed by lengthy contracts hiding fees; many Napleton buyers, for example, found themselves with paperwork requiring more than 12 signatures across over 60 pages.
Regardless, Mithal continued, the CARS Rule “prohibits conduct which is already illegal, and if a dealer’s lying to you about the price of a car, they’re already violating the FTC, you’re within your rights to report them.”
How, then, will the CARS Rule help stop scams that are already illegal?
Because it underscores the money, said Mithal, “and people stand up when they are on the hook for a lot of money … It’s easier to get money back to you when scamming dealers see that they’re exposed through this rule, and honest dealers see the law is on their side.”
