What the FTC's proposals on car dealer ads, F&I mean

National Automobile Dealers Association CEO Mike Stanton said he supports the Federal Trade Commission cracking down on "reprehensible" unfair and deceptive dealership practices.

But he said the FTC's proposed regulations that would, among other things, ban certain finance-and-insurance coverage and physical vehicle add-ons are "completely unwarranted, redundant and ineffectual requirements."

Stanton added that the changes were unsubstantiated by the market and would result in a "much more complex and inefficient" customer experience at dealerships.

FTC commissioners voted 4-1 on Monday to go beyond federal advertising law and the federal prohibition on unfair and deceptive dealership practices.

"This proposed rule is another example of how the FTC is using the full set of tools granted us by Congress to protect Americans from deceptive or unfair practices," the four commissioners in favor wrote, noting it was the agency's first regulation on dealerships since at least 2010.

The FTC said in its notice of rule-making that it received more than 100,000 complaints each of the past three years related to vehicle sales, service, rentals, leasing and warranties and transactions.

"It just sounds like [the FTC is] angry," said Ryan Daly, who oversees 42 states as KPA's F&I compliance district manager. Daly, who once worked in auto retail, said he was "relieved to see something like this" but disliked "how they're painting the car industry in a bad light."

Articulating specifics could ultimately help dealerships. "If there was a structured ... 'You can or cannot do this,' it'd be easier for dealers to follow," Daly said.

The proposed regulations go beyond existing federal law and offer more specificity than the law that forbids unfair and deceptive dealership practices, according to Shannon Robertson, executive director of the Association of Finance and Insurance Professionals, an industry compliance and certification organization.

Robertson said good dealers adopt practices that protect them in all scenarios and felt his organization's adherents wouldn't be fazed by the new rules for F&I presentations.

"For an AFIP-certified dealer, none of these changes have any impact or surprise if the dealer's doing the things the way that we teach," he said.

Other compliance experts and dealers saw a greater burden upon dealerships and consumers, with one — a former FTC regulator — noting it appeared to upend contract law.

Among the new regulations under consideration is one that requires dealerships to produce a true "Offering Price" for any vehicle they promote. It's effectively the "out-the-door" price a dealership would charge to purchase the vehicle, not counting any government taxes and fees.

Dealerships also are prohibited from misleading customers on whether the advertised terms are for a lease, include rebates not available to all or for a vehicle that isn't available.

Konrad Koncewicz, business manager of BurlingtonCars.com Auto Group in Vermont, said he supported the transparent advertising aspect of the proposal. "Rules like that are very sensible," he said.

Koncewicz said his state has stricter disclosure requirements and advertising rules — but neighboring states don't.

"There are places that will advertise some crazy cutthroat price, maybe on a car [that] doesn't even exist," Koncewicz said.

Burlington Cars will attempt to tell customers it's a fantasy. But only 10 percent of them return and admit his group was right. The other 90 percent visit the misleading dealership and ultimately do business there, he said.

Further FTC prohibitions would target other "bait-and-switch" behavior.

Any misrepresentations on "material information on or about a consumer's application for financing" and whether a transaction is final would be illegal. The FTC also would forbid dealerships from keeping "cash down payments or trade-in vehicles, charging fees, or initiating legal process or any action if a transaction is not finalized or if the consumer does not wish to engage in a transaction."

"This'll probably kill spot deliveries," said David Robertson, chairman of the Association of Finance and Insurance Professionals.

Certain F&I coverages and physical add-ons could be banned entirely.

The proposed rules prohibit "an Add-on Product or Service if the consumer would not benefit." It singles out items such as nitrogen levels equivalent to the air and guaranteed asset protection if "the loan-to-value ratio would result in the consumer not benefiting financially from the product or service."

Claims data showing that consumers use F&I coverage could save a product from falling into this category, David Robertson said, while flagging vehicle security "etch" marks as another potentially endangered product.

The FTC's attention to GAP could be problematic. The product, which pays the difference between a vehicle loan balance and cash value in the event of a total loss, has been a hit with purchasers. A 2020 NADA-University of Michigan survey found more than 90 percent of GAP policyholders called it a good idea and something they would buy again.

Koncewicz said he favored the idea of eliminating products that have no benefit. "We don't participate in things like that," he said.

But he called the FTC's GAP language "extremely vague." A number developed in consultation with the industry might be "more workable," he said.

Ignite Consulting Partners compliance attorney Randy Henrick thought the agency might ultimately leave its entire language on banned products vague rather than mention any specific item. "It's a moving target," he said.

The FTC's rule-making proposal states: "Consumer complaints suggest that some dealers have added thousands of dollars in unauthorized charges, including for add-ons that consumers had already rejected. These issues are exacerbated when pre-printed consumer contracts automatically include charges for optional add-ons, when consumers are rushed through stacks of paperwork, or when they are asked to sign blank documents."

Under the FTC's draft, dealerships would have to give customers a written form that displays the vehicle price without all optional products, and in the event of financing, the financing charge over the life of the loan. If the customer wishes to buy optional products, they and a dealership manager must sign a form confirming the customer declined this out-the-door price.

Jean Noonan, a partner at the Hudson Cook law firm, thought this could mean dealerships would have to be careful about discussing products a customer specifically requests before that out-the-door offer is declined.

The customer's actual agreement to F&I products would have to be "an affirmative act communicating unambiguous assent" and go beyond "a signed or initialed document, by itself" or "prechecked boxes," the FTC proposed. Terry O'Loughlin, director of compliance for Reynolds and Reynolds, said this went beyond the traditional manner of doing business and could expose dealerships to liability for insufficient disclosure.

Noonan, who once directed FTC regulation and financial practices enforcement, pointed out "for hundreds of years of contract law," the "gold standard" of acceptance was a customer's approval of a product and price in writing. "Not anymore," she said.

"This proposed rule continues to remove accountability from the consumer for their own actions," Ryan Caulfield, finance manager for Winner Ford Hyundai in Dover, Del., wrote in an email to Automotive News.
The FTC's solution also could exacerbate the problem it seeks to fix, Troutman Pepper attorneys Alan Wingfield, Brooke Conkle, Christopher Capurso and Sarah Siu wrote in an June 24 post on their website. "Paradoxically, the FTC bemoans the complexity of paperwork necessary to complete a motor vehicle sale as causing a lack of understanding and confusion in consumers," they wrote, "yet it proposes more paperwork as the solution."