F&I providers weigh in on potential FTC changes

Following the Federal Trade Commission's sweeping proposal to crack down on dealership advertising and add-on disclosures, the National Automobile Dealers Association and the National Independent Automobile Dealers Association have both said the proposed regulations were unjustified and will hurt consumers.

The regulations, which were approved in a 4-1 vote by the FTC on June 27, included stipulations dealers disclose an "add-on" list prior to a sale and cannot charge add-ons "that provide no benefit" to the consumer as well as a requirement dealers keep a detailed record of all complaints and add-ons for a period of time. The proposed regulations would be the agency's first rules against dealers since the Dodd-Frank Act of 2010.

Regulation 463.4 (b) stipulates if a dealership charges for an add-on, either directly or indirectly, it must disclose it. The proposed guideline says this add-on list must be "on each website, online service, or mobile application operated by or on behalf of the Dealer, and at each dealership" and the information or a way to obtain the information must be available on all advertisements for the products.

The regulation also says dealers must disclose which add-ons are not required when purchasing the vehicle.

Maria Guttuso, general counsel at F&I provider JM&A Group, told Automotive News while she supports a "menu selling system" where consumers are able to see how each add-on impacts the total price of the vehicle, some interpretations of the regulation are unrealistic.

"One [interpretation] is you have to list all products and pricing available to a customer, which is unrealistic due to the make and model of the car and sometimes lenders," Guttuso said. "But to the extent that the customer is informed of what's being purchased … from an F&I perspective, we always recommend and train on a menu selling system."

Eric Fifield, chief revenue officer at F&I provider EFG Cos., said EFG agrees with NADA and objects to most of the FTC regulations. He said some of the regulations are common sense; others were overreaches and overlapped with state regulations.

"Some of the disclosures I think the FTC is asking for are going to make it really difficult for dealers to implement and consumers to really understand," Fifield said.

He said it would be virtually impossible to advertise all potential add-ons without knowing a customer's specific driving needs.

"How do you advertise all the hundreds of different rates, terms, coverages, deductibles that are available to a consumer without knowing what their driving habits are, knowing what options that they want to use," Fifield said.

Another proposed regulation prohibits dealers from charging consumers for add-ons that provide no benefit. The regulation specifically lists nitrogen-filled tire-related products and "products or services that do not provide coverage for the vehicle, the consumer, or the transaction, or are duplicative of warranty coverage for the vehicle."

"We do think it's a better practice to give the customer something instead of just charging more money," Beau Jarrett, southeast vice president of JM&A Group, told Automotive News. "In the environment we are in today where a lot of vehicles are going over MSRP, it's a best practice to provide some benefit for charging over that MSRP."

Fifield said EFG supports this regulation, which he said addresses products that have "zero value to consumers."

"EFG's stance is that we agree with these policies and direction, and we'd like to see these in place too," Fifield said.

Regulation 463.6 (a) proposes dealers must create and retain records of all material add-ons and written complaints about the sale, financing and add-ons for 24 months following the transaction.

Jarrett said advances in technology will help dealers abide by this rule and keep detailed records.

"Record keeping is at this level, with items like scanning documents into the DMS now; a lot of the electronic capabilities for capturing signatures and things of that nature will help," Jarrett said. "Some will need to change their processes and maybe make an investment in some of this technology that they have been slow to do so, but in large part, I believe that this is something that the stores can handle."

Fifield said he didn't see a problem in the records requirement.

"I don't think there's anything wrong with keeping records of complaints and keeping records of advertising for a period of time," Fifield said. "I don't think that will be problematic to implement where it's not currently."

The FTC is asking for feedback on the proposed regulations. Fifield said he strongly encourages all dealers to submit feedback by the deadline to voice their concerns.

Guttuso said the FTC analyzed dated data while creating the guidelines and haven't taken into account the fact that consumer trends have changed since the pandemic. She said there is a strong chance of legal action from a large trade organization if the rules are implemented as written.