FTC Proposes Rule to Ban Junk Fees, Bait-and-Switch Tactics Plaguing Car Buyers

The Federal Trade Commission has proposed a rule to ban junk fees and bait-and-switch advertising tactics that can plague consumers throughout the car-buying experience. As auto prices surge, the Commission is seeking to eliminate the tricks and traps that make it hard or impossible to comparison shop or leave consumers saddled with thousands of dollars in unwanted junk charges. The proposed rule would protect consumers and honest dealers by making the car-buying process more clear and competitive. It would also allow the Commission to recover money when consumers are misled or charged without their consent.

“As auto prices surge, the Commission is taking comprehensive action to prohibit junk fees, bait-and-switch advertising, and other practices that hit consumers’ pocketbooks,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “Our proposed rule would save consumers time and money and help ensure a level playing field for honest dealers.”

In the last ten years alone, the FTC has brought more than 50 law enforcement actions related to automobiles and helped lead two nationwide law enforcement sweeps that included 181 state-level enforcement actions in these areas. In spite of these actions, complaints from consumers related to automobiles remain in the top ten complaint types received by the FTC, with more than 100,000 complaints from consumers annually over the past three years.

Today, the FTC is taking a first step toward establishing a set of guidelines that would provide consumers with key protections against dealers who unlawfully charge junk fees without their consent or engage in bait-and-switch advertising. In the Notice of Proposed Rulemaking announced today, the Commission is seeking comment on proposed measures that would:

• 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 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 notice includes questions for public comment to inform the Commission’s decision-making on the proposal. These include questions about provisions in the proposed rule and whether other provisions should or should not be included in the rule, as well as questions related to the costs and benefits to consumers and auto dealers of the proposed rule. In addition, the notice includes a preliminary regulatory analysis estimating that the net economic benefit of the rule would be more than $29 billion over ten years. After the Commission reviews the comments received, it will decide whether to proceed with issuance of a final rule.

The Commission vote to approve the Federal Register notice announcing the notice was 4-1. Chair Lina M. Khan, Commissioner Noah Joshua Phillips, Commissioner Rebecca Kelly Slaughter, and Commissioner Alvaro M. Bedoya issued a joint statement. Commissioner Wilson issued a dissenting statement. The notice will be published in the Federal Register soon. Instructions for filing comments appear in the notice. Comments must be received 60 days from the publication date of the Notice.