Whether you are a bonafide car enthusiast or not, buying a car at a dealership is a fearful experience many people dread.
Unless you are buying from an automaker that does direct-to-customer sales like Tesla (TSLA) , Lucid (LCID) or Rivian (RIVN) , car buying is a complicated, deceiving ordeal that involves mind games and a lot of willpower.
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Everyone who has bought a car at a dealer has a story; whether the advertised price was not the actual price, dealers tacked on a laundry list of unnecessary fees and add-ons, or had an experience where they felt far less human from the time they walked in.
The Federal Trade Commission (FTC) focused on such practices under the Biden administration; however, a new ruling has reversed any relief before customers could feel it.
Federal Judge blocked a critical FTC rule
In January 2024, the Federal Trade Commission under the Biden Administration finalized what it called the Combating Auto Retail Scams (CARS) Rule, which is aimed to help shoppers fight against dubious and fraudulent practices that commonly occur when buying a car, including bait-and-switch tactics and hidden junk fees.
As per the FTC, the CARS rule would prohibit dealers from engaging in tactics that would typically make mincemeat out of typical auto shoppers, including lying about the cost of a car, financing terms, if any available discounts or rebates are available, as well as if actual cars on the lot are actually on the lot.
Additionally, the rule would prohibit dealers from adding "hidden junk fees;" which the FTC defines as charges "buried in lengthy contracts that consumers never agreed to pay," and are often additional unnecessary products and services.
One of many Americans' most expensive purchases is their car, which can be their most costly possession besides a house. According to the FTC, the CARS rule would have saved them a total of $3.4 billion and 72 million hours annually from quarter-zipped and bow-tied individuals on showroom floors.
“When Americans set out to buy a car, they’re routinely hit with unexpected and unnecessary fees that dealers extract just because they can,” former FTC Chair Lina M. Khan said in a December 2023 statement. “The CARS Rule will prohibit exploitative junk fees in the car-buying process, saving people time and money and protecting honest dealers.”
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But while the rules allowed car buyers to be treated with some semblance of respect, car dealers felt that the ruling would hurt their bottom lines. Shortly after the ruling was finalized in January 2024, a Texas dealer group and the National Automobile Dealers Association (NADA) objected to the legislation and challenged it in court.
The ruling was put on hold in January 2024 pending a legal challenge brought on by the National Automobile Dealers Association (NADA) and a Texas dealer group. In its case, which was heard by the 5th Circuit Court, the judges found in a 2-1 decision that the FTC violated procedural rules in writing the regulation, as they failed to give advance notice of the planned regulation.
The lone judge who disagreed with the decision, Judge Stephen Higginson, noted that Congress had already given the FTC the authority to issue regulations in 2010 that would require "price transparency and rules against deception, which would spur billions of dollars in economic benefit for U.S. consumers."
“Congress authorized the FTC to regulate unfair and deceptive motor vehicle dealer practices, which inflict immense, proven harm on U.S. consumers,” Higginson wrote.
He additionally noted that the CARS rule was written "after a decade of roundtables, comments, and over 100,000 consumer complaints, many leading to federal and state law enforcement actions against unfair and deceptive motor vehicle dealer practices."
According to Reuters, NADA President Mike Stanton called the CARS rule decision a "victory for the rule of law and a great outcome for consumers," adding that the buying experience under the rule "would have added massive amounts of time, complexity, paperwork and cost to the car-buying and car-shopping experience for virtually every customer."
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The FTC isn't done going after car dealers
Though it may seem like it is game over for any hopes that the government will come to the assistance of baffled car buyers, a recent FTC action should bring some hope back.
In a joint suit filed jointly by the FTC and the state of Maryland, the Lindsay Automotive Group, which operates Ford, Chevrolet, and Stellantis brand dealers, is accused of raking in millions off of deceptive pricing practices.
The dealers are accused by the FTC and the state of misleading customers about pricing, violating the FTC Act and Maryland’s Consumer Protection Act.
According to the complaints, the dealer never recognized its own advertised price, piled on junk fees, and insisted on in-house financing. They allege that from 2020 to 2023, nearly 90% of Lindsay customers paid more than the advertised price, up to an additional $2,000 due to unexpected add-ons or fees.
“Buying a car is a significant financial investment. Marylanders deserve to know upfront how much they will actually pay for a vehicle and should not be surprised by hidden charges that they did not budget for,” said Attorney General Anthony G. Brown. “Our Office will not let car dealerships profit from unfair and deceptive practices.”
If the lawsuit succeeds, the dealership group could be liable to reimburse customers for these shady practices and $10,000 per violation of Maryland's Consumer Protection Act.
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