Unraveling the Debate on Dealership Fees When Buying a Car

The Federal Trade Commission (FTC) has been addressing concerns related to perplexing fees and sales strategies employed by certain auto dealerships, leaving buyers with a sense of dissatisfaction. Despite the initial proposal, progress has been slow, with a U.S. House committee now delving into the matter.

FTC’s Push Against Bait-and-Switch Ads and Surprise Fees

According to a report by Reuters, a committee in the U.S. House is scrutinizing the FTC’s intended regulations aimed at establishing new consumer safeguards for car buyers, facing strong opposition from auto dealers.

Last summer, the FTC took steps to curb the use of confusing fees and sales tactics by certain auto dealerships, intending to address buyer dissatisfaction. However, the proposal has encountered delays, and now, members of Congress are scrutinizing its progress.

As reported by Reuters, a U.S. House committee is investigating the FTC’s planned rules, which seek to introduce new consumer protections for car buyers but are met with opposition from auto dealers.

FTC’s Efforts to Regulate Car Dealership Advertising and Fees

In June, the FTC introduced a proposed rule aiming to regulate how car dealers advertise and apply fees to new vehicle sales.

The proposed rule, currently in a lengthy public comment period, includes measures to ban deceptive advertising practices, commonly known as bait-and-switch marketing. This involves drawing consumers to a dealership with an advertised deal only to reveal later that the deal is not actually available.

Additionally, the rule seeks to prohibit fraudulent fees related to add-on products and services that offer no real benefit to consumers. Specific examples include nitrogen-filled tires that do not contain more nitrogen than regular air.

Another aspect of the proposed rule is a ban on surprise fees, such as document fees and other add-ons disclosed only at the end of the sale process. The rule emphasizes the importance of dealers disclosing all fees not required.

Moreover, the rule proposes a requirement for full price disclosure, mandating dealers to disclose a true offering price for each vehicle, excluding only taxes and government fees.

It is essential to note that not all dealerships regularly violate the proposed rule, with objections from the auto industry and requests for changes from the National Automobile Dealers Association and the Alliance for Automotive Innovation.

Congressional Inquiry and Alternative Plans by the FTC

Recently, House Oversight Committee Chair James Comer requested documents and answers from FTC Chair Lina Khan by Nov. 30 regarding the proposed rule. Comer expresses concerns that the rule could harm consumers and small businesses, hindering innovation in the industry. He questions the analysis and reliability of the data, citing procedural flaws.

While hearings may impede the FTC’s efforts, the agency has proposed a broader set of rules applicable to all businesses in October. Termed “junk fee” rules, they would cover transactions beyond car dealerships, including rental cars and concert tickets. The proposal includes an exemption for car dealers if a separate set of rules is finalized. Should Congress block rules specific to car sales, the general junk fee rule might still impact certain car dealer practices.