The Federal Trade Commission issued a comment period on a proposed trade regulation rule on motor vehicle sales. The Trade Regulation Rule (TRR) is onerous, and comments from those familiar with the business will be important. (Comments are
due Sept. 12, 2022.)
The problems with this TRR are too numerous to be covered in this article. However, we will explore issues that threaten to negatively affect your business. Before doing so, let’s look at some questions the proposed TRR raises.
Who is subject to it?
A motor vehicle dealer licensed as such owns its vehicle inventory, and is engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both, is covered. Why the emphasis on service if this is a TRR about sales? As we have noted frequently when writing about the creation of the Consumer Financial Protection Bureau by the Dodd-Frank Act, to address the FTC’s complaint that many of its functions were usurped by the CFPB, Congress gave the FTC expanded, primary jurisdiction over motor vehicle dealers exempt from CFPB jurisdiction. Having a service department is a necessary element for exemption from CFPB jurisdiction. This TRR covers those dealers subject to FTC jurisdiction.
Aren’t the prohibitions and requirements already part of the law?
Some say the prohibitions and requirements are not a big deal since they simply represent what the FTC already views as the law. Some of these prohibitions and requirements, along with the burdensome recordkeeping requirements, have been ordered against companies the FTC has decided to sue as lawbreakers. The prohibitions and requirements of this TRR go well beyond anything imposed on a single dealer or group under a cease and desist order. They are imposed on every dealer exempt from CFPB jurisdiction with no allegation of a dealer’s individual wrongdoing. And the micromanaging of every dealer’s business will require substantial changes in business practices.
Why now?
This TRR is proposed on the heels of a United States Supreme Court ruling that the FTC does not have the power to order monetary impositions as part of an administrative cease and desist order. The FTC’s answer is this TRR — the violation of which can be punished by civil penalties of $46,517 per violation — should be adjusted annually. The TRR has the effect of imposing on every dealer exempt from CFPB jurisdiction a cease and desist order for which a dealer found to be violating it can suffer crippling monetary impositions.
Why does the FTC feel qualified to micromanage a dealer’s business?
Anyone who asks that question doesn’t know many federal government lawyers. Federal government lawyers know the businesses they seek to regulate through the complaints they review and handle. It is common for them to assume that by reading consumer complaints, they know more about managing a business to prevent the practices about which complaints are filed than the businesspeople who do it for a living. They rarely question whether the complaints are exaggerated, perhaps even fashioned with the aid of an anti-dealer attorney, to establish a position to generate an acceptable settlement, whether it is a large cash payment or cancellation of the transaction. Their qualifications to impose standards on a business are based on complaints, justified or not, that paint the worst picture of an industry.
Is the approach of this TRR what Congress had in mind to define unfair and deceptive practices?
One must question whether this is the type of regulation to benefit consumers. For years, dealers have been criticized, including by the FTC, for the time to complete a deal. Yet the FTC is mandating new processes, disclosures, and paperwork that will only worsen a situation that dealers have been improving.
Today, dealers strive for transparency in what a vehicle will cost a consumer. But how much is enough?
What are the prohibited misrepresentations?
There are sixteen specific misrepresentations included in the proposed TRR. Many are repeats of previous FTC positions on the state of the law and are straightforward. We have counseled dealers for years about some of the issues covered to be sure it is clear whether a transaction involves financing or leasing, the qualifications a consumer must have to qualify for rebates and discounts not available to all, the number of vehicles available at the advertised price or terms, and at what point a transaction is final as to both the buyer and the seller. Unfortunately, several specific prohibitions of the TRR are loosely written to enhance FTC discretion and cause dealer anxiety about what is covered.
For example, the first prohibition is about misrepresentations of the “costs or terms of purchasing, financing, or leasing a vehicle.” What does that mean? Today, dealers strive for transparency in what a vehicle will cost a consumer. But how much is enough?
The second prohibition is misrepresentation of any “costs, limitation, benefit, or any other Material aspect of an Add-on Product or Service.” We will discuss the FTC view of “add-ons” later. But, again, what does this mean? How extensive must disclosures be to meet the test of the FTC regarding what is not a misrepresentation?
Similarly, what must a dealer do to avoid the prohibition of misrepresenting any “[m]aterial information on or about a consumer’s application for financing”?
A prohibition of misrepresenting any of the “required disclosures” of this TRR brings us to the expanded requirements that will dramatically change dealer practices.
Read more, including required disclosures and other burdens of the proposed rule, at vada.com/blog/2022/07/18/a-cease-and-desist-order-for-every-dealer/.
