FTC tied up in legal battle, postpones new rule protecting consumers from dealership scams

The effective date of a new federal rule designed to protect consumers from illegal scams when buying a car has been postponed due to legal challenges.

The new rule finalized by the Federal Trade Commission in December was set to go into effect this summer. But the Combatting Auto Retail Scams (CARS) Rule has been paused while a court-battle ensues.

The National Automobile Dealers Association and the Texas Automobile Dealers Association have petitioned to the United States Court of Appeals for the Fifth Circuit to overturn the rule. The two parties assert that the rule should be stayed while the court challenge is pending.

The FTC issued an order postponing the effective date of the rule on Thursday. In a press release, the FTC "notes that these assertions rest on mischaracterizations of what the rule requires. Specifically, the Commission’s order points to the inaccurate argument that the rule will increase compliance costs for car dealers, which is not true for dealers who currently follow the law."

Once enacted, the new rules, prohibiting bait-and-switch tactics and hidden junk fees, are expected to save consumers nationwide more than $3.4 billion and an estimated 72 million hours each year shopping for vehicles, the FTC has said. 

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The rules received praise from consumer advocates and sharp criticism from representatives of the car-buying industry in December.

What is the CARS Rule? 

The CARS Rule prohibits dealers from using bait-and-switch claims to lure vehicle buyers to the lot, including about the cost of a car or the terms of financing, the availability of any discounts or rebates, and the actual availability of the vehicles being advertised.  

It also tackles hidden junk fees – charges buried in lengthy contracts that consumers never agreed to pay. In some cases, these fees are for services or products that provide no benefit to consumers. 

The National Automobile Dealers Association issued a harsh criticism of the new rule in December, calling it heavy-handed. But several consumer advocacy groups praised the rules and the protections for consumers.

The CARS Rule was to take effect on July 30, 2024. The FTC on Thursday said "if the court reviewing the rule grants expedited review, as the litigants requested, a stay of the effective date should not postpone implementation of the rule by more than a few months, if at all."

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What the CAR Rule requires 

Here are the new protections, according to the FTC: 

Pricing and payments 

• A dealer must tell you the offering price, which is the full price of the vehicle. The offering price must include all costs and fees except for required government fees, like taxes and license and registration costs. 
• If a dealer is quoting monthly payments, they must tell you the total amount you’ll pay for the vehicle. And if they offer you a lower monthly payment, they must tell you if it will raise the total cost of the vehicle. 

Add-on products or services 

You have the right to refuse any products or services that increase the price of the vehicle. Like what? Rustproofing, protective paint coatings, extended warranties, guaranteed asset protection (GAP) agreements, and wheel and tire warranties. 

A dealer can’t charge you for products or services that have no benefit like:

• a duplicative warranty
• a service contract for oil changes on an electric vehicle 
• nitrogen-filled tires that contain no more nitrogen than normally exists in the air 
• a GAP agreement that doesn’t cover your vehicle or your neighborhood or other parts of your deal 

Real consent for all charges 

• A dealer can’t charge you for any item unless they’ve told you what it is and how much it costs, and you’ve agreed to the charge. 

Betty Lin-Fisher is a consumer reporter for USA TODAY. Reach her at [email protected] or follow her on X, Facebook or Instagram @blinfisher. Sign up for our free The Daily Money newsletter, which will include consumer news on Fridays, here.