FTC reveals new rule targeting auto dealership scams

The Federal Trade Commission announced a new rule Tuesday that is intended to stop auto dealers from using hidden fees and bait and switch price tactics on buyers.

The agency says those fees and tactics cost Americans $3.4 billion per year and add 72 million hours to their time spent shopping for a vehicle.

The FTC is calling the new regulation the Combating Auto Retail Scams Rule.

The agency says the rule bans misrepresentations about price, cost, and other key information. It also requires dealers to provide the actual price any consumer has to pay for the vehicle, requires them to disclose that additional items like extended warranties aren’t mandatory, and requires them to state upfront the full monthly payment consumers are accepting.

Stacy Lupo of Winter Haven, Florida, told NBC News that she and her son were victimized by those kinds of sales tactics when she bought a car for him at a Toyota dealership in 2021. They were offered an extended warranty and turned it down, but Lupo was concerned about the way the financing manager behaved afterward.

She said she later reviewed the lease paperwork and found a charge from an extended warranty company.

“The total amount that my son would finance was different on the printout paper than we had signed on the computer. It was all of a sudden almost $4,000 more,” she said.

Lupo also confirmed that her daughter, who had bought a nearly identical car the week before and hadn’t dealt with that financing manager, was paying less than her son.

“This rule by the FTC is really going to help ensure a more fair and honest marketplace so that Americans can buy cars without worrying about getting tricked or deceived,” FTC Chair Lina Khan told NBC News in an interview.

“Every year for the last four years, we’ve gotten over 100,000 complaints from consumers who have gone out to buy a car, one of the most expensive purchases that Americans make, and have found in that process that they’ve been saddled with all sorts of unnecessary products or services that were somehow snuck into the paperwork that they had to sign.”

The FTC says the rule also bans add-on items that the agency described as providing no value to consumers, like duplicative warranties, software and audio subscriptions for cars that can’t support those services, or service contracts for oil changes on electric vehicles that do not need motor oil.

Another provision prohibits dealers from trying to trick members of the military by falsely suggesting that the dealerships are affiliated with the military.

“It’s been an issue for a very long time but it got significantly worse during the pandemic, which is where the pressure for this rule came from,” said Sean Tucker, a senior editor for the auto research company Kelley Blue Book. “It became a bigger issue when everybody had to pay over MSRP for their car.”

Tucker added that some fees charged by auto dealerships are legitimate, but others are scams.

“My all-time favorite one is nitrogen in tires,” he said. “They’ve done tests and determined that it has the exact same amount of nitrogen as in ambient air. It’s entirely fake,” he said, comparing nitrogen-filled tires with tires that are inflated regular air.

In November, the Consumer Financial Protection Bureau accused Toyota’s credit division of deceptive behavior, and ordered it to pay $60 million. That included a $12 million fine, as well as refunds to consumers.

After numerous phone calls, Lupo said she was able to cancel the extended warranty on her son’s car, but it took a lot of work. And her son is stuck with higher monthly payments over the life of the lease.

“I sold my car a while back and I still haven’t bought a new one because I’m scared to death to go into a dealership because of being taken advantage of. It’s a horrible feeling,” she said.

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