FTC Targets Unwanted Fees and Bait-and-Switch Advertising by Auto Dealerships | Sheppard Mullin Richter & Hampton LLP

On June 23, the FTC proposed a to reign that would prohibit junk fees, bait-and-change advertising, and other deceptive practices by car dealers to protect consumers and honest dealers in the car-buying process. The proposed measures would:

  • bait and switch complaints – Prohibit car dealerships from misleading advertisements to attract potential buyers regarding vehicle cost, financing terms, availability of rebates and rebates, actual availability of advertised cars and other aspects.
  • Unwanted charges – Prohibit car dealerships from charging unwanted fees for fraudulent additional products and services that provide no benefit to the consumer, and from charging additional fees without clear, written consumer consent.
  • Disclosure of costs and conditions – Require car dealerships to make key disclosures to consumers, such as:
    • the total price a consumer would actually pay for a car (excluding only taxes and government fees);
    • optional additional charges, including that they are not required as a condition of purchase or lease; and
    • information on financing conditions.

In announcing the proposal, the FTC cites the recent spike in auto prices and the fact that despite its enforcement efforts, consumer complaints related to automobiles are one of the top ten types of complaints it receives, totaling more than 100,000 complaints per year over the past three years. With this proposal, the FTC aims to provide consumers with key protections and estimates that the net economic benefit of the rule would be more than $29 billion over ten years.

Put into practice : This proposed rule is part of the Commission’s recent enforcement efforts to combat misleading advertising and illegal tactics used by car dealerships in the car buying process. (See our articles on FTC enforcement activity here and here). In light of the Commission’s focus on the auto industry, dealerships should review their advertising and other business practices to ensure compliance with consumer protection and advertising laws, and continue to monitor activity from the FTC for any proposed regulatory updates.

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