Separating Fact from Fiction: The FTC’s Proposed Auto Dealer Rule

5 min readSep 27, 2022

Used and new car prices have reached perilous new highs within the past two years. Car dealers are taking advantage of the limited supply of vehicles to freely price gouge, even as their own costs remain steady. As their profits skyrocket, dishonest dealers continue to rely on longstanding deceptive and even fraudulent tactics to squeeze car buyers out of every dollar. They include but are definitely not limited to deceptive and aggressive behavior to alter car deals and especially finance terms when customers thought they were final; tactics to force car buyers into purchasing unwanted and unnecessary add-on devices on cars; and false or deceptive advertising and bait-and-switch offers on car prices.

To alleviate some of the consumer harms in the auto market, the regulator Federal Trade Commission (FTC) recently proposed a new rule on motor vehicle sales and dealers’ treatment of car buyers. Over the past several months, much has been said about this proposal, whose public comment period ended earlier this month.

So far, the 26,000+ comments from the public submitted disproportionately have come from consumers in support of the FTC’s rule proposal. Most commenters support FTC’s effort to curb deception and fraud which run rampant in auto sales. Consumer advocacy organizations and individual consumer attorneys and advocates are urging improvements to the proposal to tighten and strengthen the safeguards for car buyers. But the entity representing the auto dealers, the National Automobile Dealers Association, that the proposed rule is being considered at all.

So with consumer advocates and consumers harmed by the industry practices urging stronger protections and the dealers’ flummoxed by the FTC’s move to usher in any changes at all, we take a look at what might be in store.

What prevalent dealer practices is the FTC aiming to address?

The rule proposes changes to curb predatory yo-yo financing schemes and ensure clarity when car deals are final; to rein in dishonesty and lack of transparency about the costs and usefulness of add-on products; and to shut down dishonest or misleading communications about the true price of a vehicle, from advertising to the terms of the sales contract.

Has the FTC done enough research to write a rule?

Over the past decade the FTC has held multiple roundtable events where it collected comments from consumers, advocates, industry representatives, state agencies, and others on the auto market. In 2020, the Commission released two reports related to a study of auto buyers’ experiences that was based on extensive interviews with a group of consumers. Many of the unfair and deceptive practices that the FTC has addressed in recent enforcement actions against auto dealers are also a focus in the proposed rule.

Does the auto buying market need additional rules?

According to the FTC, it receives over 100,000 complaints per year related to auto issues, while there are over 15 million auto transactions each year. According to the FTC’s 2020 study on auto buyers’ experiences, consumers suffered confusion and misunderstandings throughout the car buyer process. For example, some car buyers reportedly could not identify what add-on products they had purchased, and some did not know they had purchased any add-on products at all, likely due to dealers’ misleading and deceptive conduct. Additionally, a survey of consumer attorneys who represent consumers harmed in auto transactions found that consumers are vulnerable to fraud and abuse at every step of the car-buying process.

Would the proposed rule make buying a car simpler or more complicated?

Currently, auto transactions already involve a large volume of paperwork which unscrupulous dealers take advantage of to confuse consumers. For example, according to the FTC, dealers will slip unwanted add-ons and fees into paperwork that are difficult to spot and not properly disclosed. This can result in a car costing far more than a consumer expected. The FTC’s proposed rules and consumer advocates’ recommendations would reduce confusion by requiring dealers to be transparent about the key terms of a deal.

Will the cost of complying with the rule push smaller dealers out of the market?

The FTC has estimated that the cost of compliance with the proposed rule will total between $1.4 billion to $1.6 billion over a 10-year period. It also estimates there are over 46,000 used and new car dealerships in the United States. Spread evenly, compliance would cost each dealer roughly $3,500 per year. This amount is unlikely to impose a significant burden to most dealerships, including smaller ones.

Comments on the rule have included further suggestions to strengthen the proposal that the FTC may consider as it finalizes the rulemaking. The FTC will likely consider any changes these suggestions would make in the cost of compliance as it decides whether to implement them.

Are the proposed rule’s requirements too onerous for dealers to comply with?

Some states already have laws and regulations with similar or even stronger requirements for dealers. For example, the FTC points to an Oregon rule that requires dealerships to give consumers an actual “offering price” similar to what the proposal would require. The proposed rule also noted California and Wisconsin laws that require dealerships to advertise a total price that includes additional costs to the purchaser and other states that bar dealers from selling add-on product in certain cases. In addition, the New York City Department of Consumer and Worker Protection pointed to existing stronger protections for car buyers under local laws in its comment on the proposal. It also notes that even with strong protections in place, the city maintains around 500 licensed car dealerships. Further, the proposal is grounded in the FTC’s extensive previous auto-related enforcement actions. Dealers have had notice of much of the practices that the FTC would consider unfair and deceptive.

Why is a rule needed when there are already state laws regulating car dealers?

Car buyers and consumers in all states should be entitled to a guaranteed basic level of protection no matter where they live or do business. An FTC rule would establish a baseline of conduct that dealerships across the country should be required to meet. Additionally, section 463.9 of the proposed rule states it would not preempt any stronger state-level protections.




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