July 13 -- The Federal Trade Commission (“FTC” or “Commission”) seeks comment on this notice of proposed rulemaking (“NPRM”) related to the sale, financing, and leasing of motor vehicles by motor vehicle dealers. The proposed rule would prohibit motor vehicle dealers from making certain misrepresentations in the course of selling, leasing, or arranging financing for motor vehicles, require accurate pricing disclosures in dealers' advertising and sales discussions, require dealers to obtain consumers' express, informed consent for charges, prohibit the sale of any add-on product or service that confers no benefit to the consumer, and require dealers to keep records of advertisements and customer transactions. This NPRM invites written comments on all issues raised herein and seeks answers to the specific questions set forth in Section VIII of this document. Comments must be received on or before September 12, 2022.
Background
Buying or leasing a motor vehicle is, for many consumers, both essential and expensive. Millions of Americans depend on vehicles for daily living, with recent data showing that over 95% of American households own at least one motor vehicle, and nearly 84% of Americans drive to work as of 2020. Americans rely on their vehicles for work, school, childcare, groceries, medical visits, and many other important tasks in their daily lives. This necessity does not come cheap: a new vehicle is the second-most expensive purchase many consumers make, falling only behind purchasing a home. For purchases at new car dealerships, the average new vehicle now sells for more than $42,000, and the average used vehicle sells for more than $26,000. All told, Americans spent more than $2.8 trillion dollars on motor vehicles and vehicle parts in 2021.
Given how expensive it can be to buy a vehicle, many consumers rely on financing to complete their purchases. Indeed, according to public reports, 81% of new motor vehicle purchases, and nearly 35% of used vehicle purchases, are financed. The motor vehicle financing market is the third-largest consumer credit market in the United States, after mortgages and student loans. By the end of 2021, Americans had more than 111 million outstanding auto loans, and owed more than $1.46 trillion thereon. Motor vehicle financing is the third-largest source of debt for U.S. consumers under the age of 50, and the second-largest source of debt for those 50 and older.
Buying or leasing a vehicle is not only an expensive endeavor, but the transaction itself is time-consuming and arduous. Consumers who purchase vehicles at a dealership may spend five hours or more—or even days—doing so. And that does not include the time spent visiting dealerships when consumers do not make purchases, or the hours it can take to travel to the dealerships themselves. Consumers may need to take time off work and arrange daycare or take young children to the dealership, and the process can be especially taxing for one-vehicle families who also need their vehicle for commuting and day-to-day tasks like buying groceries and attending medical appointments.
The Commission, the nation's consumer protection agency, is charged with enforcing key laws and regulations applicable to the motor vehicle marketplace, including sales, financing, and leasing. The FTC protects consumers in motor vehicle transactions through law enforcement actions, rulemaking, consumer education, and business guidance, aided by information-gathering efforts such as agency roundtables and industry research. In the past ten years, the FTC has brought more than 50 motor vehicle-related enforcement actions, including matters involving misleading motor vehicle advertising, financing paperwork falsification, “yo-yo” financing, deceptive and unfair add-on fees, discrimination, and privacy and data security issues. At the same time, the FTC has conducted a qualitative study of consumer experiences and hosted public events to engage in a dialogue with consumer and dealer groups and other stakeholders, gather information, spotlight misleading practices, and raise awareness of issues that can affect consumers in this space, including consumers who are servicemembers. The FTC also has posted many educational materials to assist consumers and dealers on motor vehicle market issues, and we have worked collaboratively with industry groups to do the same.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) was signed into law in 2010. Section 1029 of the Dodd-Frank Act authorizes the FTC to prescribe rules with respect to unfair or deceptive acts or practices by motor vehicle dealers, and to do so pursuant to the Commission's authority under the FTC Act and in accordance with the Administrative Procedure Act (“APA”). Although it has engaged in law enforcement, the Commission's relatively small size and limited resources make it challenging to investigate and act upon the tens of thousands of complaints regarding dealerships. As discussed below, many of the problems observed in the motor vehicle marketplace persist in the face of repeated federal and state enforcement actions, suggesting the need for additional measures to deter deceptive and unfair practices. In addition, a rule prohibiting unfair or deceptive acts or practices in the motor vehicle marketplace would allow the FTC to seek redress for harmed consumers and obtain other forms of monetary relief in cases involving FTC Act violations. Further, law-abiding dealers suffer when other dealers gain business through deceptive or unfair means. For all these reasons, the Commission believes it is appropriate to utilize its rulemaking authority to issue a rule to address unfair or deceptive acts or practices in the motor vehicle marketplace. . . .
The Commission seeks comments on various aspects of the proposed rule. Without limiting the scope of issues it seeks comment on, the Commission is particularly interested in receiving comments on the questions that follow. Responses to these questions should be itemized according to the numbered questions in this document. In responding to these questions, include detailed, factual supporting information whenever possible. [49 questions posed.] . . .
Conclusion
In the preceding Preliminary Regulatory Analysis, we have attempted to catalog and quantify the incremental benefits and costs of the provisions included in the proposed rule. Extrapolating these benefits out over the 10-year assessment period and discounting to the present provides an estimate of the present value for total benefits and costs of the proposed rule, with the difference—net benefits—providing one measure of the value of regulation.
The present value of benefits for consumers from the proposed rule's requirements over a 10-year period using a 7% discount rate is estimated at $31.1 billion. The present value of costs for covered motor vehicle dealers of complying with the proposed rule's requirements over a 10-year period using a 7% discount rate is estimated at $1.4 billion. This generates an estimate of the present value of net benefits equal to $29.7 billion using a discount rate of 7%. Consequently, this Preliminary Regulatory Analysis indicates that adoption of the proposed rule would result in benefits to the public that outweigh the costs.
FRN:
https://www.federalregister.gov/d/2022-14214 [37 pages]
