Avoid Taking These Routes When Advertising Vehicles

The auto industry recently applauded the defeat of the FTC’s Combatting Auto Retail Scams (CARS) Rule, which never took effect due to a successful court challenge. Yet, in the past few years, historical state and federal enforcement actions have materialized that contain dark shades of the CARS Rule without using the CARS Rule. The truth is that CARS was never really needed. In fact, roughly 90% of what would be considered unfair and deceptive acts and practices (UDAP) under CARS, were already considered UDAP violations under state consumer protection laws and Section 5 of the Federal Trade Commission (FTC) Act. For any dealers who are not believers, regulators have not shied away from proving otherwise.

Five precedent-setting cases from state attorney generals (AGs), in conjunction with the FTC, remind us that consumer fairness and transparency in the advertising and vehicle shopping process must remain top priorities. Let’s recap some of these recent legal actions and how they impact the routes that dealerships should take with advertised prices.

Case 1: Low Market Prices

An Illinois dealership group allegedly advertised vehicles at enticingly low prices, but when customers arrived, they were informed that those vehicles had pre-installed add-ons, and the add-ons weren’t included in the advertised price. The sales staff was also alleged to have expressed that the add-ons were required to be purchased for additional, undisclosed fees.

Result: $20 million settlement — the largest in history against a dealer group.

Plus, to avoid further action from the Illinois AG and the FTC, the dealer group was ordered to ensure:

Advertised vehicle prices include all mandatory dealer fees and add-ons;
Express, informed customer consent be obtained for any optional fees, products, or services sold; and
Clear and conspicuous disclosures exist for consumers setting forth that optional items are — just that — optional.

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Case 2: A Price Too Good to be True

An Arizona dealership was allegedly advertising vehicles at significant discounts, and when customers arrived at the dealership to complete the sale, they were told the advertised price was no longer available. Instead, the dealer allegedly added hundreds of dollars to sales for a so-called “market adjustment,” pre-installed add-ons, and miscellaneous fees. Finally, dealership employees allegedly told customers the add-ons were required to purchase the vehicle. (Are you noticing a trend yet?)

Result: $2.6 million judgment.

And to avoid further action by the Arizona AG and FTC, the dealership was ordered to abide by procedures that prevent unfair or deceptive acts or practices (UDAP) associated with vehicles’ advertised price.

Case 3: Hidden & Non-Optional, Optional Fees

A Rhode Island dealer was alleged to have included hidden fees in vehicles’ final sales prices and to have misstated that optional add-on charges were mandatory. Allegedly, these mandatory fees were not included in the advertised price of the vehicles, and it was never disclosed that optional add-on products and services were, in fact, optional.

Result: $1 million in customer refunds and a state fine.

Case 4: You Buy the Vehicle & Pay the Sales Commission

In Maryland, a dealership allegedly included an added sales commission in a vehicle’s final sales price, which was not disclosed in advertisements, and customers were unaware they could refuse it. Further, customers alleged there were significant charges tacked on for pre-installed equipment and that there were market adjustment charges that were never disclosed in advertisements.

Result: $3 million settlement plus consumer refunds.

To avoid further action from the Maryland AG and the FTC, the dealer was ordered to stop charging sales commission fees or similar fees.

Case 5: Phantom Prices & Rebates

Another Maryland dealer is alleged to have advertised vehicle prices that employees ultimately refused to honor, charged customers millions in “junk fees,” and published advertised prices that included a multitude of rebates that no one would realistically qualify for. The complaint contends that a sampling of transactions showed that 88% of the consumers paid more than the advertised price.

Result: Pending

Lessons Learned

In all of these cases, the dealerships have denied any wrongdoing, even in the 4 cases where there were settlements. What else do these cases have in common? Unhappy customers allegedly complained about mandatory fees that were not advertised. Here are a few non-exhaustive routes to consider that may help reduce customer dissatisfaction and legal liability:

Make certain that the vehicle price and all mandatory fees are disclosed in advertisements, in accordance with federal and applicable state law;
Clearly indicate in writing that optional products and services are optional, and only sell optional products and services to a customer if they materially benefit the customer and the customer acknowledged the selection in a manner that proves, in writing, that there was express, informed consent; and
Compare the advertised price and advertised disclosures to the final transaction documents.