Let me state the obvious: things are changing fast and furious in our marketplace. The challenges come simultaneously from the Federal Trade Commission (FTC) and our manufacturers. Manufacturers are attempting to change the franchise model to an agency model used in Europe that gives substantial, if not complete, control over the retail process of selling a motor vehicle to the retail customer. Likewise, the FTC is attempting to create legal regulations to mandate precise actions by finance and insurance office employees.

The purpose of this article is to provide you with a summary of a proposed FTC rule which specifically deals with how a new motor vehicle dealer will be allowed to sell a motor vehicle and voluntary protection products to a retail customer. Currently, the proposed rule is receiving comments. The West Virginia Automobile Dealers Association (WVADA) has filed opposing comments on your behalf. Those full-length comments are available on the FTC and WVADA websites.

Amazingly, while a motor vehicle dealer is anxiously engaged in complying with the new safeguard rules – which are also implemented by the FTC if the FTC is successful in implementing these proposed regulatory changes – the FTC will dramatically change how any motor vehicle dealer operates within the finance and insurance office with the retail customer. The rule is only 13 pages long, but there are a total of 126 pages of explanation and rationale to consider.

Following is a summary of the more significant changes.

1. The proposed rule uses the broad term “add-on product(s) and service(s)” to encompass not only voluntary protection products but also those accessories which may be described as hard add-ons or accessories to a motor vehicle. After using the broad term “add-on product(s) and service(s),” the new FTC proposed rule will require an extremely detailed showing of how each “add-on product(s) and service(s)” must be disclosed to a retail customer. For example, the FTC states that the disclosure for each product or service must contain pricing for “the typical consumer” without really providing a standard or definition of what the “typical consumer” looks like.
   
   We all can appreciate that there is no “typical consumer” and that voluntary protection products can be customized. Extended service contracts come in a variety of terms and coverage and are priced differently depending upon the make, model and age of the vehicle. Consequently, there is no “typical consumer” in our marketplace to cover any one product.
   
   The proposed rule would require the dealer to disclose, clearly and conspicuously, a list of all “add-on product(s) and service(s)” on its website, online service, or mobile application. This requires disclosure of the pricing of these add-ons when advertising a motor vehicle.
   
   
2. One of the more significant changes is that a dealer would have to provide the motor vehicle’s cash price without any optional “add-on product(s) and service(s)” so that the customer can purchase the vehicle without considering any voluntary protection products. This would be called the “offering price.” This could certainly change the dynamic of the transaction and vehicle pricing when many dealers currently look at the transaction as a whole instead of only focusing on the price of the motor vehicle. I believe this will undoubtedly increase the price of motor vehicles for retail customers.
   
   
3. The FTC has also proposed a rule requiring that all disclosures be “clear and conspicuous” and uses a seven-part test to illustrate this standard. The proposed rule generally defines “clear and conspicuous” as “difficult to miss (i.e., easily noticeable) and easily understandable . . .”
   
   
4. This “clear and conspicuous” standard will further be complicated by the requirement that the motor vehicle dealer will have to prove that a customer gave their “express, informed consent” when purchasing any “add-on product(s) and service(s).” The proposed rule literally states that a mere signature or customer initials on a form or a “checkmark” on a pre-printed box will not be enough to be the customer’s “express, informed consent” to purchase “add-on products and services.” First, this is an amazing statement to make and denies any rational and reasonable way by which business is conducted. Second, this will require additional documentation or language on all disclosure forms, which contradicts the FTC’s consistent statements that the transaction to buy a motor vehicle is too complicated and confusing, which increases the likelihood of consumer confusion.
   
   
5. The new FTC rule also contains language which prohibits misrepresentations about “the cost or terms of purchasing, financing or leasing a vehicle,” or “any cost, limitation, benefit or any other material aspect of an add-on product or service,” and even one broader that states “the availability of any rebates or discounts that are factored into the advertised price but not available to all consumers.”
   
   Of course, these are already governed by our West Virginia Consumer Credit and Protection Act and other West Virginia common law governing misrepresentation, actual fraud and constructive fraud. In addition, there exist federal laws that govern advertising. This proposed rule can lead to inconsistent application or interpretation of existing laws and makes it very difficult to determine how to interpret and apply current relevant law.
   
   
6. One interesting attempt by the FTC is to govern what we refer to as “conditional delivery.” The new proposed section would prohibit misrepresentation that a dealer would keep cash down payments or trade-in vehicles, charging fees or initiating legal process or any action if a transaction is not finalized or the consumer does not wish to engage in the transaction.
   
   This is an overt attempt to control conditional deliveries to customers. I would encourage our West Virginia dealers to take this opportunity to review their conditional delivery or spot delivery forms to make sure that they are very clear on how this legal contractual “condition subsequent” will operate and what remedies may be available to a dealer should a consumer either misuse or damage a motor vehicle while in their possession.
   
   
7. The FTC would make it a violation for a dealer to misrepresent “whether or when a motor vehicle will pay off some or all of the financing or lease on a customer’s trade-in vehicle.” This is a blatant misunderstanding of who is in control of this fact. While a dealer will promptly attempt to initiate these actions to obtain its monies and funding, it is up to third parties to determine how quickly the motor vehicle is paid off and when a new title can be given on a purchased motor vehicle. Dealers are at the mercy of various lenders and how soon the Department of Motor Vehicles (DMV) can process titles. While our own DMV is making great strides and progress with electronic titling, again, this is placing a burden on the motor vehicle dealer, which is outside their control.
   
   
8. Interestingly, the FTC is attempting to promulgate more rules that control prizes and sweepstakes, how motor vehicles can be repossessed and representations about the exporting of vehicles. This seems rather strange as already existing laws govern these scenarios.
   
   
9. The FTC is attempting to place new record-keeping rules within this proposed rule even though they have passed the comprehensive new safeguard rule with which we are all striving to comply by the deadline on Dec. 9, 2022. For example, the new record-keeping requirements would require that a motor vehicle dealer maintain, for 24 months, all records “necessary to demonstrate compliance with this proposed rule.” They list things such as all advertisements, sales scripts, training materials and marketing materials, all add-on lists and all documents describing the products and services offered to customers, all purchase and lease orders, all financing documentation and communications, and all written consumer complaints related to sales, financing or leasing, and of course, the add-ons.
   
   
10. Perhaps the most blatant part of this proposed rule would strictly govern how dealers actually do business within the F&I office and how presentations of “add-ons” must be made. The dealer must disclose the “offering price” only for a vehicle referenced in advertising or the first response to an inquiry by a customer. This would prevent a dealer from offering various voluntary protection products as a “package” to a consumer to distinguish the value it can provide to the consumer, who would be comparing it to other dealerships.

The dealership would have to “clearly and conspicuously” advise the consumer of the “cash price” as well as any discounts, rebates, trade evaluation and required government charges separately. Remember, West Virginia documentary fees are not “required government charges.” Be careful about confusing the two. Only after the dealer obtains a signed written declination from the customer stating they do not wish to buy only the car can the dealer discuss add-on products and services. That is correct: you would have to have the customer decline, in writing, purchasing the car before discussing voluntary protection products.

The rule would then require the dealer to address each add-on product or service separately and disclose each price clearly and conspicuously before moving on to the next add-on product or service. This is fraught for honest mistakes in which no one is harmed or misled.

The National Automobile Dealer Association (NADA) and most state associations have submitted opposing comments. I hope you have also taken the time to voice your opposition to these regulations, as numerous statutory and common laws prevent the actions that the FTC is attempting to control arbitrarily.
Of course, all these arbitrary steps and requirements are being mandated in a market where the brick and motor vehicle dealer is pressured to streamline the retail process and make retail transactions more efficient. I believe it is reasonable to predict that the proposed FTC rules will not only increase the cost of a motor vehicle and voluntary protection products to the consumer but will also require new forms to be created and old forms to be modified to comply with the express informed consent language within the rule. These rules counter how a consumer wishes a motor vehicle transaction to occur these days.

I also believe that the FTC rule ignores the reality that the overwhelming majority of motor vehicle purchasers have purchased many cars over their lifetimes and are familiar with the process. To place an additional burden on these sophisticated consumers who regularly engage in financing transactions is unnecessary and duplicative of existing law.

I apologize in advance for the serious tone of this article, but again, overzealous and arbitrary regulations are being imposed on our industry. The West Virginia Dealer’s Association is closely monitoring this and will keep you advised as this proposed rule proceeds. The Association stands ready to assist you in any efforts to comply with existing and future regulations.