The Federal Trade Commission is considering a move to eliminate junk fees and bait-and-switch advertising from the car-buying process, according to a notice of proposed rulemaking.
“For many Americans, buying a car is the most expensive purchase they will ever make,” FTC Chair Lina Khan and Commissioners Noah Phillips, Rebecca Slaughter, and Alvaro Bedoya said in a joint statement Wednesday. “And in this time of rising prices and supply shortages, it is vitally important that Americans not be deceived when purchasing a car, particularly when it comes to ‘junk fees’ or unnecessary add-ons.”
The proposed rule, which the agency is seeking comment on before deciding on whether it’s made final, would ban dealers from engaging in certain types of deceptive advertising, including over a car’s cost and terms of financing, just to get buyers in the door. If adopted, the rule would also block dealers from charging “junk fees” for unnecessary or surprise add-ons, such as nitrogen-filled tires that “contain no more nitrogen than normal air” or additions that the consumer did not first provide clear, written consent to, according to an FTC statement.
What’s more, dealers would have to disclose the “true offering price” to potential buyers, or the full price a consumer could expect to pay excluding taxes and government fees, the FTC said. A preliminary regulatory analysis estimated that the rule’s net economic benefit would be more than $29 billion over a decade, the FTC said.
(It’s unclear how the car-dealing industry will react as a whole; a spokesperson for the National Automobile Dealers Association, which represents more than 16,000 new-car dealers, said the group was still reviewing the proposed rulemaking.)
As for whether such provisions are necessary, the FTC said that over the past three years, it’s received more than 100,000 complaints annually regarding automobiles, adding in its announcement about the proposed rule that “tricks and traps” make it difficult for buyers to comparison shop. Khan, Phillips, Slaughter, and Bedoya said in their joint statement that FTC staff interviews with consumers showed buyers were unaware of which add-ons they’d purchased, if they realized they’d purchased add-ons at all.
Still, FTC Commissioner Christine Wilson said in a dissenting statement that while there was no question the commission’s staff was “motivated by the best of intentions” with their proposed rule, “regulatory schemes frequently fail to generate promised improvements for their intended beneficiaries.”
“Instead, they tend to create market distortions that stifle innovation, increase costs and prices, and ultimately harm consumers,” Wilson said.
Khan, Phillips, Slaughter, and Bedoya said in their joint statement that their proposed rule was “crafted carefully not to impose unnecessary burdens on the mostly small businesses in this industry.”