Car buyers should pay attention to costly problems while new transparency rule is on pause

The regulatory hammer was set to come down July 30 on highly questionable car sales tactics — such as selling service contracts for oil changes for EVs that don't need oil or burying in the fine print that you must have an exceptional credit score above 800 to qualify for a heavily advertised 0% car loan.

The Federal Trade Commission finalized its CARS Rule — the Combating Auto Retail Scams Rule — on Dec. 12, 2023, with talk about bringing more transparency to car buying and leasing.

But just a month later the FTC ended up announcing a delay in the start date after two auto dealer powerhouses — National Automobile Dealers Association and the Texas Automobile Dealers Association — raised legal challenges and asked for further review by the conservative U.S. Court of Appeals for the 5th Circuit in New Orleans, which covers Texas, Louisiana and Mississippi.

While the CARS Rule isn't going into place in July, car buyers should pay attention to the areas where the FTC has spotted costly problems, such as junk fees or hidden charges that do not benefit the consumer. Knowing where to look for trouble can help you avoid bad actors in the industry.

Under the CARS Rule now on pause during the court battle, dealers would not be able to charge an additional amount for a warranty that duplicates coverage that's already in place. Dealers would need to maintain all records for 24 months that could show if they complied with the rules, including marketing materials.

Consumers had plenty of complaints on car buying process

Thousands of consumers shared their complaints about the car buying process with the FTC, often mentioning how much time they wasted chasing a deal that wasn't available or didn't apply to them. Many ended up spending more money buying the car or truck just to avoid undergoing the hourslong process once again somewhere else.

A public comment period was held in 2022 — a time that saw semiconductor chip shortages, tight inventories after the COVID-19 pandemic, and sky-high prices for new and used cars and trucks.

"Please regulate the automobile dealerships, especially now when it seems they are at their worst with these ridiculous add-on fees," one consumer stated, mentioning extra fees for paint and upholstery protection that were not added at the manufacturer, as well as the practice of charging more for a popular vehicle than the manufacturer's suggested retail price.

The FTC heard plenty of grumbling from consumers, including one such gem: "If we had to do our grocery shopping the same way dealers want us to buy a car, most Americans would starve before sunset. 'What kind of monthly payment are you looking for in a banana?' is a conversation I should never be forced to have."

The National Auto Dealers Association, which has challenged the FTC rule in court and held workshops for dealerships on the regulations, says the rule is "simply terrible for consumers, adding massive amounts of time, complexity, paperwork and cost to car buying and car shopping for tens of millions of Americans every year." The NADA did not respond to questions and inquiries from the Detroit Free Press.

Know the 'drive-off-the-lot price'

Auto dealers, under the CARS Rule, would be required to tell you the offering price upfront for the car or truck — its full cash, true out-the-door price before any required taxes and license and registration costs.

"If anything is pre-installed, like a premium paint package or something like that that actually can't be removed, then it has to be in the price so that people know that going in when they're comparison shopping," said Dan Dwyer, staff attorney at the FTC's bureau of consumer protection, division of financial practices.

The theory is the consumer has the "right to know the drive-off-the-lot price." When it comes to optional add-ons, the dealer would be required to tell the consumer they can say no. The CARS Rule would make it illegal for dealers to charge consumers for add-ons that don’t provide a benefit. One example provided by the FTC: Charges for “nitrogen-filled tires” that contain no more nitrogen that naturally exists in the air.

Confirm the car or truck even exists on the lot

Consumers, of course, start shopping for a new or used car or truck by looking at newspaper ads, scanning inventories of vehicles at individual dealership websites, and pricing makes and models at sites, like Kelley Blue Book and Edmunds.

Right now, shoppers are advised to contact the dealer before going to a car lot in person if they spot a car or truck online with a great price. "Ask the dealer to confirm that the vehicle is actually on the lot and to send you the 'out-the-door' price — in writing — before you leave home," the FTC advises. "The out-the-door price should include all charges and fees."

"We really do recommend trying to do some shopping in advance if they can," Dwyer told the Detroit Free Press. "To the extent someone finds a vehicle they like, we recommend they reach out to the dealer before leaving home."

The consumer's bargaining power is the greatest, he said, before you go to the dealership. It's key, Dwyer said, to know: "If you theoretically handed the dealer a stack of cash, what would you have to pay for that vehicle?"

Sometimes, consumers have run into cases where they get to the dealership, the FTC warns, "only to learn that the vehicle isn’t available at that price or wasn’t on the lot to begin with."

If that car isn't available, the dealer might try to sell you on a higher priced car or truck, the FTC warns.

Shop for a car loan early, dig into details

Some common advice during car shopping: Take time to shop for a car loan and find the best rates that you can get from local banks, credit unions or online lenders before you go car shopping.

Get a copy of your credit report for free in advance at www.annualcreditreport.com to make sure there aren't any mistakes that might drive up your interest rate on a car loan. Free weekly online credit reports are available from Equifax, Experian and TransUnion.

Here are a few other costly tricks to avoid:

Dig into the details: Right now, it is extremely important to understand upfront what discounts might apply to you before you get too far into negotiations. Say you're attracted to an offer of 0.9% on a 60-month car loan. What kind of credit score will it take to get that low rate? How long is that rate available? What kind of down payment would you need? What are the financing terms for bigger loans with a smaller down payment?

Consumers continue to deal with elevated interest rates. On average, the annual percentage rate for a new car loan was 7.3% in the second quarter of 2024, according to new data from Edmunds.com. That's up from 7.1% in the first quarter. We're looking at the sixth consecutive quarter that new-vehicle APRs have hovered above 7%.

Car payments are high as well. The average payment on new cars and trucks reached an all-time high of $740 a month in the second quarter, up from $735 in the prior quarter and $733 a year ago, according to Edmunds.com. About 17.8% of consumers who took out loans in the second quarter had payments of $1,000 or more a month.

Roughly 70% of new-vehicle loans taken out in the second quarter had terms that exceeded 60 months or five years. The average term was 69 months — or nearly six years.

Under the CARS Rule, the dealer would have to disclose more information about the total cost of your car payments over the life of the car loan, if they talk about monthly payments with you. Getting a lower monthly payment might mean extending the life of the loan from 60 months to 72 months or longer — and consumers need to fully understand that total cost.

If a dealer makes a comparison between payment options that includes a discussion of a lower monthly payment, the dealer would be required under the CARS Rule to "clearly disclose that the lower monthly payment will increase the total amount the consumer will pay to buy or lease the vehicle, if that’s the case," the FTC stated. If the dealer makes the representation in writing, the disclosure must be in writing, too.

One consumer told the FTC, as part of the comments process: "The dealer was also so twisted up on getting me to focus on the monthly payment and not the total price of the car and that is where they were able to sneak the price up. Practices like this are also why people have such a disdain for purchasing a new/used car."

Bait-and-switch tactics. Under the CARS Rule, bait-and-switch tactics would be prohibited. "It is unfortunately quite common to see advertising or other commercial representation that really underscore attractive terms," Dwyer said, "but those terms aren't generally available or maybe not even available at all."

The misrepresentation undercuts another, more reputable dealer who is selling a car or truck that wrongly looks far more expensive in comparison. But the reality is that the advertised super low price on a car that isn't available is simply bait to lure customers into the dealership. Ultimately, the shopper ends up overpaying or wasting a great deal of time before walking away after getting to the ugly, final bottom line.

Car dealers, Dwyer said, would not be able to lie or be deceptive about cost and financing terms. The rule would prohibit dealers from misrepresenting the availability of discounts or rebates.

Some deals only apply to a current lessee, a recent college graduate, someone in the military, someone who finances with a particular bank, or meets some other criteria. Or you could need an extra-large down payment to qualify.

Take a close look at dealer add-ons and extra fees: Under the CARS Rule, consumers would need to be told that they don't have to buy add-ons, like etchings of a vehicle identification number on the window.

Right now, study the paperwork to see if there's a $200 charge for nitrogen filled tires or a $999 charge for dealer add-on paint protection. Don't sign incomplete paperwork, which the dealer promises to fill in later.

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The FTC, Dwyer said, has brought dozens of law enforcement actions in recent years including those involving deceptive advertising or bait-and-switch tactics when dealers promote one price but ultimately charge buyers much more after they spent hours on the lot. The FTC also is addressing junk fees, he said, for add-ons or services that don't benefit the car buyer or fees that buyers might believe are mandatory when they are not.

Many times, he said, such fees are buried in contracts that consumers are presented with at the end of long hours shopping for the car they want.

According to FTC estimates, the CARS Rule could save consumers overall more than $3.4 billion and 72 million hours of shopping time each year.

The military and their family members would receive special protections. Service members have an average of twice as much auto debt as civilians. By the age of 24, about 20% of young service members have at least $20,000 in auto debt, which equates to nearly two-thirds of an enlisted soldier’s typical base salary at that age, the FTC stated.

The CARS Rule — which has the support of many consumer advocacy groups — still gives consumers some guidance now, even during the legal haggling.

"It reflects the commission's assessment of what should be happening in order to avoid unlawful conduct now," Dwyer said.

The FTC continues to watch out for practices that harm consumers and honest car dealers, even while the CARS Rule is on pause, Dwyer said. Consumers can file complaints about unfair auto practices at [email protected]. The FTC also offers car buying tips at FTC.gov/cars.

Contact personal finance columnist Susan Tompor: [email protected]. Follow her on X (Twitter) @tompor.