The Federal Trade Commission (FTC) has proposed barring finance & insurance coverage and vehicle add ons that it maintains “provide no benefit.”
The federal organization also proposes requiring expanded disclosure and consent on these optional products and listing their prices online.
The FTC also hopes to crack down on dealership advertising related to the cost of the vehicle itself.
The agency approved the June 27 notice of proposed regulations in a 4-1 vote, in which Commissioner Christine Wilson dissented. The FTC news released referred to add ons and F&I products as “junk fees” with four commissioners acknowledging in a separate statement that not all add ons provide no value.
The proposed new rule, if passed, will be the agency’s first regulation since the Dodd-Frank Act of 2010, which continued and expanded the FTC's authority over auto dealerships. The proposed rule also will allow the FTC to seek financial redress for customers, something prohibited earlier by the Supreme Courts in AMG Capital Management LLC v. FTC.
The FTC plans to open a 60-day window for public comment on the proposal soon.
"As auto prices surge, the commission is taking comprehensive action to prohibit junk fees, bait-and-switch advertising and other practices that hit consumers' pocketbooks," FTC Bureau of Consumer Protection Director Samuel Levine said in a statement June 27. "Our proposed rule would save consumers time and money and help ensure a level playing field for honest dealers."
The FTC's proposed regulations include:
- Bans on products without benefit. Under the rule, dealerships cannot sell nitrogen-filled tire products and services that do not contain more nitrogen than what exists in the air, coverage duplicating a vehicle’s warranty, or guaranteed asset protection (GAP), which covers the difference between a loan balance and the vehicle's cash value in the event of a total loss, also would be forbidden "if the consumer's vehicle or neighborhood is excluded from coverage or the loan-to-value ratio would result in the consumer not benefiting financially from the product or service."
- Posting a complete list of optional add-ons and their prices online. If the price of the F&I products vary, dealerships can post a range "the typical consumer would pay." The FTC defines add ons as anything sold by a dealership not provided by the automaker, including intangible F&I coverage.
- Bans on misleading pricing advertising.
- Written price disclosures. The seller must inform the customer of the vehicle’s price, with and without financing and have them decline in writing all optional additions and F&I coverages. The customer and a dealership manager must sign a document agreeing to a different fee when prices differ.
- Dealers must show "Express, Informed Consent" on F&I products and other add-ons. The FTC reports this must be "an affirmative act communicating unambiguous assent" and go beyond "a signed or initialed document, by itself" or "prechecked boxes."