Understanding the FTC’s Enforcement Tools and How You Can Create Your Path to Compliance

The Federal Trade Commission (FTC) has intensified its focus on dealerships and is attempting to add new regulatory practices to their already robust arsenal. If found non-compliant, dealerships could be faced with multi-million-dollar enforcement actions.

What do you need to do to avoid the crosshairs of the FTC? Stay up to date and educated on the various regulations, such as the newly introduced Vehicle Shopping Rule (the Rule), and the FTC’s enforcement authority.

What to Know About the Vehicle Shopping Rule

Although originally slated to become effective on July 30, 2024, implementation of the Rule has been put on hold due to pending litigation in Texas. The Rule is attempting to accomplish a multitude of things such as:

• Standardizing a transparent “Offering Price” across the industry
• Requiring certain disclosures for payments
• Prohibiting material misrepresentations
• Establishing the need to document “express-form consent” for any charges
• Setting forth new recordkeeping requirements for advertisements, sales scripts, and consumer complaints

While the implementation delay may provide some temporary relief to dealerships, the FTC’s regulatory authority extends far beyond this specific regulation. Alongside the Rule, it’s essential for dealerships to familiarize themselves with the other laws frequently enforced by the FTC.

The Federal Trade Commission Act

A large portion of the FTC’s enforcement authority comes from the FTC Act. Specifically, Section 5 of the Act prohibits unfair and deceptive acts and practices (UDAP).

So what does this mean for dealers? Generally speaking, dealers cannot make any material representation, omission, or practice that has the capacity or tendency to mislead a consumer. In recent enforcement actions, the FTC has used this law to address false advertising, providing false customer information to lenders, or misrepresentations about voluntary protection products (VPP) – also known as add-ons.

Equal Credit Opportunity Act

The Equal Credit Opportunity Act (ECOA) prohibits discrimination in any aspect of a credit transaction. This includes discrimination on the basis of race, color, religion, national origin, sex, marital status, age (so long as applicant has the capacity to contract), receipt of public assistance, or in good faith exercises of any rights the Consumer Credit Protection Act.  Typically, credit discrimination falls into two categories:

• Intentional discrimination — When a customer’s credit opportunities are influenced by considering prohibited factors or by a difference in treatment that cannot be explained by legitimate, nondiscriminatory factors.
• Disparate impact discrimination – When a neutral policy or practice disproportionately excludes or burdens certain people on a prohibited basis.

ECOA issues arise in the dealership when there’s a disparity in finance charges or VPP pricing between classes of customers, or when employees have unrestricted discretion on dealer reserves.

Truth in Lending Act

The Truth in Lending Act (TILA) requires, among other things, that creditors make certain disclosures in transaction documents and advertising regarding vehicle financing.

Enforcement actions, in relation to this act, often focus on the dealership’s “failure to disclose” required information.  For example, the dealership fails to disclose the vehicle’s term of repayment, down payment, or APR when required. This violation is highly litigated.

The Path to Compliance

While there is a lot of attention on the FTC’s Vehicle Shopping Rule, the previous enforcement actions highlight the vast regulations the FTC enforces that can result in six and seven-figure settlements for dealers.  The FTC Act, ECOA, and TILA are just a few examples of the numerous tools used by the FTC on advertising and sales practices.

Ready to take control of your dealership’s compliance? Start off with the Under the FTC’s Microscope: Avoiding Advertising and Sales Violations webinar. In the event recording, you can discover what dealer activities are being targeted, what you need to know about new regulations, and what actions you can take to avoid the FTC’s crosshairs. Don’t wait until it’s too late, create your path to compliance today.

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