Decision made regarding the Vehicle Shopping Rule – now what?

The Fifth Circuit Court of Appeals vacated the Combating Auto Retail Scams (CARS), also referred to as the Vehicle Shopping Rule, in a 2-1 decision on January 27.

What does this mean for you?

While this is a huge victory for auto dealers nationwide, the decision shouldn’t be viewed as permission to ignore the Rule’s warnings and requirements. Many of those requirements were already being enforced by the Federal Trade Commission (FTC), and they will continue to take actions against dealers for violating existing laws and regulations.

Your compliance strategy should remain a top priority, and there are five key lessons to take away from the Vehicle Shopping Rule you can use as best practices to avoid becoming a target of the FTC.

1) Be Transparent About Trade-in Pay-off Procedures

When it comes to a lien payoff, there are two key responsibilities:

• Who is financially responsible for paying the existing lienholder.
• Who is responsible for handling the logistics of sending the payment to the lienholder.

Giving the impression that you are taking on one of those responsibilities when you are not raises concerns. You need to be clear and straightforward in describing the trade-in process and that the customer will ultimately be financially responsible for the payoff.

2) Understand and Apply Express, Informed Consent

You can read how the Rule defines express, informed consent here, but why does it matter? Since you’re already subject to these requirements, you need to think about whether or not you’re securing the customer’s express, informed consent now.  Are you being transparent with transaction charges?

The best way to avoid issues with express, informed consent is to appropriately itemize and review charges in your transaction documents and remain transparent with your customer about what they are being charged for and how much the charge will be.

3) Include Required Products and Services in the Advertised Price

Does your advertised price include required products or services? Products and services are an area of high risk for dealers, and recent trends tell us it’s important to adjust documentation and advertising to accommodate services or pre-installed equipment.

Let’s say you have a customer shopping online for a vehicle and the base price shows $34,999, but when they come into the dealership it’s $44,999 due to pre-installed add-ons. This is considered bait and switch if it is not made clear that the vehicle model being advertised has additional features the customer is required to pay for.

Not including these items is a major issue and could make you a target for FTC enforcement actions.

4) Avoid “Junk Fees”

The FTC’s proposed junk fee rule (which doesn’t apply to dealers), breaks down junk fees into two key categories:

• Hiding the fees so the customer cannot find them.
• Misleading the customer about the nature or purpose of the charge.

Recently enforced examples include advertising a CPO vehicle for a specific price without including all the fees associated with purchasing the vehicle, charging fees communicated as “required” when they weren’t, and charging double for taxes and/or document fees.

5) Be Honest About Optional Products and Services

Optional Products and Services is one of the most scrutinized areas of risk right now in the F&I transaction, with recent substantial settlements suggesting this is a key area of focus for the FTC.

Some common problems the FTC has noted include:

• Deceiving customers to believe a product or service is required.
• Labeling the product or service to create the impression that it is a required charge.
• Charging customers for add-ons they were told were free.

The bottom line is customers must be aware if products or services are optional and not required. It’s important to review your processes and procedures to determine if you are appropriately advising the customer on what is optional and what is not.

Staying Ahead

While this decision is a welcome reprieve from some of the overwhelming burdens and requirements the Vehicle Shopping Rule would have caused, it should not give anyone a false sense of security. As always, you should review your processes, documents, and training to ensure they are meeting obligations and complying with existing laws and regulations.

Related Articles: