FTC CARS Rule [Full Keynote] "The State and Future of the FTC CARS Rule"

well we're here to talk this morning about the cars Rule and I have been studying this since it was proposed and it is awful as bad as you think it might be I'm here to tell you this morning that it is probably worse take a look at its title A tortured acronym combating Auto retail scams the cars rule it indicates that we are all in an evil industry we are in the business of scamming people and we know that that is not true we are in the business of helping people with the second biggest transaction and the largest repeated transaction that most people have in their adult lives we don't scam people we serve people and the fact that what was originally published as the motor vehicle retailer sales regulation rule that's what it went out as and then it gets published as combating Auto retail scams tells you everything you need to know about what don't want to get political but our current Administration thinks about our industry okay disclaimer I am a lawyer I'm not your lawyer move on ah my old friend government's view of the economy could be summed up in a few short phrases If It Moves tax it if it keeps moving regulate it and if it stops moving subsidize it ah yes well this is an example of number two if it keeps moving regulate it and in this case over regulate so what is the cars rule well it's a trade regulation rule that is issued under the authority of the Federal Trade commission act that is technically what the thing is so think of Regulation Z issued under Tila the truth and lending act Tila is the authorizing legislation Regulation Z is the implementing regulation it gives you the details so laws tend to be short regulations tend to be very long and very detailed that's the nature of the cars rule here's what it does these are the published rationals for the cars rule this is what the Federal Trade Commission says they are attempting to do this is their intention one it prohibits misrepresentations about material information in other words lying in other words fraud take a step back are you trying to tell me that fraud is currently legal and the Federal Trade Commission just discovered it great Scott there are people lying in car dealerships we must make this illegal really number two it requires dealers to clearly disclose the offering price the actual price anyone can pay to get the car excluding only required government charges such as taxes you know battery fees guess what that's currently the law right now it happens to be honored in the breach almost universally in other words dock fees where legal currently today need to be included in the advertised price no one does that virtually no one and why do dealers not advertise the full price two reasons one is all of my competitors are not including that in the advertised price and if I put my doc fee in the advertised price I won't get any customers Fair until everyone complies those who comply are at a competitive disadvantage and that is not fair but the other reason is this and it actually I think serves the customer how many people really shop Topline price or bottom line price most people do not have $52,000 in their checking account right now they can't stroke a check they can't be a cash customer so what they care about is what is the monthly price generally prices are quoted when you get down to negotiation as monthly price because that's what people care about they're not paying cash they want to know can I afford it in my monthly budget um this whole rule is going to take the the conversation away from how customers want it to go it goes this way because that's what customers want and expect if all they wanted to know was on the rim and out the door price we'd be quoting that number three makes it illegal for dealers to charge consumers for add-ons that don't provide a benefit two things one they don't call it an fni product they don't call it a voluntary protect ction product they call it an add-on now doesn't an add-on sound like it has no value it tells me you're being nickel and dimed to death the Federal Trade Commission worked hard on this vocabulary they worked hard to make the industry we serve look bad the products that you sell they're trying to reduce to a triviality an add-on like a convenience fee at Ticket Master yeah that's that's not fair and it's not right but guess what charging people for something that doesn't do something is still illegal it's still fraud they only had two examples they could come up with one selling nitrogen nitril without putting it in the tires that's always been illegal that's like selling a car and not giving it to you and that's the best example they could come up with by the way in defense of nitrofill when I was in private practice in DC representing government contractors one of my clients was a company that created nitrogen machines sucks in the ambient oxygen ambient atmosphere and separates it out into oxygen and nitrogen did you know the United States Navy will not deploy an aircraft carrier without not one but two functioning nitrogen gen generators on board too because if one breaks you still need the other one why they won't let their uh aircraft fly without nitrogen in their tires that's true because the tires last longer and they hold their pressure longer the Navy will not let you fly without nitrogen in your tires there's value there now is there $44,000 worth of value probably not but appropriately priced nitril is a perfectly legitimate product and it shouldn't be picked on by people who've never sold a car the other example they had was gap on a cash deal if you can do that you're strong but their example was selling Gap where you can't sell it cash deal or if you have you know a 90% down payment those are the only examples they could even come up with theoretically your products are not illegal and I don't call them add-ons they have value and people should be able to choose to buy them without the government telling them it's a really really bad idea and it gets worse number four requires dealers to get consumers Express informed consent before charging them for anything I will get into the minutia of this shortly but let me tell you if there's one thing that has to go from the Cars rule it is this their definition of Express informed consent and how you confirm it is going to make the transaction take longer be more miserable make it vastly more difficult to sell any voluntary protection products it's going to Crater customer satisfaction CSI is going to drop through the floor and it's going to cost customers more money other than that it is a great deal let's go into a little bit of detail why do you need a rule when all this stuff is already illegal trying to make it more illegal well there's this case AMG Capital Management versus the Federal Trade Commission this is about three years ago and in that case AMG Capital Management which was a payday loan company they were accused of doing ugly things I don't know if they did them or not doesn't matter what matters is they were fine 1.27 billion dollar find $ 1.27 billion dollar I track FTC enforcement actions particularly in the automotive space this is the biggest fine ever and this one was levied during the Trump Administration three three Republican Commissioners two Democrats at the time so most fines are a million bucks 10 million bucks but you know what if you only got fined 10 million bucks and I'm your lawyer and you want to take this to the Supreme Court we got to get through the appell at courts then we got to go to the Supreme Court if you get CT it's going to cost you $10 million most people just pay the fine or really really big fines like uh LifeLock got about about a decade ago um they were fined approximately $100 million but 90 million was stayed as long as you stay good you won't have to pay that 90 million guess what they weren't good and they did have to pay it the point of this is this most people don't take these fines all the way to the Supreme Court it does not make economic sense but when you find someone $1.27 billion you can't afford not to litigate it all the way to the Supreme Court of the United States and AMG Capital Management did and guess what the Supremes in a 990 unanimous decision ruled in favor of AMG they said the Federal Trade Commission has no statutory authority to assess fines I've been saying this for 25 years it's I'm glad the Supremes have finally caught up and by the way this is an incredibly shocking result devastating to the Federal Trade Commission 54 you could say it's politics 90 they can't agree on what to order on their Pizza 990 so this is an incredible slam on the Federal Trade Commission assessing fines under a rule that wasn't authorized by the act so the FTC is no longer able to find violators right out of the box what they've always had the right to do is get injunctive relief Thou shalt not AMG Capital Management Thou shalt not charge minorities more for payday loans and if you violate that consent order that injunction then you may find them but the but the Federal Trade Commission has never had the right to fine companies right out of the box because they always relied on Section Five of the Federal Trade Commission act saying you can you know enforce unfair and deceptive acts enjoy unfair and deceptive acts but it didn't say what those Acts were that's why the authorizing legislation needed specific implementing regulation what is a deceptive trade practice so all of those things that we have assumed to be illegal forever well they were but they weren't specified in a trade regulation Rule and therefore you couldn't get fin for them you the the the Department of Justice could go after you state attorney generals could go after you plaintiff lawyers could go after you in some circumstan es but the FTC couldn't and they wanted to play they didn't want everybody else to have all the fun so FTC now needed a trade regulation Rule and the cars rule is that trade regulation rule that's why we're here and oh by the way if all the cars rule did was that I'm I'm I'm okay you know everybody else can find Bad actors now the Federal Trade Commission gets to do so not a hill I am going to die on but of course that is not where they stopped so what is this all mean for dealers and really one is it's always been against the law according to the Federal Trade Commission to advertise anything other than that full price what they're now calling the offering price that has always been illegal the problem is AMG Capital Management case proved it was unenforcable or is unenforcable with monetary fines so the NAD publishes the you know their driven Guide Series and this stuff is really good you can go on the NADA website and download this agents in particular I recommend that you do so because if the cars rule survives litigation anywhere close to its current form you're going to need to know this and dealers are going to need to know this what can you say what can't you say in the course of an ad for example this is just one example from that guide and there are all kinds of things wrong with this particular advertisement um Everybody financed not really we know better um $32,000 well yeah but that's after a certain amount of trade Equity or cash down payment what this whole guide is talking about is whatever price you advertise better be the Allin price no qualifications no fine print no rebates pulled out of the advertised price no stacked rebates that that the only rebates you will be allowed to factor into the offering price are those that are available to absolutely everyone so you can't give both a uh active duty military rebate and conscientious objector rebate doesn't work but if you have a rebate for everybody in the month of June you can deduct that from the offered price and you know what if everybody's prices go up do I care not really but if you're the only dealer who plays fair you're going to be at a competitive disadvantage dealers need to know what they need to do this guide although it's several years old and was not written in connection with the cars rule is still valid and I really do recommend downloading it and sharing it with your dealers um advertising includes your website in fact this is possibly a dealer's most potent advertising medium and it's the one that's going to get you in the most trouble because you could avoid the offering price Trap by not advertising price at all until you feature a specific vehicle and if you have an image of a specific vehicle you must publish the offering price in close proximity to it so do you think your dealers have a website that has 200 Cars on it sure that's not unusual could be a lot bigger if there are problems with the website it's not going to be on one car it's going to be on all of them so what is the current fine the fine that the Federal Trade Commission will be allowed to assess when the cars rule goes live is it adjusts up for inflation every year and I believe it's currently $ so let's just say it's 50 grand 50 grand time 200 Cars is how much give you a hint it's got a couple of commas and they're not going to assess a fine for one advertised vehicle if they're going to hit you they're going to hit you for all of them and at I'm not trying to pick on auton Nation who's you know here I just happen to download this uh in January from their website just as an example uh and I noticed oops you see that 2023 Ford Explorer uh it's advertised as new and it has 2527 miles on it not this has nothing to do with the cars rule but the Federal Trade Commission defines a used car as any vehicle that has more miles on it than reasonably necessary for delivery and test drives 200 miles might be the upper limit in other words advertising a car with you know a vehicle with 25 200 miles on it as new is a violation in the eyes of the Federal Trade Commission I think an a used car is one that's been titled in somebody else's name that's been sold before uh Federal Trade Commission disagrees so this is going to be a big issue for all of your dealers they have to get their websites right there are other things involved such that you're not allowed to have fine print you have to have all the disclosures in that space there's no room you cannot click through to get more information you are not allowed to require give us your name give us your cell phone number give us your email and then we will give you the price no no room for that you can your dealers when the cars rule becomes enforcable your dealers can spend a lot of money internally making sure that everything's okay or spending money on a vendor like me to make sure that everything's okay and by the way I don't want your money not for this our approach to this is we want to work with the companies that make the websites coach them on how to make their websites compliant so the dealers don't have to worry about it because if you give this to the dealers ktie Bar the Door they need to sell cars they don't need to do legal interpretation of regulatory overreach so this one you need to you you need to be able to convince your dealers to have their vendor who helps them with their website certify that they are complying with the cars rule dealer fees I believe these are a dead deal um the point of a dealer fee is it PR it preserves front-end gross so that your salese can't give it away I mean that's one way of looking at it but it is a fee at the bottom that as long as it's not outrageous I I see it as a legitimate fee for example complying with the cars rule costs money a lot of money and that's got to be recovered somehow complying with all of the regulations that dealers are required to comply with costs money recovering that money is not illegal immoral or fattening however if you're not allowed to put it on your buyer's order or put it on your installment sale contract it has to be in the offer price it has to be and if you put it in your buyer's order installment sale contract then you're going to have to uh subtract it out net it out to make it make sense with the offered price well that's silly so dealer fees are gone column dealer fee dock fee pre-sale prep I don't care unless it's in the advertised price you can't have it in the transaction and if it's in the advertised price you're not going to repeat it on the deal paperwork dealer fees are absolutely going to die if the cars rule survives litigation in its current form ah addendum stickers sorry pulse guy but addendum stickers are almost certainly going to die unless the total amount that's at the bottom of the addendum sticker is already in the sticker so addendum sticker as a sales tactic are it's going to be very very very difficult to navigate this in other words if you're selling pulse a good product it does reduces rear end collisions good product um but it's if the dealers is going to use that to up their frontend gross it's going to have to be in the advertised price and you could still have an addendum sticker describing what we have in the vehicle that's fine it's using addendum stickers to increase the price above the advertised price that is the problem so addendum stickers today can be done in an effective and legally compliant manner I've also seen them done in a wildly illegal manner I recently saw an example of an addendum sticker that at for that added a cost for Engraving the VIN on a catalytic converter in California you're with me so far on a Tesla that's the same that's the same guy who does gap on a cash deal for those of you who don't know electric vehicles do not have catalytic converters so yes I've seen felonies on on addendum stickers but I think they're going to go the way of the dinosaur if the cars roll sees the light of day and other things uh you know market value adjustment those days are gone for a while we know that um but that's that is prima fascia illegal right out of the box you can't that is just another $29.95 on top of the advertise price under the cars rule it's indefensible it just can't happen um if it's not in the offered price you can't try to recover it anywhere else in the transaction can you read that didn't think so it says no fine print because one of the requirements of the cars rule is clear and conspicuous disclosures you can't get to fine print from their definition of clear and conspicuous disclosure and the clear and conspicuous disclosures have to be done in close proximity uh to the advertised price or whatever it is you're modifying and the Practical problem with that is you can't fit it all in an ad and the M have requirements of you know how much of a particular image has to be the vehicle it's I've been told by people who are in the advertising business that it will literally be impossible to legally advertise and again the people who make the rule don't sell cars um this is part of the disaster and you can't have a button that will click you to something that's not fine print but 14o aerial Bol if it's not on the page if it's not within the image the government says it's not clear or conspicuous even if it's convenient even if you're directed to it their definition includes the following phrase must be impossible to miss and you can't fit all of the mandatory disclosures in a single image I I just don't know how you're going to do this this is why it's being litigated oh one last thing I just need to confirm confirm your Express informed consent oh Lordy this is the one that's going to tank CSI make the process longer and make it really really difficult for you to sell product here is why this is the definition Express informed consent means an affirmative act communicating unambiguous Ascent to be charged made after receiving and in close proximity to a clear and conspicuous disclosure in writing and also orally for in-person transactions of the following what the charge is for and the amount of the charge including if the charge is for a product or servi