Does it ever feel like once a year, compliance rears back up to take over the headlines, only to die down again? Well compliance is back and it is making waves.
At the end of 2023, the Federal Trade Commission (FTC) announced the Combating Auto Retail Scams (CARS) Rule, targeting unwanted products, services and so-called ‘junk fees’ added on to a car purchase.
The CARS Rule specifically provides protection for military and active-duty service members who, according to the FTC, are frequently targets for vehicle scams. The FTC states that service members have an average of twice as much auto debt as civilians.
This is supported by 2022 report from the Consumer Financial Protection Bureau, which states that by age 24, about 20% of young troops have at least $20,000 in auto debt, which is nearly two-thirds of an enlisted service member’s base salary at that age,
The Department of Defense supports the new rule, saying “For our service members and their families, a car is an essential purchase, and this CARS Rule will help fight predatory practices that target our men and women in uniform.” Over the years, issues have emerged with car dealerships outside military bases, resulting in some base commanders restricting troops’ access to certain businesses. The FTC says it receives over 100,000 vehicle-related bait-and-switch complaints annually.
The CARS Rule was set to go into effect on July 30, 2024. That date is now in limbo pending the outcome of a 5th U.S. Circuit Court of Appeals challenge from the National Association of Auto Dealers (NADA).
NADA was quick to respond, stating in part that the rule was “heavy handed bureaucratic overreach and redundancy at its worst that will needlessly lengthen the car sales process by forcing new layers of disclosures.”
But let’s face it. No one likes to feel scammed – especially when making a high-dollar purchase such as a vehicle. NBC Nightly News featured a consumer who said that $4,000 was added to the final price of her vehicle for protections she did not approve nor want. She was understandably angry and vowed never to return to that dealership again.
Clearly, if this is true, the dealership was not following regulations already in place or best practice when it comes to customer service. Step into any EFG F&I class, and you will receive thorough training on the proper way to present and sell products using a menu that fully discloses product benefits and costs.
While most dealerships do not engage in these types of deceptive practices, all will be required to comply with this new regulation starting on July 30. So, what does this mean for you?
The CARS Rule Requirements
No Misrepresentations
The CARS Rule prohibits misrepresentations about key information, like price and cost. Dealers are already highly regulated regarding misrepresentation of price. However, it is always good to review the basics to ensure compliance.
- Make sure your advertisements meet all state and federal requirements.
- All online pricing must match in-store pricing.
- All optional products must be conspicuously disclosed along with their relevant pricing information.
- A complimentary warranty must be complimentary.
Offering Price, Total Payment, and Add-Ons Optional
Dealers must provide the offering price—the actual price any consumer can pay for the vehicle; tell consumers that optional add-ons (like extended warranties) are not required; and give information about the total payment when discussing monthly payments.
This is standard best practice. If your dealership is already doing this, great! If not, call EFG and we can provide your team with valuable training on product benefit presentations and menu selling to drastically improve your product penetration, customer service, CSI scores, and compliance.
No Bogus Add-Ons
The rule prohibits dealers from charging for any add-on that does not provide a benefit to consumers. Examples of such add-ons include: warranty programs that duplicate a manufacturer’s warranty, service contracts for oil changes on an electric vehicle, GAP agreements that do not actually cover the car or neighborhood in which it is housed, or other parts of the deal, and software or audio subscription services on a vehicle that cannot support the software or subscription.
If your F&I products do not match your inventory or demographics, you have bigger issues at hand and are leaving significant money on the table. In an era where consumers are more educated about their options than ever before, having products that do not fit their needs drastically reduce your penetration rates and opportunities for back-end profit.
If this is the case for you, I highly recommend you contact EFG to dive into all the available options that can accelerate your profitability while providing valuable protection for your customers.
Get Consumers’ Consent
The rule requires dealers to get consumers’ expressed, informed consent for any charges that they pay as part of a vehicle purchase.
Once again, this is already regulated, required, and best practice.
If your team needs a refresher on sales and F&I best practices, look no further than EFG.
Our proven team of EFG trainers and compliance experts bring years of experience and compliance certification to your team. At EFG Companies, we are more than an F&I provider, we are your business partner in the retail automotive industry. Contact us today to learn more about how our team can help you achieve your winning strategy.