FTC starts engine on car selling fees and drafting advertising rules, but other rules face major questions

The FTC is off to the races with yet another regulatory proposal. On June 23, the FTC, by a vote of 4 to 1, issued a Notice of Proposed Rulemaking (NPR) to combat what it perceives as “junk fees” and “bait and switch advertising tactics.” change” in the automobile sales industry. Congress gave the FTC the authority to write rules governing the retail sale of automobiles, using APA regulations and not the heavier Magnuson Moss regulations that the FTC normally must follow in consumer protection regulations. This authority is not weak since on June 30, the Supreme Court rendered its decision in West Virginia vs. EPA, which will make it more difficult for the FTC and other government agencies to make rules.

The FTC’s proposed rule would prohibit certain misrepresentations, require certain disclosures, prohibit certain “additions” and require more extensive record keeping. First, among a host of potential misrepresentations, the proposed rule includes prohibiting misrepresentation of vehicle costs; terms of purchase, financing or lease; and the availability of vehicles at an advertised price.

Second, the proposed rule requires dealers to disclose the offer price clearly and prominently in any advertising or communication with a customer. Dealers must also disclose optional “additional” products or services online and indicate if an add-on is not required for purchase.

Third, the proposed rule prohibits dealers from charging surcharges that provide no benefit, are not disclosed, or are not selected. These include add-on products such as nitrogen filled tires or duplicate warranty coverage. Add-ons must be itemized and a dealer cannot charge for them without express informed consent.

Finally, the proposed rule requires dealers to retain copies of all materially different marketing materials, purchase orders and consumer complaints.

The NPR triggers a 60-day period during which the FTC invites public comment on the proposed measures. The FTC specifically seeks comments on the substantive scope of the proposed rule, including its definitions and any cost benefits for the proposed rule.

Commissioners Khan, Phillips, Slaughter and Bedoya tout this rule-making process as building on decades of studying auto sales and financing, allowing the FTC to sue for sanctions civil and consumer remedies. Conversely, Commissioner Wilson opposed rulemaking, saying the proposed rule may not be tailored enough to avoid unintended negative consequences. Commissioner Wilson points to the cumbersome rule-making process and regulatory framework that has historically led to failure to keep up with technology, markets and industry. This is consistent with Commissioner Wilson’s past warning about abuse of the rule-making process.

Because the FTC is proceeding under Section 553 of the Administrative Procedure Act (APA), it need not demonstrate the prevalence of the conduct as it would under Section 18 of the FTC law (“Mag-Moss Rulemaking”) or follow other heavy duty Mag-Moss Procedures.

The timing of the FTC’s announcement was ironic, because a week later the Supreme Court struck down another agency’s extensive regulatory scheme. In West Virginia vs. EPA, by a vote of 6 to 3, the Supreme Court ruled that the EPA exceeded its authority of Congress under Section 7411 of the Clean Air Act when it designed emissions caps in the Clean Power Plan. The Court found that the EPA’s approach violated the “major issues” doctrine – that is, Congress must expressly authorize “decisions of great economic and political significance[,]” and broad regulatory power will not simply be inferred. What this ruling means for most of the FTC’s regulatory plans remains to be seen, but enemies of FTC regulation are no doubt heartened by the Supreme Court’s decision.