A Cease and Desist Order for Every Dealer

July 18, 2022

By Michael G. Charapp
Charapp & Weiss LLP


The Federal Trade Commission has issued for comment a proposed trade regulation rule on motor vehicle sales. Although the National Automobile Dealers Association has requested more time to comment, as of now comments are due September 12, 2022, sixty days following publication in the Federal Register. The TRR is onerous, and comments from those familiar with the business will be important.

The problems with this TRR are too numerous to be covered in this article. However, we will explore issues that threaten to most negatively affect your business. Before doing so, let’s look at some questions the proposed TRR raises.

Who is subject to it?

A motor vehicle dealer licensed as such, that owns its vehicle inventory, and is engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both, is covered. Why the emphasis on servicing if this is a TRR about sales? As we have pointed out frequently when writing about the creation of the Consumer Financial Protection Bureau by the Dodd Frank Act, to address the FTC’s complaint that many of its functions were usurped by the CFPB, Congress gave the FTC expanded, primary jurisdiction over motor vehicle dealers exempt from CFPB jurisdiction. Having a service department is a necessary element for exemption from CFPB jurisdiction. Those dealers are the ones subject to FTC jurisdiction that are covered by this TRR.

Aren’t the prohibitions and requirements already the law?

You will hear some say that the prohibitions and requirements are not that big a deal since they simply represent what the FTC already views as the law. Some of these prohibitions and requirements, along with the burdensome recordkeeping requirements, have been ordered against companies the FTC has decided to sue as lawbreakers. The prohibitions and requirements of this TRR go well beyond anything imposed on a single dealer or group under a cease and desist order. They are imposed on every dealer exempt from CFPB jurisdiction with no allegation of a dealer’s individual wrongdoing, and the micromanaging of every dealer’s business will require substantial changes in business practices.

Why now? This TRR is proposed on the heels of a ruling by the United States Supreme Court that the FTC does not have the power to order monetary impositions as part of an administrative cease and desist order. The FTC’s answer is this TRR, the violation of which can be punished by civil penalties of $46,517 per violation, adjusted annually. The TRR has the effect of imposing on every dealer exempt from CFPB jurisdiction a cease and desist order for which a dealer found to be violating it can suffer crippling monetary impositions.

Why does the FTC feel qualified to micromanage a dealer’s business?

Anyone who asks that question doesn’t know many federal government lawyers. Federal government lawyers know the businesses they seek to regulate through the complaints they review and handle. It is common for them to assume that by reading consumer complaints they know more about managing a business to prevent the practices about which complaints are filed than the businesspeople who do it for a living. They rarely question whether the complaints are exaggerated, perhaps even fashioned with the aid of an anti-dealer attorney, to establish a position to generate an acceptable settlement, whether it is a large cash payment or cancellation of the transaction. Their qualifications to impose standards on a business are based on complaints, justified or not, that paint the worst picture of an industry.

Will comments make a difference?

Comments by those who understand the business are critical to combat the flawed view of practices underlying the proposed TRR. The proposed TRR is the blind leading those who can see. The FTC must hear about the dealer practices underlying the vast majority of transactions that do not generate complaints.

Is the approach of this TRR what Congress had in mind to define unfair and deceptive practices?

One must question whether this is the type of regulation that benefits consumers. For years, dealers have been criticized, including by the FTC, for the time to complete a deal. Yet the FTC is mandating new processes, disclosures, and paperwork that will only make a situation dealers have been improving much worse.

What are the prohibited misrepresentations?

There are sixteen specific misrepresentations included in the proposed TRR. Many are repeats of previous FTC positions on the state of the law and are straightforward. We have counseled dealers for years about some of the issues covered to be sure it is clear whether a transaction involves financing or leasing, the qualifications a consumer must have to qualify for rebates and discounts not available to all, the number of vehicles available at the advertised price or terms, and at what point a transaction is final as to both the buyer and the seller. Unfortunately, several specific prohibitions of the TRR are loosely written to enhance FTC discretion and cause dealer anxiety about what is covered.

For example, the first prohibition is about misrepresentations of the “costs or terms of purchasing, financing, or leasing a vehicle.” What does that mean? Today, dealers strive for transparency in what a vehicle will cost a consumer. But how much is enough?

The second prohibition is misrepresentation of any “costs, limitation, benefit, or any other Material aspect of an Add-on Product or Service.” We will discuss the FTC view of “add-ons” later. But, again, what does this mean? How extensive must disclosures be to meet the test of the FTC as to what is not a misrepresentation?

Similarly, what must a dealer do to avoid running afoul of the prohibition of misrepresenting any “[m]aterial information on or about a consumer’s application for financing”?

A prohibition of misrepresenting any of the “required disclosures” of this TRR brings us to the expanded requirements that will dramatically change dealer practices.

What are the required disclosures?

The proposed TRR lists a number of mandatory disclosures. Many of these go beyond what the FTC has demanded of dealers in cease and desist orders, and they will change legitimate dealer practices.

Some dealers choose to discuss vehicle prices and terms with consumers in person. The proposed TRR prohibits that if contact prior to an in-person meeting focuses on a specific vehicle. If a dealer advertises that it may have a specific vehicle in stock, the TRR specifies that it must list the offering price. More seriously, in “any communication with a consumer that includes a reference, expressly or by implication, regarding a specific vehicle”, dealer personnel must affirmatively disclose in their first response about the availability of a specific vehicle the offering price for the vehicle. Phone calls by consumers asking whether the dealer may have a specific type of vehicle in inventory are common, but dealer personnel can no longer use those calls to confirm availability of the vehicle and solicit an appointment to discuss price and terms face to face. They must disclose the offering price for the vehicle in the first response to the call.

The offering price also raises issues, particularly regarding so-called “add-ons”. The FTC does not even try to hide its bias against equipment or services not originally included with a vehicle by the OEM, even going to the point of calling them “junk fees” in the press release announcing the TRR. According to the proposed TRR, “add-on” “means any product(s) or service(s) not provided to the consumer or installed on the vehicle by the motor vehicle manufacturer and for which the Motor Vehicle Dealer, directly or indirectly, charges a consumer in connection with a vehicle sale, lease, or financing transaction.”

A dealer must produce a list of “add-ons” to be digitally available to the public on its website or app. It must be quite specific in listing:

all optional Add-on Products or Services for which the Motor Vehicle Dealer, directly or indirectly, charges consumers. The Add-on List must Clearly and Conspicuously disclose each such optional Add-on and the price of each such Add-on. If the Add-on price varies, the disclosure must include the price range the typical consumer will pay instead of the price.

That list better not include “add-ons” where the FTC questions the benefits for the consumer. The proposed TRR lists two of those that dealers may not offer:

(1) nitrogen-filled tire related-products or services that contain no more nitrogen than naturally exists in the air, or (2) products or services that do not provide coverage for the vehicle, the consumer, or the transaction, or are duplicative of warranty coverage for the vehicle, including a GAP Agreement if the consumer’s vehicle or neighborhood is excluded from coverage or the loan-to-value ratio would result in the consumer not benefiting financially from the product or service.

The proposed TRR clarifies, however, that products or services of questionable benefit to consumers are not limited to those listed, giving the FTC discretion to make this value judgment in individual cases. This will concern dealers on new products or services developed to help consumers enjoy their vehicle ownership and will do much to freeze development of these products and services.

When selling a vehicle to a customer, the dealer must disclose the cash price of a vehicle without the “add-ons”, and it must advise the customer that the vehicle can be purchased for the cash price.

It is this process that goes beyond any requirements ever imposed on dealers and changes state law on consumer agreement. Under the law of every state, a consumer that signs a contract is bound. Not under this proposed TRR.

  1. The consumer must specifically decline to purchase the vehicle for the cash price without optional “add-ons.”
  2. The process must be evidenced by a new document. “The Cash Price without Optional Add-ons disclosure and declination … must be in writing, date and time recorded, and signed by the consumer and a manager of the Motor Vehicle Dealer. [emphasis added]”
  3. Somehow, that presentation must be in a vacuum. According to the TRR: “The Cash Price without Optional Add-ons disclosure and declination … must be limited to the information required by this Section, and cannot be presented with any other written materials. [emphasis added]”
  4. There is a process for selling financing besides add-ons requiring similar disclosures.
  5. There must be a separate itemization of the chosen “add-ons” listing the price for each.

Once dealer personnel have waded through that, they have to deal with this requirement of the TRR:

Any item without Express, Informed Consent. A Dealer may not charge a consumer for any item unless the Dealer obtains the Express, Informed Consent of the consumer for the charge.

According to the TRR:

“Express, Informed Consent” means an affirmative act communicating unambiguous assent 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: (1) what the charge is for; and (2) the amount of the charge, including, if the charge is for a product or service, all fees and costs to be charged to the consumer over the period of repayment with and without the product or service. The following are examples of what does not constitute Express, Informed Consent: (i) a signed or initialed document, by itself, (ii) prechecked boxes, or (iii) an agreement obtained through any practice designed or manipulated with the substantial effect of subverting or impairing user autonomy, decision-making, or choice.

Under the FTC’s abrogation of state law on contracting, a consumer’s signature on a document is no longer enough. Based on the word salad definition there must be more. But how much more, and how does a dealer document that? Dealers will just have to take their chances with new processes under this TRR.

What other burdens does this TRR impose?

We have often warned dealers about getting on the wrong side of the FTC and becoming party to a cease and desist order. The practices prohibited or mandated by an order are bad enough, but the recordkeeping and oversight provisions are much worse.

Sure enough, the TRR contains recordkeeping requirements:

Any Motor Vehicle Dealer subject to this part must create and retain, for a period of twenty-four months from the date the record is created, all records necessary to demonstrate compliance ….

That includes all advertisements, training materials, “scripts”, “add-on” lists, detailed deal information not only regarding completed deals but also as to dead deals where a purchase order may have been signed, and, of course, all information developed to show compliance with the TRR.

Just to make sure dealers don’t get the idea they can get consumers to agree to engage in a transaction without “benefit” of these requirements, it contains a provision prohibiting waiver of the TRR’s requirements.

What is next?

The FTC will collect its comments. Despite the poor-drafting and overreach, do not expect the comments to be overwhelmingly contrary. Many anti-dealer advocates will be cheerleaders for these new requirements, even claiming the FTC has not done enough.

Once the comments are in, the FTC will decide whether to issue the final TRR and in what form.

That will not be the end, however, since the TRR will be subject to judicial review if requested by interested parties. And the recent Supreme Court decision ruling that the EPA exceeded Congressional authorization in its activities will be helpful. The Dodd Frank Act authorized a streamlined TRR process to define unfair and deceptive acts or practices in the sale of motor vehicles. Does the FTC’s micromanaging of the sale process through mandatory processes and disclosures invented by the FTC fit within the Congressional authorization?