August 15, 2022

Volume XII, Number 227

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August 12, 2022

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FTC Targets Junk Fees, Bait-and-Switch Advertising by Auto Dealers

On June 23, the FTC proposed a rule that would prohibit junk fees, bait-and-switch advertising, and other deceptive practices by auto dealers to protect consumers and honest dealers in the car-buying process. The proposed measures would:

  • Bait-and-switch claims – Prohibit car dealers from making deceptive advertising claims to lure in prospective buyers with respect to vehicle cost, terms of financing, availability of discounts and rebates, actual availability of cars advertised, and other aspects.

  • Junk fees – Prohibit car dealers from charging junk fees for fraudulent add-on products and services that provide no benefit to the consumer, and from charging add-on fees without clear, written consent from the consumer.

  • Disclosures of costs and conditions – Require car dealers to make key disclosures to consumers, such as:

    • the full price a consumer would actually pay for a car (excluding only taxes and government fees);

    • optional add-on fees, including the fact that they are not required as a condition of purchase or lease; and

    • information related to financing terms.

In announcing the proposal, the FTC cites to the recent surge in auto prices, and the fact that despite its law enforcement efforts, consumer complaints related to automobiles is one of the top ten types of complaints it receives, totaling over 100,000 complaints annually over the past three years. With this proposal, the FTC aims to provide consumers key protections and estimates that the net economic benefit of the rule would be more than $29 billion over ten years.

Putting It Into Practice: This proposed rule is in line with the Commission’s recent enforcement efforts in combating deceptive advertising and illegal tactics used by auto dealers in the car buying process. (See our posts on FTC enforcement activity here and here). In light of the Commission’s focus on the auto industry, dealers should review their advertising and other business practices to ensure compliance with consumer protection and advertising laws, and continue to monitor FTC activity for any updates to the proposed rule-making.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 188
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About this Author

Moorari Shah Bankruptcy Lawyer Sheppard Mullin Law Firm
Partner

Moorari Shah is a partner in the Finance and Bankruptcy Practice Group in the firm's Los Angeles and San Francisco offices. 

Areas of Practice

Moorari combines deep in-house and law firm experience to deliver practical, business-minded legal advice. He represents banks, fintechs, mortgage companies, auto lenders, and other nonbank institutions in transactional, licensing, regulatory compliance, and government enforcement matters covering mergers and acquisitions, consumer and commercial lending, equipment finance and leasing, and supervisory examinations,...

213-617-4171
A.J. S. Dhaliwal Bankruptcy Attorney Sheppard Mullin Washington DC
Associate

A.J. is an associate in the Finance and Bankruptcy Practice Group in the firm's Washington, D.C. office. 

A.J. has over a decade of experience helping banks, non-bank financial institutions, and other companies providing financial products and services in a wide range of matters including government enforcement actions, civil litigation, regulatory examinations, and internal investigations.

With a diversified regulatory, compliance, and enforcement background, A.J. counsels financial institutions in matters involving...

202-747-2323
Associate

Pouneh Almasi is an associate in the Intellectual Property Practice Group in the firm's San Francisco office.  

Areas of Practice

Pouneh’s practice focuses on intellectual property litigation with an emphasis on copyright and trademark issues.  She is also a member of the firm’s Blockchain Technology & Digital Currency Team.

During law school, Pouneh worked as a judicial extern to the Honorable Jacqueline Scott Corley at the Northern District of California in San Francisco...

415-774-3103
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