The CARS Rule
Why dealers need to prepare for regulation still in limbo
Uncertainty is never a comfortable state of mind for dealerships, especially when it comes to regulatory compliance. Zurich wants to help dealers address some of the considerable uncertainty surrounding the Federal Trade Commission’s looming CARS Rule (also known as the Vehicle Shopping Rule), particularly in the event the regulation goes into effect.
Indeed, if and when the rule will actually go into effect remains the biggest question right now. An initial implementation date of July 30 was postponed following a legal challenge by the National Automobile Dealers Association (NADA) and the Texas Automobile Dealers Association. Also clouding clarity is some of the wording the FTC uses in the rule.
First proposed in 2022, the CARS Rule aims to crack down on dishonest practices by some dealerships; CARS here being an acronym for Combating Auto Retail Scams.
Beyond what can be time-consuming training, that process change may include needed updates to websites, IT systems, pricing disclosure documents, advertising/marketing materials and recordkeeping methods. (The CARS Rule requires dealers to create and retain 24 months of records to show compliance.)
When something stands as a “maybe” instead of a “here and now” proposition, it’s often human nature to wait and see how things play out.
“My hunch is that people might be a little complacent about taking action while the litigation is ongoing,” Mork said.
But not being up to speed on the rule could be extremely costly, with potential fines of $50,000 or more per violation.
“You should be familiar with the rule before it gets to a point where you need to ‘pull an all-nighter for your final,’ rather than planning ahead to be in compliance,” Mork emphasized.
One of the more elusive sections of the CARS Rule is the requirement that dealers obtain consumers’ “express, informed consent before charging them for anything.” While the text of the rule is very clear on what does not satisfy that requirement, it is not specific on what does qualify as express, informed consent.
On the surface, all those goals may seem sound, aimed at protecting car buyers from bait-and-switch advertising, deceptive information, hidden fees and expenditures that give little value in return. However, many in the automotive industry see the rule as a major overreach by the FTC, making the sales process lengthier and more cumbersome for consumers, as well as dealers. Redundancy is another complaint, as many in the industry point to existing laws addressing fraud and misrepresentation, such as those covered under sections of the Dodd-Frank Wall Street Reform and Consumer Protection Act prohibiting unfair, deceptive or abusive acts or practices (UDAAP), or the Gramm-Leach-Bliley Act (GLBA).
In advocating for the interests of our customers, Zurich leverages its collaboration with NADA and other industry groups. That includes our membership in the American Property Casualty Insurance Association (APCIA), which has filed an amicus brief in support of NADA’s challenge.
“NADA and others are trying to figure out default best practices dealers should have,” Mork said. “Does this mean you have to record every conversation, or ensure everything is in writing?” He also noted, “The rule makes a point that disclosures and consents have to be in the same medium, so you can’t have an oral disclosure and a written consent.”
That could be an impediment to sales staff who are not only working to finalize the purchase, but also trying to create a quality customer experience, where the prospective buyer is not subjected to an overly long process with seemingly redundant paperwork.
Along with doing what’s needed to be ready for fast action if enforcement of the CARS Rule begins, Mork said dealers should not take their eyes off other potential regulations that could also be on the horizon. In particular, he pointed to a “junk fees” rule the FTC proposed last October. While not specific to auto dealers, the “junk fees” rule has similar requirements for disclosure and prohibition of misleading fees.
“There’s an explicit contemplation of interaction between the two regulations,” Mork explained. “So, if there is no CARS Rule, then you might assume the junk fees rule would apply to dealers.”
At the 2024 NADA Show, James Ganther, Esq., CEO of Mosaic Compliance Services, addressed how the CARS Rule has put a renewed focus on potential impacts of regulation. “I think the CARS Rule shook dealers up to what their potential exposures might be,” Ganther said. “Dealers still want to know ‘What does this mean?’ and ‘Is it going to come back?’ So, there’s been a heightened level of awareness about compliance issues.”3
The complexity and confusion surrounding regulation can be a pain point for dealers, which is why Zurich works with Mosaic Compliance Services to offer customers compliance training and education through our Zurich University online training platform.
NADA offered its own succinct summary of industry objections to the rule in a statement President and CEO Mike Stanton released after the organization filed its legal challenge: “The FTC’s Vehicle Shopping Rule is simply terrible for consumers. NADA is challenging the FTC in court to stop this rule because it will add massive amounts of time, complexity, paperwork and cost to car buying and car shopping for tens of millions of Americans every year.”2
- Federal Trade Commission. “FTC CARS Rule: Combating Auto Retail Scams – A Dealers Guide.” December 2023; updated 24 January 2024.
- Collegio, Jonathan. “NADA Files Federal Court Challenge to Stop FTC’s Vehicle Shopping Rule.” National Automobile Dealers Association. 4 January 2024.
- “The CARS Rule May Be Paused, But Compliance Concerns Are Here to Stay.” Mosaic Compliance Services’ YouTube channel. 19 February 2024.
At the time of this publication, the date when the CARS Rule litigation could be settled was unclear, though some industry observers think late August or early September is a strong possibility.
Despite the uncertainty around the implementation date, dealers need to begin preparing for its possible enforcement. As David Mork, Assistant Vice President, Federal Affairs for Zurich North America wrote in a Zurich “Auto Dealer Policy Update” published in March, “If the rule comes into effect, dealers will face potentially dramatic changes in sales practices, disclosures, training needs and recordkeeping.”
Speaking with Dealer Principal, Mork further explained, “If the litigation does not go favorably from a dealer perspective, the FTC could say, ‘You have 60, maybe 90 days to be compliant,’ and I think that could be too late then [for dealers to be ready in time for implementation], because of the level of process change and training that will be required of dealers and their staffs.”
Uncertainty is never a comfortable state of mind for dealerships, especially when it comes to regulatory compliance. Zurich wants to help dealers address some of the considerable uncertainty surrounding the Federal Trade Commission’s looming CARS Rule (also known as the Vehicle Shopping Rule), particularly in the event the regulation goes into effect.
Indeed, if and when the rule will actually go into effect remains the biggest question right now. An initial implementation date of July 30 was postponed following a legal challenge by the National Automobile Dealers Association (NADA) and the Texas Automobile Dealers Association. Also clouding clarity is some of the wording the FTC uses in the rule.
First proposed in 2022, the CARS Rule aims to crack down on dishonest practices by some dealerships; CARS here being an acronym for Combating Auto Retail Scams.
On the surface, all those goals may seem sound, aimed at protecting car buyers from bait-and-switch advertising, deceptive information, hidden fees and expenditures that give little value in return. However, many in the automotive industry see the rule as a major overreach by the FTC, making the sales process lengthier and more cumbersome for consumers, as well as dealers. Redundancy is another complaint, as many in the industry point to existing laws addressing fraud and misrepresentation, such as those covered under sections of the Dodd-Frank Wall Street Reform and Consumer Protection Act prohibiting unfair, deceptive or abusive acts or practices (UDAAP), or the Gramm-Leach-Bliley Act (GLBA).
In advocating for the interests of our customers, Zurich leverages its collaboration with NADA and other industry groups. That includes our membership in the American Property Casualty Insurance Association (APCIA), which has filed an amicus brief in support of NADA’s challenge.
NADA offered its own succinct summary of industry objections to the rule in a statement President and CEO Mike Stanton released after the organization filed its legal challenge: “The FTC’s Vehicle Shopping Rule is simply terrible for consumers. NADA is challenging the FTC in court to stop this rule because it will add massive amounts of time, complexity, paperwork and cost to car buying and car shopping for tens of millions of Americans every year.”2
At the time of this publication, the date when the CARS Rule litigation could be settled was unclear, though some industry observers think late August or early September is a strong possibility.
Despite the uncertainty around the implementation date, dealers need to begin preparing for its possible enforcement. As David Mork, Assistant Vice President, Federal Affairs for Zurich North America wrote in a Zurich “Auto Dealer Policy Update” published in March, “If the rule comes into effect, dealers will face potentially dramatic changes in sales practices, disclosures, training needs and recordkeeping.”
Speaking with Dealer Principal, Mork further explained, “If the litigation does not go favorably from a dealer perspective, the FTC could say, ‘You have 60, maybe 90 days to be compliant,’ and I think that could be too late then [for dealers to be ready in time for implementation], because of the level of process change and training that will be required of dealers and their staffs.”
Beyond what can be time-consuming training, that process change may include needed updates to websites, IT systems, pricing disclosure documents, advertising/marketing materials and recordkeeping methods. (The CARS Rule requires dealers to create and retain 24 months of records to show compliance.)
When something stands as a “maybe” instead of a “here and now” proposition, it’s often human nature to wait and see how things play out.
“My hunch is that people might be a little complacent about taking action while the litigation is ongoing,” Mork said.
But not being up to speed on the rule could be extremely costly, with potential fines of $50,000 or more per violation.
“You should be familiar with the rule before it gets to a point where you need to ‘pull an all-nighter for your final,’ rather than planning ahead to be in compliance,” Mork emphasized.
One of the more elusive sections of the CARS Rule is the requirement that dealers obtain consumers’ “express, informed consent before charging them for anything.” While the text of the rule is very clear on what does not satisfy that requirement, it is not specific on what does qualify as express, informed consent.
“NADA and others are trying to figure out default best practices dealers should have,” Mork said. “Does this mean you have to record every conversation, or ensure everything is in writing?” He also noted, “The rule makes a point that disclosures and consents have to be in the same medium, so you can’t have an oral disclosure and a written consent.”
That could be an impediment to sales staff who are not only working to finalize the purchase, but also trying to create a quality customer experience, where the prospective buyer is not subjected to an overly long process with seemingly redundant paperwork.
Along with doing what’s needed to be ready for fast action if enforcement of the CARS Rule begins, Mork said dealers should not take their eyes off other potential regulations that could also be on the horizon. In particular, he pointed to a “junk fees” rule the FTC proposed last October. While not specific to auto dealers, the “junk fees” rule has similar requirements for disclosure and prohibition of misleading fees.
“There’s an explicit contemplation of interaction between the two regulations,” Mork explained. “So, if there is no CARS Rule, then you might assume the junk fees rule would apply to dealers.”
At the 2024 NADA Show, James Ganther, Esq., CEO of Mosaic Compliance Services, addressed how the CARS Rule has put a renewed focus on potential impacts of regulation. “I think the CARS Rule shook dealers up to what their potential exposures might be,” Ganther said. “Dealers still want to know ‘What does this mean?’ and ‘Is it going to come back?’ So, there’s been a heightened level of awareness about compliance issues.”3
The complexity and confusion surrounding regulation can be a pain point for dealers, which is why Zurich works with Mosaic Compliance Services to offer customers compliance training and education through our Zurich University online training platform.
- Federal Trade Commission. “FTC CARS Rule: Combating Auto Retail Scams – A Dealers Guide.” December 2023; updated 24 January 2024.
- Collegio, Jonathan. “NADA Files Federal Court Challenge to Stop FTC’s Vehicle Shopping Rule.” National Automobile Dealers Association. 4 January 2024.
- “The CARS Rule May Be Paused, But Compliance Concerns Are Here to Stay.” Mosaic Compliance Services’ YouTube channel. 19 February 2024.