The Trump administration recently sent warning letters to 97 auto dealership groups nationwide, putting the entire industry on notice, and signaling an aggressive posture on the disclosure of mandatory fees.
The letters, issued by the Federal Trade Commission (FTC), warn that advertised prices on vehicles must reflect the total price, including all mandatory fees, and encourage dealers to review their pricing and advertising practices. The FTC warns it is watching the marketplace and will take enforcement action against those who do not comply with Section 5 of the FTC Act, which prohibits unfair or deceptive acts and practices.
“Such deceptive tactics harm not only consumers, but competition, by making it hard for law-abiding businesses to compete on an even playing field,” the letter reads. “One of the FTC’s enforcement priorities is ensuring that advertised pricing is transparent and truthful. When consumers do not know the true price of a car—or any product—consumers and others suffer related consequences, including that consumers cannot comparison-shop and make informed decisions, sellers trying to deal honestly with consumers are put at a competitive disadvantage, and the market cannot operate efficiently.”
Feds Promise Increased Scrutiny
In a press release announcing the letters, Christopher Mufarrige, director of the FTC’s Bureau of Consumer Protection, announced the letters are part of the FTC’s ongoing efforts to ensure price transparency for consumers throughout various markets.
The letters note several pending FTC legal actions against auto dealers to address deceptive pricing practices in the auto industry and cite examples of illegal pricing, including:
- Advertising a price that doesn’t reflect all required fees;
- Advertising a price reflecting rebates or discounts not available to all consumers;
- Advertising a price that does not account for an additional required down payment;
- Conditioning the advertised price on consumers using dealer financing;
- Requiring consumers to buy additional items not reflected in the advertised price; and
- Advertising unavailable or non-existent vehicles.
“The Trump-Vance FTC is committed to preventing auto dealers from misleading consumers with low advertised prices and then adding on mandatory fees at the end of the purchasing process,” Mufarrige said. “The FTC will remain focused on monitoring auto dealerships to ensure that the market functions efficiently and competitors are transparently competing on price.”
State Laws Apply, Too
As dealers brush up on FTC compliance, it is important to remember that many states, such as Massachusetts, also have strict regulations meant to police dealers’ advertising practices. Massachusetts’s motor vehicle regulations are outlined in 940 CMR 5.00. 940 CMR 5.02(3): specifically addresses advertising and provides:
(3) It is an unfair or deceptive act or practice for a motor vehicle dealer to advertise the price of motor vehicles unless such price includes all charges of any type which are necessary or usual prior to delivery of such vehicles to a retail purchaser, including without limitation any charges for freight, handling, vehicle preparation and documentary preparation, but excluding taxes and optional charges for the dealer’s preparation of title and assistance in registering a vehicle.
This regulation requires that “documentary preparation fees,” also known as “doc fees,” are included in the price itself, and not disclosed in a disclaimer.
Dealers Must Review Pricing and Advertising
While the letters went to specific dealers the FTC believes are violating federal law, Harris Beach Murtha views the letters as a sign of aggressive enforcement of advertising standards in the automotive industry and warns all dealers to remain vigilant in a time of increased scrutiny.
We recommend immediately reviewing price financing, promotions, rebates and discounts to ensure all fees and eligibility conditions are clearly communicated in dealership advertising. Also, dealers must examine add-on practices to ensure mandatory products are included in prices. This is also a great opportunity to retrain sales and finance staff on the laws and establish protocols to ensure compliance.
Harris Beach Murtha’s Automotive and Vehicle Dealerships Industry Team can help your dealership stay in compliance with federal and state laws by reviewing current processes, establishing compliant protocols and training staff on proper practices. If you need assistance or have questions on any regulatory, legal or business issue facing your dealership, please reach out to attorney Thomas S. Vangel at (617) 457-4072 and tvangel@harrisbeachmurtha.com; attorney James F. Radke at (617) 457-4130 and jradke@harrisbeachmurtha.com; attorney Lindsey M. McComber at (617) 457-4065 and lmccomber@harrisbeachmurtha.com; or the Harris Beach Murtha attorney with whom you most frequently work.
This alert is not a substitute for advice of counsel on specific legal issues.
Harris Beach Murtha’s lawyers and consultants practice from offices throughout Connecticut in Bantam, Hartford, New Haven and Stamford; New York State in Albany, Binghamton, Buffalo, Ithaca, New York City, Niagara Falls, Rochester, Saratoga Springs, Syracuse, Long Island and White Plains; as well as in Boston, Massachusetts, and Newark, New Jersey.