Overreaching FTC Vehicle Transaction Rule Would Complicate Vehicle Sales, Lengthen the Process and Harm Consumers  

Published August 31, 2022

ISSUE

The Federal Trade Commission (FTC) recently proposed a “vehicle transaction” rule that would overwhelm car buyers and small businesses with additional paperwork and needlessly lengthen the sales process. The rule was proposed without credible data-driven analysis or the necessary time for public comment to avoid unintended consequences to consumers and small businesses. Unfair and deceptive practices in vehicle sales or financing are already illegal, and they should continue to be policed by federal regulators. However, the FTC’s proposed rule would make the auto buying experience worse, not better, for consumers. As the auto industry works to streamline the purchase process in the aftermath of the pandemic, the FTC’s proposal will swamp dealers and car buyers with greater inefficiency and complexity. 


The FTC’s “ready-fire-aim” rule needs to go back to the drawing board. The agency has allowed only 60 days for the public to review this rule, despite its widespread impact on consumers and small businesses. Moreover, the data the FTC relies upon to support its rule is either unverified, previously rebutted, anecdotal, or non-existent. It is especially concerning that the agency denied a routine request for an extension of the public comment period. To avoid a rush to judgment, Members of Congress are urged to weigh in with the FTC to ensure that this rulemaking process is fair and based on valid research and data rather than assumptions. 

 

BACKGROUND

The FTC published a Notice of Proposed Rulemaking for its vehicle transaction rule in the Federal Register on July 13, 2022. Ordinarily for a rule of this magnitude – that is, one that purports to restructure a nearly trillion-dollar industry – an agency would propose an Advanced Notice of Proposed Rulemaking. Failing to do that, the FTC also omitted the proposed rule from its Spring 2022 Regulatory Agenda, claiming that it only “first considered” issuing its proposal after the filing deadline for that agenda. However, the FTC then denied the auto industry’s request to extend the comment period to provide sufficient time for stakeholders to conduct research to ascertain what impact the proposed rule would have on consumers and small businesses alike. Even the Small Business Administration commented that the FTC’s comment period was inadequate. 


The FTC has failed to provide valid evidence to justify the need for these additional regulations. A major rule such as this requires data-driven, quantitative evidence of systemic issues, but the FTC offers only misleading and cherry-picked anecdotes of poorly documented allegations. The FTC relies primarily on a qualitative, internal study that included only 38 Washington, D.C. area residents in its sample size. The study is cited repeatedly throughout the proposed rule in support of general allegations of systemic problems, yet the very same study explicitly states that the data from the study should not be used to form any quantitative or generalizable conclusions. 


The FTC proposal would make the consumer experience more complex and inefficient. Under the rule, every time a consumer asks about a vehicle or how to finance it, there would be new disclosures involved. But the rule would go further. Dealers would effectively not be able to answer questions about monthly payments for different vehicles unless the consumer signs extra disclosures. This would confuse customers and delay the sales process. The proposed rule would also add onerous new recordkeeping requirements and administrative burdens that would ultimately result in increased consumer prices. For example, the proposed rule demands that all ads, sales scripts, training materials and any written communications (e.g., texts, web chats, e-mails) with consumers who buy or lease a vehicle be retained for 24 months. 


The FTC has not subjected any of its new mandates to consumer testing. Whenever contemplating a market changing rule, a federal agency prudently conducts research and testing beforehand to ensure its proposed rule would work in practice. For example, privacy disclosures mandated by Congress in the Gramm-Leach-Bliley Act were subject to significant consumer testing before being implemented by the FTC. Despite no deadlines or mandates by Congress, the FTC issued this proposed rule without performing any consumer testing.
 

KEY POINTS


  • This rule needlessly increases the complexity of the car-buying process, adding substantially more paperwork and time for consumers and creating inconsistent and unnecessary rules and burdens for small businesses. Despite adding more paper to the sales process, the FTC counterintuitively (and without any analysis or support) assumes that this new rule would save consumers 3 hours per transaction.

  • Vehicle sales are already extensively regulated and the proposed rule would duplicate and potentially conflict with existing federal and state consumer protections. Other than possibly a home purchase, a vehicle lease or purchase is the most heavily regulated, document-intensive acquisition that consumers make. There are already a host of federal and state disclosures that already disclose much of the information in the proposed new rule.

  • All the types of bad behaviors which the FTC rule is aimed at addressing are already against the law, and the agency has enforcement authority to police any alleged wrongdoing. The FTC should work collaboratively with the auto industry, as it has in the past, to stop any unfair and deceptive practices and promote legal compliance without unnecessarily lengthening transaction times and harming consumers

 

STATUS

The FTC published a Notice of Proposed Rulemaking for its vehicle transaction rule on July 13, 2022, and the comment deadline is September 12, 2022. Members of Congress are urged to weigh in with the FTC to ensure that this rulemaking process does not negatively impact consumers and small businesses. 

 

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