Buying a car? FTC reveals new CARS Rule to protect consumers from illegal dealership scams

A new rule finalized by the Federal Trade Commission on Tuesday, which will go into effect next summer, will help protect you from illegal scams when buying a car, the agency said. 

The new rules, prohibiting bait-and-switch tactics and hidden junk fees, is expected to save consumers nationwide more than $3.4 billion and an estimated 72 million hours each year shopping for vehicles, the FTC said in a press release. 

The Combating Auto Retail Scams (CARS) Rule also includes clear protections for members of the military and their families, who are targeted not only with bait-and-switch tactics and junk fees, but also deceptive information about whether dealers are affiliated with the military and other specific issues that affect servicemembers, the agency said. 

“When Americans set out to buy a car, they’re routinely hit with unexpected and unnecessary fees that dealers extract just because they can,” said FTC Chair Lina M. Khan. “The CARS Rule will prohibit exploitative junk fees in the car-buying process, saving people time and money and protecting honest dealers.” 

The new rule received praise from consumer advocates and sharp criticism from representatives of the car-buying industry. 

Learn more: Best personal loans

What is the CARS Rule? 

The CARS Rule prohibits dealers from using bait-and-switch claims to lure vehicle buyers to the lot, including about the cost of a car or the terms of financing, the availability of any discounts or rebates, and the actual availability of the vehicles being advertised.  

It also tackles hidden junk fees – charges buried in lengthy contracts that consumers never agreed to pay. In some cases, these fees are for services or products that provide no benefit to consumers. 

Vehicles are one of the most significant purchases that American consumers make – for many, a vehicle is the single most expensive item they will ever purchase, the FTC said.  

“The CARS Rule targets illegal practices that capitalize on the challenging nature of buying a vehicle, particularly the often lengthy and opaque process that can leave consumers open to scams by unscrupulous car dealers,” the agency said. 

What the CAR Rule requires 

Here are the new protections, according to the FTC: 

Pricing and payments 

• A dealer must tell you the offering price, which is the full price of the vehicle. The offering price must include all costs and fees EXCEPT for required government fees, like taxes and license and registration costs. 
• If a dealer is quoting monthly payments, they must tell you the total amount you’ll pay for the vehicle. And if they offer you a lower monthly payment, they must tell you if it will raise the total cost of the vehicle. 

Add-on products or services 

You have the right to refuse any products or services that increase the price of the vehicle. Like what? Rustproofing, protective paint coatings, extended warranties, guaranteed asset protection (GAP) agreements, and wheel and tire warranties. 

A dealer can’t charge you for products or services that have no benefit like:

• a duplicative warranty
• a service contract for oil changes on an electric vehicle 
• nitrogen-filled tires that contain no more nitrogen than normally exists in the air 
• a GAP agreement that doesn’t cover your vehicle or your neighborhood or other parts of your deal 

Real consent for all charges 

• A dealer can’t charge you for any item unless they’ve told you what it is and how much it costs, and you’ve agreed to the charge. 

What reaction did the CARS Rule get? 

The National Automobile Dealers Association issued a harsh criticism of the new rule. 

“This regulation is heavy-handed bureaucratic overreach and redundancy at its worst, that will needlessly lengthen the car sales process by forcing new layers of disclosures and complexity into the transaction,” said CEO Mike Stanton in a statement. 

"The FTC made up data to support its claims, then rejected calls to slow down the process and test the effectiveness of its proposal with real consumers. We are exploring all options on how to keep this ill-conceived rule from taking effect.”   

However, consumer advocacy groups praised the rules. 

Government watchdog organization Accountable.US released a review earlier this year that found that in the months since the rule was introduced, the National Auto Dealers Association had donated nearly $65,000 to House Judiciary Republicans while spending over $4.5 million to lobby against the initiative.  

“The auto retail industry wouldn’t be spending millions lobbying against the Biden administration crackdown on bait-and-switch tactics and hidden junk fees if these shady practices were rare. Auto retail CEOs and the right-wing lawmakers in their pocket know this Biden initiative will lower costs for everyday families, which is why they’re trying to throw a wrench in the effort,” said Liz Zelnick, director of Accountable.US' Economic Security and Corporate Power Program. “The CARS Rule will bring down costs for consumers by giving them a fair chance to navigate an upfront buying process without tricks and traps.” 

Erin Witte, director of consumer protection at Consumer Federation of America, said “the time is long overdue for the FTC to level the playing field for car buyers and honest dealers. 

“The CARS Rule will bring some improvements to the auto market, and we look forward to working with the FTC to ensure that all consumers, especially those in vulnerable populations, are prioritized throughout the process.”   

Consumer advocates said they were pleased the FTC started to look into the new rules in summer of 2022 after nearly a decade of advocates pushing for better protections.

“The FTC has taken the courageous step of addressing the top consumer complaint in the country: auto sales,” said Rosemary Shahan, president of Consumers for Auto Reliability and Safety. “This rule should benefit both consumers and honest car dealers, who wrote in support of the proposed rule and complained about being at a competitive disadvantage because of unscrupulous car dealers who lure car buyers with false promises of low prices, then jack them up using sneaky tactics.”  

When does the CARS Rule go into effect? 

The CARS Rule will take effect on July 30, 2024. The FTC has created new guidance for consumers to help them understand their rights when they buy a vehicle once the rule goes into effect. 

The FTC has also created guidance on the CARS Rule for auto dealers, including a website with frequently asked questions and other advice as dealerships prepare for the rule to take effect. 

Buying an electric car or truck?Don't ignore the cost of wiring your home for EV charging

How the CARS Rule Was Created 

The FTC started the process in June 2022 and during a months-long comment period, the agency received tens of thousands of comments from consumers, servicemembers, veterans, auto dealers and others about the proposed rule. 

The FTC said it reviewed the comments and made substantial changes to the proposed rules. 

“The changes ensure that the rule is focused on protecting consumers from many of the most common scams that target people buying vehicles while also ensuring that auto dealers are able to compete on a level playing field,” the agency said. “Many auto dealers submitted comments to the proposed rule noting that they lost business to other dealers who used deceptive bait-and-switch tactics. The CARS Rule takes steps to protect not only consumers but also honest dealers and competition.” 

How the CARS Rule will help Servicemembers 

For members of the military, the issues addressed by the CARS Rule are compounded by dealers who prey especially on young servicemembers, for whom having a vehicle is often vital when stationed on sprawling military bases, the FTC said. Servicemembers have an average of twice as much auto debt as civilians, according to the FTC. By the age of 24, around 20% of young servicemembers have at least $20,000 in auto debt, which creates a substantial challenge to servicemembers’ financial well-being. 

The CARS Rule prohibits dealers from lying to servicemembers and other consumers about important cost and financing information, and about whether the dealers are affiliated with the military or any other governmental organization, the agency said. They also are prohibited from lying about whether a vehicle can be moved out of state (which affects servicemembers and their families, who must frequently move to new duty stations) and whether a vehicle can be repossessed (there are laws that protect many servicemembers from having their vehicle repossessed). 

“The Department of Defense appreciates the FTC’s CARS Rule,” said Ashish S. Vazirani, Acting DoD Under Secretary of Defense for Personnel and Readiness. “For our service members and their families, a car is an essential purchase, and this CARS Rule will help fight predatory practices that target our men and women in uniform. The Department is pleased to see the FTC issue the CARS Rule and believes it will contribute to service members’ overall economic security and readiness.”  

Betty Lin-Fisher is a consumer reporter for USA TODAY. Reach her at blinfisher@USATODAY.com or follow her on X, Facebook or Instagram @blinfisher.