Americans could save $3.4 billion through a new rule preventing 'exploitative' fees when buying a new car, the FTC says
The FTC wants to make sure you don't get scammed into buying an extended warranty or something you don't want.
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- The FTC finalized a new rule to curb hidden and junk fees when buying a car.
- Under the new rule, dealers have to be upfront about prices.
- They also can't charge car buyers for bogus add-ons, or charge extra without permission.
If you dread car shopping — and navigating the labyrinth of what, actually, you need to buy and how much it should cost — the Federal Trade Commission has some good news.
On Tuesday, the FTC announced it had finalized a new rule — the Combating Auto Retail Scams (CARS) Rule — aimed at making car shopping a lot easier, and more transparent, for consumers. Specifically, the rule is focused on preventing car dealers from using "bait-and-switch" tactics to persuade consumers to purchase a car without being upfront about the costs, including any available discounts. The agency estimates that it'll save consumers $3.4 billion — and 72 million hours a year when they're car shopping.
The rule also cracks down on hidden junk fees, or charges that are not made clear to the consumer upfront.
"When Americans set out to buy a car, they're routinely hit with unexpected and unnecessary fees that dealers extract just because they can," FTC Chair Lina Khan said in a statement. "The CARS Rule will prohibit exploitative junk fees in the car-buying process, saving people time and money and protecting honest dealers."
According to the FTC's announcement, the CARS Rule requires dealers to provide buyers with the actual price of the vehicle, including any add-ons that might be necessary. It also prohibits dealers from charging the buyer for "bogus add-ons," including warranty programs the buyer doesn't need. The rule also ensures the buyer gets the consumer's consent before charging them for any extra costs alongside the purchase of the car.
The CARS Rule comes amidst the Biden administration's larger push to crack down on hidden junk fees. Those are fees that are often presented late in the sales process — like when you're signing a car contract — and might not be necessary, like an extended warranty. Or, in cases where the fees represent something the consumer might actually need, like a checked bag for a flight, they get unbundled from the price listed. That means that when you log on to buy a plane ticket, the stated price won't end up being the final price.
And, beyond the CARS Rule, the Biden administration and the FTC want to curb hidden fees across the economy. The FTC has proposed a rule that would require businesses to show the full prices of products up front — and face financial penalties if they don't.
"Whether you're paying a hotel bill, renting an apartment, buying a concert ticket, or ordering dinner online, the FTC estimates that Americans collectively pay tens of billions of dollars a year in junk fees," FTC chair Lina Khan told reporters in an October call on that proposed rule. "That's billions of dollars that working families are paying in worthless fees, money that corporations are extracting from Americans just because they can."
The rule is set to go into effect on July 30, 2024, per the FTC. It will release guidance for consumers to help them better understand the rule once it goes into effect, along with directives for car dealers, as well, to allow them to prepare for the changes. With car prices simultaneously potentially poised to tumble, that might be good news for prospective buyers.