service contracts, must be fully disclosed to consumers, including the cost and impact on financing. Dealers must obtain affirmative consent from consumers before adding these products to the transaction. This requirement helps prevent “packing,” a practice where dealers add extra products or services to the transaction without the buyer’s full knowledge or consent. What is “express or informed consent” for the purpose of add-ons and other charges? The rule requires an unambiguous consent to the charge, both what it is for and its amount. Disclosure must be made both orally and in writing. A dealer will need a separate signed document for each add-on, and translation is necessary. I believe this is going to require the re-drafting of certain product disclosure forms to ensure their clarity. Obviously, we will need to work with our vendors on these forms. This is because the FTC has stated that pre-check boxes and signing at the end of a document are likely not to be enough, and even electronic signatures without context can violate the rule. To emphasize again, we are going to have to use forms that clearly describe the charge, the price of all add-ons (optional and mandatory) and dealer fees, with clear statements that optional products are indeed optional and not needed for purchase or financing. The FTC also believes that certain voluntary protection products have no value. To illustrate this point, the FTC discussed nitrogen-filled tires, particularly when the level of nitrogen is no more than is normal in the atmosphere and overstating its positive attributes to a consumer. GAP was also mentioned, particularly because the value of the car and the customer providing sufficient equity shows that GAP has little value. Accordingly, some thought needs to be given when selling GAP. Service contract values can also be questioned if the service contract materially covered the vehicle for the same time frame and extent that an existing manufacturer warranty provides. The FTC couches this in terms of whether the voluntary protection product or add-on provides benefit to the consumer. The old rule of thumb of offering 100% of the products to 100% of customers 100% of the time may need to be modified. The dealer is going to be required to maintain records that substantiate the benefits of voluntary protection products sold to an individual customer. 4. Record-Keeping Requirements The Vehicle Shopping Rule’s new record retention requirements are extremely burdensome. Dealers are required to create and maintain records necessary to show compliance with the rule for a period of 24 months. This includes all advertisements, sales scripts, training materials, marketing materials, all communications with the customer, such as texts, emails, social media, etc., and other communications, including business development centers. Also included are all retail transactional documents, particularly for add-on consents. Taking a rather expansive approach, the FTC requires dealers to keep records of written complaints about sales, financing or leasing terms and any written questions and responses about any motor vehicle. You can obviously see how burdensome this could become. Lastly, consumer waivers of these requirements are prohibited. 5. Compliance and Penalties Non-compliance with the Vehicle Shopping Rule can lead to significant penalties for dealers. Current penalties exceed $50,000 per violation. Also, the FTC is becoming very aggressive by naming individual dealers and general managers in lawsuits over advertising and issues with voluntary protection products. In fact, even though the Vehicle Shopping Rule is not current law, the FTC is currently attempting to require dealers, in proposed consent decrees, to follow the details of the Vehicle Shopping Rule. The Vehicle Shopping Rule represents one of the most stringent regulatory steps taken in recent years which impacts auto sales. Advocates for the Rule argue that it will foster a more transparent, customer-friendly auto retail environment. As the NADA study has shown, the Vehicle Shopping Rule will require the customer to spend more hours during the buying process, will greatly increase costs for dealerships and overly regulate areas that already are regulated by a myriad of state and federal laws. 6. Junk Fee Rule As stated in the beginning, let’s briefly discuss the FTC’s “Junk Fee Rule.” Currently, the FTC states that the Junk Fee Rule does not apply to motor vehicle dealers because the Vehicle Shopping Rule exists. However, if the Vehicle Shopping Rule ceases to exist, the Junk Fee Rule will apply to motor vehicle dealers. Instead of using the term “Offering Price,” the Junk Fee Rule uses the term “Total Price.” The FTC’s proposed “Junk Fee Rule” defines “Total Price” as the sum of all fees and charges a consumer must pay for a good or service, excluding shipping and government charges. The total price must include all mandatory fees, such as service fees, convenience fees or delivery fees. And the total price must include any mandatory ancillary good or service. Consequently, at least on advertising issues, if the Vehicle Shopping Rule does not come into effect, dealers are going to be required to change advertising practices as just outlined in this article. Be on the lookout for more information. I am working with your association on preparing a quick reference for you to use while navigating these complex legal regulations. As always, do not hesitate to reach out to myself or your association for assistance on these matters. WVADA NEWS 25
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