The warning letters sent to 97 undisclosed automobile dealerships on March 13 presents a good reason to remind NIADA members of their obligations under Section 5 of the Federal Trade Commission Act.
Section 5 is one of the most important consumer protection laws affecting used car dealers. The provision prohibits unfair or deceptive acts or practices (UDAP) in commerce and gives the FTC authority to investigate and enforce violations across many industries, including automotive sales.
For used car dealers, Section 5 primarily focuses on ensuring that advertising, pricing and sales practices are truthful and transparent. A practice is considered deceptive if it misleads or is likely to mislead a consumer and affects the consumer’s purchasing decision. It may be deemed unfair if it causes or is likely to cause substantial consumer harm that cannot reasonably be avoided and is not outweighed by benefits to consumers or competition. In the dealership context, this can include several scenarios. Some common examples include:
- Deceptive advertising: advertising a vehicle price that excludes discretionary fees, then including them as part of the total sales price
- Deceptive financing offers: making inaccurate claims about financing terms
- Extended warranties: misrepresenting the contract as the manufacturer’s warranty and/or claiming the consumer must purchase it to qualify for financing
- Prepaid maintenance plans: representing the plan as required to maintain the vehicle warranty and failing to disclose limitations or cancellation rights
- Guaranteed Asset Protection (GAP) Plans: representing that GAP coverage is required for financing when it is optional, failing to disclose the actual price or refund terms, andbundling it into the loan without clear consumer consent
- Fabric or paint protection products: advertising the vehicle price without the add-on, then adding it as a mandatory fee
- VIN etching: including it without consumer authorization, then presenting it as required for financing or insurance
- Nitrogen tire inflations: charging for this service without clear disclosure while implying significant performance benefits not supported by evidence
- Other nontraditional add-ons, such as reconditioning fees and inflated documentation fees
The above list is not inclusive. There are other examples of advertising and pricing scenarios that could easily trigger a UDAP investigation. The FTC’s recent warning letters illustrate the degree to which transparency in vehicle pricing continues to be a priority focus for the agency. Dealers are expected to clearly disclose the full cost of the transaction, accurately represent optional products, and avoid any sales tactics that could mislead consumers.
There are of course, certain fees that should not be reflected in the advertised price of the vehicle. These include state sales taxes, documentation fees, title and registration fees, and any other assessment required under the laws of the jurisdiction where your dealership does business.
Violations of Section 5 can result in warning letters like the ones recently issued, investigations, consent orders, civil penalties and federal lawsuits.
As regulatory scrutiny of the auto retail sector continues to grow, maintaining strong compliance policies and procedures, clear disclosures, and honest advertising practices remains essential for independent dealers seeking to stay on the right side of federal consumer protection law. Regardless of whether or not you are one of the 97 dealers to receive a letter, take this latest warning shot from the FTC seriously and use it as a reason to audit your compliance program and make any adjustments that may need remediation.
You are not in this alone. NIADA is a resource. If you have questions about your compliance obligations under Section 5, reach out to us, and we will do our best to guide you through your concerns or refer you to an outside professional.
