Expressing a range of concerns, several key industry groups submitted comments to the Federal Trade Commission (“FTC”) last week regarding its proposed rule that would impose new substantive and disclosure obligations on auto-dealers in the auto finance process.  The public comment period for the notice of proposed rulemaking (“NPRM”) regarding the Motor Vehicle Dealers Trade Regulation Rule (the “Rule”) closed on September 15, 2022 after the FTC declined in August to extend it.  We previously discussed the proposed Rule, which the FTC says is designed to protect consumers from “junk fees and bait-and-switch advertising tactics” in the car-buying process, and the FTC’s decision not to extend the public comment period.  Sanya Shahrasbi and Daniel Dwyer, Staff Attorneys at the FTC’s Bureau of Consumer Protection, Division of Financial Practices, also discussed the proposed Rule in a recent episode of our Consumer Finance Monitor Podcast.

In a September 12, 2022 joint letter, the American Financial Services Association (“AFSA”) and Consumer Bankers Association (“CBA”) highlighted practical changes to the proposed Rule that they believe will easily avoid unintended consequences from the current proposal.  Expressing even greater concern, the National Automobile Dealers Association (“NADA”) filed a comment letter dated September 12, 2022 in which it asked that the proposed Rule be withdrawn, describing it as “ill-conceived, ill-supported, ill-coordinated, untested and unlawful.”

NADA takes issue with both the substance of the proposed Rule and the rulemaking process itself, which it contends to have violated the FTC’s own procedures for issuing UDAP rules. NADA also argued that there is no widespread misconduct or regulatory hole to fill, and that the specific requirements in the proposed Rule are ill-conceived and will needlessly complicate and prolong the financing process for new and used cars and trucks.  Along those lines, NADA pointed out that motor vehicle dealers must already comply with requirements under the Fair Credit Reporting Act, the Gramm Leach Bliley Act, the Equal Credit Opportunity Act and Regulation B, the Consumer Leasing Act and Regulation M, and the Truth in Lending Act  and Regulation Z, and that FTC already has broad UDAP enforcement authority pursuant to Section 5 of the FTC Act. 

AFSA and CBA also take issue with the rulemaking process and question whether the FTC has fully-complied with the Administrative Procedures Act.  In addition, AFSA and CBA provided practical suggestions and changes to the proposed Rule.  Those suggestions include:

• Clarification of the definition of “Dealer” to avoid an overbroad application of the Rule to vehicle finance companies;
• A safe harbor from Holder Rule liability for Rule violations that vehicle finance companies cannot detect from the face of the retail installment sales contract or lease;
• Elimination of requirements to create new documents beyond the retail installment sales contract or lease agreement to avoid the additional time and paperwork that may result from the Rule (given that auto sales already involve voluminous paperwork) while also complying with state laws that require the entire sales or lease agreement between the parties to be in one document;
• Re-working the disclosure provisions to allow consumers to complete portions of the transaction online and to give additional consideration to the Rule’s impact on the online car-buying experience;

AFSA and CBA also asked for an implementation period of at least 18 months in light of the proposal’s potential to “fundamentally reshape interactions between customers and Dealers” and the changes to systems, processes, and documentation that it will require.

The comments from AFSA, CBA, and NADA were among the close to 27,000 comments on the proposed Rule received by the FTC.  These included many comments seeking stronger consumer protections.  Senator Elizabeth Warren and Representative Katie Porter, for example, sent a letter to the FTC on August 12, 2022 in support of the proposal, describing the “complex and opaque market” facing consumers when they purchase new or used cars.

We have previously pointed out that the implications of the proposed Rule extend beyond motor vehicle dealers and the FTC’s enforcement jurisdiction, as auto finance and leasing companies subject to the Consumer Financial Protection Bureau’s enforcement authority could potentially face UDAAP liability for dealer violations of the proposed Rule.  To that end, we believe the FTC should give serious consideration to the suggestions in the AFSA/CBA joint letter as well as in other comment letters that would improve — instead of placing greater burdens on — the customer experience.

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