The CARS Rule is under attack from powerful special interest groups. Advocates have an important voice and will be a critical part of protecting this Rule in the coming months. Below is a link to our impactful and informative webinar about the CARS Rule, where experts from national consumer organizations break down what the CARS Rule does (and does not do), what challenges the FTC will face, and how attendees can support the CARS Rule.

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This is part three of a three-part blog series which will cover the major changes to the Rule, what the FTC declined to address in this rulemaking, and the major components of the CARS Rule. CFA has been a strong advocate for this rulemaking and looks forward to continuing its support to ensure that the CARS Rule becomes law.

The CARS Rule is largely the same as the original proposal (see part 1 of this blog series for a detailed description of the changes), targeting price transparency and add-on products and services. Here are the primary components of the CARS Rule, with links to the corresponding provisions in the lengthy Federal Register notice:

Pricing Transparency

Offering Price Disclosure. The Offering Price is defined as the full cash price for which the dealer will sell the vehicle, excluding only government taxes. The FTC has made clear that this includes all mandatory fees, including fees for pre-installed and mandatory add-on goods and services.

WHEN – Dealers must disclose the Offering Price in any advertisement and/or communications that reference a specific vehicle or that reference a monetary or financing term for a specific vehicle. In any communications, the Offering Price must be included in the first response regarding a specific vehicle.

HOW – These disclosures must be made clearly and conspicuously, and if the communication is in writing, then the Offering Price must be in writing.

Total of Payments. Rather than solely focusing on misleading monthly payment amounts, dealers must disclose the total amount that a consumer will pay for the vehicle, after all installment payments are made. Many add-on’s look innocuous and less expensive when they appear to cost a few dollars a month, but the FTC is requiring dealers to be more up front with consumers about the true, total cost of purchasing a vehicle.

WHEN – Dealers must disclose the Total of Payments whenever they make a representation about monthly payments for a vehicle.

HOW – These disclosures must be made clearly and conspicuously, and if the communication is in writing, then the Offering Price must be in writing.

Monthly Payments Comparison. The FTC is also requiring dealers to provide a simple, clear explanation that decreasing a monthly payment will increase the total cost of the vehicle if this is the case. Many consumers misunderstand the fundamental concept that lowering a monthly payment corresponds to a longer payment term and higher finance charges and total cost.

WHEN – Dealers must provide the Monthly Payments Comparison whenever comparing a lower monthly payment option.

HOW – These disclosures must be made clearly and conspicuously, and if the communication is in writing, then the Offering Price must be in writing.

Add-on Products

Prohibiting Worthless Products. The CARS Rule explicitly prohibits the sale of any add-on product or services “if the consumer would not benefit from” the product. It includes the examples of “nitrogen-filled tires” and GAP products that do not provide coverage or are duplicative of existing insurance coverage.

Optional Add-ons. The CARS Rule also requires dealers to explicitly state that optional add-ons are not required, and the vehicle can be purchased without them if this is true. Dealers must provide this disclosure whenever make any representation about add-ons, and it must be in writing if the representations about add-ons are made in writing.

Express Informed Consent. The CARS Rule requires dealers to obtain consumers’ “express informed consent” when charging for any item, including add-ons. The FTC defines this as “an affirmative act communicating unambiguous assent to be charged” which states what the charge is for and the amount of the charge, including all fee and costs. The definition also makes clear that dealers cannot use prechecked boxes or use a method that subverts or impairs consumer choice to satisfy this requirement.

Prohibited Practices

The CARS Rule includes a list of 16 prohibited misrepresentations that address many common deceptive practices in the auto marketplace. Notably, unless the FTC includes these provisions in a rule, it is precluded from obtaining refunds for consumers when this misconduct occurs. In 2021, the Supreme Court ruled in AMG Capital that the FTC cannot use its traditional UDAP authority to obtain refunds, and the FTC must instead pursue rule violations to make consumers whole.

Recordkeeping

Dealers will be required to maintain records of all documents pertaining to rule compliance for two years from the date they are created.

The post FTC CARS Rule Part 3: What Does the Final Rule Say? appeared first on Consumer Federation of America.

This is part two of a three-part blog series which will cover the major changes to the Rule, what the FTC declined to address in this rulemaking, and the major components of the CARS Rule. CFA has been a strong advocate for this rulemaking and looks forward to continuing its support to ensure that the CARS Rule becomes law.

What did the FTC decline to do in the CARS Rule?

CFA and over 100 other groups commented on the July 2022 NPRM, asking the FTC to go further in the Rule itself and to address many other issues plaguing auto sales and financing. The FTC largely declined to adopt the changes requested, citing their intent to “continue to monitor the marketplace.” Here are the top areas of concern consumer groups asked the FTC to address:

Yo-yo sales. After a consumer has signed a financing contract and left the dealership with a vehicle, some dealers subsequently claim that the deal “fell through” and tell the consumer that they need to sign a new financing contract with terms that are worse than previously agreed to. The CARS Rule and the July 2022 NPRM prohibit dealers from making misrepresentations about this conduct, but do not prohibit yo-yo sales. Advocates have separately petitioned the FTC to ban this practice primarily because disclosure is an ineffective tool to curb this egregious fraud. In the CARS Rule Notice, the FTC says it will address the petition separately.

Cooling off period for add-ons. Part 1 of this blog series describes the FTC’s approach to add-ons and what changed from July 2022 to the final CARS Rule. In our comment, advocates asked for a clearer, better solution to nefarious add-ons: a 30-day cooling off period which would permit consumers to review and cancel their add-ons for a full refund. The FTC declined to make this change but left open the possibility that it would reconsider this in the future “based on actual stakeholder experience” with the CARS Rule.

Translating documents. Advocates asked the FTC to require dealers to translate major contractual documents into the language in which the sale was negotiated. Many dealers solicit non-English speaking consumers and employ salespersons who are fluent in other languages. Consumers are then baffled when that trusted salesperson disappears, and they are presented with all-English documents by English-speaking finance managers. The FTC declined to require translated contracts but notes that the CARS Rule requires “express informed consent” for each item charged. It then explains that a consumer who does not speak English and signs an English language document “is in no position to give unambiguous assent to the charges described therein.” Interestingly, this seems to call into question whether such contracts would be enforceable.

Safety and defects. Advocates asked the FTC to prohibit dealers from representing that vehicles are safe or “certified” when they have open recalls, and to prohibit many other misrepresentations about safety, recall repair availability, mileage, and eligible for service contract coverage. The FTC declined to adopt any of these provisions, claiming that much of this conduct is already prohibited and that it would continue to monitor the marketplace. The reality is that dealers often claim that vehicles with open recalls are safe and without a clear statement from the FTC about this particular problem, it is often not actionable by a consumer.

Electronic repossessions. Advocates asked the FTC to prohibit the electronic disablement of vehicles as a means of repossession. Creditors can use kill switch devices to remotely disable vehicles when they believe a consumer is late in their payments, leading to a host of dangerous outcomes. The CARS Rule prohibits misrepresentations about “whether or under what circumstances a vehicle may be repossessed,” but the FTC declined to prohibit their use altogether. Therefore, as long as dealers do not lie about their use of these dangerous devices, they remain permissible.

It is clear that the number and scope of issues that plague auto sales and financing are numerous and complex. While advocates urged the FTC to go further, we are encouraged by the strong steps taken by the FTC to date to rein in some of the worst problems in this marketplace and look forward to future opportunities to support efforts to empower car buyers.

The post The FTC CARS Rule Part 2: Where did the FTC decline to go further? appeared first on Consumer Federation of America.

This is part one of a three-part blog series which will cover the major changes to the Rule, what the FTC declined to address in this rulemaking, and the major components of the CARS Rule. CFA has been a strong advocate for this rulemaking and looks forward to continuing its support to ensure that the CARS Rule becomes law.

Changes from 2022 Proposed Rule:

The CARS Rule includes two major changes from the NPRM to its requirements about add-ons and the scope of the Rule, and several other, smaller changes.

Add-on Selection Requirements. In both the July 2022 NPRM and the CARS Rule, the FTC details a well-founded litany of problems with the way dealers advertise and sell add-on products to consumers. Many consumers do not know they are being charged for add-ons, dealers misrepresent to consumers that add-ons are mandatory, and dealers’ use of complex paperwork and deceptive conduct often obscures consumers’ understanding of the cost of add-ons and their impact on financing.

The July 2022 NPRM proposed adding safeguards into this process, including (1) requiring dealers to disclose a list of available add-ons and their prices, and (2) adding a particularized multi-step consent process for add-ons, whereby dealers would be required to calculate the price of the car with and without the add-ons and itemize the add-ons, all before the final purchase and with the consumer’s clear understanding that these add-ons were not mandatory.  The FTC declined to adopt these provisions in the final CARS Rule, citing commenter concerns about ineffectiveness and inserting more documents into an already complex and document-heavy process. The FTC maintained its prohibitions against the sale of worthless add-ons, prohibiting dealers from misrepresenting that add-ons are mandatory, and requiring express informed consent to purchase an add-on.

Add-ons are a major problem for car buyers. The FTC clearly wants dealers to provide more information to consumers to make a better-informed decision about add-ons, and advocates are hopeful that the FTC will undertake future action to create a better solution to this problem. Regardless, it is evident that the FTC thoughtfully considered the tens of thousands of comments it received when making these changes, underscoring the power of public participation in agency rulemaking.

Definition of a Covered Vehicle. The second major change reduces the scope of application of the CARS Rule itself to the sale of certain cars instead of all motor vehicles. The July 2022 NPRM expansively defined “motor vehicle,” but the CARS Rule scales back the definition of “covered vehicle” to exclude recreational boats, motorcycles, scooters, electric bicycles, motor homes and golf carts. The FTC also limited the definition to refer only to vehicles designed for use on a public roadway. This means that the CARS Rule will not apply to the sale of these excluded vehicles.

To be clear, the abuses described by the FTC occur in the sale of all types of vehicles, but it is likely that the vast majority of comments received by the Commission pertained to cars, prompting its decision to narrow the CARS Rule scope. The FTC states that it will monitor the market to determine whether broadening the scope of the CARS rule as originally proposed is appropriate.

Other Changes. The FTC made several other smaller changes, including:

• A requirement that each of the prohibited misrepresentations pertain to “material information,” which means “likely to affect a person’s choice of, or conduct regarding, goods or services.”
• Including a phrase in the definition of “covered dealer” that explicitly provides that it applies to individuals and
• Changing the definition of “offering price” to clarify that dealers “may, but need not, exclude required government charges.”

The post The FTC CARS Rule Part 1: What Changed? appeared first on Consumer Federation of America.

After a decade of attempts to fix a broken auto marketplace, the FTC announced in July 2022 that it was pursuing an auto dealer rule aimed at ending bait and switch pricing tactics and junk fees in the form of worthless add-on products and services. After receiving over 25,000 comments from the public and widespread support for addressing auto dealer misconduct, the FTC has published its final rule, summarizing the comments and laying out its plan for the CARS rule.

“The time is long overdue for the FTC to level the playing field for car buyers and honest dealers,” said Erin Witte, Director of Consumer Protection at Consumer Federation of America. “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.” 

The CARS Rule prohibits misrepresentations about key information, like price and cost, and requires dealers to provide the offering price, tell consumers add-ons are optional, and give information about the total payment when discussing monthly payments. The rule also prohibits dealers from charging for any add-on that has no benefit to the consumer.

“We applaud the FTC’s efforts to help millions of Americans through the use of its rulemaking authority to bring a level of transparency to auto sales,” said John Van Alst, senior attorney at the National Consumer Law Center and Director of its Working Cars for Working Families Project. “We look forward to continuing to work with state and federal policymakers to address discriminatory practices and bring transparency to the car sales and finance markets.”

The Rule also includes clear protections for members of the military and their families who are targeted with deceptive information about whether dealers are affiliated with the military and face other issues specific to servicemembers.

“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.”

“Consumers are beyond frustrated with the deceptive practices some unscrupulous dealers use to jack up the price of cars,” said Chuck Bell, advocacy programs director for Consumer Reports. “The FTC’s new rule will protect consumers from shady bait and switch sales tactics and help ensure that car dealers provide fair and accurate prices for vehicle purchases.” 

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 as well as guidance for auto dealers with advice to help them prepare for the rule to go into effect.

“We know all too well how car buyers across the country are ripped off by unscrupulous auto dealer sales and financing tactics,” said Christine Hines, legislative director at National Association of Consumer Advocates. “We appreciate that the FTC has taken action to provide protections for consumers in this market.” 

“We are thrilled that the Federal Trade Commission has issued its CARS rule today bringing some badly needed consumer protections to Americans looking to buy or lease a vehicle,” said Mitria Spotser, vice president and director of federal policy at the Center for Responsible Lending. “This rule will help curb dishonest sales and financing practices in the industry.  The steep rise in automobile prices over the past few decades means we need to be doubly vigilant of junk charges and financing scams, especially given current interest rates.”

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Life Hack for Saving Time: Pass the FTC’s Auto Dealer Rule

Department of Labor ERISA Council Must Protect Retirees and Workers Pensions

CFA Report Shows That Real Estate Agent Glut Harms Both Industry and Consumers

Tips for Saving Money on Your Auto Insurance

By: Michael Delong, Research and Advocacy Associate

Auto insurance is an interesting product: we are all required to have it if we own a car, but we hope never to have to use it, and we try not to think about it. But as insurance premiums continue to skyrocket, it has probably been on your mind more.  Even though we can face stiff penalties for driving without insurance, many drivers struggle to keep up with the rate increases.  In addition to the price pain, the insurance product itself can be kind of bewildering:  what are all these different “coverages,” which do I need, and (of course) why do they cost so much?

Consumer Federation of America (CFA) and America Saves are here to help. At its most basic, auto insurance covers damage or injury you cause to another car or person while you are driving.  Depending upon your state and the coverage you choose, your insurance policy may also cover your medical bills or damage to your car when you cause a crash, when you are hit by an uninsured driver, or when your car is stolen or crushed by a tree branch.

Every state except New Hampshire requires drivers to have auto insurance—and New Hampshire still requires financial responsibility if you cause an accident, so the overwhelming majority of people there have auto insurance. If you do not have auto insurance, you are breaking the law. And if you are caught you may be fined, have your license suspended and have to pay a fee to recover it, and possibly even face jail time.

Over the next several weeks CFA and America Saves are partnering on a series of articles on auto insurance—how to save money, what consumers should know, and several myths about auto insurance. Please note that these tips are general in nature and may not reflect every reader’s personal needs and situation; you should consult financial advisors and insurance professionals as you make decisions.

You can save money on your auto insurance with these tips:

1. Shop around—and shop around using multiple options. Auto insurers use a variety of driving and non-driving socio-economic rating factors to set your premiums. Driving-related factors include your driver safety record, the number of miles driven, and whether you have been in any accidents or filed any claims. Non-driving related factors include your gender and marital status, your credit score, your education level, your job or occupation, whether and how much insurance you’ve had in the past, and whether you own a home or rent. Insurers also place a lot of emphasis on where you live, often based on your ZIP code and even on which block you live in your neighborhood.

Each auto insurer calculates these factors and their impact on your premium in different ways – some rely heavily on your credit history and never consider your job title or educational history, while others may weigh several aspects of socio-economic status when calculating your premium. It is well worth your time to sit down and get quotes from different insurance companies. If one company charges you $120 per month and you find another company that only charges you $90 per month, that $30 savings per month will add up to $360 saved per year.

Consumers can compare quotes in several different ways:

• Online: You can go to different auto insurer websites, fill out your information, and get the quotes, and you can use comparison websites such as the Zebra, Bankrate, or ValuePenguin. These websites enable you to compare a few quotes more quickly and easily. It is important to note that these companies do not scan the whole market for you, and they get paid by insurance companies.
• Through an agency. You can contact licensed insurance agents to get additional quotes and guidance about insurance generally. There are some agents – known as “exclusive” or “captive” agents who only sell one insurance brand and may have deep knowledge about the offerings of their company. Others, known as “independent” agents and brokers, can scan several insurers’ offerings for you, including some that may not be available online.

We recommend that people shop around through each of these methods to get the best set of options and find the best price.  One note, some insurance sellers, known as “brokers” may charge an additional “broker fee” if you work with them. Unless you have a particularly unique situation – such as a very bad driving record or a very expensive or custom vehicle – we recommend against purchasing auto insurance from brokers who charge a fee.

     2. Consider whether you still need comprehensive and collision coverage. These options on an insurance policy will pay to repair or replace your car if it is damaged by you (such as accidentally crashing into a pole while parking), some natural event like a falling tree branch, or if it is stolen. If you have a car loan or lease your vehicle, these coverages are required, but if you own your car outright, they are optional. “Comp and Collision” are particularly helpful if your car value is still pretty high, but if your car is not worth much anymore, it may be time to consider dropping Comp and Collision. Since these coverages usually come with a deductible – typically $500 – that you have to pay first before any insurance payments kicks in, it may be better to try and set aside a little money each month just in case you damage the vehicle, rather than pay hundreds of dollars in premiums each year for a car worth only a few thousand dollars. As a thumbnail rule, if your car value is less than ten times what you pay for Comp and Collision, you might consider dropping it. That is, if your car is worth $10,000, it might not be worth it to spend more than $1,000 a year on Comp and Collision; if it’s only worth $3,000, think twice about a policy costing more than $300 for those coverages.

     3. Check your credit score for errors and try to improve it as well. We hate to make this recommendation, because it is ridiculous that this should impact your insurance premium. But, until politicians stand up to insurance companies and stop this practice (it is already prohibited in California, Hawaii, and Massachusetts), it is one of the biggest drivers of your auto insurance premium. Our research indicates that consumers with a perfect driving record and poor credit scores pay on average at least twice as much for auto insurance compared to consumers with a poor driving record and excellent credit scores.

The first thing you can do is examine your credit report for errors, which are unfortunately quite common, and demand that any errors be corrected. You can get a copy of your credit report at this link. If you find errors, contact your insurer and demand that they re-run your “credit-based insurance score,” re-price your policy if appropriate, and refund any excess they charged by using a faulty score. Over time, you can work on improving your credit score by following the credit score improvement strategies described here.

CFA is fighting to ban auto insurers from charging consumers more based on their credit; if you are interested in learning more or getting involved, email us at mdelong@consumerfed.org.

     4. Make sure your insurer knows how much you drive. Many companies charge lower prices to low-mileage drivers. If you are driving less (because you are working from home, out-of-work, or retired) than you used to, you may be paying more than you should. Find out how many annual miles the insurer is estimating for you when they set your premium and correct them if they are rating you based on out-of-date information.

     5. Improve your driving by taking a driving improvement course. Auto insurance companies charge far higher premiums if they believe you are a risky driver, since that increases the chances of your being in a crash and the insurance company having to pay a claim. If your driving record is checkered or you would like to save on your insurance, some auto insurers will offer you a discount if you take a defensive driving course. Check with your insurance company or agent to see if you qualify for a discount if you take this course, some of which can even be taken online.

     6. Pay your auto insurance premium in full instead of monthly. If you’re struggling to cover the cost of insurance, then you are probably paying in installments. It may be hard to imagine paying it all at once, but it’s worth calling your company and asking how much you would save if you did. With some companies it can be 5-8% or even as much as 12%. If you are on a six-month policy (where the pay-in-full amount is much less than an annual policy), and you pay a significant installment fee, consider paying all at once.

     7. Look for additional discounts. Many auto insurers offer further discounts if you meet certain conditions. Possible benefits include: discounts for having a paperless policy, a student discount, a discount if your car gets an anti-theft device, an automatic payments discount, or a discount for veterans/members of the military.

Auto insurance is required in most states, and it is also a crucial tool for financial security and economic mobility (as well as actual mobility in most places). Some of the reasons for high prices have to do with unfairness in the marketplace and company greed – CFA is working on improving laws and regulations to better protect consumers from these problems – but being a savvy insurance shopper and consumer can help. We hope that this will help you save on your auto insurance.

Life Hack for Saving Time: Pass the FTC’s Auto Dealer Rule

By: Erin Witte, Director of Consumer Protection

The Federal Trade Commission sells its Motor Vehicle Dealer Rule short when it estimates that consumers will only save $30 billion over ten years. The $30 billion number is the dollar equivalent of the time savings (on average: 3 hours per transaction) for consumers because the rule would prohibit dealers from advertising deals that are not available, and from wasting consumers’ time by making them call or physically go to a dealership to haggle over the price of the car. It is hard to imagine that anyone will be unhappy about having to spend less time at a car dealership – $30 billion is just icing on the cake.

But time savings, significant as they are, are only one small fraction of the ways consumers would save money with this rule. Dealers would not be able to sell worthless add-on products or deceive consumers into buying them. If the FTC’s cases against Passport and Napleton are any indicator, the cost savings here will well exceed the $30 billion estimate. Napleton alone allegedly charged over $70 million in deceptive and unauthorized add-ons. With over 45,000 dealers in the U.S. generating hundreds of thousands of complaints to government regulators, it is safe to assume that Napleton and Passport are not simply “bad apples.” Implementing safeguards to help prevent these and other deplorable practices will only put more money back in consumers’ pockets, stimulate competition, and make the process of buying a car slightly less painful.

Enter the lobbying powerhouse National Automobile Dealers Association (NADA), smelling blood in the water for dealers’ substantial profits, and predictably dipping into its well-funded coffers to generate a fearmongering survey and report about the FTC’s rule. Before asking a single question, the survey spends three pages striking fear in the hearts of dealers about expanded liability, exposure to significant monetary penalties, and “increase[d] consumer confusion and frustration.” It is no surprise that this “representative sample” of 40 dealers (out of “roughly 60,” handpicked by NADA) who managed to fully complete the survey (and “nearly fifteen” who were interviewed) want us to believe that the rule will cost consumers more than it saves. This simply is not true.

Perhaps it’s time we asked the people who rely on and pay increasingly high amounts for cars what they would like to see. Thousands of consumers responded to the FTC’s rulemaking, sharing horror stories and pleading for its passage. The least we can give them is a measly 3 hours and $30 billion back.

Department of Labor ERISA Council Must Protect Retirees and Workers Pensions

By: Micah Hauptman, Director of Investor Protection

On July 18^th, CFA’s Director of Investor Protection Micah Hauptman testified before the Department of Labor’s Advisory Council on Employee Welfare and Pension Benefit Plans, known as the ERISA Advisory Council. The purpose of the hearing was to help the Department determine whether it should update its longstanding guidance for pension plan fiduciaries in order to ensure that their decisions to transfer worker and retiree pensions to annuity providers are in the sole interests of workers and retirees.

Hauptman stated that in recent years many of the largest companies in the U.S. have transferred their pension obligations to insurance companies that provide annuities to workers and retirees. When companies do this, they shift risks onto insurance companies that, if not carefully controlled for, could undermine insurance companies’ abilities to fully pay those annuities to workers and retirees.

At the same time, insurance companies’ business models are evolving in ways that may increase risks for insurers, Hauptman stated. For example, private equity firms have become increasingly involved in insurance markets, introducing new sources of risk, complexity, and opacity to insurers’ businesses — risks that may undermine insurance companies’ ability to pay annuities to workers and retirees.

While state-based insurance guarantees may offer a partial backstop against the risk that insurance companies may not pay their annuity obligations, those guarantees are not as robust as the insurance guarantees that are provided under federal law by the Pension Benefit Guaranty Corporation (PBGC), Hauptman stated. Thus, the workers and retirees whose pensions are transferred to annuities are at risk of losing valuable benefits if the insurance company providing their annuity were to fail.

Given these heightened risks to workers and retirees arising from pension risk transfers to annuity providers, Hauptman urged the Department to preserve the protections in the current guidance for pension plan fiduciaries and offered several suggestions for the Department to consider to strengthen the guidance so as to ensure that any pension risk transfer arrangements do not leave workers or retirees worse off than they would be if they stayed in the defined benefit pension.  These included:

• Preserving the requirement for fiduciaries to select the safest annuity available;
• Requiring fiduciaries to select annuities that are independently reinsured; and
• Not permitting fiduciaries to satisfy their obligations by providing disclosures about the risks associated with the transfer or by accepting written representations by an insurance company that it is complying with state insurance laws.

Hauptman reminded the Department that workers and retirees have earned their pensions and depend on them for a secure retirement. Accordingly, the Department must ensure that those benefits and the protections afforded to workers and retirees are not compromised.

CFA Report Shows That Real Estate Agent Glut Harms Both Industry and Consumers

Earlier this month CFA released a new report – “A Surfeit of Real Estate Agents: Industry and Consumer Impacts” – revealing with industry data that there are too many residential real estate agents compared to the amount of homes available for sale. The report also found that this imbalance burdens consumers with higher commission costs and leaves them vulnerable to inexperienced real estate agents.

There are more than 1.5 million residential agents who belong to the National Association of Realtors and compete for home sales, with costs totaling between $5 to $6 million annually. The costs include:

• economic inefficiencies including an inordinate time spent by agents finding clients,
• relatively low incomes of many full-time agents,
• frustration by these agents and by many consumers who must deal with inexperienced agents,
• reinforcement of relatively high and uniform commission rates, and
• damage to the reputation of the industry.

“A large majority of practicing real estate agents have recently received their license or work part-time,” said Stephen Brobeck, a senior fellow at CFA and author of the report. “These agents usually charge the same commission rates as experienced, full-time agents yet in general offer worse service and deprive experienced agents of needed clients.”

Marginal agents with fewer than five sales a year receive an estimated 25-30 percent of commission income. The report found that the median net income of all sales agents was approximately $25,000, and the median net income of sales agents with less than two years of experience was $7,800. For all brokers and associate brokers, the net median income was $57,100.

“Without 5-6 percent commission rates, even fewer agents would survive financially in today’s marketplace,” said Brobeck.  “Ironically, relatively high rates attract new entrants into the industry, increasing competition for clients and reducing individual income for all.”

A future CFA report will explore the ease with which people can obtain a real estate license compared to the difficulty for most licensees to learn how to succeed as realtors.

“To protect consumers and experienced realtors, the industry should discourage unqualified and insufficiently committed people from obtaining a license,” said Brobeck. “The industry should prioritize making it easier for capable, hard-working licensees to succeed. We look forward to expanding on this suggestion in a future report.”

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“This is not the first time that Wells Fargo has flagrantly violated the law and harmed consumers across its lines of business, including deposit accounts, credit cards, and student loan servicing,” said Rachel Gittleman, CFA’s Financial Services Outreach Manager. “Today’s enforcement action illustrates the need for an independent consumer protection agency armed with the resources and tools needed to hold violators of the law accountable, make harmed consumers whole again, and protect the public from future unfair, deceptive, or abusive acts or practices.”

“Victims of illegal auto repossession suffer devastating losses and have almost no leverage to seek justice on their own,” said Erin Witte, CFA’s Director of Consumer Protection. “This is a powerful reminder that we need the CFPB to stand up for the millions of people who would have no other recourse.”

Contact: Rachel Gittleman, 609-571-5953

Erin Witte, 202-387-6121

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Monthly Payments

Cars are more expensive than ever. As a result, most car buyers finance their car purchase or lease a vehicle. This means that consumers are tied to a closed-end monthly payment until the loan is paid off. The lynchpin for profit-driven dealers is also the most vulnerable pressure point for consumers: the monthly payment amount. Consumer advocates often advise consumers not to focus on or disclose their desired monthly payment amount in the negotiations, because when the dealer has this number, it is armed with a significant leverage and the ability to manipulate components of that payment. 

Take a consumer who wants a low monthly payment. A lower amount may seem attractive, but it also likely also means that the dealer has manipulated other terms, such as extending the contract period for several years, driving up the total purchase cost by thousands of dollars. Dealers may also use monthly payments to hide charges for add-on products, such as service contracts or rustproofing, because the addition of these costs may only increase the monthly payment amount by a few dollars.

Car buyers should know what to expect in a monthly payment and understand the components of that payment (price, interest rate, credit score, payment period, down payment, and trade-in).

The FTC’s Proposed Approach to Monthly Payments

The FTC’s proposed rule would require dealers to make several disclosures whenever discussing monthly payments. First, the dealer must disclose the total purchase amount if the consumer were to select that monthly payment amount. Under the proposal, if a dealer asserts anything to a consumer about a precise monthly payment, it must also disclose the total amount the consumer will pay to purchase or lease a car based on that monthly payment. In other words, dealers must disclose the full amount a car buyer will pay over time based on the amount that the car buyer would pay each month. § 463.4(d)(1).

Second, if the total amount assumes that a consumer is providing consideration (down payment or trade in), then the dealer would also be required to disclose the total amount if it includes other consumer payments such as a cash down payment or a trade-in. § 463.4(d)(2). That way, consumers can compare prices and payments considering the different monthly payments and total price of the car. The FTC would also require a dealer to disclose the fact that a comparatively lower monthly payment could increase the total purchase price. § 463.4(e). 

What Should the FTC Do to Improve Its “Monthly Payments” Proposal?

The FTC should require dealers to affirmatively put the required disclosures in writing, enabling consumers to comparison shop more easily.

The FTC also should require dealers to provide a set of uniform financing disclosures before conducting a credit application. These uniform disclosures would assume a standard set of variables (interest rate, credit score, contract term, etc.) and provide a monthly payment for a particular vehicle. This would allow consumers to decide whether the car is in their price range and whether to let the dealer access their credit in order to continue financing negotiations. These uniform disclosures would help make financing determinations standard, more predictable, and anti-discriminatory.

Subsequently, at signing, after price comparisons and negotiations and after the buyer is credit-approved, the FTC should require the credit contract, which contains the agreed-upon amount due at signing, the monthly payment, and the annual interest rate, to be treated as final when the car buyer signs it.

Part 1 can be accessed here, Part 2 can be accessed here and Part 3 can be accessed here

The post The FTC’S Proposed Auto Dealer Rule (Part 4): Monthly Payments  appeared first on Consumer Federation of America.

Advertising

Consumers waste a significant amount of time at dealerships as a direct result of responding to inaccurate advertisements. Dealers lure consumers into their dealerships with promises of financing terms and attractive discounts or rebates without fully disclosing the limited eligibility for these incentives. Some dealer advertisements completely omit certain fees (“document preparation fees,” “dealer processing fees,” etc.), major MSRP markups, and required add-ons from the advertised price. The FTC itself has charged dealers with deceptive advertising practices, such as implying that a down payment was not required and offering an annual percentage of 0%, while in reality, the down payment and APR were much higher than what was advertised.

These practices cause consumers to choose that dealership based on a false and deceptive advertisement, then spend hours negotiating a sale that turns out to be much more expensive than what was advertised. Many consumers in this situation “give up” and purchase the vehicle after thousands of dollars have been tacked on and they have used up an entire day, purely to avoid the hassle of going through the process again.

Pricing

Many consumers report that by the time they have purchased a vehicle, the total sale price was significantly higher than what they expected to pay. One reason for these discrepancies is the deceptive sale of expensive add-ons. The hours-long arduous financing process involves stacks of complex paperwork that often hide the cost of add-ons. Dealers have further obfuscated meaningful review of these fees and costs through conduct such as not mentioning the fees at all, lying about the cost, rushing consumers through the signature process, using electronic pin pads for document signatures, and focusing consumers on the minimal increase to their monthly payment instead of the true cost of the product itself. The FTC’s own examination and interviews with car buyers corroborate these too-common incidents for consumers negotiating car prices.

The FTC’s Proposed Approach to Deceptive Advertising & Pricing Practices

The FTC is clear that this deceptive conduct causes considerable consumer harm and hurts competition for dealers who honestly advertise and price their vehicles. As such, the FTC has proposed to require up-front, accurate advertising and pricing of vehicles by prohibiting misrepresentations and requiring affirmative disclosures.

Prohibited Misrepresentations

The proposed rule would prohibit dealers from misrepresenting (1) the costs or sale or leasing terms, (2) whether the transaction involves financing for purchase or a lease, (3) whether rebates or discounts are available or not, (4) whether the vehicles advertised for a certain price are available, and (5) whether consumers can be preapproved or guaranteed to receive any product, service, or sale terms.

Each of these misrepresentations centers on information that is material to a consumer’s decision to purchase a vehicle. Dealers would be prohibited from being anything less than truthful about this information to ensure that consumers are not ensnared in a class bait and switch scenario.

Required Disclosures

The proposed rule would require dealers to clearly and conspicuously disclose the offering price and the cash price. The Offering Price is the full cash price where a Dealer will sell or finance the motor vehicle to any consumer, excluding only required Government Charges. § 463.2(h). The dealer must clearly and conspicuously disclose the Offering Price in any advertisement specifically about the vehicle, in advertisements that include monetary or financing terms, and in any communication with a consumer about a specific vehicle, or a monetary amount/financing term for a vehicle. § 463.2(e).

The dealer must clearly and conspicuously disclose the Cash Price without Optional Add-Ons (§ 463.2(c)) to consumers in financed and non-financed vehicle sales to ensure that consumers understand the price of the vehicle, and to avoid dealers “sneaking in” add-on fees without openly explaining them to a consumer. This is defined as “the Offering Price, plus required Government Charges, minus any discounts, rebates, or trade-in valuation amounts, and excludes optional Add-ons.”

Under the proposed rule, dealers must disclose the Cash Price before referencing any aspect of financing for a particular vehicle, or before consummating a non-financed sale, whichever is earlier. §463.5(b)(1). The dealer must also disclose the Cash Price plus the finance charge in a financed sale before charging for any optional add-ons.

 What Should the FTC Do in its Proposed Rule to Address Deceptive Advertising?

The FTC should ensure that the Offering Price includes fees and that it is truly a firm and legally enforceable offer. The Offering Price should be a contractual offer to purchase, such that a consumer should be able to see the price, arrive at the dealership with a cash or check in hand at that exact price, and purchase the vehicle from the dealer. Currently, the Offering Price excludes certain government fees, such as taxes, titling and registration. The FTC should change the definition of the Offering Price to include all of these fees, based on the assumption that the purchase is in-state with no trade-in.

Comments on the FTC’s proposed rule are due September 12.

Part 1 can be accessed here and Part 2 can be accessed here

The post The FTC’s Proposed Auto Dealer Rule (Part 3): Advertising and Pricing appeared first on Consumer Federation of America.

Add-On Products and Services

The FTC places particular emphasis throughout the proposed rule on the deceptive conduct surrounding the sale of certain add-on products, such as extended warranties, service plans, GAP insurance, VIN etching, and undercoating. These products typically cost several hundred dollars each and are tacked on to the sale of a vehicle, increasing the overall cost sometimes by thousands of dollars. Consumers frequently pay for these products without knowing or expressly agreeing to them.

The car purchase process is lengthy and complicated, and dealers may wait until the end of an hours-long negotiation before they include charges for the add-ons in the dense paperwork, hoping that the consumer will not review it carefully. Dealers have also lied to consumers, telling them the add-ons were a condition of the purchase, and they have lied about the benefits (and hidden the limitations) of certain add-on products. Dealers benefit tremendously from the sale of these products, prompting aggressive finance representatives to engage in deceptive conduct and pressure consumers into purchasing them.

The FTC’s Proposed Approach to Deceptive Add-On Practices

The FTC notes that despite numerous enforcement actions to address this exact conduct, problems persist with deceptive add-on practices. As such, it has published this proposed rule as a necessary tool to effectively curb this fraudulent conduct.

The proposed rule would:

1. Prohibit dealers from misrepresenting any “cost, limitation, benefit or any other material aspect of an add-on product or service.” § 462.3(b)

The FTC defines an “add-on product or service” as “any product(s) or service(s) not provided to the consumer or installed on the vehicle by the motor vehicle manufacturer and for which the Motor Vehicle Dealer, directly or indirectly, charges a consumer in connection with a vehicle sale, lease, or financing transaction.”

2. Require dealers to disclose, clearly and conspicuously, an “Add-on List” if they charge consumers for add-on products. 463.4(b)

The “Add-On List” is “an itemized list of all optional Add-on Products or Services for which the Motor Vehicle Dealer, directly or indirectly, charges consumers. The Add-on List must Clearly and Conspicuously disclose each such optional Add-on and the price of each such Add-on. If the Add-on price varies, the disclosure must include the price range the typical consumer will pay instead of the price.” (§ 463.2(b)).

Dealers would be required to disclose this list on each website, online service or mobile application operated by the dealer, and at the dealership, and, if a vehicle is advertised in a manner other than on the dealer’s website, etc. (such as in a radio or television ad), then the dealer must provide the website where the List can be viewed.

3. Require dealers to accurately disclose whether the purchase of the add-on is a condition of the purchase of the vehicle. 463.4 (c)

Dealers have a history of pressuring consumers to purchase add-ons by falsely telling them that the add-on is required to purchase the car. Under this proposed rule, dealers would be required to tell consumers that purchase of the add-on product is not a condition of the sale, if this is in fact true. This disclosure is required “when making any representation” about the add-on product or service, and it need only be in writing if the representation is in writing.

4. Prohibit dealers from charging for worthless add-ons. § 463.5 (a)

Dealers have deceptively charged hundreds of dollars for add-on products that provide no value, including “rustproofing,” that does not actually prevent rust, theft prevention services without evidence of efficacy, and “nitrogen filled tires” that have no more nitrogen than normal air. The FTC also explicitly states that this would prohibit dealers from selling GAP coverage to a consumer whose loan balance was low enough that GAP is unnecessary, or where hidden restrictions would exclude the car from the GAP coverage altogether.

5. Prohibit dealers from charging for any add-on product without a clear declination from the consumer to buy the car without them. § 463.5 (b)

The proposal would require dealers to give consumers a clear opportunity to purchase the vehicle without optional add-ons before referencing any aspect of financing. This provision is an attempt to prevent the practice of “sneaking in” add-ons and taking measures to preclude consumers from carefully reviewing their contract with these added expenses.

This proposal requires the dealer to:

1. 1. Tell the consumer the price of the vehicle without the add-ons;
   2. Tell the consumer that they can purchase the vehicle without optional add-ons.
   3. Obtain a separate written form, signed by the consumer, that includes the price without add-ons, and a declination from the consumer to purchase the vehicle without the add-ons.

What Should the FTC Do in its Proposed Rule to Address Deceptive Add-On Practices?

1. Prevent dealers from making all add-ons required instead of optional.

Notably, the FTC’s definition of “add-on products and services” does not include the word “optional.” Indeed, Section 463.5(b), which requires dealers to disclose that optional add-ons are not a condition of the sale only requires that disclosure “if true.” This means that it would still be possible for dealers to require certain add-ons as a condition of the sale of a vehicle. The FTC is also well aware that dealers have misled their customers into believing that an add-on is required, when it was not. Consumers must be able to reasonably choose whether to accept add-on products with their cars. The FTC should take steps to ensure that dealers do not simply require add-ons to evade these provisions.

2. Ensure that all add-on products are capable of being canceled or removed by communicating with the dealer, the add-on product supplier, or the finance company.

Even with the safeguards that the FTC proposes to enact to ensure that consumers make an informed decision about add-ons, consumers may still feel pressured to purchase add-ons and make a decision that they later regret. The FTC should take steps to ensure that any add-on is capable of being canceled or removed within a reasonable time after date of the sale.

Comments on the FTC’s proposed rule on auto dealer practices Comments are due September 12.

Part 1 can be accessed here

The post The FTC’s Proposed Auto Dealer Rule (Part 2): Add-On Products appeared first on Consumer Federation of America.

Spot Deliveries and Yo-Yo Sales

The proposed rule includes consumer protections, but also should create stronger safeguards. One such safeguard would be to require specific actions during a transaction to ensure that consumers know when a car deal is final. This would help avoid abusive yo-yo financing practices. In its proposed rule, the FTC describes the common dealer practice of yo-yo financing:

“[Y]o-yo financing… occurs when a dealer obtains a consumer’s agreement to a deal that has not been finalized, allows the consumer to drive the vehicle off the lot, and then directs the consumer to return and engages in unlawful tactics, such as failing to give back a consumer’s trade-in vehicle, while refusing to honor the deal or pressuring the consumer into entering a new deal.” (Part IV(C), Section-by-Section Analysis, Section 463.3)

The FTC’s Proposed Approach to Yo-Yo Sales

The FTC attempts to address this problem by providing that certain conduct pertaining to yo-yo financing would be an unfair and deceptive practice, including:

• “Making any misrepresentation, expressly or by implication, regarding… when the transaction for the sale of the car is final or binding on all parties” (§ 463.3(h)); and
• “Making any misrepresentation, expressly or by implication, regarding… [k]eeping cash down payments or trade-in vehicles, charging fees, or regarding initiating legal process or any action if a transaction is not finalized or if the consumer does not wish to engage in a transaction” (§ 463.3(i)).

 Rather than explicitly prohibiting spot deliveries or yo-yo sales, the proposed rule provides that dealers cannot make misrepresentations to consumers about the finality of a deal or the consequences of a sale that is ultimately not financed. There are several reasons why this approach should be stronger.

1. It opens the door to the use of “spot delivery agreements,” which facilitate yo-yo- financing abuses.

Dealers add “spot delivery agreements,” or similar documents to the paperwork in a car transaction, which contain language that allows dealers to hold the door open for themselves to change the terms of the deal with the car buyer. Dealers will (and frequently already do) use this language to make the signed credit contract conditional on their ability to sell the contract to a third party. After a car buyer has signed a contract and leaves the dealership believing they have finalized a deal to buy the car, a dealer can then summon the buyer back to the dealership multiple times to alter the original deal, making it a yo-yo sale. Car buyers often find themselves under pressure to agree to less favorable terms to keep the car. FTC research has found that car buyers typically do not realize that a dealer is not treating a transaction as final.

2. Car buyers suffer significant harm from yo-yo sales.

In a recent case in Oregon, a car buyer was forced to miss work after a dealer refused to refund his down payment. According to the consumer, he and the dealer signed a credit contract and he drove home that day with the car, believing that he had purchased it. Two weeks later, the dealer called him back claiming the loan had not been approved, and they signed a new contract. Nearly a month later, the dealer informed him that financing had fallen through and he would need to return the car. However, the dealer allegedly refused to return the consumer’s down payment leaving him with no funds to buy another car. As a result, the consumer had no way to get to work and lost wages due to the dealer’s actions. The consumer eventually brought claims against the dealer alleging violations of Oregon’s unlawful trade practices act.

This story is unfortunately not unique, and consumers have described experiences such as returning to the dealership numerous times over several months only to have the deal fall through, being threatened with repossession, losing thousands of dollars on down payments, being accused of committing a crime by refusing to return the vehicle they purchased, and many other nightmare scenarios.

3. Yo-yo sales undermine federal consumer protection laws.

Spot delivery frustrates the purposes of the Truth in Lending Act. TILA was intended to assure consumers of the accuracy of the terms presented in credit contracts so consumers could compare credit terms and make informed decisions. But if an auto dealer can treat their credit contracts as non-binding, then the terms contained in those contracts cannot serve as accurate disclosures to consumers.

 Yo-yo sales also often violate the federal Odometer Act. Under the Odometer Act, any time a car transfers ownership, its mileage must be disclosed on its title documents to preserve accurate mileage records and prevent odometer tampering. When a yo-yo sale occurs, dealers typically do not provide title documents to the consumer at the time of the purchase. Therefore, the dealer leads the buyer to believe the sale is final, but the dealer is not treating the transaction as final. As a result, the required odometer disclosure is not made at that time. If the deal is later finalized, dealers will often employ various unlawful tactics to make it appear as if the disclosure was made properly.

4. State laws regulating spot deliveries do not sufficiently protect consumers.

Several states including Oklahoma, Oregon, and Nevada have laws intended to target consequences of yo-yo financing. For example, Oregon bans dealers from selling a trade-in vehicle before it finalizes the sale. Additionally, in Oregon and other states, buyers have the right to unwind the deal if the dealer cannot assign the credit contract to a third party within a certain amount of days. However, these and other state protections are ineffective at preventing yo-yo abuses. Despite state attempts to limit some consequences of yo-yo financing, dealers are still able to sign contracts they do not intend to be bound by and continue to pressure consumers into less favorable terms.

 What should the FTC do to address yo-yo sales?

 The FTC welcomes alternative approaches in the proposed rule. In fact, Question 16 of FTC’s proposed rule directly asks whether the Commission should consider alternative approaches to address misrepresentations in the finality of a car deal. The answer to this question is YES.

The best way for the FTC to address this problem is to ensure that a deal is final when the credit contract is signed.

 A bright line FTC rule, as proposed in a petition filed by consumer advocates, would benefit all market participants. The FTC should require language in every credit contract explaining the plain legal consequences of a signed contract, specifically that the credit terms of the signed contract are final when presented to the car buyer to sign, and that the credit terms cannot be changed whether or not the contract is or will be assigned to a third party.

Suggested language for a rule: 

“A. Every consumer credit contract for the sale of a vehicle by a dealer shall include the following paragraph:

“BY PRESENTING THIS CONSUMER CREDIT CONTRACT TO A CONSUMER FOR SIGNATURE, THE DEALER AS CREDITOR AFFIRMS THAT THE CONSUMER HAS BEEN FULLY APPROVED FOR THE CREDIT THAT IS BEING EXTENDED. ANY TERMS THAT ASSERT THAT THIS CREDIT CONTRACT IS “CONDITIONAL” OR “NOT YET APPROVED” OR SIMILAR TO THAT EFFECT SHALL BE VOID AND UNENFORCEABLE. ONCE SIGNED BY THE CONSUMER, THIS CREDIT CONTRACT CANNOT BE WITHDRAWN BY THE DEALER WHETHER OR NOT THIS CREDIT CONTRACT IS ASSIGNED TO A THIRD PARTY.”

Requiring all credit contracts in car sales to be final at the time of signing will protect car buyers. The proposal in the petition is modeled after the FTC-enforced Holder in Due Course Rule which requires auto dealers to include certain disclosures within the credit contracts. The FTC has previously found that the Holder Rule worked to protect consumers while imposing no significant costs on businesses. A similar disclosure requirement about the finality of the deal would also carry minimal costs while assuring consumers about the integrity of the transaction.

 The proposal in the petition would promote clarity by simplifying auto transactions. Even many dealers are unable to answer the question of who owns a car when a consumer drives it off the lot. This can create confusion when it comes to dealers’ and consumers’ obligations regarding odometer disclosures, insurance coverage, warranties, and other legally significant issues that hinge on who owned the car at a point in time. The proposed rule would greatly simplify the flow of information throughout a car sale making it easier to enforce legal requirements.

The rule would enhance competition in the auto market. Currently, any dealers that do not use yo-yo practices are at a competitive disadvantage. If all dealers are held to the same standard, consumers can make more informed buying decisions. Additionally, the market would reward efficient deal-making between dealers and third-party financing companies.

Comments on the FTC’s proposed rule are due September 12.

Part 2 can be accessed here, Part 3 can be accessed here and Part 4 can be accessed here.

The post The FTC’s Proposed Auto Dealer Rule (Part 1): Yo-Yo Financing appeared first on Consumer Federation of America.

The post CFA Supports New York Legislation Requiring Car Dealers to Search For and Repair Open Recalls Before Selling Used Cars appeared first on Consumer Federation of America.

When a consumer signs a credit contract disclosing the cost of financing and drives the car off the lot, the deal appears to be complete from the consumer’s perspective. Some dealers, however, employ a deceptive tactic where they know at the time of the sale that the deal may not actually be final. The dealer calls the consumer days, weeks or even months later to tell them that they need to pay additional costs or a higher interest rate to keep the car, or that the deal needs to be completely undone and the consumer must return the car. This process of subjecting a consumer to being “yo-yo’d” back and forth to the dealership pressures consumers to pay more than what they expected and agreed to and adds significant stress and uncertainty to an already complicated and expensive financial transaction.

“Yo-yo sales frequently harm consumers by lowering their credit scores, forcing them to forfeit their hard-earned down payments, and jeopardizing their primary means of transportation,” stated Erin Witte, Director of Consumer Protection for Consumer Federation of America.

In the petition, the consumer advocates asked the FTC to issue a rule that requires dealers to add language to the consumer credit contracts which states that the terms of the deal are final, even if the contract is assigned to a third party. Violations would be enforceable by the FTC. The petition provides real-life examples of consumers’ experiences with spot deliveries, including one instance where a consumer was yo-yo’d to the dealership repeatedly with requests to sign new contracts, provide a co-signer, and provide new financial documents. After 40+ days, the dealer said that the deal fell through and threatened to file a stolen vehicle report unless the consumer returned the car.

“The proposed rule would help to ultimately lower the cost of vehicle purchases and level the playing field between consumers and car dealers,” continued Witte. Consumer advocates also pointed out that this practice undermines federal laws like the Truth in Lending Act which requires the timely disclosure of clear and accurate financial terms.

“Certainty, transparency and clarity of sale terms, particularly the financing details, are crucial to facilitate a smooth, incident- and injury-free process for all parties in this seemingly complex process,” stated the consumer groups in support of the petition.

Contact: Erin Witte, 202-596-9807

The post Consumer Groups Petition Federal Trade Commission to Prohibit Deceptive “Yo-Yo” Auto Sales Practices appeared first on Consumer Federation of America.

CFA President White has announced the formation of a Transition Committee made up of representatives of CFA’s Board, Executive Committee and staff.  “We are pleased that Jack will remain as CEO during the search for a replacement,” said White.

“During his long tenure at CFA Jack has not only been CFA’s main conduit between the organization and the media, but over the years he has led CFA’s efforts in child and product safety, indoor air quality, consumer education, auto sales practices and, most significantly, auto safety.  As a well-known consumer advocate, Gillis is author, co-author and editor of 75 consumer books including The Car Book, published for 40 consecutive years.  He served for ten years as a contributing consumer correspondent for NBC’s Today Show representing CFA, was Good Housekeeping’s personal finance columnist, and was a child product safety columnist at Child Magazine,” said White.

“Gillis’ advocacy has been responsible for major changes in the automobile industry, including significantly improved vehicle safety, better warranties, and increased fuel efficiency.  Early in his career, The New York Times featured Gillis as a leader in a new breed of consumer advocates.  He was an adjunct professor at The George Washington University, where he taught in the Graduate School of Government and Business Administration, and he currently serves on the boards of the Center for Auto Safety (chair), Advocates for Highway and Auto Safety, Center for the Study of Services (Consumers’ Checkbook) and CAPA.  Previously, he was Executive Director of the Certified Automotive Parts Association, a non-profit standard setting organization.  He received his MBA from The George Washington University where he served as a Teaching Fellow and his BA from the University of Notre Dame,” added White.

“Serving the Consumer Federation of America for all of these years has truly been an honor.  It has enabled me to work closely with some of America’s greatest consumer and safety advocates, men and women who have truly changed America for the better.  Any success that I’ve had at CFA rests squarely on the shoulders of these remarkable activists.  As it enters its 54^th year, CFA has a very exciting future ahead and I will always cherish being a small part of its distinguished history,” said Jack Gillis.

Contact: Marceline White, marceline@marylandconsumers.org

The post Jack Gillis to Retire After 38 Years at CFA – Most Recently as Executive Director appeared first on Consumer Federation of America.

Thirty-four city, county and state consumer agencies from 18 states participated in the survey, which asked about the complaints they received last year, their biggest achievements, and new consumer protection laws enacted in their jurisdictions.

Top Ten Complaints in 2020

1. Auto: Misrepresentations in advertising or sales of new and used cars, deceptive financing practices, defective vehicles, faulty repairs, car leasing and rentals, towing disputes.
2. Home Improvement/Construction: Shoddy work, failure to start or complete the job, failure to have required licensing or registration.
3. Landlord/Tenant: Unhealthy or unsafe conditions, failure to make repairs or provide promised amenities, deposit and rent disputes, illegal eviction tactics.
4. Credit/Debt: Billing and fee disputes, mortgage problems, credit repair and debt relief services, predatory lending, illegal or abusive debt collection tactics.
5. Services: Misrepresentations, shoddy work, failure to have required licensing or registration, nonperformance.
6. Utilities: Complaints about gas, electric, water and cable billing and service.
7. Retail Sales: False advertising and other deceptive practices, defective merchandise, problems with rebates, coupons, gift cards and gift certificates, failure to deliver.
8. Travel: Misrepresentations about cost, amenities or other aspects of travel packages, failure to provide promised services, disputes about refunds.
9. (Tie) Health Products/Services: Misleading claims, unlicensed practitioners, failure to deliver, billing issues; Internet Sales: Misrepresentations or other deceptive practices, failure to deliver online purchases.
10. (Tie) Pandemic: price gouging, refunds for canceled events and travel, financial issues, problems getting repairs and other services, “self-help” evictions, scams, and other complaints stemming from the pandemic; Fraud: Bogus sweepstakes and lotteries, work-at-home schemes, grant offers, fake check scams, imposter scams and other common frauds; Household Goods: Misrepresentations, failure to deliver, repair issues in connection with furniture and major appliances.

This ranking is based on the categories that appeared most frequently in the consumer agencies’ “top ten” complaint lists. Collectively, the 34 agencies that participated in the survey handled 280,413 complaints and recovered or saved more than $262,973,073 for consumers in 2020 through informal mediation, administrative action, and lawsuits.

COVID-19 also significantly changed the way state and local consumer agencies operated. Most had to switch to working entirely remotely. Some agencies provided staff with cell phones and laptops and set up secure systems to enable them to work entirely from home. Others sent small numbers of personnel into their offices on a rotating basis to handle the phones and mail. Their staffs sometimes fielded calls about problems totally unrelated to consumer protection because people were unable to get through to other state or local agencies. Forced to rely on technology more heavily than ever, agencies encouraged consumers to communicate with them via email and used online platforms for administrative hearings and educational events that would normally be conducted in person. “State and local consumer agencies had to turn on a dime to change how they worked,” observed Grant. “They continued to provide vital information and assistance to the public without missing a beat.” The “Consumer Agencies Biggest Achievements” section of the report describes how agencies resolved consumers’ problems, improved their operations, and reached out to the public even as the pandemic raged.

Examples of Pandemic Complaints

• Wedding Fireworks Fizzled. A young couple had planned a river boat fireworks cruise as part of their wedding. Because public gatherings were restricted to 10 people and they had invited 60, they asked to cancel the cruise. The business refused to cancel without penalty. The couple were given a choice of losing 25 percent of their deposit if they canceled by a certain date or 100 percent if they waited longer to cancel. With the help of the District of Columbia Attorney General’s Office, they were able to obtain a full refund of $1,750.
• The Price Wasn’t Right. A consumer complained to the New York State Division of Consumer Protection that a local restaurant was adding a surcharge when customers paid by credit card. The restaurant insisted it was following the law and said its credit card processor had assured it that the practice was acceptable. However, the agency explained that under New York law, businesses that charge differently for credit cards must publish their prices to reflect the higher credit card amount. A business can offer a discount to cash-payers but cannot add an extra charge for paying with a credit card. The restaurant provided that information to the credit card processing company, which quickly adjusted its software to eliminate the surcharge and notified all of its clients of the change.
• Pasty COVID Cure. Investigative work by the Los Angeles County Department of Consumer and Business Affairs in California helped the Los Angeles City Attorney resolve a case against a local company, Insan Healing, and its CEO, Angela Oh, for allegedly advertising and selling radish paste as “a must-have product for the protection and prevention of the COVID-19.” The settlement provided for full restitution to consumers, a broad injunction, and a $20,000 civil penalty.
• Landlord Goes Too Far. After a landlord allegedly used physical violence against one tenant and attempted to have another tenant deported by ICE to remove them from their apartments, the Massachusetts Attorney General’s Office went to court to seek emergency injunctive relief to protect the tenants and witnesses in the case from any further harassment.
• Gym Member Gets Exercised. When a gym closed in March 2020 due to the pandemic, a customer was told he could freeze his membership so he wouldn’t be charged. However, he was charged $43.14 for the month of June. When he took it up with the gym, he was offered a 50 percent credit instead of a full refund. In disgust, he canceled his membership and was charged a fee for doing so. The New Mexico Attorney General’s Office got his money back.
• Ticket in Paradise. It was a lovely evening in Florida, and a woman parked her car in a lot at a beach to go for a stroll. When she attempted to put money in the meter, the screen was frozen. A resident who lived nearby informed her that people were not being charged for parking due to the pandemic. When she returned to her car, however, there was a $75 ticket from the private company that operates the lot. She filed an appeal, which was denied without explanation. The woman called and emailed the company multiple times, with no response. She filed a complaint with the Broward County Environmental and Consumer Protection Division, which got the ticket withdrawn.
• Masked Robbery. More than 2,300 price gouging complaints were filed with the North Carolina Attorney General’s Office last year. The agency sued Stephen Gould Corporation, a New Jersey-based business that allegedly offered millions of N95 masks to the North Carolina Emergency Management Unit of the North Carolina Department of Public Safety, UNC Health, Duke Health, and the Charlotte Chapter of the American Red Cross at a markup of more than 100 percent. If the sales had been successful, the company would have profited more than $30 million per transaction. In addition to winning a $150,000 judgment, the agency obtained an order permanently barring the company from engaging in unfair and deceptive practices or selling personal protective equipment at unreasonably excessive prices.
• Deep Freeze. Last winter an elderly couple who suffered from numerous disabilities and had another older woman living with them in their home asked the Arkansas Attorney General’s Office for assistance. Their HVAC unit, which was under warranty, had stopped functioning in August 2020. The business that sold it to them sent several subcontractors to try to repair it, but they were unsuccessful. The consumers had been using space heaters for months to keep warm. It soon became clear that the necessary parts were not available due to the pandemic. The business agreed to resolve the problem by replacing the HVAC unit.
• Smelly Situation. Fairfax County Department of Cable and Consumer Services in Virginia received 41 complaints involving trash companies in 2020. Due to workers’ exposure to COVID-19, trash companies struggled to maintain service. Consumers complained that their trash or recycling were not picked up as scheduled, nor were alternate arrangements made. They also complained that while their service had been reduced, their rates had increased. With the help of the agency consumers received credits for missed service, got reduced rates in some cases, and were provided with more timely service.
• No Home Away From Home. A woman asked the Consumer Assistance Council in Massachusetts for help when her request for a refund for a home she rented in Oak Bluffs for a week in August last year was denied. She explained that she could not travel to Massachusetts because of the requirement to self-quarantine for two weeks and the limited heath care facilities on the Cape. She was especially concerned about the potential for contracting the COVID-19 virus and bringing it home to her elderly mother, for whom she was the sole caregiver. The real estate broker agreed to rebook the house and refund the woman’s deposit, minus a small fee.

One thing that became clear in reviewing the complaint stories is that the usual terms of service and cancellation policies don’t take into account the unusual circumstances consumers experienced last year. For example, in one complaint, a mother put a prom dress on layaway for her daughter and when the prom was canceled, the retailer refused to return her money. “Since it wasn’t the consumer’s fault that the prom was canceled due to COVID, she understandably felt she shouldn’t have to pay for a fancy dress that her daughter, stuck at home, had no place to wear,” explained Grant. Often consumer agencies were able to persuade businesses to make exceptions to their regular cancellation and refund policies, but not always. They generally had a stronger basis to argue that consumers should be able to cancel with no penalty and get their money back when the pandemic prevented businesses such as party venues and sports promoters from being able to provide the promised services. Even then, however, consumer agencies sometimes found it difficult to resolve the problems. For instance, some childcare providers that were forced to temporarily close insisted that parents continue to pay their fees in order to “save” their children’s slots when the facilities reopened.

The “Pandemic Complaints” section of CFA’s survey report provides other examples of COVID-related complaints. There are Ten Tips for Navigating the COVID-19 Pandemic (and Other Disasters) in the report and separately at here.

State and local consumer agencies also continued to receive complaints last year about issues unrelated to the pandemic. Examples of these are provided in the “Real-Life Complaints” section of the report. There are tips for consumers throughout that section and collected in Appendix B.

The full 2020 Consumer Complaint Survey Report is available here.

Contact: Susan Grant, 202-939-1003

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Vehicle inventory is down by about 30 percent which means car dealers have little incentive to negotiate.  “The rule of thumb that nobody pays ‘sticker price’ for a new car has fallen by the wayside as dealers stick to the manufacturers suggest retail price (MSRP) on the vehicle label,” said Gillis.  In fact, for some particularly popular vehicles in short supply, dealers are charging prices above sticker price.

Gillis’s advice on the best way to deal with this reality: “If you don’t need to replace your car right now, you should wait.”  The widely reported computer chip shortage and other repercussions from the pandemic are expected to ease up by the end of the year or early 2022. “By waiting, you’ll have more electric vehicles to choose from, as well as the 2022 models with the latest safety features,” said Gillis.

Unfortunately, there are many Americans who don’t have the luxury of holding off, and need to replace or buy a new vehicle right now.  If you find yourself in this predicament, CFA and Gillis are providing the following tips on coping with today’s market challenges.

Ten Tips on Saving in a Seller’s Car Market

1. Shop carefully. You can find some deals and incentives, especially on the less popular vehicles.  Everybody is looking for SUVs, but if a sedan meets your needs, you can find some good prices.
2. Shop around online. As car buyers become more comfortable with online vehicle purchases, more and more dealers are offering internet specials.  Shop carefully and read the fine print, but these offers can be good negotiating tools when you’re in the showroom.
3. Widen your search process.  If buying from a dealer 70-100 miles away will save you money, consider it. You can still take your car to your local dealer for service and warranty work.
4. Avoid the upgrades. Unfortunately, most manufacturers don’t let you pick and choose your options, you must buy them in packages. Skipping the fancy packages on a particular model can save you 10-20 percent.
5. Skip the extras.  Dealer add-ons are budget busters.  Floor mats, cargo containers, luggage racks and fabric treatments, if needed, can always be purchased later and at far less cost.
6. Decline the extended warranty.  Today’s new car warranties are very good and extended service contracts (they’re not really warranties) are not only expensive, but if they actually paid off for most people, they wouldn’t be such big profit centers.  Instead, plunk those service contract dollars in a special savings account to draw on if you need post-warranty repairs. Most likely, you can use this account to build up your down payment for your next vehicle.
7. Beware of using longer loans to reduce your monthly payments. While those smaller payments may sound attractive, you will pay significantly more in overall interest costs, and you’ll probably be “upside down” for the first year or two. That means if the car is totaled or you must sell it, you’ll have to make up the difference between your insurance payment (or sale) and the balance on your loan.
8. Shop around for financing. Interest charges are one of the most expensive aspects of car ownership. Knocking a point off the interest rate by shopping around will save you hundreds and lower your monthly payments.  Check with your credit union or bank to see what they are offering, so you’ll know if the dealer’s offer is a good one.  Warning, very few people qualify for the often-advertised 0 percent interest rates, so don’t get your hopes up.
9. Check out “No Haggle” dealers. No haggle or posted-price dealerships are becoming more prevalent. These dealerships will post a non-negotiable price on the vehicle, saving you the anxiety and pressure of trying to match wits with a seasoned, professional seller.
10. Consider selling your used car yourself. The used car market is hot, and you can usually sell it for more than the dealer will pay you on a trade-in. Those extra dollars can help make up for the higher prices you’ll see in the new car showroom.  Also, check out the national chains that offer to buy your vehicle with a price that’s good for 7 days.

Contact: Jack Gillis, 202-939-1018

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Here’s how to avoid falling victim to some common unfair auto sales tactics:

Condition of the vehicle: The salesperson may make claims about the vehicle’s quality, safety, and overall condition, but don’t take their word for it. Get a thorough inspection at an independent mechanic before sealing the deal. This inspection can either prove or disprove the salesperson’s verbal promises. If you find out that the car needs work and you’re still interested in buying it, ask the dealership if it will make the repairs as a condition of your purchase. Be sure to get any repair agreements between you and the dealership in writing before completing the transaction.

Adding extras to the purchase: One way that dealers try to add to their profits is by selling add-on products to consumers such as extended service contracts and optional insurance coverage called GAP insurance. Extended service contracts may provide an added layer of protection if your vehicle breaks down, and GAP insurance can save you money if your vehicle is deemed a total loss down the road, but there are always limitations and exclusions for what’s covered. Plus there may already be a warranty with the car that provides adequate coverage. Do some research online about these types of products and consider the pros and cons and the cost of purchasing them before you visit the dealership and are faced with a decision in the moment and under pressure. Carefully review the written terms of any extended service plan or insurance the dealer offers, including the extent of coverage and cancellation policy. Do not sign the documents if there is anything you do not agree with or have questions about.

Affordability: Driving off with an affordable car is just about as important as driving off with a reliable one. Prior to visiting a dealership, seriously consider your budget and stick to it. When establishing a budget, remember that the final purchase price may also include sales tax, administrative fees for title and registration, and document preparation fees. It is also important to think about your credit score and the interest rate. It could be helpful to visit your local bank or credit union to see if you can obtain financing from them for less than it would cost through the dealership.

Monthly payment amount and total price: If you decide to obtain financing from the dealership, clearly inform your salesperson what you can afford to pay at the time of the purchase. The salesperson may present you with a mock invoice that estimates your monthly payment or make verbal promises about what you can expect to pay. That is not necessarily the amount you will actually pay.  The interest rate that you’re presented with in the finance agreement may be very different from what you were promised, so carefully review the paperwork. It should outline your interest rate, finance charge, the amount you will finance, and the total amount that you will have paid for the vehicle at the end of the loan, assuming all payments are made on time. If you have any questions about any of the numbers or statements on the contract, do not sign it until you get clarification.

It’s easy to get caught up in the moment when negotiating to buy a car. It’s up to you to be vigilant and make sure every verbal promise is supported by an outside opinion and included in any written agreement.  If something is not right, don’t be afraid to speak up, ask a question, or hit the pause button on the transaction.

This blog is one of a series of articles contributed by state and local consumer agencies in connection with the annual survey about consumer complaints conducted by Consumer Federation of America. The survey report provides “real life” examples of complaints and tips for consumers. Have a consumer problem or question? Find your state or local consumer agency at https://www.usa.gov/state-consumer.

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Leasing is not buying!

One of the attractions of leasing a car is that the amounts of your down payment and monthly payments are typically lower than if you borrow to purchase a similar vehicle. Keep in mind that with a lease you pay to drive the car, NOT buy it. In other words, at the end of your lease, you must return the car unless the written lease says otherwise.

Things that you should consider before taking the plunge:

• What are the costs upfront? During the rental term? At the end? What’s the total cost?
• How long do you anticipate using the vehicle?
• How many miles do you typically drive in a year, and how does that fit with the mileage limits in the lease agreement?
• Can you take the leased car out of the state/country?
• Who will pay for repairs during the lease period, and if you are responsible for costs such as “excess wear and tear,” what does that mean?
• If you have to withdraw from the lease for any reason, what is the penalty for early termination?
• Can you get a better lease deal from someone else?
• Would you be better off just buying a car?

Different rules for servicemembers!

Special rules apply if you are a servicemember leasing a car:  You can end the lease with no early termination charges if:

• You leased beforeyou entered military service and serve on active duty for at least 180 days, or
• You leased while on active duty and during that time you receive orders for a permanent change of duty station outside the continental United States or got deployment orders for a minimum of 180 days.

You’ve done your homework, found the right vehicle, now what?

Once you are confident that you have done your homework and considered all the terms of the contract, do not leave the dealership without a copy of the lease agreement.  Make sure that nothing has been left blank and all documents are signed. NEVER agree to get the papers later because documents may be “lost” or changed.

This blog is one of a series of articles contributed by state and local consumer agencies in connection with the annual survey about consumer complaints conducted by Consumer Federation of America. The survey report provides “real life” examples of complaints and tips for consumers. Have a consumer problem or question? Find your state or local consumer agency at https://www.usa.gov/state-consumer.

The post Is Leasing A Car Right For You? appeared first on Consumer Federation of America.