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.

“It is clear that Americans across party lines are tired of being scammed and forced into paying worthless junk fees,” said Erin Witte, Director of Consumer Protection at Consumer Federation of America. “Junk fees disproportionately impact low-income consumers and communities of color, and we fully support the efforts of each of these agencies to put an end to these practices.”

The post Federal Agencies Continue the Fight Against Junk Fees appeared first on Consumer Federation of America.

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“CFA applauds Senators Blumenthal and Whitehouse for once again standing up for consumers and leading the charge to end junk fees by introducing this legislation,” said Erin Witte, Director of Consumer Protection at Consumer Federation of America. “The Junk Fee Prevention Act will crack down on some of the most egregious junk fees in ticket sales, hotel reservations, air travel, and telecommunications, and will level the playing field for consumers and honest businesses.”

The post Statement of Consumer Federation of America in Support of the Junk Fees Prevention Act appeared first on Consumer Federation of America.

As a federal agency, the FAA is accountable both to the American public and its aviation stakeholders, and its mission is “to provide the safest, most efficient aerospace system in the world.” Its structure and funding require routine reauthorization, though “reauthorization” is partially a misnomer. This process is actually a routine funding approval packaged in a legislative act with additional legislative changes. Though the airline industry was deregulated in 1978, the practice of FAA reauthorization originated with the Airport and Airway Revenue Act of 1970 which created the Airport and Airway Trust Fund (Trust Fund)—used to finance FAA investments. The authority to collect taxes and to spend from the Trust Fund must be routinely reauthorized to meet agency and consumer needs.

This unique reauthorization process presents both opportunities and challenges. It creates a regular opportunity to revisit funding decisions, projects, and research initiatives. It also presents a regularly re-occurring opportunity to hold the FAA accountable for mandates it has not fulfilled, to respond to recent problems in air travel, and to advocate for stronger consumer protections. However, any changes enacted in reauthorization acts are only set for a specific period.

The last FAA reauthorization occurred in 2018 and expires this year. The FAA Reauthorization Act of 2018 was the first multi-year reauthorization since 2012 and the first five-year reauthorization since 1982.  Legislators may include proposals in reauthorization acts about a wide range of issues not limited to the topic of aviation regulation. For instance, the 2018 Act included legislative changes concerning sports medicine licensure and the Intelligence Reform and Terrorism Prevention Act of 2004. This is why it is critically important to pay attention to this legislative process.

 Consumer Protections in the 2018 FAA Reauthorization Act:

• Directed the Department of Transportation (DOT) to examine and analyze the causes of flight delays and cancellations;
• Mandated regulations requiring carriers to promptly refund to passengers any ancillary fees paid for services that the passenger does not receive;
• Directed the DOT to appoint an Aviation Consumer Advocate;
• Promoted use of the consumer complaints hotline and evaluation of future mobile phone applications for consumer feedback; and
• Required the DOT to develop Airlines Passengers with Disabilities Bill of Rights.

What may happen in the 2023 Reauthorization? The failure to sign a reauthorization would be catastrophic for air travel. The FAA would be encumbered with the uncertainty of short-term extensions and cast doubt on its ability to obtain the funding it needs to invest in its critical priorities. Short-term extensions do not allow the opportunity to provide needed legislative changes in the form of an act passed by Congress.

The recent disasters in air travel have exposed the myriad areas where consumers need better protection. CFA has pushed for stronger protections for years, and 2023 is a critical time to continue this work. Congress should use the 2023 Reauthorization Act to respond to the air travel disasters and enormous criticism about the lack of available redress for harmed consumers. CFA and a group of national advocates for air travel safety and consumer protections have authored a letter to Congress asking to prioritize several key topics in the 2023 Reauthorization, including:

• Requiring compensation when consumers’ flights are delayed and canceled, and holding airlines accountable for publishing unrealistic flight schedules;
• End junk fee practices in air travel, including prohibiting fees for family seating and for other such services, and requiring all-in pricing;
• Ending federal preemption of airline regulation and allowing state attorneys general and individuals to hold airlines accountable;
• Encouraging stronger DOT enforcement of passenger protections; and
• Prioritizing consumer voices and experiences.

For a copy of the full letter and complete list of priorities, click here.

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Ironically, air travel is one of the few industries that is required to provide up-front information to consumers about mandatory fees through the Full Fare Advertising Rule, adopted in 2011. This rule, however, does not require airlines to provide this same kind of up-front information about “ancillary” or optional fees. Over the years, airlines have created a system that requires payment of a fee for things that many consumers use whenever they travel but because they are considered “ancillary,” airlines are not required to disclose them in the same way. Hiding fees through a drip pricing model makes it almost impossible to comparison shop for airline tickets.

The Department of Transportation (DOT), airlines’ sole regulator, has recognized the reality that many consumers purchase these ancillary services and pay additional fees. It has proposed a rule to expand these fee disclosure requirements for airlines and bring much needed transparency to the sale of airline tickets. If adopted, airlines would be required to disclose more fees earlier in the purchase process. Importantly, the DOT’s proposal would not prohibit airlines from charging any particular type of fee, but instead focuses on ensuring that airlines are more up-front with consumers about how much their air travel will cost. Here are some basic facts about the rule proposal:

Who would have to disclose the fees? Any entity that advertises or sells tickets to consumers in the U.S. (including domestic foreign airlines, ticket agents, and corporate and online travel agencies).

What new fees would have to be disclosed?

• • Baggage fees, including fees for first, second and checked bags;
  • Change and cancellation fees;
  • A statement about whether the consumer can receive a refund if they cancel the purchase within 24 hours; and
  • Family seating fees, including whether the airline charges extra for a passenger to sit next to their child(ren) under the age of 13.

How would fees have to be disclosed? Fees would have to be available “on the first page when a consumer conducts a search,” instead of hidden through links to other pages.  They would also need to be provided to consumers who purchase on the phone or in person.

What happens if they are not disclosed? The DOT has stated that the failure to comply with these provisions would be an unfair and deceptive practice, and the seller would be required to refund the fee and possibly be subject to enforcement action by the DOT.

This would be a welcome change for air travel consumers but may not do enough to effect meaningful change. Here are additional steps we would like to see the DOT undertake relating to air travel fees:

• Enforce existing rules. Adopting expanded rules is good progress, but unless the rules are enforced, they become meaningless and ineffective. The DOT has brought very few enforcement actions against airlines in the past decade.
• Prohibit family seating fees. Families should be able to sit together without paying a fee. This is a quintessential junk fee.
• Require disclosure of all seat reservation fees, not just family seating.
• Subject large revenue-generating fees to transparency requirements. Airlines are already required to submit fee data to the DOT, and these statistics should likewise be routinely reviewed.

Here is a link to the DOT’s Enhancing Transparency of Ancillary Airline Fees notice of proposed rulemaking. The comment deadline has passed, but the DOT has indicated that it will accept late comments and may reopen the comment period.

Read part 1, part 2 and part 3 of our Junk Fees blog series.

The post Junk Fee Blog Series<br>Part 4: Airline Fees appeared first on Consumer Federation of America.

Junk fees in the financial services marketplace drain tens of billions of dollars per year from American households. The Consumer Financial Protection Bureau (CFPB) found that credit card companies imposed $12 billion in late fee penalties on consumers in 2020 and financial institutions charged consumers more than $15 billion in overdraft and NSF fees in 2019. As discussed in our first blog post in this series, these fees disproportionately harm consumers of color and low-income consumers, and prove particularly challenging for limited English proficient consumers. In addition, by obscuring price transparency for consumers, junk fees diminish consumer choice and impede competition.

Penalty and late fees often cost the consumer far more than the expense the provider incurs to cover the service provided and have increasingly become a profit center for financial services providers. For example, overdraft fees accounted for two-thirds of reported fee revenue for financial institutions that charged them in 2019, and credit card late fees account for 99 percent of penalty fee volume on credit cards. Lucrative penalty fee revenue entices providers to manipulate and create systems that set consumers up to fail. The true cost of penalty fees is often hidden from consumers, hindering price comparison and competition.

Although the CFPB has a long history of fighting exploitative and harmful fee practices in the financial marketplace, it launched a new junk fees initiative in early 2022— the goal of which was to save American households billions of dollars per year. The initiative began with a Request for Information (RFI) about junk fees, and specifically consumer and small business experiences with:

• Fees considered to be a part of the baseline price of a product or service
• Unexpected fees for a product or service
• Inflated fees beyond the cost to the provider
• Opaque or hidden fees, where the purpose of the fee is unclear

In response to this RFI, Consumer Federation of America worked with the National Consumer Law Center, Center for Responsible Lending, and Americans for Financial Reform Education Fund on lengthy comments. The comments affirmed that the CFPB has clear and robust authority to regulate these fees and outlined the many junk fees that proliferate our financial services marketplace:

• Deposit account fees, including overdraft and nonsufficient fund fees; prepaid card and banking app evasions of consumer protection laws;
• Credit card and open-end credit fees, including late fees, fees excluded from APR, fee harvester credit cards, and the varied Buy Now, Pay Later fees;
• Earned Wage Advance fees, including inflated expedite fees and hidden, multiplying fees;
• Nonbanking and cash advance apps fees, including “tips,” inflated expedite fees, and monthly or subscription fees;
• Junk fees related to insurance;
• Mortgage servicing fees, including property inspection, bankruptcy, foreclosure, and attorneys’ fees;
• Auto financing fees, including add-ons, early termination fees for leases, doc fees, prep fees, delivery and handling fees;
• Pay-to-pay fees across marketplaces;
• Remittance fees, including undisclosed third-party fees, inflated exchange rates, and
• Junk fees in debt collection.

The CFPB received at least 50,000 public comments in response to their RFI. Although there is plenty more work to be done to protect consumers from often exploitative junk fees, the CFPB has taken many important steps in the right direction.

• Rulemaking:
  • After the CFPB found that credit card companies drained $12 billion from consumers in late fee penalties, it published an Advanced Notice of Proposed Rulemaking (ANPR), signaling a review of penalty policies across the marketplace. CFA again joined forces with the National Consumer Law Center and Americans for Financial Reform Education Fund in response to the ANPR.
• Advisory Opinions and Guidance:
  • Pay-to-pay fees, often dubbed by industry as “convenience fees,” are charged to consumers who opt to pay their bill in a certain way (i.e. by phone or by mailing a check). The CFPB issued an advisory opinion clarifying that pay-to-pay fees charged by debt collectors are illegal. In an interpretation of the Fair Debt Collection Practices Act (FDCPA), the CFPB affirmed that debt collectors are prohibited from “collecting any amount that is not expressly authorized by the underlying agreements.”
  • The CFPB issued guidance on facially false data in consumer credit reports, affirming the credit reporting companies’ obligation to take sufficient action to detect and remove consumer credit report data that is inconsistent or impossible. The CFPB laid out common examples of facially false data, including inconsistent account information like a bill that is shown as both paid in full and having a balance, and impossible information like a tradeline preceding the consumer’s birth.
  • Surprise Depositor fees (often $10 to $19) are charged to a consumer that tries to deposit a check that bounces. In contrast, surprise overdraft fees (often as high as $36) are charged to consumers who cannot reasonably anticipate them. Both of these fees are unavoidable for consumers, even when the consumer does everything in their ability to do so. The CFPB’s guidance affirmed that both of these fees more than likely violate the Consumer Financial Protection Act, and laid out how financial institutions can ensure that their practices follow the law.
• Research:
  • Over the last two years, the CFPB has issued various research on overdraft and nonsufficient (NSF) fees, showing that financial institutions rely heavily on this revenue. The 2021 research found that consumers were charged an estimated $15.47 billion in 2019, which accounted for two-thirds of reported fee revenue. This research accompanied earlier reports finding that under 9% of accountholders were burdened with 80% of all overdraft revenue. Along with continued pressure on the marketplace from advocates and Congressional leaders, the CFPB’s research proved helpful in spurring market changes to overdraft and NSF fee policies. These voluntary changes will save about $3 billion annually; however, many banks and credit unions still charge inflated overdraft fees. Enforcement actions like the one against Regions Bank (discussed below) illustrate that financial institutions continue to employ deceptive practices and charge exorbitant overdraft fees in order to maximize profits. We have encouraged the CFPB to utilize its rulemaking authority to enact long-term, positive marketplace reform.
  • In addition, the CFPB issues an annual report to Congress on College Banking and Credit Card Agreements. This year’s report found that 668,000 students paid almost $15.5 million for bank accounts offered in partnership with their colleges and universities. Students were charged monthly service fees, overdraft fees, inactivity fees, and out-of-network ATM fees. The prevalence of fees among college students again illustrates the need for widespread, legally binding reform.
• Supervision and Enforcement:
  • Regions Bank: An Alabama-based, repeat offender, Regions Bank was ordered to pay $50 million towards the victims relief fund and to refund at least $141 million to harmed consumers. Regions exploited consumers with overdraft fees by manipulating systems and creating obstacles for consumers to anticipate and, thus, avoid overdraft fees. Overdraft fees were also authorized when consumers had a positive balance in their account and therefore would not reasonably expect to be charged an overdraft fee (commonly referred to as an authorized positive fee). In 2015, Regions Bank was ordered to refund $49 million to consumers and pay $7.5 million into the civil penalties fund for charging overdrafts to consumers who had opted out of overdraft coverage.
  • ACTIVE Network: The CFPB sued the ACTIVE network for tricking consumers into its annual subscription discount club and signing up for other events. The network operates a payment system that is used by charity races and YMCA camps, among others. The CFPB alleges that the ACTIVE network used dark patterns to hammer consumers with fee increases and hidden charges, as well as to trick consumers into club memberships. The CFPB’s action followed enforcement actions and settlements in Iowa and Vermont.
  • The CFPB’s semiannual report of Supervisory Highlights revealed that mortgage servicers had charged costly pay-to-pay fees to consumers who had opted to pay over the phone. The servicers were required to reimburse those fees they had failed to disclose properly.

The actions outlined above are essential steps towards limiting exploitative junk fees in the financial marketplace. We look forward to working with the CFPB on all of its future endeavors towards ensuring a fair, transparent marketplace.

Read part 1 and part 2 of our Junk Fees blog series.

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The FTC has taken various approaches to junk fees. It regulates the way that telemarketers and third-party online sellers advertise costs, the disclosure of funeral goods and services costs, and the process by which “negative option” marketers obtain consumer consent to be charged for fees and costs. The FTC has also undertaken numerous enforcement actions against many other industry actors, based on its authority to prohibit unfair and deceptive (“UDAP”) conduct in the FTC Act. However, in 2021, the United States Supreme Court issued an opinion which significantly curtailed the FTC’s ability to obtain restitution and injunctive relief in UDAP cases.  Although some other states have stepped in to with legislation or enforcement actions to address these practices, there is no consistent rule about how and whether companies charge fees for goods and services which would align expectations and level the playing field for everyone involved.

The FTC published an advance notice of proposed rulemaking (“ANPRM”) where it proposes both prohibiting certain junk fees altogether and requiring companies to be transparent about the existence and characteristics of fees and charges.

The ANPRM proposed to prohibit businesses from misrepresenting, or failing to disclose clearly and conspicuously:

(a) the total cost of any good or service for sale;

(b) the existence of any fees, interest, charges, or other costs that are not reasonably avoidable for any good or service;

(c) whether fees, interest, charges, products, or services are optional or required;

(d) any material restriction, limitation, or condition concerning any good or service that may result in a mandatory charge in addition to the cost of the good or service or that may diminish the consumer’s use of the good or service, including the amount the consumer receives;

(e) that a consumer owes payments for any product or service the consumer did not agree to purchase;

(h) the nature or purpose of any fees, interest, charges, or other costs.

The ANPRM also proposes to prohibit billing or charging consumers:

(f) for fees, interest, goods, services, or programs without express and informed consent;

(g) for fees, interest, goods, services, or programs that have little or no added value to the consumer or that consumers would reasonably assume to be included within the overall advertised price.

CFA strongly supports the FTC’s efforts to rein in junk fees, and we are part of a coalition working to support the FTC throughout this important effort[1]. Adopting a rule with these provisions would have several significant benefits for the marketplace:

1. Consumers will save money. Event ticket fees, hotel resort fees, and prepaid calling card fees are all prime examples of things that a consumer would believe are already included in the cost, and which add little or no value to a consumer. These are pure junk fees and prohibiting businesses from charging them will ultimately save consumers money.
2. Consumers will be able to comparison shop. It is almost impossible for a consumer to ascertain the actual dollar cost of a vehicle without spending hours at the dealership. Consumers cannot meaningfully comparison shop and choose where to invest their time and money in a purchase if fees and charges are hidden until the end of the transaction. Requiring companies to be up-front and honest will help consumers make better, more realistic choices.
3. Businesses will compete on a level playing field. Some event ticket companies support a rule which would require true “all-in pricing,” because it will put them on an even playing field with companies that tempt consumers with lower prices then hide their fees and charges. Requiring everyone to play by the same rules will give the power back to consumers by encouraging competition, ultimately generating lower prices and better products.

The FTC’s Unfair or Deceptive Fees Trade Regulation Rule can be found by clicking here.

Comments are due on January 9, 2023.

Read part 1 of CFA’s Junk Fee Blog Series here.

[1] If you are interested in signing on to comments to the FTC in support of the ANPR, contact Erin Witte at ewitte@consumerfed.org.

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Junk fees increase the ultimate cost of everyday goods and services well beyond initial expectations. Businesses often wait to add them after the consumer has already committed to the transaction, obscuring the true price until it’s too late. Some businesses may even impose fees after the consumer has signed up for a service and started using it.

Research shows that junk fees disproportionately. These consumers are already targeted by predatory practices throughout the marketplace, and the excessive costs created by these junk fees only exacerbate the racial wealth gap. Excessive fees drain resources from people of color and may ultimately push them out of mainstream financial services and into fringe or predatory financial products. The price of certain junk fees (like auto purchase “add-on’s”) is also often disproportionately higher for Black and Latino customers, and the way that businesses hide junk fees makes it especially challenging for limited English proficient consumers to identify and avoid them.

Junk fees by their very nature diminish price transparency. Companies lure consumers in by advertising lower prices than deceptively add-on fees at the last minute, making it extremely difficult for consumers to meaningfully compare prices and effectively price shop. This has the inevitable effect of curbing competition – businesses do not have to be up-front about the fees they impose, and consumers pay higher prices as a result.

Last year, President Biden signed an executive order promoting competition in the marketplace, with the goals of lowering prices, increasing wages, and stimulating innovation. Last month, the President went a step further by announcing a government-wide “crack-down” on junk fees and proposing stronger consumer protections.

President Biden has called on federal agencies to reduce or eliminate hidden fees, charges, and add-ons. His administration defines junk fees as those “designed either to confuse or deceive consumers or to take advantage of lock-in or other forms of situational market power,” and categorizes them into the following groups:

• Mandatory fees that hide the full price of a product or service (such as service fees on concert tickets or hotel rooms, and “pay-to-pay fees,” imposed when consumers choose to pay by check)
• Surprise fees that consumers learn about after the purchase (such as airline “family seating fees,” statement fees, and surprise medical bills)
• Exploitative or predatory fees, where the fees far exceed the cost to the provider and/or the consumer has limited alternatives (such as bank overdraft fees, credit card late fees, inflated expedite fees, and “tips” for financial products and services)
• Fraudulent fees (where a provider misrepresents whether they will charge a fee)

CFA has consistently advocated for transparent and fair pricing and competition in the marketplace. Earlier this year, CFA joined coalition partners, National Consumer Law Center, Center for Responsible Lending, and Americans for Financial Reform in comments to the Consumer Financial Protection Bureau (CFPB) about junk fees in the financial marketplace. The CFPB received tens of thousands of comments in response to their request and has already taken many steps to constrain these fees in the financial marketplace.

Now, other federal agencies are following suit. The Federal Trade Commission has started its rulemaking process to rein in junk fees, and the Department of Transportation has proposed a rule requiring transparency in airline fees. Our Junk Fee Blog Series will look at each agency’s response to President Biden’s junk fee campaign, encouraging a thorough and expansive review of junk fee practices, and fighting to bring an end to these unfair and deceptive practices.

Tune in to our blog to learn about the continued effort to crack down on junk fees.

Read part 2, part 3, and part 4 of our Junk Fees blog series.

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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

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The FTC’s Funeral Rule, first issued in 1984, requires funeral homes to maintain a detailed price list and to hand it to consumers visiting and discussing services with the funeral home.  The report notes that this price disclosure has reduced deception and fraud but has not facilitated comparison shopping of relatively expensive funeral services purchased by consumers.

“Most consumers, especially those out-of-town or having to deal with a sudden death, cannot practically visit several funeral homes to pick up price lists,” said Joshua Slocum, FCA’s Executive Director and the report’s co-author.  The Ipsos survey found that only 20 percent of 1,146 respondents who had helped plan a funeral said they had visited more than one funeral home to obtain price lists.

Only a small minority of funeral homes allow consumers to view their price lists on their websites and compare prices of more than one funeral home.  In May 2022, FCA and CFA surveyed online disclosures of general price lists (GPLs) at 1,046 funeral homes with websites in 35 state capitals.  Only 191 of these homes (18%), listed in the report’s appendix, posted their prices online.

The refusal of most funeral homes to post prices online also makes it difficult for third party information providers, such as consumer groups and journalists, to collect and compare price information.  “Online price posting would benefit not just those consumers searching for price information, but also all consumers by encouraging price competition and discouraging funeral homes from charging exorbitant prices,” said Stephen Brobeck, a CFA Senior Fellow and the report’s co-author.

There were wide differences in the percentages of those posting prices among the 35 cities.  In Sacramento, because California requires online posting, 70 percent of 45 funeral homes posted prices (30 percent chose to use a loophole in the law to avoid posting).  In Helena (MT), three of four funeral homes posted prices, and in Topeka (KS), six of 14 funeral homes posted prices.  On the other hand, no funeral homes posted prices in Dover (DE), Frankfurt (KY), Bismarck (ND), Pierre, (SD), Cheyenne (WY), Santa Fe (NM), and Jefferson City (MO).

As one moved from east to west in the sample, more funeral homes posted prices.  In five of 19 cities (26%) east of the Mississippi River, but in seven of ten cities (70%) in Mountain and Pacific states, at least one-fifth of funeral homes posted prices.  However, none of the 102 funeral homes in the sample that are affiliated with Dignity Memorial posted their prices.  Dignity Memorial is owned by Service Corporation International (SCI), which controls about ten percent of approximately 19,000 funeral homes in the U.S.

FCA, CFA, and other consumer groups submitted comments to the FTC in response to the agency’s announcement in 2020 that it was considering updating the Funeral Rule to improve price competition.  The FTC is still considering whether to initiate formal rule-making.

Despite the lack of easy access to price lists, FCA and CFA urge consumers to visit several consumer homes to obtain prices lists before choosing one.  Earlier FCA and CFA surveys, as well as other research, have revealed differences in funeral prices of up to 400 to 500 percent for the same services.

FCA and CFA also urge consumers to consider patronizing funeral homes that post their price lists online.  “Online price posting reveals whether a funeral home wishes to facilitate consumers knowing the price of their funeral services and allowing a comparison of those prices with the services of other funeral providers,” observed FCA’s Slocum.

Contacts

Josh Slocum, FCA, Inc., 802-865-8300  

Stephen Brobeck, CFA, sbrobeck@consumerfed.org 

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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

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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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