FTC CARS Rule: Understanding "Express, Informed Consent" for Dealerships

What is Express, Informed Consent Under the FTC CARS Rule?

What exactly is Express, Informed Consent, under the FTC CARS Rule and why is it such a big deal? Let’s start with the definition. The Rule defines Express, Informed Consent as “an affirmative act communicating unambiguous assent to be charged, made after receiving and in close proximity to a Clear and Conspicuous disclosure, in writing, and also orally for in-person transactions, of the following:

(1) What the charge is for; and

(2) The amount of the charge, including, if the charge is for a product or service, all fees and costs to be charged to the consumer over the period of repayment with and without the product or service.”

There’s more to the definition, but let’s pause here for a moment and look at the disclosures necessary to make consent both express and informed. First, the disclosure must clearly state what the charge is for. Easy enough: 6-year/72,000 mile exclusionary coverage vehicle service contract. It’s the second part that causes heartburn: “the amount of the charge, including all fees to be charged over the period of repayment with and without the product or service.”   

What this means in practice is that you have to quote each item, whether it be the vehicle itself or a voluntary protection product, at both its agreed-upon price AND the extended price after financing the transaction, if it’s not a cash deal. So, if a VSC cost $2,400 but was financed for 6 years at 9.5%, it would need to be clearly and conspicuously disclosed at both its agreed-upon price, $2,400, and its fully-financed cost, or $3,158. Initially quoting the cost as its impact on monthly payment, and later at the agreed-upon price, as is commonly done today, would not pass muster. And remember, this expanded disclosure must be done for each individual product or service, not in the aggregate.

Let’s continue with the definition of Express, Informed Consent. It goes on: “The following are examples of what does not constitute Express, Informed Consent:           

(i) A signed or initialed document, by itself;

(ii) Prechecked boxes; or

(iii) An agreement obtained through any practice designed or manipulated with the substantial effect of subverting or impairing user autonomy, decision-making, or choice.”

FTC CARS Rule Challenges and Best Practices:  

Let’s dispense with the last item first: no one supports bullying customers into agreeing to buy something against their will. Please.

But the first example of what doesn’t constitute Express, Informed Consent is a problem. When I went to law school, signing a document created a rebuttable presumption that the customer has read the document, understood it, and agreed to be bound by its terms. But now, 1,000 years of contract jurisprudence has been set on its head, and only for cars and light trucks. Signing on the dotted line is no longer enough, but what is? The CARS Rule doesn’t say. Another signed document? But signatures aren’t enough. What constitutes “enough”? A DNA sample? Again, we don’t know.

A summary document, describing and disclosing every item for which the customer is charged, is a logical step but one, given the Rule’s own terms, should itself be inadequate.

Another step dealers could take in self-defense is recording or auditing every transaction to be able to demonstrate Express, Informed Consent was obtained. This is itself a big topic, and one we will address in the near future. For now, keep on doing things right: be transparent, be fair, and treat your customers with respect. Once the litigation surrounding the CARS Rule is resolved, we’ll be back with guidance on how to comply with I, including its requirement for Express, Informed Consent.

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The CARS Rule

That the Federal Trade Commission tortured what was once known as the Motor Vehicle Trade Regulation Rule into “Combating Auto Retail Scams” tells you everything you need to know – this Rule is bad news.

What is the CARS Rule?

According to the FTC, the CARS Rule was necessary to accomplish four things:

• Prohibit misrepresentations about material information – you know, fraud;

• Require dealers to clearly disclose the offering price at which anyone can purchase the vehicle, excluding only taxes and other government fees;

• Make it illegal for dealers to charge for “add-ons” that don’t provide a benefit, like selling GAP on a cash deal; and

• Require dealers to get consumers’ “express, informed consent” before charging them for anything.

News flash: all of those things were already illegal before the CARS Rule went into effect. So why did the FTC need another rule to make all of these bad acts more illegal-er?

Before I answer that question, let me note that the real danger of the CARS Rule is not the behaviors it prohibits – again, they’re already illegal – but the mechanisms the FTC requires dealers to employ to comply. I won’t go into the details here, but the Rule in its current form would make vehicle transactions take longer, cost more money, and make it more difficult to sell Vehicle Protection Products consumers need or desire.

Why the CARS Rule?

So, why did the FTC issue the CARS Rule? I believe the FTC fast-tracked the Rule in response to the Supreme Court’s decision in the case of AMG Capital Management v. FTC. In that case, the FTC accused AMG Capital Management, a payday loan company, of many bad acts not important for our discussion. The FTC fined AMG $1.27 Billion, and AMG appealed, all the way to the Supreme Court.

In 2021, the Supreme Court unanimously ruled that the FTC did not, in fact, have the statutory authority to assess monetary fines in the first instance. The Supreme Court noted that Section 13(b) of the Federal Trade Commission Act does not give the FTC the right to assess equitable monetary relief such as restitution or disgorgement. Rather, the FTC could seek such monetary damages only if the FTC first secures a consent order or other injunction and the defendant subsequently violates that order, OR the defendant violates a trade regulation rule that specifically addresses the bad acts at issue.

What's next?

The CARS Rule is designed to be that trade regulation rule, allowing the FTC to go after monetary damages right out of the box. The CARS Rule has been issued. It is currently the law of the land. On the other hand, our friends at the National Automobile Dealers Association, in cooperation with the Texas Automobile Dealers Association, filed a petition before the United States Circuit Court of Appeals for the Fifth Circuit seeking to overturn the CARS Rule and a secure a stay of its enforcement, originally scheduled for July 30, 2024.

On January 18th, 2024, the FTC reversed its position opposing the Motion for Stay and granted that stay on their own authority pending resolution of the case by the Fifth Circuit. The parties need to fully brief the case, after which oral argument will be scheduled and then, possibly in 2025, the court will rule, and we’ll know where we stand.

What can dealers do right now?

But even if NADA and TADA prevail in their legal action against he FTC, that doesn’t mean the CARS Rule is gone for good. The FTC has the ability to cure its procedural defects and issue it again in some form in the future. The best thing dealers can do in the meantime is not provide ammunition for the FTC to support the next version of the Rule.

So, don’t do illegal things.