The CARS Rule would protect consumers during the sale, financing, and leasing of new vehicles
OAKLAND — California Attorney General Rob Bonta today led a multistate coalition of 19 attorneys general in filing an amicus brief in National Automobile Dealers Association et al. v. FTC, supporting the Federal Trade Commission’s defense of its new auto sales (CARS) Rule. The rule addresses several persistent unfair and deceptive practices in the auto sales industry. In the amicus brief, filed in the Fifth Circuit Court of Appeals, the coalition argues the new FTC rule is a necessary step to protect consumers as existing law has proven insufficient to stamp out widespread dealer misconduct. In 2022, Attorney General Bonta expressed his support for the FTC’s rulemaking, which would establish new protections for car buyers nationwide, and will be instrumental in assisting ongoing state efforts to eliminate unfair and deceptive practices that victimize consumers and disadvantage honest businesses.
“For many consumers, a vehicle is a necessity and can be the most expensive one-time purchase they ever make. That car or truck can be a lifeline that takes them to school, a job, or back home to their families,” said Attorney General Bonta. “Unfortunately, car dealers too often fail to honor advertised prices, tack on unnecessary add-on products, or engage in other deceptive practices. As attorneys general, we know these practices harm low-income consumers and we need more tools in the toolbox to address persistent unfair and deceptive practices in the auto sales industry.”
The CARS Rule addresses deceptive tactics in widespread use by car dealers. First, the rule prohibits bait-and-switch tactics, in which dealerships lure customers based on deceptive promises, only to reveal the truth late in the transaction after consumers have already invested substantial time and effort in the process and are likely to feel worn down or pressured to finalize the deal. The CARS Rule also restricts deceptive practices relating to hidden or misrepresented charges, particularly for vehicle add-ons; dealerships often sell these products to consumers through deceptive means, including concealing the added costs or misrepresenting them as mandatory.
The legal challenge brought by the National Automobile Dealers Association argues existing law is sufficient to protect consumers, and there is no rational basis for FTC's CARS Rule. In the amicus brief, the states refute this erroneous argument, arguing that the FTC's CARS Rule is necessary to protect consumers from misconduct that remains widespread and pernicious, in spite of existing regulation.
As states’ top law enforcers, the attorneys general know unfair and deceptive business practices in the automotive sales industry are a pervasive problem and are first-hand witnesses to ongoing violations of existing law. States have a long history of protecting consumers in the automotive sales industry through investigations, settlements, and enforcement and have found existing law has proven inadequate to address persistent unfair and deceptive practices in the automotive sales industry.
In 2022, Attorney General Bonta announced a $27.5 million settlement with the now-defunct Paul Blanco’s Good Car Company resolving allegations that the company engaged in unlawful business practices, including false advertising about credit and discount programs, making false statements on credit applications, and deceiving customers into purchasing add-on products. Through a judgment entered with the court, the company admitted to and agreed to be held liable for publishing 650,000 false advertisements, defrauding auto lenders by misrepresenting vehicle values on 20,000 occasions, and deceiving consumers regarding add-on products. Mr. Blanco also accepted a ten-year ban on participation in the California auto industry. Prior to the Attorney General’s lawsuit, Paul Blanco’s Good Car Company was one of the largest independent used car dealership networks in California, operating seven dealership locations in the state. Paul Blanco’s deceptive radio and television advertisements targeted vulnerable, predominantly low-income consumers with subprime credit, promising easy approval for unrealistically low interest rates to lure unsuspecting consumers to their dealerships. Other states including Maryland, Arizona, and Illinois have sought to curtail similar bait-and-switch schemes.
In addition to states’ enforcement experiences, consumers themselves have made voluminous reports of their experiences falling victim to deceptive practices when purchasing cars. Further, complaints to the Better Business Bureau about new and used auto dealerships numbered in the tens of thousands annually, and from 2020 to 2021 were the second highest of any industry.
In the brief, the coalition argues that the CARS Rule is tailored to address the noncompliance state attorneys general see in their enforcement role, and that FTC's move to add specificity to industry regulations is a reasonable—and important—way to reverse the trend of noncompliance that remains in spite of the existing, pre-CARS Rule regulations. The CARS Rule does so by taking important steps to address these problems by prohibiting dealers from making misrepresentations and charging for add-ons that provide no consumer benefits, and by strengthening disclosure and record-keeping requirements. The coalition asserts that CARS Rule is an important supplement to existing authorities and would provide the states with much-needed ammunition in their ongoing efforts to detect and remediate unfair and deceptive practices in automotive sales.
In sending today's letter, Attorney General Bonta was joined by the attorneys general of Arizona, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Washington, and the District of Columbia.
Attorney General Bonta is committed to expanding and enforcing protections for car buyers.
- In 2023, Attorney General Bonta sent a letter to Kia America and Hyundai Motor Company expressing concerns about the companies’ failure to take adequate steps to address the alarming rate of theft of the companies’ vehicles and calling on the companies to take immediate action to correct this public safety issue.
- In 2022, Assembly Bill 2311 was signed into law. Authored by Assemblymember Brian Maienschein and sponsored by Attorney General Bonta, AB 2311 addresses the sale and administration of guaranteed asset protection waivers, a costly add-on product of little value to consumers that is often sold by car dealers along with auto loans and is generally targeted at consumers with lower incomes and subprime credit.
A copy of the amicus brief can be found here.
