Car rates

High vehicle prices lead to regulations and disputes with the FTC

As COVID-19 has led to supply chain issues and labor shortages, Americans have seen the price of new and used cars soar to new heights. Used car prices are currently 43% higher than projected levels without COVID interference, leading consumers to pay $10,046 more per used vehicle than expected. The average price of a new vehicle reached $48,043 in June, marking the highest average for a new car in history. With inventory dwindling, many dealers have taken the opportunity to charge above the list price and add hidden fees. This trend may change, however, as lawsuits and regulations proposed by the Federal Trade Commission (FTC) attempt to curb allegedly “dishonest” actions.

Dispute

In May 2021, a class action lawsuit accusing General Motors (GM) of deceptive marketing practices through its “destination fees” was filed in the Southern District of California. In Romoff vs. Gen. Motors LLCNo. 21-CV-00938-WQH-BGS, 2021 WL 5741455 (SD Cal. Dec. 2, 2021), the plaintiffs alleged that GM violated California and New Jersey laws by using destination charges as a vehicle for profit, rather than a true reflection of the cost of delivering vehicles to customers. The District Court of Romoff dismissed the case on January 19, 2022, stating that reasonable consumers would understand that profit is included in the destination charge, and plaintiffs have since appealed to the Ninth Circuit. While the success or failure of this appeal is unknown, it could give us a glimpse of a future with more litigation in response to ever-increasing additional charges.

In April 2022, the Maryland Attorney General reached a settlement with Koons Kia in which the dealership will be required to reimburse consumers $1 million for alleged false advertising. Koons’ allegedly deceptive practices included adding additional fees to the purchase of a vehicle by labeling them “freight charges” without including the fees in their advertised prices. The Maryland AG has pursued these claims as a violation of consumer protection law and may initiate similar claims across the United States through other state AG offices.

FTC regulations

This litigation comes at a time when the FTC has begun cracking down on dealers who practice misleading pricing schemes at the expense of the consumer. Just before the Koon settlement, the FTC and the State of Illinois took action against Ed Napleton Automotive Group, slapping them with a $10 million fine in response to the multi-state dealership applying “junk fees” illegal to customer bills and discriminating against black consumers. Illegal actions taken by Napleton include concealing fees for unwanted add-ons in long contracts without customers’ consent, lying to consumers that the fee is mandatory or the add-ons are free, and charging black customers $190. more in interest and $99 more and more. more than non-white customers. The FTC’s unanimous decision allocated $9.95 million of the $10 million settlement to be used to provide monetary relief to affected consumers, and also required Napleton to establish a comprehensive fair loan program.

In the wake of the Napleton settlement, the FTC also recently proposed new rules to better protect consumers from a perceived predatory auto market. 16 CFR Part 463, titled Motor Vehicle Dealers Trade Regulation Rule, would prohibit dealers from making “bait and switch” claims that entice potential buyers with misleading advertisements, prohibit unwanted fraudulent charges for add-on products that do not offer benefit to the customer, prohibit charging additional fees without informing the consumer of the base price of the vehicle and receiving their express written consent, and requiring full disclosure of the actual offer price that the consumer would pay, as well as any optional surcharges and funding information.

After two tumultuous years in the automotive industry, experts predict that the market will begin to stabilize in the coming months. However, this stabilization may not allay litigation from the FTC, state governments and consumers who have been overcharged since the vehicle shortage began.