NADA challenges FTC dealer rules as unjustified, sloppy

The execution of the FTC’s proposal was sloppy, according to Metrey. He said agencies typically don’t jump right to a notice of rule-making the way the FTC did in this case.

The industry also had no notice from the FTC’s semiannual regulatory agenda, which describes actions the agency plans to take in the near future, according to Metrey.

“This was so hurried that they did not even list this,” he said. The topic didn’t come up during an NADA-FTC meeting in March, either, Metrey said.

NADA plans to examine the costs the regulation would impose upon dealerships, a figure the FTC estimated industrywide at $1.36 billion to $1.57 billion over a decade.

Andrew Koblenz, NADA executive vice president of legal and regulatory affairs, last week criticized the FTC’s estimate of the corresponding benefit to society over that time.

The agency forecast $31.08 billion to $36.34 billion in gains from consumers needing three fewer hours to shop for a vehicle, with an hour valued at $22.20.

How did the agency determine the customer would save three hours? Koblenz asked. “It’s one word,” he said. The FTC “assumes,” he said, quoting the proposal.

The FTC cites the 2020 Cox Automotive Car Buyer Journey study’s determination that customers spend 15 hours researching, shopping and buying a car. But Koblenz said Friday, July 15, that the agency didn’t cite Cox as the source of its three-hour projection. All it wrote was, “3 hours corresponds to 20% of an average consumer’s time spent on such activities” — an arbitrary figure, Koblenz suggested.

Additionally, the FTC’s questions for public comments suggest an unfamiliarity with the issue it’s trying to regulate, Metrey said.

Metrey said the FTC hadn’t studied the effectiveness of its proposed solutions. He cited prior examples of such research by the Federal Reserve Board and the FTC, which found disclosures confused the consumers the agencies sought to help.

The rules also fail to capture the entire industry, according to Metrey. They apply only to the franchised and independent dealerships over which the FTC has jurisdiction, not the other independent dealerships regulated by the Consumer Financial Protection Bureau, he said. The FTC has moved unilaterally instead of conducting joint rule-making with the CFPB, he said.

“So you have some market participants covered and others not,” he said.

The FTC said enforcement and research supported its proposal.

“The FTC’s proposal cites enforcement work, studies, and research, and other materials that highlight deceptive and unfair practices by unscrupulous dealers — bait-and-switch tactics and junk fees,” FTC spokesperson Jay Mayfield said Friday, July 15, in a statement responding to NADA’s criticism. “We invite the public to comment on how to curb these practices to protect consumers and promote a level playing field for law-abiding dealers. We look forward to comments from all interested parties.”

NADA will seek an extension of the window for public comment on the rule, which opened Wednesday, July 13, with a deadline of Sept. 12. The FTC proposed something it couldn’t defend, Stanton said, which “effectively put us to work” to prove it wrong.

“The regulators need to take the proper approach to this — a data-driven approach,” he said. “This is a sledgehammer of an approach, in our opinion.”

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