Under the Hood: A CARS Rule Series
Hao Nguyen
Chief Legal Officer
Rebates and motor vehicle sales. These two have gone together for as long as I can remember, like bacon and eggs, peanut butter and jelly, and macaroni and cheese. The CARS Rule (Rule) gives confusing treatment to rebates, so let’s help you get prepared by discussing what the authors intended (or did not intend) and cover another rather confusing requirement of identifying the “Offering Price” in the first communication with consumers.
Rebates and Discounts
Section 463.3(d) of the Rule states that dealers must not misrepresent material information about the “availability of any rebates or discounts that are factored into the advertised price1 but not available to all consumers.” This raises several questions: first, can dealers include a deduction in the advertised price for a limited rebate or discount that is not available to all consumers (such as college graduate, military, conquest, or loyalty rebates)? Second, is advertising limited rebates or discounts allowed?
The answer to these questions involves some nuance because the FTC’s comments explaining this provision in the Rule have been unclear. In the Notice of Public Rulemaking (NPRM) published in 2022 (which was basically the “first draft” of the CARS Rule) the FTC broadly stated that advertising rebates and discounts, or factoring them into an advertised price, when the rebates and discounts are not available to typical consumers is misleading.2 The FTC cited several of its enforcement actions to support its statement. However, it is important to note that the enforcement actions were more narrow, and took issue with dealer practices of including limited rebates in an advertised price without disclosing that the rebates are not available to all consumers. In the enforcement actions, the FTC claimed that in not providing material information about the limited rebates, the dealers misrepresented the price of vehicles and misrepresented the availability of the rebates.3
This logic carries into the final Rule. The FTC states that the language of the provision, the NPRM, and the context of enforcement actions provide further context to understanding the provision. Additionally, in its analysis of the final Rule, the FTC specifically clarifies the questions above, stating that while misrepresentations are prohibited, dealers are allowed to truthfully advertise rebates or discounts with limitations, provided any limitations are clearly and conspicuously stated to consumers.4
Therefore under the Rule, advertising rebates and discounts of limited availability should be permissible as long as both of the following are met:
- The rebate or discount is advertised separately from the offering price (i.e., the rebate/discount is not included in the offering price), and
- All material eligibility limitations and qualifications of the rebate or discount are clearly and conspicuously displayed close to where the rebate or discount is advertised.
Dealers should not bundle limited rebates (sometimes referred to as “rebate stacking”, or advertise a limited rebate without disclosing the material conditions and restrictions); this is consistent with existing FTC advice and prior enforcement actions. A best practice to consider is to avoid including any rebates or discounts in an offering price and instead display potentially applicable rebates alongside the vehicle’s offering price, allowing customers to determine their applicable rebates and discounts while clearly displaying the conditions of each.
“Offering Price” in the First Communication
The Rule also requires that the “Offering Price” be clearly and conspicuously disclosed in the first communication with a customer that refers to any vehicle or any monetary amount or financing for a vehicle.5 If the communication from the customer was in writing then the offering price must be disclosed in writing (including text messages). The “Offering Price” of a vehicle means the full cash price for which a dealer will sell or finance the vehicle to any consumer, excluding only required governmental charges.6 This means that the offering price cannot include limited rebates or discounts. It also means that add-ons that the dealer charges for or properly requires to be included in the purchase or finance of a vehicle must be included in the offering price. The offering price will also need to include dealer document processing fees in most cases since those fees are not required by the government.7
As opposed to many of the other advertising and disclosure requirements of the Rule, the offering price in the first communication with the consumer will be one the most onerous and difficult to comply with. This first communication requirement can be broken down into two instances: 1) when the consumer speaks about a specific vehicle or 2) when the consumer speaks about any monetary amount or financing term for any vehicle (including a group of vehicles). To be clear: the dealer must identify the offering price regardless of whether or not the consumer asks about the price; simply inquiring about a vehicle triggers the requirement to disclose the offering price. If a consumer asks about a different vehicle in the middle of a conversation, that triggers the offering price disclosure for that vehicle as well.
As you can tell, there are a number of questions that dealers will want to consider in terms of how to implement this in practice. Can dealers use a QR code or short URL to disclose the offering price? (This is likely not clear and conspicuous.) Will dealers want to retain copies of employees’ communications with customers to prove that they complied with the offering price disclosure requirement? How do you retain text messages if they were sent on an employee’s personal device? (Practically-speaking, dealers might need to require that all communications with customers be through the CRM or email.)
Let’s go through some examples to determine when the offering price needs to be in response to the consumer.
Example 1: “Do you have any Toyota Tacomas in the ‘Solar Octane’ colorway in stock?”
Here, the consumer’s question is not specific enough to warrant the Offering Price in the response.
Example 2: “Does that blue Chevrolet Equinox out front have all-wheel drive?”
Here, the consumer’s question is specific enough about a certain vehicle to require that the offering price be disclosed in the response. Remember that the response must be in the same medium that the question was asked either through text message, email, or phone call.
Example 3: “Does your finance special apply to all trims of in-stock Ford F-150s?”
Here, the request is about the financing term for “any” vehicle, so it requires the offering price of the affected vehicles in the response. An inquiry does not have to be about a specific vehicle in this instance.
Difficulties in Compliance
This rebate and discount requirement affects many vehicle advertisements that a dealer and its advertising vendors present across all media formats: print, email, websites, and even social media. Having a process in place is the first step to compliance and dealers can train their staff on this requirement (and many others) before posting to social media or sending out email blasts. However, a more prevalent concern is dealership websites. At any given moment, dealers can have lease and finance offers applied across multiple vehicles or models and hundreds (if not thousands) of Vehicle Description Pages that constantly rotate depending on vehicle sales and acquisitions through trade-in, lease return, or auction. Each one of these assets must be reviewed for compliance to ensure that dealers are staying within the guidelines set by the Rule.
Also, I suggested, the requirement to disclose the offering price in the first communication with the customer is arguably one of the most onerous and difficult to comply with because of the nuances in application, and the difficulty in proving that the offering price was disclosed when required. Think about it: what is the most prevalent medium of communication between dealership staff and consumers today? It is either one of two answers: text messages or emails. You can train your staff to follow the disclosure requirement, but how are dealers supposed to make sure that their staff is actually implementing this? After all, it is ultimately the dealership’s responsibility to comply with the Rule and it only takes a few errant emails or text messages to violate this section of the Rule.
A Solution: ComplyAuto Guardian
ComplyAuto Guardian’s patent-pending advertising review product leverages Artificial Intelligence to be able to review dealership websites for vehicle specials and their VDP for CARS Rule requirements as well as local state and federal compliance issues, such as Reg M and Reg Z. Rather than having an overworked individual review them one at a time, our tools will be able to do this within minutes and instantly identify any problem areas for your dealership to mitigate.
Additionally, ComplyAuto Guardian will be able to scan employee emails to help your dealership monitor compliance with the first communication requirement. Dealers will be able to see where their staff is falling short of this requirement and train accordingly.
About this Series
Authored by various industry compliance experts at ComplyAuto, this series of articles will cover specific aspects of the Rule and will be released every month up to the Rule’s effective date of July 30, 2024. Each article will also be followed up by a short webinar that will provide further insight into the discussed topics and a live Q&A session for you to ask practical questions. If you would like to be notified of each article as they are released or of the ComplyAuto-hosted webinars, please send us a note at info@complyauto.com with “Subscribe to Newsletter” in the subject line of the email.
Footnotes:
1 The “advertised price” is not the same as the “Offering Price” as defined in the CARS Rule.
2 87 Fed. Reg. 42020 (2022).
3 See, e.g, Federal Trade Commission v. Tate’s Auto Center of Winslow Inc., No. 3:18-cv-08176-DJH, Complaint (D. Ariz. filed July 31, 2018).
4 89 Fed. Reg. 617 (2024)
5 16 C.F.R. § 463.4(a)(3) (2024). The Rule also requires the Offering Price to be in advertisements referencing a vehicle, or a monetary amount or financing for a vehicle.
6 16 C.F.R. § 463.4(k) (2024).
7 In states where the document processing fee is not permitted to be included in the advertised price (such as Washington and Oregon), it is not clear whether the Rule will supersede those state laws. We hope that the states or FTC will provide clarification before the Rule becomes effective.