Under the Hood: A CARS Rule Series
By Mark Sanborn
Senior Product and Regulatory Counsel
Even though the FTC CARS Rule (a.k.a., the “Vehicle Shopping Rule” or “Rule”) has been delayed, the concept of vehicle advertising under these new regulations continues to confuse dealers. Like many of you, I have attended other webinars that have unfortunately added to this confusion by conflating multiple concepts in one stream of consciousness. As most of us were taught as kids by some real American heroes that “knowing is half the battle,” I want to take this opportunity to briefly discuss dealers’ existing responsibilities and separate them from what the Rule may require. I understand that the Rule has many other requirements, relating to such items as vehicle availability and the existence of rebates and discounts, but I will purposely not discuss those items here because they have been discussed at length in our previous articles called “Part 2: A Song of Inventory and Availability” and “Part 3: Rebates and the Offering Price in the First Communication.” Both can be found on our blog here: https://www.complyauto.com/blog.
Regulation M (Reg M), Regulation Z (Reg Z), and the Rule are all important consumer protection regulations in the United States that impact dealership advertising, but they each have distinct focuses and requirements. In addition, the implementation of the Rule has been postponed, meaning that currently, only Reg M and Reg Z apply to dealership advertising. Let’s talk about each of them individually to understand what each requires and how they all come together in your existing vehicle advertising practices. (The FTC also has broad authority under Section 5 of the FTC Act to bring advertising enforcement actions based on more general principles of deception and unfairness.)
Regulation M
Reg M is the implementing regulation for the Consumer Leasing Act and applies to consumer leases for personal, family, or household purposes exceeding 4 months and not exceeding the threshold amount of $69,500 (adjusted periodically). (Note that some states require lessors to adhere to Reg M regardless of the transaction amount). Lessors must provide clear, accurate disclosures of lease terms and costs. Reg M sets limits on balloon payments and has “trigger terms” requiring specific disclosures in advertisements. Just as it sounds, if a trigger term is contained in an advertisement then certain required “follow-on” disclosures must appear in the same advertisement.
Reg M trigger terms:
- The amount of any payment (e.g., $300 per month), or
- A statement of any capitalized cost reduction, or other payment, required at lease start, or that no payment is required (e.g., $1,000 due at signing, or $0 due at signing).
Reg M “follow-on” disclosures when any trigger term is advertised:
- That the transaction is a lease,
- The total amount due at lease signing or delivery,
- The number, amounts, and due dates of the lease payments (e.g., $500 per month for 36 months), and
- Whether or not a security deposit is required (e.g., no security deposit required).
Some states have additional requirements for leases beyond Reg M. Reg M has additional requirements as well, including, for example, that all amounts due at signing must be displayed with equal prominence.
Regulation Z
Reg Z is the implementing regulation for the Truth in Lending Act and applies to most consumer credit sales, including auto loans, credit cards, and mortgages. Lenders must provide clear, accurate disclosures of credit terms and costs. If certain “trigger terms” appear, that requires the advertiser to include specific “follow-on” disclosures.
Reg Z trigger terms:
- The amount or percentage of any down payment (e.g., $1,000 down),
- The number of payments or period of repayment (e.g., 60 months financing),
- The amount of any payment (e.g., $400 per month), or
- The amount of any finance charge.
Reg Z “follow on” disclosures when any trigger term is advertised:
- The amount or percentage of the down payment,
- Repayment terms reflecting payment obligations over the full loan term and any balloon payment (historically represented as $xx.xx per month, per $1,000 financed), and
- The annual percentage rate (“APR”), and if the rate can increase after the loan is issued.
Note: APR alone is not a Reg Z trigger term, and advertising that there is no down payment is not a Reg Z trigger term.
State Advertising Laws:
To make things ever more confusing, various state laws may require additional disclosures beyond the Reg M and Reg Z disclosures.
CARS Rule
The Rule, originally set to become effective in July 2024 but currently postponed due to a legal challenge, is unique to the automotive industry and will significantly impact dealership advertising if implemented. Among other things, the rule requires an “Offering Price” to be included in most vehicle advertisements and the total payments for financing and leases, which will modify how dealers make Reg M and Z disclosures. For example, this total payments requirement will mean that as part of the repayment terms under Reg Z, dealers will need to state the total amount of the payments over the loan term, this calculation will either need to assume a tax rate or disclose that the calculation is plus tax. It also mandates obtaining customer consent for charges related to vehicle purchases or leases, it includes prohibited misrepresentations and practices, and it also mandates certain recordkeeping requirements.
While the CARS Rule will affect vehicle advertising, including Reg M and Z disclosures, it is not currently in effect and could undergo changes before implementation.
Summary
Reg M and Z are existing rules for consumer lease and finance advertisements, respectively, with various trigger terms that require specific “follow-on” disclosures. They apply broadly to all consumer leases and financing, including those outside the automotive industry. In contrast, the Rule is a specific trade regulation rule applicable only to automobile dealerships.
Questions?
ComplyAuto will continue to provide information to assist dealers in preparation for the Rule’s implementation. For more information, contact us at info@complyauto.com.
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 up to the Rule’s effective date. 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.