2011-5873. Public Roundtables: Protecting Consumers in the Sale and Leasing of Motor Vehicles

AGENCY:

Federal Trade Commission (FTC or Commission).

ACTION:

Notice announcing public roundtables, requesting participation, and providing opportunity for comment.

SUMMARY:

On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Pursuant to the Dodd-Frank Act, the FTC is authorized to prescribe rules under Section 553 of the Administrative Procedure Act (APA) with respect to unfair or deceptive acts or practices by motor vehicle dealers. To explore consumer protection issues pertaining to motor vehicle sales and leasing, the FTC is hosting a series of public roundtables in 2011. The roundtables will be held in three to five cities around the United States, starting in April 2011. The roundtables will provide an opportunity for regulators, consumer advocates, industry participants, and other interested parties to discuss consumer protection issues in connection with motor vehicle sales and leasing. This notice addresses various topics and questions that the Commission expects to discuss at the first roundtable. This notice also provides an opportunity for comment.

DATES:

The first roundtable will occur on April 12, 2011. Dates for the additional roundtables to be held in 2011 will be posted on the FTC Web site at http://www.ftc.gov. Requests to participate as a panelist for the first roundtable, and any written comments on roundtable topics, must follow the instructions provided below under SUPPLEMENTARY INFORMATION and be received by March 28, 2011, to be considered in preparing for the roundtable.

ADDRESSES:

The first roundtable will be held at Wayne State University Law School, in Detroit, Michigan on April 12, 2011. Further information about all of the roundtables will be posted on the FTC=s Web site at http://www.ftc.gov. All of the roundtables will be free and open to the public. Those who plan to attend a roundtable are encouraged to preregister by sending an email listing their name and affiliation to [e-mail]. This information will be used for planning purposes only. Those who wish to participate as a panelist at a roundtable, and those who wish to submit comments, should follow the instructions in the SUPPLEMENTARY INFORMATION section below. Whether or not selected to participate, persons may submit written comments on roundtable topics.

FOR FURTHER INFORMATION CONTACT:

Katherine Worthman or Carole Reynolds, Attorneys, Division of Financial Practices, Federal Trade Commission, 600 Pennsylvania Avenue, NW., Washington, DC 20580, [phone].

SUPPLEMENTARY INFORMATION:

I. Background

Having access to a motor vehicle is essential for many consumers to fulfill their daily obligations. However, purchasing or leasing a car is usually a substantial expense. For many consumers, aside from housing costs, a car purchase or lease is their most expensive financial transaction.^[1] With prices averaging more than $28,000 for a new vehicle and $14,000 for a used vehicle from a dealer, most consumers seek to lease or finance the purchase of a new or used car. Consumers may seek financing from their local bank or credit union, as well as from the dealer selling the vehicle. Financing obtained at the dealership, whether it is provided by a third party or directly by the dealer, may provide benefits for many consumers such as convenience, special manufacturer-sponsored programs, access to a variety of banks and financial entities, or access to credit otherwise unavailable to a buyer. Dealer-arranged financing, however, can be a complicated, opaque process and could potentially involve unfair or deceptive practices.

As the nation's consumer protection agency,^[2] the Commission is committed to protecting consumers in connection with these financial transactions. Throughout the years, the FTC has undertaken substantial efforts to fulfill this commitment in connection with the sale, financing, and leasing practices of motor vehicle dealers. For example, the agency has brought numerous enforcement actions addressing:

• Deceptive advertising by motor vehicle dealers regarding purchase, loan, or lease terms or costs, as well as add-on products; ^[3]

• Auto warranty issues by, among other things, enforcing the Magnuson-Moss Warranty-Federal Trade Commission Improvement Act and its implementing rules concerning the disclosure and pre-sale availability of warranty terms; ^[4] and

• Deceptive claims by auto warranty robocallers.^[5]

On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).^[6] Pursuant to the Dodd-Frank Act, the FTC is authorized to prescribe rules under Section 553 of the Administrative Procedure Act (APA) ^[7] with respect to unfair or deceptive acts or practices by motor vehicle dealers.^[8] Under Section 1029 of the Dodd-Frank Act, the Commission retains all of its enforcement authority over motor vehicle dealers.^[9] The FTC's authority is exclusive as to motor vehicle dealers that routinely assign credit contracts to unaffiliated third parties,^[10] and concurrent with the new CFPB as to dealers that do not.^[11]

The Dodd-Frank Act also authorizes the FTC to prescribe rules using APA procedures with respect to unfair or deceptive acts or practices by motor vehicle dealers.^[12] The motor vehicle roundtables are intended to inform the Commission regarding what consumer protection issues, if any, exist that could be addressed through a possible rulemaking or other initiatives.

II. Roundtable Goals and Topics for Comment

Consistent with the Commission's authority under the Dodd-Frank Act, and other consumer protection statutes that it enforces,^[13] the agency will conduct a series of roundtables to gather more information on consumer protection issues in connection with motor vehicle sales, financing, and leasing to assess the propriety of promulgating a rule or conducting other initiatives. The roundtables will focus primarily on cars (including automobiles, SUVs, and light trucks) because those are the vehicles consumers most often use.^[14]

The FTC staff is seeking public comment on a number of topics listed below, which will be discussed at the roundtables. Of particular interest to the FTC staff is data and empirical evidence supporting comments provided in response to this request.

(1) What categories of motor vehicle dealers (i.e. “franchise,” “independent,” and/or “buy here, pay here” ^[15] ) offer credit or leases to consumers? Do these different categories of dealers offer different types, or terms, of credit or leasing to consumers? If so, in what manner and under what terms?

(2) What types of financing and leasing are offered to consumers today? Who are the typical consumers for each type of product?

(3) What practices involving motor vehicle dealers raise consumer protection issues? How prevalent are these practices in the industry as a whole or in any subset of the industry?

(4) Do motor vehicle dealers engage in “yo-yo financing?” ^[16] If so, please describe in detail how such a transaction occurs. Do these practices occur in leasing? How prevalent are these practices in the industry as a whole or in any subset of the industry? What types of entities are involved, and what role does each play? What types of consumers are impacted by these practices, and how? What are the costs and/or benefits to consumers of these practices? What are the incentives or benefits to dealers for engaging in these practices? Do consumers understand when they purchase and finance a car that there may be circumstances in which the financing terms, and monthly payments, could change? Is yo-yo financing sometimes combined with a practice whereby the dealer has sold the consumer's trade-in before the consumer learns of the higher interest and/or payments from the dealer?

(5) Do finance companies provide incentives or payments to motor vehicle dealers in exchange for consumers receiving more expensive credit? Does this practice occur in leasing? How prevalent is this practice in the industry as a whole or in any subset of the industry? How does this practice work? What types of entities are involved, and what role does each play? What types of consumers are impacted by this practice and how? What are the costs and/or benefits of this practice? Do consumers understand this practice, and to what extent does it affect consumers' decisions to purchase and finance a motor vehicle? Is this an issue unique to the sale and financing of motor vehicles, or are there other industries where sellers may have incentives of which buyers are unaware and that may be contrary to buyers' interests? If not, should the sale and financing of motor vehicles be treated differently from other industries, and why?

(6) Do motor vehicle dealers misrepresent credit or lease terms to consumers? How prevalent is this practice in the industry as a whole or in any subset of the industry? What types of terms do dealers misrepresent and in what circumstances? Are other entities involved in these practices, and if so, which entities?

(7) Do motor vehicle dealers charge interest rate mark-ups or up-front charges to consumers for credit or leases about which consumers are unaware? How prevalent is this practice in the industry as a whole or in any subset of the industry? How does this occur? Do consumers understand that dealer financing may include dealer mark-ups in addition to the cost of the credit or lease, and to what extent does this practice affect consumers' decisions to purchase and finance a motor vehicle? Is this an issue unique to the sale and financing of motor vehicles or are there other industries where sellers charge mark-ups of which buyers are unaware and that may be contrary to buyers' interests? If not, should the sale and financing of motor vehicles be treated differently from other industries, and why?

(8) Is substantial negative equity from a prior purchase, or money owed on a prior lease, frequently rolled into consumers' next vehicle purchases or leases? ^[17] What are the costs and/or benefits of this practice? How prevalent is this practice in the industry as a whole or in any subset of the industry? How does this occur? Do consumers understand when negative equity is rolled into the credit package of a newly purchased and financed vehicle?

(9) Do motor vehicle dealers engage in credit or lease packing, such as by including amounts for credit insurance, guaranteed automobile protection (“GAP”), or other add-ons into payment amounts or other terms quoted to consumers? ^[18] How prevalent is this practice in the industry as a whole or in any subset of the industry? How does this occur? Do consumers understand this practice?

(10) Do dealers include warranties, service contracts, and other add-ons in credit or lease contracts? How prevalent is this practice in the industry as a whole or in any subset of the industry? At what point in the sales process are these items included in the contracts? How does this practice occur? Do consumers understand this practice?

(11) Do consumers experience discrimination on a prohibited basis as set forth in Section 701 of the Equal Credit Opportunity Act, 15 U.S.C. 1691, in motor vehicle financing or leasing? How prevalent is this practice in the industry as a whole or in any subset of the industry? Do interest rate mark-ups by motor vehicle dealers disparately impact any groups of consumers in violation of the ECOA? What other practices by motor vehicle dealers violate the ECOA? What data exists to measure compliance with the ECOA by motor vehicle dealers? What other information can motor vehicle dealers collect to assess ECOA compliance?

(12) Do military personnel or their families face unique consumer protection concerns when purchasing motor vehicles? What practices cause those concerns? How prevalent are those concerns in the industry as a whole or in any subset of the industry? Do or can these concerns impact military readiness? What practices are involved? What steps have motor vehicle dealers, states, and consumer groups taken to address these practices? How successful have they been?

(13) Do motor vehicle dealers fail to pay off liens or trade-ins or otherwise fail to transfer title at a sale? ^[19] How prevalent is this practice in the industry as a whole or in any subset of the industry? What are the reasons for failing to pay off a lien? What problems does this practice raise for consumers? What state laws exist to address this practice?

(14) Do motor vehicle dealers use global positioning systems or similar devices to locate and track financed and leased cars? How prevalent is this practice in the industry as a whole or in any subset of the industry? What problems does this practice raise for consumers? Do consumers understand this practice? Does this practice affect accounts in default? For those consumers who have these devices installed on their cars, what is done with their route information? Do service providers retain this data? How do they use it? Does this practice raise privacy concerns? Do consumers understand that their vehicles could be tracked, and the extent to which they are being, or could be, tracked?

(15) How do motor vehicle auction houses operate? Do consumer protection issues exist in connection with such auction houses? If so, which issues?

III. Public Participation

A. Registration Information

The roundtables will involve discussion on the issues described above by those individuals selected to be panelists. A court reporter will be present to record the proceedings so that a transcript can be made for the public record. The roundtables are free and open to the public. FTC will accept pre-registration for the roundtables. Pre-registration is not necessary to attend, but is encouraged so that staff may better plan the event. To pre-register, please e-mail your name and affiliation to [e-mail]. When you pre-register, the FTC collects your name, affiliation, and e-mail address. We will use this information to estimate how many people will attend and better understand the likely audience for the roundtables, and will dispose of it following the roundtables. We may use your e-mail address to contact you with information about the roundtable. The FTC Act and other laws the Commission administers permit the collection of this contact information to consider and use for the above purposes. Under the Freedom of Information Act or other laws, we may be required to disclose the information you provide to outside organizations. For additional information, including routine uses permitted by the Privacy Act, see the Commission's privacy policy at http://www.ftc.gov/​ftc/​privacy.shtm.

B. Requests To Participate as a Panelist

The format will consist of a roundtable with participation by panelists selected by FTC staff. FTC staff will identify and invite persons with relevant expertise to participate in the roundtables. In addition, the FTC staff may invite other persons to participate who submit requests in response to the Federal Register notice. Persons seeking to participate as panelists in the roundtables must notify the FTC in writing of their interest in participating on or before March 28, 2011. Requests to participate filed in an electronic form should be submitted by e-mail to: [e-mail]. Emails should be captioned “Motor Vehicle Roundtables—Request to Participate, Project No. P104811.”

A request to participate as a panelist filed in paper form should also include the reference “Motor Vehicle Roundtables, Project No. P104811” both in the text of the comment and on the envelope, and should be mailed or delivered to the following address: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex V), 600 Pennsylvania Avenue, NW., Washington, DC 20580. The FTC is requesting that requests to participate filed in paper form be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington, DC area and at the Commission is subject to delay due to heightened security precautions.

C. Comments

Interested parties are invited to submit written comments electronically or in paper form on the topics to be discussed at the roundtable. Submission of comments should be captioned “Motor Vehicle Roundtables—Comment, Project No. P104811.” Please note that your comment—including your name and your state—will be placed on the public record of this proceeding, including on the publicly accessible FTC Web site, at http://www.ftc.gov/​os/​publiccomments.shtm.

Because comments will be made public, they should not include any sensitive personal information, such as any individual's Social Security number; date of birth; driver's license number or other state identification number, or foreign country equivalent; passport number; financial account number; or credit or debit card number. Comments also should not include any sensitive health information, such as medical records or other individually identifiable health information. In addition, comments should not include any “[t]rade secrets and commercial or financial information obtained from a person and privileged or confidential,” as provided in Section 6(f) of the FTC Act, 15 U.S.C. 46(f), and Commission Rule 4.10(a)(2), 16 CFR 4.10(a)(2). Comments containing material for which confidential treatment is requested must be filed in paper form, must be clearly labeled “Confidential,” and must comply with FTC Rule 4.9(c), 16 CFR 4.9(c).^[20]

Because paper mail addressed to the FTC is subject to delay due to heightened security screening, please consider submitting your comments in electronic form. Comments filed in electronic form should be submitted at https://ftcpublic.commentworks.com/​ftc/​motorvehicleroundtables1 following the instructions on the web-based form. If this Notice appears at http://www.regulations.gov/​search/​index.jsp,, you may also file an electronic comment through that website. The Commission will consider all comments forwarded to it by regulations.gov. You may also visit the FTC Web site at http://www.ftc.gov to read the Notice and the news release describing it.

A comment filed in paper form should include the reference “Motor Vehicle Roundtables, Project No. 104811” both in the text of the comment and on the envelope, and should be mailed or delivered to the following address: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex V), 600 Pennsylvania Avenue, NW., Washington, DC 20580. The FTC is requesting that comments filed in paper form be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington, DC area and at the Commission is subject to delay due to heightened security precautions.

The FTC Act and other laws the Commission administers permit the collection of public comments to consider and use in this proceeding as appropriate. The Commission will consider all timely and responsive public comments it receives, whether filed in paper or electronic form. Comments received will be available to the public on the FTC website, to the extent practicable, at http://www.ftc.gov/​os/​publics.htm. As a matter of discretion, the Commission makes every effort to remove home contact information of individuals before their comments are placed on the FTC Web site. More information, including routine uses permitted by the Privacy Act, may be found in the FTC's privacy policy, at http://www.ftc.gov/​ftc/​privacy.shtm.

By direction of the Commission.

Donald S. Clark,

Secretary.

Footnotes

1.  The average price of a new car sold in the U.S. is $28,966, according to the National Automobile Dealers Association. See NADA DATA 2010, at 2, available at http://www.nada.org/​Publications/​NADADATA/​2010/​default (2009 data). Average used car prices range from $8,459 (independent companies) to $14,976 (dealerships). See NIADA Used Car Industry Report 2010, at 18, available at http://www.niada.com/​PDFs/​Publications/​2010IndustryReport.pdf (citing data from the National Independent Automobile Dealers Association Report and CNW Marketing Research), and NADA DATA 2010, at 2, respectively (2009 data).

2.  The Commission currently has enforcement authority over most non-bank entities for numerous consumer protection statutes, including, for example, Section 5 of the Federal Trade Commission Act (FTC Act), 15 U.S.C. 45, which broadly proscribes unfair or deceptive acts or practices in or affecting commerce; the Truth in Lending Act, 15 U.S.C. 1601-1666j, and the Consumer Leasing Act, 15 U.S.C. 1667-1667f, and their implementing Regulation Z, 12 CFR 226; the Equal Credit Opportunity Act (ECOA), 15 U.S.C. 1691-1691f, and its implementing Regulation B, 12 CFR 202; the Electronic Fund Transfer Act, 15 U.S.C. 1693-1693r, and its implementing Regulation E, 12 CFR 205; and the privacy provisions of the Gramm-Leach Bliley Act, 15 U.S.C. 6801-6809. Subject to various provisions of the Dodd-Frank Act, the Commission generally retains its enforcement authority for these various statutes; in some instances, that authority may be concurrent with the Bureau of Consumer Financial Protection (CFPB).

3.  These matters were generally resolved by consent agreements. See, e.g., In re Simmons Rockwell Ford Mercury, Inc., F.T.C. Dkt. No. C-3950 (2000); In re R.N. Motors, Inc., F.T.C. Dkt. No. C-3947 (2000); In re Dunphy Nissan, Inc., F.T.C. Dkt. No. C-3924 (2000); and In re Bill Crouch Foreign, Inc., 96 F.T.C. 111 (1980). For additional information regarding recent FTC activities in the motor vehicle area, see Prepared Statement of the Federal Trade Commission on AConsumer Protection in the Used and Subprime Car Market@: Hearing Before the House Committee on Energy and Commerce, Subcommittee on Commerce, Trade, and Consumer Protection, Mar. 5, 2009 , available at http://www.ftc.gov/​opa/​2009/​03/​autotest.shtm.

4.  See, e.g., In re Bob Rice Ford, Inc., 96 F.T.C. 18 (1980).

5.  See, e.g., FTC v. Voice Touch, Inc., No. 1:09CV2929 (N.D. Ill. 2010).

6.  Public Law 111-203, 124 Stat. 1376 (July 21, 2010) (to be codified in scattered titles and sections of the U.S. Code).

7.  5 U.S.C. 553.

8.  See Dodd-Frank Act § 1029(d). The term “motor vehicle dealer” refers to “any person or resident in the United States, or any territory of the United States, who (A) is licensed by a State, a territory of the United States, or the District of Columbia to engage in the sale of motor vehicles; and (B) takes title to, holds an ownership in, or takes physical custody of motor vehicles.” Dodd-Frank Act § 1029(f)(2). The term “motor vehicle” includes, among other things, motorcycles, motor homes, recreational vehicle trailers, recreational boats and marine equipment, and other vehicles titled and sold through dealers. See Dodd-Frank Act § 1029(f)(1).

9.  Dodd-Frank Act § 1029(f)(1).

10.  Id. § 1029(a) and (c). Section 1029(a) of the Dodd-Frank Act provides that, “(e)xcept as permitted in subsection (b), the Bureau may not exercise any rulemaking, supervisory, enforcement or any other authority, including any authority to order assessments, over a motor vehicle dealer that is predominantly engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both.” Section 1029(c) provides that “nothing in this title, including subtitle F, shall be construed as modifying, limiting, or superseding the operation of any provision of Federal law, or otherwise affecting the authority of the Board of Governors, the Federal Trade Commission, or any other Federal agency, with respect to a person described in subsection (a).”

11.  Id. § 1029(b)(2) (“Subsection (a) shall not apply to any person, to the extent that such person . . . operates a line of business—(A) that involves the extension of retail credit or retail leases involving motor vehicles; and (B) in which—(i) the extension of retail credit or retail leases are provided directly to consumers; and (ii) the contract governing such extension of retail credit or retail leases is not routinely assigned to an unaffiliated third party finance or leasing source.”). Motor vehicle dealers that do not routinely assign credit contracts to unaffiliated parties often are referred to as “buy here, pay here” dealers.

12.  See id. § 1029(d). Under the Dodd-Frank Act, the FTC's APA rulemaking authority becomes effective as of the designated “transfer date.” See Dodd-Frank Act § 1029A. The CFPB and Department of Treasury have set July 21, 2011 as the transfer date. See 75 FR 57252 (Sept. 20, 2010).

13.  See supra notes 2, 8 and 10.

14.  However, the Commission is interested in issues that pertain to all types of motor vehicles, as defined by the Dodd-Frank Act, and welcomes comments on all such topics. See supra note 8.

15.  “Buy here, pay here” dealers typically provide financing directly or through an in-house finance company. “Buy here, pay here” dealerships tend to operate in the subprime credit area. In some regions, “lease here, pay here” dealerships may provide leases to consumers, through similar programs.

16.  In many states, a dealer may deliver a vehicle to a consumer pending approval of the consumer's financing (a practice known as “spot delivery”). In general terms, “yo-yo financing” refers to a spot delivery in which the dealer apprises a consumer that the dealer has secured or expects to secure a particular interest rate and other terms for financing the sale. Days after the consumer has signed the purchase or credit documents and driven home in the newly purchased motor vehicle, the dealer contacts the consumer with information that the financing “fell through” and the consumer must return to the dealership. Upon the consumer's return, the consumer learns he or she now must pay a higher interest rate and higher monthly payments to finance the purchase.

17.  In this situation, a consumer may seek to trade in a vehicle for which the consumer owes more than the vehicle is worth. The dealer may accept the trade-in, but will include the negative equity (the amount owed) for the trade-in in the credit package for the newly-purchased vehicle, with or without further explanation to the consumer. This process can result in the consumer being in another “upside-down” credit situation and owing higher monthly payments.

18.  “Packing” refers to a situation in which a dealer includes “add-ons” in the credit package for the sale or lease of a motor vehicle, which might be without the consumer's understanding or at significantly inflated prices. The practice might include quoting monthly payments with the add-on amounts automatically rolled-into the dollar figure stated to the consumer. Such add-ons might include charges for products and services such as: rust proofing, undercoating, service agreements, extended warranty packages, credit life insurance, guaranteed auto protection (GAP, which refers to coverage for the difference between the amount the consumer owes on the loan and the current market value of the vehicle), and other products and services.

19.  When consumers seek to purchase a vehicle, they may trade in a prior vehicle on which amounts are still owed. The consumer may seek to pay off the amounts owed by refinancing the outstanding amount owed on the prior vehicle into the credit agreement for the current vehicle being purchased. As part of the new credit agreement, the dealer is required to pay-off the amount owed and secure a release of the lien on the prior vehicle, so that the consumer is no longer liable for that debt. However, a dealer may fail to pay off the prior loan and secure a release of lien on the prior vehicle. As a result, the consumer could become liable for two credit agreements and two vehicles: the current one being purchased, and the prior vehicle that the consumer thought was being paid off but was not.

20.  The comment must be accompanied by an explicit request for confidential treatment, including the factual and legal basis for the request, and must identify the specific portions of the comment to be withheld from the public record. The request will be granted or denied by the Commission's General Counsel, consistent with applicable law and the public interest. See 16 CFR 4.9(c).