The proposed CARS Rule, Combating Auto Retail Scams Rule, or the National Automobile Dealers Associations’ preferred name, the Vehicle Shopping Rule, could transform the car business. It is not yet law, but dealers need to prepare because it could become effective early this year. There is much to study in the VSR, and this short article can provide only a summary of the central issues.

History and Current Status 

The VSR was first initiated in January 2024. It was legally contested by NADA and the Texas Automobile Dealers Association in October. A year later, a ruling by the Fifth Circuit Court of Appeals is expected in early 2025. The effective date for compliance might be mid-2025 if the court rules in favor of the Federal Trade Commission.

Perspectives – Dueling Views

The genesis of the VSR is that vehicle issues have been the top consumer complaint for the past 40 years. The perspectives between the FTC and NADA couldn’t be more starkly divergent. For example:

• The FTC says, “The CARS Rule will prohibit exploitative junk fees in the car-buying process, saving people time and money and protecting honest dealers.” NADA retorts with, “This regulation is heavy-handed bureaucratic overreach and redundancy at its worst …” 

• The FTC estimates that the VSR will save car-buying consumers an estimated $3.4 billion. The NADA study counters by asserting that the VSR will increase costs by $24.1 billion over 10 years.

The VSR

The rule is divided into sections:

1. Authority

2. Definitions

3. Prohibited misrepresentations

4. Disclosure requirements

5. Dealer charges for add-ons and other items

6. Record-keeping

7. Waiver not permitted

8. Severability

9. Relation to state laws

Key Sections

There are several key sections that demand special dealer attention: 1] Definitions, 2] Prohibited misrepresentations, 3] Disclosure requirements, 4] Dealer charges for add-ons and other items, and 5] Record-keeping. 

A new term for vehicle transactions is introduced in the definitions section: Express, informed consent. This term means the consumer must understand the transaction beyond merely signifying his or her assent by a signature or initials. Offering price is another modified term in which the gross cost of the offer must be presented, with only government fees being excluded. Other terms in this section are also quite important. 

The prohibited misrepresentations section is redundant to consumer law, as 16 such violations are posted that already are unlawful. 

The Disclosure requirements section addresses 1] offering price, 2] truthful language for add-ons not being required, 3] a mandate that the total of payments and consideration for a financed or lease transaction be disclosed, and 4] how monthly payments should be compared. 

The dealer charges for add-ons and other items forbids 1] selling add-ons that provide no benefit and 2] retailing any item without garnering express, informed consent from the consumer. 

One would think the record-keeping section would be benign. It is not. Copious records must be maintained and created to track consumer interaction. Essentially, all records must be maintained for no fewer than 24 months. 

Chief Concerns for the Underwriting Community

Financing sources may be sued by consumers for vehicle transactions pursuant to the Holder Rule and, indeed, violations of the VSR. Will financing sources seek additional representations and warranties in their dealer agreements and become more involved with dealers in protocols due to the potential liability? 

 Some Solutions and Recommendations

In order to abide by the VSR, new forms and protocols will be needed. No fewer than three new documents will be needed in the transactional process.

Conclusion

Six hundred words only begins to explain this onerous law. Dealers face legal perils they have never encountered. Being forewarned is being forearmed. 

Terry O’Loughlin is director of compliance for Reynolds and Reynolds and is admitted to the Pennsylvania and Florida bars. Before joining Reynolds, he was employed by the Florida Office of the Attorney General, where he investigated automobile dealers and financing sources. He previously was a public accountant.  

LEARN MORE: CARS Rule Update: 5th Circuit Oral Arguments Recap