It’s no secret that buying a car is a time-consuming, fine-print filled and wholly exhausting process. Cars are expensive, and figuring out how to get the biggest bang for your buck is uniquely confusing. It’s easy to wind up spending thousands more than you intended, especially if you’re at a dealership with tricks up its sleeve. Thankfully, buying a car may be about to get easier.
Last week, the Federal Trade Commission (FTC) announced a new proposed rule to stop the worst tricks and traps buyers are most likely to face on the car lot. With an industry-wide rule, the FTC would be able to undertake investigations and bring enforcement actions against unscrupulous car dealers more easily, and wouldn’t have to wait for an individual to report a problem before acting. More car buyers would be better protected, and it’s something that’s sorely needed. U.S. PIRG and Frontier Group’s report Driving Into Debt documented the sharp rise in auto debt after the Great Recession, in part thanks to financing tactics designed to get more people into expensive car loans that can end up wrecking a household’s finances.
Here are some of the car dealership traps the FTC’s rule would rein in:
Advertising deals you’ll never get – Those prices, discounts or financing deals you saw on TV are often designed to get you into the showroom, and disappear once you’re signing the contract. Maybe the dealership tells you the discount doesn’t apply to the model you’re buying; or the special interest rate was only for people with perfect credit; or that was the price for leasing, not buying. It’s a common trick to lure you to the lot under false pretenses with exaggerated advertising claims, and only tell you the truth once you’re so far into the paperwork you’d rather just sign than start the process over somewhere else.
Charging you for add-ons you don’t need – From extended warranties and anti-theft devices, to VIN etching and rust-proofing, there are lots of bells and whistles car dealerships want to sell you. Sometimes these add-ons are optional but made to sound mandatory. Sometimes you’re charged for them without realizing you consented to it on page 23 of a 47-page contract. And sometimes these add-ons give you absolutely no benefit at all, like “nitrogen-filled tires” with the exact same nitrogen level as plain old air. While some add-ons may be worth it, many don’t add much besides more debt to your loan, and car dealerships are keen to get you to buy as many as possible. This rule would require real transparency around add-ons.
Toying with your financing offer to hide the real cost – Selling loans is a lucrative business – car dealerships make half of their money from the sales they conduct in their Finance and Insurance offices. One of the sleaziest moves is “yo-yo financing” – letting a consumer drive off the lot under the pretense the finance deal is final, only to get a call later that the dealer needs to raise the interest rate. But of all the tricks car dealerships use to get you to pay more, one of the most common is selling consumers on a loan based on how low the monthly payment is. The lower the monthly installment, the longer it takes you to pay it off, and the more money you’re burning on interest payments in the long term. Dealerships sometimes use lowering your monthly payment as a negotiation tool to make it seem like you’re getting a better deal – all while knowing it’ll actually cost you more. The FTC would require dealers to tell consumers when a lower monthly payment will raise the overall cost in the long term, which would be a huge win for car buyers everywhere.
If approved, the FTC’s new rule would rein in all of these practices and more. You can read the full text of the proposed rule here. The public comment period will be opening soon, and if you have a car-buying horror story, the FTC wants to hear from you. In the meantime, if you’re buying a car and want to bone up on tricks and traps to keep an eye out for, PIRG’s tips guide is here to help.
Policy Analyst, Frontier Group
R.J. focuses on data privacy issues and the commercialization of personal data in the digital age. Her work ranges from consumer harms like scams and data breaches, to manipulative targeted advertising, to keeping kids safe online. In her work at Frontier Group, she has authored research reports on government transparency, predatory auto lending and consumer debt. Her work has appeared in WIRED magazine, CBS Mornings and USA Today, among other outlets. When she’s not protecting the public interest, she is an avid reader, fiction writer and birder.