What's Up With the CARS Rule?

Jim Ganther  1:29  
Mosaic is delighted to work with asotu to bring you the latest information concerning the FTC cars rule. Mosaic is a full service compliance resource for both franchised and independent car dealers as well as RV power sport and marine dealerships. We cover the waterfront, from policy development to training, certification, safeguards, fixed stops and audit services to create an effective compliance management system. More on that later, but first, let's get down to business.

Ann-Marie Johnson  2:03  
Hey everyone, welcome back for an asotu Edge webinar. As you heard from Jim, we're going to be talking about the cars rule today. Not too exciting, but definitely very important. We're going to be hearing first from Paul J Daly and Kyle mountsier. We're going to get started on that topic just a little bit. And then we're going to hear from Jim ganther Esquire and founder and CEO of Mosaic compliance services. So I'm going to kick it on over to them. Y'all enjoy

Unknown Speaker  2:30  
what's up yo

Kyle Mountsier  2:32  
webinar. Okay, here's, here's

Paul J Daly  2:34  
the fun thing about an asotu Edge live webinar is that it's truly, live true, and that I'm truly right now typing a message in the LinkedIn that says, join us right now for the cars rule webinar with James ganther, who has been drinking Red Bull in the green room for the last three hours, crushing

Kyle Mountsier  2:49  
Red Bull. I mean, this guy is ready to go. It's like if you thought the cars were wasn't exciting, you are wrong. This is the exciting version of the cars rule, for sure. Um, Paul, I'm telling you what this is. The cars were kind of like went silent. We'll probably get into that a little bit today, but it kind of went silent for a little bit of time. Actually,

Paul J Daly  3:12  
it started the day we were in Washington, DC, with Jim and Mike Stanton, and the stay was issued. Was when everyone, just like it disappeared out of the news.

Kyle Mountsier  3:22  
Poof, right? So roll back, I guess six months before that, it's about a year ago now, and we are, you know, hearing and administering open comments on the FTC docs and and there is a ton going on in the media network about what is going to come of this new legislation and even regulation. What does it mean for dealers? Dealers kind of pushing back, you know, dealer Raider getting in saying, hey, look, the dealers aren't as bad as as as everyone, everybody, like, puts them out to be in the cultural perspective, and still just coming to a head like this thing isn't going

Paul J Daly  4:03  
away. Yeah. So just give you a little overview. This is definitely the most comprehensive and significant set of federal federal regulations ever introduced into the retail auto industry. More than right now, 370 pages of published regulations as a

Kyle Mountsier  4:19  
couple. You know, they're sneaking some stuff in there. I'm just calling it or chat. TBT

Paul J Daly  4:23  
is sneaking some stuff in there. How do we know this? The FTC started work on this back in 2022 actually, this is the first time asotu was actually cited in a public comment to the FTC. We're part of the the National Archive, I guess at this point, basically it was, if you're a curious. Page 16, footnote 54 says the dealer, dealer rated data reference in the text was discussed by officials from the company during a podcast conducted September 8, 2022 uh, special guest. JB, old a charlat dealerator. And you know, we're in there, so there's a link and everything. So we're excited about that.

Kyle Mountsier  4:58  
We're in the history books. But, uh. We have the experts are less studied by us. Typically, they're studied by those that that that actually read them. They read the documents. People that are are willing to go through the pain of reading legalese and drawing out all the conclusions that we need to have as an industry to both rebut but also act on things that are coming down the pipe, and one of those people is our man, Jim ganther, so we should stop talking, because we probably said stuff that would put our foot in our mouth already in the show. Well,

Paul J Daly  5:31  
that's because the sun is up,

Kyle Mountsier  5:35  
so let's go ahead and bring Jim up and and get the real authority on it. Welcome Jim.

Jim Ganther  5:40  
Hey, thanks for having me, guys. I'm sorry I missed the dress code. I didn't have a clean t shirt, so I had to put on a bow tie.

Paul J Daly  5:46  
Come on. You know you're in Bermuda shorts right now.

Jim Ganther  5:52  
Oh, sorry, this camera is,

Paul J Daly  5:53  
yeah, exactly, exactly, no. Jim always, always looking good and ready, definitely dressed to match the part. So give us, give us an idea for the people that may just kind of be coming into the conversation. Can you summarize the cars rule and why it was created in the first place?

Jim Ganther  6:11  
Can I summarize the cars rule? This is the cars rule.

Paul J Daly  6:17  
Is that legit, the the 370 pages, or whatever this

Jim Ganther  6:20  
this, it's actually a little bit more than that. I've got over 400 pages in that binder, and I've got a much thicker binder, a set of binders with all the briefs in the lawsuit. But let's get back to your question, where did this rule come from? If you go back three years, April of 2021 the Supreme Court issued a nine zero decision against the Federal Trade Commission. The case was called AMG capital management versus the Federal Trade Commission. And in that case, AMG Capital Management, which was, I understand, a like a payday loan company had been doing some very, very bad things, and for all I know, they actually did them. But here's the problem, they were assessed a fine under the Trump administration of 1.2 7 billion. To my knowledge, that the biggest consumer fine ever assessed in the history of the universe. It wound up boomeranging on the Federal Trade Commission. And here is why, if you get to find a million dollars, you just pay the million dollars, because it costs more than that to appeal it all the way to the Supreme Court, right? You get fined 1.2 7 billion. Dollars you cannot afford not to take it all the way to the Supreme Court. And they did, and in a stunning not the Supreme Court can't agree what day of the week it is nine, but they could agree that the Federal Trade Commission did not have a statutory basis to assess monetary fines in the first instance, all they were statutorily authorized to do was get injunctive relief, an injunction, and if the bad actor violated the injunction, then you could assess fines. So in other words, all you can get right out of the box is a free bite of the apple and a slap on the wrist, firm slap on the wrist. That's it, yeah. So the supreme said you you cannot find anyone unless it's in violation of an actual trade regulation rule. Well, the cars rule is that trade regulation rule. They took every bad act that they've been finding people for for the last 50 years, and they formally defined it as being a deceptive trade practice. And once that rule was issued, they would have the ability to assess monetary fines. That's how this all began.

Paul J Daly  8:58  
So is it? Is it just about putting the existing regulations into a final position for the FTC, or is there more to it than that?

Jim Ganther  9:09  
If only because, if all the FTC wanted to do was actually formally establish their authority to assess fines, which they've been doing for the last 50 years. Everybody kind of assumed they had the authority, other than me, but I had to wait a long time to be proven right that would have that would have been really no big deal. But they didn't stop there. They got greedy. They They established the right to assess fines currently $51,744 per violation, and that goes up every January, adjusted for inflation. But they went farther than that. They wanted to formally restructure how cars are sold in the United States, how. How ads are produced, how the entire thing is documented, and it just became very, very convoluted and very difficult to even understand what it was they wanted our industry to do. Because, you know, I don't write federal regulations, and they don't sell cars, and it kind of shows that they're trying to regulate something they do not fully understand. And one last thing I would say about the rule is that it was, to me, unfairly narrow what had what went out as the, you know, retail automotive trade regulation rule was published as cars combating automotive retail scams, which insinuates that all car dealers are scam artists, which is not fair and not true, but it specifically excludes RV dealers, power sport dealers, marine dealers. So by implication, payment packing apparently is okay at an RV store. That's interesting. Sure. Why are you saying these are bad things, but only in the automotive context? So, yeah, there's been a lot of lot of ire raised by this process. Well, we'll

Kyle Mountsier  11:13  
get to a few of the like specific details that maybe dealers should be paying most attention to. But I want to address before we do that, just why maybe we were getting kind of the hot and heavy, like everything's coming at us. It's going to change. Everybody's trying to change everything, and then we've kind of had this release valve for just a few months now. What's the reason for the release valve and what's the turn happening as we head into the fall.

Jim Ganther  11:42  
Great question in the first week of January, when the rule was published, it was the sky is falling. Everybody get into full panic mode. We only have seven months to come into compliance with a very complicated rule. But the next day, nada national Automobile Dealers Association filed a review of that rule with in conjunction with ta da Texas auto dealers association that helped them established jurisdiction in the Fifth Circuit, which includes Texas much better place to be than in the Eastern District of Virginia or the DC Circuit. So the lawsuit was filed first part of January, and on the 18th of January, when I was with you guys at policy day, the Washington auto deal Auto Show, that's where we found out that the FTC, on its own hook, stayed enforcement of the rule, which was odd, because they originally opposed staying enforcement of the rule, so they contradicted themselves on the day that they were required to file their response brief to nada lawsuit, leading us to believe they sensed that there was some weakness in their legal position, and if nada had won at the preliminary injunction level, that would have required a finding that they were substantially likely to prevail on the merits, and that was a risk that the FTC simply couldn't take. Wow, so enforcement is postponed until the Fifth Circuit disposes of the case. Briefing happened until mid June. In fact, my company did participate in the lawsuit as Amicus here. Here's our brief. We weighed in on the topic of whether or not the rule would cost dealers $0 to comply with. Remember, I had a compliance company. This is something I know intimately well, but the court does not, and so we volunteered to actually write the brief. I mean, we had Wiley Ryan, the law firm in DC, do all the legal work, but we did have to do the writing for the factual basis, which I enjoy doing. I haven't done that in a few years, decades. So we filed a brief explaining that this is going to be expensive, and it will be. Let me pause for a moment. I would like to shout out those who joined us on the brief and help pay for it, and more significantly, put their names and their reputations on the line. It's a big deal every everybody seemed afraid that there would be a whack a mole if you went on record opposing the FTC, that they might turn their guns on you. These companies had the courage to say, Who cares? APCO holdings, ascent, dealer services, auto advisory services, automotive compliance, education, bright line, dealer, advisors, IA, American warranty group and portfolio holdings, I very much appreciate their financial

Kyle Mountsier  14:51  
and morals. People. They're great. Yeah, that applause button for that crew, let's go

Jim Ganther  14:56  
hit the applause button. Briefing concluded. The middle of June. Since then, we got a panel established. They scheduled oral argument for the week of the seventh of October. That's coming up. I hope to be there, and then we can probably expect a decision from the Federal Trade Commission. I'm guessing by Thanksgiving. That would be relatively brisk, but I think it's possible. My My bet is we'll hear about it by the end of the year, and I'm hoping before December.

Kyle Mountsier  15:26  
Wow, so what? So what? What like, what comes of that briefing? Like, what? What's the kind of expectation from all of the people that are a part of, that are part of the arguments, and then how should dealers if, if we know kind of like the basis or what things are headed toward based on the conversation, you know, how can dealers continue to prepare and what should they expect over the next six to seven months? As far as communication,

Jim Ganther  15:56  
we're reading tea leaves here. It what you're about to hear from my mouth, is my best speculation. It is only a guess, but we've worked real hard over the last seven months to make it an informed guess. There are really only two possibilities at the Fifth Circuit, the FTC wins, or the FTC loses. Let's consider what happens if the FTC wins. Nada made some excellent arguments that the FTC did not follow its own process in establishing the rule, and therefore it should be thrown out. But let's just say the FTC overcomes that they will establish a compliance date, which I would expect will be six or seven months out, because that's how much time they gave us at the beginning of the year. So it's reasonable to believe they'll give us that much time and again compliance, which brings us almost to a year from right now, but it's going to be enforced as it is currently written. I will say that's probably not enough time for your DMSS to reprogram your DMSS of the Reynolds and the CDKs of the world to reprogram the DMSS to adjust what they have to calculate and display and all of the documents that might have to reflect an expanded definition of offering price, those all have to be rewritten. And it's a massive job that I don't know is physically possible. In six months, your product providers will probably have to edit all of their gap forms, service contract forms, etc, to give themselves a little bit more protection. And nobody's talked about this yet, but I'm predicting that if the FTC wins all of your lender agreements with all of your finance sources, your captives, you know capital there the bar for suing the lenders just dropped precipitously, and the risk the amount of money for which they can be sued is going through the ceiling. So I suspect all of your lenders are going to get an amendment saying, if you screw up, Mr. Dealer, it's on. You get sued under the holder and due course rule, we want indemnification, and that is a very, very big deal. What? So? What if the FTC loses? If the FTC loses, really, all we've done is we've bought some time, because they still have the ability to go back correct neutral defects, and for all I know, they're doing that as we speak. Nada said you didn't have a proper economic analysis. You can believe

Paul J Daly  18:43  
they're doing a proper economic analysis. And,

Jim Ganther  18:47  
you know, December 1 funny thing, guess what just showed up. You know, we've got our economic analysis. Merry Christmas. I but buying time is itself extraordinarily valuable, because there is the possibility of a change of administration. I was just

Paul J Daly  19:03  
going to ask that question, how does that potentially affect all of this? If

Jim Ganther  19:07  
Harris waltz win, nothing changes, we're not going to see there's not going to be a change in majority on the Federal Trade Commission. We have no reason to believe we're going to get any relief whatsoever. But by the you know, the same token, if Trump Vance get elected, that's not a guarantee that the cars rule is going to go away. Does the does Trump want to spend political capital appearing to work against the interest of the American consumer? I don't think so. I think the best thing we could expect with a change of administration is significant, but it may not necessarily mean we're going to get rid of the cars rule, the things that the cars rule was supposed to fix. I think those parts are going to survive, and it's only. A matter of time before they become the law. And what that means is, what should a dealer do? Yeah?

Paul J Daly  20:07  
Now, like, what? Yeah. Because what do we do? Laid out a bunch of things that could may potentially happen,

Kyle Mountsier  20:12  
and that's only on the finance side. You haven't even like all of the ads and and ad copy, sales and marketing and all of that type of stuff that is bundled into this as well. Right, correct.

Jim Ganther  20:24  
I've, let's you brought up ads, excellent topic, because, again, the Federal Trade Commission has never sold a car and never had to build an ad, to be fair, neither have I, but I talked to people who do that, and I've been told by people who do ads for car dealers that it's literally, physically impossible to meet all of these new requirements. You're not allowed to have fine print, which is fine. You're not allowed to have click throughs to get additional information or a more thorough explanation, so everything has to be crammed into a very short ad, or visually on a website, into a screen that literally cannot accommodate all of that information right where the FTC wants to present it. That is one thing I want to see excised from this rule. It's just silly keeping there's no

Kyle Mountsier  21:20  
other industry that has to do that either. That's what's so weird to me, especially on like the ads matrix, right? RVs

Jim Ganther  21:26  
don't RVs don't

Paul J Daly  21:28  
even like products, right? Yeah, it's

Jim Ganther  21:31  
just car dealers and it just, it's going to make the advertising very, very difficult. It'll be much more sensible to enforce the rules on offering price. You know, if this is the pressure advertising, That better be the actual price, only excluding taxes and actual governmental fees. That would be a useful and fairly easy to follow, rule another being this whole thing about Express informed consent. Yes, wow, define sort of clinically. And then here's examples of what. It isn't single signature. Well, you can buy a house with a single, single signature, sure can. But if it's not, if a signal, signal signature is not enough, what is enough? And I have been asking the federal trade commission since I spoke with one of the representatives at NI ADA in Las Vegas in June. She spoke, I had a question when it was all over. We met with some other people off stage, and she promised me, I will get you a meeting with the Federal Trade Commission, with the people who can answer your questions. I was ecstatic. I thought that was great, until I emailed, hey, remember that meeting? And they kind of forgot about the offer of a meeting very, very quickly. But I did get a promise that we will put someone in touch with you who will tell you where in the haystack you can find the appropriate needles. Okay, I'll take what I can get. Then I went on vacation. I got back yesterday, and in my inbox was an email from a person at the Federal Trade Commission in the center, more toward the center. I don't have her I don't have her permission to use her name, so that's why I redacted it. And she told me, with respect to the questions I had submitted, please look in the following paragraphs. And sometimes the following area was six single spaced pages. But

Paul J Daly  23:49  
hey, somewhere between page two and page 200 Yeah,

Jim Ganther  23:54  
between page 50 and 56 it's in the space. And I've spent the last 24 hours, you know, with my magnifying glass, looking at it. And what I will say is, things are, for me, at least, beginning to come a little bit more into focus. What I was very worried about, because we didn't have a good answer, was what constitutes Express informed consent, and what I was directed to indicated that what they're really concerned about is not a documentation issue, more signatures, more initials, slower transaction times, lower CSI. What they're really driving at is Don't pack payments, because that's the definition of lack of Express informed consent. That'd

Paul J Daly  24:37  
be like that would be like the cursory over largest filter, don't pack payments. If you don't pack payments, does that solve most of it? Well,

Jim Ganther  24:45  
you're getting rid of the bad act that this is supposed to prevent. I would say it's all of it, because you still want to document that you didn't pack payments. But certain things are going to be absolutely bright line. You may not ever. Give a quote that includes a product or a service that the customer did not ask for, or a sent to in response to an affirmative offer, which means, if you're a dealer who quotes every first pencil, including a service contract and gap before you even know if it's a cash deal or not. I mean, come on, completely illegal, deceptive trade practice. 5001 5150 $1,744 fine. And it could be actually worse than that, because if that's your procedure for quoting payments, you do it for everybody. So it's going to be a class action. It can be a bad practice. So this, this is going to be devastating. So don't include anything in your first pencil, other than the car. I would say that addendum stickers are going to become problematic. I think they can still be done legally. I think they can still be done ethically, and I think they can be done in a way that really solves for why buy here. Build value. Absolutely. Don't play games. Build value. However, everything that's on your addendum sticker must be included in your advertised price, your offering price, therefore the addendum stickers can't say additional money. They can only say included or included in offering price, and that can be a powerful sales technique, but you cannot add to your advertised offered price using an addendum sticker. Dealer fee, Doc fee, whatever you want to call it, dead, dead, dead, dead, dead. I don't see that surviving no matter which state you're in, no matter which state you're in, no matter the FTC wins or nada wins. I believe that at some point dealer fee, Doc fee, is, is just going to have to go, you will. That's the way the rule is currently written, and that's a part of it, I think will survive ultimately

Kyle Mountsier  27:09  
it's written that has to go or has to be disclosed. But, well,

Jim Ganther  27:13  
the point is, you can't disclose it for the first time on a buyer's buyer's order. You can't include it on a as an additional line item on an installment sale contract. That's clear. Meaning, if you charge $1,200 for a dealer fee, Doc fee, whatever you call it, it has to be in the offered price. And then if you list it, you have to also zero it out, because it's already included in the offered price, it cannot be in addition. And if you're going to zero it out, what's the point of having it on there. So, dealer, feed, dock fee, I think that is going to go so if the question was which,

Kyle Mountsier  27:48  
it would basically get the same treatment that our current addendum gets is like it has to be added at the time of offer. It's essentially, you know, yeah, on on every website, on every on every sheet, on every paper, included in the offering price.

Jim Ganther  28:07  
It has to be included in the offering price. You can't have it, even if it's in bold face type at the bottom of the screen saying, plus $1,200 that won't cut it,

Kyle Mountsier  28:18  
which is all that's all handled at the state legislative and regulatory level at this point, but this would move it to the federal level. Essentially

Jim Ganther  28:25  
it would, it would make it uniform from sea to shining sea. Wow.

Paul J Daly  28:28  
We have a question here. Could this lead to more dealers going one price as part of a way to address this?

Jim Ganther  28:36  
Yes. I mean, what really is going to happen here is dealers have to consider their process. How do they document things, and how do they solve for x, x being y? By here, the easiest way to do it, right now, the lazy way is advertise an unrealistically, deceptively low price that will that's going to go away. You're not going to be able to attract people with bait and switch pricing. That can't happen. So one price is one way of doing it, your advertised price, your offering price, it could be depending on what market conditions are. Everybody in a given market just advertises MSRP. Because the reason people aren't doing it, by the way, you're supposed to be advertising actual price right now, but it's it's a toothless tiger. But the reason why even ethical dealers don't advertise and include their dock fee, I've been told, Jim, nobody else does that. If I am the only guy following the current rules. I am the only guy who will not get customers. That's kind of logical. But at $51,744 per deceptively advertised price with everybody and with how the tiger has teeth

Kyle Mountsier  29:58  
and every lawyer. And every FTC agent kind of just, they're just ready, they're just ready to pounce. It's, it's like a hunting license at this point,

Jim Ganther  30:08  
yeah, oh boy. It's the plaintiff's lawyers Full Employment Act of 2024, so ultimately, that's going to happen. So dealers, don't just worry about your process. You should. But the other half of it is, how do you build value? Why should someone buy here? Don't just invest in compliance. Invest in training. Train your sales people. Incentivize them through their pay. Plan to do it ethically, honestly and transparently and teach them how to build value. Sales is a skill. In the last several years during covid, when inventories were depressed and margins were through the roof, people gave up on selling. They became order takers. Sales is a skill. Invest in it. I know the rules of basketball. I did not make the Olympic team. People, the people who did know the rules of basketball, and they practiced their entire lives. You know, sales people of dealer personnel took their professions as seriously as our Olympic athletes take theirs. We wouldn't be worrying about this. We'd be out crushing it. So invest in sales training.

Paul J Daly  31:26  
I can't think of a better way to land this little jaunt we have absolutely around the FTC regulation, dealer operations, serving the consumer, training your staff and being passionate and committed to what it is that we do every day. How

Jim Ganther  31:40  
about we love people more than cars? Hey, put

Paul J Daly  31:44  
that on a t shirt. Somebody put that on a t shirt somewhere.

Unknown Speaker  31:48  
I just

Jim Ganther  31:49  
say, I just say, 480 pages of paper. That's the new cars rule. Love people more than cars. Yes.

Paul J Daly  31:56  
Jim danther mosaic, thank you so much for spending some time investing your wisdom and expertise with the industry. This isn't going to be the last we hear about this from you looking forward to the next time already. Thank you for joining us. Thank

Jim Ganther  32:10  
you for having me. I hope you found this webinar informative. If you'd like to discuss the cars rule further, or if you have any other compliance related questions, mosaic is here to help. You can reach me at the email address or number below. Thanks for watching.

Ann-Marie Johnson  32:35  
Hey everyone. Thank you so much for joining us today. Very, very informative stuff. And like we said, it won't be the last that we hear from Jim. You know how to get in touch with him if you want any more questions answered or you need any help at all. In the meantime, we'll be back in a couple weeks for another asotu Wedge webinar. Thanks so much. Have a good day. You.

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