In a significant legal development for auto dealers, a federal court has vacated the Federal Trade Commission’s (FTC) Combating Auto Retail Scams (CARS) Rule. The ruling, issued on February 3, 2025, brings major relief to dealerships that were preparing for the stringent compliance requirements set to take effect in July 2024. However, the debate over junk fees continues, now shifting focus to the FTC’s Safeguards Rule and its implications for dealership operations.
Junk Fees and the FTC’s Safeguards Rule
The Safeguards Rule, primarily concerned with protecting consumers’ financial information, imposes strict requirements on businesses handling sensitive customer data. While it does not explicitly classify surcharges on card transactions as junk fees, it does set important disclosure and transparency expectations that impact dealership pricing practices.
Surcharges themselves are not inherently deemed deceptive under the Safeguards Rule. However, improper application or hidden fees that are not adequately disclosed could still be scrutinized under broader consumer protection laws. The FTC requires businesses to clearly communicate any additional charges to customers before a transaction is completed, ensuring transparency in pricing structures.
Regulatory Considerations for Surcharges
The following regulatory aspects impact whether a surcharge might be considered a junk fee:
- Disclosure Requirements – Dealerships must transparently disclose any surcharges before a transaction is finalized. This includes explaining the purpose of the fee, such as covering credit card processing costs, to prevent customer confusion or potential claims of deceptive practices.
- State-Level Regulations – Many states have their own laws regarding surcharges. Some states, including California, New York, and Texas, impose bans or restrictions on credit card surcharges, while others allow them under specific conditions. Dealers must ensure compliance with all applicable state laws to avoid legal complications.
- Card Network Guidelines – Payment networks such as Visa and MasterCard have established rules for surcharges, including limits on the percentage that can be charged. Noncompliance with these guidelines could lead to penalties or restrictions from card providers.
What This Means for Dealerships
With the repeal of the CARS Rule, dealerships must now focus on compliance under the Safeguards Rule and other consumer protection regulations. Here’s how they can navigate these evolving requirements:
- Ensure Clear Fee Disclosures – Even though the CARS Rule is no longer in effect, dealerships must still be transparent about pricing structures. Clearly disclosing any surcharges helps avoid legal risks and maintains customer trust.
- Adopt Fair Pricing Practices – Excessive or hidden fees can lead to negative consumer sentiment and increased regulatory scrutiny. Dealers should implement fair pricing strategies that balance operational costs while maintaining compliance.
- Monitor FTC and State Regulations – The FTC may introduce new regulations targeting junk fees, and state-level rules continue to evolve. Dealers should stay informed on compliance requirements to avoid potential fines or enforcement actions.
- Work with Compliance Experts – Given the complexity of federal and state regulations, dealerships should consider consulting legal and compliance professionals to ensure their surcharge policies align with all applicable laws and payment network guidelines.
Conclusion
While the federal court’s ruling on the CARS Rule provides relief for dealerships, it does not eliminate regulatory concerns related to junk fees. Under the FTC’s Safeguards Rule, surcharges remain a potential area of scrutiny, particularly if they are hidden or misrepresented. To stay ahead of compliance risks, dealerships must focus on clear disclosures, fair pricing, and adherence to state and federal regulations. By maintaining transparency and consumer trust, dealers can navigate the shifting regulatory landscape with confidence.