FTC paternalistic rule would stifle consumer choice in auto market

As if American drivers don’t face enough headwinds with high gasoline prices, supply chain constraints and state rules that may force them to ditch their gasoline-powered cars altogether, the Federal Trade Commission (FTC) now you’re throwing a proverbial wrench into the car-buying process.

In its press release announcing its proposed “Motor Vehicle Trade Regulation Rule,” the FTC asserts that the proposed rule would “protect consumers’ pocketbooks” by “making the car-buying process clearer and more competitive”. In reality, the rule would not only hit consumers’ pocketbooks through costly enforcement measures passed on to them, but would paternalistically “protect” them from making their own decisions to purchase automotive features that the FTC deems not beneficial to them. These are some of the points CEI will make in our upcoming comments on the rule to the FTC.

The rule goes beyond the fight against fraud and paternalistically restricts the options of consumers

The first sign that the rule exceeds traditional FTC practice and Congressional mandates to improve disclosure and combat fraud comes from its use of the term “junk fees.” The phrases “garbage charges” and “garbage charges” appear eight times in the FTC’s one-page press release about the rule. The term “junk rates” has also recently been used in rulemaking and communications by the Consumer Financial Protection Bureau, which is now headed by Rohit Chopra, a former FTC commissioner.

My recent criticisms of the CFPB’s crusade against “junk fees” also apply to this FTC effort. As I write in the comments to the CFPB (and a related blog post), “‘junk fees’ is a subjective and paternalistic term” used to describe services and products that an agency’s leaders simply don’t like, rather than of deceptive practices. has authority to watch.

The FTC makes it clear in its rule that it is limiting consumer choice when it requires auto dealers not only to refrain from engaging in deceptive practices, which are already prohibited under federal law and which the FTC already monitors through enforcement actions, but to stop selling consumer products. that the FTC considers to have “no benefit.” On the first page of the rule text, the FTC states that the rule would “prohibit the sale” to car dealers “of any additional product or service that does not confer any benefit on the consumer.” Further, in Section 463.5 of the rule, the FTC dictates that “a dealer may not charge for an additional product or service if the consumer would not benefit.”

However, the FTC does not say how it will determine whether a consumer will “benefit” from an additional product or service. And based on the slurs cast in the rule and the press release about two popular consumer choices for car purchases, it doesn’t seem likely that the current leadership of the FTC will give much weight to American consumers’ views on what really benefits them.

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FTC Restricts Nitrogen-Filled Tires Despite Documented Performance Improvements

In the rule and its accompanying press release, nitrogen-filled tires appear to be a particular black beast of the FTC. The press release points to the dealer’s charges for certain types of these tires as “fraudulent junk fares.” The rule also prohibits the sale of certain types of these tires. (It’s unclear exactly what types they’re targeting, as explained below.)

In fact, there is debate among automotive experts as to exactly how beneficial nitrogen-filled tires are to ordinary drivers, but virtually no informed observers hold that they have zero benefit. For decades, race car drivers and owners of high-performance vehicles have filled their tires with pure nitrogen, rather than ambient air, which is a mixture of about 78 percent nitrogen, 21 percent oxygen, and 1 percent oxygen. percent of other gases and water vapour. Drivers of these vehicles have found that purging oxygen and water vapor in favor of a pure concentration of nitrogen results in better tire performance and strength.

In recent years, both auto dealers and service shops, including Costco’s auto departments, have begun offering this service to ordinary car owners. While the average driver may not face the high speeds and stressful scenarios of a NASCAR or Formula 1 competitor, many experts believe they could still benefit significantly from nitrogen-filled tires.

an article in Popular Mechanics states that “there are several compelling reasons to use pure nitrogen in tires,” including tire pressure that “remains more constant, saving you a small amount of fuel and tire maintenance costs” and less corrosion that is often caused by by oxygen and water. vapor in ordinary air.

The Carolinas chapter of the AAA automobile club, AAA Carolinas, gave the practice similar praise in an article in its members’ magazine, citing a Clemson University study that found tires filled with pure nitrogen held pressure. of tires 74 percent better than inflated tires. with normal air. The article argued that the tire conservation enabled by pure nitrogen also translates into environmental benefits, such as better fuel economy and less tire waste.

In his review of nitrogen-filled tires, consumer reports differed with Popular Mechanics and AAA Carolinas on whether nitrogen-filled tires were a good deal for consumers, concluding that “consumers would be better served, and save money, by simply airing their tires and checking them monthly.” However, the review recognized that the use of pure nitrogen in tires reduced oxygen damage to tires and had other benefits. The review concluded that “there is nothing wrong with using nitrogen in passenger cars and trucks,” as long as consumers are aware of the costs involved.

Given the documented benefits of nitrogen-filled tires, recognized even by their critics, it seems very strange that they would become the FTC’s representative for the allegedly shady practices of car dealers. Even more bizarre is the proposed rule’s ambiguously worded restriction on merchants who sell them to consumers.

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The rule would prohibit dealers from charging consumers for “nitrogen-filled tire-related products or services that do not contain more nitrogen than exists naturally in the air.” The wording, whether careless or deliberately restrictive, appears to create a standard that may be impossible to meet. “Air,” as defined by the Merriam-Webster dictionary, is “the mixture of invisible, odorless, and tasteless gases (such as nitrogen and oxygen) that surround the earth.” Thus, no individual set of tires could have a total amount of nitrogen greater than that of the “air” that is spread over the entire planet.

Perhaps the FTC did not intend to write such a broad ban and simply intended to pursue deceptive practices such as filling tires with normal air when the consumer had requested nitrogen. However, the FTC already has the authority to prosecute outright deception, and the rule never alleges widespread deception or fraud in the sale of nitrogen-inflated tires. Whatever the reason, the ban, as written, would prevent consumers from choosing a product that many automotive experts recommend as a tool for managing costs and general safety concerns related to a car.

FTC Rule Severely Restricts Major GAP Risk Management Product

Another product for which the FTC seeks to replace its judgment with that of the consumer, rather than improve transparency and disclosure to help consumers, is the area of ​​secured asset protection (GAP) policies. GAP products cover the difference, or “gap,” between the amount a consumer owes for vehicle financing and the amount received from the primary auto insurer in a total loss event such as an accident, theft or natural disaster.

These policies can help ensure consumers don’t get stuck with potentially thousands of dollars left on a car loan after they no longer own the vehicle, and can help them get a new vehicle. A 2020 survey by the University of Michigan Survey Research Center, cited in a study by prominent economists Thomas Durkin, Gregory Elliehausen, and Tom Miller, found that 88 percent of consumers who purchased GAP policies were satisfied and would buy them again in future vehicles. . Only 1 percent of GAP policy buyers were dissatisfied with the product.

However, the rule would block this type of coverage even if the consumer wants it for their well-being. The rule prohibits dealers from selling consumers a GAP policy if “the loan-to-value ratio would result in the consumer not benefiting financially from the product or service.” As with nitrogen-filled tires and other products and services the rule may target, the FTC does not specify how it will determine whether a consumer “will not benefit.”

The general vagueness and paternalistic approach of this rule could create a climate of uncertainty for the car market and car financing. The FTC should eliminate this potential danger to American drivers and focus on its core mission of prosecuting fraud and deception in consumer markets.

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