The Federal Trade Commission (FTC) Act makes unfair and deceptive acts and practices (UDAP) unlawful and empowers and directs the FTC to prevent such acts and practices through rule-making and enforcement. The Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") provided clear FTC jurisdiction over most auto dealers, particularly when entering into finance transactions with consumers, while freeing the FTC from the cumbersome procedural requirements that otherwise apply to FTC UDAP rule-makings. In easing these requirements, Congress signaled its intent that the FTC use their rule-making authority to prevent UDAPs by auto dealers.
The Center for Responsible Lending believes that the ability of automobile dealers to add to a consumer's interest rate for compensation when financing a vehicle for a consumer can and should be considered unfair and deceptive. The effects of competition in the market should benefit the consumer, and should be based on true competitive forces instead of perverse incentives. The only effective way to ensure effective competition is to prohibit dealer compensation that varies based on the interest rate or other material terms of the loan other than the principal balance of the loan.