Automotive dealers have a supply and demand issue: they cannot secure enough supply to meet the customer demand. In the wake of supply chain issues, and in the face of these market realities, many dealerships resort to including "market adjustment fees" on top of the final bill charged to the end customer. This market adjustment fee could be added even after the parties have negotiated the price. This sticker shock to the consumer can cause surprise and dismay.

Market adjustment fees may be hundreds or even thousands of dollars over the manufacturer's suggested retail price. These fees are becoming more commonplace in the market of low inventory and inflated prices. However, many consumers wonder if dealerships can include market adjustment fees even after an agreement is reached between the customer and the dealership. The answer will likely depend on if the agreement is a binding contract.

Binding Contract or Negotiated Price?

A binding contract includes all the terms and conditions in which the dealer and the consumer agree to, including any additional fees. In order for a purchase agreement to be binding, each purchase agreement must contain the following statement next to the purchaser's signature:

Sales Final

Please review the entire contract, including all attached statements, before signing. This contract is final and binding once you have signed it unless the motor vehicle dealer has failed to comply with certain legal obligations.1

If an agreement reached between the dealership and the customer is not a binding contract, a dealership could add market adjustment fees in the final contract.

Background: The Law and Ethics

The legal framework is articulated by statute and regulations. The Ontario Motor Vehicle Industry Council ("OMVIC") administers the Motor Vehicle Dealers Act, 2002, SO 2002, c 30, Sched B (the "Act") which sets out the requirements that must be fulfilled by those engaging in the business of buying and selling vehicles. The OMVIC provides that under the Act, if a motor vehicle dealer advertises a price for a new or used vehicle, the price must include all fees and charges the dealer intends to collect with the exception of HST and licensing.2 Examples of fees that must be included in an advertised price include government levies, pre-delivery inspection or expense fees, administration fees, and OMVIC fees.3 However, adding additional fees to vehicles that catches a customer's eye at a dealership is permitted — provided that the fees are clearly indicated in the contract.

The legal framework is complemented by a code of ethics for the industry. The OMVIC may not have the authority to stop the practice of adding market adjustment fees, but they may have the prerogative to remind dealerships to abide by the Act's code of ethics. Section six (6) of the Act enshrines a code of ethics which requires dealerships to act with integrity, respect, and honesty.4 This is a requirement to maintain registration.

OMVIC encourages their dealers and salespeople to meet the high standards enshrined in the legislation. However, none of the OMVIC bulletins issued since the pandemic specifically discourage dealerships from adding market adjustment fees or other unexpected charges in final contracts.5 In particular, OMVIC did not provide any refutation that adding market adjustment fees are unethical, or that dealerships should not change interest rates or prices after prior negotiations.

Little Recourse without a Binding Contract (For Now)

Currently, consumers in Ontario have little recourse when a negotiated price is not a binding agreement. Consumers should ensure that all promises, terms, and conditions and a statement providing that the contract is final and binding once signed unless the dealer fails to comply with certain legal obligations are written on the contract.

South of the border, the Federal Trade Commission in the United States is proposing new rules which aim to prohibit market adjustment fees and bait-and-switch advertising tactics in an effort to eliminate unwanted charges.6 If similar rules were adopted in Ontario, it would help protect consumers by making the car-buying process more clear and competitive. It would further allow OMVIC to recover money when consumers are misled or charged without their consent. Until such rules are implemented, customers will need to take the extra step to ensure their price negotiations are binding.

Footnotes

1. https://www.omvic.on.ca/portal/Consumers/ConsumerProtection/CancellinganAgreement.aspx

2. https://www.omvic.on.ca/portal/Consumers/ConsumerProtection/AllInPricing.aspx

3. Ibid.

4. SO 2002, c. 30 Sched B, s. 6.

5. https://www.cbc.ca/news/business/market-adjustment-fee-car-sales-1.6653676

6. https://www.ftc.gov/news-events/news/press-releases/2022/06/ftc-proposes-rule-ban-junk-fees-bait-switch-tactics-plaguing-car-buyers

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.