The decision halts implementation of new rules aimed at protecting car buyers
A key consumer protection measure, the Federal Trade Commission's CARS Rule, has been thrown out by a federal appeals court.
In brief ...
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Fifth Circuit Ruling: The U.S. Court of Appeals for the Fifth Circuit vacated the FTC's Rule on Combating Auto Retail Scams (CARS Rule), halting its implementation.
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FTC's CARS Rule: The CARS Rule was designed to tackle deceptive practices in auto sales, focusing on issues like bait-and-switch tactics, hidden fees, and unclear pricing. It required dealers to provide total vehicle costs upfront and get consumer consent for add-ons.
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Violation of Procedure: The National Automobile Dealers Association (NADA) and Texas Automobile Dealers Association (TADA) challenged the rule, arguing that the FTC failed to follow required procedural steps, particularly the need for an Advance Notice of Proposed Rulemaking (ANPRM) under Section 18(b) of the FTC Act.
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Court's Decision: The Fifth Circuit ruled 2-1 that the FTC violated its own regulations by not issuing the ANPRM.
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Impact on Auto Dealers: With the CARS Rule nullified, auto dealers are spared from new compliance burdens. However, they are still at risk of scrutiny from the FTC for deceptive practices.
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Next Steps for the FTC: The future of the CARS Rule remains uncertain, and the FTC may revisit the rulemaking process under its new chair, Andrew Ferguson.
About CARS
The CARS Rule, which was finalized in January 2024, was designed to combat deceptive practices in auto sales, such as bait-and-switch tactics and hidden fees. It sought to address issues across 16 categories related to vehicle transactions, including misrepresentations about financing terms, vehicle availability, and the cost of add-ons.
One of the core components of the rule required auto dealers to provide the total cost of a vehicle upfront, clarify that add-ons are optional, and obtain consumer consent for any additional fees or charges.
The rule was initially set to take effect on July 30, 2024, but the FTC postponed its enforcement to September 30, 2025. Shortly after the final rule was published, the National Automobile Dealers Association (NADA) and Texas Automobile Dealers Association (TADA) petitioned the Fifth Circuit to block its implementation, arguing that the FTC failed to follow the procedural requirements set out by the FTC Act. Specifically, the petitioners claimed that the FTC had not issued an Advance Notice of Proposed Rulemaking (ANPRM), which is required when establishing regulations that label certain acts or practices as unfair or deceptive.
What CARS tried to do
When Americans set out to buy a car, theyre routinely hit with unexpected and unnecessary fees that dealers extract just because they can, said FTC Chair Lina M. Khanwhen the rule was enacted in 2023. The CARS Rule will prohibit exploitative junk fees in the car-buying process, saving people time and money and protecting honest dealers.
As examples of junk fees, the FTC citedwarranty programs that duplicate a manufacturers warranty, service contracts for oil changes on an electric vehicle, GAP agreements that do not actually cover the car or neighborhood in which it is housed, and software or audio subscription services on a vehicle that cannot support the software or subscription.
As for the bait and switch provision, the rule prohibits dealers from using pitches to lure car buyers to the lot, advertising a low price that doesnt exist on any of the dealers available vehicles.
What the court found
On January 27, 2025, the Fifth Circuit ruled 2-1 in favor of the petitioners, finding that the FTC violated its own regulations. The court emphasized the importance of procedural compliance in administrative rulemaking and concluded that the FTCs failure to issue the required ANPRM was a significant error.
Judge Stephen Higginson dissented, arguing that the petitioners were not harmed by the lack of an ANPRM, pointing to the FTC's extensive public outreach efforts during the rulemaking process. Despite the ruling, the future of the CARS Rule remains uncertain. The FTC may revisit the rulemaking process under its new chair, Andrew Ferguson, although it has not yet commented on its next steps.
Photo Credit: Consumer Affairs News Department Images
Posted: 2025-02-05 19:23:34
