A federal court ruled against a federal agency’s rules to ban bait-and-switch tactics and prohibit auto dealers charging for add-on costs that do not benefit new car buyers.
The 5th Circuit Court of Appeals, in a 2-1 decision, sided with National Automobile Dealers Association (NADA) and the Texas Automobile Dealers Association that the Combating Auto Retail Scams (CARS) Rules handed down by the Federal Trade Commission (FTC) had violated procedural rules in writing the regulation without giving advance notice.
The CARS Rules would have require up-front pricing in dealers’ advertising and sales discussions as well as baring the sale of add-on products or services that confer no benefit to consumers. The new rules, passed on Dec. 12, 2023, were slated to go into effect July 30, 2024. But the Biden Administration delayed enforcement delay pending a ruling from the court.
Dealers Lawsuit
As written, the rule required up-front pricing in dealers’ advertising and sales discussions and informed consent from consumers before charging for any item. The FTC had said the new rules would bar junk fees like a service contract for an oil change for an electric vehicle or a duplicative warranty and estimated it would save consumers more than $3.4 billion and 72 million hours annually shopping for vehicles.
NADA’s suit argued the CARS Rule would unnecessarily lengthen and complicate the vehicle sales process, and contains “extreme, duplicative penalties for infractions that are already illegal at the federal and state levels.”
NADA, dealer associations and local dealerships filed thousands of comments urging the FTC to re-work its regulation, and specifically urged the FTC to slow down and test its proposal with consumers to determine how it would work in practice.
NADA Comments
In a statement released after the ruling, NADA President Mike Stanton called the decision “a victory for the rule of law and a great outcome for consumers.”
“As we have been saying since this rushed, poorly researched, and unnecessary rule was announced, the FTC’s Vehicle Shopping Rule (“CARS” Rule) would have added massive amounts of time, complexity, paperwork and cost to the car-buying and car-shopping experience for virtually every customer,” said Stanton.” That truly would have been a nightmare for consumers and dealers alike.
“Thanks to the success of this legal challenge, dealers can get back to what they do best, which is creating the best-possible customer experience and reducing transaction times wherever possible.”
Judicial Dissent
Judge Stephen Higginson dissented from the ruling, saying Congress in 2010 did gave the FTC authority to issue regulations that would require “price transparency and rules against deception, which would spur billions of dollars in economic benefit for U.S. consumers.”
“Congress authorized the FTC to regulate unfair and deceptive motor vehicle dealer practices, which inflict immense, proven harm on U.S. consumers,” Higginson wrote. “After a decade of roundtables, comments, and over 100,000 consumer complaints, many leading to federal and state law enforcement actions against unfair and deceptive motor vehicle dealer practices.”
The future of the CARS Rule looks dim. President Donald Trump has looked to roll back numerous regulations in his first days in office, included those in the auto industry and would be surprising if his administration would look to attempt to revive the FTC’s action. And with Congress being held by Republicans, it probably does not have the votes to pass either house.