Last month, the Federal Trade Commission (FTC) filed its 97 page brief in opposition to the legal challenge to the Combating Auto Retail Scams Rule (CARS Rule) filed by National Automobile Dealers Association (NADA) and Texas Automobile Dealers Association.
The CARS Rule, passed on Dec. 12, 2023, will 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.
NADA filed its petition challenging the CARS Rule on January 5, 2024 and the effective date of the rule, originally set for July 30, 2024, is currently stayed pending a determination of the petition by the U.S. Court of Appeals for the Fifth Circuit.
FTC Filing
In its court filing, the FTC addressed the main arguments of the complainants that the federal agency unlawfully issued the CARS Rule without the required advance notice of proposed rulemaking (ANPR); failed to articulate a rational connection between its factual findings and its decision to impose a far-reaching, industry-wide rule; and unreasonably and arbitrarily evaluated the benefits and costs of the CARS Rule.
In regards to NADA’s argument that the FTC improperly bypassed the ANPR requirement, the federal government asserted that no such requirement exists for the CARS Rule.
While conceding it would generally issue an ANPR when issuing rules related to unfair or deceptive acts or practices, Congress authorized it to issue rules prohibiting unfair or deceptive acts or practices by motor vehicle dealers using regular Administrative Procedure Act (APA) procedures using express authority given to the FTC in the Dodd-Frank Act.
Governmental Powers
The FTC asserted the CARS Rule was in proper and in accordance with regular APA procedures and that any ambiguity regarding the FTC’s rulemaking procedure should be resolved in its favor.
As for NADA assertions the agency failed to raise a meritorious challenge that the CARS Rule is arbitrary and capricious under the APA, the FTC filing stated it was not required to find widespread misconduct or a regulatory gap that needs to be filled to promulgate the rule.
The agency argues it has broad power to prescribe rules to define and prevent unfair and deceptive acts or practices by motor vehicle dealers, and Congress did not say it can only act if it finds widespread misconduct or a regulatory gap.
No Judicial Review Allowed
In fact, the FTC claimed its factual findings–which include assertions of bait-and-switch advertising and “junk fees”— are more than sufficient to satisfy judicial review under the deferential standard to be applied in determining whether the rule is arbitrary and capricious under the APA.
As for the cost benefit analysis, the FTC Act is not subject to judicial review unless the FTC “failed entirely to prepare a regulatory analysis.” In their opinion, the federal agency the APA does not apply where statutes preclude judicial review, and, even if it did, the FTC properly assessed the benefits and costs of the rule.
Rule Specifics
The rule would specifically bar misrepresentations about price, cost and the total cost of the vehicle, mandating dealers provide “the actual price any consumer can pay for the vehicle; tell consumers that optional add-ons (like extended warranties) are not required; and give information about the total payment when discussing monthly payments.”
Federal officials stressed the CARS Rule includes protections for members of the military and their families, who they found are targeted not only with bait-and-switch tactics and junk fees, but deceptive information about whether dealers are affiliated with the military and other specific issues that affect service members, according to the FTC.
Dealers will be required to obtain consent for any charges they add to a vehicle’s price. They would be barred from charging for add-ons that are useless to the buyer, such as selling nitrogen-filled tires that contain no more nitrogen than normal air.
