The Federal Trade Commission (FTC) issued an order Jan. 18 postponing the effective date of the Combatting Auto Retail Scams (CARS) Rule as a legal challenge makes it way through the courts.

The CARS Rules 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. The new rules, passed on Dec. 12, 2023, were slated to go into effect July 30.

The enforcement delay is in response to the lawsuit filed by the National Automobile Dealers Association (NADA) and Texas Automobile Dealers Association in the 5th U.S. Circuit Court of Appeals. The plaintiffs have petitioned to overturn the rule as well as asking for a stay  while the court challenge is pending.

NADA Lawsuit                                                           

NADA’s suit alleges 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.”

“The FTC’s Vehicle Shopping Rule is simply terrible for consumers,” said NADA president and CEO Mike Stanton in a press statement when the lawsuit was filed Jan. 4. “NADA is challenging the FTC in court to stop this rule because it will add massive amounts of time, complexity, paperwork and cost to car buying and car shopping for tens of millions of Americans every year.”

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. Opponents of the new regulation pointed to a study by the Center for Automotive Research putting a price tag of $46,950 upfront and $50,958 per year to comply with the new rules.

FTC Response

In its order, the FTC asserted the lawsuit is a mischaracterization of what the rule requires. Specifically, the commission’s order points to what they say is the inaccurate argument that the rule will increase compliance costs for car dealers and the suggestion that legally compliant dealers have to make unnecessary changes to satisfy petitioners’ misunderstandings of the rule have created uncertainty.

“In fact, the rule does not impose substantial costs, if any, on dealers that presently comply with the law, and to the extent there are costs, those are outweighed by the benefits to consumers, to law-abiding dealers, and to fair competition—as honest dealers will not be at a competitive disadvantage relative to dishonest dealers,” the order stated.

The commission further notes that if the court reviewing the rule grants expedited review, as the litigants requested, a stay of the effective date should not postpone implementation of the rule by more than a few months, if at all. The commission voted to approve the issuance of the order was 3-0.

As the commission noted when finalizing the rule, the CARS Rule will save consumers more than $3.4 billion and an estimated 72 million hours each year shopping for vehicles by targeting persistent and illegal bait-and-switch scams and junk fees in the car buying process.

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.