Courts vacate FTC CARS rule after NADA, TADA challenge

The U.S. Fifth Circuit Court of Appeals has ruled that the Federal Trade Commission (FTC) violated its own rules upon introducing the Combatting Auto Retail Scams (CARS) act, sending the proposal back to the FTC.

Driving the news: Announced back in 2022, the CARS rule targeted hidden fees and bait-and-switch tactics used by some car dealers. It sought to require transparent pricing and would have forced retailers to obtain express consent from customers before charging them any additional costs, from service contracts to extended warranties.

• While the guidelines were scheduled to go into effect last year, the FTC delayed the effective date following a challenge from the National Automobile Dealers Association (NADA) and Texas Automobile Dealers Association (TADA).

• The two groups argued that the FTC had violated its own policies, skipping a requirement to submit an advanced notice of proposed rulemaking*. The dealer associations also argued the FTC failed to provide a reasonable basis for the rule and that its cost-benefit analysis was flawed.

• After hearing arguments late into 2024, the Appeals Court, in a two-to-one decision, agreed with the NADA and TADA that the FTC didn’t provide an advanced notice as required and vacated the CARS rule.

• In the last pages of its decision, the court went on to add the two association’s remaining claims lacked merit and stated the following in the final paragraph:

Zooming in: What impact the CARS rule would have had on consumers and dealers is unclear.

• The FTC argued that the new guidelines would have saved car buyers $3.4 billion in junk fees and reduced the amount of time consumers spent shopping on vehicles by 72 million hours per year.

• On the other hand, the NADA argued the rule would have had the opposite effect, with organization president Mike Stanton claiming it would “add massive amounts of time, complexity, paperwork and cost to car buying and car shopping for tens of millions of Americans every year,” in a post on its website. The association also observed that parts of the CARS rule were already in effect at the state level in some areas.

• While Stanton went on to claim that the “sales process is getting smoother and dealership satisfaction scores have never been better,” a CDK Global study published this year indicated customer satisfaction with dealers declined in 2024, with wait times being cited as a key issue for buyer frustration.

• With the additional layers of consent required by the CARS rule, dealers may have been forced to spend more time on certain steps of the car buying process had the policy gone into effect as planned in 2024, further impacting the shopper experience.

Behind the scenes: Whatever its potential impacts, the effects of questionable tactics in the car industry are easily observable.

• In an interview on the Car Dealership Guy Podcast, Brian Kramer, EVP of Dealer Growth and Success at Cars Commerce, noted that dealers who lower prices to appear cheaper online only to charge additional fees in-store hurt their own colleagues as much as they do their own customers.

• This raises a difficult question for other dealers: lower prices to an unprofitable extent to match unscrupulous competitors or risk losing customers by having realistic but less affordable prices?

• Kramer adds that while customers may not do repeat business with dishonest dealers, a buyer who has driven several hours tempted by a cheap listing is more likely to cave to pressure even after discovering they’ll be charged additional fees. This can irreparably damage their perception of the auto industry.

*These notices alert the public of an agency’s plan to create regulations and offer an opportunity to collect feedback about whether any new rules are needed.

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