NADA, FTC present oral arguments on suspended CARS Rule to U.S. appeals court

A legal showdown between the National Automobile Dealers Association (NADA) and the Federal Trade Commission (FTC) is heating up over the controversial CARS Rule, which aims to impose new regulations on dealership advertising and finance practices.

Why it matters: The CARS Rule, if implemented, would crack down on bait-and-switch advertising tactics and undisclosed finance and insurance (F&I) add-ons—issues that many argue, have eroded consumer trust. 

Driving the news: Late in the evening on Oct. 9, the 5th U.S. Circuit Court of Appeals heard oral arguments from both sides, diving into the mechanics of the rulemaking process and the FTC’s justification for the regulations. NADA, along with the Texas Automobile Dealers Association (TADA), argued that the CARS Rule should be thrown out altogether or sent back to the FTC for an extensive rewrite.

What they’re saying: “The CARS Rule is a misguided and ill informed rule that is likely to create tremendous frustration and confusion for consumers. Hopefully the court agrees and sends the FTC back to the drawing board,” said Brad Miller, Chief Compliance/Regulatory Officer & Head of Legal at ComplyAuto, an automotive compliance solutions company.

Follow the money: NADA argues that the rule would cost consumers $1.3 billion in a year and customers will end up spending an additional 60 - 80 minutes at the dealership when buying a car – making the experience “worse, not better, and it needs to be scrapped,” said Jared Allen, NADA VP of Public Affairs in a statement to CDG News.

• But the FTC disagrees. The agency claims that the crackdown on these dealership practices will actually save American consumers $3.4 billion and 72 million hours each year shopping for vehicles.

• Government watchdog coalition Accountable.US, found that in the months after the CARS rule was first introduced, NADA spent $4.5 million to lobby against the initiative. 

• “The auto retail industry claims there’s no need for stronger protections against bait-and-switch tactics and junk fees, and yet they felt compelled to spend millions of dollars lobbying and suing federal regulators to protect the status quo. If such predatory and deceptive practices were truly rare, why would the industry kick into high gear to block Biden-Harris efforts to ensure fairness and transparency?,” Liz Zelnick, Director of the Economic Security & Corporate Power Program at Accountable.US said in a statement. 

The legal playbook: One of NADA’s main arguments hinges on the rulemaking process. The association claims that the FTC bypassed a critical step—known as "advance notice of proposed rulemaking"—which would have provided dealerships more opportunity to shape the regulations before they were set in stone.

• “The Vehicle Shopping Rule also violates federal law. The FTC unlawfully issued this rule without the advance notice required by its own regulations, did not articulate a rational connection between its findings and its decision to impose a far-reaching rule, and unreasonably evaluated the rule’s benefits and costs,” said Allen.

• The FTC counters that it was under no obligation to follow that step, given the rule’s development under the Dodd-Frank Act. The agency insists that dealerships had plenty of opportunities to participate in the regulatory process.

• Adding another layer of complexity, the Supreme Court’s decision to overturn the Chevron doctrine, which required courts to defer to agencies’ interpretations of ambiguous laws, has given more power to the judiciary. This could make it easier for NADA to challenge the FTC’s decision-making authority should the rule come to pass.

Both sides of the argument: For dealers, the CARS Rule would likely complicate regulatory hurdles in an already highly regulated environment. More forms, disclosures, and customer agreements could bog down the process, but a ton of CDG News readers agree that the measures are necessary based on their anecdotal experiences.

Bottom line: With billions of dollars at stake and the possibility of precedent-setting rulings, the 5th Circuit’s decision will have far-reaching effects on how the auto retail industry—and other regulated industries—will navigate compliance and consumer protections. Dealers should anticipate heightened enforcement for the FTC regardless and stay alert to what's happening on their showroom floors.

Become an automotive insider in just 5 minutes.

Get the weekly email that delivers transparent insights into the car market.

Join 80,000 others now, it's free:

In today's automotive landscape, car buyers invest more time than ever in researching, considering, and comparing options. But for dealers, the challenge lies in pinpointing the audience ready to make a purchase.

Enter Premier by Edmunds.

Premier offers dealers a groundbreaking way to connect with in-market car shoppers precisely when, where, and how they prefer. With over 20 million monthly visits, Edmunds.com is the go-to destination for buyers seeking market insights, expert advice, and budget tools to make informed decisions.

Through Edmunds Premier, dealers gain access to this highly coveted audience. Simply list your new and used inventory on Edmunds, and watch as qualified, in-market traffic flows directly to your vehicle detail pages on your website.

Don't miss out on this opportunity to elevate your dealership's visibility and sales performance. You can sign up for Premier today at Edmunds.com/CDG.