FTC Faces Legal Challenge Over New CARS Rule

The Federal Trade Commission (FTC) is facing a legal challenge from two auto dealer associations over its new Combating Auto Retail Scams (CARS) Rule, which aims to protect consumers from deceptive and unfair practices in the car buying and leasing process. The National Automobile Dealers Association (NADA) and the Texas Automobile Dealers Association (TADA) filed a petition for review of the CARS Rule in the U.S. Court of Appeals for the Fifth Circuit on Dec. 10, 2023, claiming that the FTC exceeded its authority and violated the law in issuing the rule.

The CARS Rule is a new regulation that the FTC finalized on Dec. 12, 2023, and will take effect on July 30, 2024. The rule prohibits auto dealers from making false or misleading statements about material information, such as the price, financing, trade-in value, or warranty of a vehicle. The rule also requires dealers to clearly and conspicuously disclose the offering price of a vehicle, and to obtain consumers’ express, informed consent before charging them for any products or services that are not included in the offering price. The rule bans dealers from charging consumers for add-ons that do not provide any benefit, such as window etching, paint sealant, or rustproofing. The FTC estimates that the CARS Rule will save consumers more than $3.4 billion and 72 million hours each year by preventing fraud and abuse in the car market.

FTC Faces Legal Challenge Over New CARS Rule
FTC Faces Legal Challenge Over New CARS Rule

Why are NADA and TADA challenging the CARS Rule?

NADA and TADA argue that the FTC does not have the legal authority to issue the CARS Rule under the FTC Act and the Magnuson-Moss Warranty Act, which are the statutes that the FTC cited as the basis for the rule. They contend that the sale or lease of vehicles are not “consumer products” as defined by the law, and that the FTC cannot regulate them as such. They also allege that the FTC violated the Administrative Procedure Act (APA), which governs the rulemaking process, by failing to provide adequate notice and opportunity for comment, relying on insufficient evidence, and adopting arbitrary and capricious standards. They claim that the CARS Rule is unnecessary, burdensome, and harmful to the auto industry and consumers.

What are the implications of the legal challenge?

The petition for review is the first step in a potentially long and complex legal process that could result in the CARS Rule being upheld, modified, or invalidated by the court. The FTC will have a chance to respond to the petition and defend the CARS Rule. The court may also invite other interested parties, such as consumer groups or state attorneys general, to file briefs or participate in oral arguments. The court’s decision could have significant impacts on the auto industry and consumers, as the CARS Rule represents a major change in the regulation of car buying and leasing. The CARS Rule is part of the FTC’s broader efforts to combat fraud and abuse in the auto market, which also include enforcement actions, consumer education, and cooperation with other agencies.

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