On January 27, 2025, the Fifth Circuit Court of Appeals held that the Federal Trade Commission’s rule to curb certain practices in the automobile dealer industry was invalid on procedural grounds because the agency did not issue an advance notice of proposed rulemaking.

On January 4, 2024, the Federal Trade Commission (“FTC”) published a final “Combating Auto Retail Scams Trade Regulation Rule,” or “CARS Rule.” The rule was scheduled to become effective on July 30, 2024. The FTC issued that rule after publishing a proposed rule for public comment in July 2022 and after a series of public roundtables with input from industry participants, consumers, and others.

The final rule provides that certain acts or practices of motor vehicle dealers are prohibited as unfair or deceptive, including misrepresentations about the costs or terms of purchasing, financing, or leasing a vehicle or of any add-on product or service (such as extended warranties, service and maintenance plans, payment programs, guaranteed automobile or asset protection (“GAP”) agreements, emergency road service, VIN etching and other theft protection devices, or undercoating). The final rule also would prohibit misrepresentations regarding many other aspects of purchasing or financing a vehicle, or the circumstances under which a vehicle may be repossessed.

The final rule also provides that it is a prohibited unfair or deceptive act or practice not to disclose in advertisements or consumer communications a vehicle’s full cash offering price (excluding only government charges), or not to disclose that an add-on product or service is voluntary (if true). When making any representations about the amount of monthly payments for vehicle financing, the final rule provides that the dealer must disclose the total amount the consumer will pay after making all payments, including the amount of any down payment or trade-in.

As to add-on products or services, the final rule provides that it is a prohibited unfair or deceptive act or practice for a dealer to charge for any such product or service that provides no benefit to the consumer, including certain nitrogen-filled tire-related products or services; products or services that are merely duplicative of otherwise applicable warranty coverage; or any item without the consumer’s express, informed consent.

The auto dealer and finance industries quickly objected to the rule, arguing in part that the FTC did not adequately consider the costs of the rule and that the rule is arbitrary and capricious. The FTC then determined that it was in the interests of justice to stay the rule’s effective date to allow for judicial review.

The Fifth Circuit did not address the validity of the rule’s substantive provisions, or the FTC’s authority to declare those or other practices as unfair or deceptive. However, the court held that the final rule is invalid because the FTC did not issue an advance notice of proposed rulemaking (“ANPRM”) prior to issuing its proposed rule.Continue Reading Fifth Circuit Vacates the FTC’s CARS Shopping Rule