The Fifth Circuit Court of Appeals has set oral arguments for Oct. 7 in the challenge of the Federal Trade Commission’s Combating Auto Retail Scams Rule (“CARS Rule”). The petition, filed on January 5, 2024 by the National Automobile Dealers Association and Texas Automobile Dealers Association asks the court to vacate or modify the rule and stay its enforcement pending resolution of the petition.
The petition seeks to rescind the rule on the grounds that it is arbitrary, capricious, an abuse of discretion, and “without observance of procedure” required by law. With respect to “observance of procedure” the auto dealer groups also said that the rule was issued without the required advance notice of proposed rulemaking (ANPR), that the FTC unreasonably evaluated the costs and benefits of the rule and that the agency failed to articulate a rational connection between its factual findings and its decision to impose such a far-reaching, industrywide rule.
The FTC has responded arguing, among other things, that the Commission was not required to issue an ANPR for the CARS Rule.
The CARS Rule, announced by the FTC on December 12, 2023, would set new requirements on the sale, financing, and leasing of new and used vehicles by motor vehicle dealers. It was promulgated by the FTC pursuant to Section 1029 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which authorizes the FTC to prescribe rules with respect to unfair or deceptive acts or practices by motor vehicle dealers.
The CARS Rule prohibits certain misrepresentations in the financing process, sets disclosure requirements on dealers’ advertising and sales communications, mandates that dealers obtain consumers’ express, informed consent for charges, and prohibits the sale of add-on products or services if there is no benefit to the consumer.
The agency also said it was not required to find widespread misconduct or a regulatory gap that needs to be filled to promulgate the rule.
The case has attracted attention from a number of groups that have filed amicus briefs. We have previously discussed a series of amicus briefs filed in support of the petitioners. Most recently, additional amicus briefs have been filed in support of the FTC. These include briefs from a group of state attorneys general arguing that state enforcement actions validate the need for the CARS Rule to address unfair and deceptive bait-and-switch tactics; military groups arguing that servicemembers are uniquely targeted and vulnerable to scams by car dealers; consumer groups arguing that existing regulations are insufficient to protect consumers from “widespread industry abuses;” two car dealers that argue that “fair-minded” dealers would benefit if the playing field was leveled and they could better compete against other dealerships that do not disclose the actual price of a motor vehicle until late in the transaction; and economists who argue that the rule promotes an economically efficient market. While the FTC has stayed the rule in light of the litigation, the impact of the CARS Rule is significant if the FTC prevails in court. For more information about the CARS Rule and its impact, links to a two-part podcast discussing the rule with special guest Richard (“Rick”) Hackett, former Assistant CFPB Director responsible for auto finance regulation, can be found here.