On October 9, a U.S. appeals court examined the challenge by the National Automobile Dealers Association (NADA) and the Texas Automobile Dealers Association against the Federal Trade Commission’s (FTC) CARS Rule. The rule, designed to curb deceptive dealership practices, such as bait-and-switch advertising and undisclosed finance and insurance (F&I) products, has become a point of contention between dealers and regulators.
The CARS Rule was originally set to take effect on July 30, 2023, but has been delayed pending the outcome of the legal case. NADA argues that the rule was improperly developed, bypassing essential procedural steps, and is asking the 5th U.S. Circuit Court of Appeals to overturn it or return it to the FTC for reconsideration.
During oral arguments, NADA attorney Jeffrey Harris proposed that remanding the rule for revision could serve as a “middle ground” solution. The dealership groups claim the FTC skipped the required “advance notice of proposed rulemaking,” which allows the public to provide early feedback. Instead, the agency jumped to presenting draft regulations and cost-benefit analyses, which NADA claims were improper.
The FTC, represented by attorney Benjamin Aiken, defended its process, arguing that the CARS Rule falls under the Dodd-Frank Act, which doesn’t require advance notice. Additionally, the agency pointed out that NADA had multiple opportunities to participate in the regulatory process, including submitting detailed comments on the proposed rule.
The court also scrutinized the FTC’s cost-benefit analysis, which claimed that the rule would save consumers up to three hours during the car-buying process. NADA challenged this figure as unsubstantiated, arguing that the FTC provided no concrete data to support it. The FTC countered that its estimates were based on the 2020 Cox Automotive Car Buyer Journey Study and adjusted in the final rule to a more modest figure.
Judges also explored the potential regulatory burdens that the CARS Rule would impose on dealerships. NADA claims that the rule adds unnecessary paperwork and compliance costs, while the FTC maintains that many of the required disclosures, such as total loan costs, are already covered by existing laws like the Truth in Lending Act.
As the legal battle over the CARS Rule continues, the court’s decision could significantly affect dealership practices and the regulatory landscape. Despite the challenges, NADA remains committed to opposing the rule, while the FTC argues that the regulation is necessary to protect consumers from predatory practices in the auto retail industry.
