A U.S. appeals court ruled Monday that the Federal Trade Commission’s (FTC) new regulations, which aimed to ban bait-and-switch tactics and prevent auto dealers from charging add-on costs that do not benefit buyers, are invalid. The 5th Circuit Court of Appeals, in a 2-1 decision, sided with the National Automobile Dealers Association (NADA) and a Texas dealer group, arguing that the FTC violated procedural rules by not giving proper notice before drafting the regulation.
The rule, finalized in January 2024 but put on hold during legal challenges, requires dealers to provide up-front pricing in advertisements and sales discussions. It also mandates that consumers give informed consent before dealers charge them for any additional items. The FTC had argued the rule would help eliminate misleading fees—such as unnecessary service contracts or duplicate warranties—saving consumers an estimated $3.4 billion and 72 million hours annually when shopping for vehicles.
The NADA had previously criticized the rule, claiming it would complicate the sales process by adding new layers of disclosure, potentially lengthening car transactions.
In a dissenting opinion, Judge Stephen Higginson emphasized that Congress had authorized the FTC in 2010 to regulate deceptive and unfair practices, including in the auto industry, to benefit consumers. He pointed to over 100,000 consumer complaints and extensive government action against these practices, suggesting that the rule was a response to real harm suffered by U.S. consumers.
While the ruling is a setback for the FTC, the decision underscores the ongoing debate over price transparency and consumer protections in the auto industry.
