A federal appeals court struck down a rule designed to combat deceptive practices in the car-buying process, arguing that the Federal Trade Commission (FTC) failed to follow proper procedure. The rule, known as the CARS rule, would have required car dealers to disclose all fees upfront and protected military members from fraudulent dealership practices. While advocates argue the rule would have saved consumers billions and made car buying more transparent, critics, including the National Automobile Dealers Association, claim it would have added unnecessary complexity and cost to the process.
A federal appellate court overturned a rule last week that advocates argued would have made the car-buying process more transparent and saved consumers billions. The United States Court of Appeals for the Fifth Circuit struck down the Combating Auto Retail Scams Trade Regulation – or CARS – rule before it could go into effect, arguing that the Federal Trade Commission ( FTC ) failed to follow its own internal process.
The rule was designed to combat two prevalent types of illegal tactics consumers encounter when purchasing a car, such as bait-and-switch tactics and hidden junk fees. It also included provisions specifically protecting military members and their families from deceptive dealers falsely claiming military affiliation, along with addressing other issues unique to service members. \The FTC estimated in a report that the rule would have saved consumers over $3.4 billion annually and reduced the time spent buying a car by 72 million hours each year. Critics, including the National Automobile Dealers Association (NADA) and the Texas Automobile Dealers Association (TADA), contended that the FTC's research was 'rushed' and 'poorly researched.' A multitude of changes would have taken effect if the rule had been implemented, including requiring car dealers to disclose the price of the vehicle, along with all mandatory fees upfront, every time they advertise it, according to Erin Witte, director of Consumer Protection for the Consumer Federation of America. \The FTC, which was granted authority to regulate unfair or deceptive practices by motor vehicle dealers under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, 'discovered that throughout the process of buying a car, it is frequently riddled with deception and unfair practices,' said Witte. The price consumers see is 'almost never' the price they ultimately pay, said Witte, adding that it's 'remarkably common' for dealerships to tell consumers they can't provide a price over the phone and should visit in person to discuss potential deals. Witte asserted that this tactic is intentionally employed to squeeze more money out of consumers and unfairly disadvantages honest car dealers. Not every car dealer aims to exploit customers, she emphasized. There are many who genuinely want to advertise the price of their cars honestly, but they struggle to compete when others advertise the same car at a lower price. However, they can detain customers for hours on their lot and then inflate the price because they are present. New Jersey car dealership owner Tom Maoli told FOX Business that he supported the CARS rule because it would have increased consumer confidence in purchasing cars from franchised dealerships. Historically, there has been a 'bad view' of how consumers are treated at car dealerships across the country, said Maoli, whose company, Celebrity Motor Car Company, operates six dealerships. Conversely, NADA and TADA argued that the new rule would have 'added massive amounts of time, complexity, paperwork, and cost to the car-buying and car-shopping experience for virtually every customer.' The industry groups also claimed it 'would have been a nightmare for consumers and dealers alike.' NADA stated that consumers would have spent an additional 60 to 80 minutes at the dealership for each transaction and would be required to complete at least five new, untested forms during both the shopping and purchasing processes. This, they argued, 'would have driven up the costs of vehicle purchases and, beyond that, would have cost consumers $1.3 billion a year collectively in lost time,' the trade group said in a statement to FOX Business. \The court did not take a stance for or against the rule. Instead, it ruled that the FTC bypassed an essential part of the notice-and-comment process called the Advance Notice of Proposed Rulemaking (ANPRM). In this initial step, the agency formally requests public input on a proposed regulation. The court argued that the FTC should have indicated its intention to issue a rule concerning car dealers and these practices, leaving room for public feedback. Instead, the FTC proceeded directly to the second phase, called the Notice of Proposed Rulemaking (NPRM), where they outline their plan to modify a rule and then open it for public comment before finalization. Witte contended that the FTC should have been exempt from this step since it was granted the authority to expedite rulemaking for motor vehicle dealers. 'It also is frankly ridiculous to think that the FTC didn't do their homework on this to understand the impact of the rule,' Witte said. 'This was a decade in the making,' she added.
CONSUMER PROTECTION FTC AUTOMOTIVE INDUSTRY CAR DEALERSHIPS CARS RULE FEDERAL TRADE COMMISSION AUTOMOTIVE REGULATION LEGAL CHALLENGE
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