A federal appellate court vacated a rule designed to increase transparency and protect consumers from deceptive practices in the car-buying process. While consumer advocates argued the rule would have saved billions and reduced consumer time spent on car purchases, automotive industry groups contested its implementation, claiming it would have imposed undue burdens on both consumers and dealerships.
A federal appellate court recently vacated a rule that consumer advocates argued would have increased transparency in the car-buying process and potentially saved consumers billions of dollars. 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 take effect. The court argued that the Federal Trade Commission ( FTC ) failed to adhere to its own internal process when developing the rule.
The CARS rule was designed to combat two prevalent types of deceptive tactics consumers often encounter when purchasing a vehicle, namely bait-and-switch schemes and hidden junk fees. It also included provisions specifically safeguarding military personnel and their families from unscrupulous dealers who falsely claim military affiliation, addressing issues unique to service members. The FTC estimated that the rule would have saved consumers over $3.4 billion annually and reduced the average time spent purchasing a car by 72 million hours. Critics, including the National Automobile Dealers Association (NADA) and the Texas Automobile Dealers Association (TADA), claimed the FTC's research was insufficient and hastily conducted.Numerous changes were slated to be implemented if the rule had been enacted, including a requirement for car dealerships to disclose the vehicle's price along with all mandatory fees upfront in every advertisement. According to Erin Witte, director of Consumer Protection for the Consumer Federation of America, this would have significantly altered the car-buying experience. Witte emphasized that the price consumers see is rarely the final price they pay, and dealerships often employ tactics like refusing to provide prices over the phone, compelling customers to visit in person to discuss deals. She argued that these methods are intentionally designed to maximize profits at the expense of consumers, disadvantaging honest dealerships in the process. Conversely, NADA and TADA argued that the new rule would have imposed a substantial burden on consumers and dealers alike, adding significant time, complexity, paperwork, and cost to the purchasing and shopping experience. They predicted it would have resulted in extended dealership visits, additional forms, and ultimately, increased vehicle purchase costs for consumers. The court, however, did not take sides on the rule's merits. Instead, it ruled that the FTC bypassed a crucial stage of the notice-and-comment process called the Advance Notice of Proposed Rulemaking (ANPRM). In this initial step, the agency formally solicits public input on a proposed regulation. The court determined that the FTC should have outlined its intention to issue a rule regarding car dealership practices and allowed for public feedback before proceeding to the Notice of Proposed Rulemaking (NPRM) phase. Witte countered that the FTC should have been exempted from this step given its authority to expedite rulemaking for motor vehicle dealers. She also expressed disbelief that the FTC had not conducted thorough research to understand the rule's potential impact
Business Law CARS Rule FTC Consumer Protection Automotive Industry Deceptive Practices Bait-And-Switch Junk Fees
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