U.S. Appeals Court Strikes Down FTC’s CARS Consumer Protection Regulations

A Federal Trade Commission rule that laid out “four principles of truth and transparency” to be followed by car dealers has been struck down by the 5th U.S. Circuit Court of Appeals. Among dealer activities the rule sought to discourage are the misrepresentation of discounts or rebates buyers may qualify for; last-minute add-ons during the buying process that would increase a vehicle’s final price; meaningless surcharges often exemplified by oil-change service contracts for electric vehicles (which do not need oil changes); and fine print in sales contracts that give dealers the right to alter pricing or payment plans after the customer has taken delivery of the vehicle.

Related: FTC Adds Transparency to Car Buying With CARS Rule

Initially proposed in June 2022 and finalized in January 2024, the so-called CARS Rule (for Combating Auto Retail Scams) would have shortened the car-buying process by three hours on average and saved consumers $3.4 billion annually, according to the FTC. Dealer representatives claimed the rule would instead cost consumers time and money.

Issuing Rules, Not Following Their Own

Ultimately, the appeals court’s decision was not made based on arguments to those ends from either side. Rather, the court overturned the regulations based on the FTC’s own internal policies and procedures. FTC regulations require the commission to issue what is called “advance notice of proposed rulemaking,” in which it posts a public solicitation for comment and input on proposed regulations. With the CARS Rule, the FTC instead began the process at a later step, known as “regular notice,” in which it posts draft regulation for comment.

What will happen now is unclear. The FTC could seek a second opinion from the entire 5th Circuit, which includes more than 20 judges in addition to the three who were on the panel that struck down the CARS Rule. It could also request the Supreme Court hear the case, but such actions would be at the discretion of the respective courts. According to Automotive News, the courts opt to do so in less than 5% of cases. The FTC could also revise its internal protocols to leave out the requirement for advance notice or start over and follow proper procedure.

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Another Victim of Uncertainty

The FTC’s motivation to take any of those steps will almost certainly be different from its reasons for issuing the regulations in the first place. The CARS Rule was initially proposed by a 4-1 vote among the FTC’s five appointed commissioners in 2022. Since then, two commissioners have resigned their posts and a third’s term has expired, although they can continue to serve until a successor is appointed. FTC rules permit no more than three members of the same political party from sitting on the commission concurrently, and in 2022, the split was 3-2 in favor of the Democrats. President Donald Trump has nominated a commissioner who, if confirmed, will shift that balance to a Republican majority.

In the meantime, the FTC has other means of pursuing action against malicious dealer practices. Just this past December, it won a $20 million settlement against a dealer group for overcharging and deceiving car buyers.

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