What Happened?
The U.S. Court of Appeals for the Fifth Circuit has vacated the Federal Trade Commission’s “Combating Auto Retail Scams” Trade Regulation Rule (CARS Rule or Vehicle Shopping Rule), finding that the agency failed to follow its own procedural requirements during the rulemaking process. The decision, issued on January 27, 2025, stems from a challenge brought by the National Automobile Dealers Association and the Texas Automobile Dealers Association, who successfully argued that the FTC was required to issue an advance notice of proposed rulemaking (ANPRM) before proceeding with the rule.
It’s important to note that while the CARS Rule aimed to codify existing UDAP (Unfair or Deceptive Acts or Practices) law and regulations governing dealer advertising and F&I compliance, the court’s decision to vacate the rule was purely procedural. The underlying rules and requirements currently in place remain unchanged.
Warning – Legal Jargon Ahead
At the heart of the case was whether the FTC’s authority to issue the CARS Rule derived from Section 18(a)(1)(B) of the FTC Act or from Section 1029(d) of the Dodd-Frank Act. While the Dodd-Frank Act exempted the FTC from certain statutory ANPRM requirements when regulating auto dealers, the court found that this did not override the FTC’s own internal regulations requiring an ANPRM for all trade regulation rules. The majority opinion determined that the Dodd-Frank Act merely relaxed procedural requirements but did not grant the FTC any independent substantive authority separate from the FTC Act.
Ok, so these are arguments that only a lawyer could love – but the bottom line is that the court’s decision was based solely on procedural grounds, meaning that because the FTC failed to follow the appropriate procedures in issuing the rule, the public’s ability to have the required input on the Rule was prejudiced, and therefore the FTC must go “back to the drawing board” if it wishes to go forward with the CARS Rule. What this also means is that the court did not invalidate or even address the substance of the Rule or its requirements.
What’s Next?
There are three potential outcomes based on the court’s decision. First, the FTC could request a rehearing with this panel, or appeal the decision either to an “en banc” panel of the 5th Circuit, or to the Supreme Court. Second, the FTC could start over with the Rule (or another similar rule) following the required procedures in doing so. The first option is possible, but unlikely. The second option is also highly unlikely given the Trump Administration’s deregulatory efforts, and given that the FTC is about to have a Republican majority.
The third, and most likely outcome, is that the FTC will largely abandon this rulemaking effort and focus instead on enforcement against dealers – likely increased enforcement – of the current UDAP and related requirements related to dealer advertising and F&I compliance.
Does This Mean We Can Now Forget About Compliance?
No, absolutely not. Indeed, there is a strong argument that this will increase the need for dealers to double down on their compliance efforts – for several important reasons.
First, it is important to remember that the court’s decision did not address or invalidate the current legal requirements for dealers. The Rule itself (in the words of the FTC) simply codified current dealer advertising and F&I compliance law into a Rule. The court’s decision means that the new recordkeeping requirements and other new disclosures that the Rule would have proposed will not become effective, but it does NOT change any current law.
Second, both the FTC and State AG’s are currently in the midst of an aggressive enforcement campaign targeting deceptive advertising and F&I practices at dealerships. The FTC’s enforcement actions have received unanimous support from FTC commissioners, suggesting a bipartisan commitment to price transparency enforcement that transcends individual rules or regulations. And at the state level, it is clear that many AG’s (both Democrat and Republican) see the need to step up enforcement against dealers in the wake of the court’s decision.
So, What Should I Be Doing Now?
The bottom line is that dealer practices are under more scrutiny than ever before – and that is only likely to increase despite (or perhaps because of) the court’s decision. Dealers must continue to be vigilant to protect their stores. ComplyAuto stands ready to help dealers with those efforts, including with our Guardian tools, which utilize the power of AI to provide the industry’s most powerful advertising and F&I compliance toolkit.
Given the increased scrutiny of dealer practices, businesses should:
- Maintain vigilant oversight of price advertising
- Ensure all fees and product costs are clearly disclosed, not hidden in fine print
- Train staff to avoid payment packing and properly explain product features, costs, and optional nature to customers
- Implement robust compliance tools and systems to monitor and enforce best practices
We expect to see bumpy times ahead for dealers who are not prepared. Get prepared, call ComplyAuto today.