By Hao Nguyen
Chief Legal Officer
Last week, the Federal Trade Commission (FTC) announced that it will delay enforcement of the CARS Rule (Rule) while it faces judicial review. The decision follows the initiation of a legal challenge by the National Automobile Dealers Association (NADA) and the Texas Automobile Dealers Association (TADA), who filed a Petition for Review with the United States Court of Appeals for the Fifth Circuit on January 5, 2024.
The FTC believes that the Rule will provide new and used motor vehicle purchasers with significant protections from bad actors in the automotive retail industry, while the NADA argues that it is arbitrary, unduly burdensome, unsubstantiated, and will harm both law-abiding dealers and their customers. Citing its commitment to justice and time for a fair and balanced review of the arguments by both parties, the FTC issued an order to delay the effective date of the CARS Rule pending judicial review. According to the FTC, any delay or postponement of implementation of the CARS Rule will not be more than a few months, if at all.
It is important to note that the FTC has not identified a new effective date, but merely stated that it will wait for the Court of Appeals to render a final decision. Depending on the judicial outcome, the effective date could remain unchanged (July 30, 2024) or later. We will continue monitoring this matter and keep you informed of any updates.
Does this mean the CARS Rule will no longer be enforced?
No, the FTC has merely postponed the Rule’s enforcement, pending a final decision by the Court of Appeals. The FTC has indicated that this postponement is likely to result in a minimal delay in the Rule’s implementation. Specifically, the FTC stated, “a stay of the effective date . . . should not postpone implementation of the Rule by more than a few months, if at all.”
Should I defer compliance efforts until after the Court of Appeals’ final ruling?
No. Given that the Rule’s effective date could either remain as initially scheduled or be slightly postponed, it is prudent to prepare for compliance. Moreover, the FTC continues to actively enforce regulations against “unfair or deceptive acts or practices” (UDAP), which form the foundation of the CARS Rule. Recent enforcement actions, such as the case against a Connecticut dealership, signal the FTC’s ongoing commitment to using its broad UDAP enforcement authority for many of the same issues identified in the CARS Rule.