U.S. Appeals Court Overturns FTC's CARS Rule: Auto Retail Implications

Understanding the FTC's CARS Rule and Its Intentions

The Federal Trade Commission's Combating Auto Retail Scams (CARS) Rule, finalized in January 2024 after 18 months of development, represented one of the most significant attempts to regulate automotive retail practices in decades. Designed to address widespread consumer complaints about dealership tactics, the rule established four core principles of transparency:

• Truthful pricing: Prohibiting misrepresentation of available rebates or discounts
• Clear add-ons: Banning last-minute surprise fees during paperwork
• Relevant products: Preventing sales of unnecessary services (like oil changes for EVs)
• Fixed agreements: Stopping post-sale contract alterations by dealers

According to FTC estimates, these protections would have saved consumers $3.4 billion annually and reduced the average car-buying time by three hours per transaction. The regulations particularly targeted what consumer advocates call "junk fees" - unnecessary charges that inflate vehicle prices without providing real value.

The Legal Challenge and Court's Rationale

In its June 2025 decision, the 5th U.S. Circuit Court of Appeals didn't rule on the merits of the CARS Rule's consumer protections. Instead, the three-judge panel focused on procedural deficiencies in how the FTC developed the regulations.

The court emphasized that the FTC skipped a crucial first step in federal rulemaking - the "advance notice of proposed rulemaking" (ANPR) period. This preliminary phase allows for:

• Early public input on whether regulation is needed
• Discussion of potential approaches
• Assessment of the problem's scope
• --TOP ADVERTISEMENT HERE--
  

By moving directly to the "regular notice" phase where specific rules are proposed, the FTC deprived stakeholders of meaningful participation in shaping the regulations' foundation. The court found this omission violated the agency's own policies and Section 553 of the Administrative Procedure Act, which governs federal rulemaking processes.

Industry Reactions and Consumer Impact

The automotive retail industry had fiercely opposed the CARS Rule since its proposal. Major trade groups like the National Automobile Dealers Association (NADA) and American International Automobile Dealers Association (AIADA) argued the regulations would:

• Increase compliance costs that would be passed to consumers
• Create unnecessary paperwork burdens
• Duplicate existing consumer protection laws

Consumer advocacy organizations expressed disappointment with the court's decision. Consumer Reports and the Consumer Federation of America noted that without these protections, buyers remain vulnerable to:

• Bait-and-switch pricing tactics
• Mandatory add-ons like VIN etching or fabric protection
• Confusing financing terms
• --SECOND CAR LIST HERE--
  

A recent MotorVero consumer survey found 68% of car buyers reported experiencing at least one potentially deceptive practice during their purchase process, highlighting the ongoing need for clearer retail standards.

What's Next for Auto Retail Regulation?

The FTC now faces several potential paths forward:

1. En banc appeal: Requesting review by all 5th Circuit judges
2. Supreme Court petition: Seeking higher court intervention
3. Rule revision: Restarting the process with proper procedures
4. Alternative enforcement: Using existing authority to target bad actors

Legal experts suggest the third option may be most likely, as the court's decision focused on process rather than substance. A properly developed rule could potentially survive future challenges if the FTC:

• Publishes an advance notice for public comment
• Documents the need for regulation more thoroughly
• Considers less burdensome alternatives
• --FIRST CONTENT ADVERTISEMENT HERE--
  

In the interim, consumers should remain vigilant when purchasing vehicles. MotorVero recommends always getting out-the-door price quotes in writing, reviewing all paperwork carefully, and questioning any fees that seem unnecessary or unclear.

The Political Landscape and FTC's Future Direction

The court's decision comes during a period of transition at the FTC. Since the original 4-1 vote to propose the CARS Rule in 2022:

• Two commissioners have resigned
• One term has expired (though the member continues serving)
• New nominations could shift the commission's political balance

Under federal law, no more than three FTC commissioners can belong to the same political party. The current 3-2 Democratic majority could flip to Republican control depending on pending nominations and confirmations. This political shift might:

• Change priorities for future rulemaking
• Affect enforcement approaches
• Alter the likelihood of appealing the 5th Circuit's decision
• --THIRD CAR LIST HERE--
  

Despite these changes, the FTC continues active enforcement against deceptive auto retail practices. The recent $20 million settlement with a major dealer group demonstrates alternative approaches to protecting consumers without the CARS Rule framework.

Practical Advice for Car Buyers Post-Ruling

With the CARS Rule invalidated, consumers should take proactive steps to protect themselves:

Many state attorneys general have consumer protection divisions that handle auto sales complaints. Websites like MotorVero's Dealer Review platform also provide crowdsourced insights about dealership practices in your area.

--SECOND CONTENT ADVERTISEMENT HERE--