On January 5, 2024, two trade groups representing auto dealers filed a petition for review challenging the Federal Trade Commission’s (“FTC”) new Combating Auto Retail Scams Rule (“CARS Rule”). In the petition, the National Automobile Dealers Association (“NADA”) and Texas Automobile Dealers Association (“TADA”) ask the United States Court of Appeals for the Fifth Circuit to vacate or modify the rule and stay its enforcement pending resolution of the petition. We will discuss the CARS Rule and other developments resulting from it, including this legal challenge, during our webinar, “The CARS Rule: What You Need To Know About the FTC’s Final Motor Vehicle Dealer Trade Regulation Rule,” on January 23, 2024 at 1:00 p.m. (click here to register).

The CARS Rule, announced by the FTC on December 12, 2023, sets new requirements on the sale, financing, and leasing of new and used vehicles by motor vehicle dealers. It was promulgated by the FTC pursuant to Section 1029 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which authorizes the FTC to prescribe rules with respect to unfair or deceptive acts or practices by motor vehicle dealers. The CARS Rule prohibits certain misrepresentations in the financing process, sets disclosure requirements on dealers’ advertising and sales communications, mandates that dealers obtain consumers’ express, informed consent for charges, and prohibits the sale of add-on products or services if there is no benefit to the consumer. We have previously discussed the issuance of the CARS Rule here.

The petition challenges the rule on the grounds that it is arbitrary, capricious, an abuse of discretion, and without observance of procedure required by law. Under the FTC Act, any interested person may file a petition within 60 days after a rule is promulgated to ask for judicial review of the rule. 15 U.S.C. § 57a(e). The petition can be filed in the U.S. District Court of Appeals for either the District of Columbia or for the circuit in which the person resides or has their principal place of business. The filing of the petition in the Fifth Circuit is notable, as it is the same court that sided with the Community Financial Services Association of America (“CFSA”) in finding the Consumer Financial Protection Bureau’s (“CFPB”) funding mechanism is unconstitutional under the Appropriations Clause in CFSA v. CFPB. (That case, which we have blogged about and discussed on the Consumer Finance Monitor Podcast, most recently here and here, was argued before the Supreme Court on October 3, 2023 and is currently pending a decision.)

On January 8, 2024, NADA and TADA filed an opposed motion for stay of the final rule and expedited consideration, arguing that they face irreparable harm absent a stay as their members will need to incur substantial sums of unrecoverable costs to comply with the rule by its July 30, 2024 effective date. Compliance costs cited by the petitioners include extensive changes to IT systems, websites, advertising practices, consumer communications and systems, training, new and used vehicle pricing disclosures, and recordkeeping procedures and capabilities. While the petition itself does not go into detail as to the arguments to be made against the rule, the petitioners’ motion argues that (i) the FTC unlawfully issued the rule without required advance notice of proposed rulemaking; and that (ii) the rule is arbitrary and capricious because the FTC (a) unreasonably evaluated the costs and benefits, and (b) failed to articulate a rational connection between its factual findings and its decision to impose such a far-reaching, industrywide rule. Opposition to the stay request is due by January 18, 2024, and petitioners have requested a ruling from the court by March 31, 2024. In considering the motion for a stay pending review, the court will need to find that the petitioners are likely to succeed on the merits and will be irreparably injured without a stay; the court will also consider if other interested parties will be irreparably injured by a stay and where the public interest lies. See, e.g., Wages and White Lion Investments, LLC v. FDA, 16 F.4th 1130, 1135 (5th Cir. 2021) (granting a stay of an FDA rule requiring an e-cigarette manufacturer to provide long-term studies to get product approval pending disposition of a petition of review). In their motion, NADA and TADA ask for the effective date of the CARS Rule to be stayed pending disposition of the petition for review.

In a statement released by NADA, the organization’s President and CEO Mike Stanton said:

“After a rushed, utterly flawed and we believe illegal process, the FTC issued its final Vehicle Shopping Rule in December 2023 and set a compliance deadline of July 30, 2024. Because the FTC has failed at every juncture to justify these wholesale changes to the way Americans shop for and purchase new cars, NADA was left with no choice but to seek legal relief to prevent this rule from taking effect.”

In the meantime, despite the potential for an injunction and before the CARS Rule is even effective, the FTC is targeting dealers under its existing UDAP authority for some of the very same acts that would, in the future, be covered by the rule. On January 4, 2024, the FTC and the State of Connecticut announced they had filed a complaint against an auto dealer alleging the dealer failed to honor low advertised prices for certified, pre-owned vehicles and double-charged consumers to certify vehicles, charged consumers for add-ons that they did not know about or authorize (or were not informed were optional), and lied about the cost of mandatory state registration and other fees. This action, against Manchester City Nissan, is just the latest in a series of actions brought by the FTC, often in partnership with state attorneys general, over financing practices and alleged “junk fees.” (For example, see here, here, and here.)

As mentioned above, Ballard Spahr will be hosting a webinar discussing the CARS Rule on January 23, 2024. This presentation will include further discussion of this litigation and other legal and legislative efforts challenging the rule. For more information and to register for the webinar, click here.