Petitioners in the challenge to the Federal Trade Commission’s (“FTC”) Combating Auto Retail Scams Rule (“CARS Rule”) filed their Petitioners’ Brief on March 15, 2024 in support of their petition for review, and a who’s who of interested auto industry trade associations have filed amicus briefs in support of the petition. The effective date for the CARS Rule, originally set for July 30, 2024, is currently stayed pending resolution of the court challenge.

The CARS Rule, announced by the FTC on December 12, 2023 and published in the Federal Register on January 4, 2024, sets new requirements for the sale, financing, and leasing of new and used vehicles by motor vehicle dealers. It 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 previously discussed the final CARS Rule here. Petitioners in the court challenge, the National Automobile Dealers Association and Texas Automobile Dealers Association, filed suit on January 5, 2024. The petitioners originally sought a stay of the CARS Rule’s effective date pending review, but the FTC postponed the effective date in light of the legal challenge on January 18, 2024.

In their brief, Petitioners make three main arguments: (1) the FTC unlawfully issued the CARS Rule without the required advance notice of proposed rulemaking, (2) the FTC failed to articulate a rational connection between its factual findings and its decision to impose a far-reaching, industry-wide rule, and (3) the FTC unreasonably and arbitrarily evaluated the benefits and costs of the CARS Rule. In the alternative, Petitioners ask the Court to remand the CARS Rule back to the FTC for consideration of additional evidence. In sum, Petitioners argue:

The rulemaking record was wholly devoid of any evidence showing an industry-wide problem that would justify creating a burdensome and intrusive new industry-wide regulatory regime. To the contrary, the FTC mostly invoked outdated, irrelevant, or unverified data, plus a handful of past enforcement actions. There was no finding whatsoever that the new rules would have prevented any of the claimed misconduct, or that preexisting federal and state laws were inadequate to protect consumers from any bad actors. And the agency’s cost-benefit analysis was based primarily on ipse dixit and facially implausible assumptions about how the Rule will affect the car-buying process.

Petitioners’ Brief, p. 11.

Amicus briefs in support of the petition have been filed by the Automotive Trade Association Executives; National Independent Automobile Dealers Association and Texas Independent Automobile Dealers Association; the U.S. Chamber of Commerce, American Financial Services Association (“AFSA”); and the Motor Vehicle Protection Products Association, Guaranteed Asset Protection Alliance, Service Contract Industry Council, Consumer Credit Industry Association, and American Property Casualty Insurance Association.

In its amicus brief, the Chamber of Commerce echoes many of the procedural arguments made by the Petitioners, and asserts that the FTC’s approach here is not an aberration but instead “. . . represents the agency’s growing tendency to blow past any procedural hurdle impeding the speedy implementation of its policies, however well or poorly conceived.” Chamber of Commerce Brief, p. 17.

AFSA’s brief focuses on costs the FTC failed to consider – including increased compliance, litigation, and enforcement costs – that would ultimately pass through to consumers. While the FTC maintains the CARS Rule is targeted at motor vehicle dealers, AFSA highlights the impact on financial institutions, as the FTC’s Holder Rule could be used by consumers to bring claims and defenses against the holder of the retail installment sales contracts, and there may not always be visibility into dealer compliance on the face of the contract. According to AFSA, compliance costs related to ensuring dealer compliance, defense of litigation under state UDAP/UDAAP laws, and costs related to supervision and enforcement will increase costs and reduce the availability of credit.

An amicus brief filed by trade associations representing providers of motor vehicle voluntary protection products highlights the benefits of such products, existing regulation that covers them, and, and the adverse impact on consumers that will result from CARS Rule requirements that disfavor such products and may limit access, increase prices, and impact the customer experience in purchasing add-on products.

Under the expedited briefing schedule set by the U.S. Court of Appeals for the Fifth Circuit, the FTC’s Respondent’s brief is due on May 14, 2024 and Petitioners’ Reply Brief is due on June 13, 2024. Petitioners have requested oral argument.

More information about the CARS Rule and its impact, links to a two-part podcast discussing the rule with special guest Richard (“Rick”) Hackett, former Assistant CFPB Director responsible for auto finance regulation, can be found here.