By Cathryn M. Johns and Brandon L. Bigelow

Seyfarth’s Future of Automotive Series

Seyfarth Synopsis:  On January 18, 2024, the Federal Trade Commission (FTC) announced it was staying the effective date of its Combating Auto Retail Scams Trade Regulation Rule (the “CARS Rule”) pending resolution of an administrative challenge filed with the U.S. Court of Appeals for the Fifth Circuit by the National Automobile Dealers Association (NADA) and another industry trade association. Through the CARS Rule, the FTC seeks to target what it views as bait-and-switch tactics and hidden fees used and imposed by new car dealers when working with prospective buyers. Slated to go into effect on July 30, 2024, the CARS Rule is now indefinitely on hold.

In its order staying the effective date, the FTC challenged the premise of NADA’s request that the Fifth Circuit order a stay of implementation of the CARS Rule, claiming that NADA’s arguments are based on “inaccurate claims that it will require dealers to overhaul their practices and substantially increase compliance costs.” To the contrary, according to the FTC, the CARS Rule “does not impose substantial costs, if any, on dealers that presently comply with the law, and to the extent there are costs, those are outweighed by the benefits to consumers, to law-abiding dealers, and to fair competition.”

The FTC in its order also noted that NADA’s motion for a stay filed with the Fifth Circuit was procedurally improper because NADA had not first sought a stay of the effective date to the CARS Rule from the FTC itself.  Nevertheless, to avoid “uncertainty” and because a stay “pending expedited review should not postpone implementation of the Rule by more than a few months, if at all,” the Commission treated NADA’s motion to the Fifth Circuit as a request to the FTC and voted 3-0 to stay of the effective date of the CARS Rule. If implemented, the CARS Rule would prohibit misrepresentation regarding the buyer’s purchase choice (such as financing options); requires disclosure of the offering price at the outset; prohibits “bogus” add-ons that provide no actual benefit to the buyer; and requires dealers to obtain buyers’ express, informed consent before imposing any charges as part of a vehicle purchase. In a January 4, 2024 press release announcing NADA’s challenge to the CARS Rule, NADA President Mike Stanton explained that “NADA is challenging the FTC in court to stop this rule because it will add massive amounts of time, complexity, paperwork and cost to car buying and car shopping for tens of millions of Americans every year.”