Appeals Court Throws out FTC’s Car-Buying Rules

Cars at a dealership in Annapolis, Md., in an undated file image. Jim Watson/AFP via Getty Images

The Federal Trade Commission (FTC) illegally issued the Combating Auto Retail Scams (CARS) Rule without providing advance notice, violating a federal law requiring such notice for new regulations, the U.S. Court of Appeals for the Fifth Circuit ruled on Jan. 27.

The rule was proposed in 2022 and finalized in January 2024 but put on hold pending the legal challenge. The Administrative Procedure Act (APA) requires courts to invalidate agency actions that fail to follow legally required procedures.

The FTC violated the APA when it failed to issue an Advanced Notice of Proposed Rulemaking for the CARS Rule, “a requirement of its own regulations and an error that was not harmless,” U.S. Circuit Judge Patrick E. Higginbotham wrote for the majority in a 2–1 decision.

The FTC, which declined to comment, had argued that it was allowed to issue the rule without prior notice because the rule was promulgated under a different law. The majority said that interpretation was not correct.

The decision “is a victory for the rule of law and a great outcome for consumers,” said Mike Stanton, president and CEO of the National Automobile Dealers Association, whose lawsuit led to Monday’s ruling. “Thanks to the success of this legal challenge, dealers can get back to what they do best, which is creating the best-possible customer experience and reducing transaction times wherever possible.”

The CARS rule outlined, among other requirements, that car dealers must avoid misrepresentations on vehicle costs and other items; must state the true price of a vehicle, or the price at which they would actually sell a vehicle; and must not charge consumers for add-ons that were described as providing no benefit, such as products duplicative of vehicle warranties.

“The primary purpose of the FTC’s CARS Rule is to add truth and transparency to the car buying and leasing process by making it clear that certain deceptive or unfair practices are illegal—for example, bait-and-switch tactics, hidden charges, and other conduct that harms consumers and honest dealers,” the FTC said on its website.

U.S. Circuit Judge Jerry E. Smith joined Higginbotham in the majority.

U.S. Circuit Judge Stephen A. Higginson said he dissented because the FTC held public roundtables and accepted comments before issuing the proposed rule.

“Even assuming advance notice was due, petitioners have failed to meet their burden in showing that the lack of a formal advance notice of rulemaking prejudiced them,” Higginson wrote.