FTC Vehicle Shopping Rule Postponed Due to Legal Challenge

On December 12, 2023, the Federal Trade Commission (FTC) announced it has finalized the dubiously named “Combating Auto Retail Scams” Rule (CARS Rule), which would impose numerous onerous obligations on dealership sales practices as well as having dramatic impacts on downstream finance companies that purchase retail installment contracts from dealers. The CARS Rule follows several FTC enforcement actions against dealers in recent years and was set to take effect on July 30, 2024.

However, on January 18, 2024, the FTC issued an order staying the effective date “to allow for judicial review” after NADA challenged the CARS Rule in court.

On January 5, 2024, the National Automobile Dealers Association and the Texas Automobile Dealers Association (together, the petitioners) petitioned the U.S. Court of Appeals for the Fifth Circuit for review of the CARS Rule. The petitioners request that the Fifth Circuit vacate or modify the rule on the grounds that the rule is “arbitrary, capricious, an abuse of discretion, [and issued] without observance of procedure required by law.”

Although the petition did not elaborate on those grounds, the petitioners also filed a motion for stay of the rule and expedited consideration (which the petitioners have since moved to withdraw), which previews some of the petitioners’ arguments. In that motion, the petitioners argue that the FTC unlawfully promulgated the CARS Rule by failing to comply with advance notice requirements. Petitioners further argue that the rule is arbitrary and capricious because the FTC did not reasonably evaluate the rule’s costs and benefits. Petitioners also argue that the FTC failed to “show that a significant industry-wide problem exists that would justify a disruptive and burdensome industrywide regulatory response.”

Following the FTC’s stay of the rule’s effective date, the FTC and the petitioners have requested that the Fifth Circuit expedite the case. The parties have proposed a schedule under which briefing would conclude in mid-June 2024, with oral argument to follow shortly after. We will follow and discuss those developments here, so stay tuned.

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