U.S. Appeals Court Strikes Down Biden FTC Car-Buying Consumer Rules

In a significant setback for consumer protection in the auto industry, a U.S. appeals court has thrown out rules adopted by the Biden administration to ban bait-and-switch tactics and prohibit auto dealers from charging for add-on costs that do not benefit new car buyers. The 5th Circuit Court of Appeals ruled on Monday, June 27, 2022, that the Federal Trade Commission (FTC) had violated procedural rules in writing the regulation without giving advance notice of the planned regulation.

The ruling, which was a 2-1 decision, came in response to legal challenges by the National Automobile Dealers Association (NADA) and a Texas dealer group. The NADA and Texas Automobile Dealers Association had asked the court to block the new rule that was set to take effect on July 30, 2024, claiming the regulations were "arbitrary, capricious, (and) abuse of discretion." The FTC had estimated that the new rules would save consumers nationwide more than $3.4 billion annually by targeting persistent and illegal bait-and-switch scams and junk fees in the car buying process.

Mike Stanton, NADA president and CEO, expressed his pleasure with the FTC's decision to stay the effective date of the rule but vowed to continue the fight to "keep this ill-conceived rule from taking effect." Stanton argued that the rule is "unnecessary, redundant, confusing, and will needlessly lengthen the car sales process for consumers." However, the FTC rejected the dealers' assertion that complying with the new rule would drive up their costs, stating that the rule does not impose substantial costs, if any, on dealers that presently comply with the law.

The CARS Rule, as it was known, would have required dealers to provide their offering prices, total payments, and optional add-ons in their advertising and sales discussions. It would also have banned bogus add-ons, such as warranty programs that duplicate manufacturers' warranties, service contracts for oil changes on electric vehicles, and software/audio subscription services on vehicles that cannot support those subscriptions. Additionally, the rule would have required dealers to obtain consumers' express, informed consent for any charges that were part of vehicle purchases.

The ruling by the 5th Circuit Court of Appeals may have significant implications for consumer protection in the auto industry. Without the CARS Rule in effect, consumers may continue to be lured by low prices only to be switched to more expensive vehicles once they arrive at the dealership. Additionally, dealers may continue to hide fees in lengthy contracts, making it difficult for consumers to understand the true cost of their purchase. This could lead to decreased consumer trust in the auto industry and a reluctance to purchase vehicles from dealerships in other EU member states.

The Alliance for Automotive Innovation's lawsuit against the NHTSA's mandatory automatic emergency braking (AEB) systems rule could also influence the broader discussion on consumer safety and industry regulations. The Alliance argues that mandating AEB systems in all vehicles, including heavy trucks, is "practically impossible with available technology." This argument could spark a broader debate about the balance between safety regulations and the practicality and cost implications for the industry. If the Alliance's lawsuit succeeds, it could set a precedent for challenging other safety regulations that are deemed too costly or impractical for the industry to implement. Conversely, if the NHTSA's rule is upheld, it could strengthen the agency's hand in imposing other safety regulations in the future.

In conclusion, the ruling by the 5th Circuit Court of Appeals and the Alliance for Automotive Innovation's lawsuit against the NHTSA's mandatory AEB systems rule may have significant implications for consumer protection, safety, and industry regulations in the auto industry. The outcome of these legal challenges could influence the competitive landscape within the industry, consumer trust, and the broader discussion on safety regulations. As the auto industry continues to evolve, it is essential to strike a balance between promoting fair competition, protecting consumers, and ensuring the safety of all road users.