Suspension of Government Ban on Unfair Dealer Fees

Dealerships successfully block implementation of July 30th shady sales tactic ban, rendering it indefinitely postponed.

Towards the end of last year, the Federal Trade Commission (FTC) implemented a regulation aimed at preventing deceptive practices by car dealerships and safeguarding consumers from surprise charges. The regulation, called the Combating Auto Retail Scams (CARS) rule, was unanimously passed by the FTC and was set to take effect on July 30th of this year. However, dealer lobbyists have halted its progress.

The development of the CARS rule did not receive approval from the National Automobile Dealers Association (NADA). Consequently, both NADA and the Texas Automobile Dealers Association submitted a petition to the Fifth Circuit Court of Appeals, contesting the legislation. The Court has decided to review this case against the Federal Trade Commission (FTC), leading to a postponement of the implementation of the CARS rule.

The central point of contention in the ongoing legal dispute revolves around the question of whether the Federal Trade Commission (FTC) has the authority to enforce the law in question. In a petition submitted to the Fifth Circuit, the dealership groups have labeled the FTC’s actions as “an abuse of discretion” and are seeking an injunction to prevent its implementation. On the other hand, the FTC argues that the rule does not impose significant expenses, if any, on compliant dealerships. Instead, it aims to level the playing field for both dealerships and consumers by eliminating unnecessary fees and undisclosed costs.

A request was made for the speedy review of the opposition towards the CARS regulation, suggesting a potential court ruling within the next twelve months. Should the courts side with the Federal Trade Commission (FTC), it is likely that implementation of the CARS rule will only be postponed for a brief period, possibly still taking effect before 2024 comes to a close.

Despite a potential victory for the FTC in this dispute, further challenges could lie ahead. This is due to dealership organizations advocating for Congress to pass legislation that would limit the FTC’s authority in regulating car sales. The substantial financial consequences of disobeying the CARS rule may provide some understanding as to why: each violation of a trade regulation rule can result in a hefty fine of $50,120.

Source: FTC Office of Public Affairs