Today’s topic is the FTC CARS Rule.
That the Federal Trade Commission tortured what was once known as the Motor Vehicle Trade Regulation Rule into “Combating Auto Retail Scams” tells you everything you need to know – this Rule is bad news.
What is the CARS Rule?
According to the FTC, the CARS Rule was necessary to accomplish four things:
Prohibit misrepresentations about material information – you know, fraud;
Require dealers to clearly disclose the offering price at which anyone can purchase the vehicle, excluding only taxes and other government fees;
Make it illegal for dealers to charge for “add-ons” that don’t provide a benefit, like selling GAP on a cash deal; and
Require dealers to get consumers’ “express, informed consent” before charging them for anything.
News flash: all of those things were already illegal before the CARS Rule went into effect. So why did the FTC need another rule to make all of these bad acts more illegal-er?
Before I answer that question, let me note that the real danger of the CARS Rule is not the behaviors it prohibits – again, they’re already illegal – but the mechanisms the FTC requires dealers to employ to comply. I won’t go into the details here, but the Rule in its current form would make vehicle transactions take longer, cost more money, and make it more difficult to sell Vehicle Protection Products consumers need or desire.
Why the CARS Rule?
So, why did the FTC issue the CARS Rule? I believe the FTC fast-tracked the Rule in response to the Supreme Court’s decision in the case of AMG Capital Management v. FTC. In that case, the FTC accused AMG Capital Management, a payday loan company, of many bad acts not important for our discussion. The FTC fined AMG $1.27 Billion, and AMG appealed, all the way to the Supreme Court.
In 2021, the Supreme Court unanimously ruled that the FTC did not, in fact, have the statutory authority to assess monetary fines in the first instance. The Supreme Court noted that Section 13(b) of the Federal Trade Commission Act does not give the FTC the right to assess equitable monetary relief such as restitution or disgorgement. Rather, the FTC could seek such monetary damages only if the FTC first secures a consent order or other injunction and the defendant subsequently violates that order, OR the defendant violates a trade regulation rule that specifically addresses the bad acts at issue.
What's next?
The CARS Rule is designed to be that trade regulation rule, allowing the FTC to go after monetary damages right out of the box. The CARS Rule has been issued. It is currently the law of the land. On the other hand, our friends at the National Automobile Dealers Association, in cooperation with the Texas Automobile Dealers Association, filed a petition before the United States Circuit Court of Appeals for the Fifth Circuit seeking to overturn the CARS Rule and a secure a stay of its enforcement, originally scheduled for July 30, 2024.
On January 18th, 2024, the FTC reversed its position opposing the Motion for Stay and granted that stay on their own authority pending resolution of the case by the Fifth Circuit. The parties need to fully brief the case, after which oral argument will be scheduled and then, possibly in 2025, the court will rule, and we’ll know where we stand.
What can dealers do right now?
But even if NADA and TADA prevail in their legal action against he FTC, that doesn’t mean the CARS Rule is gone for good. The FTC has the ability to cure its procedural defects and issue it again in some form in the future. The best thing dealers can do in the meantime is not provide ammunition for the FTC to support the next version of the Rule.
So, don’t do illegal things.