On January 27, 2025, the Federal Trade Commission’s (FTC) Combatting Auto Retail Scams (CARS) Rule was vacated by the United States 5th Circuit Court of Appeals on technical grounds by announcing its decision that the FTC had violated the Administrative Procedure Act for failing to issue an advance notice of proposed rulemaking (ANPRM).
Challenged by the National Automobile Dealers Association (NADA) and the Texas Automobile Dealers Association (TADA), the two organizations brought several substantive challenges as part of their petition to review the Rule. In a 2-1 decision, the court held that the FTC violated the Administrative Procedure Act by failing to issue an ANPRM, a requirement of the agency’s own regulations, and declined to address the other remaining challenges.
Summary of Court’s Analysis
According to the released decision, the FTC Act requires the Commission to issue an ANPRM when promulgating rules under section 18(a)(1)(B) of the Act, which grants the Commission the authority to “prescribe . . . rules which define with specificity acts or practices which are unfair or deceptive acts or practices in or affecting commerce.”
However, the court noted that Subpart C of the Dodd-Frank Act, enacted in 2010, relaxes some of the statutory procedures from the FTC Act when the FTC is promulgating rules related to motor vehicle dealers, thus potentially eliminating the requirement for an ANPRM. However, the court ultimately held that the statutory authority for promulgating the proposed CARS rule was drawn from the FTC Act and not from the Dodd-Frank Act, which means that the FTC was required to issue the ANPRM. Therefore, the FTC was found to be in violation of the Administrative Procedure Act.
The FTC raised several other arguments in favor of allowing the CARS rule to proceed, however the court found them “not convincing.”
What’s Next?
It is impossible to predict the path the FTC will take in response to the 5th Circuit’s decision. It could potentially appeal the decision or even engage in new rulemaking. However, given the Trump Administration’s executive order placing federal rulemaking on hold and likely future leadership changes at the FTC, it appears that the CARS rule may have reached its end. However, it is imperative to recognize that the CARS rule was an embodiment of how the FTC was already implementing its UDAAP authority through federal enforcement actions. Given their overall goal of protecting consumers, it is likely that the FTC will continue to take its own enforcement actions and will work with state attorneys general and other regulators to bring state level enforcement actions.
F&I Sentinel has been closely monitoring the progression of the Rule and has continuously kept our customers aware of its progress. Our legislative and regulatory monitoring allows us to assist our customers with keeping their compliance practices for F&I products up to date and proactively adjust for changes at a moment’s notice.
F&I Sentinel will continue to provide updates on important federal and state outcomes and ensure you’re set up for success in our ever-changing industry.
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The information provided in this post does not, and is not intended to, constitute legal advice; instead, all information, content, and materials referenced are for general informational purposes only. Readers should contact their attorney to obtain advice with respect to any particular legal matter.
