Court Strikes Down FTC’s CARS Rule in Auto Dealer Regulation Case

The case of National Automobile Dealers Association v. Federal Trade Commission examined the Federal Trade Commission’s (FTC) authority in regulating automobile dealers and the procedural requirements for issuing new trade regulations. The case centered on the FTC’s Combating Auto Retail Scams Trade Regulation Rule (CARS Rule) and whether the agency followed its own procedural guidelines in promulgating the rule. The United States Court of Appeals for the Fifth Circuit reviewed the case and ultimately vacated the CARS Rule due to procedural violations by the FTC.

Background and Legal Issues

Following the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the FTC engaged in industry discussions regarding consumer protection issues in automobile sales. Over time, the agency determined that unfair and deceptive practices remained prevalent and sought to establish regulations to curb these issues. In July 2022, the FTC proposed the CARS Rule without issuing an Advance Notice of Proposed Rulemaking (ANPRM), a step required under certain FTC regulations.

The CARS Rule imposed several requirements on automobile dealers, including prohibitions against misrepresentations, mandatory disclosures, and restrictions on add-ons with no consumer benefit. The National Automobile Dealers Association and the Texas Automobile Dealers Association challenged the rule, arguing that the FTC failed to follow its own procedural requirements under Section 18(a)(1)(B) of the Federal Trade Commission Act.

Court’s Analysis and Findings

The Fifth Circuit’s review focused on whether the FTC was required to issue an ANPRM before promulgating the CARS Rule. The court found that:

• The CARS Rule derived its authority from Section 18(a)(1)(B) of the FTC Act, which mandated the issuance of an ANPRM.
• The Dodd-Frank Act did not provide the FTC with independent substantive rulemaking authority beyond what was already established under the FTC Act.
• The FTC’s failure to issue an ANPRM was not a harmless procedural error. The court concluded that stakeholders, including the National Automobile Dealers Association, could have provided additional input had they been given the opportunity through an ANPRM.
• The agency’s interpretation of its own rules did not merit deference under judicial doctrines such as Auer v. Robbins and Kisor v. Wilkie because the procedural requirement was unambiguous.

Conclusion and Ruling

The Fifth Circuit granted the petition for review and vacated the CARS Rule. The court held that the FTC had failed to adhere to its own regulatory procedures and that this failure was significant enough to invalidate the rule. As a result, the CARS Rule, which sought to regulate auto dealer practices, was struck down.

This ruling serves as a reminder of the importance of procedural compliance in regulatory rulemaking. Agencies like the FTC must adhere to statutory and internal procedural requirements to ensure that rulemaking efforts withstand judicial scrutiny.

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