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.
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.
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 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.
For businesses facing regulatory challenges, our team at Whitcomb, Selinsky, PC provides experienced legal guidance on commercial litigation and compliance matters.