Dubious advertising and sales tactics some car dealers employ will remain legal. A federal appeals court Monday threw out a set of rules that would have banned bait-and-switch pricing, additional charges for useless services, and other questionable tactics that drive up new car prices.
About the CARS Rule
In late 2023, the Federal Trade Commission proposed a new set of federal regulations to ban junk fees and misleading advertisements at car dealerships.
The Combatting Auto Retail Scams (CARS) rule would have outlawed:
- Bait-and-switch marketing: Advertising cars the dealer never had in stock or prices or financing terms the dealer will not honor.
- Junk fees: Fees for products or services that do not benefit the consumer. The FTC gave examples, including nitrogen in tires or additional warranties that duplicate a manufacturer’s warranty.
- Misleading buyers about optional fees: Telling buyers that extended warranties or other services are mandatory.
- Surprise fees: In a guide explaining the rules to dealerships, the FTC said, “Under the CARS Rule, dealers must get consumers’ express, informed consent before charging them for anything. Period.”
These practices are not common to every car dealership. However, enough dealerships engage in them to create a public image problem for the rest.
The rules never went into effect.
Dealership Groups Objected
The National Automobile Dealers Association and the Texas Automobile Dealers Association sued to block the rules, arguing that the FTC hadn’t followed the proper process in communicating them to the public. Federal agencies must announce that a rule is coming, issue proposed rules, allow a period for public comments, and finalize them.
Court Objects to Process, Not Rules
The fifth U.S. Circuit Court of Appeals agreed on Monday. The court found that the agency had “failed to issue an advance notice of proposed rulemaking in violation of its own regulations.”
The ruling vacates the rules.
New FTC Head Unlikely to Push Back
The decision likely ends federal attempts to regulate car dealer junk fees.
The FTC’s leadership transitioned when the presidency did. Biden-era chair Lina Khan had made junk fees a major part of the agency’s mission, going after misleading pricing in many industries.
New Trump administration FTC chair Andrew Ferguson has not commented on the FTC’s anti-junk-fee crusade. His early actions have focused on ending diversity programs.
Backup Plan Dropped, Too
The FTC had a second proposal in the works that could have reined in car dealership fees. A more general anti-junk-fee rule would have applied to nearly every industry.
A final version of that rule published in December limited it to event tickets and hotel stays.