CARS Rule
National Automobile Dealers Association v. Federal Trade Commission
Date: Jan. 27, 2025
Issue: Whether the Federal Trade Commission (FTC) violated the Federal Trade Commission ACT (FTCA) and Administrative Procedure Act (APA) by promulgating the Combating Auto Retail Scams Trade Regulations Rule (CARS Rule) without publishing an Advanced Notice of Proposed Rulemaking (ANPR).
Case Summary: In a 2-1 decision, a Fifth Circuit panel vacated the CARS Rule, ruling the FTC violated the FTCA by promulgating the rule without first issuing an ANPR.
On January 4, 2024, the FTC issued the final CARS Rule targeting bait-and-switch tactics and hidden fees by auto dealers. The rule has four key provisions: prohibiting specific misrepresentations; requiring certain disclosures; banning valueless add-ons; and mandating express, informed consumer consent before charging any fees. On the same day, the National Automobile Dealers Association, and the Texas Automobile Dealers Association (collectively petitioners) petitioned the Fifth Circuit, challenging the procedural validity of the rule. The petitioners argued the FTC violated its own regulations by failing to issue an ANPR before promulgating the CARS Rule. They also contended the FTC’s cost-benefit analysis was arbitrary and capricious.
The panel ruled that the FTC’s statutory authority for the CARS Rule stems from § 18(a)(1)(B) of the FTC Act, which requires an ANPR under the FTC’s internal regulations, rather than § 1029(d) of the Dodd-Frank Act, which does not require an ANPR. In effect, the panel ruled that the FTC violated its own regulations by not issuing an ANPR, emphasizing that “it is a given of administrative law that agencies must follow their own regulations.”
The panel also rejected the FTC’s argument that its failure to issue an ANPR was a harmless error, ruling that the petitioners had demonstrated sufficient prejudice. In the panel’s view, the lack of an ANPR deprived the petitioners of a procedural benefit and drew into question the substance of the FTC’s decision. The panel explained, “NADA has shown that it is far from clear that the failure to issue an ANPR had no bearing on the procedure used or the substance of decision reached. This was not harmless error.”
Finally, the panel refused to defer to the FTC’s interpretation under Kisor v. Wilke. Under Kisor, a court must defer to an agency’s interpretation of an ambiguous regulation. However, the panel found no relevant ambiguity in the FTC’s regulatory framework.
Judge Stephen Higginson dissented, arguing that the petitioners had ample opportunity to participate in the rulemaking process through public roundtables and comments. Judge Higginson noted that the FTC held public roundtables for a decade and reviewed hundreds of comments about unfair practices by car dealers before it issued the rule. As explained by Judge Higginson, NADA failed to prove prejudice or show that the FTC’s rulemaking process was arbitrary or capricious, and in his view, the majority’s decision is “regrettable.”
Bottom Line: As of March 1, 2025, the FTC has not filed for an en banc (full panel) petition for rehearing.
Documents: Brief
