US Court of Appeals vacates CARS Rule

The National Automobile Dealers Association could claim victory by still hosting NADA Show 2025 last week in New Orleans, despite the biggest snowstorm in more than 100 years hitting the city just days before the expo hall doors opened.
Then late on Monday, NADA had another claim to victory in the Big Easy: the U.S. Court of Appeals for the Fifth Circuit, which is located in New Orleans, sided with NADA and the Texas Automobile Dealers Association to vacate the CARS Rule pushed by the Federal Trade Commission.
Last October, three judges heard oral arguments in the legal challenge to the CARS Rule from the dealer associations and the FTC. By a 2-1 margin revealed on Monday, the court vacated the rule that originally was supposed to go into effect last summer.
Hudson Cook partner Julia Whitelock shared a copy of the 23-page ruling with Cherokee Media Group.
“The Fifth Circuit’s January 27, 2025, decision to vacate the CARS Rule holds the FTC to the letter of the law and the agency’s clear regulations,” Whitelock said via an email message. “In a split decision, the panel majority determined that the FTC promulgated the CARS Rule under Section 18(a)(1)(B) of the FTC Act, which triggered the FTC’s internal procedural requirement to begin its rulemaking process with an advanced notice of proposed rulemaking (ANPRM).
“The FTC’s failure to do so deprived the NADA and the TADA of a procedural benefit that could not be discredited as harmless error. While the FTC could petition for en banc or Supreme Court review, this ruling makes clear that rules are made to be followed,” Whitelock continued.
The ruling further explained how the FTC looked to leverage the Dodd-Frank Act to enact the CARS Rule, but the appeals court disagreed. Here’s what the judges said:
And, the Dodd-Frank Act did not — as the FTC contends — give “the Commission a clear directive to use regular APA procedures”; it rather “authorized” it to do so. While the Dodd-Frank Act lowered the procedural floor for certain rulemaking, it did not abrogate the FTC’s additional procedural safeguards. So the FTC’s internal regulations, which require an ANPRM, do not thwart Congress’s instructions in the Dodd-Frank Act. This is because the Act gave the Commission an option, not a “mandate,” to dispense with the ANPRM requirement when promulgating rules for auto dealers, an option the FTC has chosen not to exercise, leaving the ANPRM requirement of subpart B to apply to “any trade regulation rule proceeding.”
NADA president and CEO Mike Stanton issued a statement on Tuesday morning.
“Monday’s decision by the 5th Circuit Court of Appeals on NADA’s and TADA’s legal challenge is a victory for the rule of law and a great outcome for consumers,” Stanton said. “As we have been saying since this rushed, poorly researched, and unnecessary rule was announced, the FTC’s Vehicle Shopping Rule (CARS Rule) would have added massive amounts of time, complexity, paperwork and cost to the car-buying and car-shopping experience for virtually every customer. That truly would have been a nightmare for consumers and dealers alike.
“Thanks to the success of this legal challenge, dealers can get back to what they do best, which is creating the best-possible customer experience and reducing transaction times wherever possible,” he continued.
The outcome also drew cheers from the National Independent Automobile Dealers Association and its counterpart in the Lone Star State.
“On behalf of our more than 13,000 members, we applaud the decision of the court to vacate the onerous CARS rule for the lack of prior notice. NIADA joined Texas IADA in filing an amicus brief to the NADA and Texas ADA case against the Federal Trade Commission because we believed the rule would have caused irreparable harm to dealers and consumers, with added expenses and extended times to complete purchases,” the NIADA said in a statement on the court decision.
“We support transparency and fairness in vehicle sales, which are already heavily regulated without the additional requirements of the CARS rule. We look forward to continuing conversations with the FTC on issues related to our industry. NIADA will continue to advocate on behalf of its members and keep you abreast of issues as they arise,” the association continued.
The FTC finished 2023 by unveiling the Combating Auto Retail Scams Trade Regulation Rule, triggering a tremendous reaction from NADA and the dealer community.
At that time, the FTC explained the CARS Rule prohibits dealers from using “bait-and-switch claims to lure vehicle buyers to the lot,” including about the cost of a car or the terms of financing, the availability of any discounts or rebates, and the actual availability of the vehicles being advertised.
“It also tackles hidden junk fees — charges buried in lengthy contracts that consumers never agreed to pay. In some cases, these fees are for services or products that provide no benefit to consumers,” the FTC said.
Then last January, the FTC issued an order postponing the effective date of the rule while a legal challenge against the rule was pending from NADA and TADA in the U.S. Court of Appeals for the Fifth Circuit.
Previously, the rule was set to be implemented on July 30.
“We are pleased that the FTC has determined that ‘it is in the interests of justice to stay the effective date of the rule to allow for judicial review,’” Stanton said in a statement after the stay was issued.
“We continue to believe the rule is unnecessary, redundant, confusing, and will needlessly lengthen the car sales process for consumers,” Stanton continued. “The FTC failed to demonstrate the need for the rule and has not tested the effectiveness of its mandates with consumers.
“NADA will continue to advocate in the courts and in Congress to keep this ill-conceived rule from taking effect,” Stanton went on to say.
Perhaps NADA and the dealer community want to celebrate at the level typically seen in New Orleans. Steve Levine, an auto finance lawyer with more than 30 years of experience protecting car dealers and finance companies and an owner and chief legal and compliance officer of Ignite Consulting Partners, suggested a more modest approach at this time.
“I think the Fifth Circuit decision is well reasoned and correct in finding that the FTC failed to issue an advance notice of proposed rulemaking,” Levine said in a message to Cherokee Media Group.
“Dealers shouldn’t celebrate prematurely though,” he continued. “While it may be unlikely that the new FTC chairman follows with new rulemaking, the FTC has taken the position that much of the proposed rules are already the law. Plus, I expect to see many states use similar language when enacting their own laws when it comes to advertising and offering price and express informed consent.”
Levine also shared another theory about how this entire regulatory matter unfolded.
“During the Biden administration, the FTC and CFPB leadership took aggressive positions and didn’t seem to mind if they would be overturned by the courts down the road. That is precisely what’s happened here,” Levine said.