FTC Pauses CARS Rule Effective Date
The FTC has paused the implementation of the CARS Rule as of January 18, 2024. This means that, until a legal dispute to the Rule is settled in court, the Rule will go into effect. The CARS Rule was scheduled to take effect on July 30, 2024.
The FTC's order to pause the implementation of the Rule states that "the rule does not impose substantial costs, if any, on dealers that presently comply with the law, and to the extent there are costs, those are outweighed by the benefits to consumers, to law-abiding dealers, and to fair competition—as honest dealers will not be at a competitive disadvantage relative to dishonest dealers.”
The National Automobile Dealers Association (NADA) and the Texas Automobile Dealers Association (TADA) filed a legal challenge with the Fifth Circuit Court of Appeals, seeking to block the regulations. They contend that the FTC's actions are “arbitrary, capricious (and) an abuse of discretion,” and could “upend the sales process for tens of millions of consumers annually and thousands of small businesses.”
As TIADA reported in December, the FTC's website offers a dealers' guide to the CARS Rule, which takes effect on July 30, 2024, where they summarize the Rule's requirements:
The CARS Rule prohibits misrepresentations about material information.
The CARS Rule requires dealers to clearly disclose the offering price – the actual price anyone can pay to get the car, excluding only required government charges. For example, an advertised price would need to include the documentary fee in the advertised price to meet this requirement.
Dealers must provide the drive-off-the-lot price in any communication with a consumer that refers, expressly or by implication, to a specific vehicle or to any monetary amount or financing term. For example, a dealer responding to an inquiry on a specific vehicle must include the offer price in a response to the inquiry.
If a dealer mentions optional add-ons, the dealer has to tell the consumer they can say no. And if discussing a monthly payment, the dealer has to tell the consumer the total payment.
The CARS Rule makes it illegal for dealers to charge consumers for add-ons that don't provide a benefit such as selling GAP when the amount financed is low enough that it would not benefit the consumer.
The CARS Rule requires dealers get consumers' express, informed consent before charging them for anything. This consent must be conveyed in writing, and also orally for in-person transactions.
The FTC argues that these regulations are necessary to protect consumers from deceptive and unfair practices. They estimate the rules will save consumers over $3.4 billion annually and reduce the time spent car shopping by an estimated 72 million hours.
However, dealers and some automakers express concerns about the potential impact of the regulations. The Alliance for Automotive Innovation, representing major car manufacturers, has warned of “excessive regulation and micromanagement of the sales experience.” Additionally, a U.S. House committee has initiated an investigation into the FTC's rules, questioning whether they could “make car purchases more difficult and inhibit innovation in the industry.”
The legal challenge by the dealer associations sets the stage for a potential court battle over the future of car buying in the United States. As the July 30 implementation date approaches, independent dealers will be closely watching the legal proceedings and preparing for how these new regulations might impact their operations and customer interactions.
TIADA will continue to follow this story and provide updates as they become available. We encourage our members to stay informed and reach out to us with any questions or concerns.