5 Key Takeaways from the Court Ruling on the FTC’s CARS Rule

1. The FTC Didn’t Follow Proper Rulemaking Procedure

The court found that the FTC failed to issue an advance notice of proposed rulemaking before drafting the CARS Rule, which is required under the FTC Act. This step would have allowed for public feedback on the issues the rule intended to address. Instead, the FTC moved directly to presenting the draft rule and cost-benefit analysis.

The court’s majority, including U.S. Circuit Judges Jerry Smith and Patrick Higginbotham, ruled that the lack of proper notice invalidated the rule. Higginbotham emphasized that this omission violated the statutory framework of the FTC.

To-Do for Dealers

While the CARS Rule is vacated, stay updated on future regulatory developments. Ensure compliance with existing advertising and financing laws while preparing for potential future rules.

2. A Dissenting Judge Criticized the Ruling

Judge Stephen Higginson dissented, arguing that the lack of advance notice didn’t harm the dealer associations. He noted that there had already been extensive public engagement, including years of roundtables, comments, and consumer complaints.

However, the majority opinion held that earlier notice could have allowed for greater industry participation.

To-Do for Dealers

Keep an eye on industry feedback and regulatory discussions. Stay engaged in public forums and industry roundtables that influence future rulemaking processes.

3. The Court Avoided Other Key Arguments

NADA and TADA raised concerns that the CARS Rule was “arbitrary and capricious,” arguing that the FTC’s cost-benefit analysis was flawed. They also questioned whether the rule was needed, given the lack of widespread evidence of dealership misconduct.

The majority opinion did not address these points, instead focusing on the procedural misstep.

To-Do for Dealers

Audit your business practices for transparency and compliance to avoid potential legal issues in the future. Stay prepared for any future regulations aimed at preventing deceptive practices.

4. What Comes Next for the FTC?

Following the court’s decision, the FTC has several options. It could petition for a rehearing before the full 5th Circuit Court, escalate the case to the Supreme Court, or restart the rulemaking process from scratch. It might also amend its internal procedures to align with the court’s interpretation.

As of January 28, 2025, the FTC had no official comment on its next steps. NADA celebrated the ruling, calling it a victory for both consumers and dealerships.

To-Do for Dealers

Monitor any announcements from the FTC and NADA. Prepare for potential appeals or new rulemaking efforts and stay informed on any regulatory changes that could impact operations.

5. A Timely Ruling

The ruling came just one day after NADA concluded its annual show in New Orleans, adding a fitting conclusion to the event. The decision highlighted the ongoing challenges the auto industry faces in regulatory compliance.

As the industry moves forward, the ruling emphasizes the importance of collaboration between regulators and stakeholders to ensure fair and effective rulemaking.

To-Do for Dealers

Use this ruling as a reminder to prioritize legal and operational compliance. Foster strong relationships with regulatory bodies and industry associations to stay ahead of regulatory trends.

Brady Ware Can Help Your Dealership Navigate Regulatory Changes

As the auto retail industry navigates the aftermath of this ruling, staying informed and proactive will be key in managing future regulatory changes. Dealers should continue engaging with industry associations and monitoring updates to ensure they remain compliant and competitive in a rapidly evolving marketplace.

For assistance with regulatory compliance, accounting, or consulting, reach out to Brady Ware today to stay ahead of the curve and receive expert guidance tailored to your dealership’s needs.