On February 4, the U.S. Court of Appeals for the Fifth Circuit struck down the FTC’s Combating Auto Retail Scams Trade Regulation Rule (CARS Rule), which aimed to address deceptive practices such as bait-and-switch tactics and hidden or “junk fees” by automobile dealers. As previously covered by InfoBytes, the CARS Rule would have impacted the consumer finance industry by imposing debt collection requirements on automobile dealers.

The case was brought by two automobile trade associations contending the FTC violated its own regulations by not issuing an Advance Notice of Proposed Rulemaking (ANPRM), failing to provide a reasoned justification for the rule, and conducting a flawed cost-benefit analysis. The appellate court sided with the petitioners, emphasizing that under Section 18(b), “[p]rior to the commencement of any trade regulation rule proceeding, the Commission must publish in the Federal Register an advance notice of such proposed proceeding.”

A central issue in the court’s ruling was whether the statutory authority for the CARS Rule was derived from the FTC Act or the Dodd-Frank Act. While the Dodd-Frank Act provides an exemption from the ANPRM requirement, the court concluded that the CARS Rule was issued under Section 18(a) of the FTC Act — which necessitates an ANPRM. As a result, the court vacated the rule, citing the FTC’s failure to adhere to its procedural obligations.