A U.S. appeals court on Jan. 27 nullified a set of Federal Trade Commission (FTC) regulations designed to prevent deceptive practices by auto dealers, ruling the agency had failed to follow procedural requirements when drafting the rules.
The regulations, which sought to ban bait-and-switch tactics and unnecessary add-on charges, were challenged by the National Automobile Dealers Association (NADA) and a Texas dealer group.
In a 2-1 decision, the 5th Circuit Court of Appeals found the FTC violated procedural rules by failing to provide advance notice of the regulation. The rule, initially proposed in 2022 and finalized in January 2024, was first set to go into effect July 30, 2024, then Sept. 30, 2025.
The FTC later issued an order delaying the effective date of the rule pending judicial review of the NADA/TADA petition.
The FTC argued the rules would protect consumers from deceptive fees, such as service contracts for oil changes on electric vehicles or redundant warranties, estimating they could save consumers more than $3.4 billion annually and reduce car shopping time by 72 million hours. The regulations also mandated transparent pricing in advertising and sales discussions and required consumer consent before any add-on charges were applied.
NADA, on the other hand, cited a study by the Center for Automotive Research (CAR) of the potential impact of the rule, which projected it would add 60 to 80 minutes to the car buying process, while increasing expenses by $24.1 billion over 10 years for consumers and small business dealers.
The study said to comply with the rule, dealer costs would include updated and ongoing training, investments in IT systems, as well as planning, preparation and compliance reviews. Each dealership location would face median upfront compliance costs of $31,450 and average recurring annual costs of $39,862 per location -- adding up to between $14.4 million and $17.2 million over a 10-year period for dealers nationally.
For consumers, the study estimated the new rule would cost them $1.3 billion annually in lost time.
NADA President Mike Stanton hailed the court's Jan. 27 decision as “a victory for the rule of law and a great outcome for consumers.”
