A U.S. appeals court has overturned consumer protection rules introduced by the Biden administration to prevent deceptive practices in auto sales. The 5th Circuit Court of Appeals ruled in a 2-1 decision that the Federal Trade Commission (FTC) did not follow proper procedures in drafting the regulations. The lawsuit, brought by the National Automobile Dealers Association (NADA) and a Texas dealer group, successfully challenged the rule, arguing that it was improperly developed. As a result, the FTC’s attempt to enforce pricing transparency and eliminate unfair add-on charges will not move forward.
What the FTC’s Rule Aimed to Achieve
The FTC introduced the rule in 2022 and finalized it in January 2024, intending to improve transparency in auto sales. It required dealerships to clearly disclose pricing in advertisements and obtain consumer consent before charging for additional products or services. The regulation sought to eliminate unnecessary fees, such as duplicate warranties and service contracts for features that do not apply to certain vehicles, like oil changes for electric cars. The FTC estimated that the rule would have saved consumers billions of dollars and reduced the time spent purchasing vehicles. However, the court’s ruling means the rule will not be implemented.
The ruling was celebrated by auto dealers, who argued that the FTC’s rule would have complicated the buying process. NADA President Mike Stanton called the decision a victory for consumers and the rule of law, claiming the regulation would have added unnecessary paperwork, time, and costs. Dealerships have long opposed federal interventions that impose additional requirements, maintaining that the market should regulate itself without excessive government oversight.
FTC’s Ongoing Actions Against Unfair Practices
Even without this regulation, the FTC has been actively pursuing legal action against deceptive dealership practices. In December 2023, the agency secured a $20 million settlement from 10 dealerships accused of misleading consumers. The FTC has consistently taken enforcement actions against fraudulent auto sales tactics, demonstrating its commitment to consumer protection despite legal setbacks in broader regulatory efforts.
Judge Stephen Higginson dissented from the decision, arguing that Congress granted the FTC the authority to regulate transparency and prevent deception in auto sales. He pointed out that the rule was based on over a decade of consumer complaints, public feedback, and enforcement actions against dishonest dealerships. Higginson warned that blocking the rule could weaken consumer protections and limit the FTC’s ability to address unfair practices in the future. The court’s decision raises questions about how similar regulations will be handled going forward and whether consumers will continue to face deceptive sales tactics.
