On October 9, 2024, the Fifth Circuit heard oral argument on the administrative challenge lodged by the National Automobile Dealers Association (NADA), a national trade association representing the interests of U.S. car dealers, against the Combating Auto Retail Scams (“CARS”) Trade Regulation Rule issued by the Federal Trade Commission (FTC) in December 2023. The FTC adopted the rule with the aim to eliminate alleged misleading advertising and sales tactics by new car dealers with various transparency and disclosure requirements. The July 2024 effective date of the rule was paused after NADA filed its protest in January 2024, and the rule remains in abeyance while NADA’s challenge remains pending.
Lawyers for NADA and the FTC faced difficult questions from the three-judge panel during the hearing, which had been scheduled for 30 minutes but continued for more than an hour. The arguments made by both sides at the hearing was consistent with their pre-hearing briefing of the issues. The panel appeared skeptical toward NADA’s argument that the FTC failed to comply with the notice requirements of the Administrative Procedures Act. One panel member questioned NADA as to how a lack of public notice caused it harm given NADA was notified of the proposed rule, “participated fully” in the process and the final rule reflected NADA’s input. Conversely, another panel member noted that NADA’s significant response to the proposed rule indicates it “surely would have submitted more” if provided the advanced notice, and that such further response may have ultimately demonstrated that the CARS Rule was unnecessary, or at least merited a less sweeping breadth. Meanwhile, counsel for the FTC emphasized the agency’s broad rulemaking authority—including the grant of authority in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to adopt auto industry-specific consumer protection regulations—and faced questions from the panel as to the limits of the FTC’s regulatory authority.
During the hearing, counsel for NADA characterized the CARS Rule as a “billion dollar rule,” arguing that the cost of compliance would far outweigh any benefit to consumers, particularly given the panoply of regulatory requirements already imposed on new car dealers, including detailed disclosures for car loans. Counsel for the FTC, in turn, pointed to the thousands of consumer complaints it is receiving annually to justify further regulation. One panel member pushed the FTC on the high cost to dealers by making a parallel to the 1968 Truth in Lending Act (TILA), a law requiring lenders to disclose information about all charges and fees associated with auto loans. The panel member noted that the many years it took for courts to resolve issues in connection with the TILA—a process that “went on forever”—resulted in “incredible compliance costs,” and that similarly significant costs would likely arise from the CARS Rule. Another panel member grilled NADA on the extent of its burden, which he described as simply “paperwork” expected in “any regulated industry”. Questioning from the members of the Fifth Circuit panel suggested they might be reluctant to disturb the cost-benefit analysis conducted by the FTC, so long as the agency had weighed the input submitted by NADA and other advocates for new car dealers during the rulemaking process.
The panel, comprised of two Reagan appointees and one Obama appointee, acknowledged the importance of the issue and the many amicus briefs submitted in support of and opposition to the CARS Rule. The panoply of interested parties weighing in, including the U.S. Chamber of Commerce, several consumers’ rights organizations, and various state Attorneys General, demonstrates the far-reaching impact of the CARS Rule. Notably, NADA is represented in this matter by a law firm specializing in appeals to the U.S. Supreme Court, suggesting the trade association anticipated from the outset this dispute may not end with a decision from an intermediate court of appeals.
