Alert

FTC’s CARS Rule Vacated — What Finance Companies Need to Know

February 14, 2025

In a procedural decision, the U.S. Court of Appeals for the Fifth Circuit vacated the CARS Rule (officially, the Combatting Auto Retail Scams Trade Regulation Rule, sometimes known as the Vehicle Shopping Rule), which was designed by the Federal Trade Commission (FTC) to prevent deceptive practices by auto dealers, particularly in the sale of voluntary protection products (sometimes known as “add-ons” or “ancillary products”). Below, we break down the ruling, its implications, and what finance companies should expect from their dealer partners to ensure compliance with ongoing federal and state consumer protection expectations.

What did the Fifth Circuit Decide?

The Fifth Circuit did not reach the merits of the CARS Rule. Rather, it found that the FTC failed to first provide the required notice and opportunity for public comment before finalizing the rule. Under most circumstances, the FTC Act requires the FTC to first provide an “Advance Notice of Proposed Rulemaking” before a Notice of Proposed Rulemaking.

However, the Dodd-Frank Act relaxes the requirement for Advance Notice of Proposed Rulemaking when the FTC proposes certain rules regulating motor vehicle dealers, requiring only a Notice of Proposed Rulemaking (in other words, the same procedure that applies to the Consumer Financial Protection Bureau, or CFPB). However, according to the Fifth Circuit, the FTC’s own procedural rules do not authorize it to take advantage of the relaxed rulemaking option provided by Dodd-Frank when proposing a rule like the CARS Rule. Because the FTC did not follow its own procedural rules, the Court concluded that the CARS Rule must be vacated, without reaching the merits of the CARS Rule itself.

What was the CARS Rule?

The CARS Rule included specific requirements related to dealer conduct and consumer protections in the sale of vehicles, particularly add-on products. This included various prohibitions against misrepresenting the benefit of add-on products, selling products with “no benefit,” and failing to disclose add-ons that have been included in a price. The rule also included several new disclosure requirements, such as the contentious requirement to disclose the “offering price” of a vehicle—defined as the full cash price for which a dealer will sell or finance a vehicle to a consumer, excluding only required governmental charges—in any advertisement for a specific vehicle or financing term, or in consumer communications regarding such vehicles and financing terms. The rule also required dealers to disclose that add-on products are not required to purchase or lease a vehicle and to disclose the total amount the consumer will pay to purchase or lease the vehicle when making representations about monthly payments.

Perhaps most critically, the CARS Rule codified the concept of “express, informed consent,” which had developed over the course of several years of FTC enforcement actions against dealers. The rule prohibited dealers from charging a consumer for any item unless the dealer obtained “express, informed consent” of the consumer for the charge.

Express Informed Consent: The Continuing Standard?

While the CARS Rule and its formal documentation requirements are gone, it is unlikely that the FTC will completely abandon its efforts to combat deception in the sale of add-on products. Express informed consent means consumers must take an affirmative action to show unambiguous consent to a charge after receiving clear and conspicuous disclosure of the product, its costs, and whether it is optional or required. Although it is likely that the new makeup of FTC commissioners will not attempt to move forward with another formal rulemaking, it is less likely that the FTC will abandon this longstanding concept wholesale. Accordingly, maintaining processes to ensure that consumers are clearly informed about the products they purchase remains a priority.

A Potential Shift to the States and Consumer Bar

It is unclear what the future of the FTC and, particularly, the CFPB will look like under the Trump administration following recent activity by the Department of Government Efficiency (DOGE) and newly appointed leadership for both agencies.  The CFPB tactically recognized this when it published an article outlining how states can enforce various federal consumer protection statutes. State attorneys general are likely to keep pursuing enforcement actions, particularly in cases where dealers engage in deceptive conduct, regardless of politics. In fact, state attorneys general are actively pursuing enforcement against dealerships, with settlements such as the $1.9 million secured by New York’s Attorney General in May 2024 against two Long Island Nissan dealerships. Thus, for dealers operating in states with strong unfair and deceptive acts and practices (UDAP) laws, the regulatory landscape remains unchanged, and state enforcement will likely continue to be a significant factor in compliance efforts.

And the private bar typically takes its cues from the regulators. Thus, finance companies and dealers can expect to see an uptick in litigation over ancillary products, as well as whether a consumer provided express, informed consent.  And because these issues typically transcend a single deal, they are especially ripe for putative class actions.

What Should Dealers and Finance Companies Do Now?

The absence of the CARS Rule means that dealers are not bound by its prescriptive documentation requirements, but they must still ensure they are not engaging in deceptive practices. Finance companies, pursuant to the FTC Holder Rule, should continue to focus on what they can control, including the following:

• Express Informed Consent – When developing online sales and financing flows, consider the FTC’s guidance on “digital dark patterns,” avoiding design that forces consumers down a path toward being charged without understanding the products being purchased and associated costs.
• Complaint Management – Companies may wish to develop or refine processes to track, respond to, and address complaints related to “product packing” or unauthorized charges. Responding promptly to consumer concerns can help avoid potential enforcement actions. Taking appropriate corrective action in response to complaints is always advisable.
• Ancillary Product Policies – Implement consistent procedures around ancillary product offerings, especially cancellation processes and consumer refund requests. Finance companies may want to review their dealer agreements to ensure dealer compliance with state and federal standards and include dealer cooperation in product refund processes. Finance companies may also consider reviewing their funding processes around add-on products financed on the contracts assigned to them, consider controls to avoid duplicative benefits and “no benefit” products, and review add-on agreements for compliance with state laws.
• Monitor State Enforcement – Stay informed about state-level actions, as many states continue to aggressively enforce laws against deceptive practices in the auto industry.
• Arbitration – Companies may want to review consumer-facing contracts for arbitration clauses related to ancillary or add-on products.