A Post-CARS Rule Brake? Not So Fast. Buckle Up for New Regulatory Activity in the Motor Vehicle Space

The Fifth Circuit vacated the Federal Trade Commission’s (“FTC”) Combating Auto Retail Scams Trade Regulation Rule (“CARS Rule”) on January 27, 2025, determining that the FTC failed to follow its own procedural requirements in rulemaking. While the CARS Rule never came to effect, the FTC’s and state Attorney Generals’ scrutiny of the auto lending industry through enforcement actions—as well as recent state legislative activity—nonetheless signal regulatory concerns about some of the practices that the CARS Rule was intended to target.

CARS Rule

The FTC issued its final CARS Rule in January 2024, which would have prohibited certain acts or practices of motor vehicle dealers as unfair or deceptive, including misrepresentations about the costs or terms of purchasing a vehicle or of any add-on product or service, failure to disclose the offering price (i.e., the actual price anyone may pay to purchase the car), as well as charging consumers for add-on products that do not provide a benefit. Trade associations filed suit in the Fifth Circuit arguing that the FTC failed to adequately consider the costs of the rule, and that the rule is arbitrary and capricious. The Fifth Circuit agreed and vacated the CARS Rule on procedural grounds, determining that the FTC violated its own regulations under Section 18(b) of the FTC Act, which required issuance of an advance notice of proposed rulemaking (“ANPRM”) when establishing regulations that declare certain acts or practices to be unfair or deceptive. The Fifth Circuit rejected the FTC’s argument that it had promulgated the CARS Rule under the Dodd-Frank Act, finding that, while the Dodd-Frank Act allowed the FTC to bypass statutory ANPRM requirements, it did not eliminate the FTC’s own procedural obligations including issuance of an ANPRM.

Although the Fifth Circuit in effect nullified the CARS Rule, and the FTC may pursue a different rulemaking agenda under the new administration, auto dealers remain subject to existing FTC rules, several of which prohibit conduct that the CARS Rule was intended to target. For example, Section 5 of the FTC Act’s prohibition against unfair or deceptive acts or practices (“UDAP”) would prohibit a dealer from misrepresenting costs associated with purchasing a vehicle, as well as from engaging in “bait and switch” tactics such as advertising a vehicle for sale at a lower price than what is actually available.

State Enforcement Action

State attorneys general (“AGs”) could increase their scrutiny of the auto lending industry and pursue enforcement actions against dealers and/or lenders under their state statutory UDAP authority, particularly those who view the Fifth Circuit CARS Rule decision as a setback in consumer protection. Nineteen state AGs¹ filed an amicus brief in support of the FTC’s defense of the CARS Rule, in which they argued that the high volume of consumer complaints, lawsuits, and regulatory enforcement actions—which have failed to eliminate dealerships’ bait-and-switch advertising and assessment of hidden fees—warrant additional regulation to stem deceptive practices in automotive sales.

Over the past few years, states have filed enforcement actions against auto dealers for alleged misconduct targeted by the CARS Rule—sometimes jointly with the FTC—and often focusing on dealerships that allegedly advertised vehicles at low prices that were not actually available, sold add-on products and services that consumers did not want, and failed to disclose issues with vehicles sold as-is:

• In December 2024, the Illinois AG and the FTC entered into a $20 million settlement with an operator of ten dealerships. The FTC indicated this was its largest settlement to date involving UDAP by auto dealers. The Illinois AG and the FTC alleged that the dealerships engaged in bait-and-switch tactics by advertising low prices, but then requiring consumers to purchase pre-installed add-on products or charging consumers for those products without their knowledge or permission. The settlement agreement also required the dealerships to disclose the offering price for vehicles in marketing materials, as well as provide the total cost of the vehicle when discussing leasing or financing with consumers.
• In August 2024, the Arizona AG and the FTC announced a $2.6 million settlement against an auto dealer, alleging that the dealer falsely advertised prices online at significant discounts, but charged for add-on products that were allegedly pre-installed on the car, as well as other fees that sales representatives indicated were required to purchase the car. The Arizona AG and the FTC also alleged that the dealer discriminated against Latino consumers given that on average Latino consumers paid nearly $1,200 more in interest and add-on charges than non-Latino, white consumers.
• In June 2024, the New York AG entered into a $350,000 settlement against auto dealers that allegedly overcharged consumers in connection with auto leases. The AG alleged that the dealerships added additional fees in the form of “dealership fees” or “administrative fees,” or increased the vehicle’s price when consumers attempted to purchase the vehicle at the end of the lease term.
• In November 2023, the Pennsylvania AG announced a lawsuit against a Delaware-based used vehicle dealer for allegedly failing to disclose issues with vehicles that it sold “as is,” and failing to provide buyers with title documentation. The Pennsylvania AG sought $1,000 for each violation of Pennsylvania consumer protection law, and $3,000 in each case a violation involved consumers age 60 or older. The complaint indicated that the AG took action after receiving numerous complaints from Pennsylvania consumers about their vehicle defects.

State Legislative Activity

In addition to enforcement actions, states may also address concerns with auto dealership practices through legislation. On February 21, 2025, California introduced Senate Bill 766, the California Combating Auto Retail Scams Act (“California CARS Act”), which echoes the FTC CARS Rule both in title and content. The Act would prohibit dealers from misrepresenting material information about vehicle sales, require dealers to make certain disclosures clear and conspicuous (including the offering price, total amount the consumer will pay, down payment, and the fact that add-on products are not required), and prohibit add-on products that do not benefit the consumer (such as duplicative warranty coverage or nitrogen-filled tires). The California CARS Act extends the FTC CARS Rule by including an additional requirement of a ten-day right of cancellation for used vehicles. It is possible that other jurisdictions may introduce similar legislation in the coming months.

While the FTC CARS Rule was pending before the Fifth Circuit, the Pennsylvania legislature passed amendments to the Pennsylvania Automotive Industry Trade Practices, which became effective in August 2024. The amendments updated the definition of “advertisement” for motor vehicles to include online statements and representations, and required written disclosure of certain conditions that the advertiser or seller knows or should know about the vehicle, such as flood damage, or damages to the vehicle’s frame or engine. While the regulations focus on disclosures related to a vehicle’s condition rather than pricing or financing terms, the legislation followed the November 2023 Pennsylvania AG lawsuit described above alleging dealership failure to disclose issues with vehicles sold “as is”—an indication that AG lawsuits and enforcement actions may prompt regulatory change.

The Massachusetts AG, which in recent years has been active in filing lawsuits against subprime auto lenders, issued a regulation in March 2025 providing that it is an unfair practice for a seller to misrepresent or fail to disclose the “total price” of a product.² The “total price” of a product is the maximum price a consumer must pay for a product, inclusive of all fees, charges, or other expenses, including any mandatory ancillary product offered as part of the same transaction. The “total price” disclosure is similar to the CARS Rule disclosure of the offering price, which is the full cash price for which the dealer will sell or finance the vehicle to any consumer—a requirement which the auto dealer industry found difficult, as dealers typically display the Manufacturer Suggested Retail Price. Although the regulation does not specify that it is intended to target auto dealerships or auto lenders, it demonstrates how state regulators may use their existing UDAP authority to address aspects of consumer financial products and services that they find problematic.

Conclusion

The FTC CARS Rule appears to be in the rearview mirror, but for auto dealers and lenders, prohibitions against UDAP under federal and state law remain rules of the road. In light of the FTC and state AGs’ recent enforcement actions, in addition to the state legislative activity related to dealership practices, auto dealers and lenders should continue monitoring practices that the FTC CARS Rule was intended to target, including pricing disclosures and the marketing and sales of ancillary products.

 

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¹ The states are: Arizona, California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Washington, and the District of Columbia.

² 940 Code Mass. Reg. 38.04.