In a major setback for consumer protection advocates, a U.S. appeals court on Monday struck down key rules introduced by the Biden administration aimed at curbing deceptive practices by auto dealers. The 5th Circuit Court of Appeals ruled in a 2-1 decision that the Federal Trade Commission (FTC) had violated procedural requirements when drafting the regulation without giving advance notice.
The overturned rule sought to eliminate bait-and-switch tactics in car sales and prohibit dealers from charging for add-on services that provide no real benefit to buyers. It also mandated up-front pricing in advertising and required clear consumer consent before levying extra charges. Originally proposed in 2022 and finalized in January 2024, the rule had been put on hold pending legal challenges from the National Automobile Dealers Association (NADA) and the Texas Automobile Dealers Association.
FTC’s Battle Against Hidden Fees and Unfair Practices
The FTC had defended its regulation, arguing it would protect consumers from unnecessary charges such as service contracts for oil changes on electric vehicles or redundant warranties. The commission estimated that these changes would have saved car buyers over $3.4 billion annually and reduced vehicle shopping time by 72 million hours.
“The rule was designed to create transparency and eliminate deceptive practices that harm consumers,” the FTC stated in defense of the regulation. The agency has pursued multiple enforcement actions against dealerships, securing a $20 million settlement in December 2023 from a group of 10 auto dealers accused of defrauding consumers through misleading pricing and add-on fees.
Industry Applauds Court Decision
The ruling was met with approval from the automotive industry. NADA President Mike Stanton called the decision a “victory for the rule of law and a great outcome for consumers.” He argued that the FTC’s rule would have increased complexity, paperwork, and costs for both dealers and customers.
“Rather than streamlining the car-buying process, this regulation would have slowed it down and made it more expensive for consumers,” Stanton said.
The Texas Automobile Dealers Association echoed similar sentiments, stating that the ruling prevents “unnecessary regulatory burdens” that could have impacted dealership operations and pricing structures.
Dissenting Judge Warns of Consumer Risks
Judge Stephen Higginson, the lone dissenter in the case, criticized the decision, arguing that the FTC was acting within its authority granted by Congress in 2010. He emphasized that the rule was crafted after a decade of consumer complaints, roundtables, and legal actions against deceptive dealer practices.
“Congress explicitly gave the FTC the power to mandate price transparency and rules against deception,” Higginson wrote. “This rule would have spurred billions of dollars in economic benefit for U.S. consumers and curbed unfair practices.”
What’s Next for Consumer Protections in Auto Sales?
With the FTC’s regulation now overturned, consumer protection groups may push for legislative action or revised regulatory efforts to address misleading dealership practices. Some lawmakers have already signaled interest in reviving aspects of the rule through new proposals.
