Court Overturns Biden’s Car Dealer Scam Protections — 3 Red Flags To Watch For

February 26, 2025

1 3 minutes read

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Buying a car can be a hassle. Not only do you have to spend time shopping around for the best deal within your budget, but you also have to ensure you’re not being swindled in the process. Until recently, a proposed rule aimed to shield consumers from car-buying scams and deceptive practices by car dealers.

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Under President Joe Biden’s administration, the Federal Trade Commission (FTC) introduced the Combating Auto Retail Scams (CARS) rule. It was designed to protect consumers from deceptive car dealer practices and junk fees while benefiting honest dealers. Here are the rule’s four basic principles, according to the FTC:

Prohibits misrepresentations about material information: Deceptive claims about financing, pricing or add-ons are not allowed.
Requires car dealers to disclose the actual offering price: Consumers have a right to know the drive-off-the-lot price before visiting the dealership and throughout the buying process, excluding any required government charges.
Makes it illegal for car dealerships to charge consumers for unnecessary add-ons: Dealers cannot charge extra for add-ons that do not benefit the consumer.
Requires car dealers to obtain consumers’ explicit, informed consent before charging them: This provision ensures there are no surprise fees or hidden charges. Dealers must receive a clear “yes” from the buyer before applying any charges.

However, a recent court ruling overturned CARS, which will impact the way we purchase cars.

According to Troutman Pepper Locke, on Jan. 27, 2025, the U.S. Court of Appeals for the Fifth Circuit issued an opinion vacating the FTC’s CARS Rule after two major automobile trade associations, the National Automobile Dealers Association (NADA) and the Texas Automobile Dealers Association (TADA), filed petitions.

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NADA and TADA challenged the rule’s legality, arguing that the FTC violated its regulations by failing to issue an advance notice of proposed rulemaking (ANPRM) before introducing the rule. An ANPRM is a preliminary notice stating that a government agency is considering regulatory action. Generally, agencies must issue an ANPRM before developing a new rule.

The trade associations also argued that the FTC conducted a rushed and inadequate cost-benefit analysis before finalizing the rule.

“Monday’s (Jan. 27, 2025) decision by the 5th Circuit Court of Appeals on NADA’s and TADA’s legal challenge is a victory for the rule of law and a great outcome for consumers,” stated a recent NADA press release.