In a move that reverberates through the auto industry, two prominent groups representing auto dealers, the National Automobile Dealers Association (NADA) and the Texas Automobile Dealers Association, have launched a legal challenge against the Federal Trade Commission’s (FTC) recently finalized consumer protection regulations. The new rules, set to take effect on July 30, aim to overhaul the way auto dealers advertise, sell, and finance vehicles.
The FTC’s comprehensive regulations target deceptive advertising practices, specifically banning bait-and-switch tactics. They also put an end to charging consumers for add-on costs that provide no tangible benefit and require dealers to enhance transparency by making critical disclosures, including accurate pricing, in all advertising and sales communications. Additionally, dealers must maintain records of certain advertisements and customer transactions.
The legal challenge, filed with the Fifth Circuit Court of Appeals, asserts that the regulations are “arbitrary, capricious, and an abuse of discretion,” signaling a significant battle between auto dealers and regulatory authorities. The NADA, echoing its concerns voiced earlier, argues that the FTC’s proposal has the potential to disrupt the sales process for millions of consumers annually and adversely affect thousands of small businesses.
The FTC’s stance is that the new rules will eliminate so-called “junk fees,” such as charging for a service contract related to an oil change for an electric vehicle. The agency estimates that this move will save consumers over $3.4 billion annually, along with 72 million hours saved in vehicle shopping.
Among the key provisions, dealers will need explicit consent for additional charges added to a vehicle’s price, and they will be prohibited from charging for add-ons that offer no practical value to the buyer. This includes practices like selling nitrogen-filled tires that contain no more nitrogen than ordinary air.
The Alliance for Automotive Innovation, representing major automakers like General Motors, Toyota Motor, and Volkswagen, has previously expressed concerns about the FTC’s plan, warning against “excessive regulation and micromanagement of the sales experience.” The industry-wide resistance to these regulations reflects a broader debate about balancing consumer protection with concerns about potential disruptions to established business practices.
In November, a U.S. House committee announced an investigation into the FTC’s consumer protection rules, emphasizing concerns that the regulations might make car purchases more challenging, hindering innovation in the industry. Meanwhile, a group of 17 Democratic lawmakers had previously urged the FTC to adopt robust regulatory protections for car buyers, emphasizing the widespread consequences of unfair and deceptive practices by motor vehicle dealers. The legal battle shaping up in the Fifth Circuit Court of Appeals will undoubtedly play a pivotal role in shaping the future of the auto industry, influencing how transparency and fairness are maintained in the vehicle purchasing process.