It is with heavy heart but little surprise that we write with the news that the Fifth Circuit Court of Appeals, in a 2-1 decision, vacated the Federal Trade Commission’s Combatting Auto Retail Scams (CARS) Rule.
As our avid readers may remember, a year ago the FTC finalized a watershed regulation, over a decade in the making, that protects buyers of new cars from unscrupulous auto dealers. The rule requires that auto dealers actually tell customers the full price of a car when asked, including all fees and add-ons. (You may ask how it can have taken so long to require an industry to follow such a basic rule of fair dealing. Fair question. We are reminded of The Emperor’s New Clothes….)
The rule would have saved consumers more than $3.4 billion a year (and likely even more, as our brief on behalf of 5 economics professors demonstrated). Yet a panel of the Fifth Circuit this week voided the rule, siding with a national trade group of auto dealers and their Texas affiliate and removing protections for tens of millions of consumers.
Notably, the court’s decision does not address the substance of the CARS rule at all. Rather, the decision turns entirely on an esoteric question of administrative law. The gist is that although Congress explicitly gave the CFPB the power to regulate the auto industry in the 2010 Dodd-Frank Act without first issuing a preliminary "Advance Notice of Proposed Rulemaking"––a requirement for most rulemakings issued under the FTC Act––it was not quite explicit enough. And so a decade of Commission research and all the work of developing the Rule is undone by a procedural “harm" that was done to auto dealers––even though the auto dealers' trade group did not identify in its briefs or at the hearing any specific way in which dealers were in fact injured.
Judge Higginson dissented from the majority opinion, arguing that the dealers' trade group had shown no harm. He observed that "our court is precluded from second-guessing the FTC’s cost-benefit analysis.” And he noted particularly that the FTC had "conducted a comprehensive economic analysis, using reliable and independently corroborating evidence, to show that the motor vehicle market would benefit from the CARS Rule’s imposition of price transparency and rules against deception, which would spur billions of dollars in economic benefit for U.S. consumers." Finally, he specifically pointed to the independent estimates in the Center’s brief of “even higher predicted savings from the CARS Rule than that calculated by the FTC."
Advocates for consumers are disappointed but unbowed. In particular, some states are already considering legislation to enact the substance of the CARS rule in statute.
For millions of Americans, owning a car is not a luxury but a necessity –– to go to work, to buy groceries, to engage in daily life. At a time when the cost of household goods feels so much higher than it used to be, the American public would have benefited greatly from a common-sense regulation that made auto prices more transparent and lowered consumer costs by the billions. We express our gratitude to the FTC for the work they did in developing such a sorely-needed and carefully-crafted rule, and reaffirm our hope and belief that its substance will be implemented through other, shall we say, vehicles.