When I think about the Federal Trade Commission’s CARS Rule in its present state, I am reminded of that classic Louis Jordan song, “Is You Is or Is You Ain’t My Baby.” (If you don’t know it, look it up on YouTube. You’re welcome.) Is the rule something dealers need to worry about, or not?

As you recall, the FTC issued Notice of Proposed Rulemaking of its then-called “Motor Vehicle Dealers Trade Regulation Rule” on July 13, 2022. I allowed the shortest comment period the law permitted – a mere 60 days. Acting on behalf of the nation’s franchised retail car dealers, the National Automobile Dealers Association both submitted comments in opposition to the proposed rule and requested an extension of the comment period. The FTC denied that request, which did not give anyone a warm and fuzzy feeling about what was to come.

On Dec. 12, 2023, it came: The FTC announced its final rule, which it then derisively called the “Combating Auto Retail Scams” Rule, or CARS. Enforcement was scheduled to begin on July 30, 2024. While its stated purposes sounded noble, it was disingenuous. Here’s what the CARS Rule was advertised to accomplish:

1. Prohibit misrepresentations about material information.

2. Require dealers to clearly disclose the offering price, excluding only required government charges.

3. Make it illegal for dealers to charge consumers for add-ons that don’t provide a benefit.

4. Require dealers to get consumers’ express, informed consent before charging them for anything.

Here’s the disingenuous part: Every one of the listed activities was already illegal. If they were already illegal, why was the FTC determined to impose a new rule? For that answer, we need to turn to the case of AMG Capital Management, LLC v. FTC, 141 S.Ct. 1341 (2021). In it, appellant AMG Capital Management was accused of doing serious wrongs against minorities in the payday loan space. The FTC assessed a fine of $1.27 billion. When you’re fined $100,000, you can’t afford to appeal because the appeal can cost more than that. When you’re fined $1.27 billion, you can’t afford not to appeal, and AMG did.

AMG took this case all the way to the Supreme Court, arguing that the FTC did not have the authority to assess fines until a penalized company violated a consent order or other form of injunctive relief. In a 9 to 0 decision, the court agreed. Suddenly, the FTC found itself without the ability to threaten or assess monetary fines to enforce its mandate. Something had to give.

That something is called a “trade regulation rule.” Simply put, the FTC can assess monetary fines as a first resort only if the alleged bad acts violate a specific trade regulation rule promulgated under the Federal Trade Commission Act. AMG’s bad acts, while bad, did not. So all of the historically bad acts listed above had to be formally defined as “deceptive trade practices” in a trade regulation rule in order for the FTC to be allowed to enforce them with monetary penalties.

The FTC denies the AMG case had anything to do with the CARS Rule, but I have listened to interviews of FTC personnel who have basically admitted that motive. Regardless, we now have a brand-new trade regulation rule that allows the imposition of hefty fines, while adding substantial burdens on both dealers and their customers. Except that it doesn’t.

Yet.

That “yet” part is why I’m writing this article. On Jan. 4, 2024, the FTC formally published its previously announced rule. In response, NADA, in tandem with the Texas Automobile Dealers Association, filed a Petition for Review in the United States Court of Appeals for the Fifth Circuit, challenging the validity of the CARS Rule, and moved both for its enforcement to be stayed and for expedited disposition of the case. As expected, the FTC opposed that motion ... until it didn’t.

On Jan. 18, the very day the FTC’s opposition brief was due, the FTC voluntarily stayed enforcement of the rule. As of this writing, the rule is both the law of the land and one that is not being enforced. Where does that leave us?

For the answer to that question, stay tuned for Part 2 of this article, next month.

James Ganther is president of Mosaic Compliance Services.