Court Overturns Biden's Car Dealer Scam Protections — 3 Red Flags To Watch For
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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.
NADA and TADA celebrated the court's decision, claiming the rule would have added significant time and undue burden to both consumers and dealers. However, without the rule, consumers may continue to face deceptive practices and junk fees from dishonest dealers. Here's what to watch for.
Now that this key consumer protection rule has been struck down, here are three red flags to be aware of when shopping for your next car:
If you're in the car-buying process, question every fee listed. An honest dealership should be able to clearly explain all charges and why they are required. If they can't, consider taking your business elsewhere to avoid overpaying.
If you see an advertisement for a vehicle at a significantly lower price than the market rate, be cautious. For example, if a car typically sells for $35,000 but is advertised for $25,000, there may be hidden fees or conditions. Shop around at multiple dealerships to ensure you're getting a fair and honest deal.
If a dealer promotes financing terms with interest rates significantly lower than the average car loan, proceed with caution. They may not be disclosing all the terms upfront. Consider securing financing through your bank or credit union instead of relying on dealership offers.
With the CARS Rule overturned, it's more important than ever for consumers to stay informed and vigilant during the car-buying process.
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This article originally appeared on GOBankingRates.com: Court Overturns Biden's Car Dealer Scam Protections — 3 Red Flags To Watch For
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