Auto Dealers Challenge New Consumer Protections in Court

Auto dealers are pushing back against the Federal Trade Commission’s (FTC) recent consumer protection regulations, calling them a “micromanagement of the sales experience.” Two major groups, the National Automobile Dealers Association (NADA) and the Texas Automobile Dealers Association, filed a legal challenge last Friday to contest the sweeping rules that were finalized last month.

Contesting the Micromanagement

The crux of the dealers’ challenge lies in their belief that the new regulations excessively regulate advertising, sales, and financing of vehicles. The NADA and Texas Automobile Dealers Association specifically argue that the rules are “arbitrary, capricious, and an abuse of discretion.” They are seeking intervention from the Fifth Circuit Court of Appeals to block these regulations from taking effect on July 30.

FTC’s Stance and Industry Concerns

The FTC’s new rules aim to put an end to deceptive advertising tactics, prevent additional charges for non-beneficial add-ons, and mandate dealers to provide crucial disclosures to consumers. These disclosures include accurate pricing details in both advertising and sales communications. The rules, proposed in 2022, have been met with resistance from various industry players, including the Alliance for Automotive Innovation, which represents major automakers like General Motors, Toyota Motor, and Volkswagen.

Dealers, particularly through the NADA, have expressed concerns that the proposed regulations could disrupt the sales process for millions of consumers and thousands of small businesses. The FTC, on the other hand, asserts that the rules will eliminate unjust fees and save consumers over $3.4 billion annually, along with approximately 72 million hours spent on vehicle shopping.

As legal battles unfold, the automotive industry remains divided on the necessity and impact of these consumer protection measures. In November, a U.S. House committee initiated an investigation into the FTC’s rules, claiming potential harm to consumers and small businesses, citing increased difficulty in car purchases and hindrance to industry innovation. Meanwhile, a group of 17 Democratic lawmakers had earlier urged the FTC to adopt robust regulatory protections, emphasizing the widespread consequences of unfair and deceptive practices involving motor vehicle dealers. The fate of these regulations now lies in the hands of the Fifth Circuit Court of Appeals.