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Auto Retail Regulations: The Latest on FTC CARS Rule and REDO Act Developments

The Federal Trade Commission’s (FTC) announcement of the CARS rule caused quite a stir within the auto industry. The FTC Combatting Auto Retail Scams Rule, initially set to take effect on July 30th, 2024, introduces requirements for auto dealership advertising, record-keeping, customer interactions, and the sale of finance and insurance (F&I) products. Aimed at protecting customers from potentially harmful dealership practices, the FTC Cars Rule is an attempt to ensure transparency and fairness in auto transactions.

Industry Opposition

The National Automobile Dealers Association (NADA) and the Texas Automobile Dealer Association (TADA), along with numerous dealerships and several lawmakers, have voiced concerns over the rule’s impacts on customers. They are concerned that the added complexity, time, and paperwork could detract from the customer experience rather than improve it. Additionally, it’s argued that the FTC failed to complete basic regulatory safeguards to ensure the rule’s effectiveness.

In response, efforts have been made to contest the rule’s enforcement, with the NADA and the TADA filing a legal challenge in January to postpone the rule’s implementation. This challenge was successful, with the FTC announcing on January 18th that they would pause the CARS Rule effective date while the Fifth Circuit reviews the rule.

NADA Stance and Legal Challenge

NADA opposes the rule because it believes that while consumer protection is crucial, this specific rule may complicate the car-buying process and not provide the promised value to customers. They emphasize the need for a compromise that doesn’t sacrifice efficiency or the customer experience. The legal challenge and delay highlight the pushback from the industry and the complexities when it comes to regulation in the automotive space.

The FTC Redo Act

While the CARS Rule has been postponed, the law may still go into effect later if legislators aren’t able to pass the FTC Redo Act. The FTC Review of Expensive and Detrimental Overregulation Act, if passed, would introduce a new layer of safeguards for the FTC before enacting similar rules:

      • Public Discourse: Issuing an advanced notice of proposed rulemaking for public comments.

      • Research: Quantitative studies on auto retailing to inform rulemaking.

      • Consumer Product Testing: Evaluating how proposed rules affect consumer understanding and decisions.

      • Economic Analysis: Providing cost-benefit analysis based on real data to justify implementation.

    What This Means for Auto Dealers

    For dealers, staying informed and proactive is crucial. The changing regulatory landscape requires a thorough grasp of both the potential changes that the FTC Cars Rule could bring and the FTC Redo Act. Dealerships should consider:

        • Preparing for Compliance: Understanding the specifics of the CARS Rule and beginning to prepare for necessary changes if the rule is to stay as is.

        • Engaging in Dialogue: Participating in industry discussions and providing feedback during the public comment periods can help shape the future of auto retail regulations.

        • Monitoring Developments: Staying on top of legal and legislative developments will be key for strategic planning.

      While aimed at protecting consumers, the FTC Cars Rule prompts a broader conversation about the balance between consumer protection and operational efficiency. As the industry navigates these changes, adaptability and engagement with the regulatory process will be vital to thriving in the auto retail landscape.

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