Auto Dealers: Buckle-Up Enhanced State-Level Enforcement Ahead

The Fifth Circuit vacated the FTC’s Combatting Auto Retail Scams (CARS) Rule in January of this year, finding that the FTC failed to follow the correct administrative procedures when it promulgated the regulation.

The CARS Rule banned deceptive practices in car sales, including bait-and-switch marketing, hidden markups, and inflated or invented fees. A coalition of 19 State Attorneys General filed an amicus brief in the Fifth Circuit last year in support of the rule, noting that while many of the practices to be prohibited by the CARS Rule are already illegal, the existence of a specific rule would prevent dealers from taking refuge in “gray” areas. The CARS Rule provided for a hefty penalty for deceptive practices of up to $50,120 per violation.

But auto dealers should not take the Fifth Circuit’s decision as a green light to continue the deceptive practices. The court vacated the CARS Rule on procedural grounds, finding that the FTC failed to provide an advance notice and comment period as required by its own rules; the court did not reach any adverse findings about the substance of the rule. More immediately, any dealers optimistic about loosened regulations and a less aggressive FTC should keep their eyes on the uptick in state enforcement.

In the past year as the CARS Rule stalled in the courts—as well as in the months since it was vacated—State Attorneys General have continued to crack down on deceptive practices in the auto market.

In Rhode Island, six auto dealerships agreed to a settlement of over $1 million in late 2024, after Rhode Island Attorney General Peter Neronha sued them for automatically charging for add-on warranties that were not included in vehicles’ advertised prices. Arizona Attorney General Kris Mayes, along with the FTC, secured a $2.6 million settlement from an Arizona dealership that allegedly charged customers unwanted add-ons and other junk fees that were piled on to the contracts of Latinx consumers. In the largest settlement of 2024, Illinois Attorney General Kwame Raoul announced a $20 million settlement with a chain of dealerships that engaged in bait-and-switch marketing. And New York Attorney General Letitia James and former Florida Attorney General Ashley Moody also secured settlements with auto dealerships in 2024.

This year, weeks before the Fifth Circuit vacated the CARS Rule, Connecticut Attorney General William Tong announced a $1.5 million settlement with Carvana in an agreement that established a $1 million restitution fund for Connecticut consumers who did not receive valid title and registration documents at the time of sale.

State Attorneys General show no signs of slowing down. Just last month, Maryland Attorney General Anthony Brown announced a settlement with an auto dealer that may require “several million dollars” worth of refunds to consumers after the dealer charged undisclosed markups and sales commission fees, along with $3 million in penalties to the State of Maryland.

These enforcement trends suggest that dealers should consider reviewing and updating sales policies and procedures. As noted by the 19 State Attorneys General in their amicus brief, many of the unfair and deceptive practices prohibited by the CARS Rule may already be illegal under non-auto-industry-specific state and federal laws.

Auto dealers who want to tune up their advertising and sales best practices should consider whether their offering prices translate to what a person would pay before taxes—or whether any mandatory fees, features, or commissions are concealed until after the customer agrees to purchase the car. Dealers should train sales staff to accurately convey how much each discretionary feature will cost and actively seek consumer consent before incorporating add-ons into the sales contract. Dealers may also wish to review their usual menu of upcharges and premium features to ensure that each feature adds value to the consumer.

If you are interested in learning more about these trends in enforcement, including how automobile dealerships can evaluate best practices, Crowell’s State AG team stands ready to counsel you and your clients.