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A U.S. appeals court on Monday threw out rules adopted by the Biden administration to ban bait-and-switch tactics and prohibit auto dealers charging for add-on costs that do not benefit new car buyers.
The 5th Circuit Court of Appeals in a 2-1 decision in response to legal challenges by the National Automobile Dealers Association and a Texas dealer group said the Federal Trade Commission had violated procedural rules in writing the regulation without giving advance notice of the planned regulation.
The rule, which was proposed in 2022 and finalized in January 2024 but put on hold pending the legal challenge, required up-front pricing in dealers’ advertising and sales discussions and informed consent from consumers before charging for any item.
The FTC had said the new rules would bar junk fees like a service contract for an oil change for an electric vehicle or a duplicative warranty and estimated it would save consumers more than $3.4 billion and an estimated 72 million hours annually shopping for vehicles.
NADA, which did not immediately comment Monday, said previously the rule would “needlessly lengthen the car sales process by forcing new layers of disclosures and complexity into the transaction.”
Judge Stephen Higginson dissented from the ruling, saying Congress in 2010 gave the FTC authority to issue regulations that would require “price transparency and rules against deception, which would spur billions of dollars in economic benefit for U.S. consumers.”
“Congress authorized the FTC to regulate unfair and deceptive motor vehicle dealer practices, which inflict immense, proven harm on U.S. consumers,” Higginson wrote.
He noted the rule came “after a decade of roundtables, comments, and over 100,000 consumer complaints, many leading to federal and state law enforcement actions against unfair and deceptive motor vehicle dealer practices.”
