The process of purchasing a new or used vehicle stands as one of the most significant financial commitments many American consumers undertake, often second only to a home. For many, this decision is frequently accompanied by a labyrinthine journey through complex contracts, obscure pricing structures, and high-pressure sales environments. Recognizing the systemic challenges and widespread consumer complaints, the U.S. Federal Trade Commission (FTC) initiated comprehensive regulatory action designed to foster greater transparency and fairness within the automotive retail sector. This landmark effort culminated in the development of the Combating Auto Retail Scams (CARS) Rule.
The CARS Rule, meticulously crafted after extensive public input, specifically targeted two pervasive and often predatory tactics that have long plagued car buyers: deceptive bait-and-switch advertising and the imposition of hidden, often superfluous, junk fees. Its provisions aimed to fundamentally reshape how dealers interact with customers, ensuring that advertised prices reflected the true cost and that consumers were not subjected to unwanted or valueless add-on products. Initial projections by the FTC estimated these reforms could generate substantial savings for consumers, both in financial terms and in the invaluable commodity of time.
While the CARS Rule’s journey to full implementation faced significant legal hurdles and was ultimately vacated on procedural grounds, its existence and the comprehensive nature of its proposed prohibitions have undeniably left a lasting imprint. The rule serves as a definitive blueprint, articulating the FTC’s clear stance on unfair and deceptive practices in auto retail and continues to inform ongoing federal and state regulatory scrutiny. Understanding its core tenets is therefore critical for both consumers and industry stakeholders navigating the complex landscape of automotive transactions.
1. **The Core Purpose of the CARS Rule: Battling Bait-and-Switch and Hidden Junk Fees**At the heart of the Federal Trade Commission’s CARS Rule lay a resolute commitment to eradicating two egregious consumer abuses: bait-and-switch tactics and hidden junk fees. The agency explicitly designed the rule “to fight two common types of illegal tactics consumers face when buying a car.” These practices historically undermined consumer trust and distorted fair competition, necessitating clear boundaries for transparent and equitable transactions.
FTC Chair Lina M. Khan underscored the urgency, stating, “When Americans set out to buy a car, they’re routinely hit with unexpected and unnecessary fees that dealers extract just because they can.” This highlighted the imbalance in a transaction often representing “the single most expensive item they will ever purchase.” The CARS Rule sought to prohibit “exploitative junk fees,” saving time and money while safeguarding “honest dealers.”
The rule precisely defined these prohibited practices. Bait-and-switch claims were outlawed when pertaining to “the cost of a car or the terms of financing, the availability of any discounts or rebates, and the actual availability of the vehicles being advertised.” Similarly, “hidden junk fees” were identified as “charges buried in lengthy contracts that consumers never agreed to pay,” often for “services or products that provide no benefit to consumers.” This clarity aimed to remove ambiguity.
2. **Projected Consumer Benefits: Billions in Savings and Millions of Hours Recovered**The Federal Trade Commission’s analysis projected significant, tangible benefits for American consumers if the CARS Rule had taken effect. Foremost was substantial financial relief: “The new rule is expected to save consumers nationwide more than $3.4 billion” annually. This figure reflects the direct monetary impact of eliminating hidden junk fees and ensuring transparent pricing, bolstering household budgets.
Beyond financial gains, the rule also anticipated reclaiming considerable personal time, estimated at “72 million hours each year shopping for vehicles.” This figure addresses the often-protracted and frustrating car negotiations involving undisclosed fees and complex contracts. By streamlining the sales process, the CARS Rule aimed to make car buying more efficient and less burdensome.
These projected savings highlighted the FTC’s recognition of a systemic problem. The opacity and length of the traditional car-buying process not only facilitated unscrupulous practices but also imposed unacknowledged burdens. By mandating transparency and prohibiting deception, the rule aimed to transform the experience, making it more predictable and less stressful.
3. **Enhanced Safeguards for Servicemembers: Addressing Specific Vulnerabilities**A particularly salient feature of the CARS Rule was its robust focus on protecting members of the military and their families, a demographic uniquely vulnerable to predatory auto retail practices. The rule explicitly included “clear protections for members of the military and their families, who are targeted not only with bait-and-switch tactics and junk fees, but also deceptive information about whether dealers are affiliated with the military.”
The vulnerability is compounded by unique circumstances, such as being stationed on sprawling military bases where vehicle ownership is “vital.” Data showed “Servicemembers have an average of twice as much auto debt as civilians.” By age 24, “around 20 percent of young servicemembers have at least $20,000 in auto debt,” posing “a substantial challenge to servicemembers’ financial well-being.”
To address this, the CARS Rule prohibited false statements regarding “important cost and financing information,” or about “whether the dealers are affiliated with the military or any other governmental organization.” Protections covered logistical issues like misrepresenting “whether a vehicle can be moved out of state” or “whether a vehicle can be repossessed.” The Department of Defense acknowledged these safeguards, enhancing “overall economic security and readiness.”
4. **The Strict Prohibition on Misleading Advertisements and Bait-and-Switch Tactics**A cornerstone of the CARS Rule was its definitive stance against misrepresentation, especially regarding advertising and bait-and-switch tactics. The rule unequivocally stated: “No Misrepresentations: The rule prohibits misrepresentations about key information, like price and cost.” This mandated that advertised offers precisely matched what was presented to the consumer, fostering a verifiable buying experience.
The rule targeted deceptive advertising on “material information,” defined as affecting a “person’s choice of, or conduct regarding, goods or services.” Any advertised price, “expressly or by implication,” had to be the actual cash price, excluding only legitimate “state and federally mandated taxes and costs.” This aimed to prevent prices from dissolving upon dealer engagement.
Stringent requirements governed communication. Dealers were obligated to “clearly disclose the offering price” and ensure “any statement in ads or communications with the consumer must be consistent or contradictory.” Electronic disclosures needed to be “unavoidable,” prohibiting hidden language. All language had to be “clearly visible… understandable to ordinary consumers,” eschewing “legalese,” and extending to “languages other than English.” Verbal communications required “volume, speed, and cadence sufficient for ‘ordinary consumers to easily hear and understand it’.”
5. **Mandatory Transparency: Disclosing Offering Price and Optionality of Add-Ons**Central to the CARS Rule’s transparency mission was the explicit mandate for dealers to provide the “offering price” without equivocation. This was defined as “the actual price any consumer can pay for the vehicle,” inclusive of dealer charges but “excluding only required government charges.” This requirement aimed to prevent incremental price increases not clearly disclosed upfront, ensuring an accurate ‘out-the-door’ figure before taxes and registration.
Equally vital was the rule’s clear stance on optional add-ons. Dealers were unequivocally required to “tell consumers that optional add-ons (like extended warranties) are not required” for purchase. This empowered consumers to decline products without affecting vehicle availability. When discussing monthly payments, dealers were compelled to “give information about the total payment,” providing a holistic financial picture.
Consumers also gained rights to transparent information on broader financial aspects. This included “the total price you’ll be paying when financing,” “availability of rebates or discounts,” and “availability of vehicles at an advertised price.” Crucially, it protected “your ability to keep cash down payments or trade-in vehicles if a transaction isn’t finalized.” These measures aimed to prevent deception in the final price, emphasizing consumer autonomy through full access to financial information.
6. **The Ban on “Bogus” Add-Ons: Ensuring Value for the Consumer’s Dollar**A significant consumer protection in the CARS Rule was the outright prohibition against charging for add-on products or services offering no discernible benefit. The regulation stated: “The rule prohibits dealers from charging for any add-on that does not provide a benefit to consumers.” This was a direct assault on padding sales with unnecessary extras, ensuring every charge was tied to genuine value.
The FTC provided specific examples of “bogus” add-ons: “warranty programs that duplicate a manufacturer’s warranty,” “service contracts for oil changes on an electric vehicle,” and “GAP agreements that do not actually cover the car.” Further illustrations included “software or audio subscription services on a vehicle that cannot support the software or subscription,” and “‘nitrogen-filled’ tires” with negligible benefit, unless explicitly desired and consented to.
This prohibition targeted both products providing “no value to any consumer” and those offering “no value to the specific consumer,” such as redundant warranty coverage or a superfluous GAP agreement based on the loan-to-value (LTV) ratio. The FTC’s intent was to establish a principle: if an add-on lacked a substantiated benefit, it could not be mandatory or charged without express, informed consent. This marked a profound shift towards consumer-centric value.
7. **The Imperative of Express, Informed Consent**Central to the CARS Rule’s framework for consumer protection was the non-negotiable requirement for dealers to obtain “express, informed consent” from consumers for any charges incurred during a vehicle purchase. This provision aimed to fundamentally shift the power dynamic in automotive transactions, ensuring that all financial commitments were explicitly understood and agreed upon by the buyer.
Defining this consent, the rule stipulated that it necessitated “truthful, clear, and conspicuous disclosure, both in writing and (for in-person transactions) orally, of the reason for the charge and the amount of the charge, followed by affirmative, unambiguous assent to be charged.” This rigorous definition was designed to eliminate ambiguities and prevent consumers from inadvertently agreeing to undisclosed costs, demanding a proactive and transparent process from dealers.
Furthermore, the rule explicitly prohibited practices that could undermine a consumer’s decision-making autonomy. Dealers were forbidden from offering agreements that featured pre-checked boxes or any other mechanisms designed to impair a consumer’s “autonomy, decision-making, or choice.” This prohibition aimed to safeguard buyers from manipulative tactics that could lead to unwanted charges or terms.
This robust requirement for express, informed consent represented a significant expansion of existing consumer protections. It extended principles previously established in specific consent orders, such as the Napleton case, across the entire automotive retail industry. This standardized approach sought to ensure that all consumers, regardless of the dealership, benefited from a transparent and consensual transaction process.
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8. **The Rulemaking Journey: From Proposal to Finalization**The creation of the CARS Rule was the culmination of an extensive and deliberate rulemaking process initiated by the Federal Trade Commission. The journey began in June 2022, when the FTC issued a Notice of Proposed Rulemaking concerning motor vehicle shopping, inviting broad public participation and commentary from various stakeholders.
Over several months, the agency received “tens of thousands of comments from consumers, servicemembers, veterans, auto dealers and others about the proposed rule.” The FTC meticulously reviewed this feedback, incorporating substantial changes to the initial proposal. These revisions were strategically implemented to focus the rule on addressing the most prevalent scams targeting vehicle buyers, while simultaneously fostering a competitive and equitable environment for “honest dealers” who had often lost business to unscrupulous competitors.
This regulatory effort did not emerge in a vacuum; it was informed by a history of FTC enforcement actions and consent orders. The rule’s provisions reflected learnings from specific cases such as Bronx Honda, Tate’s Auto, Napleton, and Rhinelander Auto Center, where allegations of deceptive practices had become central to the agency’s regulatory concerns. The final Commission vote to approve the issuance of the rule was 3-0, signifying strong internal consensus.
In its final form, the CARS Rule also incorporated key modifications from its initial proposal to refine its scope and clarity. Notably, provisions like the “Add-on List” disclosure, which would have mandated dealers maintain a public list of add-on products, and the “Cash Price without Optional Add-ons” disclosure were ultimately removed. These adjustments streamlined the rule while retaining its core protective elements.
Further changes included redefining “Motor Vehicles” to “Covered Motor Vehicle” and “Dealers” to “Covered Motor Vehicle Dealer.” These modifications clarified that the rule’s scope did not extend to the sale of recreational vehicles, marine equipment, motorcycles, and other specialized vehicles, thereby focusing its application on conventional passenger and property transport vehicles. Minor adjustments were also made to dealer recordkeeping requirements to align with these changes, reflecting the FTC’s iterative approach to regulatory development.
9. **The Legal Vacating: Procedural Hurdles and the Fifth Circuit’s Ruling**The implementation of the CARS Rule, initially slated for July 30, 2024, faced a significant and ultimately decisive legal challenge. On January 27, 2025, the Fifth Circuit Court of Appeals vacated the rule, determining that the Federal Trade Commission had failed to adhere to its own procedural requirements during the rulemaking process. This ruling effectively nullified the rule before it could take effect, creating considerable implications for the regulatory landscape.
The challenge was spearheaded by prominent trade associations, including the National Auto Dealers Association (NADA) and the Texas Automobile Dealers Association (TADA), which filed a petition with the Fifth Circuit. Their arguments posited that the FTC had not adequately considered the rule’s economic costs and that its promulgation was “arbitrary and capricious.” This legal action underscored the industry’s strong opposition to the rule’s perceived burdens.
In a 2-1 decision, the Fifth Circuit concurred with the petitioners on procedural grounds. The court found that the FTC had violated its own regulations under Section 18(b) of the FTC Act, which mandates the issuance of an advance notice of proposed rulemaking (ANPRM) when establishing regulations that declare certain acts or practices unfair or deceptive. The FTC’s argument that it could bypass these statutory ANPRM requirements under the Dodd-Frank Act was rejected by the court, which emphasized that the Dodd-Frank Act did not eliminate the FTC’s self-imposed procedural obligations.
The vacating of the CARS Rule meant that its provisions, despite their detailed formulation and public support, never became legally enforceable. This outcome, occurring just over a year after its finalization, significantly altered the immediate future of federal automotive retail regulation. With the prospect of a new administration potentially less inclined to pursue such expansive regulatory actions, the likelihood of the FTC successfully challenging this decision at the Supreme Court level was widely deemed low.
10. **The Enduring Power of Existing Laws: FTC Act Section 5**Despite the judicial vacating of the CARS Rule, the automotive retail industry is far from unregulated. Dealers remain subject to a robust framework of existing federal and state laws, most notably Section 5 of the FTC Act, which prohibits “unfair or deceptive acts or practices” (UDAP). This foundational statute continues to serve as a critical safeguard against the very misconduct the CARS Rule sought to specifically address.
Section 5 provides the FTC with broad authority to prosecute deceptive practices, including misrepresentations about vehicle costs, financing terms, and “bait-and-switch” tactics where advertised low prices are not actually available. While the CARS Rule would have empowered the FTC to seek civil penalties for violations of its specific provisions, the underlying conduct itself remains illegal under the general UDAP prohibition. This distinction means that while the expedited enforcement mechanism of CARS is absent, the foundational legal principles against deception persist.
The context of the CARS Rule’s development highlighted the FTC’s long-standing concerns regarding these practices, reinforcing the enduring relevance of Section 5. The agency has historically utilized this authority to bring numerous law enforcement actions against auto dealers, underscoring its commitment to consumer protection even without a specific trade regulation rule in effect for the targeted misconduct.
Furthermore, the “Holder Rule,” an FTC regulation, continues to impose risks on assignees of auto loans, underscoring broader accountability. While the CARS Rule itself lacked a private right of action, state UDAP laws often do, enabling consumers to bring claims against dealers and, potentially, against lenders who purchase these loans. This creates an ongoing imperative for thorough due diligence within the auto lending market, as state laws often treat FTC determinations of unfair or deceptive practices as persuasive, maintaining pressure on the industry.
11. **Surging State Enforcement Actions Against Deceptive Practices**In the wake of the CARS Rule’s vacating, state attorneys general (AGs) have demonstrated an increased resolve to scrutinize the auto lending industry, actively pursuing enforcement actions against dealers and lenders under their respective state UDAP authorities. This surge in state-level activity is, in part, a response to the perceived setback in consumer protection at the federal level, with nineteen state AGs having previously filed an amicus brief supporting the CARS Rule.
These state actions, sometimes conducted jointly with the FTC, frequently target practices that were central to the CARS Rule’s prohibitions. Common themes include dealers advertising vehicles at deceptively low prices, selling unwanted add-on products, and failing to disclose critical vehicle issues, particularly for “as-is” sales. These enforcement efforts underscore a sustained commitment to combating predatory practices through existing legal mechanisms.
Illustrating this trend, December 2024 saw a landmark $20 million settlement between the Illinois AG and the FTC with an operator of ten dealerships. This settlement, which the FTC identified as its largest to date involving UDAP by auto dealers, addressed allegations of bait-and-switch tactics where low advertised prices were contingent on purchasing pre-installed add-ons or hidden charges. The agreement also mandated transparent offering price disclosures in marketing and full cost transparency during financing discussions.
Another significant action occurred in August 2024, when the Arizona AG and the FTC announced a $2.6 million settlement against an auto dealer. This case involved false online advertising of discounted prices, followed by charges for mandatory pre-installed add-ons and other undisclosed fees. Critically, the settlement also addressed allegations of discrimination, noting that Latino consumers, on average, paid nearly $1,200 more in interest and add-on charges than non-Latino, white consumers.
Further demonstrating the breadth of state scrutiny, the New York AG secured a $350,000 settlement in June 2024 against dealers accused of overcharging consumers in auto leases by adding “dealership fees” or increasing vehicle prices at the end of the lease term. In November 2023, the Pennsylvania AG initiated a lawsuit against a Delaware-based used vehicle dealer for allegedly failing to disclose issues with “as-is” vehicles and withholding title documentation, highlighting a multi-faceted approach to consumer protection in auto sales.
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12. **State Legislative Responses: Echoing and Expanding the CARS Rule’s Intent**Beyond enforcement actions, states are increasingly addressing concerns with auto dealership practices through legislative initiatives, many of which directly mirror or even expand upon the core tenets of the defunct federal CARS Rule. This legislative activity underscores a growing consensus at the state level regarding the need for robust consumer protections in vehicle transactions.
California’s Senate Bill 766, introduced on February 21, 2025, exemplifies this trend. Aptly named the “California Combating Auto Retail Scams Act” (California CARS Act), this bill echoes the FTC’s rule by prohibiting misrepresentations of material information, mandating clear disclosures of the offering price, total cost, down payment, and the optionality of add-ons. Significantly, it expands upon the federal proposal by including a ten-day right of cancellation for used vehicle purchases, demonstrating a proactive approach to enhancing consumer safeguards.
Prior to the vacating of the federal CARS Rule, Pennsylvania also took legislative action. Amendments to the Pennsylvania Automotive Industry Trade Practices became effective in August 2024, updating the definition of “advertisement” to encompass online statements and representations. These amendments also mandated written disclosure of known or discoverable vehicle conditions, such as flood damage or frame damage. While focused more on vehicle condition than pricing, this legislation followed a Pennsylvania AG lawsuit, indicating how enforcement actions can catalyze legislative change.
In a similar vein, the Massachusetts AG, known for its focus on subprime auto lending, issued a regulation in March 2025 that deems it an unfair practice for a seller to misrepresent or fail to disclose the “total price” of a product. This “total price” is defined comprehensively, including all fees, charges, or mandatory ancillary products. Analogous to the CARS Rule’s “offering price” disclosure, this regulation demonstrates how state regulators can leverage existing UDAP authority to address problematic aspects of consumer financial products and services, even without explicitly targeting auto dealerships.
While the Federal Trade Commission’s CARS Rule itself has receded from the immediate regulatory landscape, its principles and objectives continue to resonate powerfully across the nation. For auto dealers and lenders, the prohibitions against unfair and deceptive acts or practices under both federal and state laws remain firmly in place. The recent and ongoing enforcement actions by the FTC and state Attorneys General, coupled with proactive state legislative responses, collectively signal an unwavering commitment to protecting consumers from deceptive pricing and hidden charges. Industry stakeholders are thus well-advised to maintain diligent oversight of their practices, particularly regarding pricing disclosures and the marketing and sale of ancillary products, ensuring adherence to the evolving standards of transparency and fairness.
