The CARS Rule is headed to court today.
The lawsuit filed by the NADA and Texas ADA against the Federal Trade Commission will be argued at 4 p.m. CT (Oct. 9) in the U.S. Court of Appeals for the Fifth Circuit in New Orleans.
Each side will get 30 minutes to argue their case in the courtroom. The arguments will be streamed live and a recording can be downloaded after the court hearing at www.ca5.uscourts.gov/oral-argument-information/court-calendars/Details/1799/.
A stay of the regulation remains in place as the lawsuit works its way through the court system. The FTC issued the stay shortly after the NADA and TADA filed their lawsuit.
NIADA and the Texas IADA joined the efforts to stop the Federal Trade Commission from enforcing the vehicle shopping rule. NIADA and TIADA filed an amicus brief to the NADA and TADA’s lawsuit in the Fifth Circuit in support of NADA/TADA, asking for the rule to be vacated. The amicus brief pointed to the rule’s negative impacts on the car buying process and significant cost to independent dealerships, explained how the FTC did not consider the burden on consumers and independent dealers’ business operations and how the FTC failed to comply with its requirement to provide a small business impact analysis.
Consumers will see vehicle price increases due to the additional requirements for disclosures and recordkeeping and compliance costs under the rule. They will also be faced with a more time-consuming and confusing sales experience. Dealers will have to maneuver through many requisites, including providing an offering price and monthly payments in any discussion of a vehicle, as well as obtaining a consumer’s “express, informed consent” before charging them for anything.
Consumers, who already have limited options, may find it impossible to secure financing as banks, credit unions and automotive finance companies reduce the funding to dealers that lack the resources and compliance infrastructure to meet the requirements of the rule.
More than 80 percent of NIADA dealer members who employ less than 10 employees will be faced with considerable costs from the rule. Costs range from increased legal and professional fees from attorneys and/or compliance advisors and IT personnel, as well as record-keeping storage. Dealers may also see a decline in sales due to the extended sales process with the added disclosures and repetition of origination procedures for every vehicle inquiry.
The increased time spent covering the disclosure requirements could also limit the amount of customers sales personnel may serve, impacting compensation and the overall performance of the dealership.
The ramifications of the CARS Rule could lead to the closure of many small dealerships or further consolidation in the industry due to increased compliance and record-keeping costs, a decrease in revenue and credit tightening. The loss of potentially thousands of dealerships will create ripple effects throughout the economy and in communities of all sizes.
No date is set for the final decision from the court. Once the court rules, the losing party may appeal the decision. However, as the FTC is currently and actively enforcing many aspects of the rule against dealers, dealers are urged to consider making preparations now for potentially complying with the rule.
