The 5th U.S. Circuit Court of Appeals ruled Monday that the Federal Trade Commission violated its own policies in the creation of the CARS Rule, a new trade regulation rule that would have allowed the FTC to fine auto dealers for a long list of violations the agency categorized as “bait-and-switch tactics” and “junk fees.”

In a 2-1 decision, the court vacated the rule on procedural grounds, ruling that CARS (for “Combating Auto Retail Scams”) was subject to an internal directive requiring the FTC to publish an advance notice of proposed rulemaking (ANPRM) for trade regulation rules.

“It is a given of administrative law that agencies must follow their own regulations,” wrote Judge Patrick E. Higginbotham in the majority opinion. Higginbotham appeared unmoved by the FTC’s argument that the Dodd-Frank Act of 2010 offered “statutory permission” to waive the ANPRM requirement. “While the Dodd-Frank Act lowered the procedural floor for certain rulemaking, it did not abrogate the FTC’s additional procedural safeguards.”

The decision centered on the first of three arguments put forth by attorneys representing the National Automobile Dealers Association and the Texas Automobile Dealers Association when they challenged the rule in January of 2024. The associations also argued the FTC had failed to articulate a “reasoned basis” for the CARS Rule’s existence and that an FTC-ordered cost-benefit analysis was “arbitrary and capricious.”

The CARS Rule was finalized in December 2023 and set to go into effect July 30, 2024. Shortly following the filing of NADA/TADA’s appeal, the FTC voluntarily stayed its enforcement deadline ahead of oral arguments, which were held Oct. 9.

The dissenting justice, Stephen A. Higginson, sided with FTC attorneys who argued the agency had offered advance notice in the form of public engagement. Higginson also cited two past cases in which it was determined a lack of advance notice had failed to change a rule or decision.

“I dissent because the Rule was promulgated in 2022, 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. Petitioners participated in those public roundtables and submitted several of those comments,” Higginson wrote.

In a statement, NADA President and CEO Mike Stanton applauded the decision, calling it “a victory for the rule of law” and a win for dealers as well as car buyers.

“As we have been saying since this rushed, poorly researched, and unnecessary rule was announced, the FTC’s Vehicle Shopping Rule (“CARS” Rule) would have added massive amounts of time, complexity, paperwork and cost to the car-buying and car-shopping experience for virtually every customer. That truly would have been a nightmare for consumers and dealers alike,” he wrote. “Thanks to the success of this legal challenge, dealers can get back to what they do best, which is creating the best-possible customer experience and reducing transaction times wherever possible.”