The United States Fifth Circuit Court of Appeals set aside the controversial Federal Trade Commission’s proposed CARS (Combating Auto Retail Scams) rule in a split ruling, according to court documents. The court ruled that FTC “violated its own regulations when it failed to issue an ANPRM (Advance Notice of Proposed Rulemaking) for the CARS Rule.”

Last year, NADA along with the Texas ADA filed a lawsuit in the court, which led the FTC to issue a temporary stay on the rule, which was expected to go into effect last July. NIADA and the Texas IADA later filed an amicus brief to the lawsuit. The court panel rule 2-1 in favor of the NADA and TADA. Attorney Eric Johnson, partner at Hudson Cook, offered his comments via email to Used Car News.

“The Fifth Circuit’s January 27th decision to vacate the FTC’s CARS Rule holds the FTC to the letter of the law and the agency’s own regulations,” stated Johnson. “In a split decision, the panel majority determined that the FTC promulgated the CARS Rule, under a particular section of the FTC Act which triggered the FTC’s internal procedural requirement to begin its rulemaking process with an advanced notice of proposed rulemaking (called an “ANPRM”).  The FTC’s failure to do so deprived the NADA and the TADA of a procedural benefit that could not be discredited as harmless error.”

NIADA Chairman Gordon Tormohlen, a vocal critic of the CARS rule, was thrilled with the ruling, and sent an email to Used Car News.  “This is really big, great news for independent auto dealers and everyone in the auto finance space,” he said. “Hats off to NIADA CEO Jeff Martin and the team at NIADA, as well as (NADA President) Mike Stanton and his team on the NADA side.  “As NIADA’s Amicus Brief clearly laid out, the FTC failed to follow their own rule making guidelines, which in turn, led to a rule that caused much harm to the industry while offering little, or no real value to consumers.

“I’m delighted with this ruling. Our finest dealers have always put their customers first, and I know they would have continued to do so regardless of the outcome of this case, but it’s a relief that they won't need to operate with this burden. What a great day to be in the car business.” Johnson, however, added the battle is likely not over. “Dealers aren’t completely in the clear from the Rule yet though, as the FTC has until March 13 to file a petition for rehearing with this same three-judge panel, or for rehearing ‘en banc’—meaning, before the entire Fifth Circuit Court.  “In the alternative, the FTC could seek review by the U.S. Supreme Court, which it must do by April 28. An appeal to the U.S. Supreme Court would likely take at least a year. The timing of a rehearing is less clear and would depend on whether the case is re-argued and what briefing schedule is set by the court.”