Car dealerships will not be explicitly banned from using bait-and-switch tactics following a new appeals court ruling.
The 5th Circuit Court of Appeals has overturned a Biden-era consumer protection rule designed to prevent deceptive car sales tactics. The ruling, issued on Monday, determined that the Federal Trade Commission (FTC) failed to follow proper procedures when implementing the regulations. As a result, car dealerships will not face federal restrictions on bait-and-switch advertising or junk fees.
Court Ruling Overturns Consumer Protections
In a 2-1 decision, the Louisiana-based appellate court ruled that the FTC did not provide sufficient advance notice before enforcing stricter consumer protection regulations. The now-overturned rule aimed to increase transparency by requiring dealerships to clearly disclose pricing, obtain buyer consent for financial changes, and eliminate unnecessary add-ons that do not benefit consumers.
The FTC estimated that the regulations could have saved American car buyers approximately $3.4 billion annually and reduced car shopping time by up to 72 million hours. Additionally, the rule sought to target junk fees, such as unnecessary warranties or pre-paid oil changes for electric vehicles, which some dealerships have used to increase profits unfairly.
Ongoing Efforts to Combat Fraudulent Practices
Despite the court’s decision, consumer protection efforts have not been entirely stalled. The FTC has previously taken action against deceptive dealership practices, securing a $20 million settlement from multiple dealerships accused of defrauding car buyers as recently as December 2024. State-level enforcement also remains strong in places like New York, where Attorney General Letitia James won a $1.9 million settlement against two Long Island Nissan dealerships for engaging in fraudulent pricing tactics.
However, without federal regulations, states without strong consumer protection laws may leave buyers more vulnerable to predatory sales tactics.
Industry Reaction to the Decision
The ruling has been met with mixed reactions. The National Automobile Dealers Association (NADA), which led the legal challenge against the FTC, applauded the decision. NADA President Mike Stanton described it as “a victory for the rule of law and a great outcome for consumers,” arguing that the now-defunct regulations would have made car buying more complicated and costly.
Conversely, dissenting voices, including Judge Stephen Higginson, criticized the court’s ruling. In his dissenting opinion, Judge Higginson emphasized that Congress explicitly authorized the FTC to regulate unfair and deceptive practices in the auto industry back in 2010. He pointed out that the proposed rules were not rushed but rather the result of decades of consumer complaints, industry studies, and legal action against deceptive dealerships.
Future Implications for Car Buyers
With the court’s decision, consumers must remain vigilant when purchasing a vehicle. Without federal protections, dealerships may continue to use bait-and-switch tactics, misleading financing terms, and junk fees in states that lack strict consumer protection laws.
As political leadership shifts, regulatory agencies like the FTC may see further challenges to their authority. The Biden administration’s FTC, under former Chair Lina Khan, aggressively pursued consumer protections, blocking mergers, capping insulin prices, and reinforcing right-to-repair laws. However, under the new administration, efforts to roll back regulations may continue, potentially reshaping consumer rights in various industries.
For now, car buyers should research dealership practices, carefully review all terms before signing a contract, and consider working with consumer advocacy groups for guidance on fair pricing and legal protections.
What’s Next?
While this ruling weakens federal oversight, states may step up their consumer protection laws. Buyers should stay informed and exercise caution, especially in jurisdictions without strong legal safeguards against predatory dealership practices.
