Date Filed: 05/14/2024
Agency decision
Ask Donna
What actually matters in this document.
Text
Case: 24-60013
Document: 91
Page: 1
Date Filed: 05/14/2024
No. 24-60013
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
–––––––––––––––––––––––––––––––––––––––––––––
NATIONAL AUTOMOBILE DEALERS ASSOCIATION;
TEXAS AUTOMOBILE DEALERS ASSOCIATION,
Petitioners,
v.
FEDERAL TRADE COMMISSION,
Respondent.
–––––––––––––––––––––––––––––––––––––––––––––
On Petition for Review of a Final Rule of the
Federal Trade Commission
–––––––––––––––––––––––––––––––––––––––––––––
BRIEF OF THE FEDERAL TRADE COMMISSION
–––––––––––––––––––––––––––––––––––––––––––––
ANISHA S. DASGUPTA
General Counsel
Of Counsel:
JAMIE D. BROOKS
DANIEL DWYER
Attorneys
FEDERAL TRADE COMMISSION
Washington, D.C. 20580
MATTHEW M. HOFFMAN
BENJAMIN F. AIKEN
Attorneys
FEDERAL TRADE COMMISSION
600 Pennsylvania Avenue, N.W.
Washington, D.C. 20580
(202) 326-2151
baiken@ftc.gov
Case: 24-60013
Document: 91
Page: 2
Date Filed: 05/14/2024
STATEMENT REGARDING ORAL ARGUMENT
The Federal Trade Commission believes oral argument would
assist the Court in resolving this case.
Case: 24-60013
Document: 91
Page: 3
Date Filed: 05/14/2024
TABLE OF CONTENTS
STATEMENT REGARDING ORAL ARGUMENT....................................i
TABLE OF AUTHORITIES...................................................................... iv
GLOSSARY................................................................................................ ix
INTRODUCTION ....................................................................................... 1
JURISDICTION ......................................................................................... 3
QUESTIONS PRESENTED....................................................................... 4
STATEMENT OF THE CASE ................................................................... 4
A.
Statutory Authority ................................................................. 4
B.
Commission Action Prior to Rulemaking................................ 7
C.
The Notice of Proposed Rulemaking and Comments
on the Proposed Rule ............................................................. 10
D.
The Final Rule........................................................................ 13
1.
2.
3.
Background Findings.................................................... 14
The Rule’s Provisions.................................................... 16
The Section 22 Final Regulatory Analysis .................. 19
SUMMARY OF ARGUMENT .................................................................. 20
STANDARD OF REVIEW........................................................................ 23
ARGUMENT............................................................................................. 23
I.
The Commission Was Not Required To Provide
Advance Notice Before Proposing the CARS Rule......................... 23
A.
The Commission’s Rules Did Not Require
Publication of an Advance Notice of Proposed
Rulemaking. ........................................................................... 24
ii
Case: 24-60013
II.
III.
Document: 91
Page: 4
Date Filed: 05/14/2024
B.
To the Extent the Commission’s Rules of Practice
Are Ambiguous, the Court Must Defer to the
Commission’s Reasonable Interpretation. ............................ 31
C.
In Any Event, the Lack of an ANPRM Was
Harmless................................................................................. 34
NADA Raises No Meritorious Challenge to the
Commission’s Basis for Issuing the CARS Rule. ........................... 39
A.
The Commission Was Not Required To Find
“Widespread Misconduct.” ..................................................... 40
B.
The Commission Was Not Required To Identify a
“Regulatory Gap” To Justify the Rule................................... 42
C.
The Commission Articulated a Reasoned Basis for
the CARS Rule. ...................................................................... 44
The Commission’s Cost-Benefit Analysis Is Not
Judicially Reviewable, and NADA’s Arguments Lack
Merit Anyway. ................................................................................. 54
A.
The Cost-Benefit Analysis Is Not Subject to Judicial
Review..................................................................................... 54
B.
In Any Case, the Commission Properly Assessed the
Benefits and Costs of the Rule. ............................................. 56
1.
2.
3.
4.
The Commission properly estimated benefits. ............ 57
The Commission properly estimated dealer
costs. .............................................................................. 61
NADA has not shown that any error in the
cost-benefit analysis affected the end result. .............. 65
There is no basis for a remand. .................................... 66
CONCLUSION ......................................................................................... 67
STATUTORY ADDENDUM
iii
Case: 24-60013
Document: 91
Page: 5
Date Filed: 05/14/2024
TABLE OF AUTHORITIES
CASES
Am. Equity Inv. Life Ins. Co. v. SEC,
613 F.3d 166 (D.C. Cir. 2010) ...............................................................44
Am. Farm Lines v. Black Ball Freight Serv.,
397 U.S. 532 (1970) ...............................................................................35
Anthony v. United States,
520 F.3d 374 (5th Cir. 2008)...........................................................24, 25
Auer v. Robbins,
519 U.S. 452 (1997) ...............................................................................31
Bd. of Cnty. Comm’rs of Washington Cnty. v.
United States Dep’t of Transp.,
955 F.3d 96 (D.C. Cir. 2020) .................................................................60
Business Roundtable v. SEC,
647 F.3d 1144 (D.C. Cir 2011) ........................................................41, 44
Chamber of Commerce v. SEC,
85 F.4th 760 (5th Cir. 2023) ...........................................................55, 56
Data Marketing Partnership, LP v. DOL,
45 F.4th 846 (5th Cir. 2022) .................................................................41
Doe v. SEC,
28 F.4th 1306 (D.C. Cir. 2022)..............................................................33
Elldakli v. Garland,
64 F.4th 666 (5th Cir. 2023) .................................................................55
Huawei Techs. USA, Inc. v. FCC,
2 F.4th 421 (5th Cir. 2021) ...................................................................56
IMS, P.C. v. Alvarez,
129 F.3d 618 (D.C. Cir. 1997) ...............................................................35
Kirby Corp. v. Pena,
109 F.3d 258 (5th Cir. 1997).................................................................55
Kisor v. Wilkie,
139 S. Ct. 2400 (2019) ............................................................... 31, 32, 33
iv
Case: 24-60013
Document: 91
Page: 6
Date Filed: 05/14/2024
Lara v. Cinemark USA, Inc.,
207 F.3d 783 (5th Cir. 2000)...........................................................24, 25
Lopez v. FAA,
318 F.3d 242 (D.C. Cir. 2003) ...............................................................35
Lundeen v. Mineta,
291 F.3d 300 (5th Cir. 2002).................................................................55
McGavock v. City of Water Valley,
452 F.3d 423 (5th Cir. 2006).................................................................30
Mississippi Valley Gas Co. v. FERC,
659 F.2d 488 (5th Cir. 1981).................................................................35
Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co.,
463 U.S. 29 (1983) ...........................................................................41, 45
Mourning v. Family Publ’ns Serv., Inc.,
411 U.S. 356 (1973) ...............................................................................41
N.Y. Stock Exch. LLC v. SEC,
962 F.3d 541 (D.C. Cir. 2020) .........................................................42, 43
Nat’l Ass’n of Home Builders v. Defenders of Wildlife,
551 U.S. 644 (2007) ...............................................................................34
Shinseki v. Sanders,
556 U.S. 396 (2009) .........................................................................34, 36
Sid Peterson Mem’l Hosp. v. Thompson,
274 F.3d 301 (5th Cir. 2001).................................................................41
Smith v. Sch. Bd. of Concordia Parish,
88 F.4th 588 (5th Cir. 2023) .................................................................38
Stockman v. FEC,
138 F.3d 144 (5th Cir. 1998).................................................................55
United States v. Johnson,
632 F.3d 912 (5th Cir. 2011)..................................................... 34, 35, 39
STATUTES
5 U.S.C. § 553 .............................................................................................5
5 U.S.C. § 553(b) .......................................................................................39
5 U.S.C. § 701(A)(1) ..................................................................................55
v
Case: 24-60013
Document: 91
Page: 7
Date Filed: 05/14/2024
5 U.S.C. § 706 ...........................................................................................34
12 U.S.C. § 5491..........................................................................................4
12 U.S.C. § 5519(d) ...................................................................................53
12 U.S.C. § 5519(e) ...................................................................................10
15 U.S.C. § 45(a) ...................................................................................5, 42
15 U.S.C. § 45(m)(1)(A).............................................................................54
15 U.S.C. § 5711(a)(8)...............................................................................28
15 U.S.C. § 5711(b) ...................................................................................28
15 U.S.C. § 57a(a)(1)(B).................................................................... 5, 6, 53
15 U.S.C. § 57a(b) .................................................................................6, 40
15 U.S.C. § 57a(b)(1)...........................................................................25, 26
15 U.S.C. § 57a(b)(2)(A)......................................................................37, 39
15 U.S.C. § 57a(b)(3).................................................................................40
15 U.S.C. § 57a(e)(3) ...........................................................................23, 34
15 U.S.C. § 57b(a)(1).................................................................................53
15 U.S.C. § 57b(b) .....................................................................................53
15 U.S.C. § 57b-3(b)(2)..............................................................................19
15 U.S.C. § 57b-3(b)(2)(C)...................................................................19, 54
15 U.S.C. § 57b-3(c)(1) ........................................................................54, 55
15 U.S.C. § 57b-3(c)(2) ........................................................................55, 66
REGULATIONS
12 C.F.R. § 1026.1(c).................................................................................50
12 C.F.R. § 213.3(a) ..................................................................................50
12 C.F.R. § 213.4(e)...................................................................................50
12 C.F.R. § 226.17(b) ................................................................................50
12 C.F.R. § 226.18(h) ................................................................................50
12 C.F.R. § 226.18(j) .................................................................................50
12 C.F.R. Part 226 ....................................................................................50
vi
Case: 24-60013
Document: 91
Page: 8
Date Filed: 05/14/2024
16 C.F.R. § 1.10...................................................................................25, 27
16 C.F.R. § 1.10(b)(1) ................................................................................37
16 C.F.R. § 1.21.........................................................................................25
16 C.F.R. § 1.26.........................................................................................25
16 C.F.R. § 1.7.....................................................................................26, 28
16 C.F.R. ch. I, subch. A, pt. 1, subpt. B................................................5, 6
16 C.F.R. ch. I, subch. A, pt. 1, subpt. C....................................................5
FTC Improvements Act of 1980,
Pub L. 96-252, 94 Stat. 374 ..................................................................29
OTHER AUTHORITIES
A.H. Studenmund,
Using Econometrics: A Practical Guide (6th ed. 2017) .......................59
Administrative Conf. of the U.S.,
Rulemaking Comments (June 16, 2011) ..............................................38
Combating Auto Retail Scams Trade Regulation Rule,
89 Fed. Reg 590 (Jan. 4, 2024) ..................................................... passim
Combating Auto Retail Scams Trade Regulation Rule,
89 Fed. Reg. 13267 (Feb. 22, 2024) ......................................................14
Fed. Trade Comm’n,
FTC Announces CARS Rule to Fight Scams in
Vehicle Shopping (Dec. 12, 2023) .........................................................18
Motor Vehicle Dealers Trade Regulation Rule,
87 Fed. Reg. 42,012 (July 13, 2022) .....................................................10
Organization Changes in the Commission's
Rulemaking and Investigatory Procedures,
46 Fed. Reg. 26,284 (May 12, 1981) .....................................................29
Prevalent, Merriam-Webster Dictionary (online ed.),
https://www.merriamwebster.com/dictionary/prevalent. .......................................................40
vii
Case: 24-60013
Document: 91
Page: 9
Date Filed: 05/14/2024
Public Roundtables: Protecting Consumers in the
Sale and Leasing of Motor Vehicles,
76 Fed. Reg. 14,014 (Mar. 15, 2011).......................................................7
Revisions to Rules of Practice,
86 Fed. Reg. 38542 (July 22, 2021) ......................................................29
Trade Regulation Rule Pursuant to the Telephone
Disclosure and Dispute Resolution Act of 1992,
58 Fed. Reg. 42,364 (Aug. 9, 1993) .......................................................28
Unfair or Deceptive Advertising and Liability of Cigarettes
in Relation to the Health Hazards of Smoking,
29 Fed. Reg. 8324 (July 2, 1964) ..........................................................28
viii
Case: 24-60013
Document: 91
Page: 10
Date Filed: 05/14/2024
GLOSSARY
This Brief uses the following abbreviations:
ANPRM
Advance Notice of Proposed Rulemaking
APA
Administrative Procedure Act
Br.
Petitioners’ Opening Brief
CARS Rule
Combating Auto Retail Scams Trade Regulation
Rule, 89 Fed. Reg. 590 (Jan. 4, 2024) (to be codified at
16 C.F.R. Part 463).
CFPB
Consumer Financial Protection Bureau
CLA
Consumer Leasing Act
Dodd-Frank
Dodd-Frank Wall Street Reform and Consumer
Protection Act
FTC
Federal Trade Commission
FTC Act
Federal Trade Commission Act
NADA
National Automobile Dealers Association
NPRM
Notice of Proposed Rulemaking
R.
Record
SEC
Securities and Exchange Commission
TADA
Texas Automobile Dealers Association
TILA
Truth in Lending Act
ix
Case: 24-60013
Document: 91
Page: 11
Date Filed: 05/14/2024
INTRODUCTION
Cars are an essential feature of modern-day life for many
Americans, who use them for work, school, childcare, groceries, medical
visits, and more. In some parts of the United States, it is hard to live
without a car. Cars are also one of the most expensive purchases many
Americans will ever make. Unfortunately, the process of buying or
leasing a car is time-consuming, complicated, and opaque. It typically
takes consumers several hours to wrest true pricing information from
dealers and more time to wade through voluminous paperwork and
dense fine print. Unscrupulous dealers have long taken advantage of
consumers during this process through a variety of unfair or deceptive
practices. And dealers who take a more honest tack face serious
competitive headwinds.
Acting with specific authorization from Congress, the Federal
Trade Commission issued the Combating Auto Retail Scams Trade
Regulation Rule (“CARS Rule”) to curb some of the most common
unlawful practices used by dishonest dealers: bait-and-switch tactics,
hidden fees, and “junk” fees for add-on products or services that provide
no benefit (like duplicative warranties and oil change services for
Case: 24-60013
Document: 91
Page: 12
Date Filed: 05/14/2024
electric cars). Specifically, the Rule (1) prohibits material
misrepresentations about key transaction terms; (2) requires certain
affirmative disclosures; (3) prohibits add-ons that provide no benefit;
and (4) prohibits charges for any item without the customer’s express,
informed consent. The Rule requires no additional paperwork from
consumers and imposes minimal burdens on dealers; dealers must keep
records to demonstrate compliance but can do so the same way they
already keep records in the ordinary course of business.
Petitioners, the National Automobile Dealers Association and the
Texas Automobile Dealers Association (collectively, “NADA”), challenge
the Rule under the Administrative Procedure Act (“APA”). NADA’s
challenges lack merit and the petition for review should be denied.
Although NADA argues that the Rule is invalid because the
Commission did not publish an advance notice of proposed rulemaking
(“ANPRM”), NADA admits that Congress gave the Commission clear
statutory authority to prescribe rules respecting unfair or deceptive acts
or practices by motor vehicle dealers without an ANPRM. The
Commission’s rules do not require an ANPRM in these circumstances,
2
Case: 24-60013
Document: 91
Page: 13
Date Filed: 05/14/2024
and in any event NADA has not shown any prejudice from the lack of
an ANPRM.
NADA’s other arguments are equally meritless. The Commission
amply documented the factual basis for the Rule and explained why it
was needed, which is all the APA requires. The Commission was not
required either to find that misconduct among automobile dealers was
widespread or to identify a specific regulatory gap that the Rule would
fill. As for NADA’s challenge to the Commission’s cost-benefit analysis,
Section 22(c) of the FTC Act expressly bars judicial review of that
analysis, see 15 U.S.C. § 57b-3(c), and NADA’s attacks on the analysis
are baseless anyway.
JURISDICTION
The Commission was authorized to issue the CARS Rule under
12 U.S.C. § 5519(d). The Rule was published in the Federal Register on
January 4, 2024; NADA filed its petition for review the same day. This
Court has jurisdiction to review the Rule under 15 U.S.C. § 57a(e), but
15 U.S.C. § 57b-3(c) bars review of the Commission’s final regulatory
analysis.
3
Case: 24-60013
Document: 91
Page: 14
Date Filed: 05/14/2024
QUESTIONS PRESENTED
1.
Whether the Commission was required to publish an
ANPRM despite Congress having exempted the Commission from that
requirement.
2.
Whether the Commission was required to find either that
misconduct by automobile dealers is widespread or that the Rule was
needed to fill a specific regulatory gap, even though the APA imposes no
such requirements and Congress specifically authorized the
Commission to regulate automobile dealers without imposing such
preconditions.
3.
Whether Section 22(c) of the FTC Act bars judicial review of
the Commission’s cost-benefit analysis.
STATEMENT OF THE CASE
A.
Statutory Authority
In 2010, Congress enacted the Dodd-Frank Wall Street Reform
and Consumer Protection Act (“Dodd-Frank”), which among other
things created the Consumer Financial Protection Bureau (“CFPB”).
See 12 U.S.C. § 5491. Congress exempted most motor vehicle dealers
from the CFPB’s jurisdiction, see id. § 5519(a), but it recognized that
further regulation of this industry might be needed. Accordingly, Dodd4
Case: 24-60013
Document: 91
Page: 15
Date Filed: 05/14/2024
Frank authorized the FTC to “prescribe rules under sections 5 and
18(a)(1)(B) of the Federal Trade Commission Act” with respect to motor
vehicle dealers. 12 U.S.C. § 5519(d). 1 Section 5 of the FTC Act outlaws
unfair or deceptive acts or practices, 15 U.S.C. § 45(a), while Section
18(a)(1)(B) authorizes the Commission to prescribe rules to “define with
specificity acts or practices which are unfair or deceptive” and prescribe
requirements “for the purpose of preventing such acts or practices,” id.
§ 57a(a)(1)(B).
The Commission uses two different sets of procedures for
promulgating rules. See 16 C.F.R. ch. I, subch. A, pt. 1, subpts. B and C.
Which set applies in any particular rulemaking turns on the authority
granted by Congress. For all rulemakings, the Commission must
provide notice and an opportunity to comment, as required by the APA.
See 5 U.S.C. § 553. And when issuing rules to define unfair or deceptive
acts or practices under Section 18(a)(1)(B), the Commission generally
must follow additional procedures—unless Congress specifies otherwise,
as it did here. These additional procedures (known as the “Magnuson-
1 Quotations from statutes are to the language enacted by Congress rather than
codified in the U.S. Code (i.e., they refer to FTC Act section numbers rather than
the corresponding U.S. Code section numbers).
5
Case: 24-60013
Document: 91
Page: 16
Date Filed: 05/14/2024
Moss” procedures, after the statute that added Section 18 to the FTC
Act) require the Commission, among other things, to (1) publish an
ANPRM at the start of the rulemaking process; (2) find that the unfair
or deceptive acts or practices at issue are “prevalent”; and (3) provide
interested parties an opportunity for an informal hearing. 15 U.S.C.
§ 57a(b); see also See 16 C.F.R. ch. I, subch. A, pt. 1, subpt. B. No such
requirements exist in standard APA rulemaking.
As relevant here, Dodd-Frank authorized the Commission to issue
rules respecting motor vehicle dealers “under” Section 18(a)(1)(B), but it
specified that “[n]otwithstanding section 18 of the [FTC] Act,” the
Commission should issue such rules “in accordance with section 553 of
title 5, United States Code.” 12 U.S.C. § 5519. In other words, Congress
authorized the Commission to issue rules defining “unfair or deceptive
acts or practices” by motor vehicle dealers, see 15 U.S.C. § 57a(a)(1)(B),
but directed it to do so using regular APA procedures, not the extra
Magnuson-Moss procedures—including an ANPRM—that ordinarily
apply to Section 18(a)(1)(B) rulemakings. NADA concedes that this
language exempted the Commission from the statutory ANPRM
requirement. Br. 19, 20.
6
Case: 24-60013
B.
Document: 91
Page: 17
Date Filed: 05/14/2024
Commission Action Prior to Rulemaking.
Shortly after Dodd-Frank was enacted, the Commission held three
public roundtables to explore consumer protection issues related to
motor vehicle sales, including what issues could be addressed in a
possible rulemaking. 76 Fed. Reg. 14,014 (Mar. 15, 2011) (R. 1).
Participants included industry representatives (including NADA’s
general counsel), military servicemembers, regulators, and consumer
advocates. The Commission also received and reviewed over 100 filed
comments, including comments from NADA. R. 2-5; Comment No. FTC2022-0036-0034 (NADA); see also, e.g., Comment No. FTC-2022-00360124 (State AGs). Although the roundtables and comments revealed a
host of practices that harmed consumers and law-abiding dealers, the
Commission initially chose to address these problems through case-bycase enforcement and issuance of business guidance rather than
rulemaking. CARS Rule, 89 Fed. Reg. 590, 591 (Jan. 4, 2024) (R. 322.)
Over the next few years, the Commission and its law enforcement
partners at the federal and state level took numerous steps to try to
curb unfair or deceptive practices by motor vehicle dealers. Among
other things, the Commission brought dozens of actions against motor
7
Case: 24-60013
Document: 91
Page: 18
Date Filed: 05/14/2024
vehicle dealers, led federal and state officials in two nationwide law
enforcement sweeps (one involving 181 separate enforcement actions),
published two reports on consumer vehicle purchasing experiences, and
held workshops with various stakeholders to discuss the motor vehicle
marketplace. 89 Fed. Reg. at 598 & nn.88-90. 2
Despite these efforts, unfair or deceptive practices persisted,
especially bait-and-switch tactics—where dealers try to get customers
in the door by advertising prices, discounts, or other terms that are not
actually available to typical consumers—and hidden or junk fees, which
are charged without customers’ knowledge, under false pretenses, or for
add-on products or services that provide no benefit. Id. at 600. And
those practices sparked numerous consumer complaints. In each of the
four years leading up to the CARS Rule, the FTC received more than
100,000 complaints about motor vehicle dealers; the industry was also
consistently at or near the top of private sources of consumer
complaints. Id. at 594. In addition, complaints about motor vehicle
transactions are regularly in the top ten complaint categories tracked in
the FTC’s Consumer Sentinel database, which includes complaints from
2
See also, e.g., R. 15, 21, 29, 42, 51, 52, 61, 64, 95, 97, 109.
8
Case: 24-60013
Document: 91
Page: 19
Date Filed: 05/14/2024
federal agencies, states, Better Business Bureaus, and some businesses.
Id. 3
And consumer complaints are just the tip of the iceberg. Most
consumers subjected to these unlawful practices may not even realize
they were deceived, and only a fraction of those who know they have
been victimized lodge complaints. Id. at 658. Investigation often reveals
additional victims. For example, in 2020, the Commission filed an
enforcement action against a large multistate dealership after receiving
391 complaints about add-ons and other issues. But a later survey
showed that some 83% of the dealer’s customers—more than 16,000
people—were subject to unlawful practices regarding add-ons alone. Id.
at 594.
Although tactics like bait-and-switch advertising and hidden or
junk fees affect all consumers, those serving in America’s military are
often particularly vulnerable to these predatory practices—a concern
that Congress expressly recognized in Dodd-Frank, see 12 U.S.C.
3 NADA cites the Commission’s 2011 statement that dealers were in “broad
compliance” with the FTC’s Holder Rule (which requires certain provisions in
consumer financing contracts), Br. 4, but that had nothing to do with consumer
experience, satisfaction, or deceptive practices like bait-and-switch advertising or
hidden fees.
9
Case: 24-60013
Document: 91
Page: 20
Date Filed: 05/14/2024
§ 5519(e). Servicemembers generally require private vehicles for
transportation while living on military bases, 89 Fed. Reg. at 592, and
hidden fees for add-on products or services have been a particular
concern in the military community. Id. at 595. Overall, auto-related
complaints consistently rank among the top ten complaint categories
outside of identity theft for military consumers. Id. at 594.
C.
The Notice of Proposed Rulemaking and Comments on the
Proposed Rule
In light of all this evidence, the Commission determined that a
rulemaking under Dodd-Frank was necessary to address unfair or
deceptive practices by motor vehicle dealers. The Commission published
a notice of proposed rulemaking in 2022. See 87 Fed. Reg. 42,012 (July
13, 2022) (R. 142.) It received more than 27,000 comments, reflecting a
wide range of viewpoints from numerous stakeholders, including
civilian and military consumers, dealerships, industry associations,
community and consumer groups, states, lawmakers, and law
enforcement agencies. 89 Fed. Reg. at 591-92.
Numerous consumers described deceptive pricing and hidden fee
practices they experienced during recent car purchases. See id. at 59798, 610, 629-30. One recounted spending “five hours at the dealership”
10
Case: 24-60013
Document: 91
Page: 21
Date Filed: 05/14/2024
in 2022 before “discover[ing]” that “the dealer had added on a $3,000
market adjustment and $3,100 in other add-ons,” with the result that
the consumer had to take time off from work “to find a new vehicle at a
price within [the family’s] budget.” Id. at 598 (quoting Comment No.
FTC-2022-0046-0001).4 Another recalled “having to drive 3 hours” to get
the vehicle they “wanted,” and being told upon arrival there was a
$4,300 increase over MSRP. Id. at 597 (quoting Comment No. FTC2022-0046-1878).
Many similar comments came from current or former military
servicemembers. A former Marine described being “taken advantage of
by a dealership when purchasing my first car,” which “set me back
financially for years” and stated that he knew many young military
members in similar situations. Id. at 597 (quoting Comment No. FTC2022-0046-4648). Another former servicemember labeled “absurd” the
number of “scams and horror stories” he had “heard regarding young
service members buying cars.” Id. at 591-92 n.11 (quoting Comment No.
FTC-2022-0046-0542). An active military member and combat veteran
All comments in response to the NPRM are included in R. 145, and the online
docket can be found at https://www.regulations.gov/document/FTC-2022-00460001/comment.
4
11
Case: 24-60013
Document: 91
Page: 22
Date Filed: 05/14/2024
said he could not “list the number of times I have either seen, or have
stepped in a situation, where car dealers have either attempted to take,
or have successfully taken, advantage of a young military member or
their family by baiting and switching when it came to the price of a car,
or stated that the price was one amount, only to be charged, and overcharged a higher amount.” Id. (quoting Comment No. FTC-2022-00469840).
The proposed rule also garnered support from several current and
former dealers and dealership employees. A “family run ‘mom and pop’
dealer” commented that “[o]verwhelmingly, automotive dealership
advertising is ridiculously deceptive” and “a contest of which dealership
can effectively lie the best.” 5 One former dealer stated that the Rule has
been needed “for a very long time” to address the “massive deceptive
and unethical business practices that are currently taking place in the
car industry,” and that it “will only help good dealers and clean up the
industry by exposing the bad apples who are a stain on the car industry
and should be driven out ASAP.” 6 Dealers expressed concern that the
5 Comment No. FTC-2022-0046-0003.
6 Comment No. FTC-2022-0046-6852.
12
Case: 24-60013
Document: 91
Page: 23
Date Filed: 05/14/2024
abusive practices by unscrupulous dealers placed them at a competitive
disadvantage and indicated that adoption of the proposed rule would
help level the playing field. 7
The Commission also received comments critical of the proposed
rule. Some dealers and industry groups argued there was no need for a
rule at all and that particular provisions of the proposal would be
unduly burdensome. NADA submitted 140 single-spaced pages of
comments plus 224 pages of attachments. 8 TADA submitted another 48
single-spaced pages with 53 pages of attachments. 9
D.
The Final Rule
After carefully considering each of the comments and making
revisions to the proposed rule in response—including changes that
narrowed its scope and eliminated paperwork requirements—the
7 See Comment No. FTC-2022-0046-2323 (Comment from “a licensed motor
vehicle dealer” complaining that certain “practices … make it harder for honest
dealers to compete with bait and switch specialists”).
8
Comment No. FTC-2022-0046-8368.
9
Comment No. FTC-2022-0046-8102.
13
Case: 24-60013
Document: 91
Page: 24
Date Filed: 05/14/2024
Commission published the final CARS Rule (to be codified at 16 C.F.R.
Part 463). 10
1.
Background Findings
The preamble to the Rule (also referred to as the statement of
basis and purpose) sets forth the background that prompted the
Commission to act. The Commission noted the essential role cars play
in American life and their increasing cost. 89 Fed. Reg. at 592. Vehicles
“are now many consumers’ largest expense—on a par with housing,
child care and food, and accounting for 16% of the median annual
household income before taxes.” Id. Some 81% of new motor vehicle
purchases and 35% of used vehicles are financed, and “[b]y the first
quarter of 2023, Americans had more than 107 million outstanding auto
financing accounts and owed more than $1.56 trillion thereon, making
auto finance the third-largest source of debt for U.S. consumers, and the
second largest for U.S. consumers ages 40 and over.” Id. And
servicemembers “have an average of twice as much auto debt as
10 The Commission set July 30, 2024, as the effective date for the Rule, 89 Fed.
Reg. at 660, but postponed that date under 5 U.S.C. § 705 pending this Court’s
expedited review. See 89 Fed. Reg. 13267 (Feb. 22, 2024).
14
Case: 24-60013
Document: 91
Page: 25
Date Filed: 05/14/2024
civilians.” Id. “By the age of 24, around 20 percent of young service
members have at least $20,000 in auto debt.” Id. at 592-93.
The Commission found that the process of buying or leasing a
vehicle was “time-consuming and arduous.” Id. at 593. “It can take
several hours or days to finalize a transaction, on top of the hours it can
take, particularly in rural areas, to drive to a dealership. Consumers
may need to take time off work or arrange childcare, and families with
a single vehicle may be forced to delay other important appointments
due to the length of the vehicle-buying or -leasing process.” Id.
Further, the Commission found that consumers are too commonly
“confronted with chronic deceptive or unfair practices, including baitand-switch tactics and hidden charges.” Id. at 594. It described these
practices in detail, quoting extensively from the comments, id. at 59498, and recounted past efforts to address these problems through
enforcement and education. Id. at 598-600. It concluded that the
persistence of such practices warranted a rule to “address the harm
these issues inflict on consumers and on law-abiding dealers.” Id. at
600.
15
Case: 24-60013
2.
Document: 91
Page: 26
Date Filed: 05/14/2024
The Rule’s Provisions
As finalized, the CARS Rule has four main provisions that
specifically target bait-and-switch tactics and hidden or junk fees by
covered automobile dealers. 11
First, the Rule spells out specific kinds of misrepresentations that
are unlawful. It prohibits a covered dealer from making material
misrepresentations about certain key facts, including the cost or terms
of purchasing, financing, or leasing a vehicle; the availability of rebates
or discounts; the availability of vehicles at an advertised price;
information about financing; whether consumer reviews are unbiased or
independent; and whether the dealer or its personnel or products have
any affiliation or connection with the United States government or the
military. 89 Fed. Reg. at 694 (16 C.F.R. § 463.3).
Second, the Rule requires covered dealers to make disclosures
about three pieces of information: price, add-ons, and payments. Id. at
694-95 (16 C.F.R. § 463.4). Dealers must disclose the true price when
advertising or discussing a specific vehicle, monetary amount, or
11 Although the proposed rule would have applied to motor vehicle dealers as
defined by Dodd-Frank, the Commission narrowed the scope of the Final Rule to
focus on automobile dealers. 89 Fed. Reg. at 607-08, 693-94.
16
Case: 24-60013
Document: 91
Page: 27
Date Filed: 05/14/2024
financing term, and must provide that information in their first
response to a consumer inquiry. When discussing an optional add-on,
dealers must tell the consumer it is optional. Finally, dealers must
disclose the total of all monthly payments whenever they make
representations about what the consumer will pay if all payments are
made on schedule, and must also disclose if a lower monthly payment
will increase that total.
Third, the Rule prohibits covered dealers from charging
consumers for add-ons that confer no benefit to the consumer, such as
warranties that duplicate the manufacturer’s coverage. Id. at 695 (16
C.F.R. § 463.5(a)).
Fourth, the Rule bars covered dealers from charging for any item
without express, informed consent from the consumer. Id. (16 C.F.R.
§ 463.5(c)).
The Rule imposes minimal administrative burdens. Dealers must
keep records sufficient to demonstrate their compliance for 24 months,
but the Rule does not impose any special recordkeeping format. Records
may be kept in the same manner, format, or place as dealers already
use in the ordinary course of business. Id. (16 C.F.R. § 463.6). Nothing
17
Case: 24-60013
Document: 91
Page: 28
Date Filed: 05/14/2024
in the Rule requires consumers to complete any additional paperwork.
In fact, in response to comments from NADA and others, the Final Rule
eliminated provisions from the NPRM that would have required
additional forms from dealers. 12 Nor does the Rule require dealers to
use specific language or formatting when making the mandatory
disclosures. Dealers thus retain considerable flexibility in deciding how
best to comply with the Rule’s requirements.
The Commission expects the Rule’s provisions will benefit all
American consumers, but as discussed above, its protections are
particularly important for military servicemembers and their families.
The Department of Defense has stated that “[f]or our service members
and their families a car is an essential purchase, and this CARS Rule
will help fight predatory practices that target our men and women in
uniform” and “contribute to service members’ overall economic security
and readiness.” 13 And it is not just consumers (civilian and military)
12 See 89 Fed. Reg. at 636, 650, 658 (determining not to finalize add-on list, cash
price without optional add-ons disclosure and associated recordkeeping
requirements).
13 Fed. Trade Comm’n, FTC Announces CARS Rule to Fight Scams in Vehicle
Shopping (Dec. 12, 2023), https://www.ftc.gov/news-events/news/pressreleases/2023/12/ftc-announces-cars-rule-fight-scams-vehicle-shopping.
18
Case: 24-60013
Document: 91
Page: 29
Date Filed: 05/14/2024
who will benefit. Curbing misconduct will benefit honest dealers by
ensuring that they can compete on a level playing field.
3.
The Section 22 Final Regulatory Analysis
Section 22 of the FTC Act generally requires the Commission to
issue a “final regulatory analysis” when it promulgates a final rule
under Section 18. 15 U.S.C. § 57b-3(b)(2). The analysis must contain,
among other things, “an analysis of the projected benefits and any
adverse economic effects and any other effects of the final rule.” Id.
§ 57b-3(b)(2)(C). The Commission conducted this analysis, see 89 Fed.
Reg. at 672-93, and concluded that the benefits to the public from the
CARS Rule would vastly outweigh the costs to dealers. Id. at 688. The
Commission estimated that over a 10-year period, the Rule would confer
$13.4 billion in benefits by saving consumers time while shopping for
cars and reducing the deadweight loss caused by shrouded prices,
deception, and obfuscation. Id. By contrast, the Commission estimated
that the rule would impose costs of only $1.1 billion on dealers over that
period. Id.
19
Case: 24-60013
Document: 91
Page: 30
Date Filed: 05/14/2024
SUMMARY OF ARGUMENT
1.
The Commission was not required to publish an ANPRM.
Although NADA concedes that Congress exempted Dodd-Frank
rulemakings from Section 18’s ANPRM requirement, NADA argues that
the Commission’s rules of practice imposed a distinct ANPRM
requirement. That argument ignores the plain text of the relevant
Commission rules of practice, which establish that Magnuson-Moss
procedures—including the ANPRM requirement—do not apply to rules,
like the CARS Rule, issued under authority other than Section
18(a)(1)(B). NADA also ignores the history of the Commission’s internal
rules, which show that NADA’s cited regulatory provision merely
implements Section 18 and does not impose a separate mandate.
Further, NADA’s interpretation would improperly thwart the provisions
of Dodd-Frank directing the Commission to prescribe Dodd-Frank rules
through the ordinary APA process. To the extent that there is any
ambiguity, the Commission’s interpretation of its own rules is entitled
to deference under Auer v. Robbins, 519 U.S. 452 (1997), and Kisor v.
Wilkie, 139 S. Ct. 2400 (2019).
20
Case: 24-60013
Document: 91
Page: 31
Date Filed: 05/14/2024
In any event, the omission of an ANPRM was harmless. NADA is
wrong that the Commission bears the burden of showing harmless
error. The burden is squarely on NADA to show that any error was
harmful. NADA has not met that burden because the record shows that
it had ample opportunities to participate in the regulatory process both
before and after the issuance of the NPRM and took full advantage of
those opportunities. NADA has not identified any information it was
unable to bring to the Commission’s attention or pointed to anything it
would have done differently if an ANPRM had been issued.
2.
NADA is also wrong that the Commission was required to
find widespread misconduct and a regulatory gap as a precondition to
rulemaking. Although Section 18 requires the Commission to find that
misconduct is “prevalent” in a Magnuson-Moss rulemaking, DoddFrank exempted the Commission from that requirement here—and
NADA does not argue otherwise. Congress authorized the Commission
to prescribe rules respecting motor vehicle dealers even though it knew
they were already subject to other regulatory schemes and the FTC
Act’s general prohibition of unfair or deceptive acts or practices. It did
21
Case: 24-60013
Document: 91
Page: 32
Date Filed: 05/14/2024
not say the Commission needed to identify a regulatory gap before
issuing such rules.
Under the APA, the Commission merely needed to show a rational
connection between the facts found and the decision made. It easily
satisfied that deferential standard here by showing that unfair or
deceptive practices by automobile dealers—specifically bait-and-switch
tactics and hidden or junk fees—remain a serious and persistent
problem despite more than a decade of enforcement efforts and business
and consumer education.
3.
The Court lacks jurisdiction to consider NADA’s attacks on
the Commission’s cost-benefit analysis. Section 22 of the FTC Act
expressly bars judicial review of the contents or adequacy of the costbenefit analysis and precludes the court from setting aside the Rule or
remanding on account of any alleged errors in that analysis.
In any event, NADA has not shown any error in the cost-benefit
analysis—much less one that could have affected the outcome, given the
vast disparity between the Rule’s estimated benefits to society ($13.4
billion over ten years) and the cost to dealers ($1.1 billion over the same
period). And another part of the Commission’s analysis—which NADA
22
Case: 24-60013
Document: 91
Page: 33
Date Filed: 05/14/2024
does not challenge—shows that even if some of the Commission’s
assumptions were off by an order of magnitude, the end result would be
the same. Finally, there is no basis to remand for consideration of
additional evidence. The Commission already addressed the only
additional evidence NADA cites and found that evidence unreliable.
STANDARD OF REVIEW
The Rule is subject to review under 5 U.S.C. §706(2)(A)-(D). See 15
U.S.C. § 57a(e)(3).
ARGUMENT
I.
THE COMMISSION WAS NOT REQUIRED TO PROVIDE ADVANCE
NOTICE BEFORE PROPOSING THE CARS RULE.
Contrary to NADA’s argument, the Commission was not required
to publish an advance notice of proposed rulemaking. NADA concedes
that Dodd-Frank exempted the Commission from Section 18’s statutory
ANPRM requirement (Br. 20) but argues that the Commission’s rules of
practice create an independent obligation to publish an ANPRM. Br. 1723. In other words, NADA claims that the Commission imposed on itself
an obligation to publish an ANPRM even where Congress said not to.
This argument fails for three reasons. First, it is contrary to the plain
text of the relevant Commission rules and would thwart Congress’s
23
Case: 24-60013
Document: 91
Page: 34
Date Filed: 05/14/2024
directive that the Commission should issue Dodd-Frank rules through
the ordinary APA procedure. Second, even if there were some ambiguity
in the Commission’s rules, the Commission’s interpretation of those
rules is entitled to deference. Finally, even if an ANPRM were required,
NADA has not shown any prejudice from its omission.
A.
The Commission’s Rules Did Not Require Publication
of an Advance Notice of Proposed Rulemaking.
The plain language of the Commission’s rules of practice makes
clear that the Commission was not required to publish an ANPRM. This
Court “interpret[s] regulations in the same manner as statutes, looking
first to the regulation’s plain language” and going no further where that
language is unambiguous. Anthony v. United States, 520 F.3d 374, 380
(5th Cir. 2008). A regulation “should be interpreted in a manner that
effectuates its central purposes” and does not “thwart the statutory
mandate it was designed to implement.” Id.; see also Lara v. Cinemark
USA, Inc., 207 F.3d 783, 787 (5th Cir. 2000) (rejecting interpretation
that “would contravene the very purpose of the regulation and
[statute]”). Moreover, a regulation must be read “as a whole, with the
assumption that … each of [its] terms … convey[s] meaning,” Cinemark,
24
Case: 24-60013
Document: 91
Page: 35
Date Filed: 05/14/2024
207 F.3d at 787, and considering each phrase “in context,” Anthony, 584
F.3d at 380.
The Commission’s rules of practice describe two different kinds of
rulemaking proceedings, which are set forth in subparts B and C of 16
C.F.R. ch. I, subch. A, pt. 1. The subpart B rules implement the
procedures Congress established for Magnuson-Moss rulemakings, i.e.,
Section 18(a)(1)(B) rulemakings undertaken without other
authorization from Congress. 15 U.S.C. § 57a(b)(1). Accordingly,
subpart B contains a section that implements the ANPRM requirement.
See 16 C.F.R. § 1.10. The subpart C rules apply to all other rulemaking
proceedings, i.e., APA rulemakings, and do not require an ANPRM. See
id. §§ 1.21, 1.26.
The Commission properly determined that the CARS rulemaking
proceeding was governed by subpart C, not subpart B. 89 Fed. Reg. 601
n.115. This is evident from § 1.21, which defines the scope of subpart C.
It states that “[t]his subpart sets forth procedures for the promulgation
of rules under authority other than section 18(a)(1)(B) of the FTC Act.”
16 C.F.R. § 1.21 (emphasis added). The CARS Rule was promulgated
under the authority of Dodd-Frank, as both the preamble and the
25
Case: 24-60013
Document: 91
Page: 36
Date Filed: 05/14/2024
authority provision of the Rule (§ 463.1) make clear. See 89 Fed. Reg. at
591, 693. Because Dodd-Frank is an “authority other than section
18(a)(1)(B),” subpart C plainly applied.
The scope provision of subpart B confirms this conclusion. Section
1.7 provides that “[t]he rules in” subpart B will “apply to and govern
proceedings for the promulgation of rules as provided in section
18(a)(1)(B) of the [FTC] Act” and that “[a]ll other rulemaking
proceedings will be governed by the rules in subpart C.” 16 C.F.R. § 1.7.
Section 18(a)(1)(B) does not itself specify procedures for the
promulgation of rules, but Section 18(b) sets forth procedures (including
the ANPRM requirement) that apply “[w]hen prescribing a rule under
subsection (a)(1)(B).” 15 U.S.C. § 57a(b)(1). Thus, the most natural
reading of § 1.7 is that the subpart B rules apply to proceedings for the
promulgation of rules in the manner that Congress provided for
ordinary Section 18(a)(1)(B) rulemakings—i.e., rules that must be
promulgated using the procedures in Section 18(b).
Notably, § 1.7 does not say that subpart B applies to any rule
“under” Section 18(a)(1)(B); it focuses instead on rules that Congress
required to be promulgated using the Magnuson-Moss procedures.
26
Case: 24-60013
Document: 91
Page: 37
Date Filed: 05/14/2024
Here, in this Dodd-Frank rulemaking, Congress directed the
Commission to prescribe rules under Section 18(a)(1)(B) but to do so
through regular APA procedures “[n]otwithstanding section 18 of the
[FTC] Act.” 12 U.S.C. § 5519. In other words, Congress told the
Commission not to use the procedures that ordinarily apply to a section
18(a)(1)(B) rulemaking. Accordingly, this rulemaking proceeding was
not one for “the promulgation of rules as provided in section
18(a)(1)(B),” and subpart B did not apply.
NADA’s contrary arguments (Br. 17-23) ignore the text of § 1.7
and § 1.21 and would lead to the absurd result of requiring the
Commission to comply with the very procedures that Congress
dispensed with. NADA focuses on § 1.10, which says that an ANPRM
must be published “[p]rior to the commencement of any trade regulation
rule proceeding.” 16 C.F.R. § 1.10. But § 1.10 is part of subpart B, and
the plain text of § 1.7 and § 1.21 makes clear that this rulemaking was
governed by subpart C.
NADA notes that the Commission described the CARS Rule as a
“trade regulation rule,” Br. 18, but that description has no bearing on
whether an ANPRM was required. Although § 1.7 says that rules
27
Case: 24-60013
Document: 91
Page: 38
Date Filed: 05/14/2024
“promulgat[ed] … as provided in section 18(a)(1)(B) … will be known as
trade regulation rules,” 16 C.F.R. § 1.7, it does not say that only those
rules will be called “trade regulation rules.” In fact, the Commission
was describing some of its rules as “trade regulation rules” more than a
decade before the enactment of Section 18. 14 And even after the
enactment of Section 18, the Commission continues to describe some
rules that were not promulgated using the Magnuson-Moss procedures
as “trade regulation rules.” For example, in the Telephone Disclosure
and Dispute Resolution Act of 1992, Congress gave the Commission
rulemaking authority in language very similar to that in Dodd-Frank; it
told the Commission to prescribe rules by APA rulemaking but specified
that such a rule would be “treated as a rule under section 18(a)(1)(B).”
15 U.S.C. § 5711(a)(8), (b). The Commission issued the rules without an
ANPRM, but still called them a “trade regulation rule,” just as it did in
this case. See 58 Fed. Reg. 42,364 (Aug. 9, 1993).
NADA’s argument that § 1.10 creates a distinct regulatory
ANPRM requirement untethered to the Commission’s statutory
14 See, e.g., 29 Fed. Reg. 8,324 (July 2, 1964) (adopting trade regulation rule
regulating cigarette advertising).
28
Case: 24-60013
Document: 91
Page: 39
Date Filed: 05/14/2024
authority is also at odds with the regulation’s purpose as reflected in its
history. Congress added the ANPRM requirement to Section 18 in 1980.
See Pub L. No. 96-252, § 8, 94 Stat. 374, 376 (May 28, 1980). The
following year, the Commission adopted or amended various rules to
implement the changes to the Commission’s authority made by the 1980
Act. See 46 Fed. Reg. 26,284, 26,288 (May 12, 1981). The Commission
noted that the Act “amends section 18 of the FTC Act by requiring the
publication of an [ANPRM] prior to the commencement of a rulemaking
proceeding,” and that amendments to § 1.10 and other rules “implement
those sections.” Id. at 26,286. Thus, the Commission plainly did not
intend to create a regulatory ANPRM requirement distinct from the
statutory requirement—it was merely implementing the new
requirement imposed by Congress.
Nor do the FTC’s revisions to its subpart B regulations in 2021
suggest that it was imposing a regulatory ANPRM requirement
separate and distinct from the statutory requirement. The 2021
amendment merely made cosmetic changes, e.g., changing “shall” to
“must” and updating the name of the House of Representatives
committee to which ANPRMs are submitted. See 86 Fed. Reg. 38,542,
29
Case: 24-60013
Document: 91
Page: 40
Date Filed: 05/14/2024
38,545 (July 22, 2021). NADA suggests that the Commission could have
included a specific carveout in § 1.10 to reflect that the ANPRM
requirement does not apply to rulemakings to regulate motor vehicle
dealers as authorized by Dodd-Frank. Br. 21. But the Commission had
no reason to do so because, as shown above, the scope provisions for
subparts B and C (§§ 1.7 and 1.21) already make clear that the subpart
B provisions would not apply to a rulemaking under the authority of
Dodd-Frank.
NADA is not aided by its reliance (Br. 21) on McGavock v. City of
Water Valley, 452 F.3d 423 (5th Cir. 2006). In McGavock, the Court held
that a Department of Labor regulation was “obsolete and without effect”
in light of a subsequent Congressional enactment. Id. at 428. Here, to
the extent § 1.7 would otherwise have required the Commission to
follow the subpart B rules, Dodd-Frank made that requirement obsolete
for rulemakings respecting motor vehicle dealers.
The overarching problem with NADA’s reading of the
Commission’s rules is that it would effectively thwart a key provision of
Dodd-Frank. The relevant Commission rules—§§ 1.7, 1.10, and 1.21—
all existed in substantially the same form that they do today when
30
Case: 24-60013
Document: 91
Page: 41
Date Filed: 05/14/2024
Congress enacted Dodd-Frank. NADA admits that Dodd-Frank
intentionally exempted the Commission from the ANPRM requirement.
Yet according to NADA, that exemption was inoperable the day it was
enacted and remains inoperable to this day due to preexisting
Commission regulations. The Commission’s rules, however, are
designed to implement Congress’s instructions. Congress gave the
Commission a clear directive to use regular APA procedures—which do
not require an ANPRM—when prescribing rules under Dodd-Frank.
The Commission’s rules of practice must be construed consistent with
that mandate.
B.
To the Extent the Commission’s Rules of Practice Are
Ambiguous, the Court Must Defer to the Commission’s
Reasonable Interpretation.
To the extent the Court finds any ambiguity in the Commission’s
rules of practice, it must defer to the Commission’s interpretation.
Under Auer v. Robbins, 519 U.S. 452 (1997), an agency’s interpretation
of its own regulations is “controlling unless plainly erroneous or
inconsistent with the regulation.” Id. at 461 (cleaned up). In Kisor v.
Wilkie, 139 S. Ct. 2400 (2019), the Supreme Court reaffirmed Auer and
explained in more detail when deference is appropriate. First, the
31
Case: 24-60013
Document: 91
Page: 42
Date Filed: 05/14/2024
agency’s regulation must be “genuinely ambiguous” after a court has
“exhaust[ed] all the ‘traditional tools’ of construction,” including
construction of the “text, structure, history, and purpose of [the]
regulation.” Id. at 2415. Second, the agency’s interpretation must be
“reasonable,” i.e., within “the zone of ambiguity the court has identified
after employing all its interpretive tools.” Id. at 2415-16. Additionally,
the interpretation must be “one actually made by the agency,” id. at
2416, must “implicate its substantive expertise,” id. at 2417, and must
reflect the agency’s “fair and considered judgment,” id.
Here, the text of the relevant rules (§ 1.7 and § 1.21) plainly
supports the Commission’s reading, but if the Court concludes
otherwise, the Commission’s interpretation is sufficiently plausible to
show a genuine ambiguity. Further, the Commission’s interpretation is
reasonable because it gives effect to Congress’s intent as set forth in
Dodd-Frank, rather than thwarting that intent as NADA’s
interpretation would.
The “character and context” of the Commission’s interpretation
also show that the interpretation is entitled to controlling weight. Kisor,
139 S. Ct. at 2416. First, in response to NADA’s comments, the
32
Case: 24-60013
Document: 91
Page: 43
Date Filed: 05/14/2024
Commission itself actually made the determination that its rules did
not require an ANPRM as part of the Rule. See 89 Fed. Reg. at 601
n.115. Second, the Commission’s interpretation implicates its
substantive expertise. Kisor explains that this factor asks whether “the
subject matter of the dispute is distant from the agency’s ordinary
duties or falls within the scope of another agency’s authority.” Kisor,
139 S. Ct. at 2417 (cleaned up); see also Doe v. SEC, 28 F.4th 1306, 1315
(D.C. Cir. 2022) (deferring to SEC’s interpretation of its regulations
where “no other agency [was] involved” in administering the relevant
program). Here the regulations implicate authority under Dodd-Frank
and the FTC Act that Congress explicitly assigned to the FTC and no
other agency. Finally, the Commission’s conclusion that the subpart B
regulations did not apply to this rulemaking in light of Dodd-Frank, see
89 Fed. Reg. at 601 n.115, reflects the Commission’s “fair and
considered judgment,” and is not merely a “convenient litigating
position or post hoc rationalization advanced to defend past agency
action against attack.” Kisor, 139 S. Ct at 2417 (cleaned up).
Accordingly, under Auer and Kisor, the Court should give the
Commission’s interpretation controlling weight.
33
Case: 24-60013
C.
Document: 91
Page: 44
Date Filed: 05/14/2024
In Any Event, the Lack of an ANPRM Was Harmless.
Even if the Commission was required to publish an ANPRM,
NADA still cannot prevail because it has not shown harm from the
alleged error. The APA instructs that on review of an agency action,
“due account shall be taken of the rule of prejudicial error.” 5 U.S.C.
§ 706; accord 15 U.S.C. § 57a(e)(3); see also United States v. Johnson,
632 F.3d 912, 930 (5th Cir. 2011) (“In administrative law, as in federal
civil and criminal litigation, there is a harmless error rule.” (quoting
Nat’l Ass’n of Home Builders v. Defenders of Wildlife. 551 U.S. 644, 65960 (2007))).
In numerous cases, the Supreme Court and this Court have
recognized that an agency’s failure to provide a required notice or to
strictly comply with the agency’s regulations may be harmless. For
example, in Shinseki v. Sanders, 556 U.S. 396, 413 (2009), the Supreme
Court held that the Veterans’ Administration’s failure to provide a
disability claimant with a required notice was harmless under the
circumstances presented there. Id. Similarly, the Interstate Commerce
Commission’s failure to “require strict compliance with its own rules”
was harmless where it “did not prejudice” the carriers challenging the
34
Case: 24-60013
Document: 91
Page: 45
Date Filed: 05/14/2024
agency action. Am. Farm Lines v. Black Ball Freight Serv., 397 U.S.
532, 537-38 (1970).
Likewise, this Court has held that the Attorney General’s failure
to provide notice and comment under the APA before promulgating an
interim rule was harmless where the preamble to the rule “thoroughly
engage[d] the issues and challenges inherent in the regulation.”
Johnson, 632 F.3d at 931. The Court explained that “when a party’s
claims were considered, even if notice was inadequate, the challenging
party may not have been prejudiced.” Id.; see also Mississippi Valley
Gas Co. v. FERC, 659 F.2d 488, 501 (5th Cir. 1981) (petitioner “made no
showing of substantial prejudice resulting from any deviation from the
Commission’s regulations,” and therefore any error was harmless where
“[t]he “issues [were] clear to all parties” and the petitioner “had an
opportunity to present its views on the issues.”). 15
NADA is wrong that the agency has the burden of showing an
error is harmless. Br. 23. The “burden of showing that an error is
15 NADA is incorrect in suggesting that an agency’s failure to follow its own
regulations is always fatal. See Br. 23-24 (citing IMS, P.C. v. Alvarez, 129 F.3d 618,
621 (D.C. Cir. 1997)). Indeed, in one of NADA’s cases, the D.C. Circuit held that the
Federal Aviation Administration’s failure to provide the petitioner with a required
notice of an adverse decision was harmless where the petitioner pursued his rights
anyway and showed no prejudice. Lopez v. FAA, 318 F.3d 242, 248 (D.C. Cir. 2003).
35
Case: 24-60013
Document: 91
Page: 46
Date Filed: 05/14/2024
harmful normally falls upon the party attacking the agency’s
determination.” Shinseki, 556 U.S. at 409.
NADA fails to meet its burden. Since the 2010 enactment of DoddFrank, NADA has been aware that the Commission possesses authority
to prescribe regulations to address unfair or deceptive acts or practices
by motor vehicle dealers, and NADA had plenty of opportunities to
share its views with the Commission before a rule was proposed.
Indeed, NADA has taken full advantage of those opportunities over the
years. Among other things, NADA participated in three public
roundtables and a financial workshop specifically addressing military
consumers. R. 2-4, 78. It submitted comments on the roundtables, see,
e.g., Comment No. FTC-2022-0036-0034, as well as voluminous
comments in response to the NPRM. NADA now asserts that the
Commission had “an incomplete understanding of the relevant market
and would have benefitted from greater stakeholder participation,” Br.
24, but it has not tried to show why the extensive stakeholder
opportunities the Commission provided were inadequate, nor has it
36
Case: 24-60013
Document: 91
Page: 47
Date Filed: 05/14/2024
explained what else it would have told the Commission if an ANPRM
had been issued. 16
NADA also overstates the limited form of the notice that an
ANPRM provides. An ANPRM is not a proposed rule. It need only
contain a “brief description of the area of inquiry under consideration,
the objectives which the Commission seeks to achieve, and possible
regulatory alternatives under consideration by the Commission,” and
invite the responses of interested parties. 15 U.S.C. § 57a(b)(2)(A); 16
C.F.R. § 1.10(b)(1). All this information was in the NPRM. Furthermore,
the NPRM contained the actual text of the proposed rule—which is by
far the most important information that stakeholders need to review.
NADA argues that the lack of an ANPRM “substantially curtail[ed] [its]
ability to engage in the rulemaking process,” Br. 24, but it does not
identify any specific information it wanted to bring to the Commission’s
attention that was not or could not have been included in the detailed
16 In a different section of its brief, NADA points to a study it submitted after the
comment deadline. That study, which addressed the costs of the proposed rule set
forth in the NPRM, could not have been submitted before the NPRM issued. And
anyway, as discussed infra at 66-67, the Commission addressed this study in the
Final Rule even though NADA’s submission was untimely.
37
Case: 24-60013
Document: 91
Page: 48
Date Filed: 05/14/2024
comments petitioners submitted on the NPRM—a combined total of 188
single-spaced pages with 277 pages of attachments.
NADA’s complaint that the Commission provided a “mere 60 days”
for comment on the NPRM and denied a request to extend the comment
period (Br. 11-12) likewise does not show that the lack of an ANPRM
caused any prejudice. First of all, NADA has not actually argued that
the Commission abused its discretion by not extending the comment
period, so it has forfeited any challenge to that decision. See, e.g., Smith
v. Sch. Bd. of Concordia Parish, 88 F.4th 588, 594 (5th Cir. 2023). In
any event, a 60-day comment period is consistent with the best
practices recommended by the Administrative Conference of the United
States for significant regulatory actions. 17 And as the Commission
noted, interested parties actually had 80 days to prepare comments
because 20 days elapsed between the public announcement of the
NPRM and the NPRM’s publication in the Federal Register. 89 Fed.
Reg. 601 n.115. That gave NADA plenty of time to gather any
information it needed to respond to the NPRM.
17 Administrative Conf. of the U.S., Rulemaking Comments (June 16, 2011),
https://www.acus.gov/document/rulemaking-comments.
38
Case: 24-60013
Document: 91
Page: 49
Date Filed: 05/14/2024
NADA complains that the NPRM contained a “wide-ranging and
open-ended set of 49 questions,” and suggests that these questions could
instead have been posed as part of an ANPRM. Br. 24-25. But Section
18(b) does not require the Commission to ask any questions in an
ANPRM. See 15 U.S.C. § 57a(b)(2)(A). Nor are specific questions
required even in an NPRM. See 5 U.S.C. § 553(b). That NADA did not
have an earlier opportunity to answer questions that the Commission
was not required to pose is not a cognizable harm.
In short, this is a case like Johnson, where the agency “thoroughly
engage[d] the issues and challenges inherent in the regulation.” 632
F.3d at 931. NADA had a full and fair opportunity to bring any
information it wanted to the Commission’s attention, and it has not
specified anything it would have done differently if the Commission had
issued an ANPRM. Any error was harmless.
II.
NADA RAISES NO MERITORIOUS CHALLENGE TO THE
COMMISSION’S BASIS FOR ISSUING THE CARS RULE.
NADA’s second line of attack is based on false premises. NADA
argues that the Rule is arbitrary and capricious because the
Commission did not expressly find either (1) “widespread misconduct”
or (2) a “regulatory gap” that needed to be filled. Br. 26, 30. But the
39
Case: 24-60013
Document: 91
Page: 50
Date Filed: 05/14/2024
Commission was not required to make either of those findings. The
Commission’s findings that unfair or deceptive practices by automobile
dealers are a persistent problem that the existing scheme has not
adequately addressed are more than sufficient to justify the Rule.
A.
The Commission Was Not Required To Find
“Widespread Misconduct.”
The Commission was not required to find “widespread”
misconduct to justify the CARS Rule because Congress said it did not
have to. As discussed above and as NADA acknowledges, Dodd-Frank
directs the Commission to use APA procedures rather than MagnusonMoss rulemaking procedures when promulgating rules respecting
unfair or deceptive acts or practices by motor vehicles. And only
Magnuson-Moss procedures require the Commission to find that “the
unfair or deceptive acts or practices which are the subject of the
proposed rulemaking are prevalent.” 18 15 U.S.C. § 57a(b)(3).
The APA does not require an agency to find a “widespread”
problem to justify issuance of a rule. To the contrary, the Supreme
18 “Prevalent” and “widespread” are synonyms. Prevalent, Merriam-Webster
Dictionary (online ed.), https://www.merriam-webster.com/dictionary/prevalent. The
FTC Act uses both terms. See 15 U.S.C. § 57a(b)(3).
40
Case: 24-60013
Document: 91
Page: 51
Date Filed: 05/14/2024
Court has held that agencies may impose rules as “prophylactic
measure[s]” to “discourage” misconduct. Mourning v. Family Publ’ns
Serv., Inc., 411 U.S. 356, 377 (1973); see also Sid Peterson Mem’l Hosp.
v. Thompson, 274 F.3d 301, 313 (5th Cir. 2001) (“It is well within the
power of an agency to promulgate prophylactic regulations which are
broad in scope in order to effectuate the purposes of the enabling
legislation.”). Such rules help to ensure that misconduct never becomes
widespread in the first place.
NADA does not cite a single case supporting its claim that the
Commission was required to find widespread misconduct. Motor Vehicle
Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983), which
is the seminal Supreme Court decision on the arbitrary-and-capricious
standard, imposes no such requirement. Nor does Data Marketing
Partnership, LP v. DOL, 45 F.4th 846 (5th Cir. 2022), or Business
Roundtable v. SEC, 647 F.3d 1144 (D.C. Cir 2011). The portion of Data
Marketing that NADA cites (Br. 27-28) merely reiterates the State
Farm standards. See 45 F.4th at 855-56. And Business Roundtable dealt
with statutory requirements “unique” to the SEC requiring that agency
to consider the economic implications of a new rule. 647 F.3d at 1148.
41
Case: 24-60013
Document: 91
Page: 52
Date Filed: 05/14/2024
Neither case holds that widespread misconduct is necessary to justify a
new rule.
B.
The Commission Was Not Required To Identify a
“Regulatory Gap” To Justify the Rule.
NADA’s assertion that the Commission had to identify a specific
“regulatory gap” to justify the Rule likewise lacks any legal basis. In
Dodd-Frank, Congress gave the Commission broad power to prescribe
rules to define and prevent unfair or deceptive acts or practices by
motor vehicle dealers. Congress did not say that the Commission could
act only if it found a regulatory gap, nor did Congress impose any other
preconditions on the Commission’s rulemaking authority. To the
contrary, Congress gave the Commission specific rulemaking authority
in this area even though automobile dealers were already subject to
existing regulations and the FTC Act already prohibits unfair or
deceptive acts or practices. See 15 U.S.C. § 45(a).
Nothing in the APA requires an agency to identify a “regulatory
gap” before issuing a new rule. NADA is not aided by its reliance (Br.
30-31) on N.Y. Stock Exch. LLC v. SEC, 962 F.3d 541 (D.C. Cir. 2020).
That case concerned an SEC “pilot program” that would have applied
new transaction restrictions to two randomly selected “test groups” of
42
Case: 24-60013
Document: 91
Page: 53
Date Filed: 05/14/2024
stock and assigned other stocks to a “control group” not subject to these
restrictions. Id. at 545. The program “was not a trial run of a new
regulation,” but instead was “designed to gather data so that the
Commission might be able to determine in the future whether
regulatory action was necessary.” Id. at 544 (cleaned up).
The D.C. Circuit held that this kind of “one-off” rule “[i]n the name
of collecting data for subsequent regulatory decisions that the
Commission can neither predict nor commit to” was beyond the SEC’s
delegated authority. Id. at 545-46, 554-55 (cleaned up). In that context,
the court explained that the SEC had “adopted the Pilot Program
without any regulatory agenda” and “without explaining what problems
with the existing regulatory requirements it meant for the Rule to
correct.” Id. at 554. The court held that the SEC lacked authority to
follow “this aimless regulatory approach.” Id. at 555. The court did not
hold or even suggest that an agency may issue a regulation only after
identifying a “regulatory gap.”
Here, the Commission is not establishing some new program that
randomly selects certain automobile dealers for disparate treatment to
gather data to determine whether future regulation is warranted.
43
Case: 24-60013
Document: 91
Page: 54
Date Filed: 05/14/2024
Rather, the Commission has already determined that regulation is
needed and has explained that determination in the course of exercising
the authority that Congress conferred in Dodd-Frank.
The other two cases NADA references also do not impose a general
requirement that an agency identify a regulatory gap to justify a
rulemaking. See Br. 33 (citing Business Roundtable, 647 F.3d 1144 and
Am. Equity Inv. Life Ins. Co. v. SEC, 613 F.3d 166 (D.C. Cir. 2010)).
Those two cases involve statutory provisions “unique” to the SEC that
require the agency to consider the effects of a new rule on “efficiency,
competition, and capital formation.” Business Roundtable, 647 F.3d at
1148; Am. Equity, 613 F.3d at 176. Conducting such an analysis
requires the SEC to compare the changes made by the new rule to the
“existing regime.” Am. Equity, 613 F.3d at 179. That is a special
procedural requirement that Congress has imposed on the SEC but not
the FTC.
C.
The Commission Articulated a Reasoned
Basis for the CARS Rule.
The Commission’s factual findings are more than sufficient to
satisfy judicial review. APA arbitrary-and-capricious review “is narrow
and a court is not to substitute its judgment for that of the agency.”
44
Case: 24-60013
Document: 91
Page: 55
Date Filed: 05/14/2024
State Farm, 463 U.S. at 43. The question for the Court is simply
“whether the decision was based on a consideration of the relevant
factors and whether there has been a clear error of judgment.” Id. The
Commission’s decision to issue the CARS Rule easily satisfies this
deferential standard.
The Commission’s factual findings amply document that unfair or
deceptive practices by auto dealers, including bait-and-switch
advertising and hidden or junk fees, are serious problems that cause
significant harm to American consumers. 89 Fed. Reg. at 594-98. These
problems have persisted for well over a decade, notwithstanding efforts
by the Commission and its law enforcement partners to address them
through case-by-case enforcement and business and consumer
education. See, e.g., id. at 598-600; supra n.2; R. 141, 151, 154, 155.
Under these circumstances, the Commission reasonably determined
that it was appropriate to use the specific authority granted by
Congress to prescribe rules to curb this serious and persistent problem.
None of NADA’s various attacks on the factual basis for the Rule
has merit.
45
Case: 24-60013
1.
Document: 91
Page: 56
Date Filed: 05/14/2024
NADA wrongly claims (Br. 27) that “the conduct addressed
by the Rule affects less than 1% of transactions,” mischaracterizing a
comment from the Small Business Administration’s Office of Advocacy
that less than 1% of car-buying consumers reported a problem to the
FTC. Comment No. FTC-2022-0046-6664 at 6. See 89 Fed. Reg. at 594.
But as the Commission explained, the number of consumers who go to
the trouble of reporting a problem is “just the tip of the iceberg.” Id. The
Commission’s experience in enforcement actions shows that many other
consumers experience the same problems but do not bother to report
them—or, for example in the case of hidden charges, may not even
realize they are being victimized. Id. at 594, 658. And the absolute
number of auto-related complaints to the Commission is large: The
Commission receives more than 100,000 such complaints a year,
putting auto-related complaints regularly in the top 10 categories of
complaints that the agency tracks. 19
19 Although the FTC does not verify every complaint it receives, it views the
number of such complaints as providing important information about the
comparative scope of consumer issues and harm, and uses this information to spot
trends, identify questionable business practices and targets, enforce the law, and
inform other agency decisions. Here, the number of complaints is indicative of
serious problems regarding motor vehicle sales, financing, service and warranties,
and rentals and leasing.
46
Case: 24-60013
Document: 91
Page: 57
Date Filed: 05/14/2024
NADA’s argument that the Commission “vastly inflated” the
number of consumer complaints about auto dealers (Br. 29) is also
incorrect. NADA argues that some of the auto related categories listed
in the Commission’s database involve categories “with little or no
connection to the Rule,” such as “Gasoline” or “Auto Parts & Repairs.”
Br. 29. But the numbers reported in the Rule do not include all these
categories; they reflect only “complaints regarding motor vehicle sales,
financing, service and warranties, and rentals and leasing.” 89 Fed.
Reg. at 594. The overwhelming majority of these complaints involve
new and used auto sales. R. 153 at 85. NADA speculates that some of
the complaints may involve non-dealer entities, but it has raised no
basis to question that the majority of them do involve dealers. The
sheer number of complaints, combined with the rest of the FTC’s
evidence, strongly supports the Commission’s conclusion that
regulatory action is needed.
2.
NADA attempts to minimize the extent of dealer misconduct
by arguing that the NPRM cited “just” 37 examples of FTC enforcement
actions against automobile dealers and the Final Rule added “just” two
47
Case: 24-60013
Document: 91
Page: 58
Date Filed: 05/14/2024
additional actions. Br. 28. 20 NADA argues that this works out to fewer
than four enforcement actions by the FTC per year. But four cases a
year against one type of entity (auto dealers) in one specific industry
represents a significant commitment of resources by an agency
responsible for preventing unfair or deceptive acts or practices across
most of the American economy. That the Commission has needed to use
its limited enforcement resources to bring such cases consistently, over
more than a decade, underscores the severity and persistence of
misconduct in the industry.
Further adding to the picture, state regulators and attorneys
general have participated in law enforcement sweeps with the FTC—
one of which involved 181 separate enforcement actions—and have also
filed actions on their own against motor vehicle dealers. 89 Fed. Reg. at
598-99 & n.89, 92. Indeed, the Attorneys General of 18 States
commented that “the continued widespread” misconduct in the industry
“demonstrates the need for ‘more cops on the beat’ with authority to
20 NADA notes that some of the auto-related enforcement actions cited in the
NPRM were not brought against dealers. The Commission cited a broad range of
auto-related actions to demonstrate the breadth of its experience in this field.
48
Case: 24-60013
Document: 91
Page: 59
Date Filed: 05/14/2024
secure restitution and other redress for harmed consumers.” Comment
No. FTC-2022-0046-8062 at 4. NADA ignores all this evidence.
3.
NADA complains that the Commission cited consumer
interviews from a qualitative study that NADA deems insufficiently
rigorous. Br. 28-29. The Commission acknowledged industry critiques of
this study but concluded that despite its limitations the study “provides
helpful qualitative insight from consumer interviews.” 89 Fed. Reg. at
597 n.74. In any event, the study was only “one of the many sources”
the Commission considered. Id. The Commission did not act arbitrarily
and capriciously by considering qualitative insights from the study in
conjunction with other evidence, “including consumer complaints,
enforcement actions, [and] outreach and dialogue with stakeholders and
consumer groups, among others.” Id.
4.
NADA is also incorrect in arguing (Br. 31-32) that the CARS
Rule’s disclosure requirements are merely “duplicative” of existing
regulatory requirements. 21 NADA argues that regulations under the
Truth in Lending Act (“TILA”) and the Consumer Leasing Act (“CLA”)
21 NADA does not contend that the Rule’s add-on disclosure (§ 463.4(c)) is
duplicative.
49
Case: 24-60013
Document: 91
Page: 60
Date Filed: 05/14/2024
already require disclosure of a vehicle’s price and the total of payments.
Br. 31; see 12 C.F.R. § § 213.4(e), 226.18(h), (j). 22 But those regulations
apply only to financed or leased transactions, whereas the CARS Rule
also applies to cash purchases. Furthermore, even with respect to
financed and leased transactions, the CARS Rule requires different
timing for the disclosures, as NADA concedes. Br. 31. The TILA and
CLA regulations (which apply broadly to many kinds of transactions,
not just car financing or leases) require, among other things, certain
disclosures before “consummation” of a transaction. 12 C.F.R.
§§ 213.3(a)(3), 226.17(b). By contrast, the CARS Rule requires earlier
disclosures. For instance, dealers must include the offering price in
advertisements for specific vehicles and in their first communication
with a customer about a specific vehicle, and they must disclose the
total of payments whenever they make a representation about a
monthly payment for a vehicle. See 89 Fed. Reg. at 694-95 (§ 463.4(a),
(d)).
22 NADA mistakenly refers to the TILA regulations issued by the CFPB, but those
regulations do not apply to motor vehicle dealers. See 12 C.F.R. § 1026.1(c)(1). The
applicable TILA regulations are issued by the Board of Governors of the Federal
Reserve. See 12 C.F.R. Part 226.
50
Case: 24-60013
Document: 91
Page: 61
Date Filed: 05/14/2024
The Commission clearly explained why up-front disclosures are
important. The process of buying or leasing a car is “time-consuming
and arduous.” Id. at 593. One study cited found that the average
consumer spends almost 15 hours shopping for a vehicle. Id. at 634.
n.303. Currently, many consumers do not learn the actual out-the-door
price of their vehicle or the total amount they will pay for a financed or
leased transaction until the very end of the process. This lack of
transparency fosters the bait-and-switch tactics and addition of junk or
hidden fees that the Rule seeks to prevent. For these reasons, many
commenters called for uniform, comprehensive, and accurate price
information up-front in the vehicle buying process. 23 As one group of
commenters asserted, “[t]he most important factor for consumers
purchasing a vehicle is its price, yet the price is almost impossible to
ascertain without spending hours at the dealership.” 24
23 See, e.g., Comment No. FTC-2022-0046-7607 at 17-22 (Nat’l Consumer L. Center);
Comment No. FTC-2022-0046-3693 (Nissan salesperson commenting that dealers
“have made the car buying process needlessly confusing, expensive, and frustrating
by engaging in false advertising and hidden add-on products.”); Comment No. FTC2022-0046-8919 (member of a “military family” offering details about the “scary
scam” she has faced while car shopping); Comment No. FTC-2022-00046-8062
(State AGs).
24 Comment No. FTC-2022-0046-7607 at iii; see also Comment No. FTC-2022-0046-
7520 at 3, 11, 12, 16, 38 (Consumer Reports and others compiling numerous
51
Case: 24-60013
Document: 91
Page: 62
Date Filed: 05/14/2024
NADA’s other criticisms of the disclosures are equally meritless.
Contrary to NADA’s suggestion (Br. 31-32), the substance of the Rule’s
required disclosures are not inconsistent with TILA or the CLA. As the
Commission explained in response to comments from NADA and others,
by making the disclosures that the CARS Rule requires, dealers can
comply with those other requirements. 89 Fed. Reg. at 633. NADA does
not challenge this finding, nor does it offer any support for its claim that
customers would be “confused” or that it would be “burdensome” to
make dealers disclose earlier in the process information that they
already must disclose. Contrary to NADA’s assertion, the Rule does not
require any “government-scripted boilerplate” (Br. 32)—it merely
requires that disclosures be made clearly and conspicuously. 89 Fed.
Reg. at 693-94 (§§ 463.2(d), 463.4). The Commission reasonably found
that, far from causing confusion, up-front disclosures would save
consumers time and help protect them from unlawful practices like
hidden fees and bait-and-switch advertising.
consumer complaints, including many that described consumers spending hours at
a dealership trying to ascertain the final price and terms); Comment No. FTC-20220046-1690.
52
Case: 24-60013
Document: 91
Page: 63
Date Filed: 05/14/2024
NADA is equally misguided in arguing that the misrepresentation
provisions in § 463.3 of the Rule are unnecessary because the FTC Act
already broadly prohibits all unfair or deceptive acts or practices. By
that logic, the FTC would never be able to issue any rules that define
specific conduct as unfair or deceptive. But Congress, in Section 18 and
Dodd-Frank, expressly authorized the Commission to issue rules “which
define with specificity acts or practices which are unfair or deceptive.”
15 U.S.C. § 57a(a)(1)(B); 12 U.S.C. § 5519(d). Congress itself thus
recognized that the FTC Act’s general prohibitions might not be
sufficient to protect the public.
Furthermore, as the Commission noted, a rule will provide
“additional remedies that will benefit consumers who encounter conduct
that is otherwise already illegal under Federal law” and “aid lawabiding dealers that lose business to competitors that act unlawfully.”
89 Fed. Reg. at 611. With a rule in place, the Commission can sue
violators under Section 19 of the FTC Act and obtain “such relief as the
court finds necessary to redress injury to consumers or other persons,”
including the refund of money or payment of damages. 15 U.S.C.
§ 57b(a)(1), (b). Additionally, the Commission may obtain monetary
53
Case: 24-60013
Document: 91
Page: 64
Date Filed: 05/14/2024
penalties for violations of the Rule, see 15 U.S.C. § 45(m)(1)(A). These
additional remedies will give teeth to the FTC Act’s general prohibitions
and create incentives for dealer compliance that are lacking under the
existing regime.
III. THE COMMISSION’S COST-BENEFIT ANALYSIS IS NOT JUDICIALLY
REVIEWABLE, AND NADA’S ARGUMENTS LACK MERIT ANYWAY.
This Court cannot consider NADA’s attacks on the Commission’s
cost-benefit analysis (Br. 35-47) because it is part of the final regulatory
analysis the Commission prepared under Section 22 of the FTC Act, see
89 Fed. Reg. at 672-93, and Section 22(c) explicitly bars judicial review.
15 U.S.C. § 57b-3(c)(1). Even if judicial review were available, however,
the challenge would fail because NADA has not shown that any aspect
of the Commission’s analysis was arbitrary and capricious or that any
purported errors in the analysis caused harm.
A.
The Cost-Benefit Analysis Is Not Subject to Judicial
Review.
The Commission’s cost-benefit analysis was undertaken pursuant
to Section 22, which requires “an analysis of the projected benefits and
any adverse economic effects and any other effects of the final rule.”
15 U.S.C. § 57b-3(b)(2)(C). As relevant here, Section 22 also provides
that “[t]he contents and adequacy of any regulatory analysis prepared
54
Case: 24-60013
Document: 91
Page: 65
Date Filed: 05/14/2024
or issued by the Commission under this section, including the adequacy
of any procedure involved in such preparation or issuance, shall not be
subject to any judicial review in any court” unless the Commission
“failed entirely to prepare a regulatory analysis.” 15 U.S.C. § 57b-3(c)(1)
(emphasis added). Section 22 further provides that “no Commission
action may be invalidated, remanded, or otherwise affected by any court
on account of any failure to comply with the requirements of this
section.” Id. § 57b-3(c)(2). Here, NADA is challenging “the contents and
adequacy” of the Commission’s cost-benefit analysis—exactly what
Section 22 forbids.
By its terms, the APA does not apply where “statutes preclude
judicial review.” 5 U.S.C. § 701(A)(1); accord Elldakli v. Garland,
64 F.4th 666, 670 (5th Cir. 2023). This Court has repeatedly applied
that principle and declined to review agency action where Congress said
it could not. E.g., Lundeen v. Mineta, 291 F.3d 300, 310-11 (5th Cir.
2002); Stockman v. FEC, 138 F.3d 144, 156 (5th Cir. 1998); Kirby Corp.
v. Pena, 109 F.3d 258, 261 (5th Cir. 1997). NADA thus misplaces its
reliance on Chamber of Commerce v. SEC, 85 F.4th 760 (5th Cir. 2023).
That case held that as a general matter, an agency action is arbitrary
55
Case: 24-60013
Document: 91
Page: 66
Date Filed: 05/14/2024
and capricious if the agency failed to adequately consider the costs and
benefits of a rule. Id. at 777. But Chamber of Commerce did not involve
a statute like Section 22, which specifically instructs the Commission to
conduct a cost-benefit analysis and expressly bars courts from reviewing
that analysis.
Since Congress has clearly and explicitly precluded judicial review
of the Commission’s cost-benefit analysis, the Court may not consider
the merits of NADA’s challenge.
B.
In Any Case, the Commission Properly Assessed the
Benefits and Costs of the Rule.
Even if judicial review were available, NADA’s challenges would
fail on the merits. This Court “afford[s] agencies considerable discretion
in conducting the complex economic analysis typical in the regulation
promulgation process.” Huawei Techs. USA, Inc. v. FCC, 2 F.4th 421,
452 (5th Cir. 2021) (cleaned up). The Commission’s findings are amply
supported by evidence and well within the agency’s discretion.
56
Case: 24-60013
1.
Document: 91
Page: 67
Date Filed: 05/14/2024
The Commission properly estimated benefits.
The Commission estimated that the Rule’s quantified benefit to
consumers over 10 years would be $13.4 billion. 25 89 Fed. Reg. at 688.
Most of that benefit—$12.3 billion—comes from time savings. As the
Commission explained, “[r]equired disclosures of relevant prices and
prohibitions of misrepresentations, inter alia, would save consumers
time when shopping for a vehicle by requiring the provision of salient,
material information early in the process and eliminating time spent
pursuing misleading offers.” Id. at 674. The other $1.1 billion comes
from a reduction of deadweight loss associated with “search frictions,
shrouded prices, deception, and obfuscation.” Id. at 678, 688.26
To quantify the time-savings benefits, the Commission used
survey data comparing consumers who perform various activities in the
car-buying process digitally (i.e., online) relative to consumers who went
25 These figures represent the Commission’s base case using a 7% discount rate.
The Commission also conducted a sensitivity analysis to prepare high and low
estimates and alternative calculations using a 3% discount rate. 89 Fed. Reg. 688;
see also infra n.27 (explaining sensitivity analysis).
26 The Commission described other time-saving benefits, such as avoiding time
spent on transactions that are abandoned when consumers learn that the initial
price information they received was misleading, but it left those benefits
unquantified. 89 Fed. Reg. at 673-74.
57
Case: 24-60013
Document: 91
Page: 68
Date Filed: 05/14/2024
to dealerships in person. Id. at 676. The Commission explained that
because it “expects the provisions of the Rule to emulate some of the
time-saving features of completing these activities digitally,” it would
use those figures as a baseline to estimate time savings, taking into
account for each activity “how closely the status quo digital shopping
experience is expected to resemble the shopping experience for all
consumers once the Rule is in effect.” Id. The Commission estimated
that the time savings in negotiating a purchase price would be
approximately equal to the time digital consumers save vis-à-vis nondigital consumers under the status quo, but that the time savings for
selecting add-ons and discussing and signing paperwork would be more
moderate and there would be little or no time savings for obtaining a
trade-in offer. Id. at 676-77. Based on the survey data and these
estimates, the Commission calculated base-case savings of 2.05 hours
per transaction. Id. at 674, 678.
NADA disagrees with the Commission’s analysis but has not
shown that it was arbitrary and capricious. NADA first argues that the
NPRM’s initial estimate of 3 hours saved per transaction was
unreasonable. Br. 35-36. But the NPRM is not under review here—the
58
Case: 24-60013
Document: 91
Page: 69
Date Filed: 05/14/2024
Final Rule is. The Commission refined its analysis in the Final Rule
after taking into account revisions to the proposed rule, stakeholder
comments, and additional data. The Commission further stress-tested
its revised estimate of 2.05 hours by conducting a sensitivity analysis
that considered savings estimates between 1.02 hours and 3.3 hours per
completed transaction, resulting in total savings to consumers between
$6.1 billion and $19.8 billion with a base case of $12.3 billion. 27 89 Fed.
Reg. at 674, 678.
NADA next takes issue with the Commission’s comparison of the
time saved by digital versus non-digital consumers in the current
regime as a basis for estimating the Rule’s benefits, incorrectly claiming
that the Commission offered “no support whatsoever” for this approach.
Br. 37. In fact, the Commission explained in detail why its assumptions
were reasonable. For example, the Commission explained that “[f]or
non-digital consumers, it is currently time-consuming to obtain
comparable price quotes from dealerships,” because many dealers “will
not initiate price negotiations in earnest without a competing price
27 “Sensitivity analysis consists of purposely running a number of alternative
specifications to determine whether particular results are robust….” A.H.
Studenmund, Using Econometrics: A Practical Guide 174 (6th ed. 2017).
59
Case: 24-60013
Document: 91
Page: 70
Date Filed: 05/14/2024
quote in writing, which can only be obtained by visiting a dealership for
the non-digital consumer.” 89 Fed. Reg. at 676. Mandating up-front
offering price disclosures will make the process more like the existing
process for digital consumers, who can obtain price quotes by email
without traveling to multiple dealerships. Id.
NADA may disagree with the Commission’s methodology, but it
cites no contrary evidence and instead relies solely on rhetoric and
NADA’s own unsupported speculation. In contrast, the Commission’s
estimate is based on facts and data that NADA does not challenge, and
“[b]oth the Supreme Court and [other] court[s] have recognized that
agencies should be given a wide berth when making predictive
judgments … because such predictions are policy-laden, and courts are
not well equipped to second-guess agency estimates.” Bd. of Cnty.
Comm’rs of Washington Cnty. v. United States Dep’t of Transp., 955
F.3d 96, 99 (D.C. Cir. 2020).
Finally, NADA rehashes the meritless argument that prohibiting
misrepresentations and requiring up front disclosures about pricing will
not actually help consumers. Br. 39-42. The Commission reasonably
concluded otherwise, based on an extensive evidentiary record. NADA’s
60
Case: 24-60013
Document: 91
Page: 71
Date Filed: 05/14/2024
claim that the rule will somehow harm consumers is based on the false
assertion (Br. 39) that the Rule will inject more paperwork into the
process. To be clear, the Rule does not insert a single additional piece of
paperwork into the dealer-consumer transaction. NADA suggests that
the Commission should have conducted additional research or consumer
testing, but it cites nothing to suggest that the APA requires such timeconsuming and expensive studies.
2.
The Commission properly estimated dealer costs.
The Commission calculated the total cost of the Rule to dealers—
including the costs of compliance with the three mandatory disclosures,
the prohibition on misrepresentations, and recordkeeping obligations—
at $1.1 billion over 10 years. 89 Fed. Reg. at 688. NADA’s assertion that
the FTC assumed many of these requirements would “impose no
compliance costs at all” (Br. 42) is wrong. Although the Commission
considered scenarios that assumed the misrepresentation prohibition
and offering-price disclosure requirements would impose no additional
costs, its final calculations were based on scenarios that assumed that
dealers would incur additional costs to ensure compliance. 89 Fed. Reg.
at 682-83, 688.
61
Case: 24-60013
Document: 91
Page: 72
Date Filed: 05/14/2024
NADA doubly errs in claiming that the Commission’s assessment
of dealer costs suffers from a miscalculation of the reduction in
deadweight loss resulting from the Rule. Br. 43-45. First, reduction in
deadweight loss is not a cost to dealers at all. It is a benefit to society,
and the Commission therefore included it in the Commission’s
discussion of benefits. 89 Fed. Reg. at 678-81. Second, while NADA
argues that some portion of dealers’ compliance costs will be passed
along to consumers in the form of increased prices (Br. 44), it points to
no evidence supporting that assertion. Indeed, the Commission found
that “based on the academic literature on search costs in the automobile
market, the Rule is expected to reduce prices of new vehicles by
reducing the markup that dealers are able to charge over marginal
costs.” 89 Fed. Reg. at 680 (emphasis added).28
In any event, the reduction in deadweight loss accounts for only
$1.1 billion of the total $13.4 billion in quantified benefits to consumers
that the Commission calculated. Even if that number were zero, there
28 In discussing the consumer time-savings benefit, the Commission assumed that
the number of vehicle transactions would be stable at 2019 levels. 89 Fed. Reg. at
677. NADA misconstrues this as a statement about vehicle pricing. Br. 44. As noted
above, the Commission found that the Rule would reduce vehicle prices.
62
Case: 24-60013
Document: 91
Page: 73
Date Filed: 05/14/2024
would still be $12.3 billion in consumer benefits, which dwarfs the $1.1
billion in dealer costs. Any error in the deadweight loss analysis is
therefore harmless.
NADA next attacks the Commission’s cost estimate for the
offering-price disclosure requirement. Br. 45-47. The Commission
estimated that this requirement could impose $46 million in upfront
compliance costs based on the time necessary to review policies and
procedures for determining public-facing prices and to update any
automated systems that need to be updated. 89 Fed. Reg. at 683, 688.
The Commission assumed that any additional time “required to deliver
the disclosures is … negligible, as prices are already typically disclosed
in advertisements and in interactions with consumers under the status
quo.” Id. at 682-83.
NADA argues that the Commission’s analysis fails to take into
account that dealers need to update prices frequently in response to
market conditions. Br. 46. But that is not a cost imposed by the Rule
because dealers already update prices as part of their normal business.
As the Commission explained, “the Rule just requires the price to
conform to a specific definition.” 89 Fed. Reg at 683. NADA does not
63
Case: 24-60013
Document: 91
Page: 74
Date Filed: 05/14/2024
dispute that dealers already spend time to disclose prices to consumers,
and it offers no support for its argument that the Rule will somehow
add time to these discussions—just a vague assertion that “the stakes
… are far higher under the Rule.” Br. 46-47. But the Commission’s
analysis explicitly priced in those higher stakes, 89 Fed. Reg. at 682-83.
As noted above, the Commission also performed a sensitivity analysis,
which showed that the end result would not change even if the
Commission’s assumptions were off by an order of magnitude.
NADA’s complaints about the costs imposed by the total-payments
disclosure are similarly off-base. The Commission’s final analysis
assumed that dealers would incur “a onetime, upfront cost of both
designing the required disclosures and informing associates of their
obligations to provide the disclosures” plus “an additional ongoing cost
per financed or leased transaction in order to communicate the required
disclosures to consumers in writing.” Id. at 683-84. This is the scenario
NADA urged the Commission to consider in its comments. See
Comment No. FTC-2022-0046-8368 attach. 19 at 9 (“[T]he FTC’s second
scenario should be the only one considered.”). NADA’s comments also
argued that the Commission’s estimates of ongoing costs were “too low
64
Case: 24-60013
Document: 91
Page: 75
Date Filed: 05/14/2024
in that they fail to account for disclosures being provided multiple times
as terms change.” Id. NADA now reiterates this argument and asserts
that the Commission did not adequately respond. 29 Br. 47. But the
Commission expressly acknowledged the comment and explained that
“[c]oncerns about underestimates of the time required to review
disclosures on a per-transaction basis are addressed by the
Commission’s sensitivity analyses,” which addressed how changes in
the assumptions would affect the results. 89 Fed. Reg. at 684, 689-93.
NADA did not provide any alternative cost estimates, and it has not
shown why the sensitivity analysis does not address its vague assertion
that the parameters the Commission used were too low.
3.
NADA has not shown that any error in the costbenefit analysis affected the end result.
Even if NADA could identify some error in an individual
component of the calculation, it has not met its burden of showing that
any such error was not harmless. The Commission’s analysis showed a
vast disparity between the benefits to consumers ($13.4 billion over 10
29 NADA also argues that the Commission’s analysis fails to account for
“disclosures preceding abandoned transactions” (Br. 47), but NADA did not make
that argument in its comments and cannot raise it now. See also supra n.26.
65
Case: 24-60013
Document: 91
Page: 76
Date Filed: 05/14/2024
years) and the costs to dealers (only $1.1 billion over the same period),
and as a result, even major adjustments to individual components are
unlikely to affect the ultimate conclusion that the Rule’s benefits
outweigh the costs. 89 Fed. Reg. at 688. Furthermore, as noted above,
the Commission conducted a sensitivity analysis to test how variations
in the parameters used might affect the bottom line. That analysis
simulated 1,000 possible scenarios and found “positive net benefits in
all simulated outcomes.” Id. at 691-92. NADA has not identified any
flaw in this analysis or otherwise explained how the purported errors in
the Commission’s analysis could possibly have affected the net result.
4.
There is no basis for a remand.
As a final throwaway argument, NADA asks the Court to remand
the Rule to the Commission for further consideration of costs and
benefits. As noted above, Section 22 not only precludes judicial review of
the cost-benefit analysis, it also expressly precludes any remand on that
issue. See 15 U.S.C. § 57b-3(c)(2). Regardless, NADA has not shown any
legitimate need for a remand. NADA argues that if the case were
remanded, it would submit “a comprehensive study” prepared by the
Center for Automotive Research purportedly estimating the costs of
66
Case: 24-60013
Document: 91
Page: 77
Date Filed: 05/14/2024
implementing the Rule as originally proposed. Br. 48. Although this
study was not completed until after the comment period closed, the
Commission nonetheless received the study and discussed it in the
Final Rule. 89 Fed. Reg. at 613 n.185, 675 n.535, 677 n.550.
The Commission found that the study had “numerous
methodological shortcomings rendering its results unreliable.” Id. at
675 n.535. In particular, it included leading statements, was based on a
sample of only 60 dealers out of more than 46,000 nationwide, and gave
no explanation as to how the dealers were chosen; moreover, only 40
dealers completed responses to many key questions. Id. Additionally,
many of the costs discussed related to provisions dropped from the Final
Rule. NADA does not challenge these findings and has shown no basis
for a remand to consider this study or any other evidence relating to
costs and benefits (even if remand were permissible).
CONCLUSION
The petition for review should be denied.
67
Case: 24-60013
Document: 91
Page: 78
Date Filed: 05/14/2024
Respectfully submitted,
ANISHA S. DASGUPTA
General Counsel
May 14, 2024
/s/ Benjamin F. Aiken
BENJAMIN F. AIKEN
MATTHEW M. HOFFMAN
Attorneys
FEDERAL TRADE COMMISSION
600 Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Of Counsel:
JAMIE D. BROOKS
DANIEL DWYER
Attorneys
FEDERAL TRADE COMMISSION
Washington, D.C. 20580
68
Case: 24-60013
Document: 91
Page: 79
Date Filed: 05/14/2024
CERTIFICATE OF COMPLIANCE
I certify that the foregoing brief complies with the volume
limitations of Fed. R. App. P. 32(a)(7)(B) because it contains 12,950
words, excluding the parts of the brief exempted by Fed. R. App. P.
32(a)(7)(B)(iii), and that it complies with the typeface and type
style requirements of Fed. R. App. P. 32(a)(5) and (a)(6) and 5th
Cir. R. 32.1 because it was prepared in a proportionally spaced
typeface using Microsoft® Word. The body text is in 14-point
Century Schoolbook type; the footnote text is in 12-point Century
Schoolbook type.
May 14, 2024
/s/ Benjamin F. Aiken
Benjamin F. Aiken
Attorney
Federal Trade Commission
600 Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Case: 24-60013
Document: 91
Page: 80
Date Filed: 05/14/2024
ADDENDUM OF RELEVANT STATUTES
AND REGULATIONS
Dodd-Frank Wall Street Reform and Consumer Protection Act
Section 1029, 12 U.S.C. § 5519 .............................................. A2
Federal Trade Commission Act
Section 5, 15 U.S.C. § 45 ........................................................ A4
Section 18, 15 U.S.C. § 57a .................................................... A5
Section 22, 15 U.S.C. § 57b-3 ............................................... A13
FTC Rules of Practice
16 C.F.R. § 1.7....................................................................... A16
16 C.F.R. § 1.10..................................................................... A17
16 C.F.R. § 1.21..................................................................... A18
A1
Case: 24-60013
Document: 91
Page: 81
Date Filed: 05/14/2024
12 U.S.C. § 5519. Exclusion for auto dealers
(a) Sale, servicing, and leasing of motor vehicles excluded
Except as permitted in subsection (b), the Bureau may not
exercise any rulemaking, supervisory, enforcement or any other
authority, including any authority to order assessments, over a
motor vehicle dealer that is predominantly engaged in the sale
and servicing of motor vehicles, the leasing and servicing of
motor vehicles, or both.
***
(d) Federal Trade Commission authority
Notwithstanding section 57a of title 15 [section 18 of the FTC
Act], the Federal Trade Commission is authorized to prescribe
rules under sections 45 and 57a(a)(1)(B) of title 15 [sections 5
and 18(a)(1)(B) of the FTC Act]. 1 in accordance with section 553
of title 5, with respect to a person described in subsection (a).
(e) Coordination with Office of Service Member Affairs
The Board of Governors and the Federal Trade Commission
shall coordinate with the Office of Service Member Affairs, to
ensure that—
(1) service members and their families are educated and
empowered to make better informed decisions regarding
consumer financial products and services offered by motor
vehicle dealers, with a focus on motor vehicle dealers in the
proximity of military installations; and
(2) complaints by service members and their families
concerning such motor vehicle dealers are effectively monitored
1
So in original. The period probably should be a comma.
A2
Case: 24-60013
Document: 91
Page: 82
Date Filed: 05/14/2024
and responded to, and where appropriate, enforcement action is
pursued by the authorized agencies.
***
A3
Case: 24-60013
Document: 91
Page: 83
Date Filed: 05/14/2024
15 U.S.C. § 45 [Section 5 of the FTC Act]. Unfair methods of
competition unlawful; prevention by Commission
(a) Declaration of unlawfulness; power to prohibit unfair
practices; inapplicability to foreign trade
(1) Unfair methods of competition in or affecting commerce, and
unfair or deceptive acts or practices in or affecting commerce, are
hereby declared unlawful.
(2) The Commission is hereby empowered and directed to prevent
persons, partnerships, or corporations, except banks, savings and
loan institutions described in section 57a(f)(3) of this title [section
18(f)(3) of the FTC Act], Federal credit unions described in section
57a(f)(4) of this title [section 18(f)(4) of the FTC Act], common
carriers subject to the Acts to regulate commerce, air carriers and
foreign air carriers subject to part A of subtitle VII of title 49, and
persons, partnerships, or corporations insofar as they are subject to
the Packers and Stockyards Act, 1921, as amended [7 U.S.C. 181 et
seq.], 2 except as provided in section 406(b) of said Act [7 U.S.C.
227(b)], 3 from using unfair methods of competition in or affecting
commerce and unfair or deceptive acts or practices in or affecting
commerce.
***
2
Brackets in original.
3
Brackets in original.
A4
Case: 24-60013
Document: 91
Page: 84
Date Filed: 05/14/2024
15 U.S.C. § 57a [Section 18 of the FTC Act]. Unfair or
deceptive acts or practices rulemaking proceedings
(a) Authority of Commission to prescribe rules and general
statements of policy
(1) Except as provided in subsection (h), the Commission may
prescribe—
(A) interpretive rules and general statements of policy
with respect to unfair or deceptive acts or practices in or
affecting commerce (within the meaning of section 45(a)(1) of
this title [section 5(a)(1) of the FTC Act]), and
(B) rules which define with specificity acts or practices
which are unfair or deceptive acts or practices in or affecting
commerce (within the meaning of section 45(a)(1) of this title
[section 5(a)(1) of the FTC Act]), except that the Commission
shall not develop or promulgate any trade rule or regulation
with regard to the regulation of the development and
utilization of the standards and certification activities
pursuant to this section. Rules under this subparagraph may
include requirements prescribed for the purpose of preventing
such acts or practices.
(2) The Commission shall have no authority under this
subchapter, other than its authority under this section, to
prescribe any rule with respect to unfair or deceptive acts or
practices in or affecting commerce (within the meaning of
section 45(a)(1) of this title [section 5(a)(1) of the FTC Act]). The
preceding sentence shall not affect any authority of the
Commission to prescribe rules (including interpretive rules), and
general statements of policy, with respect to unfair methods of
competition in or affecting commerce.
(b) Procedures applicable
(1) When prescribing a rule under subsection (a)(1)(B) of this
section, the Commission shall proceed in accordance with
section 553 of title 5 (without regard to any reference in such
A5
Case: 24-60013
Document: 91
Page: 85
Date Filed: 05/14/2024
section to sections 556 and 557 of such title), and shall also (A)
publish a notice of proposed rulemaking stating with
particularity the text of the rule, including any alternatives,
which the Commission proposes to promulgate, and the reason
for the proposed rule; (B) allow interested persons to submit
written data, views, and arguments, and make all such
submissions publicly available; (C) provide an opportunity for an
informal hearing in accordance with subsection (c); and (D)
promulgate, if appropriate, a final rule based on the matter in
the rulemaking record (as defined in subsection (e)(1)(B)),
together with a statement of basis and purpose.
(2)(A) Prior to the publication of any notice of proposed
rulemaking pursuant to paragraph (1)(A), the Commission shall
publish an advance notice of proposed rulemaking in the Federal
Register. Such advance notice shall—
(i) contain a brief description of the area of inquiry under
consideration, the objectives which the Commission seeks to
achieve, and possible regulatory alternatives under
consideration by the Commission; and
(ii) invite the response of interested parties with respect to
such proposed rulemaking, including any suggestions or
alternative methods for achieving such objectives.
(B) The Commission shall submit such advance notice of
proposed rulemaking to the Committee on Commerce, Science,
and Transportation of the Senate and to the Committee on
Energy and Commerce of the House of Representatives. The
Commission may use such additional mechanisms as the
Commission considers useful to obtain suggestions regarding the
content of the area of inquiry before the publication of a general
notice of proposed rulemaking under paragraph (1)(A).
(C) The Commission shall, 30 days before the publication of a
notice of proposed rulemaking pursuant to paragraph (1)(A),
submit such notice to the Committee on Commerce, Science, and
A6
Case: 24-60013
Document: 91
Page: 86
Date Filed: 05/14/2024
Transportation of the Senate and to the Committee on Energy
and Commerce of the House of Representatives.
(3) The Commission shall issue a notice of proposed
rulemaking pursuant to paragraph (1)(A) only where it has
reason to believe that the unfair or deceptive acts or practices
which are the subject of the proposed rulemaking are prevalent.
The Commission shall make a determination that unfair or
deceptive acts or practices are prevalent under this paragraph
only if—
(A) it has issued cease and desist orders regarding such
acts or practices, or
(B) any other information available to the Commission
indicates a widespread pattern of unfair or deceptive acts or
practices.
(c) Informal hearing procedure
The Commission shall conduct any informal hearings required
by subsection (b)(1)(C) of this section in accordance with the
following procedure:
(1)(A) The Commission shall provide for the conduct of
proceedings under this subsection by hearing officers who shall
perform their functions in accordance with the requirements of this
subsection.
(B) The officer who presides over the rulemaking proceedings
shall be responsible to a chief presiding officer who shall not be
responsible to any other officer or employee of the Commission. The
officer who presides over the rulemaking proceeding shall make a
recommended decision based upon the findings and conclusions of
such officer as to all relevant and material evidence, except that
such recommended decision may be made by another officer if the
officer who presided over the proceeding is no longer available to
the Commission.
A7
Case: 24-60013
Document: 91
Page: 87
Date Filed: 05/14/2024
(C) Except as required for the disposition of ex parte matters as
authorized by law, no presiding officer shall consult any person or
party with respect to any fact in issue unless such officer gives
notice and opportunity for all parties to participate.
(2) Subject to paragraph (3) of this subsection, an interested
person is entitled—
(A) to present his position orally or by documentary
submission (or both), and
(B) if the Commission determines that there are disputed
issues of material fact it is necessary to resolve, to present such
rebuttal submissions and to conduct (or have conducted under
paragraph (3)(B)) such cross-examination of persons as the
Commission determines (i) to be appropriate, and (ii) to be required
for a full and true disclosure with respect to such issues.
(3) The Commission may prescribe such rules and make such
rulings concerning proceedings in such hearings as may tend to
avoid unnecessary costs or delay. Such rules or rulings may include
(A) imposition of reasonable time limits on each interested person’s
oral presentations, and (B) requirements that any crossexamination to which a person may be entitled under paragraph
(2) be conducted by the Commission on behalf of that person in
such manner as the Commission determines (i) to be appropriate,
and (ii) to be required for a full and true disclosure with respect to
disputed issues of material fact.
(4)(A) Except as provided in subparagraph (B), if a group of
persons each of whom under paragraphs (2) and (3) would be
entitled to conduct (or have conducted) cross-examination and who
are determined by the Commission to have the same or similar
interests in the proceeding cannot agree upon a single
representative of such interests for purposes of cross-examination,
the Commission may make rules and rulings (i) limiting the
representation of such interest, for such purposes, and (ii)
governing the manner in which such cross-examination shall be
limited.
A8
Case: 24-60013
Document: 91
Page: 88
Date Filed: 05/14/2024
(B) When any person who is a member of a group with respect to
which the Commission has made a determination under
subparagraph (A) is unable to agree upon group representation
with the other members of the group, then such person shall not be
denied under the authority of subparagraph (A) the opportunity to
conduct (or have conducted) cross-examination as to issues
affecting his particular interests if (i) he satisfies the Commission
that he has made a reasonable and good faith effort to reach
agreement upon group representation with the other members of
the group and (ii) the Commission determines that there are
substantial and relevant issues which are not adequately presented
by the group representative.
(5) A verbatim transcript shall be taken of any oral
presentation, and cross-examination, in an informal hearing to
which this subsection applies. Such transcript shall be available to
the public.
(d) Statement of basis and purpose accompanying rule;
‘‘Commission’’ defined; judicial review of amendment or
repeal of rule; violation of rule
(1) The Commission’s statement of basis and purpose to
accompany a rule promulgated under subsection (a)(1)(B) shall
include (A) a statement as to the prevalence of the acts or practices
treated by the rule; (B) a statement as to the manner and context
in which such acts or practices are unfair or deceptive; and (C) a
statement as to the economic effect of the rule, taking into account
the effect on small business and consumers.
(2)(A) The term ‘‘Commission’’ as used in this subsection and
subsections (b) and (c) includes any person authorized to act in
behalf of the Commission in any part of the rulemaking proceeding.
(B) A substantive amendment to, or repeal of, a rule
promulgated under subsection (a)(1)(B) shall be prescribed, and
subject to judicial review, in the same manner as a rule prescribed
under such subsection. An exemption under subsection (g) shall not
be treated as an amendment or repeal of a rule.
A9
Case: 24-60013
Document: 91
Page: 89
Date Filed: 05/14/2024
(3) When any rule under subsection (a)(1)(B) takes effect a
subsequent violation thereof shall constitute an unfair or deceptive
act or practice in violation of section 45(a)(1) of this title [section
5(a)(1) of the FTC Act], unless the Commission otherwise expressly
provides in such rule.
(e) Judicial review; petition; jurisdiction and venue;
rulemaking record; additional submissions and
presentations; scope of review and relief; review
(1)(A) Not later than 60 days after a rule is promulgated under
subsection (a)(1)(B) by the Commission, any interested person
(including a consumer or consumer organization) may file a
petition, in the United States Court of Appeals for the District of
Columbia circuit or for the circuit in which such person resides or
has his principal place of business, for judicial review of such rule.
Copies of the petition shall be forthwith transmitted by the clerk of
the court to the Commission or other officer designated by it for
that purpose. The provisions of section 2112 of title 28 shall apply
to the filing of the rulemaking record of proceedings on which the
Commission based its rule and to the transfer of proceedings in the
courts of appeals.
(B) For purposes of this section, the term ‘‘rulemaking record’’
means the rule, its statement of basis and purpose, the transcript
required by subsection (c)(5), any written submissions, and any
other information which the Commission considers relevant to such
rule.
(2) If the petitioner or the Commission applies to the court for
leave to make additional oral submissions or written presentations
and shows to the satisfaction of the court that such submissions
and presentations would be material and that there were
reasonable grounds for the submissions and failure to make such
submissions and presentations in the proceeding before the
Commission, the court may order the Commission to provide
additional opportunity to make such submissions and
presentations. The Commission may modify or set aside its rule or
make a new rule by reason of the additional submissions and
A10
Case: 24-60013
Document: 91
Page: 90
Date Filed: 05/14/2024
presentations and shall file such modified or new rule, and the
rule’s statement of basis of 4 purpose, with the return of such
submissions and presentations. The court shall thereafter review
such new or modified rule.
(3) Upon the filing of the petition under paragraph (1) of this
subsection, the court shall have jurisdiction to review the rule in
accordance with chapter 7 of title 5 and to grant appropriate relief,
including interim relief, as provided in such chapter. The court
shall hold unlawful and set aside the rule on any ground specified
in subparagraphs (A), (B), (C), or (D) of section 706(2) of title 5
(taking due account of the rule of prejudicial error), or if—
(A) the court finds that the Commission’s action is not
supported by substantial evidence in the rulemaking record (as
defined in paragraph (1)(B) of this subsection) taken as a whole,
or
(B) the court finds that—
(i) a Commission determination under subsection (c) that
the petitioner is not entitled to conduct cross-examination or
make rebuttal submissions, or
(ii) a Commission rule or ruling under subsection (c)
limiting the petitioner’s cross-examination or rebuttal
submissions,
has precluded disclosure of disputed material facts which was
necessary for fair determination by the Commission of the
rulemaking proceeding taken as a whole.
The term ‘‘evidence’’, as used in this paragraph, means any matter
in the rulemaking record.
(4) The judgment of the court affirming or setting aside, in
whole or in part, any such rule shall be final, subject to review by
4
So in original. Probably should be ‘‘and’’.
A11
Case: 24-60013
Document: 91
Page: 91
Date Filed: 05/14/2024
the Supreme Court of the United States upon certiorari or
certification, as provided in section 1254 of title 28.
(5)(A) Remedies under the preceding paragraphs of this
subsection are in addition to and not in lieu of any other remedies
provided by law.
(B) The United States Courts of Appeal shall have exclusive
jurisdiction of any action to obtain judicial review (other than in an
enforcement proceeding) of a rule prescribed under subsection
(a)(1)(B), if any district court of the United States would have had
jurisdiction of such action but for this subparagraph. Any such
action shall be brought in the United States Court of Appeals for
the District of Columbia circuit, or for any circuit which includes a
judicial district in which the action could have been brought but for
this subparagraph.
(C) A determination, rule, or ruling of the Commission
described in paragraph (3)(B)(i) or (ii) may be reviewed only in a
proceeding under this subsection and only in accordance with
paragraph (3)(B). Section 706(2)(E) of title 5 shall not apply to any
rule promulgated under subsection (a)(1)(B). The contents and
adequacy of any statement required by subsection (b)(1)(D) shall
not be subject to judicial review in any respect.
***
A12
Case: 24-60013
Document: 91
Page: 92
Date Filed: 05/14/2024
15 U.S.C. § 57b-3 [Section 22 of the FTC Act]. Rulemaking
process
***
(b) Notice of proposed rulemaking; regulatory analysis;
contents; issuance
(1) In any case in which the Commission publishes notice of a
proposed rulemaking, the Commission shall issue a preliminary
regulatory analysis relating to the proposed rule involved. Each
preliminary regulatory analysis shall contain—
(A) a concise statement of the need for, and the
objectives of, the proposed rule;
(B) a description of any reasonable alternatives to the
proposed rule which may accomplish the stated objective of
the rule in a manner consistent with applicable law; and
(C) for the proposed rule, and for each of the
alternatives described in the analysis, a preliminary analysis
of the projected benefits and any adverse economic effects and
any other effects, and of the effectiveness of the proposed rule
and each alternative in meeting the stated objectives of the
proposed rule.
(2) In any case in which the Commission promulgates a final
rule, the Commission shall issue a final regulatory analysis
relating to the final rule. Each final regulatory analysis shall
contain—
(A) a concise statement of the need for, and the
objectives of, the final rule;
(B) a description of any alternatives to the final rule
which were considered by the Commission;
(C) an analysis of the projected benefits and any adverse
economic effects and any other effects of the final rule;
A13
Case: 24-60013
Document: 91
Page: 93
Date Filed: 05/14/2024
(D) an explanation of the reasons for the determination
of the Commission that the final rule will attain its objectives
in a manner consistent with applicable law and the reasons
the particular alternative was chosen; and
(E) a summary of any significant issues raised by the
comments submitted during the public comment period in
response to the preliminary regulatory analysis, and a
summary of the assessment by the Commission of such
issues.
(3)(A) In order to avoid duplication or waste, the Commission
is authorized to—
(i) consider a series of closely related rules as one rule for
purposes of this subsection; and
(ii) whenever appropriate, incorporate any data or analysis
contained in a regulatory analysis issued under this
subsection in the statement of basis and purpose to
accompany any rule promulgated under section 57a(a)(1)(B)
[section 18(a)(1)(B)] of this title, and incorporate by reference
in any preliminary or final regulatory analysis information
contained in a notice of proposed rulemaking or a statement
of basis and purpose.
(B) The Commission shall include, in each notice of proposed
rulemaking and in each publication of a final rule, a statement of
the manner in which the public may obtain copies of the
preliminary and final regulatory analyses. The Commission may
charge a reasonable fee for the copying and mailing of regulatory
analyses. The regulatory analyses shall be furnished without
charge or at a reduced charge if the Commission determines that
waiver or reduction of the fee is in the public interest because
furnishing the information primarily benefits the general public.
(4) The Commission is authorized to delay the completion of
any of the requirements established in this subsection by
publishing in the Federal Register, not later than the date of
publication of the final rule involved, a finding that the final rule is
A14
Case: 24-60013
Document: 91
Page: 94
Date Filed: 05/14/2024
being promulgated in response to an emergency which makes
timely compliance with the provisions of this subsection
impracticable. Such publication shall include a statement of the
reasons for such finding.
(5) The requirements of this subsection shall not be construed
to alter in any manner the substantive standards applicable to any
action by the Commission, or the procedural standards otherwise
applicable to such action.
(c) Judicial review
(1) The contents and adequacy of any regulatory analysis
prepared or issued by the Commission under this section, including
the adequacy of any procedure involved in such preparation or
issuance, shall not be subject to any judicial review in any court,
except that a court, upon review of a rule pursuant to section
57a(e) of this title, may set aside such rule if the Commission has
failed entirely to prepare a regulatory analysis.
(2) Except as specified in paragraph (1), no Commission
action may be invalidated, remanded, or otherwise affected by any
court on account of any failure to comply with the requirements of
this section.
(3) The provisions of this subsection do not alter the
substantive or procedural standards otherwise applicable to
judicial review of any action by the Commission.
***
A15
Case: 24-60013
Document: 91
Page: 95
Date Filed: 05/14/2024
16 C.F.R. § 1.7 Scope of rules in this subpart.
The rules in this subpart apply to and govern proceedings for
the promulgation of rules as provided in section 18(a)(1)(B) of the
Federal Trade Commission Act (15 U.S.C. 57a(a)(1)(B)). Such rules
will be known as trade regulation rules. All other rulemaking
proceedings will be governed by the rules in subpart C of this part,
except as otherwise required by law or as otherwise specified in
this chapter.
A16
Case: 24-60013
Document: 91
Page: 96
Date Filed: 05/14/2024
16 C.F.R. § 1.10 Advance notice of proposed rulemaking.
(a) Prior to the commencement of any trade regulation rule
proceeding, the Commission shall publish in the FEDERAL
REGISTER an advance notice of such proposed proceeding.
(b) The advance notice shall:
(1) Contain a brief description of the area of inquiry under
consideration, the objectives which the Commission seeks to
achieve, and possible regulatory alternatives under consideration
by the Commission; and
(2) Invite the response of interested persons with respect to
such proposed rulemaking, including any suggestions or
alternative methods for achieving such objectives.
(c) The advance notice shall be submitted to the Committee
on Commerce, Science, and Transportation of the Senate and to the
Committee on Interstate and Foreign Commerce of the House of
Representatives.
(d) The Commission may, in addition to publication of the
advance notice, use such additional mechanisms as it considers
useful to obtain suggestions regarding the content of the area of
inquiry before publication of an initial notice of proposed
rulemaking pursuant to § 1.11.
A17
Case: 24-60013
Document: 91
Page: 97
Date Filed: 05/14/2024
16 C.F.R. § 1.21 Scope of the rules in this subpart.
This subpart sets forth procedures for the promulgation of rules
under authority other than section 18(a)(1)(B) of the FTC Act
except as otherwise required by law or otherwise specified in the
rules of this chapter. This subpart does not apply to the
promulgation of industry guides, general statements of policy, rules
of agency organization, procedure, or practice, or rules governed by
subpart B of this part.
A18
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.