Auto Dealers: The FTC Is Back in the Driver’s Seat — Warning Letters Signal Renewed Federal Scrutiny

The FTC Signals a Renewed Federal Focus on Auto Dealer Advertising and Sales Practices

When the U.S. Court of Appeals for the Fifth Circuit vacated the FTC's Combating Auto Retail Scams (CARS) Rule in January 2025 on procedural grounds, some dealers may have interpreted the decision as a signal that federal regulatory pressure on the auto industry had eased. Recent developments make clear that such optimism was misplaced.

In March 2026, the FTC sent warning letters to 97 auto dealerships, the names of which were publicly disclosed on May 28, 2026. In the letters, the FTC's consumer protection chief, Christopher Mufarrige, identified a range of advertising and pricing practices that purportedly violate the FTC Act, including:

• Advertising prices that do not reflect all required fees.
• Advertising a price that reflects rebates or discounts not available to all consumers.
• Advertising prices without disclosing additional down payment requirements.
• Making the advertised price contingent on the consumer using dealer financing.
• Requiring consumers to purchase additional items that inflate the final price.
• Advertising vehicles that are unavailable or nonexistent.

The letter stated: "I am concerned that your company may be engaging in one or more of these practices. Accordingly, I encourage you to review your practices, including by making sure the prices you advertise include all required fees and charges aside from required government charges, to ensure you are complying with applicable laws."

The National Automobile Dealers Association (NADA) responded to the public disclosure of the warning letters, stating that it "takes any potential advertising violations in the marketplace very seriously" and that it would "continue to work with the FTC to address areas of concern." The warning letters are significant for several reasons. First, they confirm that the FTC, notwithstanding the CARS Rule's vacatur, continues to view auto dealer advertising and pricing practices as a priority area warranting scrutiny under existing consumer protection authorities. Second, the scale of the outreach — 97 dealers in a single wave — suggests a coordinated, systematic review of dealer practices rather than isolated complaint-driven investigations. Third, warning letters of this nature frequently precede formal enforcement actions, making them an important leading indicator for the industry.

The CARS Rule: Vacated on Procedure, Not on Substance

The CARS Rule, which banned certain deceptive sales practices, was issued by the FTC under Biden-appointee Lina Khan’s leadership. As we reported in our April 2025 client alert, the Fifth Circuit vacated the rule on procedural grounds after finding that the FTC failed to issue an Advance Notice of Proposed Rulemaking (ANPRM). The court ruled in favor of NADA and the Texas Automobile Dealers Association, finding that the trade associations would have used the advance notice "to participate earlier and more extensively" in the rulemaking process.

Critically, the court did not reach any finding that the conduct the CARS Rule sought to prohibit was lawful or acceptable. The rule's core substantive requirements — mandating dealers disclose the actual offering price, prohibiting charges for add-ons that provide no genuine benefit, and requiring express informed consumer consent before incorporating add-ons into contracts — reflected the FTC's longstanding position on what constitutes deceptive and unfair conduct under Section 5 of the FTC Act. The warning letters make clear that this position has not changed.

State Attorneys General Continue to Fill the Enforcement Gap

As we previously noted, the challenge to and vacatur of the CARS Rule have not diminished state-level enforcement activity. State Attorneys General have remained active across the country, and the trend shows no sign of abating:

• Maryland and the FTC secured $3.1 million in penalties, injunctive relief, and up to millions of dollars in customer restitution in April against a dealer that added mandatory fees and required dealer financing to access advertised car prices.
• New York obtained $3.2 million in penalties and restitution from eight dealers for charging unlawful fees to customers buying vehicles they previously leased.
• Illinois announced a $20 million settlement — the largest of 2024 — with a dealership chain engaged in bait-and-switch marketing.
• Connecticut secured a $1.5 million settlement with Carvana, including a $1 million restitution fund for consumers who did not receive valid title and registration documents.

Between state and FTC enforcement action and the FTC's renewed warning letter campaign, the enforcement landscape for auto dealers is now just as complex as it was at the time of the Fifth Circuit's decision.

What Should Dealers Do Now?

The convergence of federal warning letters and sustained state AG enforcement creates an urgent compliance imperative for auto dealers. Dealers should consider taking the following steps:

1. Audit advertising materials. Ensure that all advertised prices reflect the full price a consumer would actually pay, net of all mandatory fees and charges (excluding government-imposed taxes and registration fees). Confirm that any advertised rebates or discounts are available to all consumers, or that eligibility criteria are clearly and conspicuously disclosed.
2. Review financing-contingent pricing. Pricing structures that are conditioned on the consumer's use of dealer financing — without clear, upfront disclosure — are expressly identified in the FTC's warning letters as a concern.
3. Evaluate add-on policies. Dealers should ensure that discretionary add-ons are presented transparently, that each add-on delivers genuine value to the consumer, and that affirmative, informed consumer consent is obtained before any add-on is incorporated into a sales contract. Automatically pre-loading contracts with add-ons is a documented trigger for both FTC and state AG scrutiny.
4. Train sales staff. Sales and finance personnel should be trained to accurately communicate the cost of each optional feature and to actively seek — rather than assume — consumer consent.
5. Document compliance efforts. In the event of a regulatory inquiry, contemporaneous records of compliance training, policy reviews, and process updates can be material to demonstrate good faith.

If you are interested in learning more about these enforcement trends — or in evaluating your dealership's advertising and sales practices against current federal and state standards — Crowell & Moring’s State AG and FTC practice teams stand ready to counsel you and your clients.