NEWLY REVISED GUIDE CLARIFIES FTC POSITION ON KEY WARRANTY ISSUES
By: Keith E. Whann, Esq.
While there are many aspects to a motor vehicle sale, the creation and
disclaimer of warranties is one area that continues to pose significant
legal compliance issues for motor vehicle dealers. While the concepts
in this area are relatively straightforward, the issue becomes complicated
because of the various Federal and State Regulations that often have
an overlapping effect on the subject matter. The Uniform Commercial Code,
the Magnuson-Moss Warranty Act, and the FTC Used Car Rule each impose
specific requirements on dealerships when offering or disclaiming warranties.
In addition, State Unfair and Deceptive Acts and Practices (UDAP) Statutes
generally require that every retail sale of a motor vehicle be preceded
by a written contract that contains all of the agreements of the parties,
including all material statements, oral or written, made prior to obtaining
the customer’s signature on the contract. With respect to the sale of
a used motor vehicle, the Buyers Guide is the logical starting point
because it must be posted on every used vehicle before it is offered
for sale and it is the first warranty related document the consumer sees.
The FTC’s Used Car Rule was enacted to prevent and discourage oral misrepresentations
and unfair omissions of material facts concerning warranty coverage by
dealers selling used vehicles. The main purpose of the Buyers Guide is
to provide important information to consumers about used vehicles they
are considering purchasing and to ensure that consumers get information
in writing about any warranty protection they have if there is a problem
with the vehicle. In an effort to assist dealers with properly completing
the Buyers Guide, the FTC issued a publication, A Dealer's Guide
To The Used Car Rule (“Dealer’s Guide”), in 1998 which includes a copy of the
proper format for the Buyers Guide and covers in detail many of the issues
pertaining to proper completion of the Buyers Guide. I have recently
been working with the FTC on behalf of the National Independent Automobile
Dealers Association (NIADA) to provide dealers with an updated version
of the Dealer’s Guide, which is currently in production. It contains
a number of important new areas for dealers.
One new item in the Dealer’s Guide is a section addressing disclosures
that should be made if a dealer offers a “50/50 Warranty or Another Type
of Split Cost Warranty.” On December 31, 2002, the FTC wrote a Letter
of Opinion to the NIADA, ending the long debate between consumer groups
and industry representatives regarding whether 50/50 (or similar type)
limited warranties that require a consumer to return to the selling dealership
to have covered repairs performed violated the Tie-In Provisions of the
Magnuson-Moss Warranty Act. The FTC’s Letter of Opinion states: “To resolve
any uncertainty, the Commission is issuing this letter opinion, adopting
the staff’s long-held opinion that Section 102(c) does not prohibit 50/50
warranties (or other warranties under which the warrantor pays a percentage
of the costs for covered repairs) from requiring that the warrantor perform
all covered repairs.”
The soon to be released Dealer’s Guide clarifies the FTC’s position
even further. It specifically states “Dealers offering split cost warranties
can require that buyers return to the dealer for warranty repairs.” The
FTC recommends, however, that dealers who include this restriction provide
an estimate of the total repair cost before the work is commenced to
allow the consumer to decide whether to approve the repair or have the
work done elsewhere. Dealers can find more information on how and when
to provide estimates to consumers in connection with service transactions
in most State UDAP Statutes and Administrative Rules. The FTC has also
included sample language that may be used to explain how the total cost
of a repair will be determined if the dealership offers to pay a percentage
of the repair cost.
Another issue addressed by the FTC is the posting of the Buyers Guide
in the vehicle. The FTC has modified the language in the section explaining
a dealer’s obligation to post the Buyers Guide in a vehicle prior to
offering it for sale to clarify that both sides of the Buyers Guide must
be “visible” as opposed to being “readable.” Dealer’s may hang the Buyers
Guide from the rear-view mirror inside the vehicle or on a side-view
mirror outside the vehicle, can place it under a windshield wiper, or
attach it to a side window.
One thing that has not and will not change is the requirement that dealers
must use the wording, type style, type sizes and format specified in
the FTC’s Used Car Rule. This means the Buyers Guides must be printed
in 100% black ink on white paper cut to at least 11” X 7 1/4” and dealers
are not permitted to place any other wording or symbols on the Buyers
Guide, including emblems such as the American Flag, dealership logos
or bar codes. Keep in mind also that if you conduct a used car transaction
in Spanish, you must still post a Spanish language Buyers Guide on the
vehicle “before” you display or offer it for sale.
Copies of A Dealer's Guide To The Used Car Rule will be available in
the near future. We strongly recommend that every dealer take the time
to obtain a copy upon its release and review it. It is an invaluable
tool for dealers to ensure that the Buyers Guides they post in used vehicles
offered for sale are completed in compliance with the FTC’s Used Car
Rule.
The information contained herein has been provided by
Keith E. Whann and Deanna L. Stockamp of the Law Firm Whann & Associates,
LLC, and is for general information purposes only. You should contact
legal counsel
for specific application.
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