COMPLIANCE WITH THE FTC’S USED CAR RULE CONTINUES TO CAUSE MANY DEALERSHIPS
PROBLEMS
By Keith E. Whann
While there are many aspects to a motor vehicle sale,
one area that continues to pose significant legal compliance problems
for dealerships
is warranties.
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 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 perhaps the key document concerning warranty issues
and can provide the dealer with a roadmap to the other warranty related
disclosures
and documents that must be used in the transaction. Despite the fact
that the Federal Trade Commission has issued a publication, A
Dealer's Guide To The Used Car Rule, which provides 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, our review of Buyers Guides
submitted from motor vehicle dealerships across the Country indicates
that dealers are still having numerous compliance problems.
The Used Car Rule was enacted to prevent and discourage oral misrepresentations
and unfair omissions of material facts by used motor vehicle dealers
concerning warranty coverage. The main purpose of the 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.
Dealerships are required to post a Buyers Guide on every used vehicle
before it is offered for sale. A vehicle is considered used under the
Rule if it has been driven more miles than are necessary to deliver it
to an ultimate purchaser.
A used vehicle is offered for sale when the dealer allows a customer
to inspect it for the purpose of buying it, even if it is not fully prepared
for delivery. The Buyers Guide must be prominently and conspicuously
placed on or in a vehicle when it is made available for sale, and in
such a way that both sides of the Guide are readable. The layout for
the Buyers Guide is set forth in the Rule. The dealership must use the
wording, type style, type sizes and the format as specified in the Rule.
Furthermore, the Guides must be printed in one hundred percent black
ink on white paper cut to at least eleven inches by seven and one-quarter
inches. Colored ink may be used to fill in the blanks on the Guide. It
may be affixed with tape or light glue, or may be displayed inside a
clear plastic sleeve so that it may be removed during a test drive, but
it must be posted again as soon as the test drive is over.
Dealers must give specified vehicle and dealer information on every
Buyers Guide. With respect to the vehicle information that must be included,
the dealer must fill in the vehicle’s make, model, model year, and vehicle
identification number (VIN) that are located at the top of the form.
The dealer may also write in a dealer stock number if it wishes to do
so. On the reverse side of the Buyers Guide, the dealer must fill in
the name and address of the dealership and the name and telephone number
of the person the consumer should contact in the event that he or she
has complaints about the vehicle. This information can be pre-printed
on the Buyers Guide.
In addition to providing vehicle and dealer information, the dealer
must also state whether or not a warranty is being provided to the consumer
and, in the event that a warranty is being provided, describe the warranty
coverage. There are two versions of the Buyers Guide: One for states
that permit “as is” sales and another for states that limit or prohibit
dealers from disclaiming the implied warranties in connection with the
sale of a motor vehicle. If state law allows it, and the dealer chooses
not to offer a warranty, written or implied, the dealer must use the
“As Is” version and check the box next to the heading “As Is-No Warranty”
on the Guide. If the state law limits or prohibits the elimination of
implied warranties, the dealer must use the “Implied Warranties Only”
version and check the box next to the “Implied Warranties Only” heading
if the dealer does not offer a written warranty.
If the dealer offers the vehicle with an express warranty, it must check
the box next to the heading "Warranty" and fill out the remaining
portion of that section of the Buyers Guide. Warranties that are required
by state law must also be disclosed in this section. If a warranty is
offered with the vehicle, the dealer must briefly describe the warranty
terms in the space provided. This description must include the following
information: Whether the warranty is “Full” or “Limited”; what systems
are covered and for how long; whether the manufacturer’s warranty still
applies; and what percentage of costs the warranty covers.
The FTC’s Used Car Rule sets forth five points that must be considered
to determine whether the warranty offered is "Full" or "Limited”.
For a warranty to be considered “Full”, warranty service must be provided
to anyone who owns the vehicle during the warranty period free of charge
when necessary, even for services like removing and reinstalling a system
covered by the warranty. The consumer must be able to choose either a
replacement or a refund if the vehicle cannot be repaired after a reasonable
number of tries. The consumer may not be required to take any action
to receive service, except to give notice that service is needed, and
service must be rendered after notice unless the warrantor can demonstrate
that it is reasonable to require the consumer to do more than give notice.
Finally, the length of implied warranties must not be limited. If any
of these conditions do not apply, the warranty is considered “Limited”.
Most warranties offered by motor vehicle dealerships will traditionally
fall within the Limited Warranty category.
Once the dealer determines the type of warranty it is offering, it must
specify the systems covered by the warranty and list the duration of
the warranty for each system. The dealer must state specifically each
system that is covered by the warranty in the left-hand column on the
Buyers Guide. The Rule prohibits the use of shorthand phrases such as "drive-train" or "power-train" when
it is not clear what specific components are included within the definition
of the terms. Keep in mind also that the systems covered should coincide
with the systems that the dealership lists in the separate limited warranty
document required by the Magnuson-Moss Warranty Act. In the right hand "duration" column,
the dealer must state how long the warranty lasts for each warranted
system. If all systems are warranted for the same length of time, the
dealer is only required to state the duration once.
Communicating the percentage of parts and labor costs that the warranty
covers is relatively simple. The dealer merely fills in the percentage
of parts and labor costs it wishes to cover. If a deductible applies,
the dealer should put an asterisk by the number (i.e. 100%*) and explain
the deductible in the space provided under the "Systems Covered/Duration" section.
A sample explanation of a deductible may read as follows: "*A $50.00
deductible applies to each repair visit".
If a manufacturer’s warranty on the vehicle has not expired, the dealer
should disclose this fact by adding the following paragraph below the "Full/Limited
Warranty" disclosure: “MANUFACTURER'S WARRANTY STILL APPLIES. The
manufacturer's original warranty has not expired on the vehicle. Consult
the manufacturer's warranty booklet for details as to warranty coverage,
service location, etc.” If the consumer must pay a fee to obtain coverage
under the manufacturer's warranty, then the dealer may not state that
a warranty is being provided. If the dealer provides a warranty in addition
to the balance of the manufacturer's warranty, it should explain the
terms of the warranty on the Buyers Guide as well. If the dealer offers
its customers a service contract for repair coverage and state law permits,
the dealer may check the box beside “Service Contract”.
Because the Buyers Guide is completed prior to offering a motor vehicle
for sale, there may be instances when as part of the negotiation process
the dealer offers a warranty that differs from that stated on the Buyers
Guide posted in the vehicle. If that is the case, the dealer may modify
the Buyers Guide to reflect the agreement reached between the dealer
and consumer, in which case both the consumer and an authorized dealership
representative should initial any such changes, or the dealer may complete
a new Buyers Guide. If a dealer conducts a used car transaction in Spanish,
a Buyers Guide written in Spanish should be posted on the vehicle prior
to offering it for sale.
The information on the final version of the Buyers Guide is incorporated
in the contract for each dealer sale of a used vehicle to a consumer.
Information on the Buyers Guide expressly overrides any contradictory
statement in the contract. In order to inform consumers of this fact,
dealers must include the following statement or language similar to the
following on each and every Buyers Order or purchase contract for a used
vehicle: “ The information you see on the window form for this vehicle
is part of this contract. Information on the window form overrides any
contrary provisions in the contract of sale.”
The Rule also requires dealers to give the purchaser a copy of the Buyers
Guide at the time of the sale and contains penalties for non-compliance.
The dealer may include a signature line on the Buyers Guide and ask the
buyer to sign to acknowledge that he or she received a copy, but a signature
line is not required by the Rule. If the dealer opts for a signature
line, the following statement must appear in close proximity to the signature
line: “I hereby acknowledge receipt of the Buyers Guide at the closing
of this sale.” The signature line and required disclosure must appear
in the space containing the name of the individual to be contacted in
the event of complaints after the sale. Dealers who violate the FTC Used
Car Rule may be subject to statutory penalties of up to $11,000 per violation
and various other enforcement actions, including civil penalties and
state and federal enforcement actions.
Many dealerships struggle with how to comply with the various disclosure
requirements and maintain consistency throughout their forms. In order
to comply with all of the state and federal warranty laws, the dealership
must ensure that the Retail Buyers Order, FTC Buyers Guide and Limited
Warranty Document contain the required disclosures and those disclosures
must be consistent and properly integrated into the appropriate forms.
Remember, all material statements (including warranty information) must
be integrated into the Retail Buyers Order; the Buyers Guide must communicate
whether a warranty is being offered and, if so, the type of warranty
offered; and, if a Limited Warranty is offered by a dealership, a separate
Limited Warranty Document must be provided in accordance with the Magnuson-Moss
Warranty Act.
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