Retail Buyers Order Compliance Issues
By
Keith E. Whann
The
Retail Buyers Order is the key form in a motor vehicle sales transaction.
The document is impacted by a number of federal and state laws including,
but not limited to: The Magnuson-Moss Warranty Act, The FTC Used Car Rule,
Article 2 of the Uniform Commercial Code, State Motor Vehicle Codes, and
various State Administrative Rules. This outline will assist you in
identifying potential problem areas when reviewing a Retail Buyers Order.
The
Identity of the Supplier
State Motor Vehicle Codes and
Administrative Rules require the name and address of the dealership to
appear on the Retail Buyers Order.
The Complete Vehicle
Description
State Motor Vehicle Codes and
Administrative Rules provide that a dealership, in connection with the
sale of a motor vehicle, must disclose the year, make, model, and vehicle
identification number, as well as whether or not the vehicle is used. The
dealership must also disclose whether the vehicle was used as a
demonstrator, factory official or rental vehicle prior to requiring a
signature by the consumer on any document for the purchase or lease of a
vehicle.
Retail Buyers Order Content
Requirements
State Motor Vehicle Codes
generally require that every sale of a motor vehicle be preceded by a
written instrument or contract which must be given to the customer before
delivery of the vehicle. The written instrument or contract must contain
all of the agreements of the parties, the signature of the buyer and
seller, and usually the following information:
• A clear description of the
vehicle, including the vehicle identification number;
• The mileage appearing on
the odometer of the vehicle and whether the mileage is accurate;
• The sale price of the
vehicle;
• Any amount paid down on
the vehicle;
• The amount credited to the
buyer for any trade-in and a description thereof;
• The amount of the finance
charge;
• The amount for insurance
and a statement of the type of insurance provided;
• The amount of any other
charges and specification of purpose;
• The net balance due, and
the terms of payment.
Negative Equity
Negative equity is commonly
defined as the difference between the payoff on the trade-in vehicle and
the trade allowance given by the dealership. Any time a "negative
equity adjustment" is made in a transaction, the dealership should
have a specific area on the face of the Retail Buyer’s Order where the
negative equity adjustment is disclosed.
On April 6, 1998, the Board of
Governors of the Federal Reserve System promulgated a final rule amending
the official staff commentary interpreting Regulation Z. The official
staff interpretation of Regulation Z was revised to clarify the way
creditors disclose down payments involving a trade-in with negative
equity. Effective October 1, 1998, Regulation Z will prohibit creditors
from including a negative down payment amount. Instead, creditors are
instructed to disclose a zero downpayment when addressing negative-equity
trades. The lien-shortfall amount is to be included in the "amount
financed." The comment allows some flexibility in how the
"itemization of amount financed" treats the negative-equity
amount. Creditors are allowed, at their option, to add categories of
information to explain how the number is derived.
Some states have
Administrative Rules which specifically provide that a negative equity
adjustment may be included in the cash price of the vehicle if the
consumer agrees to the price increase in good faith. To meet this standard
the customer must understand that the price is being increased and the
amount by which it is being increased. To meet these requirements, a
disclosure similar to the following is frequently used accompanied by the
consumer’s signature:
"I am aware the balance
owed on my trade-in vehicle exceeds the trade-in allowance from Dealer
and, as a result, I have requested that $________ of negative equity from
my trade-in be included in the cash price of the vehicle."
The amendment to Federal
Regulation Z should not affect a dealer’s ability to handle a
transaction involving negative equity, but will impact how the negative
equity is disclosed and the format of the finance document.
Vehicle Description Heading
The Vehicle Description
Heading section of the Retail Buyers Order is often confusing. Many times
it is unclear how many items should be marked, or in what combination. The
following format can be used to make the vehicle description section more
clear and understandable to the consumer.
o New o Car o Demonstrator o Other ______________
o Used o Truck o Rental (Box)
Odometer Reading and
Accurateness Disclosure
Some State Motor Vehicle Codes
require odometer disclosure information to be disclosed in an area
specifically headed "Odometer Disclosure" or "Odometer
Statement" on the face of the Retail Buyers Order. The odometer
reading of the vehicle being sold should appear on the Retail Buyer’s
Order along with a short statement as to whether or not the vehicle’s
odometer reading accurately reflects the vehicle’s mileage.
Documentary Fees and
Charges
State Motor Vehicle Codes and
Administrative Rules usually regulate the amount a motor vehicle dealer
may charge its consumers for a "documentary fee.” State law often
limits not only the amount that can be charged, but also the manner which
they must be disclosed to the consumer and whether sales tax should be
charged on the fee.
Titling and Filing Fees
State Motor Vehicle Codes and
Administrative Rules regulate the amounts a dealer may charge the consumer
for titling and filing fees. In most instances, dealerships can only
charge those amounts actually incurred by the dealership for obtaining and
filing the title and other related documents. These fees are generally not
taxable, and the amounts which are charged can vary widely from state to
state.
Service Contracts
The Retail Buyers Order should
contain a space where an extended service contract would be listed if sold
in the transaction. In most states, when a service contract is sold the
cost is included in the taxable price.
Integration of FTC
Buyer’s Guide Information
The information on the final
version of the buyer’s guide is incorporated in every contract for the
sale of a used vehicle to a consumer. Information on the buyers guide
label expressly overrides any contradictory statement in the contract.
Dealers are required to disclose this fact and must include the following
statement, or language similar to the following, on each and every Retail
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."
Remarks/Comments Section
The Retail Buyer’s Order
should include a section dedicated for "Remarks" or
"Comments" and provide sufficient space so that the dealer can
integrate any material oral statements into writing on the Retail Buyers
Order. State Motor Administrative Rules require that all oral or written
material statements, representations, or promises made prior to obtaining
the consumer's signature on the written contract, must be integrated into
any written sales contract.
Warranty Disclaimers
In general, anyone who offers
a written warranty is prohibited from disclaiming or modifying implied
warranties. However, there are two instances when it is permissible to
disclaim implied warranties. First, if the dealership offers a
"limited" written warranty, it may include a provision that
restricts the duration of implied warranties to the duration of the
limited warranty. But remember, if the dealership offers a
"full" written warranty, it cannot limit the duration of implied
warranties. Second, if the dealership sells a consumer product with a
written warranty from the product manufacturer, but does not warrant the
product in writing, it can disclaim the implied warranties.
In most states, the implied
warranty of merchantability may be disclaimed or limited in duration to
the term of the express warranty, only by clear and conspicuous language.
The disclaimer must generally be in writing and it must be clear to
consumers that the entire product risk falls on them. The dealership
should specifically indicate that it does not warrant "merchantability,"or
use a phrase such as "with all faults" or "as is.”
However, the warranty of merchantability cannot be disclaimed when a
written warranty is given to the consumer or when a service contract is
sold by the dealer on its own behalf to the customer within ninety days of
the vehicle sale. The implied warranty of fitness for a particular purpose
may also be disclaimed if done in clear and conspicuous language that
clearly calls the purchaser’s attention to the absence of the warranty.
"As-is" sales should
be thoroughly documented so as to leave no doubt that the consumer made a
voluntary informed decision to purchase the vehicle without a warranty of
any type. "As-is" disclaimers cannot be in conflict with oral
statements and are ineffective against fraudulent statements, or when in
conflict with written statements. The Uniform Commercial Code indicates
that if a dealer makes a warranty in one part of a contract and disclaims
all warranties in another part, the disclaimer is ineffective.
A dealer cannot disclaim
"any and all warranties" and then offer an extended service
contract where the dealer is in some fashion liable for performance under
the service contract. Many
dealership’s use language similar to the following to disclaim
warranties in a motor vehicle sales transaction:
ALL WARRANTIES, IF ANY, BY A MANUFACTURER OR
SUPPLIER OTHER THAN DEALER ARE THEIRS, NOT DEALER’S, AND ONLY SUCH
MANUFACTURER OR OTHER SUPPLIER SHALL BE LIABLE FOR PERFORMANCE UNDER SUCH
WARRANTIES. UNLESS DEALER FURNISHES BUYER WITH A SEPARATE WRITTEN WARRANTY
OR SERVICE CONTRACT MADE BY DEALER ON ITS OWN BEHALF, DEALER HEREBY
DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED
WARRANTIES OF MERCHANTABILITY OF FITNESS FOR A PARTICULAR PURPOSE RELATING
TO THE ABOVE-DESCRIBED MOTOR VEHICLE AND ALL GOODS OR SERVICES SOLD BY
DEALER IN CONNECTION WITH THE SALE OF THIS VEHICLE. IN THE EVENT DEALER
OFFERS A LIMITED WARRANTY OR SELLS A SERVICE CONTRACT ON ITS OWN BEHALF IN
CONNECTION WITH THE SALE OF THIS VEHICLE, THEN ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OF FITNESS FOR A PARTICULAR PURPOSE ARE LIMITED IN
DURATION TO THE TERM OF SUCH LIMITED WARRANTY OR SERVICE CONTRACT.
A warranty disclaimer must be
integrated into the Retail Buyers Order. The disclaimer needs only to
appear on the Buyers Order one time and, if it is located on the reverse
side, the form should have a clear and conspicuous statement on the front
of the document notifying the customer of that fact. The use of a separate
form to drive home the fact that a sale is an "AS-IS" sale is
not prohibited, however, if the dealer uses a separate form, the language
must still appear on the Buyers Order and the language between the two
documents should be consistent.
Inappropriate Terms and
Conditions on the Buyers Order Backer
There are additional terms and
conditions that frequently appear on the reverse side of the Retail Buyers
Order which can create unnecessary liability for the Dealership. Pay
special attention to language which relates to the following:
Excessive Dealer Remedies
Language in Retail Buyers
Order often provides for a remedy which exceeds that which a dealership is
legally entitled to include in a consumer contract.
Liquidated Damages
A Retail Buyers Order often
contains a clause that requires the customer to pay liquidated damages in
the event that the deal is not completed. This has been held to be unfair
and deceptive under most State’s Consumer Protection Laws.
Attorney Fees
A Retail Buyers Order often
contains a clause that requires the customer to pay the Dealership’s
attorney fees under certain circumstances. This has been held to be unfair
and deceptive under most State’s Consumer Protection Laws.
Duplicative Warranty
Disclaimers
A warranty disclaimer need
only appear on the contract one time. As previously discussed, if it is
located on the reverse side of the Buyers Order, the form should have a
clear and conspicuous statement on the front side notifying the customer
of that fact. Duplicative warranty disclaimers are confusing, and often
contradict one and other rendering the disclaimer invalid.
Used Car Condition/Mileage
Representations
Language often appears on a
Buyers Order which attempts to limit the dealership’s liability with
respect to statements and/or warranties made with respect to the condition
of a used vehicle or it’s odometer reading. Such limitations are
contrary to both Federal and State laws.
Terms and Conditions
Frequently Missing From the Buyers Order Backer
The following additional terms
and conditions of the contract should be considered for inclusion on the
backer of the Retail Buyers Order:
Customer
Obligations
The
Retail Buyers Order should include a statement wherein the customer
warrants that he has proper title to the trade-in vehicle and has the
documents necessary to enable the Dealer to obtain a title to the vehicle
in accordance with state law. Moreover, the customer should warrant that
the trade-in vehicle has never been a salvage vehicle, that the customer
has the right to sell the vehicle, that the vehicle is free and clear of
any liens and that all emission control equipment is on the vehicle and in
satisfactory working order.
Signing
of Other Documents
The Retail Buyers Order
should include a statement that the customer agrees to sign all
documents necessary to complete the terms of the sale. In the event
that a customer refuses to sign other documents necessary to complete
the transaction, this provision, once the Retail Buyers Order is
signed, can be used in some instances to obligate the customer to
sign the documents necessary to close the deal.
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