The FTC Used Car Rule
The following explanation of the Federal Trade Commission’s Used Car Rule is adapted from A Dealer’s Guide to the Used Car Rule, which can be found on the FTC website, http://www.ftc.gov/bcp/conline/pubs/buspubs/usedcarc.shtm.
The FTC Used Car Rule
Most car dealers who sell used vehicles must comply with the Federal Trade Commission’s (FTC’s) Used Car Rule. In fact, car dealers who sell more than five used vehicles in a 12-month period must comply with the Rule. Banks and financial institutions are exempt from the Rule, as are businesses that sell vehicles to their employees, and lessors who sell a leased vehicle to a lessee, an employee of the lessee, or a buyer found by the lessee.
The Used Car Rule applies in all states except Maine and Wisconsin. These two states are exempt because they have similar regulations that require dealers to post disclosures on used vehicles. The Rule applies in the District of Columbia, Puerto Rico, Guam, the U.S. Virgin Islands, and American Samoa.
The following defines the Rule’s requirements and explains how a dealer must prepare and display the Buyers Guide.
A dealer must post a Buyers Guide before he “offers” a used vehicle for sale. A vehicle is offered for sale when he displays it for sale or lets a customer inspect it for the purpose of buying it, even if the car is not fully prepared for delivery. This requirement also applies to used vehicles for sale on his lot through consignment, power of attorney, or other agreement. At public auctions, dealers and the auction company must comply. The Rule does not apply at auctions that are closed to consumers.
Previously titled or not, any vehicle driven for purposes other than moving or test driving is considered a used vehicle, including light-duty vans, light-duty trucks, demonstrators, and program cars that meet the following specifications:
- a gross vehicle weight rating (GVWR) of less than 8,500 pounds;
- a curb weight of less than 6,000 pounds; and
- a frontal area of less than 46 square feet.
Exceptions to the Rule are:
- any vehicle sold for scrap or parts if the dealer submits title documents to the appropriate state authority and obtains a salvage certification; and
- agricultural equipment.
The Buyers Guide
A disclosure document that gives consumers important purchasing and warranty information, the Buyers Guide tells consumers:
- whether the vehicle is being sold “as is” or with a warranty;
- what percentage of the repair costs a dealer will pay under warranty;
- that oral promises are difficult to enforce;
- to get all promises in writing;
- to keep the Buyers Guide for reference after the sale;
- the major mechanical and electrical systems on the car, as well as some of the major problems that consumers should look out for; and
- to ask to have the car inspected by an independent mechanic before they buy.
If a dealer conducts a used car transaction in Spanish, he must post a Spanish language Buyers Guide on the vehicle before he displays or offers it for sale.
The Buyers Guide must be posted prominently and conspicuously on or in a vehicle when a car is available for sale. This means it must be in plain view and both sides must be visible. The dealer can hang the Guide from the rear-view mirror inside the car or on a side-view mirror outside the car. He also can place it under a windshield wiper. The Guide also can be attached to a side window. A Guide in a glove compartment, trunk or under the seat is not conspicuous because it is not in plain sight.
The dealer may remove the Guide for a test drive, but he must replace it as soon as the test drive is over.
At the top of the Guide, the dealer must fill in the vehicle make, model, model year, and vehicle identification number (VIN). He can write in a dealer stock number if he wishes.
On the back of the Guide, the dealer must fill in the name and address of his dealership. He must also fill in the name (or position) and the telephone number of the person the consumer should contact with complaints. He may use a rubber stamp or preprint the Guide with this information.
Optional Signature Line
The dealer may include a signature line on the Guide and he may ask the buyer to sign to acknowledge that he or she has received the Guide. If he opts for a signature line, he must include a disclosure near it that says: “I hereby acknowledge receipt of the Buyers Guide at the closing of this sale.” This language can be preprinted on the form. The signature line and the required disclosure must appear in the space provided for the name of the individual to be contacted in the event of complaints after the sale.
- The Buyers Guide has two versions: One says “As Is-No Warranty;” the other says “Implied Warranties Only.”
- As Is-No Warranty. If state law allows it, and the dealer chooses not to offer a warranty — written or implied — he must use the “As Is” version and check the box next to the heading “As Is-No Warranty” on the Guide.
- Implied Warranties Only. In states that limit or prohibit 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 he doesn’t offer a written warranty.
- Warranty. If the dealer offers the vehicle with an express warranty, he must check the box next to the heading “Warranty” and complete that section of the Guide. Warranties required by state law must be disclosed in this section. Your state Attorney General can tell you about state warranty requirements.
In some states, use of the “As Is-No Warranty” Buyers Guide may be legally sufficient to eliminate implied warranties. In other states “as is” sales are allowed only if specific action is taken or certain language is used. For example, some states may require the dealer to eliminate implied warranties by using special language and/or a document other than the Guide.
Is the Warranty “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.
- Warranty service must be provided 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 can’t be repaired after a reasonable number of tries.
- The consumer is not required to take any action to receive service, except to give notice that service is needed. Service must be rendered after notice unless the warrantor can demonstrate that it is reasonable to require consumers to do more than give notice.
- The length of implied warranties must not be limited.
- The warranty is considered “limited” if any of these conditions don’t apply.
What Percentage of Costs Does the Warranty Cover?
The dealer fills in the percentage of parts and labor costs covered by the warranty in the spaces provided. If a deductible applies to repairs made under the warranty, he puts an asterisk next to the number and explains the deductible in the “systems covered/duration” section. For example, “*A $50 deductible applies to each repair visit.”
What Systems Are Covered? For How Long?
There’s one column to list the systems covered, and another to list the length of the warranty for each system. In the left hand column, the dealer must specify each system that’s covered by the warranty. The Rule prohibits the use of shorthand phrases such as “drive train” or “power train” because it’s not always clear what specific components are included in the “power train” or “drive train.”
In the right hand column, the dealer must state the length of the warranty for each system. If all systems are covered for the same length of time, he may state the duration once.
What if the Manufacturers Warranty Still Applies?
If the manufacturer’s warranty hasn’t expired, the dealer may disclose this fact by checking the “Warranty” box and including this disclosure in the “systems covered/duration” section: “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.” The disclosure must be stated in the exact language quoted above. Using phrases such as “balance of factory warranty” are not sufficient.
If the consumer must pay to get coverage under the manufacturer’s warranty, the dealer may not check the “Warranty” box. Such coverage is considered a service contract. However, he may check the “warranty” box if he pays for coverage from the manufacturer and the consumer doesn’t have to pay anything more than the price of the vehicle to get the coverage. If the dealer provides a warranty in addition to the unexpired manufacturer’s warranty, he must explain the terms of his warranty on the Buyers Guide.
Where Should Negotiated Warranty Changes Be Included?
If the dealer and the consumer negotiate changes in the warranty, the Buyers Guide must reflect the changes. For example, if the dealer offers to cover 50 percent of the cost of parts and labor for certain repairs, but agrees to cover 100 percent of the cost of parts and labor after negotiating with the customer, he must cross out the “50 percent” disclosure and write in “100 percent.” Similarly, if he first offers the vehicle “as is” but then agrees to provide a warranty, he must cross out the “As Is-No Warranty” disclosure and complete the “Warranty” section of the Buyers Guide properly.
What About Service Contracts?
If the dealer offers a service contract for repairs, he must check the box next to the words “Service Contract.” However, if your state regulates service contracts as the “business of insurance,” he doesn’t have to check this box. Check with your Attorney General or state insurance commissioner to find out if your state regulates service contracts as insurance.
What Does the Dealer Have to Give the Buyer At the Sale?
The dealer must give the buyer the original or a copy of the vehicle’s Buyers Guide at the sale. The Guide must reflect all final changes. If the dealer includes a signature line on his Buyers Guides, he must make sure the buyer signs the Guide that reflects all final changes.
If he offers a written warranty, or if the manufacturer’s warranty still applies, he also must comply with the Magnuson-Moss Warranty Act and other FTC Rules, including the “Warranty Disclosure Rule.” The Warranty Act contains provisions that establish consumers’ rights with respect to written warranties. For example, the Act prohibits the dealer from eliminating implied warranties when he provides a written warranty.
The Warranty Disclosure Rule requires that the dealer disclose certain information about the coverage of his warranty and consumers’ rights under state law. This information must be included in a single document that is clear and easy to read.
Can the Buyers Guide Serve as a Dealer’s Written Warranty?
The warranty information the dealer provides on the Buyers Guide is not sufficient to meet the requirements of the Warranty Disclosure Rule. Therefore, his written warranty and the Buyers Guide must be two separate documents.
Another federal rule — the FTC’s Rule on Pre-Sale Availability of Written Warranty Terms — requires that the dealer displays written warranties in close proximity to the vehicle or make them available to consumers, upon request, before they buy.
What Disclosures Should the Dealer Make if He Offers a 50/50 Warranty or Another Type of Split Cost Warranty?
Split cost warranties are those under which the dealer pays less than 100% of the cost for a warranty repair. This type of warranty includes 50/50 warranties where the dealer pays 50% of the cost for a covered repair and the buyer pays the remaining 50%. Another type of split cost warranty is one under which the buyer pays a deductible amount and the dealer pays the remaining cost for the repair.
If the dealer offers a split cost warranty that requires him to pay a percentage of the repair cost for covered repairs, he should include the following disclosures in his warranty document:
- The percentage of the total repair cost the dealer will pay.
- The percentage of the total repair cost the buyer must pay.
- How the total cost of the repair will be determined. For example, his warranty might state: “The total cost of a warranty repair will be the retail price ABC motors charges for the same job.” As another example, his warranty might state: “The total cost of a warranty repair will be determined by adding the dealer’s cost for parts to the labor cost. Labor will be billed at a rate of ________ per hour for the actual time required to complete the repair.” As a final example, his warranty might state: “If the work is done by an outside repair shop, total cost of a repair will be the same price ABC Motors is charged by the outside shop. If the work is done by ABC Motors, the total cost of the repair will be the same price ABC Motors charges non-warranty customers for the same job.”
If his warranty requires buyers to pay a deductible, his warranty document should disclose the deductible amount and the details as to when and under what circumstances the deductible must be paid.
Dealers offering split cost warranties can require that buyers return to the dealer for warranty repairs. If his warranty includes this restriction, however, he should provide an estimate of the total repair cost before work is started. This will allow the buyer to decide whether to approve the repair or have the work done elsewhere.
Dealers can generate Buyers Guides on a computer. However, a dealer must use the wording, type style, type sizes, and format specified in the FTC Rule. He is not allowed to place any other wording or symbols (including logos) on the Buyers Guide. The Guides must be printed in 100% black ink on white paper cut to at least 11″ x 7 1/4.” These requirements cannot be modified in any way. He may use colored ink to fill in the blanks.
What If the Dealer Doesn’t Comply?
Dealers who violate the Used Car Rule may be subject to penalties of up to $11,000 per violation in FTC enforcement actions. Many states have laws or regulations that are similar to the Used Car Rule. Some states incorporate the Used Car Rule by reference in their state laws. As a result, state and local law enforcement officials may have the authority to ensure that dealers post Buyers Guides and to fine them or sue them if they do not comply.