FLORIDA OFFICE OF
ATTORNEY GENERAL
STATE OF FLORIDA
OFFICE OF THE ATTORNEY GENERAL
VEHICLE
BUYBACKS--COMMENT
FTC File No.
P95-4402
ROBERT A. BUTTERWORTH, Attorney General of the State of
Florida, by and through the undersigned Assistant Attorneys
General, submits the following comment as to issues 1, 3, 4, 5,
7, 8, 9 and 10 regarding the issue of disclosure of resold
"lemon" vehicles.
1. How many vehicles are repurchased
each year by manufacturers? How many vehicles are repurchased each
year by dealers? What is the disposition of these vehicles? How
many are resold to consumers? How many are resold within the same
state? How many are transported to another state and resold? What happens
to those not resold?
- Florida's Lemon Law (Ch. 681, Fla. Stat. (1995), copy
attached as Exhibit A), Section 681.104(2)(a), Florida Statutes
(1995), requires that "if the manufacturer or its
authorized service agent, cannot conform the motor vehicle
to the warranty by repairing or correcting any
nonconformity after a reasonable number of attempts," the manufacturer
shall repurchase or replace the vehicle. A nonconformity
is defined as a "defect or condition that substantially
impairs the use, value or safety of a motor vehicle, but
does not include a defect or condition that results from
an accident, abuse, neglect, modification, or alteration.
. . by persons other than the manufacturer or its
authorized service agent." 681.102(15), Fla. Stat.
(1995).
-
- Section 681.114, Florida Statutes (1995), provides:
(1) A manufacturer who accepts the
return of a motor vehicle by reason of a settlement, determination
or decision pursuant to this chapter shall notify the
Department of Legal Affairs and report the vehicle
identification number of that motor vehicle within 10
days after such acceptance.
(2) A person shall not knowingly lease,
sell at wholesale or retail, or transfer a title to a
motor vehicle returned by reason of a settlement,
determination, or decision pursuant to this chapter or similar
statute of another state unless the nature of the nonconformity
is clearly and conspicuously disclosed to the prospective
transferee, lessee, or buyer, and the manufacturer warrants
to correct such nonconformity for a term of one year or 12,000
miles, whichever occurs first. The Department of Legal Affairs
shall prescribe by rule the form, content, and procedure pertaining
to such disclosure statement.
(3) As used in this section, the term
"settlement" means an agreement entered into
between a manufacturer and consumer that occurs after a
dispute is submitted to a procedure or is approved for
arbitration before the board.
- Florida Administrative Code Rule 2-33 (copy attached as
Exhibit B) adopts the disclosure form (attached as Exhibit
C) to be used by manufacturers to notify the Department
of Legal Affairs of the acquisition and transfer of
reacquired vehicles. The form must remain with the
vehicle until it is sold or leased to a consumer, at which time,
the buyer must sign the form and the seller must give a
copy to the buyer and send a copy to the Department of
Legal Affairs.
-
- Statistics compiled by the Office of the Attorney General
from July 1, 1992 through December 31, 1994, revealed
that approximately 3,412 vehicles were reacquired by
manufacturers as a result of settlements or decision
awards obtained in manufacturer-sponsored informal
dispute settlement programs or the state-run arbitration
program administered by the Office of the Attorney
General. In 1995, approximately 980 vehicles were
reacquired by manufacturers as a result of settlements or
decisions after submission of consumer claims to the state-run arbitration
program. The number of vehicles reacquired as the result
of settlements or decisions in consumer claims with
manufacturer-sponsored programs in 1995 has not yet been
determined by this office. Under Florida's Lemon Law,
dealers are not liable for the repurchase of lemon
vehicles. 681.113, Fla. Stat. (1995).
-
- Florida currently has no effective means of tracking the
disposition of Lemon vehicles reacquired by manufacturers.
During the period from July 1, 1992 through December 31,
1994, approximately 418 resale disclosure forms indicating disclosure
was given to the subsequent purchaser were received by
the Department of Legal Affairs. This is roughly 12
percent of the 3,412 vehicles reacquired by manufacturers
during that period. Although no statistics exist regarding
how many consumers received resale disclosure forms, an
inference can be drawn that if the Department did not
receive the form, consumers likewise were uninformed that vehicles
they purchased were resold "lemons." In
Florida, manufacturers are required to give consumers
purchasing resold lemon vehicles a 12 month/12,000 mile
warranty covering the defects which resulted in the
vehicle being reacquired. If these consumers are not
getting the required disclosure, an inference can be
drawn that they also are not receiving the required
warranty coverage. The Office of the Attorney General is
currently investigating the repurchase procedures of 20 manufacturers
in an attempt to ascertain the disposition of the
reacquired vehicles and the identities of the first
subsequent purchasers. Currently, it is not known how many
of these vehicles are resold to consumers, how many are
resold within the state or are transported to another state
and resold, or what happens to those not resold.
-
- Title branding legislation will take effect in Florida on
October 1, 1996. Section 319.14, Florida Statutes (Supp. 1996)
(Copy attached as Exhibit D), will provide that
nonconforming vehicles that were repurchased by a manufacturer
pursuant to a settlement, determination, or decision
under Chapter 681, may not be knowingly offered for sale
until the vehicle's certificate of title, or its
duplicate, is conspicuously stamped with the words "Manufacturer's
Buy Back" to reflect that the vehicle is a nonconforming
vehicle. In addition, the seller must disclose in writing
to the purchaser, customer, or transferee, prior to sale,
the fact that the vehicle is a nonconforming vehicle. Any
person offering for sale or exchange such a vehicle who knowingly
or intentionally advertises, publishes, or disseminates, circulates,
or places before the public in any communications medium, whether directly
or indirectly, any offer to sell or exchange a
repurchased vehicle shall clearly and precisely state in
each offer that the vehicle is a nonconforming vehicle.
Under Chapter 319, a "nonconforming vehicle"
includes those motor vehicles that have been purchased by
a manufacturer pursuant to a settlement, determination,
or decision under Chapter 681. Chapter 319 will provide
that a "settlement" means an agreement entered
into between a manufacturer and a consumer that occurs
after a dispute is submitted to an informal dispute
settlement procedure established by a manufacturer or is
approved for arbitration before the New Motor Vehicle Arbitration
Board as defined in s. 681.102."
3. At what stage should a car be
considered a buyback for the purposes of imposing a disclosure requirement?
Should any car that is
taken back by the manufacturer at any stage in a dispute over
alleged defects be considered a buyback? If not, under what
circumstances should a vehicle be considered a buyback? Should
only those vehicles in which there has been an impairment of value
be considered a buyback? If so, how should "impairment in
value" or any similar limiting term be defined? Since manufacturer
buybacks are only one segment of the buyback market, how can
defective vehicles bought back by the dealer and/or traded in by
consumers be identified?
- Florida's law imposes a disclosure requirement only if
a manufacturer accepts the return of a motor vehicle by reason
of a settlement, determination, or decision under Florida's
Lemon Law or a similar statute of another state.
681.114(2), Fla. Stat. (1995). The term
"settlement" is defined to mean agreements
entered into between consumers and manufacturers after
the dispute is submitted to either a manufacturer-sponsored
informal dispute settlement procedure or the state-administered
New Motor Vehicle Arbitration Board. 681.114(3), Fla.
Stat. (1995). Florida's law mandates that the
manufacturer repurchase the vehicle if it cannot conform
the vehicle to the warranty by correcting a nonconformity
or nonconformities within a reasonable number of
attempts, but only imposes the resale disclosure
requirement when the repurchase is effected after the
dispute is submitted to an arbitration program (or
court). The manufacturer is given advance notice that the
repurchase requirement is imminent by virtue of the
statutory requirement that, after three repair attempts
for the same nonconformity (a defect or condition that
substantially impairs the use, value or safety of the
vehicle), or after 15 or more days out of service for
repair of one or more nonconformities, the consumer must
send the manufacturer written notification. 681.104(1),
Fla. Stat. (1995). The purpose of this written
notification is, in the case of three repairs for the same
defect, to give the manufacturer a final opportunity to
cure the defect; in the case of 15 or more days out of
service, to give the manufacturer or its service agent one
opportunity to inspect or repair the vehicle. If the manufacturer
elects to repurchase the vehicle at this juncture, there
is no requirement to disclose the defects upon resale.
Under Florida law, the manufacturer is given a reasonable opportunity
to cure the defect or otherwise satisfy the consumer
before the resale disclosure requirement applies. If the vehicle
cannot be conformed to the warranty after a reasonable
number of attempts and the manufacturer refuses to
repurchase the vehicle, the consumer must file a claim
with a manufacturer-sponsored informal dispute settlement procedure, if
the procedure has been certified by the State, before
requesting arbitration before the state-run Florida New Motor
Vehicle Arbitration Board. The consumer may also seek
redress from a manufacturer-sponsored informal dispute
settlement procedure that is not certified by the State.
-
- Florida law imposes a buyback requirement on those
vehicles which suffer from "a defect or condition
that substantially impairs the use, value or
safety of a motor vehicle...." To require
disclosure of vehicles only suffering an impairment of value unduly
narrows the resale disclosure requirement.
"Substantial impairment" is difficult to define
in measurable and objective terms. Such items as cost of repair, length
of time to perform repairs, and frequency at which an
intermittent problem occurs can be objectively measured;
however, annoyance, inconvenience and loss of confidence
are difficult to quantify. A definition of "impairment"
should include both objective and subjective components
and should not be limited to just "value."
-
- It is not the position of the Florida Attorney General
that any vehicle bought back by a manufacturer
at any stage of a dispute be subject to a disclosure requirement. However,
once a consumer is forced to seek the assistance of
either a manufacturer-sponsored dispute resolution
program, a state-administered program, or a court, to
obtain repurchase to which the consumer is entitled, attachment
of a disclosure requirement to such a reacquired vehicle
is appropriate and necessary to protect the rights of the
subsequent purchaser.
4. If "buybacks" are
defined to include those repurchased prior to the initiation of arbitration
or litigation, would disclosure laws cause a chilling effect on manufacturers'
willingness to make such "goodwill" repurchases? On the
other hand, would disclosure laws that only cover cars that were
the subject of a formal arbitration or litigation proceeding lead
manufacturers to buy back more vehicles under the heading of
"goodwill" in order to avoid the disclosure requirement?
- Prior to 1992, Florida's Lemon Law imposed a disclosure
requirement only upon those vehicles actually declared
"lemons" by decisions of the Florida New Motor Vehicle
Arbitration Board or a court. Effective July 1992, the
Lemon Law was amended to include vehicles reacquired by
manufacturers through settlements, if the settlements
were entered into after the claim was submitted
to either a manufacturer-sponsored informal dispute settlement
procedure or the state-run New Motor Vehicle Arbitration
Board.
-
- Florida program statistics show that the 1992 amendment
has had no apparent chilling effect on settlements. In fact,
the settlement rate has risen steadily:
Year 1989 1990 1991 1992 1993 1994 1995
# of Cases Settled 59 329 410 418 469 518 780
Total Cases Filed 206 726 764 817 812 867 1301
Percent Settled 29% 45% 54% 51% 58% 60% 60%
- In 1995, of the 980 vehicles reacquired by manufacturers
as the result of settlements or decisions in the state-administered
arbitration program, 780 were reacquired as the result of
prehearing settlements. The Florida experience has been that
requiring resale disclosure for vehicles reacquired as
the result of prehearing settlements does not discourage
settlement. The manufacturers tend to settle those cases
where the defects are such that the consumer would be
more likely to prevail at an arbitration hearing;
therefore, the need for disclosure of those defects upon resale
is apparent and necessary. Of the cases the manufacturers
elect not to settle and that go to a hearing,
approximately 56 percent are decided in favor of the manufacturers
by the state-run arbitration board. The Commission should
view skeptically buybacks identified by manufacturers as "goodwill."
Many manufacturers use the term "goodwill"
loosely to include any buyback, whether occurring before
or after a claim has been filed by a consumer with a
dispute resolution program. If it should be determined
that "goodwill" buybacks will not require
resale disclosure, then the term "goodwill" should
be defined to cover only those buybacks occuring prior to
the consumer initiating a claim with either a manufacturer-sponsored
or a state-administered informal dispute resolution
program, or a court, if informal dispute resolution is not
available in the particular state.
5. How long should a vehicle be considered a
"buyback"? Permanently? Until successfully repaired?
Some other time period? How can it be determined whether a
vehicle has been successfully repaired prior to reselling it?
- Under Florida's Lemon Law, the protection of resale
disclosure and the accompanying warranty are extended to the
first consumer to acquire the lemon vehicle after its
repurchase by the manufacturer. There is no provision in the
law removing the disclosure requirement upon some showing
that the vehicle has been repaired. This is logical,
since the Lemon Law is designed only to encompass those vehicles
which cannot be conformed to their warranties after a reasonable number of
attempts to repair substantial defects. It
is the failure by the manufacturer to resolve the dispute
within a specified period of time that makes the vehicle
a "lemon." If the manufacturer is unable to
conform the vehicle after numerous attempts before
repurchase, logic dictates that a single attempt after repurchase
may be equally unsuccessful. This is particularly true
where the defect(s) is intermittent. Where the gravamen
of the lemon law complaint was time out of service for
repair of numerous defects, it is not required that the
vehicle still exhibit defects after the requisite time
out of service has passed; consequently, there may be no
defects to repair at the time of repurchase by the
manufacturer. Most states, including Florida, either
define or create a presumption that there have been a
reasonable number of attempts to repair a defective
vehicle after either a specified number of attempts to cure
a recurring defect, or a specified number of days,
generally cumulative, during which the vehicle was out of
service by reason of repair of one or more different defects.
The latter situation is intended to address the hardship
of time out of service, rather than the inability to cure.
Under Florida law, when the gravamen of the complaint is
30 or more days out of service by reason of repair of one
or more nonconformities, there is no requirement that any
of the nonconformities which caused the vehicle to be out
of service exist at the end of the 30-day period or at the
time the manufacturer repurchases the vehicle. Thus,
while the vehicle may be repaired and free of defects at
the time it is repurchased, its prior time in the shop for
repair of nonconformities renders it a lemon, subject to
disclosure upon resale. To allow removal of the
disclosure requirement upon "successful"
repair, would provide no protection to any subsequent
purchaser of this type of vehicle, or even to the other
type of vehicle where the recurring, but uncured defect
was intermittent and did not exhibit itself to the
manufacturer after repurchase.
-
- If provision is made for removal of a disclosure
requirement upon a showing of successful repair of the
lemon vehicle, who would be responsible for determining repair?
How can anyone determine that an intermittent problem has
been repaired? It would create a tremendous financial
burden upon the states to require that a governmental
agency be responsible for determining whether a vehicle
has been repaired. Utilizing "successful repair"
as the condition for removal of a disclosure requirement
is not a feasible or reasonable solution and by its nature
is antithetical to the purpose and intent of state lemon
laws.
-
- Florida's soon-to-be-enacted title branding law contains
a "title washing" provision which, while
unclear, seems to provide that a purchaser of a resold lemon
can apply to have the brand removed from the title if the
purchaser is using the vehicle for "private"
use and the vehicle has 36,000 or more miles on its odometer
or 34 months, whichever is later. If consideration is
given to providing a point at which a brand or
disclosure-type label can be removed from a vehicle or is
no longer required, it should relate to the passage of
time, rather than to repair. This office suggests that it
be the first subsequent consumer/owner who wishes to sell
or transfer the vehicle to another consumer for private
use, and not a manufacturer, dealer, auction or broker,
who can apply to have the disclosure requirement removed,
provided the first subsequent owner has held title to the vehicle
for a period of three years or operated the vehicle for
36,000 miles, whichever is later. This would be
consistent with the current Florida law which protects
the first subsequent purchaser with a manufacturer
warranty covering the defects.
7. What methods are or would be most effective in
getting information about a vehicle's history and prior repairs
to consumers before
they buy the vehicle? Title branding? Disclosure documents to be
given to consumers? Other methods? If disclosure laws are the
most effective method, then what type of disclosure requirement
should be imposed? What are the costs and/or benefits of those various
methods?
- The most effective method of getting information about a
vehicle's history and prior repairs to consumers before they
buy resold lemons would probably be some type of warning
sticker or plate (similar to the NHTSA sticker or FTC "Buyer's
Guide") affixed to the windshield or some other
prominent place on the vehicle, that is federally mandated
and uniform in its appearance for all states. Such a
warning should include a description of the defects and
information regarding how to obtain the vehicle's repair
history. This requirement would be meaningless, however, without
uniform federal provisions specifiying to which vehicles
the sticker must be affixed, its content and effective
enforcement provisions. To eliminate uncertainty, the
entity responsible for affixing the sticker should be the
manufacturer upon repurchase of the vehicle, with
additional enforcement and penalties for those subsequent
entities such as auctions, dealers and other vehicle
sellers or lessors who remove the sticker before the
vehicle is resold to the first consumer.
-
- Another effective method of disclosure is a requirement
that the manufacturer provide the consumer with the actual
history or summarized history of the service provided to
the vehicle, including any official decisions or other
documents declaring the vehicle to be a "lemon"
or otherwise involved in a "buyback" procedure.
Written certification from the Manufacturer that the
vehicle was not a "buyback" or
"lemon" with appropriate sanctions for false
certification, could also prove to be effective. Costs of
producing a "no buyback" form or certification may
fall on the states in order to ensure uniformity and
compliance with state regulations. Other costs to the states
may include documents and/or forms necessary to monitor
the notification procedures implemented.
-
- Another potentially effective method of getting
information about a vehicle's history to consumers is a
national information center. This center could be implemented through
utilization of the Internet or World Wide Web. All information
regarding the vehicle's repair history and its status as
a "lemon" could be made available by manufacturers
to anyone interested--it might be reasonable to allow the manufacturer
to charge a small fee for providing the information, to help
defray the cost of establishing and maintaining the
databank. The information would be most helpful if it
were input by Vehicle Identification Number, make, model
and year.
-
- Title branding is not an effective means of prepurchase
disclosure, since its weakness lies in the fact that most consumers
do not see the actual vehicle title until after the sale
has been completed, or upon satisfaction of any lien upon
the vehicle. In many transactions, auto dealers use power
of attorney forms to transfer title certificates. Another
method which could be effective is vehicle registration branding.
A consumer is more likely to see this document at the
time of the purchase. In states such as Florida, where
the registration does not travel with the vehicle but is
personal to the owner, branding the registration would be useless. Florida's
current resale disclosure statute requires that the
vehicle's defects be disclosed to the purchaser prior to
sale, transfer or lease of the vehicle; however, the form
upon which such disclosure is given is required to travel
with the vehicle to its ultimate destination, a copy of
which to be returned to the Department of Legal Affairs
after it is signed by the consumer. Statistics by this office
for the period of 1992 through 1994 indicate that only 12
percent of the forms are sent to the Department of Legal
Affairs, thereby raising a serious question as to whether disclosure
is made to the consumer.
-
- Title and/or registration branding could be costly to the
governmental agencies responsible for its implementation due
to the extensive record keeping and reporting involved.
Provisions requiring manufacturers to provide the buyback information, either
via a federally mandated sticker or plate with directions
for obtaining repair history (a toll-free telephone
number), or establishing a central depository of buyback
vehicle information via the internet would be most cost-effective
for the states, as the costs appropriately would be borne
by the manufacturers of the defective vehicles. Some
costs might be recoverable through a nominal federal charge
to used-car or new-car buyers.
8. What methods have been adopted by the various
States to ensure that subsequent purchasers are advised that
vehicles are buy backs? How effective have these methods been?
What have been the costs and benefits of these State requirements
to manufacturers? To auction companies? To dealers? To consumers?
To the States?
- Florida enacted legislation regarding the sale of
returned vehicles, and promulgated appropriate rules to
enforce this legislation. The statute and rules currently
in effect require that a manufacturer, who repurchases a
vehicle pursuant to Florida's Lemon Law or similar
statute of another state, is required to report the
Vehicle Identification Number and the transfer of the
vehicle to the state on a specific form. The remaining
portion of the form is required to remain with the vehicle
during all of its subsequent transfers until the vehicle
is sold to the first retail purchaser, who receives the
form and signs it. Tracking compliance with these
requirements has been difficult. Manufacturers failing to
comply may be subject to fines by the Department of Legal
Affairs and may be subject to liability under Florida's
Unfair and Deceptive Trade Practices Act. For a seller of
the vehicle to be liable, however, it must be shown that
the seller knowingly failed to make the disclosure. It is
unknown what the particular costs and benefits of Florida's
requirements have been for manufacturers, auction
companies, and dealers. If the provision is complied
with, the benefit to consumers is that of being sufficiently
informed to bargain, if the decision is made to purchase
the vehicle with its defects, and the knowledge that
those defects will be repaired at no charge for the first
12 months or 12,000 miles of ownership, or to walk away from
the sale altogether. The benefits to dealers who do not
comply with the requirements is an obvious increase in
profit; with a concomittant decrease in profit if they
comply. Personnel from this office who attended an auto
auction where manufacturer buybacks were sold to dealers,
with some form of disclosure attached, noted that the
prices paid by the dealers for those vehicles were not substantially
lower than prices paid for other vehicles at the auction which
were not labeled as buybacks. Thus, it did not appear
that the auction suffered any great reduction in profit.
It could also be inferred that the purchasing dealers did not
believe the prices paid at auction were beyond recovery or
profit upon resale.
9. If disclosure or title branding
laws are or would be most effective, how should any such
disclosure or title branding rules be enforced? By FTC
regulation? By model State law? By a national databank of VIN numbers
[sic]? By other means?
- Unless federal disclosure laws are passed by Congress or
FTC regulations are put into place, present experience
demonstrates that for all practical purposes disclosures
or title branding are ineffectual in tracking lemon
vehicles and informing consumers of their status before
purchase.
- A model state law would only be effective if it is
substantially adopted by all of the states, a rarity
among model state laws in general. Moreover, state law,
model or otherwise, would not be a viable option to
correct the problem of interstate sale of these vehicles.
In some states, lax disclosure laws now result in lemons
being resold to unknowing consumers in third states after
their titles have been "washed." In addition,
disclosure can only be effective if there is a national uniformity
in requirements which states would be required to adhere
to in passing legislation governing these vehicles.
-
- In the early part of this century when the automobile was
first being developed, the federal government faced the ever-growing
problem of the interstate transportation of stolen
vehicles. This problem was not successfully combated until
Congress made the taking of a stolen car over state lines
a federal crime under the jurisdiction of a national
police agency, the FBI. Similarly, until the FTC has
jurisdiction over lemon disclosure, these vehicles will
continue to be sold to consumers with impunity since no
one state has the resources or jurisdiction to control their
interstate shipment. A far-reaching federal regulation
coupled with a national VIN databank would create an
effective policing framework that would ensure that a
Florida lemon which is retitled in Texas and then sold in New
York could not escape its lemon status. While all the
states do not have resale disclosure requirements, they
all have Lemon Laws with similar enough definitions of
what makes vehicles "lemons" to make federal regulation
of the resale of such lemons not overly burdensome, particularly
if the burden for the disclosure is placed upon the
manufacturers and sellers of the lemons. The variety and complexity
of state laws and provisions exempting dealers from
liability make compliance by national manufacturers
difficult. This is a situation that cries out for uniform
federal regulation.
10. Uniformity in the disclosure and
labeling of repurchased vehicles might resolve the problem of
interstate shipment of vehicles to avoid individual state requirements.
What are the costs and/or benefits of diverse State requirements versus
those of uniformity? Would a uniform national standard be an
effective method to get buyback information to subsequent
purchasers? What would be the costs and/or benefits of a national standard?
- Until an actual national lemon disclosure system is
designed the cost of such a system can not be determined; however,
logic would seem to dictate that a single national
databank and control mechanism would be a less expensive
option than the current patchwork of state regulations.
The benefits of a uniform national standard would seem to
exceed the value of 50 state requirements on its face.
-
- The overriding benefit of a national standard is that a
consumer would have a central depository from which every
person could access information on the particular vehicle
they are considering buying (similar to the NHTSA
toll-free number). Although there might be a cost to that
consumer, the cost would be outweighed by having one
central information source which would be able to quickly
give the consumer a complete background on the vehicle in
order for an intelligent buying decision to be made. This
cost must surely be less than the current system which
requires a consumer to search many state agencies for information.
-
- In conclusion, the Attorney General of
the State of Florida supports the request by the
Petitioners that the Commission initiate rulemaking
proceedings to adopt uniform federal regulations
governing the disclosure and resale of motor vehicles repurchased
by manufacturers under State motor vehicle warranty
enforcement or "lemon" laws.
Respectfully submitted,
ROBERT A. BUTTERWORTH
Attorney General, State of Florida
Walter T. Dartland, Special Counsel
Office of the Attorney General
______________________________
Janet L. Smith, Assistant Attorney General
Lemon Law Arbitration Program
PL-01, The Capitol
Tallahassee, Florida 32399-1050
(904) 488-4830