Of 25 Dealers Checked, Only One-third Were in Full Compliance with FTC Rule
Anticipating upcoming Presidents' Day auto sales, staff of the Federal Trade Commission inspected 25 used car dealers throughout New York City's Borough of Queens last week to determine whether they are complying with the FTC's Used Car Rule. Of the dealers surveyed, only eight, or 32 percent, were in full compliance with the Rule; 11, or 44 percent, substantially complied; and six, or 24 percent, were found substantially in violation of the Rule. In all, of the 793 cars surveyed in the law enforcement sweep, 132 posted no Buyers Guides at all -- one of the Rule's key requirements -- and 38 had Guides that were either incomplete or inaccurate.
"Looking ahead to Presidents' Day auto sales, dealers need to understand that federal law requires specific disclosures to consumers, and that failure to provide these disclosures can result in legal action," said Barbara Anthony, Director of the FTC's Northeast Regional Office. "Consumers are entitled to know what they are getting when they buy a used car," she added. "What is very troubling is that these dealers are selling in densely populated, urban areas where many consumers, from low and moderate income, minority and immigrant communities, may not understand their rights to this information."
As a result of the sweep, Commission staff will notify noncomplying dealers that they are at risk of law enforcement action and advise them to come into compliance immediately. FTC actions could result in substantial penalties -- up to $11,000 per Rule violation. FTC staff will investigate noncomplying dealers further to determine the scope of appropriate enforcement action, and will also refer them to New York State and New York City officials for potential violations of state and local consumer protection laws.
The Used Car Rule
The FTC's Used Car Rule is a consumer protection measure covering all used car dealers in the country. It requires that used car dealers post a one-page Buyers Guide in each car to ensure that consumers get information in writing about any warranty protection they have if there is a problem with the car after they buy it. Last week's unannounced inspections are part of the FTC's ongoing efforts to work in partnership with state and local officials nationwide to ensure that dealers comply with the Rule. The FTC has brought more than 80 actions since the Used Car Rule became effective in 1985, obtaining civil penalties totaling more than $1 million. In addition, hundreds of state actions have been brought to enforce the Rule.
Used cars are a major purchase for most consumers. Data suggest that consumers buy 41 million used cars each year, at a cost of $361 billion. Thus, it is important that consumers shop wisely and obtain accurate information about the cars they buy, especially with the approach of Presidents' Day weekend sales.
The FTC's Used Car Rule requires that Buyers Guides be posted at all times on each vehicle offered for sale. The Buyers Guide states:
- whether the vehicle comes with a warranty and, if so, whether it is a "full" or "limited" warranty; which systems are covered by the warranty and the duration of the warranty period;
- if it is a "limited" warranty, what percentage of the cost for covered parts and labor the dealer will pay for;
- whether the car is sold with no written or implied warranty or, in other words, the car is sold "as is;" or
- whether the car is sold with no written warranty, but with implied warranties. (Some areas do not allow dealers to sell cars without implied warranties; other areas, such as New York, require dealers to sell certain cars with written warranties.)
The Rule provides that the Buyers Guide becomes a part of the sales contract and overrides any contrary provisions contained in that contract. The Buyers Guide also contains a number of important warnings and suggestions for consumers. For instance, it advises that consumers:
- ask the dealer to have the car they are interested in buying inspected by an independent mechanic;
- not rely on spoken promises that may be impossible to enforce; and
- ask the dealer to put any promises in writing on the Buyers Guide and in the sales contract.
The New York Attorney General's Office, the New York City Department of Consumer Affairs and the New York Better Business Bureau assisted in this investigation. Consistent with the FTC's procedure in its investigations, the names of the individual dealers notified will remain nonpublic unless a formal complaint is brought against them.
Copies of the consumer publication, "Buying a Used Car," and the guide for used car dealers, "A Dealer's Guide: The Used Car Rule," are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the online complaint form. The FTC enters Internet, telemarketing and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies worldwide.
FTC Office of Public Affairs
Donald G. D'Amato, Assistant Director
FTC Northeast Region
FTC Northeast Region