‘Buyer Beware’ Still Applies in Used Car Sales
Two years ago, David Harper of Canyon Country, Calif., bought a used VW Rabbit for about $3,600. The dealer said it was a “salvage” vehicle, but “they never would tell us what happened to the car,” Harper says, “and kept assuring us that any damage sustained had been corrected properly.” He was also, however, asked to sign a federally required form acknowledging that he knew it was being sold “as is,” with no warranty--in other words, “the dealer assumes no responsibility for any repairs regardless of any oral statements about this vehicle.”
A year and a half and 20,000 miles later, the transmission failed due to stress from a bent frame that had never been properly repaired, according to his mechanic. Harper, feeling “taken advantage of unfairly,” took the dealer, Bob Faeber, to small claims court to recover the cost of repairs that should have been done before the car was sold. Both small claims court and the Superior Court to which Faeber appealed upheld Harper’s claim, “ignoring the signed form,” says the amazed Faeber. “Why have a law in effect when, if a consumer really wants to push, the dealer’s wrong?”
The “law” to which Faeber refers, the Federal Trade Commission’s Used Car Rule, was actually meant to help consumers when it was passed in 1981. The FTC was responding to the fact that two of every three cars sold were used--60% through dealers--and many with little information about the dealer’s offered warranty or the car’s known defects.
Modified the Rule
FTC research indicated that perhaps half were sold “as is,” or without warranty of any kind, thus “putting the entire risk on the buyer, who assumes the whole cost of repairs if the vehicle performs poorly,” says FTC consumer protection specialist Dale Sekovich in Los Angeles. “As is” sales also generated the most complaints, often because dealers wrote “as is” into the contracts but also made verbal claims about the car’s fine condition or their willingness to stand behind it.
The 1981 rule ordered anyone who sold more than five used cars in a year to disclose both warranty information and any defects on a window sticker. But auto dealers didn’t like the rule, given the potential cost and trouble of inspecting for defects, and Congress vetoed it. The Supreme Court declared the veto invalid, but the FTC modified the rule anyway.
The current version requires the window sticker, called the “Buyer’s Guide,” to disclose only whether a vehicle is being sold with or without warranty, and if with, what specifically it covers. The rule thus “cuts out the chances of a shouting match over what was said,” says Charles Tupper, executive vice president of the National Independent Automobile Dealers Assn. in Irving, Tex.
The guide does not, however, have to disclose a vehicle’s defects--the “as is” condition that probably generates even more shouting matches--although “the warranty a dealer offers,” said an FTC press release, “gives you a good idea of what the dealer thinks about the condition of the car.” Equally subtle, the form lists “some major defects that may occur in used motor vehicles, to help educate the consumer about what they might want to have inspected if they take the car for inspection,” says Sekovich.
Even with the looser rule, compliance has been low. FTC surveys two years ago indicated that more than 90% of used car dealers visited failed to have the Buyers Guide on every car; most had it on fewer than half. Conceivably, “the cars just came in,” says Tupper. Conceivably also, says Sekovich, dealers are “concerned that when someone sees the Buyers Guide, it’s a flag.”
Indeed, it’s little more than a flag. As Faeber learned, what he and other dealers believe to be an ironclad disclaimer of responsibility, overriding any oral statements, can be outweighed. “Car dealers,” says Richard Elbrecht, head of legal services for California’s Consumer Affairs Department, “would like to use this magic formula--the ‘as is’ clause--and be home free, but they can’t.” Under the law in California and most other states, for example, “an ‘as is’ clause or any other contract term may be legally inoperative if the result is unconscionable,” says Elbrecht, “if, for example, the vehicle doesn’t work when they said it does.”
What’s more, if there was some fraud or misrepresentation, chance or intended, of the vehicle’s condition, the “as is” contract could be invalid--essentially the situation with Harper’s car. “It would appear that the clause gets the dealer off the hook,” says a lawyer who followed the case, “but not to the extent that he could just walk away from it. Even though the law has given used car dealers some latitude, they owe it to the buyer to tell him something about the car.”
As for consumers, the FTC’s rule doesn’t seem to correct the situation it originally meant to address--a discrepancy between the dealer’s warranty, or lack of it, and his rosy statements about a car’s condition. It is at best educational, a guide, and the consumer must make “some sort of independent check,” says Elbrecht. “The consumer’s real protection is his own vigilance.”
In fact, “the benefits of the rule have been marginal,” says Elbrecht, and perhaps even negative. One concern, says Michelle Meier, an attorney for Consumers Union in Washington, is that “the ‘as is’ clause might preclude buyers from raising certain questions.”
Furthermore, the FTC rule is unenforced--and maybe unenforceable--in the most problematic area of used car sales, says Tupper--”the ‘curbstoners,’ who pretend to be private parties, advertising only with a “For Sale” sign and a phone number, and selling up to 3 million of the 18 million used cars sold every year. But they’re not licensed, they’re not paying state taxes, and they’re certainly not meeting the FTC rules.”
