[Federal Register Volume 77, Number 242 (Monday, December 17, 2012)]
[Proposed Rules]
[Pages 74745-74774]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-29920]



[[Page 74745]]

Vol. 77

Monday,

No. 242

December 17, 2012

Part II





Federal Trade Commission





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16 CFR Part 455





Used Motor Vehicle Trade Regulation Rule; Proposed Rule

Federal Register / Vol. 77 , No. 242 / Monday, December 17, 2012 / 
Proposed Rules

[[Page 74746]]


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FEDERAL TRADE COMMISSION

16 CFR Part 455


Used Motor Vehicle Trade Regulation Rule

AGENCY: Federal Trade Commission (``FTC'' or ``Commission'').

ACTION: Notice of proposed rulemaking; request for public comments.

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SUMMARY: Except as specifically described below, the FTC has completed 
its regulatory review of its Used Motor Vehicle Trade Regulation Rule 
(``Used Car Rule'' or ``Rule'') as part of the FTC's systematic review 
of all current Commission regulations and guides. The Commission has 
decided to retain the Rule and, in a separate Federal Register 
document, to amend it by changing the Spanish translation of the Buyers 
Guide. In addition, the Commission also has decided to issue a notice 
of proposed rulemaking (``NPR'') soliciting comments on proposed 
changes to the Rule. In this NPR, the Commission addresses the comments 
received during its review and invites public comment on the following 
four proposed changes to the Buyers Guide: adding boxes to the back of 
the Buyers Guide where dealers would have the option to indicate 
manufacturers' and other third-party warranties; adding a statement to 
the Buyers Guide encouraging consumers to seek vehicle history 
information and directing consumers to an FTC Web site for more 
information about vehicle histories; adding catalytic converters and 
airbags to the List of Systems on the back of the Buyers Guide; and 
adding a statement in Spanish to the English Buyers Guide directing 
consumers who cannot read the Buyers Guide in English to ask for a copy 
of it in Spanish.

DATES: Written comments relating to the Used Car Rule must be received 
on or before February 11, 2013.

ADDRESSES: Interested parties are invited to submit written comments 
electronically or in paper form. For important information concerning 
the comments you file, please review the SUPPLEMENTARY INFORMATION 
section below. Comments in electronic form should be filed at the 
following electronic address: https://ftcpublic.commentworks.com/ftc/usedcarrulenprm by following the instructions on the web-based form. 
Comments in paper form should be mailed or delivered to the following 
address: Federal Trade Commission, Office of the Secretary, Room H-113 
(Annex T), 600 Pennsylvania Avenue NW., Washington, DC 20580, in the 
manner detailed in the SUPPLEMENTARY INFORMATION section below.

FOR FURTHER INFORMATION CONTACT: John C. Hallerud, (312) 960-5634, 
Attorney, Midwest Region, Federal Trade Commission, 55 West Monroe 
Street, Suite 1825, Chicago, IL 60603.

SUPPLEMENTARY INFORMATION: Interested parties are invited to submit 
written comments electronically or in paper form. Comments should refer 
to ``Used Car Rule Regulatory Review, Project No. P087604'' to 
facilitate the organization of comments. Please note that your 
comment--including your name and your state--will be placed on the 
public record of this proceeding, including on the publicly accessible 
FTC Web site, at http://www.ftc.gov/os/publiccomments.shtm.
    Because comments will be made public, they should not include any 
sensitive personal information, such as any individual's Social 
Security Number; date of birth; driver's license number or other state 
identification number, or foreign country equivalent; passport number; 
financial account number; or credit or debit card number. Comments also 
should not include any sensitive health information, such as medical 
records or other individually identifiable health information. In 
addition, comments should not include ``[t]rade secret or any 
commercial or financial information which is obtained from any person 
and which is privileged or confidential'' as provided in Sec.  6(f) of 
the Federal Trade Commission Act (``FTC Act''), 15 U.S.C. 46(f), and 
FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2). Comments containing matter for 
which confidential treatment is requested must be filed in paper form, 
must be clearly labeled ``Confidential,'' and must comply with FTC Rule 
4.9(c).\1\
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    \1\ The comment must be accompanied by an explicit request for 
confidential treatment, including the factual and legal basis for 
the request, and must identify the specific portions of the comment 
to be withheld from the public record. The request will be granted 
or denied by the Commission's General Counsel, consistent with 
applicable law and the public interest. See FTC Rule 4.9(c), 16 CFR 
4.9(c).
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    Because paper mail addressed to the FTC is subject to delay due to 
heightened security screening, please consider submitting your comments 
in electronic form. Comments filed in electronic form should be 
submitted by using the following weblink: https://ftcpublic.commentworks.com/ftc/usedcarrulenprm and following the 
instructions on the web-based form. To ensure that the Commission 
considers an electronic comment, you must file it on the web-based form 
at the weblink https://ftcpublic.commentworks.com/ftc/usedcarrulenprm. 
If this Notice appears at http://www.regulations.gov/#!home;tab=search, 
you may also file an electronic comment through that Web site. The 
Commission will consider all comments that regulations.gov forwards to 
it. You may also visit the FTC Web site at http://www.ftc.gov to read 
the Notice and the news release describing it.
    A comment filed in paper form should include the ``Used Car Rule 
Regulatory Review, Project No. P087604'' reference both in the text and 
on the envelope, and should be mailed or delivered to the following 
address: Federal Trade Commission, Office of the Secretary, Room H-113 
(Annex T), 600 Pennsylvania Avenue NW. Washington, DC 20580. The FTC 
requests that any comment filed in paper form be sent by courier or 
overnight service, if possible, to avoid security related delays.
    The FTC Act and other laws that the Commission administers permit 
the collection of public comments to consider and use in this 
proceeding as appropriate. The Commission will consider all timely and 
responsive public comments that it receives, whether filed in paper or 
electronic form. Comments received will be available to the public on 
the FTC Web site, to the extent practicable, at http://www.ftc.gov/os/publiccomments.shtm. As a matter of discretion, the FTC makes every 
effort to remove home contact information for individuals from the 
public comments it receives before placing those comments on the FTC 
Web site. More information, including routine uses permitted by the 
Privacy Act, may be found in the FTC's privacy policy, at http://www.ftc.gov/ftc/privacy.htm.
    Comments on the proposed disclosure amendments, which are subject 
to review under the Paperwork Reduction Act, 44 U.S.C. 3501-3521, 
additionally should be submitted to the Office of Management and Budget 
(``OMB''). If sent by U.S. mail, they should be addressed to Office of 
Information and Regulatory Affairs, Office of Management and Budget, 
Attention: Desk Officer for the Federal Trade Commission, New Executive 
Office Building, Docket Library, Room 10102, 725 17th Street NW., 
Washington, DC 20503. Comments sent to OMB by U.S. mail, however, are 
subject to delays due to heightened security precautions. Thus, 
comments instead should be sent by facsimile to: (202) 395-5167.

Table of Contents

I. Overview of the Used Car Rule
II. Rulemaking Procedures
III. Summary of Comments

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IV. Analysis of Comments and Regulatory Alternatives Under Further 
Review
V. Regulatory Review
VI. Communications to Commissioners and Commissioner Advisors by 
Outside Parties
VII. Paperwork Reduction Act
VIII. Regulatory Analysis
IX. Regulatory Flexibility Act
X. Invitation To Comment

I. Overview of the Used Car Rule

A. The Rule

    In 1975, Congress passed the Magnuson-Moss Warranty-Federal Trade 
Commission Improvements Act (``Magnuson-Moss Act''), which required the 
Commission to initiate a rulemaking in connection with used car 
warranties using both the authority granted by the Magnuson-Moss Act 
and the rulemaking procedures set forth in Sec.  18 of the FTC Act, 15 
U.S.C. 57a.\2\ Pursuant to this authority, the Commission issued its 
final Used Car Rule, which became effective on May 9, 1985, to create a 
remedy for oral misrepresentations and unfair omissions of material 
facts by used car dealers concerning warranty coverage, such as untrue 
and unenforceable promises about dealers' responsibilities and 
willingness to make repairs after sale. To accomplish that goal, the 
Rule provides a uniform method for disclosing warranty information on a 
window sticker called the ``Buyers Guide'' that dealers are required to 
display on used cars offered for sale to consumers.
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    \2\ 15 U.S.C. 2309(b). This provision requires that the 
Commission ``initiate * * * a rulemaking proceeding dealing with 
warranties and warranty practices in connection with the sale of 
used motor vehicles.'' Trade Regulation Rule Concerning Used Motor 
Vehicles, Statement of Basis and Purpose and Regulatory Analysis 
(``SBP''), 49 FR 45692, 45703 (Nov. 19, 1984).
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    The Rule requires used car dealers to disclose on the Buyers Guide 
whether they are offering a used car for sale with a dealer's warranty 
and, if so, the basic terms and conditions of the offered warranty, 
including the duration of coverage, the percentage of total repair 
costs to be paid by the dealer, and the exact systems covered by the 
warranty. The Rule also requires dealers to disclose that a used car is 
offered for sale without a warranty by checking a box marked ``AS IS--
NO WARRANTY'' on the Buyers Guide. An ``as is'' sale voids implied 
warranties that arise under state law, such as an implied warranty of 
merchantability (which may mean, among other things, that goods are fit 
for the purposes for which such goods are ordinarily used). The Rule 
specifies an alternative version of the Buyers Guide for use in states 
that do not permit ``as is'' sales.
    The Rule also requires certain other disclosures, including: a 
recommendation that consumers ask the dealer if a pre-purchase 
inspection is permitted; a warning against reliance on spoken promises 
and a recommendation to have all promises confirmed in writing; and a 
list of fourteen major systems of an automobile and the major defects 
that may occur in these systems. The Rule provides that the Buyers 
Guide disclosures are incorporated by reference into the sales contract 
and govern in the event of an inconsistency between the Buyers Guide 
and the sales contract.
    The Rule attempts to protect consumers from potential post-purchase 
problems in several ways. First, the Buyers Guide may prompt consumers 
to have a car inspected before purchase. Second, the Buyers Guide 
requires dealers to provide consumers with warranty information so that 
they can shop for a car with a warranty that protects them in the event 
that the car subsequently has mechanical problems. Third, the Buyers 
Guide warns consumers not to rely on spoken promises and to get any 
assurances about a car from the dealer in writing.
    In addition, the Rule requires that dealers use Spanish language 
versions of the Buyers Guide and make Spanish contract disclosures 
related to the Buyers Guide when conducting used car sales in 
Spanish.\3\ In practice and as recommended by staff,\4\ dealers who 
conduct substantial numbers of sales in Spanish should display both 
English and Spanish Buyers Guides to ensure that Spanish-speaking 
customers receive the required Spanish disclosures.
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    \3\ 16 CFR 455.5. The Spanish language requirement was part of 
the Rule as promulgated in 1984. SBP, 49 FR at 45728.
    \4\ Staff Compliance Guidelines, Used Motor Vehicle Trade 
Regulation Rule (``Staff Compliance Guidelines''), 53 FR 17658, 
17667 (May 17, 1988) (Illustration 3.10). The Staff Compliance 
Guidelines are available at http://www.ftc.gov/bcp/guides/usedcar-comply.pdf.
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    The Commission last reviewed and amended the Used Car Rule in 
1995.\5\ Specifically, the Commission amended the Rule by: (1) Adopting 
several minor grammatical changes to the Spanish language version of 
the Buyers Guide; (2) permitting dealers to display a Buyers Guide in 
any location on a used vehicle so long as the Buyers Guide is displayed 
conspicuously and prominently and with both sides of it readily 
readable; and (3) allowing dealers to obtain a consumer's signature on 
the Buyers Guide to acknowledge receipt if accompanied by a disclosure 
that the buyer is acknowledging receipt at the close of the sale.
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    \5\ 60 FR 62195 (Dec. 5, 1995). The history of the Used Car Rule 
is summarized in the SBP. 49 FR at 45692-95.
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    As discussed in Section III below, the Commission initiated a 
review of the Rule in 2008.\6\ The Commission is publishing this NPR 
based upon that Regulatory Review and its consideration of the comments 
received during the review.
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    \6\ 73 FR 42285 (July 21, 2008) (``Regulatory Review Notice'').
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B. Rulemaking History

    The Rule promulgated by the Commission in 1984 has a long and 
complicated rulemaking history. The Rule grew out of an investigation 
begun by FTC staff in 1973. That investigation eventually led to a 
staff recommendation for the adoption of a trade regulation rule that 
would have required mandatory inspections by dealers, disclosure of 
defects, and mandatory warranties on parts that were found to be 
without defects.\7\ In 1975, in the midst of the staff investigation, 
the Magnuson-Moss Act became effective, which required the Commission 
to initiate this rulemaking using certain procedures as set forth in 
Sec.  18 of the FTC Act, 15 U.S.C. 57a.\8\ The Magnuson-Moss Act 
explicitly prohibits the Commission from mandating warranties.\9\
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    \7\ SBP, 49 FR at 45692-95.
    \8\ These procedural requirements include issuing an advance 
notice of proposed rulemaking, providing an opportunity for an 
informal hearing, and submitting the advance notice of proposed 
rulemaking to the Committee on Commerce, Science, and Transportation 
of the United States Senate and the Committee on Energy and Commerce 
of the United States House of Representatives. 15 U.S.C. 57a.
    \9\ 15 U.S.C. 2302(b)(2) (``Nothing in this chapter * * * shall 
be deemed to authorize the Commission * * * to require that a 
consumer product or any of its components be warranted.''); SBP, 49 
FR at 45718.
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    The Commission published an initial staff report in December 1975 
and issued an initial notice of proposed rulemaking in January 1976. 
The notice contained a proposed rule requiring a window sticker that 
disclosed warranty terms, warranty disclaimers, prior use of the 
vehicle, mileage, prior repairs, and dealer identification information. 
The proposed rule also specified a disclaimer for ``as is'' 
contracts.\10\ The Commission issued a second notice asking for public 
comment on whether dealers should be required to disclose known defects 
and whether a vehicle had been inspected for defects. After receiving 
comments and conducting hearings in six cities, the staff recommended a 
revised rule that

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required mandatory inspections, disclosure of defects regarding certain 
mechanical and safety components of used cars, warranty coverage, 
repair cost estimates, prior use, mileage, availability of service 
contracts, vehicle identification information, and dealership 
identification information.\11\
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    \10\ SBP, 49 FR at 45693.
    \11\ Id.
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    The Commission itself met and heard oral presentations from 
selected rulemaking participants concerning the proposed rule \12\ and, 
without making a final determination, rejected staff's recommendation 
for mandatory inspections, and directed staff to analyze an optional 
inspection approach. The staff then recommended optional inspections, 
and, in May 1980, the Commission tentatively adopted an optional 
inspection rule.\13\ The Commission also directed staff to delete a 
requirement that dealers provide an estimated cost of repair for 
systems marked ``NOT OK'' and a disclosure relating to vehicles that an 
insurer had declared to be a ``total loss.'' \14\
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    \12\ The selected participants included several organizations 
that have also commented during the current rule review, including 
the National Automobile Dealers Association, National Independent 
Automobile Dealers Association, and National Consumer Law Center. 
Id. at 45694 n.19.
    \13\ Id. at 45694.
    \14\ Id.
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    In August 1981, the Commission adopted a final rule that did not 
include the optional inspection provision. Instead, the Commission 
decided to require that dealers disclose on a window sticker warranty 
information and major defects known to the dealer.
    In May 1982, both houses of Congress vetoed the 1981 Rule, under 
the authority of the FTC Improvements Act of 1980. Several consumer 
groups then brought suit against the FTC, the U.S. Senate, and the U.S. 
House of Representatives to block the veto, arguing that the 
legislative veto was unconstitutional.\15\ In 1983, the Supreme Court 
held that the legislative veto that invalidated the 1981 Rule was 
unconstitutional.\16\
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    \15\ Consumers Union of the U.S., Inc., and Public Citizen, 
Inc., were plaintiffs in the underlying suit. Consumers Union of the 
U.S., Inc. v. FTC, 691 F.2d 575 (DC Cir. 1982), aff'd sub nom., 
Process Gas Consumers Group v. Consumers Energy Ass'n of America, 
463 U.S. 1216 (1983).
    \16\ Process Gas Consumers Group, 463 U.S. 1216.
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    Prior to the Congressional veto, several parties had sought review 
of the 1981 Rule in the Second Circuit.\17\ This review was stayed 
following the legislative veto and reinstated after the Supreme Court's 
reversal of the veto. In 1983, the Commission decided that the Rule 
would become effective six months after the Second Circuit's entry of a 
judgment that disposed of the reinstated petitions for review, and, on 
the same date, also decided to reexamine the 1981 Rule. The parties 
filed a motion with the Second Circuit seeking leave to make additional 
submissions and written presentations to the Commission. Pursuant to 
that motion and the Commission's own decision to reexamine the 1981 
Rule, the Commission and the parties agreed to a remand to the 
Commission from the Second Circuit. The remand order required the 
Commission to reopen the record, particularly with respect to sections 
of the 1981 Rule dealing with the disclosure of known defects, and to 
provide notice and an opportunity to submit comments and rebuttal 
comments. Other than the remand, the Second Circuit retained 
jurisdiction over the Rule.
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    \17\ SBP, 49 FR at 45694 (citing Miller Motor Car Corp. v. FTC, 
No. 81-4144 (2d Cir. 1981)).
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    In 1984, the Commission adopted a final rule that superseded the 
1981 Rule. The Commission eliminated the known defects provision, among 
others, in the final 1984 Rule.\18\ The 1984 Rule was not challenged 
further in the Second Circuit or elsewhere. The 1984 Rule became 
effective in 1985 and applies throughout the United States, except 
Wisconsin and Maine.\19\
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    \18\ See id. at 45694-95.
    \19\ The Rule provides that the Commission will exempt a state 
from the Rule's coverage upon application by an appropriate state 
agency if the Commission determines that the state has a requirement 
that affords equal or greater protections to consumers than the 
Rule. The exemption shall last as long as the state administers and 
enforces its requirement effectively. 16 CFR 455.6.
    The Commission granted Wisconsin an exemption pursuant to 455.6 
in 1986. 51 FR 20936 (June 9, 1986). The Commission granted Maine an 
exemption in 1988. 53 FR 16390 (May 9, 1988).
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    During the Commission's last regulatory review of the Rule in 1995, 
a number of the proposals raised during the original rulemaking, or 
similar proposals, were again considered and rejected by the 
Commission. For example, in 1995, the Commission rejected requiring 
dealers to disclose known defects,\20\ requiring dealers to keep copies 
of the Buyers Guides,\21\ and expanding the Rule to encompass private 
used car sales.\22\ The Commission decided to retain the Rule, with 
minor amendments, and since then the Rule has remained unchanged.
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    \20\ 60 FR at 62196-97.
    \21\ Id. at 62197.
    \22\ Id. at 62197-98.
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II. Rulemaking Procedures

    Pursuant to the Dodd-Frank Act Wall Street Reform and Consumer 
Protection Act (``Dodd-Frank Act''), the FTC is authorized to prescribe 
rules under Section 553 of the Administrative Procedure Act (``APA'') 
\23\ with respect to unfair or deceptive acts or practices by motor 
vehicle dealers.\24\ Under the Dodd-Frank Act, the FTC's APA rulemaking 
authority became effective as of July 21, 2011, the designated 
``transfer date'' established by the Treasury Department.\25\
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    \23\ 5 U.S.C. 553.
    \24\ Public Law 111-203, Title X, Sec.  1029(d); 12 U.S.C. 
5519(d). The term ``motor vehicle dealer'' refers to ``any person or 
resident in the United States, or any territory of the United 
States, who--(A) is licensed by a State, a territory of the United 
States, or the District of Columbia to engage in the sale of motor 
vehicles; and (B) takes title to, holds an ownership in, or takes 
physical custody of motor vehicles.'' 12 U.S.C. 5519(f)(2).
    \25\ See 75 FR 57252 (Sept. 20, 2010); Dodd-Frank Act Sec.  
1029A.
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    Because the Dodd-Frank Act authorized the Commission to use APA 
procedures for notice and public comment in issuing or amending rules 
with respect to motor vehicle dealers, the FTC will not use the 
procedures set forth in Section 18 of the FTC Act, 15 U.S.C. 57a, with 
respect to these proposed revisions to the Used Car Rule and the Used 
Car Buyers Guide. Accordingly, the Commission is publishing this Notice 
of Proposed Rulemaking pursuant to Section 553 of the APA.

III. Summary of Comments

    The Commission received comments addressing the three categories of 
specific questions expressly asked by the Regulatory Review Notice: 
\26\ comments concerning the Spanish translation of the Buyers Guide 
and whether a bilingual Buyers Guide would be feasible and beneficial; 
\27\ comments concerning the utility of the List of Systems and defects 
on the reverse side of the Buyers Guide; and comments concerning 
whether the Buyers Guide could better disclose manufacturer and other 
third-party warranties. In addition, many commenters again raised 
issues as to whether the Rule should or should not be expanded to 
broaden the types of information that dealers are required to disclose 
on the Buyers Guide, such as information concerning an individual 
vehicle's prior use, title history, and mechanical condition.
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    \26\ 73 FR 42285, supra note 6.
    \27\ Along with this NPR, the FTC is also publishing a final 
rule revising the Spanish translation of the Buyers Guide. In 
issuing this final rule, the FTC concluded that it would continue to 
require translations of the Buyers Guide only into Spanish rather 
than into multiple languages as some commenters proposed. Spanish is 
the second most commonly spoken language in the United States after 
English.
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    The Commission received twenty-five comments from twenty-one

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commenters.\28\ The commenters include: an automobile auction firm,\29\ 
an automotive repair firm,\30\ an online seller of used cars,\31\ 
automobile dealers,\32\ individual consumers,\33\ a consumer protection 
attorney,\34\ a group of consumer advocacy organizations,\35\ national 
automobile dealers' associations,\36\ state automobile dealers' 
associations,\37\ suppliers of dealer forms,\38\ county consumer 
protection agencies,\39\ the National Association of Attorneys 
General,\40\ the International Association of Lemon Law 
Administrators,\41\ and the Wisconsin Department of Transportation.\42\
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    \28\ Comments were submitted in response to the Regulatory 
Review Notice from: Allain-Geisel (``Allain-Geisel''); Anderson, 
David (Folsom Lake Dodge) (``Anderson''); Broward County, Florida, 
Permitting, Licensing and Consumer Protection Division (``Broward 
County''); Campbell, James (Carlabels.com) (``Carlabels''); CarMax 
Auto Superstores, Inc. (``CarMax''); Copart, Inc. (``Copart''); 
Dealer Specialties (``Dealer Specialties''); Hillig, Rebecca for 
Hillig Auto Center (``Hillig''); Howard County Office of Consumer 
Affairs (``Howard County''); Oregon Vehicle Dealer Association 
(``Ore. Vehicle Dealer Ass'n''); Minnesota Automobile Dealers 
Association (``MADA''); National Association of Attorneys General 
(``NAAG'') (appending and incorporating comment from International 
Association of Lemon Law Administrators (``IALLA'') (Att. A.)); 
National Automobile Dealers Association (``NADA''); Consumers for 
Auto Safety and Reliability, et al. (collectively referred to here 
as ``CARS,'' see note 35); National Independent Automobile Dealers 
Association (``NIADA''); Barbara Sachau (``Sachau''); Stephen Swann 
(``Swann''); Wholesale Forms, Inc. (``Wholesale Forms''); and 
Wisconsin Department of Transportation (``WI DOT''). These comments 
are available online at http://www.ftc.gov/os/comments/usedcarrule/index.shtm.
    Comments from Downey Brand LLP (``Downey Brand'') and NAAG 
submitted during the reopened comment period are available at:
    http://www.ftc.gov/os/comments/usedcarrulereopen/index.shtm.
    \29\ Copart.
    \30\ Hillig.
    \31\ Downey Brand.
    \32\ Anderson; CarMax.
    \33\ Allan-Geisel; Sachau.
    \34\ Swann.
    \35\ The comment from the consumer advocacy groups collectively 
referred to as ``CARS'' is a joint letter from the National Consumer 
Law Center, Consumer Action, Consumers for Auto Reliability and 
Safety (``CARS''), Consumer Federation of America (``CFA''); 
Consumer Federation of California (``CFC''), National Consumer Law 
Center (``NCLC'') (on behalf of its low income clients); U.S. Public 
Interest Research Group (``PIRG''); and Watsonville Law Center 
(``WLC''). CARS signed the comment on behalf of the other members of 
the group.
    \36\ NIADA and NADA. On March 17, 2009, NIADA and NADA submitted 
supplemental comments. NIADA's comments are identified respectively 
as NIADA1 and NIADA2. NADA's comments are similarly identified as 
NADA1 and NADA2.
    \37\ Ore. Vehicle Dealer Ass'n; MADA.
    \38\ Carlabels; Dealer Specialties; Wholesale Forms.
    \39\ Broward County; Howard County. Howard County joins the CARS 
comment.
    \40\ NAAG. Forty-two attorneys general signed onto the NAAG 
comment. On June 15, 2009, during the reopened comment period, NAAG 
submitted a second comment responding to NADA and NIADA. NAAG=s 
comments submitted during the initial comment period are identified 
as NAAG1, and its second comment is identified as NAAG2.
    \41\ IALLA. IALLA=s comment is appended to NAAG1.
    \42\ WI DOT.
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    Although not specifically raised in the Regulatory Review Notice, a 
number of comments address whether dealers should be required to 
provide consumers with vehicle history information, including title 
history, damage history, prior use, and whether a vehicle ever was a 
lemon law buyback. A group of consumer advocacy organizations 
recommended mandatory dealer inspections and that dealers be required 
to disclose known defects.\43\ This group also proposed that the Rule 
require dealers to disclose state title record information, and, in 
particular, information that is now being made available through the 
National Motor Vehicle Title Information System (``NMVTIS''), a 
Department of Justice system that provides consumers with automobile 
information to prevent the sale of stolen and unsafe vehicles.\44\
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    \43\ CARS at 17-18.
    \44\ NMVTIS was created pursuant to the Anti-Car Theft Act of 
1992, 49 U.S.C. 30501-05. NMVTIS Final Rule, 74 FR 5740 (Jan. 30, 
2009). NMVTIS provides consumers with vehicle history information 
such as title issue date, latest odometer data, any theft history 
data, any brand assigned to a vehicle and date applied, and any 
salvage history. National Motor Vehicle Title Information System 
Frequently Asked Questions, http://www.nmvtis.gov/nmvtis_faq.html#info. For a more extensive discussion of NMVTIS, see infra 
Part III.B.1.
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    Industry commenters opposed these proposals to expand the Rule to 
require the display of vehicle history and title information. They 
expressed concern that dealers would have difficulties complying with a 
federal standard in light of the large variation in state regulation of 
vehicle titles. Industry commenters also raised concerns about the 
costs that dealers would face in attempting to comply with Buyers Guide 
disclosures of title information and with the increased risk of 
liability that dealers could face if they are required by the Rule to 
make such disclosures.
    Commenters also discussed the specific issues raised in the 
Regulatory Review Notice: whether to permit a bilingual Buyers Guide 
and to change the Spanish translation; whether to retain the List of 
Systems; and whether to modify the Rule to address disclosures of 
manufacturers' and other third-party warranties. On all but one of 
these issues, the various commenters often expressed differing views, 
as described and analyzed below. The only commenter to discuss the 
proposed Spanish translation changes supported the changes.
    None of the commenters provided studies or other empirical evidence 
in support of the positions taken.

IV. Analysis of Comments and Regulatory Alternatives Under Further 
Consideration

    The Commission is considering several revisions to the Buyers Guide 
based upon its review of the comments received in response to the 
Regulatory Review Notice. The Commission has determined to retain the 
Rule and is seeking comments on the following potential revisions to 
the Rule: (1) Revising the Buyers Guide to provide additional boxes 
where dealers would have the option to indicate manufacturers' and 
third-party warranties; (2) adding a statement to the Buyers Guide 
encouraging consumers to seek vehicle history information and directing 
consumers to an FTC Web site for more information about vehicle 
histories and sources for that information; \45\ (3) retaining the List 
of Systems and adding catalytic converters and airbags to it; and (4) 
adding a statement in Spanish to the English Buyers Guide directing 
consumers who cannot read the Buyers Guide in English to ask for a copy 
of it in Spanish.
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    \45\ The Web site would be created if the Commission amends the 
Rule and adopts such a Buyers Guide statement. The Commission also 
is exploring, and invites comments on, additional ways that this 
information could be made available to consumers for whom Internet 
access may not be readily available.
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A. Proposed Revisions to Buyers Guide Warranty Disclosures

    The Regulatory Review Notice asked a series of questions seeking 
comments about possible changes to the Buyers Guide intended to enhance 
the disclosure of warranties, such as unexpired manufacturers' 
warranties, certified used car warranties, and other third-party 
warranty products (Questions III.B(4)-(8)). The Commission proposes 
revising the Buyers Guide as described in this NPR to improve the way 
in which dealers can indicate whether a manufacturer's or other third-
party warranty applies.\46\ The Commission invites comments on its 
proposal.
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    \46\ In the proposed rule appearing at the end of this NPR, the 
Commission also proposes corresponding changes to ' 455.2 Consumer 
sales-window form, which discusses the Buyers Guide.
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    The Regulatory Review Notice included a proposed Buyers Guide 
containing boxes where dealers could indicate whether a vehicle was 
covered by third-party warranties other than warranties from the 
dealer. To

[[Page 74750]]

differentiate among the various types of possible warranties, this 
Buyers Guide used the term ``dealer warranty.'' Industry commenters 
generally favored the approach outlined in the Regulatory Review 
Notice, but suggested alternatives that might make a revised Buyers 
Guide clearer to consumers. In light of the comments from industry, the 
Commission proposes that disclosing manufacturers' warranties should be 
optional because dealers often do not know whether a manufacturer's 
warranty applies.
1. Current Buyers Guide Warranty Disclosures
    The Buyers Guide's primary purpose is to create a readily 
understandable disclosure of the warranty coverage offered by a used 
car dealer. Currently, the Buyers Guide has two large boxes where 
dealers can indicate whether they offer a warranty on a used car or 
offer it without a warranty, i.e., ``as is:''
[GRAPHIC] [TIFF OMITTED] TP17DE12.001

The Rule currently provides for an alternative Buyers Guide in states 
that prohibit dealers from waiving implied warranties by selling 
vehicles ``as is.''
[GRAPHIC] [TIFF OMITTED] TP17DE12.002

    Beneath these large boxes is a space where dealers are instructed 
to provide details of the warranty coverage they offer by identifying 
the ``Systems Covered'' and the ``Duration'' of coverage for each 
system. Dealers are required to indicate the warranties that they offer 
by checking the appropriate large warranty box and completing the 
Systems Covered/Duration section. The Rule does not require dealers to 
identify any other applicable warranties, such as unexpired 
manufacturers' warranties, that are the responsibility of third 
parties. The Rule also does not provide any mechanism comparable to the 
large boxes to identify these warranties.
    Instead, the Rule permits (but does not require) dealers to 
indicate the applicability of an unexpired manufacturer's warranty by 
adding the following statement 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.\47\
---------------------------------------------------------------------------

    \47\ 16 CFR 455.2(b)(2)(v). The SBP does not discuss the 
optional unexpired manufacturer's warranty statement.

When a vehicle is still covered by an unexpired manufacturer's warranty 
but is not warranted by the dealer, the Staff Compliance Guidelines 
advise that dealers may add an optional statement that: ``[t]he 
dealership assumes no responsibility for any repairs, regardless of any 
oral statements about the vehicle. All warranty coverages comes from 
the unexpired manufacturer's warranty.'' \48\
---------------------------------------------------------------------------

    \48\ 53 FR at 17663 (1988).
---------------------------------------------------------------------------

2. Proposal for Disclosing Third-Party Warranties on Buyers Guide
    The Regulatory Review Notice contained a proposed Buyers Guide that 
included additional boxes, comparable to those now used to identify 
dealer warranties, where dealers could easily identify third-party 
warranties, such as unexpired manufacturers' warranties. The Regulatory 
Review Notice version of the Guide included the boxes for third-party 
warranty information on the front of the Guide. After reviewing the 
comments, the Commission is seeking public comment on a modified Buyers 
Guide format that differs slightly from the version included in the 
Regulatory Review Notice.
    Specifically, the Commission proposes a revised Buyers Guide that 
contains some minor wording changes designed to increase readability. 
More important, the proposed revised Buyer Guide places the additional 
boxes for

[[Page 74751]]

third-party warranty disclosures on the reverse side, above the List of 
Systems. Dealers who choose to disclose warranty coverage from 
manufacturers or other third parties may do so by checking the 
appropriate box or boxes on the reverse side of the Buyers Guide. This 
format leaves more space for dealers to describe details of their own 
warranties in the Systems Covered/Duration section than was available 
in the modified Buyers Guide that appeared in the Regulatory Review 
Notice, and it separates the ``Dealer Warranty'' section from the 
``Non-Dealer Warranty'' section. The face of the proposed revised 
Buyers Guide includes a statement directing consumers to the back of 
the Buyers Guide for ``more about warranties and other information that 
applies to this vehicle,'' instead of the current instruction to see 
the back for the List of Systems.\49\
---------------------------------------------------------------------------

    \49\ The Buyers Guide currently states, ``SEE THE BACK OF THIS 
FORM for important additional information, including a list of some 
major defects that may occur in used motor vehicles.''
---------------------------------------------------------------------------

    The Commission seeks comments on the following proposed revised 
Buyers Guide: In states that do not permit ``as is'' sales, the face of 
the Buyers Guide would appear as:
BILLING CODE 6750-01-P
[GRAPHIC] [TIFF OMITTED] TP17DE12.003


[[Page 74752]]


[GRAPHIC] [TIFF OMITTED] TP17DE12.004

BILLING CODE 6750-01-C
    The back of the Buyers Guides in both cases would appear as:
    Both NADA and NIADA generally favored revising the Buyers Guide by 
adding boxes that dealers could check to disclose third-party 
warranties.\50\ No commenters raised significant objections to the 
proposed additional boxes.\51\ The comments, however, also raise 
questions about how to make the disclosures clearer and about how 
dealers would complete the revised Buyers Guide included in the 
Regulatory Review Notice, including (1) whether dealers can check 
multiple boxes in the ``Non-Dealer Warranty'' section; (2) what dealers 
should do when they cannot determine if a manufacturer's warranty 
applies; (3) what dealers should do when only portions of a 
manufacturer's warranty apply; and (4) how to treat warranties from 
third parties other than manufacturers.
---------------------------------------------------------------------------

    \50\ The proposed revised Buyers Guide in this NPR may address 
some of the questions raised by NADA and NIADA about how to complete 
the Buyers Guide proposed in the Regulatory Review Notice. See NADA1 
at 6-10; NIADA1 at 8-11. The Commission will reexamine those 
comments in light of the comments it receives concerning the 
proposed revised Buyers Guide.
    \51\ One commenter, Wholesale Forms, thought that using the 
terms ``dealer warranty'' and ``manufacturer's warranty'' in the 
same document could confuse consumers. Wholesale Forms at 5-6. That 
commenter and others also voiced concerns that any changes to the 
Buyers Guide should be carefully considered because of the costs 
that would be imposed on dealers to change to a new form after more 
than twenty-five years of using the same Buyers Guide.
---------------------------------------------------------------------------

    Several commenters addressed the statement in the version of the 
Buyers Guide in the Regulatory Review Notice that directs consumers to 
``[c]onsult the warranty booklet for details as to warranty coverage, 
expiration, service location, etc.'' \52\ Some consumer advocacy groups 
argued that dealers should be required to provide warranty booklets to 
consumers for these third-party warranties. Industry groups, on the 
other hand, explained that dealers often do not have such warranty 
booklets, do not receive them from trade-in customers, and cannot 
obtain them from manufacturers. Moreover, dealer groups commented that 
many manufacturers do not provide booklets and, therefore, dealers 
cannot possibly comply with a requirement that they provide the books.
---------------------------------------------------------------------------

    \52\ This statement was set forth in the ``Non-Dealer 
Warranties'' section, below the ``other used car warranty applies'' 
box. The proposed revised Buyers Guide in this NPR uses the term 
``vehicle'' in place of ``car'' to recognize that the Rule applies 
to vehicles, such as light duty pickup trucks, in addition to cars.
---------------------------------------------------------------------------

    Considering the comments as a whole, the Commission is proposing to 
modify

[[Page 74753]]

the warranty booklet statement. Commenters have noted that dealers may 
not have full information on manufacturers' warranties. Franchised 
dealers may have warranty information on their own manufacturers' 
products but not on other manufacturers' vehicles, and independent 
nonfranchised dealers may not have ready access to warranty terms from 
manufacturers. Other types of warranty products such as so-call 
``certified'' manufacturers' warranties also may not be memorialized by 
actual ``booklets.'' \53\ Therefore, the proposed revised Buyers Guide 
advises: ``Ask the dealer for a copy of the warranty, and for any 
documents that explain warranty coverage, exclusions, and the dealer's 
repair obligations.'' The current Buyers Guide already contains a 
similar statement with respect to dealer warranties.\54\ The proposed 
revised Buyers Guide is not intended to provide full details about any 
non-dealer warranty and would simply alert consumers to obtain 
additional information for details about the warranty coverage.
---------------------------------------------------------------------------

    \53\ Certified used car programs began appearing in the mid-
1990s. The programs vary, but typically a manufacturer attaches a 
new warranty to vehicles that have been returned to a dealer from a 
lease or a trade-in if they are ``certified'' by its franchised 
dealer to meet certain mechanical, age, and mileage requirements. 
Some dealerships offer their own warranties on used cars that are 
``certified'' to meet certain mechanical, age, and mileage 
requirements. See Certified Used Cars--The Wave of the Future, 
Edmunds.com, Inc., http://www.edmunds.com/car-buying/certified-used-cars-the-wave-of-the-future.html.
    \54\ Adjacent to the full or limited warranty boxes above the 
Systems Covered/Duration section of the Buyers Guide, the Buyers 
Guide states, ``[a]sk the dealer for a copy of the warranty document 
for a full explanation of warranty coverage, exclusions, and the 
dealer's repair obligations.''
---------------------------------------------------------------------------

    The Commission proposes removing a box from the Buyers Guide 
proposed in the Regulatory Review Notice that would have stated:

    ``NO INFORMATION PROVIDED. The dealer provides no information 
about other warranties that may apply.''

Industry groups questioned when to check this box, including whether 
dealers should check the box when they have reason to believe, but are 
not certain, that a manufacturer's warranty applies.\55\ In addition to 
confusing dealers about when to check the box, the ``NO INFORMATION'' 
box also could confuse consumers into believing that third-party 
warranty coverage applies, although the dealer has not determined that 
it does. Moreover, the box is not actually needed because dealers could 
indicate that they offer no information about third-party warranties 
simply by leaving the boxes associated with third-party non-dealer 
warranties blank. The Commission believes that these points are well 
taken and, therefore, the proposed revised Buyers Guide included in 
this NPR does not contain the ``NO INFORMATION'' box.
---------------------------------------------------------------------------

    \55\ NADA1 at 10.
---------------------------------------------------------------------------

3. Disclosure of Unexpired Manufacturers' Warranties
    The Regulatory Review Notice asked for comments on the Rule's 
current system for disclosing unexpired manufacturers' warranties, 
which permits, but does not require, dealers to indicate that an 
unexpired manufacturer's warranty applies. Some commenters suggested 
that the Rule should require dealers to disclose unexpired 
manufacturers' warranties, but industry commenters opposed such a 
requirement.
    Consumer protection authorities and a consumer advocacy group 
commented that dealers should be required to disclose any 
manufacturers' warranties and whether a manufacturer's warranty has 
been terminated because of a salvage title or other vehicle 
history.\56\ The comments differ in the amount of information that each 
would require dealers to disclose, but all assume that dealers have, or 
can readily determine, whether a manufacturer's warranty applies to an 
individual vehicle.
---------------------------------------------------------------------------

    \56\ NAAG1 at 8 (also urges that Buyers Guide list past history 
indicating salvage, damage, or manufacturer buyback); id. at 10; 
CARS at 19; Broward County at 2-3, 10-11.
---------------------------------------------------------------------------

    Industry groups opposed mandatory disclosure of manufacturers' 
warranties, noting that dealers often cannot determine readily whether 
a manufacturer's warranty applies.\57\ The association of franchised 
new car dealers (NADA) commented that franchised dealers may not have 
access to warranty information from manufacturers other than the ones 
for which they have a franchise.\58\ NADA also commented that trade-in 
customers may not provide dealers with sufficient information to 
determine if a manufacturer's warranty still applies because coverage 
can be denied for so many reasons in addition to expiration of the 
warranty term, such as damage, poor maintenance, differing terms for 
separate vehicle systems, and non-transferability.\59\ An automobile 
auction firm commented that a mandatory disclosure requirement could 
expose dealers to potential liability for a manufacturer's warranty 
because the Buyers Guide is incorporated into the final contract of 
sale.\60\
---------------------------------------------------------------------------

    \57\ NADA1 at 4-6; NIADA1 at 8; Ore. Vehicle Dealer Ass'n at 2.
    \58\ NADA1 at 5.
    \59\ Id.
    \60\ Copart.
---------------------------------------------------------------------------

    The Rule does not now require dealers to disclose warranties, such 
as manufacturers' warranties, for which the dealers are not 
responsible, and the comments do not present compelling reasons to 
expand the Rule's current scope. Industry groups noted that dealers do 
not necessarily have, and cannot easily acquire, the warranty 
information that the consumer advocacy groups assume they possess. 
Consequently, dealers may not always be able to provide consumers with 
accurate information and may be unable to comply with a mandatory 
disclosure provision.\61\ Therefore, the Commission does not propose 
making mandatory the optional disclosure of unexpired manufacturers' 
warranties.
---------------------------------------------------------------------------

    \61\ NADA proposed permitting dealers to state on the Buyers 
Guide that an unexpired manufacturer's new car warranty may apply 
and, because of the uncertainty in confirming coverage, 
simultaneously stating that ``[t]he dealer makes no representation 
regarding any non-dealer warranty or other coverage.'' NADA1 at 6. A 
consumer protection attorney, however, commented that dealers 
sometimes check the Buyers Guide's Warranty box and add statements 
such as ``balance of factory warranty, if any, may apply'' to 
suggest falsely that a vehicle is covered by an unexpired 
manufacturer's warranty. Swann at 1. The Rule necessarily requires 
dealers to determine whether a manufacturer's warranty applies 
before stating so because it permits, but does not require, dealers 
to state that a manufacturer's warranty applies 455.2(b)(2)(v), when 
such a warranty applies. In light of the potential for deception 
when dealers suggest coverage that the dealer has not confirmed, no 
change concerning the disclosure of unexpired manufacturers' 
warranties is proposed in this NPR.
---------------------------------------------------------------------------

B. Proposals on Vehicle History and Condition

    As in the earlier proceedings involving this Rule, many commenters 
urged that the Buyers Guide provide a variety of information on the 
history of the vehicle and let consumers know whether the car has 
problems at the time of sale. As noted above, many of these proposals 
were previously considered and rejected, in part because the 
information is already provided in a different form, dealers do not 
necessarily themselves have reliable information for making 
disclosures, and it is not clear that, overall, placing some of this 
information on a buyers guide would actually aid consumer purchase 
decisions.
    The Rule as it currently stands attempts to address some of the 
concerns consumers might have about post-sale problems. The Buyers 
Guide makes it easier for consumers to shop for and choose a warranty 
that would provide protection in the event of mechanical problems. It 
alerts

[[Page 74754]]

consumers not to rely on spoken promises, so that they can avoid false 
assurances about steps the dealer would take in the event of future 
problems. The Buyers Guide also suggests that consumers get an 
independent inspection of a vehicle before buying it.
    Since the Rule was promulgated, however, there have been 
significant changes in the types of vehicle history available to those 
buying used cars--both for dealers purchasing cars for resale and for 
consumers who are shopping for one. State automobile title information 
is being combined into a database where it can be searched through 
DOJ's NMVITIS. In addition, firms such as CARFAX and AutoCheck provide 
individualized vehicle history reports which include not only the 
information in a NMVITIS report but also may include a wealth of 
information about prior wrecks, odometer readings, and even maintenance 
history. Although these reports are not necessarily perfect, they do 
provide far more useful information than was available previously.
    The Commission is proposing a Buyers Guide accompanying this NPR 
that contains a statement advising consumers to obtain vehicle history 
information. This statement would be combined with the Buyers Guides' 
existing recommendation that consumers obtain an independent inspection 
before purchase. The statement directs consumers to an FTC Web site 
that the Commission would create where consumers could obtain 
information about vehicle history reports and sources for those 
reports. The FTC site could also provide other useful information for 
consumers who are shopping for a used car.
    Dealers would not be required to obtain vehicle histories or to 
display specific vehicle history information on the proposed revised 
Buyers Guide. The Buyers Guide would continue to recommend to consumers 
that they protect themselves by obtaining an independent inspection 
before making a purchase.
1. Availability of Vehicle History Information
    Since the Rule's promulgation in 1984, a variety of public and 
private sources offering information about the history of individual 
vehicles have become available. When the Rule was adopted, vehicle 
history information was available primarily from prior owners of used 
cars or from state car titling agencies like a state department of 
motor vehicles (``DMV''). For cars titled in several states, that 
information sometimes was difficult both for consumers and dealers to 
obtain. Today consumers can obtain useful title information from 
NMVITIS, and commercial services offer that in combination with vehicle 
history information from a variety of sources.
    Car titles usually are issued by state DMVs, and the titles 
typically show the legal owner of the vehicle and other identifying 
information. The amount of information in a car title varies widely 
from state to state. Some states issue car titles that include 
``brands,'' the descriptive labels assigned by state titling agencies 
to describe the current or past condition of a vehicle, such as 
``junk,'' ``salvage,'' or ``flood.'' \62\ The brands that states use on 
their car titles differ in important ways from state to state. The 
definitions of those brands also vary from state to state so that, for 
example, a brand of ``junk'' in one state may mean something different 
in another state. At the time of the original rulemaking, state DMVs 
may have been the only source, other than prior owners, of vehicle 
history information.
---------------------------------------------------------------------------

    \62\ See NMVTIS Final Rule, 74 FR 5740 n.1 (Jan. 30, 2009).
---------------------------------------------------------------------------

    One source for vehicle history information that has become 
available since the Rule was promulgated is NMVTIS. The Department of 
Justice began its implementation of NMVTIS in January 2009.\63\ NMVTIS 
is a federal system designed to enable nationwide access to title 
information submitted by state titling agencies. NMVTIS includes 
odometer readings from state titling data and brands that state titling 
agencies assign to vehicles. NMVTIS does not create federal uniform 
definitions for brands or require that state DMVs assign brands in 
issuing car titles. Consumers may purchase some forms of NMVTIS reports 
for fewer than five dollars.\64\ However, not all states fully 
participate in NMVTIS, and the program is still being developed.
---------------------------------------------------------------------------

    \63\ Id. at 5740.
    \64\ See information concerning approved NMVTIS data providers 
at: www.nmvtis.gov/nmvtis_vehiclehistory.html.
---------------------------------------------------------------------------

    In addition, state title information, combined with other 
information about individual vehicles, can be obtained from commercial 
sources such as CARFAX and AutoCheck, among others. CARFAX obtains data 
for its reports from state titling agencies, insurers, repair 
facilities, automobile auctions, salvage facilities, and fleet rental 
firms. AutoCheck competes with CARFAX and obtains information from 
similar sources.\65\
---------------------------------------------------------------------------

    \65\ See, e.g., CARFAX v. AutoCheck, https://www.autocheck.com/consumers/content/carfax-autocheck-compare.do.
---------------------------------------------------------------------------

    Vehicle history reports available from CARFAX and AutoCheck may 
often include information on prior ownership, usage, odometer readings, 
damage, and repair history, among other things. Consumers can use the 
vehicle identification number (``VIN'') for a particular vehicle to 
purchase a report on that vehicle from these commercial sources. Both 
CARFAX and AutoCheck also offer consumers the option of paying a flat 
fee to receive reports on as many individual vehicles as the consumer 
wishes during a designated time frame. Some dealers also have chosen to 
distribute commercial vehicle history reports to their customers for 
free.
2. Comments Received on Disclosure of Title Information
    The Commission received many comments suggesting that vehicle title 
information be disclosed on the Buyers Guide. Comments from NAAG, CARS, 
WI DOT, and an individual consumer favored requiring dealers to 
disclose prior title status information on the Buyers Guide.\66\ The 
comments assume that dealers have this information or could easily 
obtain it. For example, WI DOT noted that dealers usually have a copy 
of the title or direct access to state DMV databases in relation to 
their state-imposed duty to process title applications on behalf of 
buyers.\67\ The commenters who favored including vehicle history 
information generally recommended requiring dealers to obtain the 
information and to report that information on the Buyers Guide.
---------------------------------------------------------------------------

    \66\ NAAG1 at 1-10; CARS at 19-21; WI DOT at 2-3; Allan-Geisel.
    \67\ WI DOT at 2.
---------------------------------------------------------------------------

    CARS proposed a separate warning label stating that a vehicle is 
listed in NMVTIS as ``salvage, junk, or otherwise totaled by an insurer 
or sold at auction.'' \68\ An individual consumer commented that the 
Buyers Guide should disclose whether the vehicle was recently sold at 
an auction.\69\
---------------------------------------------------------------------------

    \68\ CARS at 19-21.
    \69\ Allan-Geisel.
---------------------------------------------------------------------------

    Industry groups stated that better information about title brands 
would benefit them as well as consumers but, for a variety of reasons, 
suggested that it is impracticable to require disclosure of this 
information on the Buyers Guide. First, these groups contended that 
dealers often do not themselves have accurate information about titles 
or vehicle histories. They noted that consumers trading in a car may 
well not have the title itself, either because it is held by a 
financing company or a consumer has simply lost it. They stated

[[Page 74755]]

that some of that information may be available from the online 
databases at state DMVs, but may take time to obtain and may be as much 
as six weeks out of date.
    Industry groups also contended that even if dealers do have a 
title, it may not provide an accurate history of the vehicle because 
the title may have been ``washed.'' \70\ Removing or ``washing'' brands 
from a title--generating a ``clean title''--is accomplished by 
transporting a vehicle with a branded title in one state to a state 
that does not check either with the state that issued the previous 
title (or with all states that may have previously issued titles on 
that vehicle) to determine if the vehicle has any existing brands not 
shown on the current paper title.\71\ Indeed, NADA's examples of how 
states treat brands from other states differently, and how a brand or 
other negative title information reported in one state may not be 
carried over in a different state,\72\ highlight the regulatory 
conditions that make title washing possible.
---------------------------------------------------------------------------

    \70\ NADA2 at 7.
    \71\ See 74 FR at 5741.
    \72\ NADA2 at 5.
---------------------------------------------------------------------------

    Dealers offered strong support for NMVTIS--which is designed in 
part to prevent or defeat title ``washing'' by providing a national 
``brand carry forward'' function--but contend that it is not fully 
functioning. NMVTIS retains and makes available to users of the system 
all reported brands applied to a vehicle so that transporting the 
vehicle from one state to another will not ``wash'' the brand. Once a 
vehicle is branded by a state motor vehicle titling agency, that brand 
becomes a permanent part of the vehicle's NMVTIS record. NMVTIS also is 
intended to prevent criminal title washing, in which a salvage or 
destroyed vehicle is used to generate a clean paper title that is 
subsequently attached to a stolen vehicle ``cloned'' to the destroyed 
vehicle.
    NADA raised concerns about NMVTIS's completeness and pointed out 
that NMVITIS had complete information from only thirteen states (as of 
March 17, 2009, the date of NADA's comment).\73\ Since then, NMVITIS is 
now receiving data from forty states.\74\ Thus, while still in 
development, NMVITIS already provides a great deal of useful 
information.
---------------------------------------------------------------------------

    \73\ NADA2 at 6.
    \74\ See National Motor Vehicle Title System: For States, 
www.nmvtis.gov/nmvtis_states.html.
---------------------------------------------------------------------------

    A second concern offered by dealer groups is that, even if 
consumers know the brand appearing on a car title, they may not 
understand the significance of that brand because title brands vary 
dramatically from state to state. In fact, a particular brand in one 
state may have a different meaning in another.\75\ NADA noted, for 
example, that the term ``salvage'' has different legal meanings in 
Arkansas, Connecticut, Colorado and Montana.\76\
---------------------------------------------------------------------------

    \75\ NADA2 at 4-5.
    \76\ Id. at 5.
---------------------------------------------------------------------------

    Third, dealers are concerned about their potential legal liability 
if they are made the ``guarantors'' of information that they could be 
required to disclose on a Buyers Guide. NIADA noted that ``the types of 
damage, repair and history issues noted [on forms required by state 
law] are considered material facts affecting a consumer transaction, 
such that the information must be disclosed under [each state's Unfair 
and Deceptive Acts and Practices Act] statute.'' \77\ It added that 
many disclosures are already required or otherwise dealt with by other 
laws and administrative regulations. According to NIADA, radical 
changes as to what information is required to be displayed on what 
forms and the time when disclosures must be made would expose dealers 
to significant legal costs by making them the ``guarantors of 
information over which they have no control.'' \78\
---------------------------------------------------------------------------

    \77\ NIADA2 at 2.
    \78\ Id.
---------------------------------------------------------------------------

    NIADA stated that dealers are concerned that they may be liable if 
they put out of date or incomplete information on Buyers Guides that 
they obtain from vehicle history reports or other databases. NIADA 
noted that information in vehicle history reports is only as good as 
the data that goes into them. In addition, NIADA stated that there is a 
lag time before information is included in vehicle history reports. 
NIADA opined that, even if dealers complete a Buyers Guide with current 
information, they would have to consistently recheck and update that 
information. Industry groups noted that such disclosures may duplicate 
existing legal requirements, and that dealers might be subject to legal 
action if the information they report later turns out to be inaccurate 
or incomplete.
3. Analysis of Vehicle History Disclosure Comments
    Both consumer and industry commenters agreed that consumers benefit 
from better information about the history of vehicles. In addition, 
dealers themselves often purchase cars, either at auction or as trade-
ins, and thus also have a real use for better information. However, it 
is not practicable to include all available vehicle history information 
on a Buyers Guide. Complete vehicle histories may be several pages 
long.
    Thus the question is whether some subset of that information, 
particularly from titles, should be provided on the Buyers Guide. 
Because title records, especially brands, vary considerably from state 
to state, there may be a risk that consumers could be confused or 
misled by these terms. Moreover, providing a partial vehicle history on 
the Buyers Guide also could discourage consumers from seeking more 
complete vehicle history information.
    In addition, industry groups raised a concern about dealers' 
potential liability for reporting information that they do not control. 
Vehicle history information is available from multiple sources, and 
that information could be inaccurate, untimely, or incomplete. Dealers 
face potential legal risks for reporting third-party information that 
turns out to be deficient.
    Thus, while commenters agreed that consumers could benefit from 
additional information, even if it has potential deficiencies, the 
Commission believes that requiring dealers to place potentially 
misleading partial or deficient information on the Buyers Guide would 
not necessarily benefit consumers. Instead, the Commission believes 
that consumers should be alerted to the existence of this information 
and encouraged to obtain and to evaluate it themselves--while combining 
that knowledge with an independent inspection of the vehicle.
4. Proposed Buyers Guide Vehicle History Statement
    Having considered all of these comments, and to facilitate consumer 
access to vehicle history information, the Commission proposes adding 
the following statement to the Buyers Guide that would encourage 
consumers to obtain vehicle history reports and that would direct 
consumers to an FTC Web site, to be created by the Commission, where 
consumers could learn details about vehicle history information and 
sources, including NMVTIS, for that information:

    Before you buy this used vehicle:
    1. Get information about its history.
    Visit the Federal Trade Commission at ftc.gov/usedcars. You will 
need the vehicle identification number (VIN), shown above, to make 
the best use of the resources on this site.
    2. Ask the dealer if your mechanic can inspect the vehicle on or 
off the lot.

The proposed statement would further two principal purposes of the 
Rule: (1) Providing consumers with important pre-sale information about 
a vehicle

[[Page 74756]]

they may purchase, and (2) diminishing the degree to which consumers 
must rely solely upon the selling dealer for information when they are 
shopping for used cars.
    In much the same way that the current Buyers Guide encourages 
consumers to ask the dealer about an independent inspection, the 
proposed vehicle history statement would encourage consumers to obtain 
information about a particular vehicle's history from independent 
sources. Both the proposed vehicle history statement and the existing 
independent inspection statement direct consumers to independent 
sources of information about the mechanical condition of vehicles that 
are not controlled by the selling dealer. Under this proposal, dealers 
would not be required to obtain vehicle history reports or to provide 
those reports to consumers in conjunction with the Buyers Guide, 
thereby alleviating concerns that a dealer could be held responsible 
for shortcomings in vehicle history information that is controlled by 
others.
5. Other Mechanical Condition and Vehicle History Disclosures 
Recommended by Some Comments
    In addition to recommending that the Buyers Guide include vehicle 
history information from NMVTIS and other sources, some commenters also 
recommended expanding the Rule to require disclosure of prior damage, 
prior use history (such as whether a vehicle was a taxi, rental, police 
car, etc.), and manufacturer buyback or ``lemon law'' status. These, or 
similar proposals, were extensively argued, carefully considered, and 
ultimately rejected by the Commission during the original rulemaking. 
Many were raised again and rejected during the 1995 Rule review. The 
current comments do not provide sufficient new evidence or point to any 
change in circumstances that compel the Commission to reach a different 
conclusion during this review of the Rule. Moreover, the Commission's 
proposal to revise the Buyers Guide--by adding a recommendation that 
consumers obtain a vehicle history report, in addition to an 
independent inspection, before purchasing a used car--should serve to 
provide consumers with the means to obtain important information about 
the mechanical condition of individual vehicles. The Commission 
continues to believe that consumers can obtain more reliable 
information about the mechanical condition of a used vehicle from 
independent sources than they can from relying on dealers.\79\ 
Accordingly, for these and the additional reasons discussed below, the 
Commission declines to reverse its long-held position on these issues 
in this NPR.
---------------------------------------------------------------------------

    \79\ See, e.g., SBP, 49 FR at 45716 (rejecting a known defects 
disclosure requirement in part because ``[i]t gives the wrong signal 
to consumers by encouraging them to focus their attention on dealer-
controlled information about a car's mechanical condition'').
---------------------------------------------------------------------------

a. Disclosure of Prior Vehicle Damage
    The Commission declines to propose amending the Rule to require 
dealers to disclose prior damage history, as several commenters 
recommended.\80\ Several commenters who broadly favored disclosure of 
vehicle title history stressed the particular importance of disclosing 
damage history. For example, NAAG urged that the Buyers Guide should 
require dealers to disclose past damage, including title history 
showing such damage.\81\ Similarly, CARS recommended a warning label 
for used vehicles with salvage title histories.\82\ NAAG and CARS also 
recommended that the Buyers Guide disclose if a manufacturer's warranty 
has been terminated because of salvage or other title history.\83\
---------------------------------------------------------------------------

    \80\ NAAG1 at 2-5, 7-9; CARS at 18-21; WI DOT at 2-3; Allan-
Geisel.
    \81\ NAAG commented that the Buyers Guide should disclose 
``[P]ast title history indicating prior salvage, damage or 
manufacturer buyback.'' NAAG1 at 7-8.
    \82\ The proposed warning label would apply to vehicles listed 
as ``salvage, junk, or otherwise totaled by an insurer or sold at 
auction'' in NMVTIS. CARS at 20-21, 30.
    The Rule does not apply to vehicles ``sold only for scrap or 
parts (title documents surrendered to the State and a salvage 
certificate issued).'' 16 CFR 455.1(d)(2).
    \83\ NAAG1 at 7-8; CARS at 19-21.
---------------------------------------------------------------------------

    NIADA opposed a Rule requirement to disclose damage history, for 
the same reasons that it opposed a requirement that dealers disclose 
title history: (1) Lack of reliable information, and (2) potential 
liability for third-party vehicle history statements.\84\ As with title 
history disclosures, NIADA recommended a ``safe harbor'' from liability 
should dealers be required to disclose damage history.\85\
---------------------------------------------------------------------------

    \84\ NIADA2 at 1-3.
    \85\ Id. at 2-3.
---------------------------------------------------------------------------

    The Commission did not directly address a damage history disclosure 
requirement during the 1984 rulemaking. In 1979, however, it had 
adopted a staff recommendation to drop a proposed provision requiring 
the disclosure of any repair work performed by the dealer.\86\ The 
Commission agreed with staff's conclusion that the record did not show 
that prior repairs are ``reliable indicators of current mechanical 
condition'' and that requiring disclosure of repair history would 
reduce a dealer's incentive to make necessary repairs.\87\ Like repair 
history, damage history would not be an indicator of current mechanical 
condition and forced disclosure of it could reduce dealer incentives to 
ascertain damage and repair it.
---------------------------------------------------------------------------

    \86\ SBP, 49 FR at 45720-21.
    \87\ Id.
---------------------------------------------------------------------------

    For reasons similar to those outlined above in discussing vehicle 
history information generally, the Commission does not propose 
mandatory disclosure by dealers of the prior damage history of 
individual vehicles. Nevertheless, prior damage information may be 
available to consumers if it is reported in title documents or vehicle 
history reports. The vehicle history statement on the proposed revised 
Buyers Guide encourages consumers to seek out and to obtain these 
reports.
b. Disclosure of Prior Use
    The Commission declines to propose the prior use disclosure urged 
by three commenters \88\ because such a requirement was rejected by the 
Commission in 1979 and the comments do not provide sufficient new 
evidence for the Commission to revisit that conclusion. In any event, 
prior use information may be available to consumers in a NMVTIS report 
or a commercial vehicle history report.
---------------------------------------------------------------------------

    \88\ CARS at 20; NAAG1 at 16-17; WI DOT at 2.
---------------------------------------------------------------------------

    In 1979, the Commission rejected a staff recommendation that the 
Buyers Guide disclose prior use because the record did not demonstrate 
either that consumers were injured by the lack of such a disclosure or 
that prior use was an accurate indicator of a vehicle's mechanical 
condition.\89\ Commenters did not present new evidence about the 
possible benefits of a prior use disclosure on the Buyers Guide. To the 
extent that individual consumers are interested in prior use 
information, however, they may be able to obtain it from a NMVTIS 
report or a commercial vehicle history report. The Commission thus 
declines to alter its long-held view on this issue.
---------------------------------------------------------------------------

    \89\ SBP, 49 FR at 45720.
---------------------------------------------------------------------------

c. Disclosure of ``Manufacturer Buyback'' or ``Lemon Law'' Status
    The Commission does not propose requiring that dealers disclose a 
vehicle's ``lemon law'' (also called ``manufacturer buyback'' or 
``repurchase'') status on the Buyers Guide. All fifty states have some 
form of ``lemon law'' that requires manufacturers to repurchase new 
cars that fail to conform to express

[[Page 74757]]

warranties, typically after a number of unsuccessful repair attempts. 
Many states also require that dealers disclose manufacturer repurchase 
status to the first retail purchaser of a repurchased vehicle. However, 
it is not clear that used car dealers would necessarily know whether a 
vehicle is a manufacturer repurchase in subsequent sales. In more than 
half the states, the fact that a vehicle has been repurchased by the 
manufacturer pursuant to a lemon law is not a ``brand'' that is carried 
on the vehicle's title.\90\ Accordingly, the Commission believes that a 
manufacturer repurchase in a vehicle's history should be treated in the 
same way as other aspects of vehicle history discussed above. The 
proposed revised Buyers Guide would recommend that consumers obtain a 
vehicle history report that may include information on whether an 
individual vehicle is a manufacturer repurchase. However, the proposed 
Rule would not affirmatively require that dealers obtain this 
information and disclose it on the Buyers Guide.\91\
---------------------------------------------------------------------------

    \90\ See NADA2, Exhibit A (chart: ``Brand/Vehicle Status-
Reference'').
    \91\ Notably, in 1996, the Commission held a public forum on 
issues related to lemon law buybacks. Participants in that forum 
included manufacturers, dealer associations, state and local 
consumer protection agencies, and consumer groups. No lemon law 
disclosure proposal resulted from that forum. Information about the 
proceedings, including a transcript, is available at http://www.ftc.gov/bcp/lemon/.
---------------------------------------------------------------------------

    State lemon laws typically require manufacturers to repurchase and, 
if necessary, to repair new vehicles that fail to meet warranty 
standards because of alleged defects. Once repurchased and repaired, 
the vehicles are then often offered for sale as used cars.\92\ Laws in 
some states require that the manufacturer warrant the repair of the 
vehicle's nonconformity for a designated period of time or a designated 
number of miles. According to the IALLA, fifteen states require 
manufacturers to issue warranties to the first retail buyer of a 
vehicle after the vehicle's repurchase pursuant to a state lemon 
law.\93\ IALLA further reports that several manufacturers offer limited 
warranties on repurchased lemon law vehicles, even if not required to 
do so by state law.\94\ Several commenters recommended that the 
Commission require dealers to disclose on the Buyers Guide that a 
vehicle had been repurchased by a manufacturer and to provide 
information about warranty coverage associated with the repurchase.\95\
---------------------------------------------------------------------------

    \92\ The number of cars repurchased pursuant to state lemon laws 
and resold by manufacturers is unknown. Accurate estimates are 
difficult to make for many reasons including the fact that 
manufacturers also repurchase cars for reasons that may be unrelated 
to defects, such as ``goodwill'' programs designed to enhance 
customer relations.
    In 1995, CARS, citing NAAG figures, stated that 50,000 vehicles 
were repurchased annually under lemon laws. See Request for Comments 
Concerning Disclosures in the Resale of Vehicles Repurchased Due to 
Warranty Defects, 84 FR 19067, Petition for Investigation of ``Lemon 
Law'' Motor Vehicle Resale Practices (Nov. 8, 1995), 84 FR 19069, at 
19070 (Apr. 30, 1996). That figure would amount to about 0.56% of 
the more than 8.6 million new cars sold that year. Research and 
Innovative Technology Administration [``RITA''] Bureau of 
Transportation Statistics, U.S. Dept. of Transportation, http://www.bts.gov/publications/national_transportation_statistics/html/table_01_16.html.
    Industry sources contacted by staff in preparing this NPR 
estimated that only 0.2% of used vehicles sold by used car dealers 
are manufacturer repurchases.
    \93\ Arkansas, California, Florida, Georgia, Hawaii, Idaho, 
Indiana, Iowa, Minnesota, North Dakota, Ohio, Pennsylvania, South 
Carolina, Texas, and Washington require the manufacturer to warrant 
the repair of the nonconformity to the first subsequent retail buyer 
for a period of at least one year or 12,000 miles, whichever occurs 
first. NAAG1, Att. A (IALLA comment).
    \94\ For example, several manufacturers issue separate one year/
12,000 mile limited warranties on their reacquired vehicles 
regardless of where the vehicle is resold. Id.
    \95\ CARS at 20; IALLA (NAAG1, Att. A); NAAG1 at 3, 8-9.
---------------------------------------------------------------------------

    Commenters advocating the disclosure of manufacturer repurchase 
status typically do so in the context of a broader recommendation that 
the Commission model a revised Buyers Guide on Wisconsin's Buyers 
Guide, which requires dealers to check boxes to disclose various types 
of vehicle history and ``title brands,'' including boxes for prior use 
and brands like ``rebuilt salvage'' or ``manufacturer buyback.'' \96\ 
As discussed above, the Commission declines to propose the type of 
check box disclosures for vehicle history and title brands that are 
used on the Wisconsin Buyers Guide, and instead proposes that a 
statement be added to the Buyers Guide recommending that consumers 
obtain vehicle history reports. None of the commenters has provided 
persuasive reasons for treating manufacturer repurchase status 
differently from other aspects of a vehicle's history.
---------------------------------------------------------------------------

    \96\ NAAG1, Att. B.
---------------------------------------------------------------------------

    Moreover, given the extensive state laws and regulations on this 
topic, a Buyers Guide disclosure that a vehicle is a manufacturer 
repurchase appears to be unnecessary and duplicative. State laws 
already require dealers to disclose to the first retail purchaser after 
the repurchase that a vehicle has been repurchased by a manufacturer 
under state law. According to the IALLA, all fifty states have some 
form of lemon law, and forty-one states require a disclosure that a 
vehicle is a manufacturer repurchase to the first retail purchaser.\97\ 
Even in those states in which statutes or associated regulations do not 
expressly require a manufacturer repurchase disclosure, the failure to 
disclose the vehicle's repurchase status could violate the state's 
unfair and deceptive practices statute. In most states, then, dealers 
are already required to disclose that an individual vehicle is a 
manufacturer repurchase at least to the first retail purchaser. 
Therefore, with respect to the first retail purchaser at least, an 
additional disclosure on the Buyers Guide would merely duplicate 
existing requirements. The Commission is unaware of any evidence 
suggesting that these existing state disclosure requirements have been 
inadequate or that an apparently duplicative federal disclosure is 
necessary.
---------------------------------------------------------------------------

    \97\ NAAG1, Att. A (IALLA comment).
---------------------------------------------------------------------------

    Disclosures of manufacturer repurchase status may be more 
problematic with respect to vehicles resold after the first retail 
sale. It is not clear that dealers who sell these vehicles necessarily 
would know or be able to determine readily whether any such vehicle is 
a manufacturer repurchase. Although IALLA reports that all fifty states 
have some form of lemon law, titles in fewer than half of those states 
carry brands such as ``buyback'' or ``lemon.'' \98\ As a result, 
depending on the applicable state's law, dealers may not always be able 
to determine from a vehicle's title or NMVTIS report whether a vehicle 
is a manufacturer repurchase, and the availability of that information 
from other sources is unclear. Dealers who know that a vehicle is a 
manufacturer repurchase, however, are likely to disclose that 
information because the failure to do so could expose the dealer to 
liability for violating state unfair and deceptive practices statutes. 
Under these circumstances, the Commission sees no reason to treat 
manufacturer repurchase differently from other aspects of vehicle 
history such as, for example, salvage, flood, or prior use. Rather than 
requiring dealers to attempt to obtain, to report, and essentially to 
be responsible for the accuracy of a disclosure on the Buyers Guide 
that a vehicle is a manufacturer repurchase, the Commission proposes a 
statement on the Buyers Guide recommending that consumers obtain 
vehicle history information, which may reveal whether

[[Page 74758]]

an individual vehicle is a manufacturer repurchase under state law.
---------------------------------------------------------------------------

    \98\ IALLA; See NADA2, Exhibit A (chart: ``Brand/Vehicle Status-
Reference'' listing states that carry lemon law brands).
---------------------------------------------------------------------------

    In terms of specific warranty coverage that applies because of 
state lemon law, dealers who have knowledge of this warranty coverage 
may disclose information about it on the current Buyers Guide by using 
a statement similar to the one permitted for disclosing an unexpired 
manufacturer's warranty.\99\ The proposed revised Buyers Guide in this 
NPR would make that disclosure easier because it includes boxes where 
dealers would be able to indicate whether a manufacturer's original or 
used car warranty applies. Dealers could check the ``Manufacturer's 
Used Vehicle Warranty Applies'' box when a vehicle is covered by a 
manufacturer's lemon law warranty. When that or any of the other non-
dealer warranty boxes is checked, the proposed revised Buyers Guide 
advises: ``Ask the dealer for a copy of the warranty document and an 
explanation of warranty coverage, exclusions, and repair obligations.'' 
Consumers who follow this advice are then likely to learn the terms of 
the coverage and that it results from the vehicle's status as a 
manufacturer buyback or repurchased lemon.
---------------------------------------------------------------------------

    \99\ As noted elsewhere, see note 41 and accompanying text, the 
Rule currently provides that unexpired manufacturers' warranties may 
be identified by adding the following statement to the Buyers Guide: 
``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.'' Dealers could use similar language and state that a 
``MANUFACTURER'S LEMON LAW WARRANTY APPLIES.''
---------------------------------------------------------------------------

6. Disclosure of Known Defects
    Some comments urge that the Commission require that dealers 
disclose on the Buyers Guide whether the vehicle has defects. The 
Commission declines to alter its previous decisions on a ``known 
defects'' disclosure requirement. The Commission carefully considered 
such a requirement in the original rulemaking and ultimately rejected 
it in 1984.\100\ The issue was raised and rejected again in the 1995 
Rule review.\101\ Although consumer groups like CARS again have 
advocated for a known defects disclosure requirement, NAAG did not, 
acknowledging in its comment the controversy that this proposal 
engendered in the original rulemaking and declining to ``reincarnat[e] 
that long ago debate.'' \102\ As explained below, the commenters 
seeking a known defects disclosure rule have not provided any new 
information about its benefits that would cause the Commission to 
change its long-held view. The Commission believes that the 
recommendations on the Buyers Guide that consumers obtain a vehicle 
history report and inspection from independent sources are likely to 
provide consumers with more reliable information about the mechanical 
condition of a used car than a requirement that dealers disclose known 
defects.
---------------------------------------------------------------------------

    \100\ See SBP, 49 FR at 45694-95, 45711-18.
    \101\ 60 FR at 62197.
    \102\ CARS at 18-19; NAAG1 at 7.
---------------------------------------------------------------------------

    When a known defects disclosure requirement was raised in 
connection with the 1995 Rule review, the Commission explained that it 
had carefully considered such a requirement in the original rulemaking 
but had then decided that the requirement would ``not provide used car 
buyers with a reliable source of information concerning a car's 
mechanical condition and that the provision would be exceedingly 
difficult to enforce.'' \103\ The Commission instead decided in 1984, 
and reaffirmed in 1995, that the Buyers Guide's ``warranty and `As-Is' 
disclosures--along with the warnings about spoken promises and the pre-
purchase inspection notice--are effective remedies for the deceptive 
practices occurring in the used car industry.'' \104\ The new proposed 
notice that consumers obtain vehicle history information would serve to 
supplement the Rule's existing disclosures, providing consumers with 
another independent source for particularized information about the 
mechanical condition of a used vehicle.
---------------------------------------------------------------------------

    \103\ 60 FR at 62196-97 (quoting SBP, 49 FR at 45712).
    \104\ Id. at 62197.
---------------------------------------------------------------------------

    As in 1995, those advocating a known defects disclosure requirement 
have not pointed to any new studies showing that such a requirement 
would ``provide substantial information benefits in practice.'' \105\ 
In the original rulemaking, the Commission discussed two studies, 
neither of which established that a known defects disclosure 
requirement had achieved beneficial results in practice.
---------------------------------------------------------------------------

    \105\ Id.
---------------------------------------------------------------------------

    The first such study, known as the ``Wisconsin Study,'' produced 
inconclusive results after comparing the experiences of consumers in 
three states with different inspection and defect disclosure rules: 
Wisconsin (which required, and continues to require, mandatory 
inspections and disclosure of known defects), Iowa (which at the time 
required mandatory safety inspections, but not disclosure of known 
defects), and Minnesota (which had neither).\106\ Although the 
Wisconsin Study suggested that the Wisconsin disclosure law had 
resulted in a slight increase in consumer knowledge of defects at the 
time of sale, other data were inconclusive about the law's benefits. 
For example, the study showed that more consumers in Minnesota, which 
had no defect disclosure requirement, reported an awareness of defects 
than did consumers in Wisconsin. Moreover, the study failed to show 
that Wisconsin's disclosure requirement made it more likely that 
consumers would receive the information they felt they needed about the 
mechanical condition of a used vehicle.\107\ Indeed, the study 
``revealed that 51% of Wisconsin consumers still ultimately experienced 
repair problems not identified at the time of purchase.'' \108\ From 
this somewhat contradictory data, the Commission concluded that the 
results of the Wisconsin Study tended ``to indicate that the Wisconsin 
defect disclosure requirement did not have a strong effect on 
consumers' knowledge of defects.'' \109\
---------------------------------------------------------------------------

    \106\ SBP, 49 FR at 45713-15.
    \107\ The study showed only a minor decrease in the percentage 
of Wisconsin consumers who reported that dealers failed to provide 
important information about a vehicle's mechanical condition and 
virtually no change in the percentage of Wisconsin consumers 
reporting that dealers provided inaccurate mechanical defect 
information after the Wisconsin disclosure law became effective. 
SBP, 49 FR at 45714.
    \108\ 60 FR at 62197; SBP, 49 FR at 45712.
    \109\ SBP, 49 FR at 45714.
---------------------------------------------------------------------------

    A second study discussed in the original rulemaking, which compared 
results from Wisconsin with the rest of the country (the ``Baseline 
Survey''), also did not demonstrate that Wisconsin's experience with a 
known defects disclosure requirement had produced beneficial results. 
The Baseline Survey suggested that Wisconsin's defect disclosure 
requirement had not increased the amount of information that consumers 
receive about the mechanical condition of a used car, had not improved 
consumers' ability to predict future repair costs, and had not reduced 
the need for post-sale repairs.\110\ The Commission concluded that, 
taken as a whole, the Baseline Survey data ``suggest that the expected 
beneficial effects of a defect disclosure requirement were not achieved 
in Wisconsin.'' \111\
---------------------------------------------------------------------------

    \110\ Id. at 45715.
    \111\ Id. at 45714.
---------------------------------------------------------------------------

    The inconclusive nature of these earlier studies and the absence of 
any new empirical data establishing the benefits of a known defects 
disclosure

[[Page 74759]]

requirement counsels against reversing the Commission's decades-old 
decision that the Buyers Guide not require the disclosure of known 
defects.
    In addition to the lack of empirical data supporting a known 
defects disclosure requirement, the Commission also is concerned that 
such a requirement would be inconsistent with the overall goal of 
decreasing consumers' reliance on dealer-controlled information when 
making a used car purchase decision. The Commission concluded in the 
original rulemaking, for instance, that the requirement would send 
``the wrong signal to consumers by encouraging them to focus their 
attention on dealer-controlled information about a car's mechanical 
condition.'' \112\ By contrast, the Commission explained, ``the 
warranty disclosure requirements, the warning about spoken promises and 
the pre-purchase inspection notice encourage consumers to avoid 
reliance on dealer-controlled information about a car's mechanical 
condition.'' \113\ If dealers were required by the Rule to disclose 
known defects, there likely would be a tendency for consumers to rely 
completely on the dealer for information about the mechanical condition 
of a used car and to ignore the Buyers Guide's important advice that 
they seek an inspection and vehicle history information from 
independent sources.\114\ The Commission believes that consumers are 
likely to obtain more reliable information about the mechanical 
condition of particular vehicles from an independent inspection and 
vehicle history report than from the dealer's required disclosure of 
known defects.
---------------------------------------------------------------------------

    \112\ Id. at 45716.
    \113\ Id.
    \114\ Id.
---------------------------------------------------------------------------

    In addition, as discussed in the original rulemaking, consumers 
might assume incorrectly that a dealer's failure to disclose any 
defects pursuant to a mandatory disclosure requirement means that no 
defects actually exist.\115\ Of course, no disclosure requirement could 
ever insure that all defects would be discovered and disclosed to 
potential purchasers. Particular defects might go undisclosed for a 
variety of reasons, including an intentional decision by the dealer not 
to inspect for defects in the first place, a good faith failure to 
discover a particular defect during an inspection, or an intentional 
concealment of defects that in fact were discovered. As explained in 
the original rulemaking, a disclosure on the Buyers Guide ``that the 
dealer is not aware of any defects in a car provides no information 
about the actual existence of an undiscovered or latent defect'' but 
may cause consumers to conclude mistakenly ``that the dealer's lack of 
knowledge about defects means that no defects exist.'' \116\ The 
consumer's confusion could even be used by dealers to blunt the impact 
of an ``as-is'' warranty disclosure--that is, dealers could tell 
consumers that the ``as-is'' disclosure is irrelevant because the 
vehicle has no known defects.\117\
---------------------------------------------------------------------------

    \115\ Id. at 45715-16.
    \116\ Id. at 45716.
    \117\ Id.
---------------------------------------------------------------------------

    Finally, as the Commission noted in the original rulemaking, a 
known defects disclosure requirement may actually serve to lessen the 
likelihood that dealers would carefully inspect their used vehicles:

    Disclosing ``known defects'' calls attention to the car's 
problems but does not reward the dealer's integrity for revealing 
those problems. Thus, a dealer who regularly inspects and honestly 
discloses all ``known defects'' may be put at a competitive 
disadvantage relative to dealers who do not inspect. This factor may 
then have the unintended and perverse effect of discouraging, rather 
than encouraging, inspections and disclosure of defects.\118\


    \118\ Id. at 45713.

    For all of these reasons, the Commission again declines to impose a 
requirement as part of the Buyers Guide that dealers disclose known 
defects.
7. Dealer Inspections
    Similarly, the Commission also declines to propose a dealer 
inspection requirement, as urged by several commenters.\119\ The 
comments advocating an inspection requirement do not offer any new 
evidence that the Commission did not previously consider in rejecting 
mandatory inspections.
---------------------------------------------------------------------------

    \119\ CARS at 17-18; Sachau; Hillig.
---------------------------------------------------------------------------

    In originally promulgating the Rule, the Commission declined to 
impose an inspection requirement and noted that some of the reasons for 
rejecting the known defects disclosure provision applied ``with equal 
force'' to mandatory inspections.\120\ The Commission explained that 
mandatory inspections would tend to encourage reliance by consumers on 
the dealer's inspection and thus discourage consumers from seeking 
independent inspections and warranty protections.\121\ The Commission 
also noted that the Baseline Survey discussed above had shown that 
Wisconsin's mandatory inspection rule ``ha[d] not achieved significant 
beneficial effects.'' \122\ The Commission was concerned, in short, 
that ``a mandatory inspection rule has the potential to do more harm 
than good because it encourages reliance on dealer inspections and, as 
a consequence, discourages consumers from seeking more reliable 
information.'' \123\
---------------------------------------------------------------------------

    \120\ SBP, 49 FR at 45718.
    \121\ Id. at 45719.
    \122\ Id.
    \123\ Id.
---------------------------------------------------------------------------

    The reasons behind the Commission's 1984 decision to reject an 
inspection requirement are still applicable today. The Commission would 
add only that reliance on a mandatory inspection also could cause 
consumers to forego seeking vehicle history information. As previously 
noted, the Commission believes that obtaining these vehicle history 
reports and an independent inspection provide consumers with the most 
reliable information on the mechanical condition of a used vehicle.

C. List of Systems and Defects

1. Summary of Comments
    The Regulatory Review Notice requested comments on whether the List 
of Systems should be retained or modified. The List of Systems has not 
been updated since 1984 despite changes in automotive technology. The 
Commission received several comments recommending retention and several 
recommending deletion.
    Two commenters, NAAG and the Oregon Vehicle Dealer Ass'n, stated 
that the List of Systems should be deleted.\124\ NAAG noted that the 
List of Systems is of little value when compared with important 
information, such as past history of the vehicle, that it argued should 
be disclosed.\125\ The Oregon Vehicle Dealer Ass'n observed that 
``[n]obody looks at'' the List of Systems.\126\
---------------------------------------------------------------------------

    \124\ NAAG1 at 10; Ore. Vehicle Dealer Ass'n.
    \125\ NAAG1 at 10.
    \126\ Ore. Vehicle Dealer Ass'n.
---------------------------------------------------------------------------

    On the other hand, NIADA recommended retaining the List and opined 
that ``the list provides useful information to a customer who might, 
otherwise, have no or limited knowledge of the mechanical systems in a 
motor vehicle.'' \127\ According to NIADA, if the customer takes the 
vehicle to a mechanic for inspection, the information in the List of 
Systems may make possible a more understandable exchange between the 
mechanic and the customer prior to the customer electing to purchase a 
vehicle.\128\ NIADA added that ``Retaining the list is useful but not 
critical. For example, if space is needed to achieve other goals for 
revising the

[[Page 74760]]

Guide, then deletion of part or all of the list should be 
considered.''\129\
---------------------------------------------------------------------------

    \127\ NIADA1 at 6.
    \128\ Id.
    \129\ Id.
---------------------------------------------------------------------------

    Wholesale Forms also supported retaining the List of Systems for 
similar reasons. Wholesale Forms commented that the List of Systems 
conveys information to uneducated buyers who may not know much about 
cars.\130\
---------------------------------------------------------------------------

    \130\ Wholesale Forms at 4-5.
---------------------------------------------------------------------------

    Broward County commented that boxes should be added next to each 
item on the List of Systems where dealers could indicate which are 
covered by any warranty, along with a duration column where dealers 
would be instructed to indicate the duration of warranty coverage for 
each system. Broward County further proposed that the front of the 
Buyers Guide direct the consumer to the reverse side of the Buyers 
Guide to obtain details about warranty coverage over individual 
systems.\131\
---------------------------------------------------------------------------

    \131\ Broward County at 3-4, 16.
---------------------------------------------------------------------------

2. Retention of List of Systems
    The Commission proposes retaining the List of Systems and revising 
it by adding catalytic converters, as a component of the exhaust 
system, and airbags. The proposed revised Buyers Guide in this NPR 
decreases the type size of the List of Systems to free space for boxes 
where dealers can indicate the applicability of manufacturers' and 
other third-party warranties, as described in Part IIIC. In making this 
proposal, the Commission recognizes the limitations of the value of the 
List of Systems described by some commenters as well as the benefits of 
the List of Systems that would be lost by deleting it altogether.
    Adding boxes to the items on the list where dealers could disclose 
details of their own warranty coverage, as Broward County suggested, is 
not necessary because that information already can be provided by using 
the Systems Covered/Duration section of the Buyers Guide.
    The Commission does not believe that deleting the List of Systems 
entirely, as some commenters recommend, would benefit consumers. The 
List of Systems arose out of the Commission's consideration of prior 
proposed versions of the Rule, including a version in 1980 that would 
have required dealers to disclose known defects in what were identified 
as the fourteen major systems of a vehicle.\132\ The Commission 
rejected the known defects requirement but retained the List of Systems 
when the Rule was adopted. The Commission concluded, for example, that 
the List of Systems would help address misrepresentations about the 
mechanical condition of vehicles that dealers may make on a system-by-
system basis by providing consumers with a framework to evaluate the 
extent of the warranty coverage that must be indicated in the 
warranties section of the Buyers Guide.\133\ The Commission also 
concluded that the List of Systems would help consumers compare 
warranties on different cars or from different dealers and identify 
mechanical and safety systems that consumers may wish to have inspected 
by third parties.\134\ The Commission believes that retaining the List 
of Systems is appropriate for the reasons articulated during the 
original rulemaking.
---------------------------------------------------------------------------

    \132\ See SBP, 49 FR at 45711-12. The 1980 proposed rule would 
have required dealers to check off each system as ``OK,'' ``Not 
OK,'' or ``We Don't Know.'' Sale of Used Motor Vehicles; Disclosure 
and Other Regulations, 45 FR 52750 (Aug. 7, 1980) (Summary).
    \133\ See 49 FR at 45706.
    \134\ See id.
---------------------------------------------------------------------------

3. Adding Catalytic Converters and Airbags to the List of Systems
    The Commission is proposing to add catalytic converters and airbags 
to the List of Systems. Both are required on vehicles operated in the 
United States, and the Commission believes that consumers would likely 
want to evaluate the warranty coverage and to consider an inspection of 
these components.
a. Catalytic Converters
    Catalytic converters can be expensive and are targets for theft. 
Catalytic converters have been mandated for all U.S. vehicles since 
1975. Catalytic converters remove hydrocarbons from a vehicle's exhaust 
by converting the hydrocarbons into water and carbon dioxide. Precious 
metals such as platinum, palladium, rhodium, or gold are used as the 
catalyst for the chemical reaction that results in the conversion. The 
use of these metals makes catalytic converters relatively expensive to 
replace and a target for thieves.\135\ Catalytic converters may fail 
for a variety of reasons, including road damage or premature wear 
caused by, for example, faulty welds or uncombusted fuel reaching the 
converter. The failure of a catalytic converter could cause a vehicle 
to fail a state emissions test required for licensing.
---------------------------------------------------------------------------

    \135\ Replacement converters can cost over $1,000. Thieves can 
sell the converters to metal recyclers for $20 to $200 and the metal 
recyclers in turn can extract the precious metal for as much as 
$6,000 per ounce. Not surprisingly, the incidence of catalytic 
converter theft increases as metal prices rise. See Edmunds.com, 
Inc., In Under Two Minutes: Catalytic Converter Theft, Edmunds.com, 
Inc., http://www.edmunds.com/auto-insurance/in-under-two-minutes-catalytic-converter-theft.html.
---------------------------------------------------------------------------

    In light of the universal use of catalytic converters in U.S. 
vehicle exhaust systems and the expense associated with replacing them, 
the Commission proposes amending the Rule to add catalytic converters 
to the List of Systems in the Buyers Guide as a component of the 
exhaust system.
b. Airbags
    The Commission proposes adding airbags to the List of Systems. 
Airbags became a standard component of motor vehicles after the Rule's 
1984 issuance. In 1984, the federal government mandated passive 
restraint systems for all vehicles manufactured after 1989. 
Manufacturers could comply with the mandate by installing systems such 
as airbags or automatic seat belts. Dual driver and front passenger 
airbags were not mandated until 1997.\136\
---------------------------------------------------------------------------

    \136\ Airbags are a passive restraint system that supplement 
seatbelt restraints. Manufacturers originally conceived of the 
airbag as a replacement for the seat belt, but eventually it became 
a supplement to the seat belt. Passive restraint systems (automatic 
seat belts, airbags, or some combination) are mandated for vehicles 
built after September 1989. 49 CFR 571.208, S4.1.4.1. Dual front 
driver and passenger airbags are mandated for all passenger vehicles 
manufactured after September 1, 1997. 49 CFR 571.208, S4.1.5.3.
---------------------------------------------------------------------------

    Although the Commission did not receive comments recommending that 
airbags be added to the List of Systems, it did receive comments about 
the failure of airbags in used cars and the need to require disclosures 
about their functionality.\137\ Therefore, the Commission proposes to 
amend the Rule by adding airbags to the List of Systems because of 
their widespread use and obvious importance to vehicle safety. The 
Commission invites comments on this proposal.
---------------------------------------------------------------------------

    \137\ For example, CARS cited to missing, previously deployed, 
and nonfunctioning airbags. CARS at 7-8.
---------------------------------------------------------------------------

D. Spanish Buyers Guides

    The Rule requires that dealers display Spanish language Buyers 
Guides when they conduct sales in Spanish. The current Staff Compliance 
Guidelines recommend that dealers who conduct sales in both English and 
Spanish display each version of the Buyers Guide.\138\ The Regulatory 
Review Notice specifically asked whether a single bilingual Buyers 
Guide was desirable and feasible, and sought design proposals for a 
bilingual Buyers Guide (Question III.B(1)). The Notice did not include 
a draft bilingual Buyers Guide.
---------------------------------------------------------------------------

    \138\ Staff Compliance Guidelines, 53 FR at 17664.
---------------------------------------------------------------------------

    After reviewing the comments, the Commission proposes to retain 
separate English and Spanish versions of the

[[Page 74761]]

Buyers Guide. To ensure that the Spanish guide reaches its intended 
audience, however, the Commission also proposes adding a sentence in 
Spanish on the face of the English language Buyers Guide, alerting 
Spanish-speaking consumers who cannot read the Buyers Guide in English 
to ask for a copy in Spanish.
    The Commission received only one proposed bilingual Buyers 
Guide.\139\ This proposed Buyers Guide compresses the contents of the 
Buyers Guide to fit both an English and a Spanish version on a single 
page (front and back). The proposal does not appear to follow the 
Rule's specific type styles, sizes, and format requirements. Displaying 
both a Spanish and English Buyers Guide side by side on a single sheet 
of paper arguably may be permitted by the Rule, but such a bilingual 
guide would require extremely large, oversized paper to comply with the 
Rule's type style, size, and format requirements,\140\ which are 
intended to ensure the clarity and readability of the Buyers Guide.
---------------------------------------------------------------------------

    \139\ Carlabels.
    \140\ The Rule provides that ``[t]he capitalization, 
punctuation, and wording of all items, headings, and text on the 
form must be exactly as required by this Rule. The entire form must 
be printed in 100% black ink on a white stock no smaller than 11 
inches high by 7\1/4\ inches wide in the type styles, sizes and 
format indicated.'' 16 CFR 455.2(a)(2).
---------------------------------------------------------------------------

    Three commenting dealers, two trade associations, and a supplier of 
forms generally supported an optional bilingual Buyers Guide to 
generate potential cost savings for dealers.\141\ NIADA qualified its 
support for a bilingual Buyers Guide by noting that any change to paper 
size or major format changes to fit in the additional text would entail 
heavy compliance costs for dealers that have automated systems 
programmed to produce the current Buyers Guide, which would discourage 
use of the optional bilingual version. Two commenters stated that a 
bilingual Buyers Guide would make test driving safer because the view 
from the vehicle would be less obstructed with one window sticker 
instead of two.\142\ A national used car seller added that the 
informational impact of the Buyers Guide may be diluted by the 
``clutter'' of posting two separate versions and noted that permitting 
a single bilingual document potentially could reduce displaying errors 
or omissions.\143\ An automobile auction firm noted that a bilingual 
Buyers Guide would be more environmentally friendly because it would 
use less paper.\144\
---------------------------------------------------------------------------

    \141\ CarMax; Copart at 1; Anderson; NADA1 at 4; NIADA1 at 5; 
Carlabels.
    \142\ CarMax at 2; Carlabels.
    \143\ CarMax at 1.
    \144\ Copart at 1.
---------------------------------------------------------------------------

    A supplier of forms to car dealers commented that a bilingual 
Buyers Guide would contain too much text, would likely require reduced 
font sizes that would be illegibly small for some consumers, and would 
leave little space for important information.\145\ The supplier 
suggested retaining separate English and Spanish versions and adding 
the following statement to the English Buyers Guide in Spanish: ``If 
you are unable to read this document [in English], ask your salesperson 
for a copy in Spanish.'' \146\
---------------------------------------------------------------------------

    \145\ Wholesale Forms at 4.
    \146\ Id.
---------------------------------------------------------------------------

    After reviewing the comments and considering the difficulties in 
devising a clear and understandable bilingual Buyers Guide,\147\ the 
Commission has decided to retain separate English and Spanish Buyers 
Guides. The comments do not show that a clear and understandable 
bilingual Buyers Guide can be drafted. Instead, the Commission proposes 
to add a statement in Spanish to the English Buyers Guide that directs 
consumers to request a copy of the Buyers Guide in Spanish if they 
cannot read the English Buyers Guide. Accordingly, the proposed revised 
English Buyers Guide in this NPR includes, in Spanish, the following 
statement: ``If you are unable to read this document in English, ask 
your salesperson for a copy in Spanish'' (``Si usted no puede leer este 
documento en ingl[eacute]s, pidale al concesionario una copia en 
espa[ntilde]ol'').
---------------------------------------------------------------------------

    \147\ Staff attempted to devise a bilingual Buyers Guide in 
which an English statement was followed immediately by the Spanish 
translation, but the resulting guide was cluttered and confusing.
---------------------------------------------------------------------------

E. Miscellaneous Issues

1. Box to Indicate State-Mandated Warranty
    The Commission declines to propose adding boxes to the Buyers Guide 
where dealers can indicate the applicability of warranty coverage 
required by state law. Nine states currently have mandatory warranty, 
as well as lemon law, coverage for some used vehicles.\148\ 
Accordingly, comments from both NAAG and IALLA favor including a box on 
the Buyers Guide where dealers could indicate warranty coverage because 
of a state-mandated warranty.\149\
---------------------------------------------------------------------------

    \148\ Arizona, Connecticut, Hawaii, Massachusetts, Minnesota, 
New Jersey, New Mexico, New York, and Rhode Island have enacted 
warranty laws specific to used cars. These laws mandate warranty/
lemon law coverage for periods that range from 15 days/500 miles to 
90 days/4,000 miles for either all vehicles or those sold above a 
certain price or within certain age and mileage limitations. NAAG1, 
Att. A (IALLA comment).
    \149\ Id.
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    The Commission declines to propose such changes to the Buyers Guide 
because both the current and proposed revised Buyers Guide provide an 
adequate mechanism to disclose warranties required by state law. As 
noted in the current Compliance Guidelines, dealers can already 
disclose details of state-mandated warranties in the ``Systems Covered/
Duration'' section of the Buyers Guide in the same way that they 
disclose details of warranties that are not prescribed by law.\150\ The 
Rule would also permit pre-printing the applicable state-mandated 
warranties on the Buyers Guide. The additional space that will be 
created by moving the Non-Dealer Warranty and Service Contract boxes to 
the back of the Buyers Guide should help accommodate disclosures of 
state-mandated dealer warranties and address MADA's concern that the 
appendices in the Regulatory Review Notice did not provide sufficient 
space for these disclosures.\151\
---------------------------------------------------------------------------

    \150\ Staff Compliance Guides, 53 FR at 17663.
    \151\ MADA. A non-binding Commission staff opinion letter 
previously approved a Buyers Guide containing Minnesota's required 
warranty terms listed in the Systems Covered/Duration section. 
Letter from Joyce E. Plyler, Used Car Coordinator, Division of 
Enforcement, Federal Trade Commission, to James Schutjer, Assistant 
Counsel, MADA (May 25, 1988).
    The Staff Compliance Guidelines permit dealers to enlarge the 
Systems Covered/Duration section if necessary to comply with state 
or local disclosure requirements. 53 FR at 7663.
---------------------------------------------------------------------------

2. Application of Rule to Private/Individual Sales
    The Commission declines to propose expanding the Rule to cover 
private sales. The Rule applies to ``dealers,'' which is defined as 
``any person or business which sells or offers for sale a used vehicle 
after selling or offering for sale five (5) or more used vehicles in 
the previous twelve months.'' \152\ The Commission rejected coverage of 
private sales during the original rulemaking and again in 1995. In the 
present rule review, the Commission received one comment recommending 
that the Rule apply to sales by private individuals so that the Rule 
would treat all used car sales transactions in the same way.\153\
---------------------------------------------------------------------------

    \152\ 16 CFR 455.1(d)(3). The Rule excludes from the definition 
banks or financial institutions, businesses selling a used vehicle 
to their employees, or a lessor selling a leased vehicle to the 
lessee. Id.
    \153\ Hillig.
---------------------------------------------------------------------------

    During the original rulemaking, the Commission concluded that the 
Rule should not extend to private or casual sellers of used cars 
because the record failed to support a finding that

[[Page 74762]]

deceptive sales practices were prevalent in private sales.\154\ The 
Commission noted that in private sales, prospective customers often 
receive more reliable information about mechanical condition than they 
do from dealers and that private sellers typically do not offer 
warranty protection.\155\ In 1995, the Commission rejected a suggestion 
from NIADA that Buyers Guides be displayed in all advertised used car 
sales, noting that warranties typically are not offered in private 
sales and that enforcing the requirement in private sales would not be 
cost effective.\156\ The one comment recommending that the Rule be 
extended to private sales does not provide any compelling reasons for 
the Commission to revisit its prior decision. The Commission therefore 
declines to propose extending coverage of the Rule to private sales.
---------------------------------------------------------------------------

    \154\ SBP, 49 FR at 45708.
    \155\ Id.
    \156\ 60 FR at 62197.
---------------------------------------------------------------------------

3. Internet Sales
    Used car sales that to some degree involve the Internet are a 
potentially large and growing segment of the used car market.\157\ The 
Commission received three comments about Internet sales from industry 
groups, all generally addressing the availability of the Buyers Guide 
to consumers in such sales. A supplier of forms to car dealers, 
including Buyers Guides, suggested that the Buyers Guides be available 
electronically and viewable in dealership Internet listings.\158\ NIADA 
suggested that dealers could post examples of Buyers Guides online to 
identify each category of warranty, including whether vehicles are sold 
``As Is,'' rather than posting individual Buyers Guides applicable to 
each vehicle.\159\ A multi-state Internet dealer proposed giving 
dealers the option of providing online customers with electronic Buyers 
Guides applicable to individual vehicles, either by posting them on 
dealer Web sites or emailing them to consumers who request copies.\160\
---------------------------------------------------------------------------

    \157\ According to NIADA, in 2008, 48,700,000 used cars were 
offered over the Internet, but only 7,700,000 were sold through the 
Internet. In 2007, 39,100,000 used cars were offered over the 
Internet, and 7,900,000 were sold through the Internet. NIADA Used 
Car Industry Report 2009 at 19.
    In its comment, a multi-state Internet dealer cites to 
projections that ``Internet-generated'' sales (sales that are 
generated by the Internet but consummated either on or off-line) 
will grow to 5.6 million in 2012 (11.3 percent of used car sales) 
from 4.1 million in 2007 and ``direct online'' sales (Internet-
generated sales in which consumers make their first financial 
commitments to purchase online) will rise from 1.4 million vehicles 
in 2007 (3% of total used car sales) to 2.1 million in 2012 (4% of 
total used car sales). Downey Brand at 2 and 3. Although these 
statistics suggest that use of the Internet is increasing in the 
used car market, they do not shed any light on the prevalence of 
sales consummated entirely online or the prevalence of deception in 
connection with Internet used vehicle sales generally.
    \158\ Dealer Specialties.
    \159\ NIADA1 at 5.
    \160\ Downey Brand at 4-5. The comment is not clear whether it 
proposes that dealers should be permitted to make Buyers Guides 
electronically available online in addition to or as an alternative 
to requiring that they be displayed on a used vehicle offered for 
sales.
---------------------------------------------------------------------------

    The Rule requires that dealers complete and display the Buyers 
Guide on vehicles offered for sale.\161\ Some information in the Buyers 
Guide, such as the warning that oral promises are difficult to enforce 
and the recommendation that consumers ask about an independent pre-
purchase inspection, is most valuable if consumers see the Buyers Guide 
as early as possible in the potential transaction. The terms of the 
Buyers Guide are incorporated into the contract of sale and override 
any contrary provisions in the contract.\162\ Consumers who physically 
view a car on a dealer's lot can see information contained in a Buyers 
Guide before purchase whereas consumers who purchase entirely online 
may not see that information until after the sale is completed.
---------------------------------------------------------------------------

    \161\ 16 CFR 455.2.
    \162\ 16 CFR 455.3(b).
---------------------------------------------------------------------------

    The Rule currently has no provisions specifically addressing 
Internet used car sales. Like classified, other forms of print, or 
electronic media advertising, Internet advertising is often used to 
draw a consumer's attention to the advertised goods or services, and 
the sale is ultimately consummated at a dealership. Consumers who 
respond to this form of Internet advertising are in a position similar 
to those who visit a dealer because of other forms of advertising. The 
Rule has no provisions concerning the general advertising of used cars, 
and the comments do not suggest reasons to treat this form of Internet 
advertising differently from classified, other print, and other 
electronic media advertising.
    Internet sales may also be consummated entirely online with 
consumers never physically seeing a vehicle or the Buyers Guide that is 
displayed on it. Although the Rule requires that dealers display a 
Buyers Guide prior to sale, it does not preclude them from disclosing 
that information in other ways, such as by making Buyers Guides 
available online. Staff routinely tells dealers that they should 
attempt to provide the Buyers Guide to purchasers before an Internet 
sale is concluded because some of the information in the Buyers Guide 
is most valuable to consumers prior to sale. Staff also advises dealers 
to include the final version of the Buyers Guide with the final sales 
contract because the Buyers Guide is incorporated into that contract.
    The Commission is unaware of evidence of prevalent deceptive 
practices by dealers in the Internet sale of used cars. The three 
comments that address Internet sales do not cite to evidence of 
prevalent deceptive practices by dealers in Internet sales, and, in 
particular, to those Internet sales in which the consumer does not 
physically see the offered vehicle or Buyers Guide prior to 
consummation of the transaction. In fact, Internet used vehicle 
purchasers may in some circumstances have greater protections from 
fraud than traditional purchasers. eBay Motors, for example, lists 
consumer buying tips on its Web site and provides certain protections 
to consumers buying used cars through its service.\163\ Finally, the 
comments do not suggest that deceptive practices are unique to or any 
more prevalent in private Internet sales of used vehicles than in 
traditional sales. The Rule does not apply to private used car sales 
generally, and the comments do not suggest reasons to treat private 
Internet used car sales differently.
---------------------------------------------------------------------------

    \163\ See eBay Motors Vehicle Purchase Protection, http://pages.motors.ebay.com/buy/purchase-protection/index.html.
---------------------------------------------------------------------------

    Therefore, in this NPR, the Commission does not propose amending 
the Rule to address Internet used vehicle sales, but seeks comment on 
whether deceptive practices by dealers are prevalent in the Internet 
sale of used cars.
4. Use of the Term ``Certified''
    The Commission is making no proposals to change the Rule, as urged 
by CARS, to restrict the use of the term ``certified'' or similar terms 
in used car sales.\164\ CARS commented that the Rule should prohibit 
dealers from labeling certain less valuable and problem vehicles as 
``certified.'' \165\
---------------------------------------------------------------------------

    \164\ CARS at 25-28.
    \165\ CARS at 25.
---------------------------------------------------------------------------

    As explained elsewhere in this NPR, the term ``certified'' in used 
vehicle sales typically refers to used vehicles that have been 
``certified'' to meet certain prescribed mechanical, age, and mileage 
conditions after a mechanical inspection that are then offered for sale 
with a manufacturer's ``certified'' used car warranty.\166\ The term 
``certified'' has no standard definition and could be

[[Page 74763]]

used to describe manufacturer supported warranty programs, dealer 
warranty programs, or simply used vehicles that a dealer represents to 
be in good mechanical condition, regardless of whether the vehicle is 
offered for sale with a warranty. Even when the term ``certified'' 
refers to manufacturers' certified used vehicle warranty programs, 
those programs can vary widely in their precise terms, such as warranty 
duration and vehicle components covered. Manufacturers, and dealers for 
that matter, are free to adopt their own competing certification 
programs and to define the meaning of the term ``certified,'' or any 
other term that they choose to use, in describing those programs.
---------------------------------------------------------------------------

    \166\ See note 47, Edmunds.com, Inc., Certified Used Cars--The 
Wave of the Future, http://www.edmunds.com/car-buying/certified-used-cars-the-wave-of-the-future.html.
---------------------------------------------------------------------------

    CARS recommends possible federal standards for when a vehicle can 
be sold as ``certified.'' The CARS comment refers to a California law 
that prohibits use of the term ``certified'' or similar terms whenever 
any of seven enumerated conditions apply.\167\ Similarly, the comment 
proposes that the Commission prohibit describing a used car as 
``certified'' if any of several conditions is present.\168\
---------------------------------------------------------------------------

    \167\ Specifically, California prohibits applying the term 
``certified'' to used cars when any of the following conditions are 
met: (1) The dealer knew or should have known that the odometer had 
been rolled back; (2) the dealer knew or should have known that the 
vehicle had been reacquired by the manufacturer or a dealer under 
state or federal warranty law; (3) the vehicle had been titled as a 
``Lemon Law Buyback,'' ``manufacturer repurchase,'' ``salvage,'' 
``junk,'' ``nonrepairable,'' ``flood,'' or similar title designation 
required by California or another state; (4) the vehicle had 
sustained damage in an impact, fire, or flood that substantially 
impairs the use or safety of the vehicle; (5) the dealer knew or 
should have known that the vehicle had sustained frame damage; (6) 
the dealer fails to provide a completed inspection report prior to 
sale; or (7) the dealer disclaims the warranty of merchantability. 
Id. at 26-27 (citing Cal. Veh. Code 11713.18).
    \168\ According to CARS, vehicles that should not be advertised 
or sold as ``certified'' include those that: (1) Have substantial 
nonconformities that substantially impair the use, value or safety 
of the vehicles, such as vehicles repurchased under lemon laws; (2) 
have manufacturers' warranties or extended service contracts that 
exclude coverage for prior damage; (3) were previously used as daily 
rentals, program cars, taxicabs, police vehicles, or were reported 
as stolen; and (4) are grey market vehicles (imported vehicles that 
were not manufactured in compliance with United States emissions and 
safety standards and that require additional regulatory approvals to 
be licensed as road ready). Id. at 27-28.
---------------------------------------------------------------------------

    CARS did not offer evidence that application of ``certified'' 
labels to substandard vehicles is a prevalent practice other than 
several news reports showing anecdotal instances of the practice. 
Misrepresenting the mechanical condition of used cars with terms such 
as ``certified'' is already prohibited by Sec.  5 of the FTC Act,\169\ 
the Rule itself,\170\ and state consumer protection laws. The deceptive 
practices that CARS seeks to remedy can be addressed on a case-by-case 
basis.
---------------------------------------------------------------------------

    \169\ 15 U.S.C. 45.
    \170\ 16 CFR 455.1(a)(1) (deceptive act or practice for a dealer 
to ``misrepresent the mechanical condition of a used vehicle'').
---------------------------------------------------------------------------

    At this time, the Commission is unconvinced that the Rule should be 
changed to address deception that potentially may be associated with 
use of the term ``certified'' or with vehicle certification programs 
generally. The Commission is unclear how the adoption of a federal 
standard for use of a term like ``certified'' or for vehicle 
certification programs would uniformly address the potential for 
deception suggested by the comment. Therefore, the Commission does not 
propose any Rule changes to address use of the term ``certified'' or 
vehicle certification programs generally.
5. ``50/50'' and Other ``Split Cost'' Warranties
    One commenter suggested that the Commission should amend the Rule 
to prohibit 50/50 or other split cost used car warranties. In a split 
cost warranty, the consumer pays a percentage of the cost of warranty 
work. A 50/50 warranty refers to a split cost warranty in which a 
consumer pays half of the cost of the warranty service (i.e., 50% of 
the parts and 50% of the labor). The Commission has already determined 
that split cost warranties are permissible, as described below. Indeed, 
the Buyers Guide contemplates split cost warranties by requiring 
dealers to identify the percentage of labor and parts that the dealer 
will pay for warranty service.
    CARS commented that 50/50 warranties are inherently deceptive under 
the Magnuson-Moss Act's prohibition of deceptive warranties \171\ 
because the warrantor could raise the price of the warranty work high 
enough to make consumers pay the entire warranty repair cost, both 
parts and labor.\172\ The comment argues that 50/50 warranties also 
violate the Magnuson-Moss Act's prohibition against ``tying'' a 
warranty to a consumer's use of any product, article, or service 
identified by brand or corporate name, unless the product, article, or 
service is provided without charge.\173\
---------------------------------------------------------------------------

    \171\ 15 U.S.C. 2310(c)(2).
    \172\ CARS at 23-24.
    \173\ Id. (citing 15 U.S.C. 2302(c)).
---------------------------------------------------------------------------

    In 2002, the Commission formally declared that 50/50 warranties are 
not prohibited by the Magnuson-Moss Act's anti-tie in provisions.\174\ 
Moreover, the Commission noted that other practices, such as inadequate 
disclosures, could constitute unfair or deceptive acts or practices and 
that such determinations would be made on a case-by-case basis.
---------------------------------------------------------------------------

    \174\ Letter to Keith E. Whann, Whann & Assocs., representing 
NIADA (December 31, 2002), http://www.ftc.gov/os/2003/01/niadaresponseletter.htm. (``2002 Magnuson-Moss Opinion Letter'' 
interpreting Sec.  102(c) of the Magnuson-Moss Act (codified at 15 
U.S.C. 2302(c))).
    The CARS comment urges the Commission to adopt a position that, 
according to CARS, was suggested by the Commission's comments in 
1999 that split cost warranties that require repair work to be 
performed by the dealer or at a place of the dealer's choosing 
``likely violate'' the anti-tie in provisions. CARS at 24 (citing 64 
FR 19700, 19703 (Apr. 22, 1999)). The 2002 Opinion Letter clarified 
the Commission's interpretation that the Magnuson-Moss Act's anti-
tie in provisions do not prohibit split cost warranties, 
notwithstanding the prior Federal Register document.
---------------------------------------------------------------------------

    The Magnuson-Moss Act allows the Department of Justice or the 
Commission to seek injunctions to stop deceptive warranty 
practices.\175\ Such practices would also violate Sec.  5 of the FTC 
Act,\176\ and could be attacked under Sec.  13(b) of that act. CARS 
offered no evidence suggesting that pricing used in connection with 50/
50 warranties is likely to mislead consumers or that evidence could be 
developed to show that such warranty pricing practices are prevalent. 
The Commission can address any such practices on a case-by-case basis. 
Therefore, the Commission sets forth no proposal to address this issue 
in this NPR.
---------------------------------------------------------------------------

    \175\ 15 U.S.C. 2310(c)(1)(A).
    \176\ 15 U.S.C. 45, 2310(b).
---------------------------------------------------------------------------

6. Buyers Guide Statement That Purchase of Service Contract May Give 
Consumers Additional Rights Under State Law Implied Warranties
    The Commission proposes no change to the statement on the Buyers 
Guide that describes the relationship between the purchase of a service 
contract and a dealer's capacity to disclaim implied warranties. The 
Magnuson-Moss Act prohibits suppliers from disclaiming or modifying 
state law implied warranties if the supplier enters into a service 
contract with the consumer within 90 days of the time of sale.\177\ The 
Buyers Guide explains this relationship by stating, ``[i]f you buy a 
service contract within 90 days of the time of sale, state law `implied 
warranties' may give you additional rights.''
---------------------------------------------------------------------------

    \177\ 15 U.S.C. 2308(a)(2).
---------------------------------------------------------------------------

    The Commission received one comment asserting that the statement on 
the Buyers Guide is confusing to consumers. According to MADA, the 
statement is confusing because it leads consumers to believe that 
dealers must offer a service contract for up to 90 days after a 
sale.\178\ MADA noted that most

[[Page 74764]]

dealers will offer a service contract only at the time of sale and not 
afterwards. MADA did not propose an alternative statement or offer any 
survey or other evidence suggesting the statement often causes consumer 
confusion.
---------------------------------------------------------------------------

    \178\ MADA.
---------------------------------------------------------------------------

    The statement on the Buyers Guide clearly explains the relationship 
between the purchase of a service contract and a dealer's capacity to 
disclaim implied warranties. Neither the statement on the Buyers Guide 
nor the Magnuson-Moss Act sets the length of time during which a 
service contract must be made available for purchase or whether a 
dealer must make a service contract available. At most, MADA's comment 
suggests that consumers may complain when they learn that the 
dealership will not offer a service contract after the time of sale or 
that dealers may have difficulty selling service contracts because 
consumers mistakenly believe that they can always purchase them later. 
Dealers who offer service contracts only at the time of sale can 
address consumer confusion about the Buyers Guide statement simply by 
explaining the meaning of the statement as well as the dealership's 
policies concerning service contract sales.
    The Buyers Guide ultimately adopted in 1984 was designed and 
reviewed to ensure that the disclosures in it were conveyed in a clear 
and succinct manner.\179\ Various versions of the Buyers Guide were 
subjected to several rounds of consumer testing to measure 
comprehensibility.\180\ The Commission considered that consumer testing 
when it adopted the 1984 Buyers Guide, which included the current 
statement describing the relationship between the purchase of a service 
contract and implied warranties.
---------------------------------------------------------------------------

    \179\ SBP, 49 FR at 45724.
    \180\ Id. at 45725.
---------------------------------------------------------------------------

    The comment does not offer any evidence of widespread consumer 
confusion caused by the Buyers Guide statement describing the 
relationship between the purchase of a service contract and implied 
warranties. Therefore, the Commission does not propose changing this 
statement.
7. Consumer Acknowledgment Signature Line
    The 1995 amendments to the Rule gave dealers the option of adding a 
signature line to the Buyers Guide where dealers could obtain 
consumers' acknowledgment that they had received the Buyers Guide.\181\ 
One commenter suggested that dealers should be required to obtain a 
signature and to retain a second signed copy.
---------------------------------------------------------------------------

    \181\ 60 FR at 62205.
---------------------------------------------------------------------------

    Broward County commented that the Rule should be revised to make a 
signature mandatory on two copies, one of which would be given to the 
consumer and the other kept in the dealer's file, to facilitate 
subsequent investigations into consumer complaints.\182\
---------------------------------------------------------------------------

    \182\ Broward County at 2.
---------------------------------------------------------------------------

    As the Commission noted in 1995 when it added the optional 
signature line, mandating that dealers obtain purchaser signatures 
might help establish whether consumers received the Buyers Guide but 
would not prove that the dealer had displayed a a Buyers Guide on the 
vehicle.\183\ Only requiring dealers to keep copies of the signed 
Buyers Guides (with omissions suggesting non-compliance) could serve 
that purpose.\184\ The Commission noted, however, that dealers already 
had a ``considerable incentive'' to obtain signatures and concluded 
that the compliance costs of mandatory signatures, with the necessary 
recordkeeping requirements, would be ``unnecessarily burdensome.'' 
\185\
---------------------------------------------------------------------------

    \183\ 60 FR at 62197.
    \184\ Id.
    \185\ Id.
---------------------------------------------------------------------------

    Thus, during the original rulemaking, and again in 1995, the 
Commission declined to impose mandatory signature and recordkeeping 
provisions, reasoning that the possible benefits of the requirements 
did not justify their cost.\186\ The comment does not demonstrate a 
need to revisit the prior decision, and the Commission intends to 
retain the optional signature line as it now stands.
---------------------------------------------------------------------------

    \186\ Id. at 62197 n.36.
---------------------------------------------------------------------------

8. Enhanced Enforcement
    The Commission received several comments concerning enforcement of 
the Rule that do not directly pertain to the Regulatory Review Notice, 
which is concerned with whether, and in what form, the Rule should be 
retained. A consumer protection attorney commented that he hoped that 
the Commission ``will more clearly establish rules for and aggressive 
enforcement of non-complying dealers.'' \187\ CARS and an individual 
consumer commented that the FTC should increase relevant financial 
penalties.\188\ Two suppliers of forms commented that stepping up 
monitoring and enforcement actions would be adequate to improve 
compliance without the need for enhanced penalties.\189\
---------------------------------------------------------------------------

    \187\ Swann at 1.
    \188\ CARS at 2; Sachau.
    \189\ Wholesale Forms; Carlabels.
---------------------------------------------------------------------------

    As to civil penalties, the Federal Civil Penalties Inflation 
Adjustment Act of 1990, as amended by the Debt Collection Improvement 
Act of 1996, requires the Commission to adjust the civil penalty amount 
that applies to violations of Commission trade regulation rules every 
four years.\190\ The Commission, however, has no independent authority 
beyond that Act to adjust the statutory civil penalty amount that 
applies to violations of Commission trade regulation rules. Over the 
years the Commission has undertaken a number of ``sweeps'' of dealers 
to investigate compliance with the Rule, often working with State and 
local partners. The Commission remains committed to enforcing the Rule.
---------------------------------------------------------------------------

    \190\ 28 U.S.C. 2641 note. The civil penalty amount for Sec.  5 
violations was last increased on January 9, 2009, effective February 
9, 2009, and is currently $16,000 per violation. 74 FR 857-888; 16 
CFR 1.98.
---------------------------------------------------------------------------

V. Regulatory Review

    There is a continuing need for the Rule, and the Commission has 
determined to retain it, to propose the additional amendments described 
above, and to adopt the Spanish translation of the Buyers Guide 
discussed in the Regulatory Review Notice.\191\ Industry groups 
supported retaining the Rule, in part, because it provides valuable 
information to consumers.\192\ Consumer groups supported retaining the 
Rule, and recommended various modifications discussed above.\193\ The 
comments provide evidence that the Rule serves a useful purpose, while 
imposing minimal costs on industry.
---------------------------------------------------------------------------

    \191\ The translation revisions are made in a final rule 
published in a separate Federal Register document.
    \192\ E.g., NADA1 at 2; NIADA1 at 2; Wholesale Forms at 1.
    \193\ E.g., NAAG1 at 2; CARS at 2.
---------------------------------------------------------------------------

VI. Communications to Commissioners and Commissioner Advisors by 
Outside Parties

    Written communications and summaries or transcripts of oral 
communications respecting the merits of this proceeding from any 
outside party to any Commissioner or Commissioner's advisor will be 
placed on the public record.

VII. Paperwork Reduction Act

    As discussed above, the Commission is proposing amendments to the 
Rule designed to provide dealers with a method to disclose optional 
additional information. The proposed amendments do not require dealers 
to disclose this

[[Page 74765]]

additional information nor do they alter the Rule's existing disclosure 
requirements or impose recordkeeping requirements. The FTC previously 
submitted ``collection of information'' requirements and related 
Paperwork Reduction Act (``PRA'') burden analyses for public comment 
\194\ that have been cleared by the Office of Management and Budget 
(``OMB'').\195\
---------------------------------------------------------------------------

    \194\ 76 FR 144 (Jan. 3, 2011); 75 FR 62538 (Oct. 12, 2010).
    \195\ OMB Control No. 3084-0108 (exp. Feb. 28, 2014). Should 
final rule amendments change existing disclosure requirements for 
the Used Car Rule, the FTC will pursue OMB clearance and appropriate 
adjustment for its prior PRA burden estimates.
---------------------------------------------------------------------------

    The FTC anticipates making amended Buyers Guides, if adopted, 
available on its Web site for downloading by dealers. The FTC expects 
that current suppliers of Buyers Guides, such as commercial vendors and 
dealer trade associations, will supply dealers with amended Buyers 
Guides. Accordingly, dealers' cost to obtain amended Buyers Guides 
should increase only marginally, if at all.
    For simplicity, FTC staff assumes that dealers will make the 
optional disclosures on 25% of used cars offered for sale. Dealers who 
choose to make the optional disclosures should obtain amended Buyers 
Guides and complete them by checking additional boxes not appearing on 
the current Buyers Guide. Staff previously estimated that completing 
Buyers Guides would require approximately 2 minutes per vehicle for 
cars sold without a warranty and 3 minutes per vehicle for vehicles 
sold with a warranty. Checking the additional boxes should require 
dealers no more than an additional 30 seconds per car. Thus, making the 
optional disclosures presented by the proposed amendments would 
increase estimated burden by 57,539 hours (25% x 27,618,480 cars sold 
\196\ x 1/120 hour per car).
---------------------------------------------------------------------------

    \196\ See NIADA Used Car Industry Report (2012) (``Used Car 
Industry Report 2012''), available at www.niada.com/publications.php, at 16,18 (citing CNW Marketing Research data for 
2011). Dealers sold 71.2% (i.e., 27,618,480 vehicles) of the 
approximately 38,790,000 used cars sold in 2011. The remaining used 
cars were sold in casual/private party sales. Id. at 16.
---------------------------------------------------------------------------

    Assuming that dealers use lower level clerical staff at a mean 
hourly wage of $13.90 per hour \197\ to complete the Buyers Guides, 
incremental labor costs associated with making the optional disclosures 
will total $799,792 per year [57,539 hours x $13.90 per hour].
---------------------------------------------------------------------------

    \197\ The hourly rate derives from Bureau of Labor Statistics 
data for the mean hourly wage of ``Office clerks, general.'' See 
Occupational Employment and Wages--May 2011 (released March 27, 
2012), available at http://www.bls.gov/news.release/archives/ocwage_03272012.pdf.
---------------------------------------------------------------------------

    Assuming, as stated above, that dealers will make the optional 
disclosures on 25% of the 27,618,480 used cars offered for sale, and 
assuming further a cost of twenty cents per pre-printed Buyers Guide, 
incremental purchase costs per year will total $1,380,924. Any other 
capital costs associated with the proposed amendments are likely to be 
minimal.

VIII. Regulatory Analysis

    Section 22 of the FTC Act, 15 U.S.C. 57b, requires the Commission 
to issue a preliminary regulatory analysis when publishing a Notice of 
Proposed Rulemaking, but requires the Commission to prepare such an 
analysis for a rule amendment proceeding only if it: (1) Estimates that 
the amendment will have an annual effect on the national economy of 
$100,000,000 or more; (2) estimates that the amendment will cause a 
substantial change in the cost or price of certain categories of goods 
or services; or (3) otherwise determines that the amendment will have a 
significant effect upon covered entities or upon consumers. The 
Commission has set forth in Section IX below, in connection with its 
Initial Regulatory Flexibility Analysis (``IRFA'') under the Regulatory 
Flexibility Act (``RFA''), 5 U.S.C. 601-612, and has discussed 
elsewhere in this Document: The need for and objectives of the Proposed 
Rule (IX.B below); a description of reasonable alternatives that would 
accomplish the Rule's stated objectives consistent with applicable law 
(IX.F below); and a preliminary analysis of the benefits and adverse 
effects of those alternatives (id.).
    The Commission estimates that the proposed amendments to the Used 
Car Rule will not have such an annual effect on the national economy, 
on the cost or prices of goods or services sold by used car dealers, or 
on covered businesses or consumers. The Commission has not otherwise 
determined that the proposed amendments will have a significant impact 
upon regulated persons. As noted in the PRA discussion above, the 
Commission staff estimates each business affected by the Rule will 
likely incur only minimal initial added compliance costs as dealers 
obtain revised Buyers Guides and become familiar with them. To ensure 
that the Commission has considered all relevant facts, however, it 
requests additional comment on these issues.

IX. Initial Regulatory Flexibility Analysis

    The RFA requires an agency to provide an IRFA with a proposed rule 
and a Final Regulatory Flexibility Analysis (``FRFA'') with the final 
rule, if any, unless the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities. 
See 5 U.S.C. 603-605. The FTC does not expect that the Proposed Rule 
will have a significant economic impact on a substantial number of 
small entities.
    The Proposed Rule, like the current Used Car Rule, does not contain 
reporting or recordkeeping requirements, but does require that dealers 
disclose certain information. The disclosure requirements of the 
Proposed Used Car Rule are the minimum necessary to give consumers the 
information that they need to protect themselves and to permit 
effective enforcement of the rule. The Proposed Rule requires only that 
dealers use a revised Buyers Guide. It does not impose additional 
recordkeeping requirements or change the information that dealers 
themselves must disclose on the Buyers Guide. Additional disclosures 
consist of pre-printed verbatim statements and check boxes that dealers 
will have the option, but are not required, to complete. As such, the 
economic impact of the proposed Used Car Rule will be minimal. In any 
event, the burdens imposed on small businesses are likely to be 
relatively small, and in the Commission's enforcement experience, 
insignificant in comparison to their gross sales and profits.
    This document serves as notice to the Small Business Administration 
(``SBA'') of the agency's certification of no effect. Nonetheless, the 
Commission has determined that it is appropriate to publish an IRFA in 
order to inquire into the impact of the Proposed Rule on small 
entities. Therefore, the Commission has prepared the following 
analysis.

A. Description of the Reasons That Action by the Agency Is Being 
Considered

    The comments received during the Regulatory Review Notice indicate 
a continuing need for the Rule. The comments indicate that consumers 
would benefit from a revised Rule that enhances consumer access to 
information about manufacturers' and other third-party warranties. The 
comments also indicate that consumers would benefit with improved

[[Page 74766]]

knowledge about the availability of vehicle history information.

B. Succinct Statement of the Objectives of, and Legal Basis for, the 
Proposed Rule

    The objective of the proposed Used Car Rule is to provide material 
information about used car warranties and used vehicle histories. This 
information will help protect consumers from dealer misrepresentations 
and aid consumers in making informed choices when considering the 
purchase of a used car, while minimizing the compliance burdens on 
dealers. The legal basis for this proposed rule is the FTC Act and ' 
1029 of the Dodd-Frank Act, 12 U.S.C. 5519. Section 18(a)(1)(B) of the 
FTC Act, 15 U.S.C. 57a, authorizes the Commission to issue rules that 
define with specificity acts or practices in or affecting commerce that 
are unfair or deceptive within the meaning of ' 5(a)(1) of the FTC Act, 
15 U.S.C. 45(a)(1), and may include requirements for the purpose of 
preventing such acts or practices. Section 1029 of the Dodd-Frank Act 
authorizes the Commission, when issuing such rules with respect to 
motor vehicle dealers, to use standard APA procedures in accordance 
with 5 U.S.C. 553.

C. Description of and, Where Feasible, Estimate of the Number of Small 
Entities To Which the Proposed Rule Will Apply

    The Used Car Rule primarily applies to ``dealers,'' defined as 
individuals or businesses which sell or offer for sale a used vehicle 
after selling or offering for sale five or more used vehicles in the 
previous year.\198\ The Commission believes that many of these dealers 
would be considered small businesses according to the applicable SBA 
size standards. Under those standards, independent used car dealers 
having annual receipts of less than $23 million and franchised new car 
dealers, which also typically sell used cars, having fewer than 200 
employees each are classified as small businesses.\199\
---------------------------------------------------------------------------

    \198\ 16 CFR 455.1(d)(3).
    \199\ U.S. Small Business Admin. Table of Small Bus. Size 
Standards Matched to North American Indus. Classification System 
[``NAICS''] Codes (effective Mar. 26, 2012), http://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf. Used car 
dealers are classified as NAICS 441120 and franchised new car 
dealers as NAICS 441110.
---------------------------------------------------------------------------

    In 2011, the nation's 37,594 independent used car dealers had 
average total revenue of $3,974,916.\200\ Used car dealers' average 
annual revenue is well below the maximum $23 million in annual sales 
established by the SBA for classification as a small business.
---------------------------------------------------------------------------

    \200\ Used Car Market Report 2012, at 16, 20. Used vehicle sales 
accounted for 36.2% ($1,463,564) of that revenue. Id.
---------------------------------------------------------------------------

    Many franchised new car dealers would also be classified by the SBA 
as small businesses. In 2011, the nation's 17,540 franchised new car 
dealers had an average of fifty employees.\201\ The average number of 
employees at each dealership was 53, well below the 200 employee 
maximum established by the SBA for classification as a small 
business.\202\
---------------------------------------------------------------------------

    \201\ Calculated from the monthly number of new dealers listed 
in 2011 Data Source Book at 10.
    \202\ NADA Data 2012, available at http://www.nada.org/Publications/NADADATA/2012/, at 5, 14 (data as of January 1, 2011).
---------------------------------------------------------------------------

D. Projected Reporting, Recordkeeping and Other Compliance 
Requirements, Including an Estimate of the Classes of Small Entities 
That Will Be Subject to the Requirement and the Type of Professional 
Skills Necessary for Preparation of the Report or Record

    The Used Car Rule imposes disclosure obligations on used car 
dealers, but does not impose any reporting or recordkeeping 
requirements. Specifically, dealers are required to complete and 
display a Buyers Guide on each used car offered for sale. Dealers are 
required to complete and display Spanish versions of the Buyers Guide 
when sales are conducted in Spanish. Staff has determined that clerical 
or low-level administrative personnel can perform the tasks necessary 
to meet dealers' disclosure obligations. Neither the current Rule nor 
the Proposed Rule requires dealers to retain any records other than may 
be necessary to meet their obligations to complete and display the 
Buyers Guides. The Proposed Rule does not change the tasks that dealers 
must perform to meet their obligations under the Rule. Dealers may 
experience a slight initial increase in costs as they familiarize 
themselves with using revised Buyers Guides. The Commission invites 
comments on the Proposed Rule's compliance requirements and on the 
types of professional skills necessary to meet dealers' compliance 
obligations.

E. Other Duplicative, Overlapping, or Conflicting Federal Rules

    No other federal statutes, rules, or policies conflict with the 
Used Car Rule or with the Proposed Rule. No other federal law or 
regulation requires that the Buyers Guide disclosures be made when a 
used vehicle is placed on the dealer's lot or when it is offered for 
sale.\203\ Two states that are exempt from the Rule, Maine and 
Wisconsin, require disclosure of related but different information 
regarding used car sales.\204\
---------------------------------------------------------------------------

    \203\ Some states also have adopted the Rule as state law. In 
addition, the Magnuson-Moss Warranty Act, 15 U.S.C. 2301-2312, 
requires that written warranties on consumer products be available 
before sale, as specified by 16 CFR Part 702, but displaying 
warranty information is not required.
    \204\ Both states were granted exemptions from the Rule pursuant 
to 16 CFR 455.6.
---------------------------------------------------------------------------

    The Commission invites comments on federal rules that may 
duplicate, overlap, or conflict with the Proposed Rule.

F. Description of Any Significant Alternatives to the Proposed Rule 
That Would Accomplish the Stated Objectives of Applicable Statutes and 
That Minimize Any Significant Economic Impact of the Proposed Rule on 
Small Entities, Including Alternatives Considered, Such as: (1) 
Establishment of Differing Compliance or Reporting Requirements or 
Timetables That Take Into Account the Resources Available to Small 
Entities; (2) Clarification, Consolidation, or Simplification of 
Compliance and Reporting Requirements Under the Rule for Such Small 
Entities; and (3) Any Exemption From Coverage of the Rule, or Any Part 
Thereof, for Such Small Entities

    The Proposed Rule's disclosure requirements are designed to impose 
the minimum burden on all affected dealers, regardless of size. The 
Proposed Rule is intended to avoid increasing the burden on dealers. 
The Proposed Rule does not impose any new recordkeeping requirements 
and does not require dealers to disclose more information on the Buyers 
Guide than the current Rule does.
    The proposed revised Buyers Guide contains additional pre-printed 
disclosures not found in the current Buyers Guide. These include a 
verbatim statement advising consumers to obtain vehicle history 
information prior to purchasing a used vehicle and a statement in 
Spanish on the English Buyers Guide advising consumers to ask for a 
Spanish Buyers Guide if they are unable to understand the English 
Buyers Guide. The revised Buyers Guide also lists airbags and catalytic 
converters as components of vehicles in which defects may arise.
    The information that the Proposed Rule would require dealers to 
provide on a revised Buyers Guide is unchanged from the current Rule. 
The revised Buyers Guide contains additional sections pertaining to 
manufacturers' and third-party warranties that dealers

[[Page 74767]]

have the option, but are not required, to complete by simply checking 
boxes on the revised Buyers Guide.
    The Commission does not believe that the Proposed Rule will impose 
a significant economic impact on a substantial number of small 
businesses. Nonetheless, the Commission specifically requests comment 
on the question of whether the Proposed Rule would impose a significant 
impact upon a substantial number of small entities, and what 
modifications to the Proposed Rule the Commission could make to 
minimize the burden on small entities. Moreover, the Commission 
requests comment on the general question of whether new technology or 
changes in technology can be used to reduce the burdens imposed by the 
Proposed Rule.
    In some situations, the Commission has considered adopting a 
delayed effective date for small entities subject to a new regulation 
in order to provide them with additional time to come into compliance. 
In this case, however, the Commission believes that small entities 
should feasibly be able to come into compliance with the Proposed Rule 
by the proposed effective date, six months following publication of the 
final Rule. Nonetheless, the Commission invites comment on whether 
small businesses might need additional time to come into compliance 
and, if so, why.
    In addition, the Commission has the authority to exempt any persons 
or classes of persons from the Proposed Rule's application pursuant to 
Sec.  18(g) of the FTC Act. By definition, sellers of used cars that 
have not sold or offered for sale five or more used cars in the 
previous year are exempt from the Rule.\205\ The Proposed Rule does not 
change this threshold. The Commission requests comment on whether it 
should consider exempting any persons or classes of persons covered by 
the Rule from application of the proposed amendments. The Commission 
notes, however, that the Proposed Rule's purpose of protecting 
consumers from unfair or deceptive acts or practices in used car sales 
could be undermined by the granting of a broad exemption to small 
entities.
---------------------------------------------------------------------------

    \205\ 16 CFR 455.1(d)(3).
---------------------------------------------------------------------------

G. Questions for Comment To Assist Regulatory Flexibility Analysis

    1. Please provide information or comment on the number and type of 
small entities affected by the Proposed Rule. Include in your comment 
the number of small entities that will be required to comply with the 
Proposed Rule's disclosure requirements.
    2. Please provide comment on any or all of the provisions in the 
Proposed Rule with regard to: (a) the impact of the provision(s) 
(including benefits and costs to implement and comply with the Proposed 
Rule or any of its provisions), if any; and (b) what alternatives, if 
any, the Commission should consider, as well as the costs and benefits 
of those alternatives, paying specific attention to the effect of the 
Proposed Rule on small entities in light of the above analysis. In 
particular, please describe any ways in which the Proposed Rule could 
be modified to reduce any costs or burdens for small entities 
consistent with the Proposed Rule's purpose, and costs to implement and 
to comply with provisions of the Proposed Rule, including expenditures 
of time and money for: any employee training; attorney, computer 
programmer, or other professional time; preparing relevant materials 
(e.g., completing Buyers Guides); and recordkeeping.
    3. Please describe ways in which the Proposed Rule could be 
modified to reduce any costs or burdens on small entities, including 
whether and how technological developments could further reduce the 
costs of implementing and complying with the Proposed Rule for small 
entities.
    4. Please provide any information quantifying the economic costs 
and benefits of the Proposed Rule on the entities covered, including 
small entities.
    5. Please identify any relevant federal, state, or local rules that 
may duplicate, overlap, or conflict with the Proposed Rule.

X. Invitation to Comment

    The Commission invites interested members of the public to submit 
written data, views, facts, and arguments addressing the issues raised 
by this NPR, including the proposed revisions to the Buyers Guide. Such 
comments must be received by February 11, 2013, and must be filed in 
accordance with the ADDRESSES section of this document.
    The Commission asks that comments be confined to the following 
specific issues pertaining to the proposals discussed in SUPPLEMENTARY 
INFORMATION PARTS IVA-IVD and IVE3. In particular, the Commission 
requests written responses to any or all of the following questions. 
The Commission requests that responses be as specific as possible, 
including a reference to the question being answered, and a reference 
to empirical data or other evidence wherever available and appropriate.
    1. Should the Buyers Guide be revised, as discussed in 
SUPPLEMENTARY INFORMATION PART IVA, to include check boxes for 
disclosing manufacturers' and other third-party warranties? Why or why 
not? What alternative revisions to the Buyers Guide, if any, should be 
adopted to improve disclosure of manufacturers' and third-party 
warranties?
    2. Should the proposed vehicle history statement on the front of 
the proposed Buyers Guide be adopted? Why or why not?
    3. Should the proposed vehicle history statement be modified? If 
so, how?
    4. Should the proposed vehicle history statement list both ftc.gov/usedcars (the FTC Web site) and vehiclehistory.gov (the NMVTIS Web 
site)? Should it list only ftc.gov/usedcars? Should it list only 
vehiclehistory.gov? Why or why not?
    5. Should the List of Systems include catalytic converters? Why or 
why not?
    6. Should the List of Systems include airbags? Why or why not?
    7. Should the proposed statement, ``Si usted no puede leer este 
documento en ingl[eacute]s, pidale al concesionario una copia en 
espa[ntilde]ol,'' directing Spanish-speaking consumers to ask for a 
copy of the Buyers Guide in Spanish be adopted? Why or why not? What 
alternative statement, if any, should be considered? What alternative 
proposals to alert Spanish-speaking customers to the Spanish Buyers 
Guide should be considered?
    8. Identify and describe deceptive practices, if any, that are 
prevalent in Internet used vehicle sales. Provide studies, analyses, 
and data demonstrating the extent of those practices. If deceptive 
practices are prevalent in Internet used vehicle sales, what regulatory 
steps, if any, should the FTC consider taking to prevent those 
practices?
    9. What is the extent of consumer injury, if any, that results from 
consumers' inability to see information on the Buyers Guide prior to 
purchase in Internet used vehicle sales in which consumers cannot 
visually inspect a car and see the Buyers Guide prior to purchase? 
Provide examples, studies, analyses and data indicating the nature and 
extent of such consumer injury.
    10. To what extent do consumers who consummate Internet used 
vehicle sales online receive copies of the Buyers Guide with their 
final sales contracts? Provide examples, studies, analyses, and data to 
support your answer.
    11. The FTC also invites comments on the nature and extent of 
information that it should make available on the Web site, ftc.gov/usedcars that it

[[Page 74768]]

proposes to create in connection with the proposed Buyers Guide.
    12. If the FTC creates the proposed Web site, ftc.gov/usedcars, 
should the FTC include active links to other Web sites, such as the Web 
sites of providers of vehicle history reports, and, if so, which Web 
sites? If the FTC includes active links to other Web sites, what 
mechanisms and standards should the FTC apply to ensure that it directs 
consumers only to Web sites and firms that are trustworthy and that 
accommodate consumer privacy and data security expectations?

List of Subjects in 16 CFR Part 455

    Motor vehicles, Trade practices.

    For the reasons set forth in this document, the Federal Trade 
Commission is proposing to amend part 455 of title 16, Code of Federal 
Regulations, as follows:

PART 455--USED MOTOR VEHICLE TRADE REGULATION RULE

    1. Revise the authority citation to read as follows:

    Authority: 15 U.S.C. 2309; 15 U.S.C. 41-58.

    2. Amend Sec.  455.2 by revising the introductory text of paragraph 
(a), and paragraphs (a)(2), (b)(1), (b)(2)(v), (b)(3), and (e) to read 
as follows:


Sec.  455.2  Consumer sales--window form.

    (a) General duty. Before you offer a used vehicle for sale to a 
consumer, you must prepare, fill in as applicable and display on that 
vehicle the applicable ``Buyers Guide'' illustrated by Figures 1-6 at 
the end of this part.
    (1) * * *
    (2) The capitalization, punctuation and wording of all items, 
headings, and text on the form must be exactly as required by this 
Rule. The entire form must be printed in 100% black ink on a white 
stock no smaller than 11 inches high by 7\1/4\ inches wide in the type 
styles, sizes and format indicated. When filling out the form, follow 
the directions in paragraphs (b) through (e) of this section and Sec.  
455.4 of this part.
    (b) Warranties--(1) No Implied Warranty--``As Is''/No Dealer 
Warranty. (i) If you offer the vehicle without any implied warranty, 
i.e., ``as is,'' mark the box appearing in Figure 1. If you offer the 
vehicle with implied warranties only, substitute the IMPLIED WARRANTIES 
ONLY disclosure specified in Sec.  455.2(b)(1)(ii) below, and mark the 
IMPLIED WARRANTIES ONLY box illustrated by Figure 2. If you first offer 
the vehicle ``as is'' or with implied warranties only but then sell it 
with a warranty, cross out the ``As Is--No Dealer Warranty'' or 
``Implied Warranties Only'' disclosure, and fill in the warranty terms 
in accordance with paragraph (b)(2) of this section.
    (ii) If your State law limits or prohibits ``as is'' sales of 
vehicles, that State law overrides this part and this rule does not 
give you the right to sell ``as is.'' In such States, the heading ``As 
Is--No Dealer Warranty'' and the paragraph immediately accompanying 
that phrase must be deleted from the form, and the following heading 
and paragraph must be substituted. If you sell vehicles in States that 
permit ``as is'' sales, but you choose to offer implied warranties 
only, you must also use the following disclosure instead of ``As Is--No 
Dealer Warranty'' \206\ as illustrated by the Buyers Guide in Figure 2.
---------------------------------------------------------------------------

    \206\ See Sec.  455.5 n. 4 for the Spanish version of this 
disclosure.

IMPLIED WARRANTIES ONLY

    The dealer doesn't make any promises to fix things that need 
repair when you buy the vehicle or afterward. But implied warranties 
under your state's laws may give you some rights to have the dealer 
take care of serious problems that were not apparent when you bought 
the vehicle.

    (2) * * *
    (v) You may, but are not required to, disclose that a warranty from 
a source other than the dealer applies to the vehicle. If you choose to 
disclose the applicability of a non-dealer warranty, mark the box 
labeled ``Non-Dealer Warranties'' on the back of the Buyers Guide, as 
illustrated by Figure 3, and also the applicable box or boxes to 
indicate: ``MANUFACTURER'S WARRANTY STILL APPLIES. The manufacturer's 
original warranty has not expired on the vehicle,'' ``MANUFACTURER'S 
USED VEHICLE WARRANTY APPLIES,'' and/or ``OTHER USED VEHICLE WARRANTY 
APPLIES.''
    If, following negotiations, you and the buyer agree to changes in 
the warranty coverage, mark the changes on the form, as appropriate. If 
you first offer the vehicle with a warranty, but then sell it without 
one, cross out the offered warranty and mark either the ``As Is--No 
Dealer Warranty'' box or the ``Implied Warranties Only'' box, as 
appropriate.
    (3) Service contracts. If you make a service contract (other than a 
contract that is regulated in your State as the business of insurance) 
available on the vehicle, you must add the following heading and 
paragraph below the Non-Dealer Warranties Section on the back of the 
Buyers Guide, as illustrated by Figure 3, and mark the box labeled 
``Service Contract:'' \3\
---------------------------------------------------------------------------

    \3\ See Sec.  455.5 n. 4 for the Spanish version of this 
disclosure.

    [ballot] SERVICE CONTRACT. A service contract on this vehicle is 
available for an extra charge. Ask for details about coverage, 
deductible, price, and exclusions. If you buy a service contract 
within 90 days of your purchase of this vehicle, implied warranties 
under your state's laws may give you additional rights.
* * * * *
    (e) Complaints. In the space provided, put the name, telephone 
number, and email address of the person who should be contacted if any 
complaints arise after sale.
* * * * *
    3. Revise Sec.  455.5 to read as follows:


Sec.  455.5  Spanish language sales.

    If you conduct a sale in Spanish, the window form required by Sec.  
455.2 and the contract disclosures required by Sec.  455.3 must be in 
that language. You may display on a vehicle both an English language 
window form and a Spanish language translation of that form. Use the 
translation and layout for Spanish language sales in Figures 4, 5, and 
6.\4\
---------------------------------------------------------------------------

    \4\ Use the following language for the ``Implied Warranties 
Only'' disclosure when required by Sec.  455.2(b)(1):
    GARANT[Iacute]AS IMPL[Iacute]CITAS SOLAMENTE
    El concesionario no hace ninguna promesa de arreglar aquello que 
necesite reparaci[oacute]n cuando usted compra el veh[iacute]culo o 
a partir de ese momento. Pero, las garant[iacute]as 
impl[iacute]citas establecidas por la ley de su estado pueden 
otorgarle algunos derechos para que el concesionario se haga cargo 
de resolver problemas graves que no eran evidentes al momento de 
comprar el veh[iacute]culo.
    Use the following language for the ``Service Contract'' 
disclosure required by Sec.  455.2(b)(3):
    CONTRATO DE SERVICIO. Por un cargo extra, usted puede disponer 
de un contrato de servicio para este veh[iacute]culo. Consulte los 
detalles sobre la cobertura, deducibles, precio y exclusiones. Si 
usted compra un contrato de servicio dentro de los 90 d[iacute]as 
posteriores a la compra de este veh[iacute]culo, las 
garant[iacute]as impl[iacute]citas establecidas por la ley de su 
estado pueden otorgarle derechos adicionales.
---------------------------------------------------------------------------

BILLING CODE 6750-01-P

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    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 2012-29920 Filed 12-14-12; 8:45 am]
BILLING CODE 6750-01-C