[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
-----------------------------------------------------------------------
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]]
-----------------------------------------------------------------------
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.
-----------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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
[[Page 74747]]
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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\5\ 60 FR 62195 (Dec. 5, 1995). The history of the Used Car Rule
is summarized in the SBP. 49 FR at 45692-95.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\6\ 73 FR 42285 (July 21, 2008) (``Regulatory Review Notice'').
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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
[[Page 74748]]
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\
---------------------------------------------------------------------------
\10\ SBP, 49 FR at 45693.
\11\ Id.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\17\ SBP, 49 FR at 45694 (citing Miller Motor Car Corp. v. FTC,
No. 81-4144 (2d Cir. 1981)).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\20\ 60 FR at 62196-97.
\21\ Id. at 62197.
\22\ Id. at 62197-98.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
The Commission received twenty-five comments from twenty-one
[[Page 74749]]
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
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
[[Page 74769]]
[GRAPHIC] [TIFF OMITTED] TP17DE12.005
[[Page 74770]]
[GRAPHIC] [TIFF OMITTED] TP17DE12.006
[[Page 74771]]
[GRAPHIC] [TIFF OMITTED] TP17DE12.007
[[Page 74772]]
[GRAPHIC] [TIFF OMITTED] TP17DE12.008
[[Page 74773]]
[GRAPHIC] [TIFF OMITTED] TP17DE12.009
[[Page 74774]]
[GRAPHIC] [TIFF OMITTED] TP17DE12.010
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