What is the FTC Used Car Rule?

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Hey dealer, where's that Buyer's Guide, prominently displayed? You know about the FTC Used Car Rule, don't you? (Photo: flickr.com)

Hey dealer, where's that Buyer's Guide, prominently displayed? You know about the FTC Used Car Rule, don't you? (Photo: flickr.com)

If you’ve ever shopped for a used car at a dealership, you’ve probably seen a document hanging either on the rear view mirror or a side mirror, or affixed to a window. This document, called a Buyer’s Guide, is intended to inform you of what kind of warranty will apply to your vehicle upon purchase.

By a law called the FTC Used Car Rule, this document must be prominently displayed so that consumers can easily view the information. You must receive separate copies of both the Buyer’s Guide and vehicle warranty upon purchase of a vehicle (the Buyer’s Guide cannot serve as a warranty). These documents should reflect all final changes.

Just as the Buyer’s Guide should be clearly displayed, so should written warranties. The FTC’s Rule on Pre-Sale Availability of Written Warranty Terms requires that written warranties must be clearly displayed in close proximity to the vehicle or made available upon request before purchase.

There are a number of other associated rules spelled out by the FTC, which I outline briefly for the layperson in this article. If you require legal insight, you should consult a lawyer, the FTC, your state’s Attorney General or insurance commission.

Most used car dealers must comply

Excluding Maine and Wisconsin (where similar regulations already exist), used car dealers who sell more than five used vehicles in a 12-month period in any state must adhere to the requirements of the FTC Used Car Rule. This rule also applies to the District of Columbia, Guam, Puerto Rico, American Samoa and the U.S. Virgin Islands. If a used car transaction occurs in Spanish, a Spanish language Buyers Guide must be made available for the consumer.

Banks and financial institutions are exempt, as are businesses that sell cars solely to their employees and lessors who sell leased vehicles.

Once the Buyer’s Guide is displayed as per the FTC Used Car Rule, the vehicle is officially being offered for sale, even if it isn’t completely ready to be delivered to the customer. If the Buyer’s Guide is not displayed in plain sight on or inside the vehicle, the vehicle cannot be legally sold. This applies to vehicles for sale via consignment, power of attorney, public auction or some other arrangement.

What happens if a used car dealer fails to comply with the FTC Used Car Rule?

Penalties of up to $16,000 per violation can be the result via FTC enforcement. However, many states have their own laws about used car sales, so local authorities may also have the authority to enact fines against dealerships in violation of the Rule. For dealers, the simple solution is to display that Buyer’s Guide on each and every used car for sale in such a way that both sides are very easy to see. This can be via a mirror, window or under the windshield wiper.

What used vehicles fall under the FTC Used Car Rule?

Any vehicle that meets the following criteria, whether it has been titled or not and driven for purposes outside of moving or test driving (in which case it can be removed, but must be returned after the test drive is complete):

Are there exceptions to the FTC Used Car Rule?

Yes. They include:

  • Motorcycles
  • Vehicle sold for scrap or parts where the dealer has obtained the necessary salvage certification
  • Farm machinery

The Buyer’s Guide (in greater detail)

The Buyer’s Guide is a disclosure of purchase and warranty information. It tells consumers:

  • Whether the vehicle is being sold “as is” or with a warranty
  • The percent of repair fees the dealer will pay as stipulated by the warranty
  • To avoid settling on oral promises from a dealer and to demand written promises
  • To retain the Buyer’s Guide for reference purposes after purchasing the vehicle
  • What the major electrical and mechanical systems of the car include, and what potential associated problems the consumer should keep watch over
  • To have an independent mechanic inspect the vehicle before purchasing

What information about vehicle and dealership must appear on the Buyer’s Guide?

The vehicle’s make, model, year and VIN are required to appear at the top of the Buyer’s Guide by the FTC Used Car Rule. A dealer’s stock number is optional, as is a signature line that can be added at the end of the document in the space provided for the name of the individual to be contacted in the event that there are complaints after the sale is complete. Whether this signature line appears is up to the individual dealer.

If a signature line appears, it must be accompanied by the following disclosure, per the FTC: “I hereby acknowledge receipt of the Buyers Guide at the closing of this sale.”

Dealers must include the name and address of their dealership on the back of the Buyer’s Guide, as well as the name or position of the employee and their contact phone number if there are complaints. A rubber stamp is acceptable according to the FTC.

Types of warranties

  1. As Is-No Warranty – If allowed in your state (and the dealer chooses not to provide one), this means that you the consumer are responsible for repairs.
  2. Implied Warranties Only – A non-specific promise from the dealer about taking responsibility for repairs, but it may give a consumer some legal recourse if serious problems occur. The length of implied warranties cannot be limited.
  3. Express Warranty, full or limited – What the consumer wants, if they can get it

What’s the difference between a full and limited express warranty?

A full warranty must meet the following conditions:

  1. Service must be provided free of charge to all who own the vehicle during the warranty time frame.
  2. If repairs cannot be made after reasonable attempts, the consumer must be able to choose a replacement or receive a refund.
  3. All the consumer must do to receive service on their vehicle is to give notice to the warrantor. Service must then be performed, unless the warrantor can prove it is reasonable to require more of the consumer.

A limited warranty is what you have when one of the above do not apply.

Percentage of cost covered

What electrical and mechanical systems in the vehicle are covered under warranty and for how long should be spelled out on the Buyer’s Guide with a full or limited warranty, as well as what percentage of costs the dealership takes responsibility and whether a deductible applies. The proper names for systems that may be covered are listed on the Buyer’s Guide.

Please note that if there are any negotiated warranty changes between the warrantee and the warrantor, a percentage breakdown of coverage changes must be written on the Buyer’s Guide.

Split Cost Warranties

As indicated above, these reflect a percentage breakdown of coverage: what the warrantor is responsible for versus what the warrantee would have to cover in the event of breakdown. These are typically 50/50 deals, but variations exist where the buyer pays a deductible and the dealer pays remaining costs for covered repair. If a deductible plan applies to a warranty, the amount of the deductible must be spelled out on the Buyer’s Guide, as well as the situations where the deductible would apply.

In some instances, dealerships may require that buyers bring their vehicle to them for repairs that are covered under split cost warranty. If such is the case, an estimate of the total repair cost should be made available to the customer before work begins. This allows the buyer to approve or decide if they want to shop around, which may happen when there isn’t a full warranty.

What about a manufacturer’s warranty?

If this still applies and the dealer is paying for the warranty, there is a place on the Buyer’s Guide for the dealer to indicate such. The phrase “MANUFACTURER’S WARRANTY STILL APPLIES” must appear if such is the case. If the consumer must pay for a manufacturer’s warranty to be applied, it’s not considered a warranty and cannot be listed as such. It’s a service contract in that situation, and must be indicated as so on the Buyer’s Guide. If your state deems service contracts the “business of insurance,” the Service Contract area need not be checked. Check with your state Attorney General or insurance commissioner for more info.

The Magnuson-Moss Warranty Act and Warranty Disclosure Rule

Whether a dealer supplies a written warranty or the manufacturer’s warranty is still in effect, the Magnuson-Moss Warranty Act and other FTC Rules apply, including the Warranty Disclosure Rule. The Magnuson-Moss Warranty Act spell out consumer rights regarding written warranties. The Warranty Disclosure Rule requires that any coverage and warranty info required by the FTC and your state be spelled out for consumers in a single easy-to-read document.

If you’re a dealer, where can you get a Buyer’s Guide form?

Consult with your local business form company or trade association. They’re also available through the FTC Web site (see sample below). If need be, you can create one yourself, so long as it contains all of the information discussed above. The wording, type style, font size, document size and formatting specified in the FTC Used Car Rule must be used, however. In other words, no other wording or symbols are accepted as substitutes on the Buyer’s Guide. Your Buyer’s Guide template must be printed entirely in black ink on white paper. When you fill in the blanks for an individual vehicle, the ink may be colored. The paper itself must be at least 11″ x 7 ¼”; nothing smaller is accepted under the FTC Used Car Rule.
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