Regulatory Flexibility Act and Periodic Review of Used Motor Vehicle Trade Regulation Rule

FEDERAL TRADE COMMISSION

16 CFR Part 455

Regulatory Flexibility Act and Periodic Review of Used Motor

Vehicle Trade Regulation Rule

AGENCY: Federal Trade Commission.

ACTION: Final rule.

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SUMMARY: The Commission announces that its review of the Used Car Rule

(the ``Rule''), which was conducted pursuant to the Regulatory

Flexibility Act (``RFA''), and the Commission's review program, has

been completed. Having considered all of the issues raised during the

comment period, the Commission is now issuing non-substantive

amendments to the Rule. The Commission is making several minor

grammatical changes to the Spanish language version of the Buyers

Guide. Further, the Commission is amending the Rule to permit dealers

to post Buyers Guides anywhere on a used vehicle, instead of requiring

that they be posted on a side window, provided the Buyers Guide is

conspicuously and prominently displayed and both sides can be easily

read. Finally, the Commission is amending the Rule to allow dealers the

option of obtaining a consumer's signature on the Buyers Guide, if

accompanied by a disclosure that the buyer is acknowledging receipt of

the Buyers Guide at the close of the sale.

DATES: The effective date of these non-substantive amendments will be

January 4, 1996.

ADDRESSES: Requests for copies of the regulations and the notice of

final, non-substantive amendments should be sent to Public Reference

Branch, Room 130, Federal Trade Commission, 6th and Pennsylvania Ave.,

NW, Washington D.C. 20580.

FOR FURTHER INFORMATION CONTACT: George Brent Mickum IV, Attorney,

Federal Trade Commission, Division of Enforcement, Bureau of Consumer

Protection, Washington, D.C. 20580, (202) 326-3132.

SUPPLEMENTARY INFORMATION:

I. Introduction

On May 6, 1994, the Commission, in accordance with the RFA's

requirements, and its own program to review all its rules and

guidelines periodically, published a Notice in the Federal Register

soliciting comments on the Rule.1 The Notice solicited comments

about the impact of the Rule generally, and whether it had had a

significant economic impact on small entities,2 and, if so,

whether the Rule should be amended to minimize any such impact. The

Notice also sought comment on certain proposed changes to the Rule.

\1\ 59 FR 23647 (May 6, 1994) (``the Notice'').

\2\ For the purpose of the RFA review, a ``small entity'' is a

used motor vehicle dealer with less than $11.5 million in annual

sales, as defined by the Small Business Size Standards, 13 CFR

121.601.

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The Commission received 26 comments in response to the

Notice.3 These comments came from eight used car dealers; 4

four Attorneys General; 5 four consumer protection groups; 6

three trade associations; 7 one state government; 8 one radio

station; 9 one national distributor of Buyers Guides; 10 one

CPA firm that represents used car dealers; 11 and one

consumer.12

\3\ The comments were placed on the public record under category

23 (Regulatory Flexibility Act Review Comments) of Public Record

Docket No. P944202. References to the comments are made by means of

the author and number of the comment and, when appropriate, the page

of the comment. Two of the comments were consumer complaints that

were inadvertently classified as comments. Although some comments

were submitted shortly after the closing date of July 6, 1994, the

Commission has included them in its analysis.

\4\ Chuck Gould, J.O.A. Motors Ltd., B-03; Anonymous South

Carolina dealer, B-04; Karl Kroeger, K&K Auto Sales, Inc., B-05; F.

Whalen, B-06; Kenny Loveless, Northside Auto Sales, B-09; Mike

Zibura, B-10; Lee S. Maas, Sun-West Audi, B-18; Duane H. Wallace,

Town & Country Chevrolet Oldsmobile Inc., B-26.

\5\ Alaska Attorney General, Bruce M. Botelho, B-01; Illinois

Attorney General, Roland W. Burris, B-08; Iowa Attorney General,

William L. Brauch, Assistant Attorney General, B-15; Washington

Attorney General, Christine O. Gregoire, B-17.

\6\ National Coalition for Consumer Education (``NCCE''), Carol

Glade, Executive Director, B-12; Office of Consumer Credit

Commissioner, Richard R. Woodward, Examiner, B-16; National Consumer

Law Center (``NCLC''), B-23; National Association of Consumer Agency

Administrators (``NACAA''), Lawrence A. Breeden, President, B-25.

\7\ The National Independent Automobile Dealers Association

(``NIADA''), B-07; the Texas Automobile Dealers Association

(``TADA''), B-11; the National Automobile Dealers Association

(``NADA''), B-19.

\8\ Michigan Department of State, Jeff Villaire, Director,

Dealer Division, Bureau of Automotive Regulation, B-14.

\9\ WBBM Newsradio 78, Naomi Hood, Director, B-13.

\10\ Reynolds & Reynolds, Joe Hurr, Director, Automotive Forms

Marketing, B-20.

\11\ Hundman & Woodward, Carl Woodward, C.P.A., B-21.

\12\ Jay R. Drick, Esq., B-25. As indicated earlier, two of the

comments were consumer complaints that were misclassified as

comments. Warren and Irma Muncey, B-02; Sam A. Amato, B-22.

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II. The Regulation

The Commission promulgated the Used Car Rule under the authority of

the Federal Trade Commission Act, 15 U.S.C. 41 et seq. (``FTC Act''),

and the Magnuson Moss Warranty Act, 15 U.S.C. 2309, on November 19,

1984. 49 FR 45692 (1984). The Rule became effective on May 9,

1985.13 A violation of the Rule constitutes an unfair or deceptive

act or practice under the FTC Act, and one who violates the Rule is

subject to civil penalties of up to $10,000 per violation.

\13\ Two states, Wisconsin and Maine, subsequently petitioned

the Commission and received exemptions pursuant to section 455.6 of

the Rule.

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The Used Car Rule is primarily intended to prevent and to

discourage oral misrepresentations and unfair omissions of material

facts by used car dealers concerning warranty coverage. The Rule

provides a uniform method for written disclosure of warranty

information on a window sticker called the ``Buyers Guide.'' The Rule

requires sellers to disclose on the Buyers Guide the basic terms and

conditions of any warranty offered in connection with the sale of a

used car, 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 certain other disclosures, including: a

suggestion that consumers ask the dealer if a pre-purchase inspection

is permitted; a warning against reliance on spoken promises that are

not confirmed in writing; and a list of fourteen major systems of an

automobile and the major problems that may occur in these systems. The

Rule also 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 Guides and the sales contract.

The public comments on the questions asked in the Notice and the

additional information gathered during the reviews are discussed below.

III. Non-Substantive Amendments to Spanish Language Version of the

Buyers Guide

In the Notice, the Commission proposed two non-substantive

amendments to the Rule involving the

[[Page 62196]]

Spanish language version of the Buyers Guide, Section 455.5 of the

Rule. The Commission received three comments favoring the changes and

none in opposition.14 The Commission has thus determined to adopt

the proposed amendments.15 The first change is grammatical: the

``As Is'' (``Como Esta-Sin Garantia'') section of the Buyers Guide

reads ``El vendedor no asume ninguna responsabilidad por cualquier las

reparaciones * * *'' (emphasis added). This language is amended to

read: ``El vendedor no asume ninguna responsabilidad por cualquier

reparacion * * *'' The second change appears in the ``Warranty''

(``Garantia'') section of the Buyers Guide. The word ``vendedo'' in the

second full sentence is amended to ``vendedor.'' Consequently, the

sentence is also amended to read ``Pida al vendedor una copia del

documento * * *.''

\14\ NIADA, B-7 at 1; TADA, B-11 at 3; NACAA, B-24 at 3.

\15\ Dealers may use up existing stocks of the current version

of the Spanish Buyers Guide.

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IV. Responses to the Federal Register Notice

Question One

Is there a continuing need for the Rule?

a. What benefits has the Rule provided to purchasers of the

products or services affected by the Rule?

b. Has the Rule imposed costs on purchasers?

i. Summary of Comments. The comments from the eight dealers and the

CPA firm (its clients are dealers) all favored rescinding the Rule.

They stated that the Rule places an enormous burden on small

businesses. Generally, these dealer comments 16 and the CPA firm

17 contended that the consumer benefit derived from the Rule was

not justified by the cost of displaying the form, and that consumers

pay no attention to the Buyers Guide. None of these comments provided

any specific information in support of their contentions.

\16\ B-05 at 1; B-06 at 1; B-09 at 1; B-18 at 1; B-26 at 1.

\17\ B-21. Henceforward, all references to the dealer comments

will include this comment.

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All of the other comments, including those from dealer trade

associations, stated that the Rule is beneficial and that there is a

continuing need for the Rule. Both NADA and NIADA reported that the

Rule has helped avoid confusion regarding warranty coverage, and that

the Buyers Guide is beneficial to both customers and dealers. Both NADA

and NIADA stated that the costs associated with the Rule seem to be

reasonable.18

\18\ See, e.g., NIADA Comment, B-7 at 2.

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NCCE noted that because young people and consumers with limited

resources are the major purchasers of used cars, objective, reliable,

point-of-sale information is essential to an effective consumer

decision. The comment stated that the FTC Used Car Rule provides

information to consumers that assists them in making a wise and well

informed decision, stimulates comparison shopping, and stimulates the

competitive spirit of our free enterprise system.19 Michigan's

Department of State noted that the longer the Rule is in place, the

more the public becomes aware of issues regarding warranty coverage and

extended service agreements.20 NCLC and NACAA noted that the Rule

allows consumers an opportunity to see what warranty protection is

available and to compare warranty coverage among vehicles and

dealers.21 The Iowa Attorney General noted that because motor

vehicle designs are growing increasingly complex and repairs more

expensive, warranty coverage is of increasing importance to motor

vehicle purchasers.22 Consequently, the Rule provides the consumer

with valuable information.

\19\ B-12 at 1. The comment indicates that the Commission's

objectives in promulgating the Rule have, in large part, been

achieved.

\20\ B-14 at 1.

\21\ NCLC, B-23 at 1; NACAA, B-24 at 1-2.

\22\ B-15 at 2.

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ii. Discussion. In the original rulemaking, the Commission found

that ``many used car dealers mislead consumers into believing that they

have broad post-purchase warranty coverage when in fact consumers

receive limited or no warranty protection * * *. In many cases dealers

make verbal promises to repair defects after sale that are contradicted

by final written contract terms * * *.'' 23 The Commission

concluded that the ``practices are pervasive and among the chief

sources of complaints received by various consumer protection

organizations around the country.'' 24

\23\ SBP, 49 FR 45692, 45702 (Nov. 19, 1984).

\24\ Id.

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Although the trade associations asserted that some of the

aforementioned problems have abated, other comments suggested that some

of these problems continue to occur. Used car complaints continue to be

among the most frequent type of complaints received by consumer

protection groups across the country,25 and the majority of these

organizations suggested amending the Rule in ways they contend would

provide even more protection to consumers.

\25\ For example, NACAA's comment notes that ``[a]uto sales

consistently rank among the most numerous consumer complaints. In

surveys of NACAA members conducted in 1992 and 1993, auto sales were

in the top five complaint categories. A report issued by the Council

of Better Business Bureaus revealed that in 1993 auto sales problems

were the fifth most frequent complaint made to BBBs nationwide. NAAG

has also released 1993 statistics which list automobiles (including

sales and service) as the third largest category of complaints.'' B-

24 at 1.

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No evidence was adduced during this review that contravenes the

Commission's 1984 findings, and no persuasive reasons were advanced in

the comments that would suggest that reconsideration is appropriate.

The dealer comments favoring repeal of the Rule because it is

burdensome are conclusory and contradicted by other comments. For

example, Reynolds & Reynolds, a publisher of Buyers Guides, noted that

the average cost of a Buyers Guide is 7.6 cents. It also noted that

because the compliance costs are so small they are usually absorbed and

rarely passed on to the purchaser.26 Accordingly, because the Rule

is achieving its objectives and is cost effective, the Commission is

retaining the Rule.

\26\ B-20 at 1.

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Question Two

What changes, if any, should be made to the Rule to increase the

benefits of the Rule to purchasers?

a. How would these changes affect the costs the Rule imposes on

firms subject to its requirements?

The comments responding to this question are discussed category-by-

category below.

A. Disclosing Defects

i. Summary of Comments. Many comments suggested general changes to

the Rule to increase its effectiveness for consumers. Six comments

recommended that the Rule require dealers to make written disclosure of

known defects in all ``As-Is'' sales.27 Texas's Consumer Credit

Commissioner suggested amending the Rule to inform consumers that ``As-

Is'' does not mean dealers can sell vehicles with material

defects.28

\27\ Alaska AG, B-01 at 1-2; Illinois AG, B-08 at 1; WBBM

Newsradio, B-13 at 1; Michigan Department of State, B-14 at 1;

Office of Consumer Credit Commissioner, B-16 at 1; NACAA, B-24 at 2-

3.

\28\ B-16 at 1.

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ii. Discussion. In the original rulemaking, after carefully

considering the issue, the Commission decided not to require disclosure

of known defects because it ``concluded that the known

[[Page 62197]]

defects disclosure requirement will 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.''

29 The Commission determined that the 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.30 No new information

was provided in this review on whether provisions requiring disclosure

of known defects provide substantial information benefits in practice,

nor did the Commission staff's independent review of available

information contradict this determination.31 The only pertinent

evidence regarding this issue relates to Wisconsin's experience with

its statute.

\29\ Id. at 45712.

\30\ Id.

\31\ For example, a literature search for economic research on

``defects disclosures'' turned up two titles, one an FTC working

paper, the other a dissertation from a student at the University of

Wisconsin. The two studies both use data from the 1970's (pre-Used

Car Rule SBP) and neither finds a beneficial effect of the

disclosures on the used car market.

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The SBP indicates that during the original rulemaking the

Commission examined Wisconsin's experience with its used car rule,

which requires dealers to inspect their cars and to disclose the

results of the inspection. This examination revealed that 51% of

Wisconsin consumers still ultimately experienced repair problems not

identified at the time of purchase.32

\32\ During the rulemaking, the Commission considered the

results of a study conducted in Wisconsin, involving surveys of both

dealers and consumers. See, e.g., SBP at 45712.

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The Commission was aware of this information when it promulgated

the Rule. There is no new evidence indicating that reliable information

would be disclosed if such a provision were required or that efficient

enforcement would be feasible. Based on the foregoing, the Commission

has determined that changing its original position on defect

disclosures is unnecessary.

B. Requiring Dealers To Keep Copies of the Buyers Guide and Requiring a

Signature Line

i. Summary of Comments. Both NACAA and the Iowa Attorney General

suggested amending the Rule to require dealers to obtain a consumer

signature on the Buyers Guide to ensure receipt of the document, and to

retain copies of the signed Buyers Guide.33 Both contended that

enforcement of the Rule would be easier because the absence of a signed

Buyers Guide in the dealer's records would create the inference that no

Buyers Guide was provided. Further, the dealer copy would be evidence

of the warranty disclosures that were made. On the other hand, NCLC

suggested that some dealers already have consumers sign the back of the

Buyers Guide at the close of the deal in an attempt to cover themselves

for failing to post Buyers Guides in vehicles earlier as required by

the Rule.34 NCLC stated that such a requirement could undermine

the intent of the Rule because signing a piece of paper, perhaps as

part of signing a stack of papers at closing, does not prove that the

Buyers Guide was posted on the vehicle, that the Buyers Guide was given

to the consumer at an appropriate time, or that the buyer was apprised

of the warranty terms.

\33\ B-24 at 3; B-15 at 3-4.

\34\ B-23 at 8-9.

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ii. Discussion. In initially approving the form of the Buyers

Guide, the Commission determined that ``a uniform method of disclosure

will alleviate confusion and possible deception which might result from

inconsistent versions of the Buyers Guide.'' SBP at 45709.

Consequently, the Rule does not allow dealers to modify the format of

the Buyers Guide. In response to dealer requests, however, staff has

informed dealers, through informal staff opinion letters, that staff

was not likely to recommend enforcement actions against a dealer asking

for a consumer's signature on the back of the Buyers Guide.

Allowing a signature to be obtained on the back of the Buyers Guide

was permitted to assist dealers who wanted protection against consumer

claims that they had failed to provide Buyers Guides, as required by

law.\35\ From the dealers' perspective, one effective way to document

that a Buyers Guide was received by a consumer is to obtain the

consumer's signature and keep a copy of the signed Buyers Guide in

their files. Thus, there is now considerable incentive for dealers to

obtain signatures. Requiring a signature to be obtained appears

unnecessarily burdensome.

\35\ Although some dealers only give consumers the Buyers Guide

at closing and do not post, Commission investigations reveal that

some consumers claim that they were not provided with a copy of the

Buyers Guide, when, in fact, they were.

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The Commission also notes that the presence or absence of a

signature on a Buyers Guide, by itself, does little to ensure that the

Buyers Guide will be posted as required by the Rule. There is no

benefit unless dealers also are required to keep signed copies, any

omissions thereby demonstrating noncompliance. However, the Commission

does not believe the benefits of a mandatory signing requirement along

with a recordkeeping provision are likely to justify the costs those

requirements would impose.\36\

\36\ The issue of requiring dealers to maintain copies of the

Buyers Guide was considered in the original proceeding. In an effort

to minimize the Rule's recordkeeping requirements, the Commission

decided not to require dealers to maintain copies. The primary

thrust of the Rule was to provide pre-sale information about

warranty coverage and to ensure that a copy of the Buyers Guide was

given to the purchaser. The Commission concluded the Rule would

achieve these results without a recordkeeping requirement. Dealers,

of course, are free to maintain whatever records they believe are

appropriate, and many in fact do keep copies. Further, recent

legislation amending the Paperwork Reduction Act requires agencies

to attempt to reduce the paperwork burden associated with their

regulations. Adding a recordkeeping requirement would constitute a

new paperwork burden.

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Dealers, however, may want to obtain signatures and maintain copies

of the Buyers Guide in their files. The Commission staff's enforcement

advice permits this, but such advice is not necessarily widely known.

The Commission, therefore, is amending the Rule to allow an optional

signature line on the back of the Buyers Guide. To ensure that the

customer's signature is not misused, and to put dealers on notice that

obtaining a signature does not satisfy all of the Rule's requirements,

the optional signature line is permitted only when accompanied by

language in immediate proximity to the line stating: ``I hereby

acknowledge receipt of the Buyers Guide at the closing of this sale.''

\37\

\37\ Dealers are advised that the customer's signature will be

viewed merely as an acknowledgement that the customer has received

the Buyers Guide, which is only one of a dealer's duties under the

Rule. The dealer is still responsible for ensuring that posting

occurs when a vehicle is offered for sale. Further, the dealer has

the responsibility to ensure that any warranty terms that the dealer

and the buyer negotiate are reflected on the Buyers Guide, as

required by section 455.3(a) of the Rule. This is a non-substantive

amendment that does not require Magnuson-Moss rulemaking procedures,

as specified in section 18 of the FTC Act, 15 U.S.C. 57a.

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C. Scope of the Rule

1. Private Sales

NIADA suggested that the FTC require that everyone display a Buyers

Guide in any used motor vehicle that is advertised for sale.\38\ This

issue was thoroughly considered during the original rulemaking. As

noted in the SBP, private parties generally do not offer warranties,

and therefore, at least as to this issue, it is unlikely that there

would be any misunderstandings. Also,

[[Page 62198]]

enforcing the Rule in private sales would not be cost effective. NIADA

offered no data that would contradict the findings in the SBP. Thus,

the Commission has determined that a proceeding to amend the Rule to

include private sales under the Rule is unnecessary.

\38\ B-7 at 3.

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2. Demonstrators

i. Summary of Comments. NADA suggested that Buyers Guides not be

required on ``demonstrator'' vehicles, because such vehicles also are

required to have a new car Monroney Label that cannot be removed until

after the vehicle is sold at retail.\39\ The purpose of the Monroney

label is to provide consumers with the manufacturers' suggested retail

price for the vehicle, and a list of the optional equipment that comes

with the vehicle. NADA believes that the Buyers Guide, when combined

with the Monroney Label, confuses customers without providing

additional useful information. It stated that all demonstrators are

covered by factory new vehicle warranties, and manufacturers require

dealers to review the warranty coverage of new vehicles with the

customer at the time of delivery.\40\

\39\ Under the Monroney Act, 15 U.S.C. 1231-33, new vehicles

must display a document (called the Monroney Label) that contains

the manufacturer's price, all optional equipment on the vehicle, the

location of the dealer to whom the vehicle was shipped, and the

Vehicle Identification Number of the car.

\40\ B-19 at 2.

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ii. Discussion. ``Demonstrator'' vehicles are considered ``used''

under the Rule because they have been driven for purposes other than

test driving or moving.\41\ However, for purposes of the Monroney Act

they are ``new'' because they have not been titled.\42\ In promulgating

the Used Car Rule, the Commission expressly rejected defining whether a

vehicle is new by virtue of titling laws.\43\ The Commission determined

that the definition of a used vehicle should be consistent with the

Commission's decision in Peacock Buick, Inc.\44\ The Peacock order

prohibits the defendants from ``[r]epresenting * * * that any vehicle

is new when it has been used in any manner, other than the limited use

necessary in moving or road testing a vehicle prior to delivery of such

vehicle to the customer.'' \45\

\41\ See 16 CFR 455.1(d)(2).

\42\ 15 U.S.C. 1231(d).

\43\ In adopting the Rule, the Commission stated that ``many

states, for the purpose of titling laws, identify as `new' vehicles

for which title has not passed to a purchaser despite extensive use

of the vehicle as a demonstrator model.'' SBP at 45707.

\44\ 86 F.T.C. 1532 (1975).

\45\ 86 F.T.C. at 1566.

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Further, the rulemaking record reflected that used cars sold as

demonstrators were subject to dealer oral misrepresentations. Thus,

there was substantial justification on the record for including

demonstrators within the scope of the Rule.\46\ Consequently, the

Commission defined a ``used vehicle'' as ``any vehicle driven more than

the limited use necessary in moving or road testing a new vehicle prior

to delivery. * * *'' \47\ In adopting this definition, the Commission

was aware that the term would cover demonstrators, and that the

definition was broader than the definition employed in some states,

which rely on titling to determine whether a vehicle is used. Because

of the Commission's prior consideration of this issue and the fact that

the Monroney Label does not serve the purposes the Buyers Guide was

designed to address, the Commission has determined that amending the

Rule's coverage of demonstrators is unnecessary.

\46\ See SBP at 45707. Demonstrators include dealer-licensed

vehicles that can have thousands of miles on them. These vehicles

have only the period of new car warranty coverage that remains on

the vehicle at the time of purchase, not the full manufacturer

warranty that comes with the purchase of a new car. Thus, consumers

may wish to negotiate with the dealer for additional warranty

coverage.

\47\ 16 CFR 455.1(d)(2).

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3. Salvage Vehicles

Iowa's Attorney General suggested that the Commission amend the

Rule to cover sales of vehicles on salvage or equivalent certificates

of title.48 The Rule excludes from the definition of a ``used

vehicle'' ``any vehicle sold only for scrap or parts (title documents

surrendered to the State and a salvage certificate issued).'' 49

Addressing this issue in the SBP, the Commission stated:

\48\ B-15 at 3.

\49\ 16 CFR 455.1(d)(2)(emphasis added).

Insofar as a vehicle is sold for its parts and not as an

operating vehicle, there appears to be no need to provide consumers

with the kind of information customarily used to evaluate an

automobile as a means of personal transportation. Accordingly, the

definition of ``used vehicle'' specifically excludes those cars sold

only for salvage.50

\50\ SBP at 45707.

Although the Iowa AG's comment does not discuss the reasons why the

Rule should be extended to include salvaged vehicles, the Commission is

aware that the sale of salvaged vehicles is viewed as a problem in some

parts of the country. This occurs because unscrupulous individuals take

advantage of state laws that do not require titling documents to show

that a vehicle has been rebuilt from salvaged vehicles. These

individuals obtain salvaged vehicles, restore them, and then transport

them to a state that does not require the title to show that a vehicle

has been salvaged. There, a clean title with no reference to the fact

that a vehicle has been salvaged is obtained. The vehicle may then be

taken to any state, even a state that requires a salvage disclosure,

and be retitled and sold as a used vehicle without disclosing that it

was a salvaged vehicle.

The Used Car Rule, however, only addresses warranty coverage, not

the source of car parts, which is the underlying issue with vehicles

rebuilt from salvaged parts. Even if the Rule were amended to require

Buyers Guides for such vehicles, consumers still would not have

information about the vehicle's history. Further, because the vehicle

could be sold ``As-Is'' or with a limited warranty of short duration, a

Buyers Guide is unlikely to provide the desired protection for

individuals purchasing vehicles rebuilt from salvaged parts.

This problem is best addressed by the states or by federal

legislation,51 and not by an amendment to the Rule. To the extent

that consumers want or need to know that the vehicle they are

purchasing is constructed from a salvaged vehicle or vehicles, the more

appropriate and effective remedy would be uniform laws regarding the

way salvage vehicles are required to be titled. For these reasons, the

Commission has determined that it is unnecessary to amend the Buyers

Guide to indicate that a vehicle has been salvaged.

\51\ The Final Report of the Motor Vehicle Title, Registration,

and Salvage Advisory Committee, submitted by a Presidential Task

Force on February 10, 1994, proposes federalizing the definition of

a salvage vehicle to prevent the practice of allowing salvage

vehicles to be retitled in states that do not require disclosure on

the title certificate that a vehicle is a salvaged vehicle.

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4. Leased Vehicles

NCLC suggested that the Rule be amended to cover leased used

vehicles.52 The comment, however, did not provide information

indicating the leasing of used vehicles is particularly pervasive or

fraught with the same types of problems the Commission found were

associated with the sale of used cars. Other than NCLC's suggestion,

there is no evidence on the record to suggest a need for the Commission

to initiate a proceeding to amend the Rule. The Consumer Leasing Act,

among other things, requires lessors to disclose in writing who is

responsible for repairs and maintenance on the vehicle and

[[Page 62199]]

whether warranties or service contracts are available.53 Pursuant

to that Act, if a warranty is offered the complete terms must be set

forth in writing. The Commission's research into the market for used

leased vehicles indicates that most used vehicles that are leased come

with warranties. Thus, lessors are required to provide the same type of

information required by the Used Car Rule (although not via a window

sticker format). Accordingly, the Commission has determined that the

suggested change is unnecessary.

\52\ B-23 at 3.

\53\ 15 U.S.C. 1667 et seq.; see also 12 CFR 213.

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D. Amend Language That the Buyers Guide Controls in the Event of a

Discrepancy

i. Summary of Comments. NCLC suggested changing the language in

Section 455.3(b) of the Rule, which incorporates the Buyers Guide into

the written contract by reference and provides that the Buyers Guide

controls in the event of any discrepancy. NCLC stated that the

requirement that the Buyers Guide overrides any contrary provisions is

too broad and might in some cases have the Buyers Guide override

greater protections in the contract.54 NCLC preferred language

saying that if there are contrary provisions in the contract, the

provision that offers the greatest warranty protection to the consumer

is applicable.55

\54\ B-23 at 2.

\55\ Id.

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ii. Discussion. The purpose of the disclosure in Section 455.3(b)

is to provide consumers with protection by allowing information to be

considered that might otherwise not be considered under contract law.

Specifically,

By integrating the Buyers Guide within the ``four corners'' of

the used car sales contract, the Commission intends that the Buyers

Guide become part of the written agreement between buyer and seller,

so that, in the event of disputes between buyers and sellers, the

information on the Buyers Guide would fall outside the exclusions of

the parol evidence rule of contract law.56

\56\ SBP at 45710.

The NCLC comment envisions a situation where, for example, a written

contract offers a warranty but the Buyers Guide is marked ``As-Is'' and

then incorporated into the contract, negating or overriding the

warranty described in the contract. Because the Rule states that the

Buyers Guide controls, the consumer could, theoretically, be without

recourse. However, the Commission has never encountered this problem,

most likely because the Buyers Guide, if conforming to the Rule, should

contain any extra protections set forth in the contract. In fact, the

Rule places an affirmative duty on dealers to ensure that the Buyers

Guide reflects the actual terms negotiated. Section 455.3(b) of the

Rule states that the ``information on the final version of the window

form is incorporated into the contract * * *'' (emphasis added),\57\

and section 455.4 states that ``[A]ny final warranty terms agreed upon

* * * must be identified in the sales contract and summarized on the

copy of the Buyers Guide given to the buyer.'' \58\ Accordingly, there

will be no conflict where the dealer complies with the Rule. Where the

dealer does not, and the Buyers Guide contains the ``As-Is'' statement,

there usually will be ample evidence that this was not a ``final''

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Buyers Guide reflecting the terms negotiated.\59\

\57\ Section 455.3(a) states that the dealer must provide the

buyer with a Buyers Guide containing all of the disclosures required

by the Rule, ``and reflecting the warranty coverage agreed upon.''

\58\ SBP at 45711 (emphasis added).

\59\ Other documents generated in used car sales transactions

also would be pertinent to a decision whether a Buyers Guide

reflects the ``final version'' of the deal negotiated between the

buyer and the dealer. For example, the Warranty Disclosure Rule

requires that consumers be given written information regarding

warranty terms and coverage. It also provides that written warranty

terms become ``part of the basis of the bargain between the supplier

and the buyer . . .'' 16 CFR section 701.1(c)(2) Thus, if warranty

documents are considered part of the contract, and a Buyers Guide

indicates that a vehicle was sold ``As-Is,'' the warranty documents

would appear to be evidence that the Buyers Guide did not reflect

the final deal, and the language in section 455.3(b) of the Rule

would not be controlling.

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For these reasons, the Commission has determined that action to

amend the Rule in this regard is unnecessary.

E. ``AS-IS'' Version of the Buyers Guide May Be Depriving Consumers of

Oral or Implied Warranty Rights Under UCC or State Law

i. Summary of Comments. NCLC recommended that the Commission

clarify use of the word ``warranty,'' as used on the Buyers Guide. The

comment notes that, under the UCC, oral express warranties may be given

in an individual transaction, notwithstanding that written warranties

are not provided.60 Consequently, NCLC believed that the term

``As-Is No Warranty'' on the Buyers Guide is confusing, because,

pursuant to the Rule's definition, the term ``No Warranty'' only means

no written warranty.\61\ Therefore, NCLC contended the ``As-Is No

Warranty'' notice on the Buyers Guide could conflict with UCC

protections and mislead consumers into believing that any express oral

warranty is voided when the dealer provides an ``As-Is No Warranty''

Buyers Guide.62 Moreover, NCLC contends that a dealer might make

oral warranties which are recognized by state law, but later use the

``As-Is No Warranty'' language on the Buyers Guide as evidence that no

oral warranties had been offered.

\60\ B-23 at 2.

\61\ Under the Rule, ``warranty'' means ``any undertaking in

writing, in connection with the sale by a dealer of a used vehicle,

to refund, repair, replace, maintain or take other action with

respect to such used vehicle and provided at no extra charge beyond

the price of the used vehicle.'' NCLC noted that the definition is

very similar to the one that appears in the Magnuson-Moss Warranty

Act, 15 U.S.C. 2301(6)(B). See SBP at 45709 (``These subsections

define the terms `warranty,' `implied warranty,' and `service

contract' in a manner which conforms to the definitions of those

terms in the Magnuson-Moss Warranty Act'').

\62\ According to NCLC, the UCC allows dealers to disclaim

implied warranties (i.e., sell a vehicle ``As-Is'' and still make

statements about the car that create oral express warranties). B-23

at 2.

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NACAA similarly stated that:

In many jurisdictions, oral or written representations (other

than [those found on] the ``Buyers Guide'') are enforceable. To

remedy this conflict, the [R]ule should be changed to say that while

dealers may not make any statements or take any actions that would

be contrary to the disclosures required in Secs. 455.2 and 455.3,

the ``Buyers Guide'' may not be used to disclaim any rights that

consumers may be able to assert under state or local law* *

*.63

\63\ B-24 at 2.

In addition, NCLC stated that the warranty section of the Buyers

Guide should be changed. The comment pointed out that a warranty, as

defined in Sec. 455.1(d)(5), is an undertaking in writing to refund,

repair, replace, maintain, or take other action with respect to the

vehicle.64 NCLC noted, however, that the form language written on

the Guide speaks only in terms of repair. It does not appear to allow

any option of refund, replacement, maintenance, or other action. NCLC

suggested that the Buyers Guide be changed to reflect that these as

well as other remedies are options.65

\64\ B-23 at 8-9.

\65\ Id.

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As a corollary to the foregoing discussion, several comments

contended that the most frequently used version of the Buyers Guide--

having only ``AS-IS-NO WARRANTY'' and ``WARRANTY'' designations--

encourages dealers to sell cars without warranties. This version of the

Buyers Guide provides dealers with two choices, either to give an

express written warranty or to sell the car ``As-Is'' (with no express

or implied warranties). An alternate ``Implied Warranties Only'' Buyers

Guide is provided for in Sec. 455.2(b)(ii) for use in those states that

prohibit ``As-Is'' sales.

[[Page 62200]]

To remedy the problem, NCLC suggested that the Buyers Guide be

revised to include an ``Implied Warranties Only'' section on the ``As-

Is'' version of the Buyers Guide.66 If this revision were adopted,

the Buyers Guide would give dealers the option of checking one of three

boxes: ``As-Is No Warranty,'' ``Implied Warranties Only,'' and

``Warranty.'' The comments contended that most consumers do not know

that implied warranties are available as a form of legal

redress.67 If all versions of the Buyers Guide contained an

``Implied Warranties Only'' provision, or at least alerted consumers

that implied rights exist, consumers would be on notice that they may

be forsaking possible legal redress to which they would otherwise be

entitled but for the dealer's decision to sell the vehicle ``As-Is.''

Consumers then might attempt to negotiate a better warranty agreement

with the dealer than an ``As-Is'' deal. Also, some dealers might even

choose to offer implied warranties rather than use ``As-Is'' sales if

they were given an easy choice and did not have to use a special form

or make a substitution on the form. If their only choice is ``As-Is''

or an express warranty, NCLC contends, dealers nearly always choose to

sell vehicles ``As-Is.'' 68

\66\ NCLC also suggested amending the ``As-Is'' box on the

Buyers Guide to include language that made clear that an ``As-Is''

sale precludes implied warranties. B-23 at 5.

\67\ An implied warranty of fitness indicates that a car ``is

reasonably fit for and adapted to the purposes for which it was

purchased, i.e., a vehicle that will carry a driver and passenger

with reasonable safety, efficiency and comfort.'' Berg v. Stromme,

79 Wn.2d 184, 195, 484 P.2d 380 (1971). The Berg court uses the word

fitness interchangeably with merchantability.

\68\ B-23 at 8.

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Washington's Attorney General asserted that the Rule should only

allow use of the ``Implied Warranties Only'' version of the Buyers

Guide, because, given the choice to sell with a warranty or ``As-Is,''

dealers opt simply to check off the ``As-Is'' provision. The Washington

State Attorney General stated that the ``As-Is'' provision may provide

an unintended shield for some unscrupulous dealerships that fail to use

required procedures for disclaiming implied warranties under Washington

contract law. The comment stated that Washington consumers are not

generally aware that, under Washington law, their waiver of the implied

warranty of merchantability must be knowing and voluntary. Warranty

terms or the absence of implied warranties must be the subject of

explicit negotiations between the parties (written disclaimers are not

enough). The Rule does not disclose preconditions to a valid disclaimer

of implied warranties peculiar to Washington State Law.69

\69\ B-17 at 2.

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ii. Discussion. The Buyers Guide focuses on written warranties

because during the rulemaking the Commission found that oral promises

made during used car sales were frequently contradicted by the written

documents, and that the parol evidence rule operated to exclude the

admissibility of oral promises contradicted by a written

contract.70 In the SBP, the Commission recognized that ``As-Is''

purchases could operate to exclude other contractual rights. The

Commission stated that:

\70\ See UCC 2-202.

consumers purchasing ``as-is'' but relying on contradictory oral

promises are stripped of the protection afforded by either express

or implied warranties and, at the same time, have no legal recourse

against the dealer because prior or contemporaneous oral statements

that contradict final written contract terms are generally not

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legally binding.71

\71\ SBP at 45698 (footnote omitted).

To address this problem, the Commission sought to put consumers on

notice that they should be wary of oral promises. Immediately under the

words ``Buyers Guide,'' on both forms of the Buyers Guide, is the

following language: ``IMPORTANT: SPOKEN PROMISES ARE DIFFICULT TO

ENFORCE. ASK THE DEALER TO PUT ALL PROMISES IN WRITING. KEEP THIS

FORM.'' In addition, the ``As-Is'' box contains the following

statement: ``YOU WILL PAY ALL COSTS FOR ANY REPAIRS. The dealer assumes

no responsibility for any repairs regardless of any oral statements

about the vehicle.'' The warnings on the Buyers Guide and its

admonition to put all promises in writing help consumers by giving them

information they can use to ensure they have enforceable rights. Thus,

the changes suggested by NCLC (e.g., to revise the ``As-Is No

Warranty'' title to ``As-Is No Written Warranty'') are not necessary.

Such changes could lead to more uncertainty and disputes about warranty

coverage. The Commission continues to advise that consumers get any

promises in writing, rather than trying to prove later that a dealer

orally promised to make repairs.

NCLC also suggested that the Buyers Guide be revised to reflect

that options other than repair are available. However, repair is the

most common remedy offered by dealers. Dealers, of course, are free to

offer other options on the Buyers Guide, if they choose. Further, the

Buyers Guide does not take the place of the warranty documents that

dealers must provide pursuant to rule 701. The Buyers Guide refers to

these documents in the ``Warranty'' box on the Buyers Guide: ``ASK THE

DEALER FOR A COPY OF THE WARRANTY DOCUMENT FOR A FULL EXPLANATION OF

WARRANTY COVERAGE, EXCLUSIONS, AND THE DEALER'S REPAIR OBLIGATIONS.''

NCLC also suggested reformatting the Buyers Guide to include ``As-

Is,'' ``Implied Warranties Only,'' and ``Warranty'' sections on the

same Buyers Guide. The purpose would be to increase consumer awareness

of implied warranty rights and the likelihood that implied warranty

rights could be negotiated. There is no evidence that suggests,

however, that including ``Implied Warranties Only'' as a third option

on the Buyers Guide would encourage consumers to negotiate for warranty

coverage more than they presently do, as NCLC suggests. Nor is there

any evidence that supports the assertion that dealers would choose this

option over the ``As-Is'' option if it were displayed on the Buyers

Guide.

Comments such as the Washington Attorney General's indicated a

desire to alert consumers that implied warranties exist. Others

suggested adding language that categorically states that implied

warranties are unavailable in ``As-Is'' sales.72 The ``Warranty''

section of the Buyers Guide contains the following language: ``UNDER

STATE LAW, `IMPLIED WARRANTIES' MAY GIVE YOU EVEN MORE RIGHTS.'' The

existing language alerts consumers that the other option to an ``As-

Is'' sale is one with a warranty, and that, along with an express

warranty, the buyer may receive even more rights (implied warranties)

under state law. Similarly, amending the ``As-Is'' portion of the

Buyers Guide to state that implied warranties are never available in an

``As-Is'' transaction would likely create confusion in states such as

Washington, where implied warranties must be knowingly waived.73

Further, such language would misstate the law when a service contract

is sold with a vehicle.74

\72\ NCLC, B-27 at 5.

\73\ See also discussion relating to Part IV, Question 5, infra.

\74\ The Buyers Guide states: ``IF YOU BUY A SERVICE CONTRACT

WITHIN 90 DAYS OF THE TIME OF SALE, STATE LAW `IMPLIED WARRANTIES'

MAY GIVE YOU ADDITIONAL RIGHTS.''

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Although some consumers are not aware that implied warranties are

available under state laws, many states permit ``As-Is'' sales and do

not require disclosures or preconditions to such sales. The problem

presented by the

[[Page 62201]]

Washington Attorney General is somewhat unique insofar as it pertains

to implied warranties, and might be addressed more effectively under

state law. For the foregoing reasons, the Commission has determined to

take no action on the suggested change.

F. Private Right of Action

i. Summary of Comments. NCLC and Jay Drick suggested that the

Commission create a private right of action for violation of the

Rule.75 NCLC noted that currently, a consumer has a cause of

action for violations of the Magnuson-Moss Warranty Act, but no

equivalent cause of action for violations of the Rule.76 These

comments suggested that the Rule state that a violation of the Rule is

a violation of the Magnuson-Moss Act, which affords a private legal

remedy in both state and federal courts. NCLC stated that, if

necessary, the language of the Magnuson-Moss Warranty Act could be

amended to make this clear. According to these comments, a private

right of action for violation of the Rule would increase dealers'

accountability for violating the Rule.77

\75\ B-23 at 1-2, B-25 at 1 (a consumer and attorney).

\76\ B-23 at 1.

\77\ B-23 at 1-2, B-25 at 1. Mr. Drick contends the rule should

allow for enforcement by private attorneys in state courts. B-25 at

1.

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ii. Discussion. The actual value of a private cause of action for

buyers against dealers for violating the Used Car Rule is unclear. It

would be difficult for consumers to prove and quantify the injury or

damages sustained as a consequence of a Rule violation for failing to

post a Buyers Guide or for some other violation of the Rule.78 In

enforcing compliance with the Rule, the Commission has relied on

injunctions and civil penalties to stop violations and provide

deterrence.

\78\ Consumers who have disputes with dealers about warranties

generally already have recourse to the courts to resolve their

disputes, and such disputes normally will involve resolving who

should be responsible for making repairs. For example, section

110(d) of the Warranty Act allows consumers to bring suits on their

own behalf for a warrantor's failure to honor warranties or service

contracts, or to comply with any other obligation under the Act.

Under the law, actions generally will be brought in state courts. If

a complaint alleges at least $50,000 in damages the action may be

filed in federal court.

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Even if a private right of action would be useful, the Commission

has no apparent authority to create one. There is no private right of

action for violation of any FTC rule promulgated under the Magnuson-

Moss Act. In addition, federal courts consistently have held that there

is no private remedy under the FTC Act.79

\79\ The Circuit Court for the District of Columbia, in Holloway

v. Bristol-Myers Corp., 485 F.2d 986, 988-89 (D.C. Cir. 1973), and

other federal courts have held there is no implied private right of

action under the FTC's franchise disclosure rules. In Freedman v.

Meldy's Inc., 587 F. Supp. 658, 662 (E.D. Pa. 1984)., the court

reached its decision despite the FTC's contention that the courts

should recognize private rights of action under the Franchise Rule.

Citing Justice Rehnquist's opinion in Cannon v. University of

Chicago, 441 U.S. 677, 718 (1978), the Freedman court stated:

``Congress may, if it wishes, give effect to the apparent desire of

the FTC that private rights of action be afforded litigants under 16

CFR Secs. 436.1-438.10. The FTC may express, as it has, its opinion

that private rights of action should be provided, but the

Commission's opinion cannot supplement or supply the requisite

Congressional intent.'' 587 F. Supp. at 662.

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For the foregoing reasons, the Commission is taking no action on

the recommendation.

Questions Three, Four, Seven, Eight, Nine, and Eleven

Questions 3, 4, 7, 8, and 9 all deal generally with the costs and

burdens that may be associated with the Rule. Consequently, they are

addressed together to avoid repetition. Question 11 is also included in

this section because it deals with the number of small firms that are

affected by the Rule.

Question Three

What significant burdens or costs, including costs of compliance,

has the Rule imposed on firms subject to its requirements?

a. Has the Rule provided benefits to such firms?

Question Four

What changes, if any, should be made to the Rule to reduce the

burdens or costs imposed on firms subject to its requirements?

a. How would these changes affect the benefits provided by the

Rule?

Question Seven

What significant burdens or costs, including costs of compliance,

has the Rule imposed on small firms subject to its requirements?

a. How do these burdens or costs differ from those imposed on

larger firms subject to the Rule's requirements?

Question Eight

To what extent are the burdens or costs that the Rule imposes on

small firms similar to those that small firms would incur under

standard and prudent business practices?

Question Nine

What changes, if any, should be made to the Rule to reduce the

burdens or costs imposed on small firms?

a. How would these changes affect the benefits of the Rule?

b. Would such changes adversely affect the competitive position of

larger firms?

Question Eleven

How many used car dealers have under $11.5 million in annual sales?

i. Summary of Comments. No comment furnished any information about

how many dealers have sales under $11.5 million, which is how a small

used motor vehicle dealer is defined by the Small Business

Administration. Based on the Commission's experience in conducting

inspections and investigations, the Commission believes that the

overwhelming majority of independent used car dealers have annual sales

under $11.5 million, and thus are small entities for purposes of the

RFA analysis. Franchised dealers that sell used cars, in contrast, are

likely to have annual sales in excess of $11.5 million, but their sales

figures would include new car as well as used car sales.

Only a few comments addressed whether changes to the Rule--short of

rescinding the Rule altogether 80--would reduce the costs imposed

on small and large firms. TADA contended that requiring a Spanish

Buyers Guide to be posted on every used vehicle in addition to the

English Buyers Guide, where sales are conducted in Spanish, is

burdensome to dealers, and it therefore recommended that dealers be

permitted to provide a Spanish Buyers Guide to the consumer only when

the transaction is being consummated.81 NIADA suggested that the

burdens related to compliance are greater for small dealerships because

larger dealerships have more personnel to assist in the preparation and

processing of paperwork related to car sales.82

[[Page 62202]]

NADA stated that the Rule is meeting the objectives of the law and is

not a substantial burden on small dealers.83 Iowa's Attorney

General noted that the costs associated with Rule compliance are

minimal and are passed on to the consumer.84 However, Iowa's

comment also stated that larger firms are better able to absorb the

costs of compliance. Reynolds & Reynolds noted that the costs of

compliance include the costs of the form and the time required to fill

them out properly. These costs differ from small firms to large firms

because a larger firm most likely can take advantage of volume

purchases and afford a computer to print out the form, while a smaller

dealer would be more likely to purchase Buyers Guides in smaller

quantities and fill them out by hand.85

\80\ For example, two comments from independent dealers

contended that the Rule and the posting requirement place an

unnecessary burden on dealers. They stated the Rule creates extra,

and unneeded, steps in processing a vehicle sale transaction. No

quantification for the assertion was provided, however. B-03 at 1,

B-26 at 1. One of the dealers also noted that virtually every car in

his area is sold ``As-Is'' and that most consumers in the area are

aware of the practice. Instead of posting Buyers Guides, he

suggested posting one large sign on the lot stating: ``Unless a

specific warranty is provided in writing, all used vehicles for sale

at this dealership are sold As-Is; the buyer will pay all costs for

any repairs.'' B-03 at 2.

\81\ B-11 at 2. TADA asserted that in cities with large Spanish-

speaking populations where dealers conduct a large percentage of

sales in Spanish, the Rule requires each vehicle to have two Buyers

Guides, one in English and another in Spanish.

\82\ B-7 at 2. NIADA noted that filling out the Buyers Guide and

attaching it to the car is just another part of the logging-in

procedure. With regard to the differing costs between large and

small firms, the trade association noted that both size firms need

to fill out a certain number of forms for each vehicle they sell.

The larger dealers have more employees to do the job.

\83\ B-19 at 1.

\84\ B-15 at 6.

\85\ B-20 at 2.

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The majority of the comments that responded to these questions,

however, contended that the burdens or costs associated with compliance

are minimal.86 For example, Reynolds & Reynolds reported that used

car dealers can purchase Buyers Guides for an average cost of 7.6

cents.87 While Reynolds & Reynolds believes the costs are so

minimal that they are not passed along to the consumer, NIADA stated

that they are.88

\86\ See, e.g., B-20 at 1.

\87\ B-20 at 1. See also NIADA, B-07 at 2. Buyers Guides may be

purchased in packets of 250 for $21.00.

\88\ Id. NIADA also noted that labor costs are associated with

compliance, but did not quantify those costs.

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Two comments from Attorneys General addressed whether the burdens

and costs of the Rule would be similar to those incurred under ordinary

and prudent business practice. The Iowa Attorney General noted that the

Used Car Rule imposes no costs other than those a prudent dealer would

incur regardless of the Rule.89 The Washington Attorney General

stated that the burdens or costs should be similar to those that would

be incurred by prudent businesses.90

\89\ B-15 at 6.

\90\ B-17 at 4. But stricter compliance with Washington law on

the disclaimer of implied warranties could increase the costs of

repair or recision to dealers who market unmerchantable vehicles.

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In terms of benefits, Iowa's Attorney General noted that the Rule

has undoubtedly benefited both the manufacturers and dealers by

fostering competition regarding warranty coverage.91 The comments

generally suggested that the Rule also has eliminated many disputes

regarding oral representations made by dealers concerning warranty

coverage.92 For example, Reynolds & Reynolds noted that the Rule

removes the question as to whether or not a specific vehicle has a

warranty.93 Compliance with the Rule virtually assures that

consumers are aware of available warranty coverage, and therefore

consumers are significantly protected against dealer

misrepresentations.94

\91\ B-15 at 4.

\92\ See NIADA Comment, B-7 at 4-5.

\93\ B-20 at 1.

\94\ B-15 at 4.

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ii. Discussion. Based on the information obtained in response to

the Notice, the Commission has concluded that the costs and burdens

associated with Rule compliance are not substantial. Although the costs

or burdens of complying with the Rule may be marginally greater on

smaller dealers that have fewer employees than larger dealerships, the

costs associated with compliance are still quite small. The cost for

Buyers Guides averages 7.6 cents per form, and other costs associated

with the Rule (i.e., filling out the Buyers Guide and posting them),

although not quantified, were represented as minimal and reasonable. At

the same time, the comments contended that there are benefits from Rule

compliance. Accordingly, the Commission has determined that no changes

are needed to reduce the costs of the Rule on small businesses.

Further, although compliance with the Rule may be more burdensome

and costly to dealers who frequently conduct sales transactions in

Spanish, TADA's proposed solution (elimination of the requirement to

post Spanish Buyers Guides) contravenes the Commission's rationale for

the posting requirement.95 Providing a Buyers Guide at the time of

sale is insufficient to protect against the unfair and deceptive

practices the Rule was designed to deter. By requiring posting, the

Rule affords buyers an opportunity to comparison shop. Accordingly, the

Commission has decided to take no action.

\95\ The Commission originally considered requiring Buyers

Guides to be translated into several dozen languages. However,

``[t]he evidence in the [rulemaking] record indicates that, besides

English, Spanish is the language most frequently used during used

car sales transaction.'' SBP at 45711 (footnote omitted). Thus, the

Rule requires the window form and the content disclosures to be in

Spanish, if the sale is conducted in Spanish. Dealers who conduct

transactions in both English and Spanish may post both versions of

the Buyers Guide.

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Question Five

Does the Rule overlap or conflict with other federal, state, or

local laws or regulations?

i. Summary of Comments. In terms of ``overlap,'' NCLC stated: There

really is no overlap with state consumer protection laws (unfair and

deceptive acts and practices statutes) because not all states' laws

cover all violations of the Used Car Rule. The Used Car Rule itself

merely effectuates a claim under a deceptive practices act in some

states, by declaring certain conduct to be unfair or deceptive, which

may then be prohibited by the state law.96

\96\ B-23 at 5.

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NIADA stated, however, that there may be possible overlap with

Texas's Deceptive Trade Practices Act.97 Iowa's Attorney General

noted that the Rule overlaps with the Iowa Consumer Fraud Act, Iowa

Code 714.16, to the extent that the Consumer Fraud Act requires that

sellers of merchandise not fail to disclose material facts with the

intent that others rely on the omission.98 Although the two

overlap, Iowa believed it presents no problem to either the Commission

or the State of Iowa in the enforcement of the Rule or the Iowa

Consumer Fraud Act.99

\97\ B-07 at 5.

\98\ Warranty coverage on a motor vehicle is considered to be a

material fact under Iowa law.

\99\ B-15 at 5.

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Alaska's Attorney General believed there is a ``gap'' in the Rule

that has been addressed in state court decisions.100 TADA noted

that the Rule's definition of a ``used vehicle'' and the State of

Texas's definition cause problems because the Commission's definition

of ``used vehicle'' is much broader than that of some states, including

Texas.101 According to TADA this causes confusion and

misunderstanding as to when a vehicle is required to display a Buyers

Guide.102

\100\ The ``gap'' relates to the Rule's failure to require

dealers to disclose known defects. The AG asserts that the common

law of most states requires disclosure. See, e.g., Patton v. McHone,

822 S.W.2d 608 (Tenn. App. 1991). B-01 at 1.

\101\ See also discussion at Part IV, Question 2, B, 2-3, supra,

regarding the difference between the Rule's definition of a ``used

vehicle,'' and the state law definitions.

\102\ B-11 at 2.

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NACAA stated that the Rule conflicts with some state laws by

providing that the language in the Buyers Guide overrides contrary

provisions in the contract of sale.103 The Washington

[[Page 62203]]

State Attorney General's Office also noted that the Commission's ``As-

Is'' version of the Buyers Guide does not accurately reflect Washington

contract law on valid disclaimer of implied warranties, thus creating a

conflict.104

\103\ B-24 at 2, citing section 455.3(b) of the Rule. NACAA also

contended that the provision may be used by dealers to disclaim

promises of greater warranty protection in oral or written form.

This issue was addressed in the discussion at Part IV, Question 2,

E, supra .

\104\ B-17 at 3. See also discussion at Part IV, Question 2, E,

supra.

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ii. Discussion. The comments indicated that to the extent there is

any overlap between the Rule and state law, it is generally not a

significant problem. The ``conflict'' noted by the Washington Attorney

General has been addressed by the Commission staff in correspondence

with the Attorney General. As was explained in the staff's letter, the

purpose of the posted Buyers Guide is to show consumers what warranty

coverage a dealer is offering. The Rule also requires the dealer to

provide the buyer with a copy of the Buyers Guide showing the final

warranty coverage agreed to. If, under Washington State law, an ``As-

Is'' sale has not been properly consummated, the final version of the

Buyers Guide should note that the car is being sold with implied

warranties.105 Because the Used Car Rule does not conflict with

state consumer protection statutes in any significant way, there is no

need for Commission action.

\105\ See staff Opinion Letter to Robert F. Manifold, Division

Chief, October 12, 1989.

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Questions Six and Ten

Since the Rule was issued, what effects, if any, have changes in

relevant technology or economic conditions had on the Rule?

How many used vehicles (as defined by Section 455.1(d)(2) of the

Rule) are sold annually in the United States?

i. Summary of Comments. The number of used cars sold annually is

much larger now than when the Rule was promulgated.106 Based on

information NADA submitted, franchised dealerships accounted for nearly

10 million used car sales in 1993 (9,836,800) and NIADA reported

another 16 million sales were made by independent dealers. NIADA's

information indicated that 25.9 million used vehicles were sold by

independent and franchised dealers in 1992.107 Franchised dealers

report that the biggest part of both their profit and their volume is

coming from their used, not new, vehicle sales. ``New car dealers sold

more used vehicles than new for the first time in 1989, and since then

relative used-car volume has grown steadily.'' 108

\106\ In the original rulemaking, the Commission noted that in

1979, ``two of every three cars sold in the United States were used.

Consumers in that year spent $66.7 billion, including the value of

trade-ins in purchasing 18.5 million used cars from all sources.''

SBP at 45695.

\107\ B-7, see attachment to comment entitled ``Used Car

Sales.'' Other sources indicate that the dollar amount of used car

sales covered by the Rule reached $281.5 billion in 1993 and $289.2

billion in 1994. See Used Gold Reference Guide, Chapter 7, p. 3, CNW

Marketing Research, Bandon, Oregon, 1994.

\108\ Id.

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NIADA noted that economic conditions within the industry have

improved, but was unable to quantify whether the changed conditions

have had an impact on the Rule. Other comments noted changes in the

relevant technology and/or economic conditions that may have affected

the Rule. For example, NCLC noted a significant increase in the leasing

of new and used cars in support of its recommendation that Buyers

Guides be posted on leased vehicles. NCLC also pointed to the

proliferation of computers and copying machines within the industry,

concluding this should make it easier for dealers to comply with the

Rule.109 Reynolds & Reynolds noted that many computer systems have

the ability to print the form for a dealer, thereby reducing time/

energy demands upon dealers to fill out the Buyers Guide.110

Another comment noted that car manufacturers have done a better job of

conveying warranty information and covered systems to dealers.111

\109\ B-23 at 5.

\110\ B-20 at 2.

\111\ Id.

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The Iowa Attorney General noted that since vehicles are more

complex than ever, repair costs have increased. The Washington Attorney

General noted that both the demand for and price of used vehicles have

been driven up because new cars are becoming increasingly

expensive.112 Thus, warranty coverage is more important to

consumers than ever before, and the need for the Rule is greater than

in the past.113 Similarly, most of the comments said there was a

continuing need for the Rule because of the size of the industry.

\112\ B-17 at 3.

\113\ B-15 at 5.

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ii. Discussion. The economic changes in the industry--the growth in

used car sales, the increased prices of used cars,114 and the

rising cost of repairs--make warranty coverage an important

consideration in a sales transaction. The changes addressed in the

comments demonstrate that the reasons for promulgating the Rule

continue to exist. At the same time, the comments noted that

technological changes have made it easier for dealers to comply with

the Rule.

\114\ According to CNW Marketing Research, the average sales

price for a used car sold by a franchised dealer was $11,820, and

$6,835 for an independent dealer, in 1994.

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Question Twelve

Should the Rule's requirement that the Buyers Guide be posted in a

side window of a used vehicle, as set forth in Section 455.2(a)(1) of

the Rule, be modified to allow posting in a different location (for

example, in the rear window of a pickup truck or other vehicle without

side rear windows), as long as the Buyers Guide is conspicuous and both

sides may be readily viewed?

i. Summary of Comments. The comments generally supported modifying

the Rule as suggested. NADA recommended that the Rule afford some

flexibility in the placement of the guide, allowing it to be placed

elsewhere than in a side window. NCCE suggested that enforcement focus

on the availability and accessibility of the information ``and not on

the trivial aspects of the regulation such as location of the

information.'' 115

\115\ B-12 at 2.

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One consumer protection group noted that if there are no side rear

windows, the Buyers Guide should be placed in the front window.116

One Attorney General supported the modification, noting that the Rule

should allow for dealers to post the Buyers Guides in the rear windows

of pick-up trucks and other vehicles lacking side rear windows to offer

the dealers some flexibility.117 The Michigan Secretary of State

supported the amendment permitting the posting of Buyers Guides in

other than the side window as long as the guide is prominently

displayed and both sides can be readily viewed by a purchaser.118

Other comments also supported the proposed modification of the

Rule.119

\116\ B-23 at 6-7.

\117\ B-15 at 5.

\118\ B-14 at 1.

\119\ B-17 at 5, B-19 at 2, B-20 at 2.

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ii. Discussion. The Commission is amending the Rule to delete the

side window posting requirement.120 Dealers instead will be

required to post Buyers Guides prominently and in plain sight anywhere

on the vehicle as long as both sides are accessible. This amendment

affords dealers greater flexibility in posting Buyers Guides on all

vehicles, not just pickup trucks or vehicles without side windows. For

example,

[[Page 62204]]

dealers could hang Buyers Guides from the rear view mirror or place

them under the windshield wipers or hang them from exterior side view

mirrors. These options allow consumers to view the Buyers Guide easily.

Putting Buyers Guides in glove boxes or on the floor or in the trunk

will not satisfy the requirement that the Buyers Guide be in plain

sight and conspicuous.

\120\ Because this amendment does not change the substantive

rights afforded by the Rule or significantly affect the obligations

of dealers, the Commission has concluded that section 18, 15 U.S.C.

57a, rulemaking proceedings are unnecessary to issue this amendment.

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Question Thirteen

What changes to the format of the Buyers Guide should be considered

in order to reduce compliance costs or burdens? Would such changes have

any detrimental effect on the benefits provided by the Rule? Is there

any empirical or other evidence to support opinions that such changes

would or would not have a detrimental effect on benefits?

i. Summary of Comments. Some comments recommended that the Buyers

Guide should be maintained in its present form.121 Others stated

that the format of the Buyers Guide should be changed, but none

provided empirical evidence in support of their assertions. For

example, Reynolds & Reynolds suggested allowing the Buyers Guide to be

merged with other required forms. It stated that the Buyers Guide could

be combined with the state lemon laws and refund rights acts forms. The

result would be a form with larger dimensions. While the combined form

would be higher priced, the overall cost of complying with the multiple

laws would be lowered.122

\121\ Iowa Attorney General, B-15 at 7.

\122\ B-20 at 1. Reynolds & Reynolds suggested that additional

information could be printed on the form (i.e., standard warranty

coverage) in order to save dealers from having to fill out a new

form for each vehicle. There is, however, no prohibition against

pre-printing information on the Buyers Guide.

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Both NADA and NIADA recommended that the Rule allow some

flexibility in the format requirements of the Buyers Guide.123

Specifically, NIADA suggested that reducing the size requirement of the

Buyers Guide to 7'' x 5'' would be useful because it would minimize the

window blockage in compact cars and pickup trucks, and thus reduce what

it termed a driving safety hazard.124 NIADA contended that the

present Buyers Guide contains much empty space ``that could be

eliminated without destroying the eye catching qualities it now has.''

125 NIADA also suggested putting the dealer's name and address on

the front of the Buyers Guide so that the entire form could be easily

filled in using an office computer printer. In addition it suggested

that the language ``RECEIPT OF ORIGINAL COPY ACKNOWLEDGED'' and a

signature line be placed on the front of the Buyers Guide.

\123\ The Rule requires that the Buyers Guide conform to the

exact wording, type style, type size, and format specified by the

Rule. See Section 455.2(a)(2) of the Rule. Among other things, the

Rule specifies that the form must be printed on white stock no less

than 11 inches high by 7\1/4\ inches wide. NADA stated that while

the Buyers Guide does an adequate job of communicating information

to consumers, ``[t]here needs to be more flexibility regarding the

size, typeface, additions, etc. to the form.''

\124\ B-7 at 3. The Rule provides that Buyers Guides may be

removed during test drives. But, some commenters claim that removing

Buyers Guides for test drives and re-posting them afterwards is

burdensome.

\125\ Id.

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NCLC, along with Iowa Attorney General,126 opposed changing

the format of the Buyers Guide, stating:

\126\ B-15 at 7.

It is important to keep the Buyers Guide at its current size and

not to make it smaller. It must be prominent in order to be noticed

by consumers so that the buyer can negotiate with the dealer over

the terms on the Buyers Guide and know exactly what is provided in

terms of warranties. Some of the type on the back of the Buyers

Guide, indicating systems to check, is already very small.127

\127\ B-23 at 4.

ii. Discussion. The Commission has decided not to modify the

present size or format of the Buyers Guide. The only argument for

reducing the size of the Buyers Guide is that the current size of the

Buyers Guide may present a safety hazard during test drives. It is

difficult to imagine that dealers would forego the option of

temporarily removing Guides during test drives, if a true safety hazard

existed. However, if such a hazard existed, it seems unlikely that

reducing the dimensions of the Buyers Guide to 5'' x 7'' would

significantly lessen the hazard. The Commission's amendment to allow

conspicuous posting anywhere in the vehicle is likely to better address

this issue than reducing the size of the Buyers Guide.

The Commission requested empirical evidence to support any proposed

modifications to the size or format because, during the original

rulemaking proceeding, considerable effort was expended to design a

form that communicates information effectively to consumers. To

evaluate the effectiveness of the Buyers Guide during the rulemaking, a

series of copy comprehension tests were conducted. According to the SBP

for the Rule, the results of the copy testing were incorporated into

the final design of the Buyers Guide that the Commission adopted in May

1981.128 Although the copy testing was done on prior versions of

the Buyers Guide, which differed from the Buyers Guide now in use,

those comprehension tests were relevant to the design of the revised

format the Commission adopted in 1984. Based on those tests, certain

changes to the Buyers Guide were implemented which carried through to

the current version.129

\128\ SBP at 45709. The Commission announced the earlier version

of the rule in 46 FR 41328 (1981). The 1981 Buyers Guide included

information about the condition of major mechanical and safety

systems of the car, which the Commission decided to omit in 1984.

\129\ For example, based on the testing, the Commission

increased the type size of the warning against relying on spoken

promises, and prefaced it with the bold-face heading, ``Important.''

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Further, the size of the Buyers Guide was the subject of comments

filed in response to the Commission's July 31, 1984 Federal Register

Notice soliciting comment on a Baseline Study of the Rule and the

Commission's tentative decision to adopt a revised rule. For example,

NADA requested that the size of the form be reduced from 12 inches high

by 7\1/4\ inches wide to 6 x 8 inches. Following its review, the

Commission concluded that the format and type size required by the Rule

would easily fit onto a 7\1/4\ x 11 sheet. Therefore, to avoid

unnecessary costs, the Commission revised the Rule to require a form no

smaller than 11 inches high by 7\1/4\ inches wide. The Commission

rejected NADA's proposal to reduce the form to the 6 x 8 size because

the type sizes required by the Rule would have to be reduced to fit on

the smaller sheet, making the Buyers Guide difficult to read. The final

Rule the Commission published required a Buyers Guide no smaller than

11 inches high by 7\1/4\ wide.130

\130\ 16 CFR 455.2(a)(2).

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Under these circumstances, the Commission has determined not to

change the format of the Buyers Guide without copy testing or other

reliable information showing that a reduced or revised Buyers Guide

would be as easy to read and comprehend as the current Buyers Guide.

For example, taking out the white space, as NIADA suggests, could

reduce the effectiveness of the Buyers Guides. The empty space on the

Buyers Guide was planned to make information stand out and to avoid

making the form a jumble of information. For the same reasons, the

Commission is also rejecting the suggestion that the format of the

Buyers Guide be modified to incorporate other required forms.131

\131\ Recent Commission research also suggests that the

consolidation of labels may result in information overload. See

Report to Congress by the Federal Trade Commission, Study of a

Uniform National Label for Devices that Dispense Fuel to Consumers,

pp. 27-30 (Oct. 1993).

[[Page 62205]]

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Further, the Commission is rejecting the suggestion to modify the

Buyers Guide to include dealer information and a signature line on the

front of the Buyers Guide. NIADA noted that computer pre-printing of

the Buyers Guide requires turning the page over in order to print the

information. The actual burden of having to turn over the Buyers Guide

to pre-print the information is quite small. Further, dealers may use

an ink stamp to put this information on the back side. Both of these

methods--ink stamp or turning the Buyers Guide over and pre-printing

the information--are inexpensive ways of complying with the

Rule.132

\132\ The issue of obtaining consumer signatures was addressed

earlier in this notice. See Part IV, Question 2, B, supra.

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Question Fourteen

What changes to the format of the Buyers Guide should be considered

in order to increase its benefits? What effect would such changes have

on the costs or burdens imposed by the Rule? Is there any empirical or

other evidence to support opinions that such changes would or would not

increase costs or burdens?

i. Summary of Comments. One consumer suggested that the information

be on one side only, and that a signature line be included so that the

customer has a chance to read it and know he is entitled to a

copy.133 This consumer also suggested that the Buyers Guide be

modified to have check boxes for the selling dealer to disclose whether

or not the dealer has attempted to repair any item on the vehicle in

any way, and a section for the dealer to list specifically what

components or systems were found by the inspection to be in need of

repair and yet were not repaired by the dealer, plus their anticipated

costs.134 NACAA noted that the Buyers Guide should be revamped to

provide a checklist of symptoms and causes for auto problems, and state

more strongly that consumers should have those items independently

checked before committing themselves to a used car purchase.135

Washington's Attorney General suggested that the Buyers Guide note that

the Cooling-Off Rule does not apply to used car sales. Reynolds &

Reynolds suggested that a customer signature box be added to the form's

back to ensure that the purchaser has received warranty information (or

the lack thereof) and has acknowledged it.136

\133\ Jay Drick, B-25 at 1-2.

\134\ B-25 at 1.

\135\ B-24 at 3.

\136\ B-20 at 2.

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ii. Discussion. The Commission has concluded that adding additional

information to the Buyers Guide, such as a warning that the Cooling-Off

Rule does not apply, is unnecessary.137 The format of the present

Buyers Guide achieves the Rule's objectives, and thus, for the reasons

previously discussed throughout this notice, the Commission is leaving

the format of the Buyers Guide essentially unchanged.138

\137\ 16 CFR 429. The Cooling-Off Rule does not apply to the

sale of vehicles, nor any other goods and services, offered at a

seller's place of business. It also does not apply to sales of

vehicles at auctions provided that the seller has a permanent place

of business.

\138\ See discussion at Part IV, Question 2, B, supra.

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V. Regulatory Flexibility Act Review

Based on its review of the record, the Commission has concluded

that the Rule has not had ``a significant economic impact on a

substantial number of small entities'' affected by the Rule.139 As

previously discussed, the comments indicate that the costs associated

with Rule compliance are minimal. The record also suggests that these

costs generally would be borne by a reasonably prudent business anyway.

\139\ 5 U.S.C. 603-605. The Commission received no information

regarding the number of dealerships with annual sales of $11.5

million or less. But, the Commission's experience is that most

independent used car dealers have annual sales less than $11.5

million and therefore are small entities for purposes of the RFA.

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VI. Conclusion

The comments and the Commission's experience indicate that the Rule

is working and achieving its objectives, while imposing only minimal

costs on used car dealers. For the reasons discussed above, however,

the Commission is amending the Spanish Buyers Guide and amending the

Rule to permit dealers to post Buyers Guides prominently and in plain

view in all used vehicles being offered for sale (rather than on a side

window). The Commission also is amending the Rule to permit dealers to

put a signature line on the back of the Buyers Guide, if accompanied by

a specific disclosure.

List of Subjects in 16 CFR Part 455

Motor vehicles, Trade practices.

Authority: The Regulatory Flexibility Act, 5 U.S.C. 601 et seq.

(1980).

Text of Amendments

For the reasons set forth in this document, pertinent sections of

the Used Car Rule, 16 CFR Part 455, are amended as follows:

PART 455--[AMENDED]

The authority citation for part 455 continues to read as follows:

Authority: 88 Stat. 2189, 5 U.S.C. 2309; 38 Stat. 717 as

amended; 15 U.S.C. 41 et seq.

2. Section 455.2(a)(1) is revised to read as follows:

Sec. 455.2 Consumer sales--window form.

(a) * * *

(1) The Buyers Guide shall be displayed prominently and

conspicuously in any location on a vehicle and in such a fashion that

both sides are readily readable. You may remove the form temporarily

from the vehicle during any test drive, but you must return it as soon

as the test drive is over.

* * * * *

3. Further, Sec. 455.2 is amended by adding paragraph (f) to read

as follows:

Sec. 455.2 Consumer sales--window form.

* * * * *

(f) Optional Signature Line. In the space provided for the name of

the individual to be contacted in the event of complaints after sale,

you may include a signature line for a buyer's signature. If you opt to

include a signature line, you must include a disclosure in immediate

proximity to the signature line stating: ``I hereby acknowledge receipt

of the Buyers Guide at the closing of this sale.'' You may pre-print

this language on the form if you choose.

* * * * *

4. Further, the first page of the sample Spanish language Buyers

Guide (``GUIA DEL COMPRADOR'') appearing at the end of section 455.5 is

revised to read as follows:

Sec. 455.5 Spanish language sales.

* * * * *

BILLING CODE 6750-01-P

[[Page 62206]]

[GRAPHIC][TIFF OMITTED]TR05DE95.000

By direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 95-27553 Filed 12-4-95; 8:45 am]

BILLING CODE 6750-01-C