Proper Completion of the New 2017 Buyers Guide From time to time, federal regulatory agencies look to review existing regulatory requirements to determine whether they remain necessary, or whether they need to be updated. To do so, they often solicit feedback from affected industries, law enforcement, and consumer groups. In July 2008, the Federal Trade Commission (FTC) published a notice in the Federal Register announcing its review of the federal Used Car Rule—the regulation that mandates dealers post Buyers Guides on used vehicles—and soliciting comments from interested parties. After several years of taking comments, the FTC published a final regulation late last year, creating a revised version of the Buyers Guide effective January 27th. Beginning that date, dealers may start using the new Buyers Guide, or may continue to use their existing supply of the old Buyers Guide for up to one year—until January 27, 2018. Dealers looking to use their existing supply must take note of a few minor changes to the manner in which the old version of the guide is completed (described below). Dealers should note that the penalty for a violation of the Used Car Rule increased from $16,000 per violation just a couple of years ago to $40,654 today per violation (i.e., per car with a missing or improperly completed Buyers Guide). Dealers should also note that a violation of the Used Car Rule is also a violation of California law—a criminal misdemeanor that allows for the California Department of Motor Vehicles (DMV) to take administrative action against a dealer license. We have also seen an uptick in lawsuits filed against dealers related to improper Buyers Guide completion. This is not a law to be trifled with, nor should you depend upon your forms or F&I vendors to put these together for you (they are notoriously poor at compliance). Dealers should make sure appropriate staff is up to speed on the revised law. This article should be a good starting point, but you should consult with competent legal counsel familiar with the law and enforcement agency positions relating to the Used Car Rule. Hotline subscribers can give us a call at (800) 785-2880 with any questions. [Reference: 73 FR 42285; 16 CFR Part 455; California Vehicle Code § 11713.1(t)] The main source for information on completing the Buyers Guide should be the language of the Used Car Rule itself, and a document published by the FTC titled “A Dealer's Guide to the Used Car Rule” (Dealer’s Guide). That publication was updated to address the revised law, and the most relevant portions of that publication are set forth below in the discussion titled “A Dealer’s Guide to the Used Car Rule.” The FTC published Staff Compliance Guidelines on the Used Car Rule in 1988. While these 1988 guidelines, obviously, are a bit out of date, Auto Advisory Services confirmed with the FTC that they remain valid to the extent that they remain consistent with the new law. Before walking through the updated Dealer’s Guide, we wanted to outline the two options dealers have once the law takes effect on January 27th, and then correct some common misperceptions about Buyers Guide completion Option 1: Work Through Remaining Stock of Buyers Guides The revised regulation specifically authorizes dealers to “use remaining stocks of the version of the Buyers Guide in effect prior to the effective date of this rule for up to one year after that effective date (i.e., until January 27, 2018).” As dealers are no doubt aware, they may (but are not required to) describe the fact that a vehicle is covered by an unexpired factory warranty, or a factory CPO warranty using specific language approved by the FTC. Critically, the revised regulations change the required language that dealers must use to do so if electing to continue to work with their existing Buyers Guide stock, as follows:
MANUFACTURER'S WARRANTY STILL APPLIES. The manufacturer's original warranty has not expired on some components of the vehicle. The dealership itself assumes no responsibility for any repairs, regardless of any oral statements about the vehicle. All warranty coverage comes from the unexpired manufacturer's warranty.
• New Language:
Manufacturer’s Warranty still applies. The manufacturer’s original warranty has not expired on the vehicle. Ask the dealer for a copy of the warranty document and an explanation of warranty coverage, exclusions, and repair obligations. The dealership itself assumes no responsibility for any repairs, regardless of any oral statements about the vehicle. All warranty coverage comes from the unexpired manufacturer's warranty.
Previous Buyers Guide Language for Remaining Factory Warranty Coverage
New Buyers Guide Language for Remaining Factory Warranty Coverage If Using Existing Stock of Previous Version of Buyers Guide
Factory CPO Warranty:
• Former Language:
MANUFACTURER'S WARRANTY APPLIES. A manufacturer's warranty comes with the vehicle. Consult the manufacturer's warranty booklet for details as to warranty coverage, service location, etc.
• New Language:
Manufacturer’s Used Vehicle Warranty Applies. Ask the dealer for a copy of the warranty document and an explanation of warranty coverage, exclusions, and repair obligations.
• New Language: Other Used Vehicle Warranty Applies. Ask the dealer for a copy of the warranty document and an explanation of warranty coverage, exclusions, and repair obligations.
Note: While dealers in some states have used vehicle inventory covered by a non-factory third party warranty, we don’t often see this in California as it arguably conflicts with California’s consumer warranty laws. Dealers should not use this language unless they operate a third party warranty program reviewed and approved by competent counsel. [Reference: 16 C.F.R. § 455.2(a)] AAS Note on “Remaining Stock”: While the regulation allows dealers to use “remaining stock” of the current version of the Buyers Guide instead of immediately switching to the new version, what does this mean? Does this apply only to pre-printed supply? Does this mean that dealers who print their Buyers Guides “on-demand” must switch immediately? The law does not provide clarification in this area. With this in mind, we believe the FTC may provide a bit of flexibility, but there is no guarantee of that in the letter of the law. We do recommend that dealers make the switch to the new version of the Buyers Guide as soon as practicable, and that they should keep in mind that California has its own requirement for dealers to post compliant Buyers Guides on used vehicle inventory. During recent discussions with a senior DMV enforcement official, we were told that they were still determining their enforcement positions relating to this option, but would likely provide some flexibility in this area during the initial months of the regulation taking effect. [Reference: 16 C.F.R. § 455.2(a); California Vehicle Code § 11713.1(t)] Option 2: Use the New Buyers Guide When completing the new version of the Buyers Guide, it is important to take a step back, as the Buyers Guide is fundamentally different. It separates warranty disclosures into one portion for disclosing dealer warranty coverage (or lack thereof) and another section in which a dealer may disclose third party warranty coverage, such as unexpired factory warranty or factory CPO warranty coverage. The new version asks two fundamental questions about warranty coverage over a particular vehicle:
1. Is the vehicle covered by an express or implied dealer warranty, or is it being offered AS IS from the dealer’s perspective? The answer must be indicated in the section for disclosure of dealer warranties on the Buyers Guide. If the vehicle is covered by an express dealer warranty, the terms of the warranty must be summarized in the “Dealer Warranty” portion of the Buyers Guide. (See images, below, for the Dealer Warranty sections of the “AS IS” and “Implied Warranties” Buyers Guides);
and
2. Is the vehicle covered by a manufacturer or third party warranty? If so, the dealer may (but it not
required to) check the appropriate box in the “Non-Dealer Warranties for this Vehicle” Section. (See image, below, for the “Non-Dealer Warranties” section of the Buyers Guide.)
Section for Disclosure of Dealer Warranty Coverage (or Implied Warranties Only Disclosure from Dealer’s Perspective)
Section for Disclosure of Factory or Third Party Warranty Coverage
AAS Note: A Game Change In Buyers Guide Completion. Currently, the overwhelming majority of vehicles in a typical new car dealers’ used vehicle inventory would have the large “Warranty” box checked on their Buyers Guides—doing so was appropriate if vehicles were covered by a dealer warranty, an unexpired factory warranty, or a factory CPO warranty. The “AS IS” box would be checked only on true AS IS vehicles—a relatively small number at the majority of new car dealerships. Under the new version of the Buyers Guide, however, dealers not offering their own dealer warranty are stuck checking the “AS IS” box (even when the vehicle is sold with an unexpired factory warranty or factory CPO warranty) or using the “Implied Warranties” version of the Buyers Guide. From dealers
we’ve talked to, this is an unattractive proposition. California Laws on Warranty Coverage California’s Song-Beverly Consumer Warranty Act is the primary set of laws governing express (verbal or written) warranties and implied (automatically applicable) warranties over the sale of consumer goods, and greatly expands the warranty laws created by the Uniform Commercial Code. Song-Beverly provides that the implied warranties that apply to consumer goods are:
1. that the goods are “merchantable,” or (generally) fit for the ordinary purpose for which the goods are used (e.g., a specific vehicle sold by a dealer must be fit for use as a vehicle: it should be drivable, and its basic components should be operational);
and
2. that they are fit for any particular purpose that the customer has communicated to the dealer,
and the dealer has reason to know the customer is relying upon their expertise (e.g., if a customer tells the salesperson that they are looking for a vehicle that will tow a 35-foot trailer and the salesperson helps select the vehicle that us purchased for this purpose, the vehicle must be capable of towing that trailer).
For used consumer goods, California law provides that the implied warranties last the same amount of time as any express warranties, but a minimum of 30 days and a maximum of three months. Express warranties, on the other hand, are written statements made by the manufacturer or retailer of the good under which the utility or performance of the product will be maintained or preserved (e.g., repaired when a problem arises), or that compensation will be paid if there is a failure in utility or performance. [Reference: California Civil Code §§ 1791-1791.2; 1795.5] AAS Note on the “Implied Warranties” Buyers Guide: While California dealers have not traditionally used the “Implied Warranties” version of the Buyers Guide, we conservatively recommend that dealers use this version for all non-AS IS sales when the dealer does not provide their own warranty, if disclosing factory warranty coverage. This is subject to separate reasoning for Unexpired Factory Warranty Vehicles and for Factory CPO Vehicles.
• Unexpired Factory Warranty Vehicles: Song-Beverly prohibits limiting or disclaiming the implied warranties in transactions in which express warranties are given. While the general law applies to new consumer goods, Song-Beverly provides that retail sellers of used goods in which an express warranty is provided are subject to the same obligations as normally apply to manufacturers (with minor exceptions). Trial lawyers often argue that since dealers are informing consumers that they are provided with an express warranty (the remaining portion of the factory warranty) by checking the applicable box, selling the vehicle AS IS from the dealer’s perspective (and therefore checking the AS IS box on the Buyers Guide) is arguably subject to legal challenge. While we believe a better argument to be that dealers are merely disclosing unexpired factory warranty coverage in order to avoid being challenged as omitting this information (e.g., in an attempt to sell service contract), dealers looking to avoid being forced to defend against such challenges may wish to use the Implied Warranties version of the Buyers Guide as a best practice. Of course, such dealers should keep in mind the obligations they are undertaking when doing so. While a recent California Appellate
Court decision found that dealers may disclaim implied warranties when selling used vehicles covered by an unexpired manufacturer’s warranty, that case involved a Buyers Guide in which the dealer did not disclose factory warranty coverage. In light of litigation in this area, we conservatively recommend that dealers use the Implied Warranties Buyers Guide with such vehicles unless dealers elect not to check the box disclosing remaining factory warranty coverage.
• Factory CPO Vehicles: In addition to the reasoning behind not selling vehicles with unexpired factory
warranties “AS IS,” California Vehicle Code Section 11713.18(a)(8) prohibits selling or advertising for sale a vehicle as “certified” on an AS IS basis. Accordingly, we recommend that dealers either separately provide a dealer warranty on these vehicles, or use the “Implied Warranties” version of the Buyers Guide.
[Reference: California Civil Code §§ 1793; 1795.5; Leber v. DKD of Davis, Inc. (2015 237 Cal.App.4th 402] Hitting the High Points: Common Buyers Guide Misunderstandings While we encourage all to read through this document carefully, we wanted to summarize a few of the more common compliance problems for those looking for a quick review. In reviewing this article, keep in mind the general theme of the Used Car Rule. The primary purpose of the Used Car Rule is to require that dealers inform customers of whether a vehicle at the dealership is covered by a dealer warranty, and, if so, to summarize the terms of that dealer warranty. This must be done on the Buyers Guide, and in a very specific manner. From the thousands of Buyers Guides our auditors review each year, here are some of the more common things we point out:
• The Buyers Guide is not a warranty. The description of warranty terms on a Buyers Guide is only meant to provide a summary of the dealer’s warranty. With limited exceptions, the dealer needs to have a written warranty document meeting federal requirements if the vehicle is covered by a dealer warranty. The Buyers Guide does not and cannot satisfy these requirements.
• The Buyers Guide can only summarize the dealer’s warranty. The Buyers Guide cannot be used
to summarize the terms of the factory warranty, or a non-dealer Certified Pre-Owned (CPO) warranty. The dealer is permitted (but not required) to inform the customer that the vehicle is covered by a manufacturer’s warranty. This means that dealers should not complete the Buyers Guide to explain factory CPO coverage. Nor should dealers change the “Dealer will pay ___%” language to “Factory will pay __%”. Don’t do either of these things, even if the factory tells you to do so. If the factory insists that you do so, inform the National Automobile Dealers Association of this fact. Or give us a call and we will do so.
• Dealers cannot modify the Buyers Guide formatting. Even if it makes information in the Buyers
Guide clearer, dealers must not reconfigure the Buyers Guide.
• If naming a contact person (instead of position) at the dealership for complaints, make sure they still work at the dealership. The dealer is required to list the appropriate contact person (or their position) for complaints on the back of the Buyers Guide. Unfortunately, we frequently see dealers complete the back of the Buyers Guide with the name of a person who is no longer employed at the dealership.
• Insert the required statement if providing for customer signatures. The Used Car Rule allows dealers to insert a signature line in the blank space under the “See for Complaints” line on the back of the Buyers Guide. Doing so is a great idea, since you can retain evidence that the customer
reviewed and received a copy of the Buyers Guide. The law requires that any such signature line include the following statement: "I hereby acknowledge receipt of the Buyers Guide at the closing of this sale." This statement is all-too-often missing from the signature space.
A Dealer's Guide to the Used Car Rule AAS Note: What follows below (except for our commentary in the “AAS Note” sections) are direct quotes from the FTC’s booklet “A Dealer’s Guide to the Used Car Rule”: Most car dealers who sell used vehicles must comply with the Federal Trade Commission's (FTC's) Used Car Rule. In fact, car dealers who sell, or offer for sale, more than five used vehicles in a 12-month period must comply with the Rule. Banks and financial institutions are exempt from the Rule, as are businesses that sell vehicles to their employees, and lessors who sell a leased vehicle to a lessee, an employee of the lessee, or a buyer found by the lessee. ... You must post a Buyers Guide before you display a vehicle for sale or let a customer inspect it for the purpose of buying it, even if the car is not fully prepared for delivery. You also must display a Buyers Guide on used vehicles for sale on your lot through consignment, power of attorney, or other agreement. At public auctions, dealers and the auction company must comply. The Rule does not apply at auctions that are closed to consumers. Previously titled or not, any vehicle driven for purposes other than moving or test driving is considered a used vehicle, including light-duty vans, light-duty trucks, demonstrators, and program cars that meet the following specifications:
• a gross vehicle weight rating (GVWR) of less than 8,500 pounds; • a curb weight of less than 6,000 pounds; and • a frontal area of less than 46 square feet.
Exceptions to the Rule are:
• motorcycles; • any vehicle sold for scrap or parts if the dealer submits title documents to the appropriate state
authority and obtains a salvage certification; and • agricultural equipment.
The Buyers Guide A disclosure document that gives consumers important purchasing and warranty information, the Buyers Guide tells consumers:
• the major mechanical and electrical systems on the car, as well as some of the major problems that consumers should look out for;
• whether the vehicle is being sold "as is" or with a warranty; • what percentage of the repair costs a dealer will pay under warranty; • that oral promises are difficult to enforce; • to get all promises in writing; • to ask to have the car inspected by an independent mechanic before they buy; • to get a vehicle history report and to visit ftc.gov/usedcars for information on how to get a vehicle
history report, how to check for safety recalls, and other topics; and • to ask for a Spanish Buyers Guide if the sale is conducted in Spanish; and • to keep the Buyers Guide for reference after the sale.
If you conduct a used car transaction in Spanish, you must post a Spanish language Buyers Guide on the vehicle before you display or offer it for sale. [AAS Note: With respect to when Spanish Buyers Guides should be posted, the FTC staff compliance guidelines provide further instructions. The guidelines state:
From a practical standpoint, dealers must post both the English and Spanish versions of the Buyers Guide where a substantial number of sales are made in both languages. … Illustration 3.10: You are a dealer who makes a substantial number, but not a majority, of your sales to Spanish speaking customers. Your staff is trained to conduct sales in both Spanish and English. Should you display both a Spanish and English version of the Buyers Guide on all your vehicles? Yes. To ensure your compliance with the Rule, it is a good idea to post both versions of the Buyers Guide if you expect that a sale could be conducted in either Spanish or English. A Spanish language Buyers Guide must be posted on a used vehicle before you begin to discuss, in Spanish, that vehicle with a customer. Therefore, as a practical way to ensure compliance, you should post both English and Spanish Buyers Guides if you make a large number of sales in both languages. (Emphasis added)
In addition to following these guidelines, we also recommend making sure you display a Spanish version of the Buyers Guide on your inventory if you are advertising in Spanish.] The Buyers Guide must be displayed prominently and conspicuously on or in a vehicle when a car is available for sale. This means it must be in plain view and both sides must be visible. You can hang the Guide from the rear-view mirror inside the car or on a side-view mirror outside the car. You also can place it under a windshield wiper. The Guide also can be attached to a side window. A Guide in a glove compartment, trunk or under the seat is not conspicuous because it is not in plain sight. You may remove the Guide for a test drive, but you must replace it as soon as the test drive is over. Vehicle Information At the top of the Guide, fill in the vehicle make, model, model year, and vehicle identification number (VIN). Write in a dealer stock number if you wish. Dealer Information On the back of the Guide, fill in the name and address of your dealership. Also fill in the name (or position) and the telephone number of the person the consumer should contact with complaints. You may use a rubber stamp or preprint your Guide with this information.
Optional Signature Line You may include a signature line on the Guide and you may ask the buyer to sign to acknowledge that he or she has received the Guide. If you opt for a signature line, you must include a disclosure near it that says: "I hereby acknowledge receipt of the Buyers Guide at the closing of this sale." This language can be preprinted on the form. The signature line and the required disclosure must appear in the space provided for the name of the individual to be contacted in the event of complaints after the sale. [AAS Note: on the new version of the Buyers Guide, the space to include this acknowledgment has been significantly reduced, but can still fit. We recommend that the language be completed in at least 8-point font. See Exhibit F for an example of how to make this work.] Warranty Information The Buyers Guide has two versions: One says "As Is-No Dealer Warranty;" the other says "Implied
Warranties Only." As Is-No Dealer Warranty. If state law allows it, and you choose not to offer a warranty — written or
implied — you must use the "As Is" version and check the box next to the heading "As Is-No Dealer Warranty" on the Guide.
Implied Warranties Only. In states that limit or prohibit the elimination of implied warranties, you must use the "Implied Warranties Only" version and check the box next to the "Implied Warranties Only" if you don't offer a written warranty.
Warranty. If you offer the vehicle with an express warranty, you must check the box next to the heading "Warranty" and complete that section of the Guide. Warranties required by state law must be disclosed in this section. Your state Attorney General can tell you about state warranty requirements.
Is the Warranty "Full" or "Limited"? For a warranty to be considered "full:" Warranty service must be provided to anyone who owns the vehicle during the warranty period. Warranty service must be provided free of charge when necessary, even for services like removing and
reinstalling a system covered by the warranty. The consumer must be able to choose either a replacement or a refund if the vehicle can't be repaired
after a reasonable number of tries. The consumer is not required to take any action to receive service, except to give notice that service is
needed. Service must be rendered after notice unless the warrantor can demonstrate that it is reasonable to require consumers to do more than give notice.
The length of implied warranties must not be limited. The warranty is considered "limited" if any of these conditions doesn't apply. [AAS Note: It is hard to imagine why a dealer (or anybody else for that matter) would want to offer a “full” warranty in light of these requirements. Note that all factory warranties are “limited.”] What Percentage of Costs Does the Warranty Cover? Fill in the percentage of parts and labor costs covered by the warranty in the spaces provided. If a deductible applies to repairs made under the warranty, put an asterisk next to the number and explain the deductible in the "systems covered/duration" section. For example, "*A $50 deductible applies to each
repair visit." What Systems Are Covered? For How Long? There's one column to list the systems covered, and another to list the length of the warranty for each system. In the left hand column, you must specify each system that's covered by the warranty. The Rule prohibits the use of shorthand phrases such as "drive train" or "power train" because it's not always clear what specific components are included in the "power train" or "drive train." In the right hand column, you must state the length of the warranty for each system. If all systems are covered for the same length of time, you may state the duration once. What if the Manufacturer’s Warranty Still Applies? If the manufacturer's warranty hasn't expired, you may disclose this fact by checking the box, "MANUFACTURER'S WARRANTY STILL APPLIES. The manufacturer's original warranty has not expired on some components of the vehicle,” in the Non-Dealer Warranties for this Vehicle section of the Buyers Guide. [AAS Note: As discussed above, we recommend that dealers selling vehicles with remaining factory warranty coverage either provide a dealer warranty, properly described in the space for such, or use the “Implied Warranties” version of the Buyers Guide with the Implied Warranties box checked. We recommend against checking the AS IS box on such vehicles.] [AAS Note: On Manufacturer Certified Pre-Owned Vehicles If a Factory CPO Warranty applies to the vehicle, you may disclose this fact by checking the box, “MANUFACTURER’S USED VEHICLE WARRANTY APPLIES.” As discussed above, we recommend that dealers selling Factory CPO vehicles either provide a dealer warranty, properly described in the space for such, or use the “Implied Warranties” version of the Buyers Guide with the Implied Warranties box checked. We recommend against checking the “AS IS” box on such vehicles.] If the consumer must pay to get coverage under the manufacturer's warranty, you may not check the "Warranty" box. Such coverage is considered a service contract. However, you may check the "Warranty" box if you pay for coverage from the manufacturer and the consumer doesn't have to pay anything more than the price of the vehicle to get the coverage. If you provide a warranty in addition to the unexpired manufacturer's warranty, explain the terms of your warranty on the Buyers Guide. [AAS Note: This is an important distinction, particularly with respect to certified used vehicles. Telling a customer that they can pay $1,000 to get a vehicle certified is improper. A vehicle should be offered for sale as certified or not. Sales personnel should not “sell certification.” Doing so creates a service contract and presents disclosure issues.] [AAS Note: What if You Are Not Sure Whether a Manufacturer’s Warranty Still Applies? While some dealers insert language on the Buyers Guide stating that the manufacturer’s warranty may remain unexpired (or worse, stating that the “balance of factory warranty, if any, may apply”), and instructing the customer to contact the manufacturer to verify coverage, the FTC has thrown water on
the notion that doing so is permissible. In 2012, the FTC, in response to comments and suggestions by many trade groups, published a formal rulemaking document that addressed certain requested changes. In that rulemaking, the FTC responded to a request by the National Automobile Dealers Association to specifically allow for such a disclosure. In response, the FTC cited a comment by a consumer protection attorney who argued that dealers use such language to falsely suggest that a manufacturer’s warranty applies. In weighing the arguments, the FTC stated the following: “The Rule necessarily requires dealers to determine whether a manufacturer’s warranty applies before stating so because it permits, but does not require, dealers to state that a manufacturer’s warranty applies 455.2(b)(2)(v), when such a warranty applies. In light of the potential for deception when dealers suggest coverage that the dealer has not confirmed, no change concerning the disclosure of unexpired manufacturer’s warranties is proposed in this [proceeding]." Accordingly, dealers should be sure to avoid including any such statements on a Buyers Guide, and ensure that any statement regarding factory warranty coverage is confirmed or at least highly likely (e.g., same or prior model year vehicle). Reference: Used Motor Vehicle Trade Regulation Rule, 77 Fed. Reg., 74,746, 74,753 fn, 61 (proposed Dec. 17, 2012) (to be codified at 16 C.F.R. pt. 455).] Where Should Negotiated Warranty Changes Be Included? If you and the consumer negotiate changes in the warranty, the Buyers Guide must reflect the changes. For example, if you offer to cover 50 percent of the cost of parts and labor for certain repairs, but agree to cover 100 percent of the cost of parts and labor after negotiating with the customer, you must cross out the "50 percent" disclosure and write in "100 percent." Similarly, if you first offer the vehicle "AS IS" but then agree to provide a warranty, you must cross out the "As Is-No Dealer Warranty" disclosure and complete the "Warranty" section of the Buyers Guide properly. What About Service Contracts? If you offer a service contract for repairs, check the box next to the words "Service Contract." ... What Do I Have to Give the Buyer At the Sale? You must give the buyer the original or a copy of the vehicle's Buyers Guide at the sale. The Guide must reflect all final changes. If you include a signature line on your Buyers Guides, make sure the buyer signs the Guide that reflects all final changes. If you offer a written warranty, or if the manufacturer's warranty still applies, you also must comply with the Magnuson-Moss Warranty Act and other FTC Rules, including the "Warranty Disclosure Rule." The Warranty Act contains provisions that establish consumers' rights with respect to written warranties. For example, the Act prohibits you from eliminating implied warranties when you provide a written warranty. The Warranty Disclosure Rule requires that you disclose certain information about the coverage of your warranty and consumers' rights under state law. This information must be included in a single document that is clear and easy to read. Can the Buyers Guide Serve As My Written Warranty? The warranty information you provide on the Buyers Guide is not sufficient to meet the requirements of the Warranty Disclosure Rule. Therefore, your written warranty and the Buyers Guide must be two separate documents.
Another federal rule — the FTC's Rule on Pre-Sale Availability of Written Warranty Terms — requires that you display written warranties in close proximity to the vehicle or make them available to consumers, upon request, before they buy. You also may be interested in A Businessperson's Guide to Federal Warranty Law. It explains the Magnuson-Moss Warranty Act, the federal law governing warranties on consumer products. [AAS Note: This is an important compliance item that is often overlooked. If your dealership offers used car warranties (even a simple 30-day, 50/50 warranty), be sure to have a knowledgeable attorney draft a formal warranty document for distribution to your customers.] What Disclosures Should I Make if I Offer a 50/50 Warranty or Another Type of Split Cost Warranty? Split cost warranties are those under which the dealer pays less than 100% of the cost for a warranty repair. This type of warranty includes 50/50 warranties where the dealer pays 50% of the cost for a covered repair and the buyer pays the remaining 50%. Another type of split cost warranty is one under which the buyer pays a deductible amount and the dealer pays the remaining cost for the repair. If you offer a split cost warranty that requires you to pay a percentage of the repair cost for covered repairs, you should include the following disclosures in your warranty document:
• The percentage of the total repair cost you will pay. • The percentage of the total repair cost the buyer must pay. • How the total cost of the repair will be determined. For example, your warranty might state: "The
total cost of a warranty repair will be the retail price ABC motors charges for the job." As another example, your warranty might state: "The total cost of a warranty repair will be determined by adding the dealer's cost for parts to the labor cost. Labor will be billed at a rate of ________ per hour for the actual time required to complete the repair." As a final example, your warranty might state: "If the work is done by an outside repair shop, total cost of a repair will be the price ABC Motors is charged by the outside shop. If the work is done by ABC Motors, the total cost of the repair will be the same price ABC Motors charges non-warranty customers for the same job."
If your warranty requires buyers to pay a deductible, your warranty document should disclose the deductible amount and the details as to when and under what circumstances the deductible must be paid. Dealers offering split cost warranties can require that buyers return to the dealer for warranty repairs. If your warranty includes this restriction, however, you should provide an estimate of the total repair cost before work is started. This will allow the buyer to decide whether to approve the repair or have the work done elsewhere. Where Can I Get Copies of the Guides? You can download the Buyers Guide from the FTC's Business Center, or you can get Buyers Guides from business-form companies or trade associations. You also can generate them yourself on a computer. However, you must use the wording, type style, type sizes, and format specified in the Rule. You are not allowed to place any other wording or symbols (including logos) on the Buyers Guide. The Guides must be printed in 100% black ink on white paper cut to at least 11" x 7 1/4." These requirements cannot be modified in any way. You may use colored ink to fill in the blanks.
[AAS Note: The statement above, referencing the FTC mandate for dealers to use the “format specified in the Rule”, is emphasized and amplified in the FTC Staff Compliance Guidelines: “The Rule requires dealers to use the exact format for the Buyers Guide that is shown in the Rule. All Buyers Guides must comply exactly with the standardized wording, type style, type size, and format required by the Rule.” Dealers are well-advised to compare the format of their Buyers Guides with the specified format, and discuss any discrepancies with their forms provider and/or legal counsel.] [AAS Note: Included on the following pages are examples of completed Buyers Guides (as well as a non-completed version of the Spanish Buyers Guide). The examples are for illustration purposes only. Obviously, these Buyers Guides have been reduced in size to conserve space. Full size versions of these examples are available to hotline subscribers by calling (800) 785-2880.]
