Used car buyers' guide is no help in preventing fraud
February 17, 2013
A move by the Federal Trade Commission to modify its buyers' guide for used cars is being panned by consumer groups, who say the current guide is ineffective and proposed changes are even worse. The FTC guide gives consumers critical information about who will pay for repairs if something goes wrong with a purchased car, the FTC says. But consumer groups say the guide actually gives misleading information, for example telling buyers that dealers aren't responsible for repairs to vehicles sold "as is."
That's not completely accurate, according to Rosemary Shahan of the California-based Consumers for Auto Reliability and Safety, one of the groups opposing current and proposed FTC wording.
More accurately, a vehicle sold "as is" may still have an implied warranty on it under federal law, she said. But the agency's blunt language can mislead buyers and give dealers a shield when denying future repair work. "Let a judge decide that," argued Shahan. "(The FTC) has no business telling the consumer that the dealer is not responsible for repairs. They may be responsible, especially if the dealer advertises the vehicle as being in good condition."
In December, the FTC announced it was modifying the guide as part of a systematic review of all agency guides. Proposed changes include the addition of a statement encouraging consumers to seek information on a vehicle's history; a notice in Spanish that information can be obtained in that language; and the addition of check-boxes to specify vehicle warranty information on the back of the guide. The agency recently extended its deadline for public comments to March 13 at the request of individuals and groups including Shahan's organization and the National Association of Consumer Advocates in Washington DC, who wanted more time to present data on the subject.
The repair issue isn't the only problem advocates have with the FTC proposal. The buyers' guide, they say, also avoids an obvious dealer requirement to disclose known vehicle defects.
That's not a lot to ask, believes Shahan. "If you know a car has a problem, you should tell consumers," she said. "What a concept. But, they didn't do that." The request is not only basic, but is becoming more important as major weather events like Hurricane Sandy impact thousands of vehicles. A vehicle submerged in floods from hurricanes is often declared a total loss by insurance companies and could cause many future repair problems. But consumers don't always know this when buying a car.
Owners are generally paid off by an insurance company for a total loss vehicle which then goes to a salvage yard, according to Sam Giammalvo, owner of a New Bedford car dealer and service shop that carries his name. "That's the normal routine," said Giammalvo. "They should not go to market"¦ However, you can't stop that from happening." That's the problem, according to Shahan and others. Thousands of these vehicles are ending up on dealer lots usually far from the place they were damaged, in an effort to wash them of their total-loss designation. For example, Shahan said, vehicles damaged from Hurricane Katrina made their way to California from Louisiana. "It's sometimes brand new cars," she said. "We've heard from consumers who only found out they had a salvaged car when they tried to get it fixed. They took it to a dealer and the dealer said, 'Well did you know?'" The dealer then told them that their service contract or factory warranty did not apply because the vehicle had prior damage for flood, she said. Cars with significant flood damage should be avoided altogether, according to both Giammalvo and Mattapoisett repair shop owner Murray Decoffee. "A lot of sensors and switches can be affected and give you problems down the road," said Decoffee. "Even fresh water can affect them, but salt water is real deadly." But while it should be avoided, water damage can be tough for future buyers to spot. At least not without getting a good look under the car or checking the title, Decoffee said. And that's assuming the title hasn't been "washed" by moving it across state lines, said Shahan.
The solution is a federal database, called the National Motor Vehicle Title Information System. The database contains about 88 percent of all registered vehicle information and can give a consumer a vehicle's history including flooding or other damage. Requiring dealers to check the NMVTIS database and provide that information to consumers is a major missing piece in the FTC's guide, Shahan said. While consumers can check the database themselves for a small fee, she said people will find that difficult and even impossible to do. Not everyone carries computers while shopping and a credit card must be used to access the database service. The FTC, however, prefers that consumers access the vehicle history report themselves, according to attorney John Hallerud, of the agency's Midwest region office. The commission has heard through public comments that people want the guide to do more, Hallerud said, but the FTC wants to avoid having dealers control all of the information.
"We recognize that (the NMVTIS database) is a valuable tool but what we hope to do is find a road in between where consumers don't rely too much on information they get from the dealer," he said. In California, Shahan said dealers supported a disclosure law that went into effect in July. The law requires them to put a red notice on every vehicle that has been identified as a "total-loss" and that is included in the federal database. The notice also alerts buyers that because of its history "the manufacturer's warranty or service contract on this vehicle may be affected."
As a dealer, Giammalvo agrees with putting disclosure notices on salvaged cars. In the business for more than 50 years, he said he's seen a lack of trust in used car dealers grow over the years. His advice for consumers is to bring a mechanic, attorney and an accountant with them when they shop for a car. Either that, he said, or, "Find an honest dealer."
For more information on the vehicle history database go to http://www.vehiclehistory.gov/index.html. Public comments on the buyers guide are posted at www.ftc.gov/os/publiccomments.shtm.