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Unfair and Deceptive Acts and Practices: 7.2.4.4 Undisclosed Inspection Fees

A dealer selling a service contract may be violating a UDAP statute when it fails to disclose additional fees that will be imposed if the consumer makes a claim under the contract, such as when the dealer charges an inspection fee to determine if the repairs are covered under the contract. In one case the fees were $695. A federal court has held that these facts state a UDAP claim.182

Unfair and Deceptive Acts and Practices: 7.3.3 “Unhorsing” and Selling the Consumer’s Trade-In Prematurely

One practice that dealers often engage in is “unhorsing” or depriving the consumer of their current vehicle during the negotiation of the purchase of a car. The failure to return a trade-in can take place at a number of different times, but is perhaps best summarized by the South Carolina Court of Appeals: “In the final analysis, [the consumer] was riding when he went to the dealership and ended up walking.”248

Unfair and Deceptive Acts and Practices: 7.3.5 Dealer Failing to Pay Off the Lien on the Consumer’s Trade-In

A surprisingly common abuse is for a dealer to take a vehicle in trade, but not to pay off the amount owed to the consumer’s creditor on the trade-in’s car original financing. This kind of abuse can also happen when the consumer turns in a leased car, and expects any early termination charge to be paid by the dealer as part of the purchase price of another vehicle. In both these cases, when the dealer fails to make the owed payments, the consumer’s creditor comes after the consumer for repayment.

Unfair and Deceptive Acts and Practices: 7.3.9 Cooling-Off Periods in Automotive Sales

While the existence of a three-day cooling-off period for car sales is a widespread misconception, in an odd twist, consumers may have such a cancellation right, at least for certain types of car sales or in certain states. As described NCLC’s Fair Credit Reporting,288 federal or state credit repair legislation may treat car dealers as credit repair organizations, and, as such, they must provide a three-day cooling-off period and meet other statutory requirements. Failure to comply can lead to voiding of the transaction.

Unfair and Deceptive Acts and Practices: 7.3.12 Private Sellers and Curbstoners

Sometimes a consumer buys a used vehicle through a want ad from someone who appears to be a private seller. If the used vehicle turns out to be a problem vehicle—a rebuilt wreck, for example—the buyer should always investigate whether the seller really is just an individual selling their own car. A subpoena to the newspaper in which the car was advertised may reveal that the seller has advertised many cars, suggesting that selling cars is actually a side business. Depending on the volume of business, the seller may have been required to obtain a dealer’s license from the state.

Unfair and Deceptive Acts and Practices: 7.4.1 Introduction

Used car sales are an important area of consumer abuse. This subsection covers both sale of cars that are offered as used and also cars sold as new when they are really used. The next section examines UDAP precedent dealing with new car sales. In handling a used car case, it is important also to review §§ 7.1–7.3, supra, as well.

Unfair and Deceptive Acts and Practices: 7.4.2 FTC Used Car Rule

The FTC’s Trade Regulation Rule on the Sale of Used Motor Vehicles (Used Car Rule) requires dealers who offer a used car to put a window sticker on the vehicle with specific information, provide a copy of the sticker to the consumer, and incorporate information from the sticker into the sales agreement. It also prohibits certain misrepresentations and requires information about warranties to be disclosed.

Unfair and Deceptive Acts and Practices: 7.4.4 Nature of Prior Use

It is deceptive to misrepresent or fail to disclose the nature of a car’s prior use, such as when the vehicle was used as a taxicab or police car.326 A number of cases have found it deceptive to fail to disclose a vehicle’s prior use as a daily rental.327 It is also deceptive to fail to disclose that a vehicle has been previously purchased at a repossession sale,328 or to misrepresent a car sold at auction as purchased from an individual.

Unfair and Deceptive Acts and Practices: 7.4.5 Odometer Rollbacks and Mileage Misrepresentations

Tampering with odometers, failing to disclose accurate odometer readings, and misrepresenting a car’s mileage are all deceptive practices.333 Even a dealer’s innocent misrepresentation of a vehicle’s odometer reading, due to a rollback by a previous owner, is a UDAP violation, because scienter and intent are not elements of UDAP claims.334 In such a situation the consumer may also have a claim against one or more upstream sellers of the vehicle.335

Unfair and Deceptive Acts and Practices: 7.4.7 “Lemon Laundering” (Undisclosed Sale of Car Previously Returned As a Lemon)

Lemon laundering occurs when a defective vehicle, after a number of unsuccessful repair attempts, is returned to the manufacturer pursuant to a remedy under a state lemon law and that defective vehicle is then put back into the stream of commerce with no disclosure of its history. The detailed discussion of lemon laundering found in NCLC’s Automobile Fraud354 lists a number of states that have enacted lemon laundering statutes.

Unfair and Deceptive Acts and Practices: 7.4.9.3 Dealer Resale of the Same Junk Used RV or Car to Lure Consumers into More Costly Deals

Apparently, some used vehicle dealers, particularly recreational vehicle dealers, are engaging in a churning scheme whereby they seek out defective vehicles to be resold to multiple consumers. These junkers are advertised at very low prices, bringing customers onto the lot. The consumer is either switched to another vehicle or sold the defective vehicle. When it soon breaks down, the consumer brings the vehicle back and is switched into another vehicle.

Unfair and Deceptive Acts and Practices: 7.4.10 Misrepresentations Concerning Clear Title

When a car dealer represents that it can sell a car, it represents that it has good title to the car.374 It is a UDAP violation for even an innocent car dealer relying on a seemingly valid certificate of title to sell a car that later turns out to be stolen.375 It may be a UDAP violation to sell a vehicle that should have a salvage title even if the dealer does not have actual knowledge of the vehicle’s history.376 It is also a UDAP violation to se

Unfair and Deceptive Acts and Practices: 7.4.11 Misrepresentations of Vehicle Characteristics

Used car dealers cannot misrepresent a car’s characteristics, such as the number of cylinders that a vehicle contains.380 It is also deceptive to fail to disclose that the engine in the vehicle is not the type designed for that vehicle.381 A dealer engages in a deceptive practice when it sells an engine different than represented, and which was not in as good working order as represented.382 Misrepresenting the model of a vehicle is a UDAP violatio

Unfair and Deceptive Acts and Practices: 7.4.12 Misrepresentations As to Vehicle Warranty

Dealers cannot misrepresent the extent of the warranty,384 or represent that a vehicle is sold with a warranty, when it is not.385 In states which prohibit the disclaimer of the implied warranty of merchantability, it may be a UDAP violation to misrepresent that a car is sold “as is” with “no warranty.”386 Dealers must also disclose, prior to sale, that a used vehicle is sold without any warranty,387

Unfair and Deceptive Acts and Practices: 7.4.14.3 Revolving Repossession Practices

“Buy-here, pay-here” dealerships aggressively repossess cars if the consumer is behind in the monthly or weekly payments. This can quickly lead to a “revolving repossession” scheme because the cars have such low cash value and because the dealership can turn around and sell the same car for so much. That is, there is a tendency for “buy-here, pay-here” dealerships to purchase the car back themselves and resell the car to another consumer.

Unfair and Deceptive Acts and Practices: 7.4.14.4 Information to Obtain in Discovery

Finance companies and others aggressively promote “buy-here, pay-here” programs and provide extensive training and advice on how to set up and maintain such a program. Consequently, discovery requests may produce graphic material explaining how the dealership operates. In addition to deposing sales and management personnel involved in the program, request all documents dealing with the program, particularly sales and training manuals. Manuals provided by third-party finance companies should especially be sought.