[BILLING CODE 6750-01]

FEDERAL TRADE COMMISSION

REQUEST FOR COMMENTS CONCERNING
DISCLOSURES IN THE RESALE OF VEHICLES
REPURCHASED DUE TO WARRANTY DEFECTS

AGENCY: Federal Trade Commission.

ACTION: Request for public comments.

SUMMARY: The Federal Trade Commission ("the Commission" or "FTC") is requesting public comment and holding a public forum concerning the practices of motor vehicle manufacturers, their franchised dealers, and other firms and individuals in the resale of allegedly defective vehicles previously repurchased from consumers because of warranty defects. This notice sets forth a statement of the Commission's reasons for requesting public comment, a list of specific questions and issues upon which the Commission particularly desires written comment, an invitation for written comments, and an invitation to participate in the public forum.

On November 8, 1995, the Consumers for Auto Reliability and Safety and other consumer groups ("Consumer Coalition" or "Petitioners") filed a petition in which they requested that the Commission initiate either a rulemaking proceeding or an enforcement action regarding the alleged industry practice of reselling vehicles repurchased due to defects without disclosure of the vehicle's prior history to the subsequent purchaser. The Commission is publishing this petition without endorsing or supporting the views expressed therein. The Commission is seeking public comment and holding a public forum on the issues raised by the petition and on other related issues.

DATES: Written comments will be accepted until [insert date 60 days after date of publication in the Federal Register]. Notification of interest in participating in the public forum also must be submitted on or before [insert date 60 days after date of publication in the Federal Register]. The public forum will be held in Washington, D.C. on July 15, 1996, from 9 a.m. until 5 p.m.

ADDRESSES: Five paper copies of each written comments should be submitted to the Office of the Secretary, Room 159, Federal Trade Commission, Sixth Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580. To encourage prompt and efficient review and dissemination of the comments to the public, all comments should also be submitted, if possible, in electronic form, on either a 5 or a 3 inch computer disk, with a label on the disk stating the name of the commenter and the name and version of the word processing program used to create the document. (Programs based on DOS are preferred. Files from other operating systems should be submitted in ASCII text format to be accepted.) Individuals filing comments need not submit multiple copies or comments in electronic form. Comments should be identified as "Vehicle Buybacks -- Comment. FTC File No. P96 4402."

Notification of interest in participating in the public forum should be submitted in writing to Carole I. Danielson, Division of Marketing Practices, Federal Trade Commission, Sixth and Pennsylvania Ave., N.W., Washington, D.C. 20580. The public forum will be held at the Federal Trade Commission, Sixth and Pennsylvania Ave., N.W., Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT: Carole I. Danielson (202) 326-3115, Division of Marketing Practices, Bureau of Consumer Protection, Federal Trade Commission, Washington, D.C. 20580.

SUPPLEMENTARY INFORMATION:

Section A. Background

Traditionally, automobile manufacturers have bought back allegedly defective vehicles from consumers in only the most exceptional circumstances. Although the Uniform Commercial Code gave buyers a right to elect other remedies if a product was seriously defective, the remedy ordinarily available to consumers was limited to repairs, as expressly provided by the terms of the written warranty. Buybacks were granted only rarely, and usually on the basis of goodwill. This situation changed with the advent of state lemon laws. Beginning in 1982, state legislatures began enacting "lemon laws" to improve consumers' remedies for new vehicle problems. These laws give consumers the right to a replacement or a refund if their new cars cannot be repaired under warranty. Under these lemon laws, if a specified number of repair attempts fails to correct a major problem, or if a new car has been out of service for repair for the same problem for a cumulative period of thirty days or more within the one year following delivery of the vehicle, the manufacturer must either replace the car or refund the full purchase price, less a reasonable allowance for the consumer's use of the car prior to reporting the defect. All 50 states and the District of Columbia now have enacted such statutes. Since the state lemon laws were enacted, consumers can more easily obtain relief requiring manufacturers to repurchase allegedly defective vehicles.

Most state lemon laws require consumers to notify the manufacturer of their intention to assert their lemon law rights before exercising those rights. In addition, most states require the consumer to submit the dispute to an informal dispute settlement mechanism before pursuing their lemon law rights in court. This mechanism may be an arbitration program established or staffed by the state (such as the Florida and Washington State arbitration programs), offered by the manufacturer (such as the Ford Consumer Appeals Board or the Chrysler Customer Arbitration Board), or offered through third-party organizations (such as the BBB's AUTO LINE or the National Automobile Dealers Association's AUTOCAP programs). After reviewing the evidence submitted, these arbitration programs may impose a wide range of remedies, including requiring the manufacturer or dealer to replace the defective vehicle or refund the full purchase price.

Some vehicles that have been replaced or bought back ("repurchased vehicles" or "buybacks") under the state lemon laws are resold to other consumers as used cars. To protect subsequent buyers, approximately 36 states and the District of Columbia have enacted legislation requiring manufacturers and dealers to disclose to subsequent buyers that a used vehicle was repurchased because it was found to be defective or to have non-conformities under the state lemon law. The state laws vary as to how this disclosure is to be made. Some states require the vehicle's title to be branded; others require that the consumer be given a disclosure document at the time of sale or that the disclosure be placed on the vehicle. The state laws also vary regarding which vehicles are subject to the disclosure requirement. Some states require disclosure on all buyback vehicles, including those repurchased under voluntary settlements, while other states require disclosure on only certain vehicles (e.g., where there was a final arbitration decision). In addition, some states prohibit reselling a repurchased vehicles with a serious safety defect within the state.

Despite these state laws, subsequent buyers of repurchased vehicles may not be receiving the intended disclosures. In a petition dated November 3, 1995, the Consumer Coalition requested that the FTC either initiate a rulemaking proceeding or an enforcement action in connection with the industry practice of allegedly reselling vehicles bought back because of defects without disclosure to the used car purchaser. The petitioners allege that auto manufacturers, their dealers and others are engaged in a pattern of conduct (which the petitioners term "lemon laundering") intended to conceal from used car buyers material information about the vehicle's safety and quality history. The petitioners also allege that this pattern of conduct often involves transporting the repurchased vehicles across state lines to avoid the operation of state law protections. A copy of the petition is appended to this Notice as Attachment 1.

Section B. Invitation to Comment

The Commission invites written comments to assist it in ascertaining the facts necessary to reach a determination on the issues raised by the petition and on Petitioners' request. Written comments must be submitted to the Office of the Secretary, Room 159, Federal Trade Commission, Sixth Street and Pennsylvania Avenue, N.W. Washington, D.C. 20580, on or before [insert 60 days from date of publication]. Comments submitted will be available for public inspection in accordance with the Freedom of Information Act (5 U.S.C. 552) and Commission regulations, on normal business days between the hours of 8:30 a.m. and 5 p.m. at the Public Reference Section, Room 130, Federal Trade Commission, Sixth Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.

Section C. Public Forum

The FTC staff will conduct a Public Forum to discuss the written comments received in response to the Federal Register notice. The purpose of the forum is to afford Commission staff and interested parties a further opportunity to openly discuss and explore issues raised in the petition and in the comments, and, in particular, to examine publicly any areas of significant controversy or divergent opinions that are raised in the written comments. The conference is not intended to achieve a consensus opinion among participants or between participants and Commission staff with respect to any issue raised in the comments. Commission staff will consider the views and suggestions made during the conference, in conjunction with the written comments, in formulating its final recommendation to the Commission concerning what action, if any, to take in response to the petition.

Commission staff will select a limited number of parties, from among those who submit written comments, to represent the significant interests affected by the petition. These parties will participate in an open discussion of the issues, including asking and answering questions based on their respective comments. In addition, the forum will be open to the general public. The discussion will be transcribed and the transcription placed on the public record.

To the extent possible, Commission staff will select parties to represent the following interests: auto manufacturers, new and/or used auto dealers, operators of auto auctions, consumer groups, Federal, State and local law enforcement and regulatory authorities; and any other interests that Commission staff may identify and deem appropriate for representation.

Parties who represent the above-referenced interests will be selected on the basis of the following criteria:

1. The party submits a written comment during the 60-day comment period.

 

2. The party notifies Commission staff of its interest within 60 days of publication of the Federal Register notice.

 

3. The party's participation would promote a balance of interests being represented at the forum.

 

4. The party's participation would promote the consideration and discussion of a variety of issues raised in the petition.

 

5. The party has expertise in activities affected by the petition.

 

6. The number of parties selected will not be so large as to inhibit effective discussion among them.

The forum will be held on July 15, 1996. Parties interested in participating in the forum must notify Commission staff by [60 days from publication of FR notice]. Prior to the forum, parties selected will be provided with copies of the comments received in response to this notice.

Section D. Issues for Comment

The Commission seeks comments on various issues raised by the petition. Without limiting the scope of the issues it seeks comments on, the Commission is particularly interested in receiving comments on the questions that follow. Responses to these questions should be itemized according to the numbered questions below, to which they correspond. In responding to these questions, include detailed, factual supporting information whenever possible.

1. How many vehicles are repurchased each year by manufacturers? How many vehicles are repurchased each year by dealers? What is the disposition of these vehicles? How many are resold to consumers? How many are resold within the same state? How many are transported to another state and resold? What happens to those not resold?

 

2. How many of the repurchased vehicles are successfully repaired after they are bought back? Are there studies showing whether subsequent purchasers of these repurchased vehicles encounter a frequency of repair that is greater than, equal to, or less than that of purchasers of non-repurchased used cars of like models and model years?

 

3. At what stage should a car be considered a buyback for the purposes of imposing a disclosure requirement? Should any car that is taken back by the manufacturer at any stage in a dispute over alleged defects be considered a buyback? If not, under what circumstances should a vehicle be considered a buyback? Should only those vehicles in which there has been an impairment of value be considered a buyback? If so, how should "impairment in value" or any similar limiting term be defined? Since manufacturer buybacks are only one segment of the buyback market, how can defective vehicles bought back by the dealer and/or traded in by consumers be identified?

 

4. If "buybacks" are defined to include those repurchased prior to the initiation of arbitration or litigation, would disclosure laws cause a chilling effect on manufacturers' willingness to make such "goodwill" repurchases? On the other hand, would disclosure laws that only cover cars that were the subject of a formal arbitration or litigation proceeding lead manufacturers to buy back more vehicles under the heading of "goodwill" in order to avoid the disclosure requirement?

 

5. How long should a vehicle be considered a "buyback"? Permanently? Until successfully repaired? Some other time period? How can it be determined whether a vehicle has been successfully repaired prior to reselling it?

 

6. What are the current practices of auto manufacturers, auction companies, and dealers regarding disclosure of the fact that a vehicle is a buyback to subsequent purchasers? What types of disclosures are given? Are these disclosure methods effective? Are consumers receiving the disclosures? Who is responsible for ensuring that disclosures are made to the consumer? Are the disclosures specific enough to identify or reveal the vehicle's previous history and the repairs performed? What are the costs and/or benefits of these disclosure methods to manufacturers? To auctions companies? To dealers? To consumers? To other parties?

 

7. What methods are or would be most effective in getting information about a vehicle's history and prior repairs to consumers before they buy the vehicle? Title branding? Disclosure documents to be given to consumers? Other methods? If disclosure laws are the most effective method, then what type of disclosure requirement should be imposed? What are the costs and/or benefits of these various methods?

 

8. What methods have been adopted by the various States to ensure that subsequent purchasers are advised that vehicles are buybacks? How effective have these methods been? What have been the costs and benefits of these State requirements to manufacturers? To auction companies? To dealers? To consumers? To the States?

 

9. If disclosure or title branding laws are or would be most effective, how should any such disclosure or title branding rules be enforced? By FTC regulation? By model State law? By a national databank of VIN numbers? By other means?

 

10. Uniformity in the disclosure and labeling of repurchased vehicles might resolve the problem of interstate shipment of vehicles to avoid individual state requirements. What are the costs and/or benefits of diverse State requirements versus those of uniformity? Would a uniform national standard be an effective method to get buyback information to subsequent purchasers? What would be the costs and/or benefits of a national standard?

List of Subjects

Used cars, Warranties, Trade practices.

By direction of the Commission.

DONALD S. CLARK
Secretary