NEW YORK STATE ATTORNEY GENERAL'S OFFICE
Vehicle Buybacks -- Comment, FTC File No. P96 4402
Comments Submitted By
Dennis C. Vacco
New York State Attorney General
August 21, 1996
The NYS Attorney General's Office submits the following in response to the FTC's request for comments concerning disclosure in the resale of vehicles repurchased due to warranty defects.
Each year thousands of vehicles are repurchased by manufacturers from consumers who claim that such vehicles have serious defects. Such buybacks are the result of lemon law arbitration awards, settlements after the institution of lemon law proceedings but prior to decision, and voluntary action (described as "goodwill") taken by the manufacturers. Although the total number of buybacks on a national level is not known precisely, estimates have placed this figure at about 25,000 annually. In New York, from 1987 through 1995, the total number of buybacks under the State's new and used car lemon law arbitration programs is approximately 8,100. We have no records which would reflect the number of vehicles bought back by manufacturers and dealers outside of the State's programs.
The New York Attorney General, as the chief law enforcement officer in the State, is responsible for the enforcement of the State's consumer protection laws, including the lemon laws. Consequently, our office has a keen interest in the disposition of vehicles repurchased under the lemon laws. A vehicle's lemon law history is a material fact which should be disclosed to a subsequent purchaser prior to sale. Such fact could clearly influence a purchasing decision and the amount to be paid for the vehicle. Further, if the reason for the buyback was safety related, a subsequent purchaser without knowledge of that history may be jeopardizing his and others' safety.
New York Law
New York law(3) requires manufacturers to notify the state Department of Motor Vehicles ("DMV"), upon the repurchase of any vehicle pursuant to New York's -- or any other state's-- lemon laws, that the vehicle was returned to the manufacturer for nonconformity to its warranty. A similar requirement exists for dealers repurchasing used cars pursuant to the state's used car lemon law(4). DMV is required to print the mandated disclosure on any subsequent certificate of title issued for the repurchased vehicle. Further, any vehicle which bears a sister state's lemon law brand on its certificate of title, when sought to be registered in New York, will be issued a certificate of title by the DMV which reflects the out-of-state brand.
In addition, New York law(5) requires the manufacturer, upon the sale or transfer of title of a repurchased vehicle, to notify the buyer (usually a dealer) in writing, that the vehicle had been repurchased because it did not conform to its warranty. The same notice- to-the-buyer requirement applies to a dealer who sells a used vehicle (usually to a consumer) that was previously repurchased by a manufacturer or dealer for failure to conform to its warranty. This disclosure requirement extends to each vehicle repurchased for failure to conform to its warranty, whether or not a determination was formally made that the vehicle was a lemon. Thus, cars repurchased as part of a settlement may also be subject to disclosure provided the consumer has filed for arbitration under the lemon law. This position was upheld by the State's Supreme Court(6). As noted above, vehicles that were repurchased outside of New York pursuant to another state's lemon law are also covered by the notification requirements when resold in New York.
New York's Enforcement Experience
In our experience, some manufacturers have sold repurchased vehicles within the State through auctions or directly to dealers. These vehicles are then resold to New York consumers. However, it appears that most manufacturers dispose of the repurchased vehicles outside the State through auctions or directly to dealers. Our office has taken the legal position that a manufacturer must follow the New York disclosure requirements for all vehicles repurchased in the State, even where the repurchased vehicle was disposed of outside the State.
Our investigations have disclosed that vehicles which were repurchased in New York but disposed of elsewhere, frequently have found their way back into the State with a "clean" (unbranded) title and have been subsequently sold in this State without any of the required disclosures. This results from two possible scenarios: first, the manufacturer fails to notify the DMV upon repurchase and therefore the title will remain unbranded; or second, the vehicle will be sold in a state which does not require title branding and the brand is therefore dropped from the out-of-state title. Thus, when the vehicle re-enters New York, it enters with an unbranded title.
Our office has taken vigorous action against manufacturers who failed to comply with the State's disclosure requirements. Indeed, New York was the first state in the nation to pursue a manufacturer for failing to disclose to subsequent buyers and to the DMV that a car had been repurchased under the lemon law. In 1988, Chrysler signed an Assurance of Discontinuance under the terms of which it agreed to make a cash offer to the nearly 400 buyers of repurchased lemons and to provide an extended warranty to those buyers. It also agreed to pay the State $100,000 in costs. Since then, New York has obtained similar agreements from Nissan, Hyundai, Mazda, Mitsubishi and Mercedes-Benz. Investigations into the practices of other manufacturers are ongoing.
Nevertheless, while neither our office nor the DMV always tracks the disposition of every vehicle repurchased under the new or used lemon law, it can be reasonably assumed that there has not been full compliance with the disclosure requirements in every case and that many subsequent purchasers have unwittingly purchased vehicles with lemon law histories.
New York law offers substantial protection to buyers of repurchased vehicles but we believe that additional protections are needed. While the title branding requirement is effective for law enforcement purposes, it normally does not provide consumers with notice of the vehicle's history at the critical time prior to sale since the certificates of title are not generated by the DMV until many weeks following the sale. Further, the required written certificate of prior lemon law history to be furnished by the dealer at the time of sale is often not provided because the dealer is either unaware of that history or is engaged in fraud.
Our discussions with other Attorneys General offices on this issue convinces us that the problems faced by New York consumers are likewise faced by the consumers in sister states. It is evident that the problems cannot be resolved among the states given the lack of uniformity of state disclosure requirements.
Consequently, we believe that serious consideration should be given to the creation of a national system for tracking repurchased lemon vehicles. Under this system, manufacturers might be required to report to a national data base by Vehicle Identification Number upon repurchasing a vehicle. This data base should be administered by the National Highway Traffic safety Administration and should be readily accessible to consumers through the use of a toll free telephone number. This national data base would be in addition to the existing title branding requirements in New York and other states.
Further, manufacturers should be required to disclose such information on a sticker, to be affixed to the vehicle, the removal of which would be made a criminal offense. Since the FTC already mandates a Used Car Buyers Guide sticker, lemon law disclosure information could easily be incorporated therein. The information furnished by the manufacturer or dealer to the data bank should be required to include the VIN, the year, make and model of the vehicle, the date of repurchase, the mileage at the time of repurchase, and the reason for repurchase. The existence of the data base and the toll free number to access the information should be disclosed together with the lemon law history information on the sticker as well as in the warranty materials.
Although New York's disclosure requirements do not apply to vehicles reacquired prior to consumers exercising their lemon law rights, we would encourage that the reporting requirements to the national data base be extended to cover these "voluntary" buybacks as well. We do so on the basis of Ford Motor Company's comments submitted to the FTC in response to the Commission's current inquiry. Ford reports that its own disclosure procedures currently encompass such vehicles and makes clear that including such vehicles does not deter it from making "goodwill" buybacks. It can be reasonably assumed that Ford's experience can be applied to other manufacturers as well given the intense competitive nature of the industry.
We welcome the FTC's interest in this complex matter and offer our full cooperation in seeking a solution that will provide the utmost protection to the car buying public.
Dated: August 21, 1996
New York, NY
1. San Jose Mercury News West Magazine, August 11, 1996, page 20.
2. Sunnyvale Ford Special Service Message, November 21, 1994, (see attachment).
3. 1. General Business Law ("GBL") 198-a(c)(2)
4. 2. Vehicle & Traffic Law 417-a (1)
5. 3. Vehicle & Traffic Law 417-a(2)
6. 4. NYS Automobile Dealers Association, Inc. v. Adduci, S. C. (Albany Co.) 12/16/93
*SUNNYVALE FORD P01
1994 F-SERIES F150 PICKUP 4X2
4.9L EFI 352RRION E40D 4 SPD AUTOMATIC AXLE CODE #. 17
NO RECALLS FOR VEHICLE
*WARRANTY START DATE 07/07/94 BUILD DATE 05/10/94 START MILEAGE
ELIGIBLE FOR CALIFORNIA EMISSIONS WARRANTY
*EXTENDED SERVICE PLAN
NO ESP INFORMATION AVAILABLE
*THIS VEHICLE HAS AN OPEN MORSII CONTACT
AUTO TRANS ENGAGEMENT CONCERNS
*SPECIAL SERVICE MESSAGE 3686
REVERSE ENGAGEMENT TIME OF 1.5 TO 2.0 SECONDS OCCASIONALLY EXHIBITING A DOUBLE BUMP IS CHARACTERISTIC OF CURRENT E40D FUNCTION AFTER A PERIOD OF NON-USE. DO NOT ATTEMPT ANY REPAIRS. ENGINEERING IS INVESTIGATING THIS PERCEIVED CONCERN AS AN OPPORTUNITY FOR PRODUCT IMPROVEMENT. NEVER INSTALL A SECOND (ADDITIONAL) CHECK VALVE TO ANY E40D VEHICLE IN AN ATTEMPT TO IMPROVE ENGAGEMENT TIMES. THIS IS A NORMAL E40D FUNCTION & WILL NOT ADVERSELY AFFECT TRANSMISSION DURABILITY OR PERFORMANCE.
*SPECIAL SERVICE MESSAGE 3783
SOME 1993-94 VEHICLES WITH E40D TRANSMISSION & 4.9L ENGINES MAY EXHIBIT AN OCCASSIONAL HARSH REVERSE ENGAGEMENT. THIS CONDITION IS CHARACTERISTIC OF CURRENT 4.9L ED40 FUNCTION & DOES NOT REPRESENT A DURABILITY CONCERN. IF NO DIAGNOSTIC TROUBLE CODES ARE PRESENT DO NOT ATTEMPT TO REPAIR THIS CONCERN.
*SPECIAL SERVICE MESSAGE 4037
ENGINEERING IS CURRENTLY WORKING ON A SERVICE PCM TO ADDRESS THE HARSH REVERSE ENGAGEMENT CONCERNS ON 1993-94 4.9L E4OD TRANSMISSIONS. THE REVISED PCM'S SHOULD BE RELEASED EARLY IN THE SECOND QUARTER OF 1995. UNTIL THAT TIME, IF A CUSTOMER COMPLAINT OF HARSH REVERSE ENGAGEMENT IS ENCOUNTERED, PLEASE PERFORM NORMAL DIAGNOSTICS AS OUTLINED IN THE E40D REFERENCE MANUAL. IF NO FAULTS ARE DETECTED, DO NOT REPLACE ANY PARTS OR ASSEMBLIES. PLEASE WAIT FOR THE REVISED PCM.