FTC Seeks Public Comment To Discuss "Lemon Buyback" Practices

The Federal Trade Commission is seeking information from the public about the resale of "lemon buybacks" -- cars previously repurchased from consumers by manufacturers under state "lemon" laws, often because of warranty defects. The FTC said it is examining whether consumers who purchase the cars are adequately informed about the car's history and the extent of the practice. Comments on these issues will be discussed at a public forum to be held by the FTC on July 15 in Washington, D.C.

Written comments and requests to participate in the public forum are due by June 28, 1996. A list of specific questions on which the FTC is seeking comment will be published in the April 30 Federal Register.

The FTC has initiated this effort in response to a petition from the Consumers for Auto Reliability and Safety and other consumer groups (collectively "Consumer Coalition") requesting the FTC to either initiate a rulemaking proceeding or an enforcement action to look into the alleged auto industry practice of reselling "lemon buybacks" without disclosing the car's prior history to the subsequent purchaser.

State lemon laws give consumers the right to a replacement vehicle or a refund of the purchase price if their new car cannot be repaired after a certain number of attempts within a given timeframe. Currently such laws are on the books of all 50 states and the District of Columbia.

Some cars that have been taken back by manufacturers under the state lemon laws, however, are resold to other consumers as used cars. Approximately 36 states and D.C. require manufacturers and dealers to disclose to subsequent buyers of buybacks that the vehicle has been repurchased because it was found to be defective or to have non-conformities under the state lemon law. Some states require disclosure of all buyback cars, while other states require disclosure only on certain classes of buybacks. Also, some states prohibit reselling within the state any buyback car with a serious safety defect. In addition, the state laws vary as to how the disclosure should be made; some states require the title to be "branded," while other states require other methods of getting the information to the consumer.

According to the petition, auto manufacturers, their dealers and others frequently buy back vehicles pursuant to state lemon laws and then resell those vehicles to subsequent purchasers without disclosing that the vehicle had been bought back as a "lemon." The Consumer Coalition also alleged that these resellers are engaging in "lemon laundering," -- defeating state laws intended to ensure consumers receive adequate disclosures by moving a vehicle and retitling it in one or more states with less stringent disclosure requirements than the state where the vehicle was originally bought back from a consumer. According to the petitioners, lemon laundering conceals from used car buyers material information about the car's safety or reliability history. The Commission is publishing the petition as an appendix to the notice without endorsing or supporting the views expressed by the petitioners.

The notice lists a number of questions and issues on which the Commission seeks public comments, including:

• The extent of lemon buybacks and reselling;
• The degree to which buybacks are repaired successfully;
• Definitions of, and disclosure requirements for, buybacks;
• Length of time a vehicle should be considered a buyback;
• Current disclosure practices and the effectiveness of those practices;
• Ideas for new disclosure requirements or other remedies; and
• Whether uniform disclosure and labeling of repurchased vehicles would resolve the problem of interstate shipment of cars to avoid individual state requirements.

Requests to participate in the public forum must be sent by June 28, 1996 to Carole I. Danielson, Division of Marketing Practices, Federal Trade Commission, Sixth Street and Pennsylvania Ave., N.W., Washington, D.C. 20580.

Comments on the various issued raise by the petition will be accepted until June 28, 1996. Comments should be identified as "Vehicle Buybacks -- Comment. FTC File No. P96 4402," and addressed to the Office of the Secretary, Room 159, FTC, Sixth Street and Pennsylvania Ave., N.W., Washington, D.C. 20580.

The Commission vote to issue the Federal Register notice seeking public comment was 5-0.

Copies of Federal Register Notice and the petition are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest FTC news as it is announced, call the FTC's NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC's World Wide Web Site at: http://www.ftc.gov

(FTC Matter No. P964402)