CARY, N.C. –
Allegations triggering a consent judgment surfacing back in May involving an Arizona independent dealership and the state’s attorney general could serve as a stern reminder of what compliance expert Randy Hendrick suggested to operators, especially when retailing vehicles classified “as-is.”
Among the seven deceptive practices alleged by attorney general Mark Brnovich against Dependable Auto of Tucson, Ariz., one included the requiring of consumers to sign a disclaimer stating that their vehicles were sold “as-is” and had no warranty, even though Arizona law says otherwise.
Henrick, a dealer compliance expert who serves as the head of the franchised dealer practice group for Ignite Consulting Partners, pointed out that in approximately 37 states, a dealer can sell a used vehicle “as is” without any warranties. In the other 13 states and the District of Columbia, Henrick said implied warranties cannot be disclaimed.
In all states, implied warranties cannot be disclaimed if you provide an express warranty or sell the customer a vehicle service contract within 90 days of sale, according to Henrick.
“Just because you are selling a vehicle ‘as is’ does not mean you can withhold negative information about the vehicle from the consumer such as its prior use, whether it was in an accident, or is a lemon law or rebuilt salvage vehicle,” Henrick wrote in an industry commentary previously published by Cherokee Media Group. “A number of states have lemon laws that define a ‘lemon’ (usually based on the number of unsuccessful repairs) and require that the vehicle be disclosed as such. Giving the customer a vehicle history report like a CARFAX is a good idea but not an assurance of no liability.
“State laws govern the duty to inspect and disclose both patent and latent defects,” Henrick continued. “Any merchant is considered to be more qualified than a consumer to inspect and disclose any defects that a reasonable inspection would uncover. Actively concealing defects or misrepresenting the condition of a vehicle is always a no-no. Check with your local attorney to understand how far your state’s law goes in requiring inspections and disclosing the results. It is always a good idea to keep a copy of the inspection report in the deal jacket to show your good faith.”
And speaking of salvage titles, that was another of the allegations from the Arizona attorney general as Brnovich claimed that Dependable Auto failed to disclose salvage titles to consumers. Henrick took a direct approach when discussing his operator recommendations about this topic.
“Some used-car dealers retitle vehicles to avoid having to disclose vehicle damage. A vehicle that has incurred water or hurricane damage may need a water damage title in some states and most states require a salvage title if an insurance company has declared the vehicle a total loss. But some states do not,” Henrick wrote.
“Title washing occurs when a dealer takes the vehicle to a state that does not have the necessary title branding to obtain a clean title. Title washing also occurs when an unscrupulous dealer removes the damage branding from the physical title,” he continued.
“Title washing is a federal and state felony and dealers have served jail time for mass title washing. Don’t even think about it,” Henrick went on to emphasize.
Brnovich went on to allege that Dependable Auto engaged in multiple other deceptive practices, including:
— Charging consumers for third-party service contracts, but failing to actually purchase the service contracts
— Overcharging consumers for government and document prep fees
— Failing to make repairs to vehicles it sold in accordance with the warranty required by Arizona law
— Representing that consumers were receiving “free labor maintenance” when the sales contract required consumers to pay over $1,200 for a service contract
— Misrepresenting the late fees it could charge consumers
The Arizona attorney general secured more than $90,000 in restitution for consumers connected to the consent judgment against Dependable Auto
Under the terms of the consent judgment, Dependable Auto’s owners are banned from engaging in these deceptive behaviors in the future. The owners of Dependable Auto have made the full restitution payment to the Arizona attorney general and the funds will be returned directly to consumers, according to Brnovich.
“Auto dealerships cannot charge consumers for services and fail to provide those services or lie to customers about the terms of their contracts,” Brnovich said.
Henrick closed that industry commentary with this recommendation to all dealerships.
“As the front-line seller of used vehicles, your obligations to disclose warranties, defects, and odometer readings, along with your obligation to deliver a clean and accurate title, can provide challenges in used-car selling,” Henrick wrote.
“Do a reasonable inspection (and a beyond-reasonable inspection for certified vehicles) and be up front with the customer about issues and expectations for the vehicle,” he went on to note. “Selling used vehicles is an area ripe for regulatory investigations, arbitration claims and lawsuits, but having a systematic process to obtain, inspect and disclose issues with the vehicle should help you manage used-car selling successfully.”