OK. Everyone knows that federal law requires a Buyer's Guide to be affixed to and displayed on every used vehicle offered for sale. This is part of the FTC's Used Car Rule. I've seen some confusion over the years on what exactly needs to be on the Buyer's Guide (and what can't be on it) and how things like service contracts and the remainder of the factory's warranty should be disclosed. Since the FTC just finished an investigation and issued warnings to 11 unsuspecting used car dealers in Arkansas about their Used Car Rule violations, perhaps this is a good time for a refresher on the Used Car Rule. If you're in Maine or Wisconsin, you might want to sit this one out. This rule does not apply to you because your states have decided to pass their own laws dealing with this issue.
The Basics: the Buyer's Guide should state:
- Whether the vehicle comes with a warranty and, if so, whether it is a “full” or limited warranty;
- Which systems are covered by the warranty and the duration of the warranty period;
- If it is a limited warranty, what percentage of the cost for covered parts and labor the dealer will pay for;
- Whether the car is sold with no written or implied warranty or, in other words, the car is sold “As Is;” or
- Whether the car is sold with no written warranty, but with implied warranties. (Some states and Washington, D.C. do not allow dealers to sell cars without implied warranties.)
The Rule also provides that the Buyer's Guide trumps any contrary sales contract provisions. It also contains a bunch of consumer advice, like 'have the vehicle inspected' and 'don't trust anything the dealer tells you.' Nice.
What vehicles are covered by this rule?
Basically, any vehicle, previously titled or not (that includes program vehicles and demonstrators), that is driven for purposes other than moving or test driving, is considered a used vehicle for purposes of this Rule, provided it fits these criteria:
- a gross vehicle weight rating (GVWR) of less than 8,500 pounds;
- a curb weight of less than 6,000 pounds; and
- a frontal area of less than 46 square feet.
Check here for exceptions.
Be aware that given the breadth of this Rule, there may be circumstances in which both a Buyer's Guide and a Monroney Sticker are required on the same vehicle!
Under what circumstances do I have to post the Buyer's Guide?
Well, according to the Rule, a Buyer's Guide has to be posted on a used vehicle before it is "offered" for purchase. That means, when you display it for sale or let a customer inspect it. So keep that in mind next time you want to show a customer that used car you just took in on trade that is in service getting reconditioned or being checked-out for CPO coverage! To avoid any complications, if it were me, I wouldn't make my customers aware that any such vehicles were for sale (or otherwise display them), until they were fully prepped and ready.
So where can I post the Buyer's Guide?
It has to be conspicuous. That means a customer has to be able to see both sides of it. So don't put it in the trunk, on the floor, or the glovebox, people! Oh, and you can take a Buyer's Guide off the window or windshield for a test drive (we don't want any accidents now), but you have to put it back on when the test drive is finished.
I have a lot of Spanish-speaking customers, do I have to post the Buyer's Guide in Spanish?
Yes! The FTC says that if you conducted the transaction in Spanish, you must post a Spanish language Buyer's Guide on the vehicle before you offer or display the vehicle for sale. Of course, that makes no sense, since you would have offered or displayed the vehicle for sale before you transacted the sale. So, just post the Spanish language Buyer's Guide in the first instance. And since your customers are likely to speak both English and Spanish, you might consider posting both. You can get a Spanish language Buyer's Guide here.
Do I have to give the Buyer's Guide to the customer, and if so, when?
Yes. The original or a true copy of the Buyer's Guide must be delivered to the customer at the completion of the sale. I've known some dealers to have porters take the Buyer's Guide off the window and place it in the glove box while they are detailing a vehicle for delivery. I strongly oppose this practice. Sometimes the terms of the warranties offered on the vehicle change during the sale process in which case the Buyer's Guide will need to be changed to conform with the new terms of sale. Additionally, you might want to be able to prove that you gave the Buyer's Guide to a customer (and told them what warranties were or were not on the vehicle), and since it has a place for the customer to sign, having the customer sign it is a good way to help you prove it.
I'm selling the vehicle "as is" but I want to sell a service contract, how do I document that?
Simple. If the vehicle is being sold without any express or implied warranty, the "as is -- no warranty" box should be checked. If a service contract is also being offered for sale to accompany the vehicle, then the smaller "service contract" box should also be checked.
That said, I'm going to get on my soap box for a minute. I still run into dealers from time to time who think that a service contract is a warranty. Under most state warranty laws, a service contract is not a warranty if it does not come with the vehicle (it's offered for sale as an additional F&I product for an additional price) and does not contain the words "warranty" or "guarantee," even if it's coverage overlaps somewhat with the factory's warranty coverage. And under federal law, a warranty is different from a service contract. If you're interested in learning more about the differences between service contracts and warranties, read this California Supreme Court case.
In any case, if the used vehicle is sold "as is" but for the offering of a service contract, check both the "as is" box and the "service contract" box.
There's a remaining portion of the factory warranty on the vehicle. How do I document that?
The point of the Buyer's Guide is to disclose to the customer what warranties you, as the dealer, are providing with the sale. That said, if you know that the vehicle has unexpired warranty coverage from the manufacturer, it's a good idea to disclose it and, of course, provide the buyer with the warranty booklets, if you have them. But to maintain the right to disclaim implied warranties "arising out of the sale" a good suggestion might be to add the following statement under the "Full/Limited Warranty" disclosure:
"Manufacturer's warranty still may apply. The time and mileage limits of the manufacturer's original warranty have not expired on the vehicle. Consult the manufacturer's warranty booklet for details as to warranty coverage, service location, etc."
If the manufacturer's warranty is the only warranty being furnished, you might want to check the box next to "Warranty," not fill in either the "full" or "limited" boxes, insert the above statement, and then, add the following paragraph:
"The dealership itself assumes no responsibility for any repairs, regardless of any oral statements about the vehicle. All warranty coverage comes from the unexpired manufacturer's warranty."
If you don't have the warranty booklet or don't know whether any remaining manufacturer warranty exists, you might not want to check the "Warranty" box. I've seen dealers check the "as is" box and add this language:
"Portions of the manufacturer's warranty may remain unexpired on this vehicle; contact the manufacturer to verify any coverage and for information concerning these non-dealer warranty terms and transfer procedures."
For additional rules concerning the correct way to disclose warranties and the implications of that disclosure on your liability under lemon laws, consult your legal counsel.
The vehicle is a Certified Pre-Owned (CPO) vehicle. Is there anything I need to know about completing the Buyer's Guide in that case?
Well, that depends on where you are selling cars. In California, for example, the law prohibits selling a CPO vehicle "as is" or disclaiming the implied warranty of merchantability on a CPO vehicle. Obviously, then, you can't check the "as is" box. But just checking the "warranty" box may leave the impression that the dealer itself is offering a warranty in addition to the factory's CPO warranty. The FTC has unofficially suggested that in these cases, it is appropriate to check the "Warranty" box, leave the "limited" and "full" boxes blank, and add the following statement:
"MANUFACTURER'S WARRANTY APPLIES. A manufacturer's warranty comes with the vehicle. Consult the manufacturer's warranty booklet for details as to warranty coverage, service location, etc."
Then add the following paragraph:
"The dealership itself assumes no responsibility for any repairs, regardless of any oral statements about the vehicle. All warranty coverage comes from the manufacturer's warranty."
Some dealers operate their own certified used vehicle programs (not associated with a factory). In that case, it is the dealer offering the warranty, so the "Warranty" box should be checked and all of the appropriate information about that warranty should be completed and the appropriate "limited" or "full" box should be checked.
Check with your legal counsel to determine how "limited" or "full" warranties should be described and to better determine what the laws of your particular state require.
Can I modify the pre-printed portions of the form or use it to make other disclosures?
No. The FTC takes the position that the Buyer's Guide is an educational tool as well as a disclosure. Modifying the form, for example, to black out portions that are not used, would defeat the educational goal of the form. Likewise, I do not recommend using the form to make other disclosures not related to the warranty, as the FTC might take the position that those defeat the educational purpose of the form as well. Besides, strict adherence to the Used Car Rule might require that nothing additional is permitted on the Buyer's Guide.
Before deciding whether to add any other disclosures on the Buyer's Guide and to get advice about the proper way to post and disclose warranty particulars on the Buyer's Guide, check with your automotive industry legal counsel.