Purchasing an automobile is a major investment, which consumers should not take lightly. The purchase of a new vehicle requires extensive research before ever setting foot on an auto lot, while looking at and test-driving new cars, and most importantly, before signing a sales contract. Used cars require a considerable amount of due diligence into the condition of the vehicle and the terms of the sale. Any vehicle purchase requires a healthy amount of skepticism about the trustworthiness of the dealer. Financing all or part of the purchase price, when necessary, brings up a whole different set of concerns regarding consumer rights. Consumer protection statutes address many of these concerns, but consumers should also take steps to educate and protect themselves.
Auto dealer fraud presents different legal issues than those involved in dangerous or defective vehicles and vehicles that do not meet the implied warranties of merchantability or fitness. Federal and state product liability laws and state lemon laws deal with automobiles that are not fit for sale to the public. Auto dealer fraud falls under the jurisdiction of laws prohibiting fraudulent or deceptive trade practices.
Common forms of auto dealer fraud include:
Consumers can take steps to protect themselves by resisting aggressive sales tactics, test-driving a vehicle before buying it, and demanding a full visual inspection of a vehicle. They should request a repair history for used vehicles and, if purchasing a used vehicle from an individual, ask to have a mechanic inspect it.
Consumer protection statutes dealing with issues like false advertising apply to many forms of auto dealer fraud. Some statutes and regulations may not apply, however. Auto sales are exempt from the three-day “cooling-off” rule, for example, with a few specific exceptions.
The Federal Trade Commission (FTC) is charged with enforcing the “Used Car Rule,” a federal regulation that requires used car dealers to disclose certain information to consumers. The rule generally prohibits false statements, material misrepresentations, and other unfair or deceptive practices in connection with the sale of used vehicles.
The rule prescribes a specific type of notice to be posted conspicuously in the window of any used vehicle offered for sale. The notice must:
Many auto dealerships offer to assist consumers with financing a vehicle purchase through an in-house finance and insurance (F&I) department. These departments must abide by consumer privacy rules that protect credit scores and other personal financial information. Auto dealers obtained a specific exclusion from the jurisdiction of the recently-created Consumer Financial Protection Bureau (CFPB), under § 1029 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The CFPB is undertaking a review of the practices of other participants in auto financing, however, and this is having an impact on auto dealers and their F&I departments.
In auto sales when the dealer is responsible for obtaining financing, many sales contracts give the dealer the right to rescind the contract within 10 days. This means that the dealer can demand return of the vehicle to the dealership if it is unable to obtain financing. The dealer must provide the buyer with written notice, as indicated by the terms of the contract. These terms are hidden among the fine print. The buyer usually has no comparable right to rescind the sale.