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FTC's proposed used-car rule a lemon, critics claim

In this Jan. 11, 2011 photo, a potential car buyer looks over used cars at a dealership in Sacramento, Calif.
In this Jan. 11, 2011 photo, a potential car buyer looks over used cars at a dealership in Sacramento, Calif.Rich Pedroncelli / AP

The Federal Trade Commission (FTC) is in the process of updating its Used Car Rule -- and some prominent consumer advocates are not happy with the proposed changes.

“The FTC really blew it,” said Rosemary Shahan, founder and president of Consumers for Auto Reliability and Safety (CARS). “This industry has a real problem and the proposed rule changes do not address that.”

Shahan and other consumer advocates want the FTC to require more information on the Buyer’s Guide that must be on every used vehicle offered for sale.

Right now, that window sticker must tell potential buyers if the vehicle comes with a warranty or is sold “as is.” It also advises potential buyers to have the car inspected by an independent mechanic prior to purchase and even lists the major mechanical systems that should be checked.

Under the proposed rule revisions, the Buyer’s Guide would also advise shoppers to check the vehicle’s history via a federal database and show the address of an FTC website (not yet created) that would have information about vehicle history reports.

Consumer groups and law enforcement officials in many states demand more. They want the Used Car Rule to require dealers to disclose significant vehicle history information if they have it.

In comments submitted to the FTC on behalf of the attorneys general in 40 states, the National Association of Attorneys General (NAAG) called the current Buyer’s Guide “archaic” and of “limited value” to used car buyers.

“We think this a lost opportunity,” said NAAG’s Bill Brauch. “When it comes to a used vehicle, nothing is more important for a consumer to know than its history. Was it previously wrecked, flooded, or a lemon law buyback?”

Dealers and the FTC agree 
Auto dealers oppose adding any more information to the Buyer’s Guide. They say it was designed to do one thing: make it clear whether the dealer is offering any sort of warranty on the vehicle.

“It has been very effective because it discloses information that 1) is important to a used car consumer’s purchasing decision and 2) the dealer knows and controls,” said Bill Underriner, Chairman of the National Automobile Dealers Association (NADA), in a statement to NBC News.

NADA says the information dealers have about a vehicle’s history is often incomplete, outdated or inaccurate. For that reason, Underriner wrote, “it does not help consumers to require dealers to disclose information about a vehicle that may not be available to a dealer or that may not be accurate.”

In its comments to the commission, the National Independent Automobile Dealers Association (which represents used car dealers) said any requirement to report damage, defect or title history would be costly and “result in chaos in the industry.”

Dealers say one potentially confusing issue when it comes to a vehicle’s past is what’s known as “title branding” – putting information on a vehicle’s title if it has been totaled by an insurance company or repurchased by the manufacturer under a lemon law. 

States don’t all use the same language when they brand titles. For example, Alaska only uses the term “Reconstructed,” while Maryland has “Salvage,” “Reconditioned,” “Reconstructed,” and “Rebuilt”.

At this point, the FTC is siding with the dealers. Commission staff members who wrote the proposed new language told me they don’t think having vehicle history information on the Buyer’s Guide is workable or necessary.

“It sounds really simple in concept. If they know there’s a serious problem, tell people about it. But when you try to do a regulation to specify what they say and under what circumstances, it’s not as easy as it sounds,” said Steve Baker, director of the FTC’s Midwest regional office.

Baker said the commission firmly believes its role is to encourage used car buyers “not to rely on a dealer” but to do their own homework and have the car inspected before they buy it.

Critics believe the Federal Trade Commission’s position is shortsighted.

“The FTC failed to take a big step forward to make used auto sales more transparent and fair,” said John Van Alst, an attorney with the National Consumer Law Center. “At best it will allow dealers to continue business as usual, which all too often leads to car dealers defrauding consumers."

The FTC is accepting comments on its proposed changes to the Used Car Rule until Feb. 11.

The bottom line:
 No matter how much disclosure is given or required, it will always be up to you to protect yourself. It is your responsibility to look for hidden damage and potential problems before you buy any used vehicle.

You need to 1) check the car’s history and 2) have it inspected by an independent mechanic before you sign the sales contract. No matter what the friendly salesperson says, don’t assume you can bring that vehicle back if there’s a problem. Verbal promises don’t count.

Check the National Motor Vehicle Title Information System. NMVTIS has reports on cars with branded titles. It’s far from complete, but it’s a good resource. You should also check one of the commercial services such as CarFax and AutoCheck.

Remember: These databases do not always have up-to-date or complete information about a particular vehicle.

That’s why the independent inspection is critical. Mechanics can find problems that don’t show up in even the best vehicle history report, such as worn brakes or poor maintenance. They can spot hidden signs of flood damage or a crash that can make that vehicle unsafe and reduce its value.

If you’re shopping online and the vehicle is not nearby, consider services such as InspectMyRide and Carchex.

Remember, hundreds of thousands of vehicles were flooded in Superstorm Sandy. Some will make it on the used car market. The auto editors at Consumer Reports warn that a flooded car is “inherently unsafe and unreliable” even if it seems to be OK.

As a consumer reporter, I hear a lot of complaints about used cars. In almost every case, the buyer got burned because he or she did not take the time to check the history and spend a small amount of money to inspect the vehicle before making such a significant purchase. Make sure you don’t buy someone else’s problems.

Herb Weisbaum is The ConsumerMan. Follow him on Facebook and Twitteror visit The ConsumerMan website.

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