As with all businesses, owners and operators of used auto dealerships constantly must ensure compliance with industry laws and regulations. It is especially important to be aware of laws regarding auto warranties, which is crucial to the service that auto dealerships provide.
Of course, many companies obtain used auto dealership insurance to cover the owners and officers from potential legal issues that may arise from customer claims and other risks. As an insurance agent, you’ve probably sold these types of policies to your clients in the past.
But even with the protection that insurance provides, dealership owners can face severe penalties if they fail to comply with auto warranty requirements, whether willfully or due to ignorance. After all, full compliance is integral to the continued operation of any business and, ultimately, its success and profitability.
To be sure, most dealership owners have a tenuous relationship with warranties. They usually entail considerable paperwork and documentation, with many rules and regulations to keep in mind.
It is in your client’s best interests to conform to laws pertaining to auto warranties. Ignoring used car warranty laws could lead to severe penalties, depending on the nature and extent of the offense.
For instance, a used car dealer found in violation of the “Used Car Rule” of the Federal Trade Commission (FTC) may be liable for a $16,000 fine. And that’s only for a single violation. If your clients habitually violate used auto warranty laws, they could end up losing their dealership.
On the other hand, effective warranty management can benefit your clients and possibly even boost their dealership’s profitability. By complying with used auto warranty laws, they could avoid legal issues while helping the company as well.
Ask yourself this: As an insurance agent, have you done everything you can to help your client understand used auto warranty laws? Is there anything more you can do to help them ensure compliance?
Here are some of the essential aspects of used auto warranties that your clients should know about:
Used Car Rule
The Used Car Rule states that car dealers should display a Buyer’s Guide on every used vehicle they sell. This is a window sticker that informs buyers whether a warranty is offered and what the terms and conditions are.
The Used Car Rule applies to dealers that sell more than five used cars within a 12-month period. The law is enforced in every state in the U.S., with the exception of Maine and Wisconsin.
Buyer’s guide
Dealers have to place a Buyer’s Guide on every vehicle available for sale, typically on a prominent spot on a window. The Buyer’s Guide should contain pertinent details on the warranty if one is offered. In states that prohibit the sales of cars without warranties, dealers should have an alternate Buyer’s Guide to that effect.
“As is” disclosure
An “As is” disclosure may be a requirement depending on the jurisdiction. “As is” sales are prohibited in 14 states and the District of Columbia. In some states that do allow “As is” sales, dealers must provide a separate disclosure apart from the information provided on the Buyer’s Guide.
Sales contracts
The Buyer’s Guide constitutes part of the contract in used car sales and takes precedence over any provisions to the contrary. For instance, if the Buyer’s Guide mentions that a warranty is provided, the dealer will have to honor it even if the contract states that the vehicle is sold “as is”.
Final changes
Dealers must furnish the buyer with the Buyer’s Guide upon completion of the sale. This may be the original or a copy. The important thing is that it contains all the final changes to the contract.
The “Lemon” Law
More formally known as the Magnuson-Moss Act, the “Federal Lemon Law” states that dealerships are required to do the following:
a) Explicitly title the warranty as “full” or “limited”, as the case may be.
b) State the details of the warranty coverage in a single document in clear, concise, and easy to understand terms.
c) Ensure the availability of warranties where warranted products are sold so that prospective customers can peruse them prior to purchase.
Warranty law
Under the terms of this law, dealerships and manufacturers may not void the warranty or deny a claim even if the customer attempted to repair or maintain the vehicle or had a third-party mechanic do so.
Warranty validity
Dealers are obliged to honor the warranty even if a third-party mechanic used parts from another manufacturer to repair the vehicle.
Keep in mind that informing your clients of these rules isn’t meant to substitute for legal advice. It is generally a good idea to remind them to consult with their attorneys for specifics regarding their compliance obligations.
About K2 Insurance Services
Your used auto dealership clients will benefit considerably from the risk protection that K2 provides. Apart from the full range of insurance coverages, K2 also offers an ACH payment system that bills your clients directly. Call us today at (866) 429-1638 to find out how you can partner with the leading name in auto dealership insurance.
