Guidance for second-hand car dealers ppt

Guidance for second-hand car dealers Compliance with the Consumer Protection from Unfair Trading Regulations 2008 and the Sale of Goods Act 1979 as amended Response to consultation Ju

Guidance for second-hand car dealers

Compliance with the Consumer Protection from Unfair Trading Regulations 2008 and the Sale of Goods Act 1979 (as amended)

Response to consultation

June 2010

OFT1152resp

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CONTENTS

Chapter/Annexe Page

1 Introduction 4

Background

1.1 The Office of Fair Trading (OFT) launched a market study into the sale of

second-hand cars in May 2009.1 The study followed concerns about the large number of consumer complaints about this sector We spoke to a range of stakeholders during the course of the market study, a number

of whom identified the need for guidance on the application of two key pieces of consumer protection law, the Consumer Protection from Unfair Trading Regulations 2008 (CPRs) and the Sale of Goods Act 1979 as

amended (SoGA),2 to second-hand car dealers

Consultation

1.2 Between December 2009 and March 2010, the OFT conducted a public

consultation on draft guidance for second-hand car dealers on

compliance with the CPRs and the SoGA.3 The public consultation was aimed at anyone with an interest in the second-hand car market This

included franchised and independent car dealers, industry trade

associations, car manufacturers, other businesses operating in the

second-hand car market, enforcers, government departments and

consumer groups This response should be read in conjunction with the consultation which provides background and explains the rationale for

producing the guidance

1.3 The consultation was carried out in accordance with the Code of

Practice on Consultation (available from

www.bis.gov.uk/files/file47158.pdf) Stakeholders were notified of the

1 The market study was completed in March 2010 and a report published – see

www.oft.gov.uk/shared_oft/reports/676408/OFT1217.pdf

2 The Sale of Goods Act 1979 has been amended by the Sale and Supply of Goods Act 1994 and the Sale and Supply of Goods to Consumers Regulations 2002

3 www.oft.gov.uk/shared_oft/reports/676408/OFT1152con.pdf

consultation exercise by email and via an OFT press release The OFT

also held workshops for industry, Trading Standards Officers and

consumer groups during the consultation period and arranged meetings

at the request of stakeholders A revised version of the draft guidance

was also circulated to a small number of stakeholders for informal

feedback

1.4 A full list of those bodies that supplied a written response to the public

consultation is at Annexe A

1.5 This document summarises the main issues raised by respondents on the

draft guidance and the OFT's response to them We also summarise how the guidance has been revised to take on board stakeholder comments The final version of the guidance is available here:

www.oft.gov.uk/shared_oft/reports/676408/OFT1241.pdf

1.6 The OFT would like to thank all respondents for their constructive

engagement in this consultation

Next steps

1.7 We hope that the guidance will assist second-hand car dealers in

complying with the law and lead to improvements and fewer complaints from consumers However, where appropriate, and in accordance with the OFT's published Prioritisation Principles,4 we will not hesitate to take enforcement action against dealers who are engaging in sharp practices that cause serious harm to consumers

1.8 The guidance will be kept under review and will be revised as necessary

in light of user feedback, practical experience and developing case law

4 www.oft.gov.uk/shared_oft/about_oft/oft953.pdf

2 RESPONSE TO CONSULTATION QUESTIONS

Overview

2.1 We received 25 formal responses to the consultation The majority were

from either individual local authority Trading Standards Services (TSS), regional TSS groups, motor trade associations or other industry bodies Responses were also received from individual businesses, consumer

bodies, other government departments as well as a small number of

private individuals In addition, our workshops for industry and Trading Standards Officers were very well attended and we have also taken

account of feedback from those events

2.2 Respondents were very supportive of the OFT's aims in producing

guidance for second-hand car dealers and generally felt that the draft

version published for consultation provided a solid starting point

Respondents made a number of helpful suggestions for improving the

content, clarity and format of the guidance, details of which are

summarised below

Question 1: Is the draft guidance sufficiently clear?

2.3 The overwhelming consensus was that the guidance was written in a

very formal and legalistic style which, whilst suited to larger

second-hand car dealers, might not be as accessible to small dealers

2.4 We have therefore tried, wherever possible, to simplify the language

whilst maintaining the necessary legal accuracy For example, whereas

we previously used headings such as 'misleading actions' and

'misleading omissions' to refer to breaches of the CPRs - which replicate the language of the CPRs itself - we now refer to 'giving false

information to, or deceiving, consumers' and 'giving insufficient

information to consumers', both of which are more reader friendly

Question 2: Does the draft guidance have any significant omissions?

Banned practices

2.5 There are 31 commercial practices that are considered unfair in all

circumstances and which are prohibited under the CPRs (banned

practices) While the draft guidance included two illustrative examples of such banned practices – in relation to 'bait and switch' tactics and

traders who pose as private sellers - respondents identified several more that were relevant to the second-hand car sector and which they felt

were important to include One such example is the practice of falsely

stating that a vehicle will only be available for a very limited time, or that

it will only be available on particular terms for a very limited time, in

order to elicit an immediate decision from the consumer (banned practice 7)

2.6 We have therefore expanded the list of examples of banned practices at

section 4.8 to make it much more comprehensive Although it is not an exhaustive list, it now includes examples of banned practices 1, 4, 6, 7,

10 and 22

Hire-purchase

2.7 A number of industry and TSS respondents felt that the guidance would

benefit from a specific reference to the different legal position – in

particular as regards the consumer's rights and remedies - where a

vehicle is supplied under a hire-purchase agreement Whilst only a

relatively small percentage of consumers purchase a second-hand car on hire purchase, we agree that a reference should be included in the

guidance

2.8 We have therefore included a new section 10 which briefly explains that

the SoGA remedies do not apply to vehicles supplied on hire-purchase

and that where a consumer purchases a vehicle under a hire-purchase

agreement, their legal rights are against the finance company (under the Supply of Goods (Implied Terms) Act 1973)

Question 3: Is the draft guidance in need of clarification and, if so, in what

respect?

Scope of the guidance

2.9 A number of respondents suggested it should be made explicit that the

guidance applied not only to the sale of second-hand cars to consumers but also other types of vehicle such as second-hand motorcycles and

light commercial vehicles We have therefore included a new paragraph

at 1.3 setting this out, as well as defining what we mean by the term

'second-hand'

Auction sales

2.10 The draft guidance included a brief reference in the introduction to the

fact that the CPRs apply to dealers who sell through auctions

2.11 A number of industry respondents expressed concerns with this view,

arguing that the car auction market is principally a wholesale market

involving business to business transactions with the seller unaware of

the buyer's status and that any consumers who do buy at auction

already have adequate protection through the terms and conditions of

entry and sale provided by specific auction houses As such, it was

claimed the end result of the guidance will be disruption to the supply of cheap cars through auctions (as sellers will need to do far more pre-sale checks than currently is the case) and that consumers may be barred

from attending auctions

2.12 We do not accept this view The CPRs apply to the sale of second-hand

vehicles through public auctions which are open to consumers and/or

where it is likely that trade buyers will sell the vehicle on to consumers

In particular, the CPRs will apply where the seller's practice has the

potential to affect both consumers and businesses

2.13 A more difficult issue is the extent to which dealers who sell through

auctions should be expected to carry out the same sort of pre-sale

checks that they would if selling to a consumer through a traditional

forecourt We acknowledge that consumers may have lower

expectations when buying from an auction than through other sales

channels, consequently they may have fewer reasonable expectations on the type of checks that sellers will have carried out prior to auctioning

their vehicles

2.14 We also recognise that the scope for disclosing material information may

also be dictated by the limitations of the types of vehicle sale entry form used by auctions, which may also differ between auctioneers

2.15 A number of respondents wanted a more detailed reference to auction

sales within the guidance, arguing that it is a multi-faceted matter which

requires more exposition if it is to be included We have therefore

expanded the reference to auction sales – see section 6 – to include

more detailed examples of unfair practices under the CPRs We have also included a reference to the application of the Business Protection from Misleading Marketing Regulations 2008 when dealers sell vehicles to

other traders, either at auction or elsewhere

Disclosure of mileage discrepancies

2.16 The draft guidance made reference to the disclosure of mileage

discrepancies to consumers and to the limited circumstances in which

mileage disclaimers should be used

2.17 Feedback from TSS respondents was that the focus of the guidance was

overly prescriptive and could be simplified to set out the general

principles around mileage disclosure It was also argued that use of the terminology 'disclaimer' was unhelpful in the context of the CPRs as

disclaimers were designed to take the place of material information that the consumer needs and should be discouraged Some Trading

Standards officers also considered the examples of disclaimers used in the draft guidance to be too simplistic, when there were in fact multiple different types of disclaimer that could be used to reflect the

circumstances

2.18 We agree that the guidance on mileage disclosure could be clearer and

more focussed We have therefore revised it to make clear to dealers

that they should carry out all reasonable checks to establish the vehicle's mileage and that they should inform customers prior to the sale of (i)

what checks they have carried out and (ii) what they have found out or

not been able to find out, or know, about the mileage or likely mileage For example, if a dealer knows from checking the last MOT record that the vehicle's current odometer reading is wrong and that the last

recorded mileage was '50,000 miles' or that the vehicle has travelled 'in excess of 50,000 miles' they should provide consumers with this

information prior to the sale

2.19 In relation to mileage disclaimers, we have also made it clear that dealers

should not rely on generic mileage disclaimers as a substitute for giving consumers specific information about what they have found out or not been able to find out, or know, about the vehicle's mileage or likely

mileage This is likely to be material information that the consumer needs

in order to make an informed choice

2.20 For example, if the vehicle's odometer displays 52,000 miles but a

check of MOT records shows that a vehicle had a previously recorded

mileage of 136,000 in May 2010, a dealer should not rely solely on a

generic disclaimer such as for instance 'the mileage is incorrect and

should be disregarded' or 'the mileage may not be true and should not

be relied on as an indication of the distance the vehicle has travelled'

The dealer should also inform the consumer that they have checked the last MOT test record which showed that the vehicle had a recorded

mileage of 136,000 in May 2010, so the currently displayed mileage of 52,000 was incorrect In such circumstances, the OFT recommends the use of a prominent written notice such as: 'MOT test records show this vehicle had a recorded mileage of 136,000 in May 2010, so the

currently displayed mileage of 52,000 is incorrect' which provides the

consumer with the important information they need to make an informed decision

Previous vehicle usage (ex-business use)

2.21 The draft CPRs guidance made a number of references to ex-rental

vehicles For example, we set out our view that it was a misleading

omission to fail 'to disclose that a vehicle for sale was an ex-rental

vehicle which may have had a number of drivers/users'

2.22 Our focus on ex-rental vehicles was partly informed by national media

reports alleging that tens of thousands of second-hand car buyers had

unwittingly bought former rental vehicles from the official dealerships of leading manufacturers, as well as subsequent complaints to the OFT We take the view that the fact that a vehicle has previously been used for rental and may have had multiple previous drivers is material information that a consumer needs in order to make an informed decision The failure

of a dealer to disclose this may therefore constitute a misleading

omission under the CPRs

2.23 Some industry respondents have argued that ex-rental cars undergo

more rigorous checks than privately pre-owned cars and are therefore

likely to be in better condition However, whilst we make no comment

on this suggestion, it does not directly address the issue raised about the form of disclosure the law requires to be made to consumers about a

vehicle's previous usage

2.24 A number of respondents pointed out that an ex-rental car is just one

example of a vehicle that had previously been employed for business

purposes and may have had multiple users Other examples include ex-driving school cars and taxis We have therefore amended the guidance

to include reference to other types of ex-business use vehicles For

instance, the example of a misleading omission has been revised to read: 'Failing to disclose that a vehicle for sale is an ex-business use vehicle

which may have had multiple users, for example a vehicle that has

previously been used for rental, as a taxi or by a driving school – in such circumstances it is not sufficient to only inform the consumer of the

mileage and the number of previous owners'

Vehicles under preparation

2.25 The draft guidance on the CPRs set out the OFT's view that dealers

should not sell a car to a consumer whilst that vehicle was still under

preparation - for example, where they have not yet had the opportunity

to complete all of their pre-sale history and mileage checks

2.26 Feedback from both the industry and TSS was that whilst the OFT's

position was legally correct, it might not always be practicable from a

commercial perspective It was pointed out that undertaking checks can sometimes take a considerable amount of time and may result in cars