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 © Crown copyright 2010 This publication (excluding the OFT logo) may be reproduced free of charge in any format or medium provided that it is reproduced accurately and not used in a misleading context. The material must be acknowledged as crown copyright and the title of the publication specified. CONTENTS Chapter/Annexe Page 1 Introduction 4 2 Response to consultation questions 6 3 List of respondents 18 1 INTRODUCTION 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 Consultation 1.2 Between December 2009 and March 2010, the OFT conducted a public consultation on draft guidance for second-hand car dealers on compliance with the CPRs and the SoGA. 3 The public consultation was aimed at anyone with an interest in the second-hand car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 OFT1152resp | 4 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 OFT1152resp | 5 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. OFT1152resp | 6 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). OFT1152resp | 7 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 OFT1152resp | 8 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 OFT1152resp | 9 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 OFT1152resp | 10 [...]... the guidance should be to set out the basic principles of the SoGA with simple illustrative examples Question 6 – Is the draft guidance in the right format and length for the intended audience? Format 2.39 Respondents were generally content with the format of the guidance, although some alternative structures were put forward For example, one respondent felt that there should be completely separate guidance. .. Department for Business, Innovation and Skills Code of Practice on Guidance on Regulation requires Government to produce 'quick start summary guidance' when publishing guidance for businesses on how to comply with the law (except where that guidance is already very brief and straightforward) 2.43 We have therefore developed a short checklist6 document to accompany the full version of the guidance, which... result in cars OFT1152resp | 11 been unsold or unavailable for sale for a period For example, where dealers need to contact previous registered keepers about the mileage, delays might occur in obtaining the information 2.27 We are still strongly of the view that a dealer will substantially increase the risk of breaching the CPRs if they display for sale or sell a vehicle to a consumer before having... on the positive benefits for dealers in reading and following the guidance Question 8 – Do you have any suggestions on how the guidance should be disseminated to those who need to see it? 2.46 Most respondents were in favour of the guidance being made available in both electronic and printed formats 2.47 Whilst our intention was to make the guidance available both online (for download from the OFT... employed for business purposes and may have had multiple users Other examples include exdriving 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. .. friendly format It focuses on some of the practical steps dealers should take to help ensure that they comply with the law 6 www.oft.gov.uk/shared_oft/reports/676408/OFT1241.pdf OFT1152resp | 15 Question 7 – Is the draft guidance sufficiently user friendly for the intended audience? 2.44 We have taken on board a number of suggestions to improve the usability of the guidance for the intended end audience For. .. relevance of the guidance, particularly for small dealers, needed to be made more explicit We have made it clear in the introduction that there is other important legislation which may apply to dealers, which is not covered in the guidance - such as, for example, the Consumer Credit Act 1974 and the Consumer Protection (Distance Selling) Regulations 2000 We have also increased throughout the guidance, the... while the guidance was rather long, this was necessary in order to provide the full and comprehensive information that dealers require However, a common view was that small dealers were unlikely to read the whole guidance and that it would be helpful to also produce a simple 'checklist' of practical steps dealers should undertake to comply with the law – this would serve as an entry point to the guidance. .. OFT1152resp | 14 documents for the CPRs and SoGA A more common view, however, was that whilst there will always be occasions where the CPRs and the SoGA were inextricably linked, the separation within the guidance enabled a clear demarcation of the two specific areas and assisted with legibility We have therefore, but for a few minor exceptions, retained the format used in the draft guidance 2.40 Another...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 . 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. and independent car dealers, industry trade associations, car manufacturers, other businesses operating in the second-hand car market, enforcers, government