| Campus Free Speech Issues and Dispute Resolution
Although the free exchange of ideas is fundamental to every university’s mission, events on many of our nation’s campuses in recent years vividly demonstrate that preserving and promoting this principle in a university community presents enormous challenges. Members of the CSDR at the University of Missouri have had to deal with this type of conflict at a different level. In 2015, we were touched closely by events such as the shooting of Michael Brown by a police officer in Ferguson, Mo., a number of racially motivated incidents on our own campus, and the protests by students following those incidents, which, in turn, resulted in the resignations of high-profile campus leaders. While perhaps Missouri played the role of the proverbial “canary in the coal mine,” confrontations like the one we experienced in 2015 soon emerged in other campuses across the U.S. Opposing narratives developed describing these events. One narrative portrays today’s students as hypersensitive and intolerant as they seek protections against offensive words and ideas, which results in the sacrifice of both intellectual rigor and First Amendment values. A counter-narrative posits that the rise in verbal abuse and violence against historically persecuted groups requires the prohibition or limitation of hateful, intolerant, or threatening speech on our campuses, as learning becomes impossible in an environment where members of the community feel unsafe. Motivated by those experiences, Prof. Robert Jerry, who served as the dean of the law schools at the University of Florida and the University of Kansas for a combined total of 16 years, and who teaches and writes in dispute resolution among other subjects, and Prof. Chris Wells, who is one of the leading First Amendment scholars in the country and teaches in the dispute resolution area, have organized the 2017 CSDR/Journal of Dispute Resolution Symposium along this topic. The symposium, which is titled “The First Amendment on Campus: Identifying Principles for Best Practices for Managing and Resolving Disputes,” will explore the complex intersection between free expression and conflict at universities. In what is likely a first-of-its-kind-effort, the program will bring together free speech scholars, dispute resolution experts, and university leaders with experience with free expression conflict, with the goal of advancing our understanding of how university leaders can remain true to both the mission of the university and the values of the First Amendment. The timing of the symposium is particularly propitious for us, as it coincides with the arrival of our new Dean Lyrissa Lidsky, who is also an expert in First Amendment Law and has written on the topic of campus speech issues.
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| Expanding Access to Justice through ODR
At one time, transactions between merchants and consumers were often sealed with a handshake. This handshake was more than a kind gesture—it helped reassure both parties that the other was committed to the deal and would correct any problems. As more transactions occur online, finding fair and efficient resolution of problems that arise can be challenging. In her new book with Colin Rule of Tyler Technologies, Prof. Amy J. Schmitz argues that using technology to enhance access to remedies is in the best interest of both retailers and consumers. In their book, The New Handshake: Online Dispute Resolution and the Future of Consumer Protection, Schmitz and Rule propose a design for this using Online Dispute Resolution (ODR) to establish a new virtual handshake for the online world. Their proposed process uses a single platform that merchants and consumers would access to resolve disputes. The platform would have a single set of guidelines, would abide by agreed due process standards, and would include means for alerting regulators regarding suspected fraud or unsafe products. It would utilize forward thinking encryption and coding to ensure privacy and coordinate with other consumer remedy processes throughout the world. Indeed, the EU has established its own ODR platform, UNCITRAL has pursued global ODR, and new ODR programs continually emerge in the wake access to justice movements. The proposal is a collaboration between Schmitz, a consumer advocate and founder of MyConsumertips.info; and Rule, a high-tech entrepreneur who had directed ODR for eBay. In this way, the project aims to create a win-win for consumers and businesses. “Our goal is to rebuild trust in the business-to-consumer marketplace and provide a blueprint for the future of online consumer protection.” More information can be found at Newhandshake.org and Prof. Schmitz’s interview on the book can be heard here. A few comments on the book include: Corporate Counsel; ODR.INFO; Oxford Business Law Blog; Business Conflict Management LLC.
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| Making Stone Soup
The Stone Soup Dispute Resolution Knowledge Project is designed to promote collaboration by faculty, students, scholars, practitioners, educational institutions, and professional associations to produce, disseminate, and use valuable qualitative data about actual dispute resolution practice. Professors John Lande and Rafael Gely are the co-directors of the project, which grew out of the Center’s 2016 symposium, Moving Negotiation Theory from the Tower of Babel Toward a World of Mutual Understanding. Several symposium speakers criticized the current state of negotiation theory and argued that more empirical research about actual negotiations is needed to advance negotiation theory. Faculty have multiple ways to participate in the project. For example, they may use their courses to generate knowledge about dispute resolution. As part of their course requirements, students may interview professionals and/or laypeople about actual cases. Some faculty may conduct “focus group classes” in which they systematically ask selected guest speakers about actual cases. Faculty may use these assignments and activities in a wide variety of courses including those that do not specifically or exclusively focus on dispute resolution. The project encourages schools to take advantage of practitioners’ perspectives by conducting general debriefing of student competitions. Faculty may also take advantage of talks at continuing education programs to obtain data from practitioners. For more information, see law.missouri.edu/drle/stone-soup. In this inaugural year of the project, it should engage at least 800 students in 48 classes covering 17 subjects, taught by 29 faculty from 24 schools in three countries.
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| Dispute Resolution Empirical Research
Empirical research has long been a mainstay of dispute resolution scholarship, and the members of the CSDR continue to generate ground-breaking and influential work. Some recent work in this field was conducted by Prof. S.I. Strong in her article “Realizing Rationality: An Empirical Assessment of International Commercial Mediation,” 73 Washington and Lee Law Review 1973 (2016), which included the first-ever large-scale international study of international commercial mediation. Preliminary findings from that project were provided to the United Nations Commission on International Trade Law (UNCITRAL) to support efforts to adopt a new international instrument relating to the enforcement of settlement agreements arising out of commercial mediation. Prof. Strong, with Prof. Rafael Gely, CSDR director, is currently working on a new project funded by a $25,000 grant from the American Arbitration Association-International Center for Dispute Resolution (AAA-ICDR) Foundation. The project seeks to expand the understanding of arbitrator reasoning in international commercial disputes by conducting a multi-phased empirical study. The first prong of the research involves a series of semi-structured interviews with leading arbitrators working in the area of national and international commercial arbitration so as to identify the goals arbitrators that are seeking to achieve when writing reasoned awards and how arbitrators believe they are fulfilling those aims. The second prong of the study involves an international survey of commercial arbitrators and judges. This material will seek to confirm information gleaned during the interviews and to identify additional supplemental material. The third prong is doctrinal in nature and involves an empirical analysis of publicly available arbitral awards gleaned from enforcement proceedings in court or published in arbitral reports and judicial decisions gleaned from case reports in the United States and elsewhere. After identifying the relevant awards and decisions, the materials will be coded for various attributes and analyze the data to determine whether there are any differences between national and international commercial awards on the one hand fully reasoned arbitral awards and judicial decisions on the other. Prof. Gely is also undertaking a separate strand of empirical research looking at how is the arbitration process portrayed in the mainstream media. Motivated through a partnership with the National Academy of Arbitrators, Prof. Gely and his collaborators, and drawing from the work of scholars in communications and journalism, the research project is seeking to collect and analyze data taken from news reports about arbitration. The goal of the project is to better understand how the media is reporting about arbitration. A preliminary article discussing the research project (“What and How Journalists are Reporting About Arbitration”) was published in Proceedings of the Sixty-Ninth Annual Meeting of the National Academy of Arbitrators, Arbitration 2016: Arbitration in Practice.
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Consumer Rights
CFPB is Fighting the Good Fight
The Consumer Financial Protection Bureau (CFPB) today announced that its recent work resulted in $14 million in relief to more than 104,000 harmed consumers from January through June 2017. The Press release read in part:
“Today’s report, the 16th edition of Supervisory Highlights, covers CFPB supervision activities from January through June 2017, and shares observations in the areas of auto loan servicing, credit card account management, debt collection, deposits, mortgage origination, mortgage servicing, remittances, service providers, short-term small-dollar lending, and fair lending. Among the findings:
- Banks deceived consumers about checking account fees and overdraft coverage: One or more institutions deceived consumers by inaccurately describing when checking account service fees would be waived. One institution told consumers it would waive the fee if the customer met certain qualifications, including making 10 or more payments from the checking account during a statement cycle. In fact, only debit card purchases and debit card payments qualified toward the fee waiver. One or more institutions also misrepresented opt-in deposit overdraft services as extending to consumer payments by check, electronic funds transfers through the Automated Clearing House payment network, or recurring payments, when those transactions were not actually covered.
- Credit card companies deceived consumers about the cost and availability of pay-by-phone options: The Bureau’s examiners found that customer service representatives of at least one credit card company disclosed only costly pay-by-phone fees while omitting mention of much cheaper payment options. Failing to disclose less costly options can result in consumers being charged for services they don’t need.
- Auto lenders wrongly repossessed borrowers’ vehicles: Many auto loan servicers give borrowers options to avoid repossession of their vehicle if a loan is delinquent or in default. But the CFPB’s examiners found that one or more companies were repossessing vehicles after the repossession was supposed to be cancelled. Some lenders wrongfully listed the account as delinquent. In other instances, customer service representatives did not cancel the repossession order when feasible after borrowers made sufficient payments. Also, some repossession agents did not check the documentation beforehand to see if the repossession had been cancelled.
- Debt collectors improperly communicated about debt: Generally, debt collectors must get consent of the person owing the debt before discussing it with other parties. The Bureau’s examiners found that one or more third-party collectors did not confirm they had contacted the right person before starting collections, or wrongly attempted to collect from consumers who were not responsible for the debt. Also, one or more payday lenders, in collecting a debt, repeatedly called third parties, including personal and work references listed on the borrowers’ loan application. In some instances, even after being told to stop, these collectors called borrowers at work or asked third parties to relay messages to them. Such calls can lead to negative job consequences for the borrower, and risk improperly disclosing the default or delinquency to third parties.
- Mortgage companies failed to follow Know Before You Owe mortgage disclosure rules: CFPB examiners found that one or more companies overcharged closing fees to consumers and one or more companies wrongly charged application fees before consumers had agreed to the mortgage transaction. Examiners did find that in general, both banks and nonbanks were able to effectively implement and comply with the Know Before You Owe mortgage disclosure rule changes.
- Mortgage servicers failed to follow the Bureau’s servicing rules: Servicers are responsible for reviewing borrowers’ initial loss mitigation applications to determine what documents are missing. They must then tell borrowers what documents are missing, so that consumers can get a full evaluation of options they have available. One or more mortgage servicers offered a forbearance option to consumers to help them prevent foreclosure, but did not let the borrower know of their right to complete an application to be considered for other options. In addition, they did not exercise reasonable diligence in collecting information needed to complete the borrower’s application. Additionally, one or more servicers, through a vendor, also provided borrowers mortgage statements that failed to specifically list fees charged.
Today’s report shares information that companies can use to comply with federal consumer financial law. When CFPB examiners find problems, they alert the company and outline necessary remedies. These steps may include paying refunds or restitution, or taking actions to stop illegal practices and assure future compliance such as implementing new policies, or improving training or monitoring. When appropriate, the CFPB opens investigations for potential enforcement actions.”
For more information, see: today’s edition of Supervisory Highlights is available at: http://files.consumerfinance.gov/f/documents/201709_cfpb_Supervisory-Highlights_Issue-16.pdf
CFPB Rules
The CFPB is finally issuing its arbitration rule! I have not yet fully read the rule, but the substance seems to say the same as the proposed rule. It doesn’t make arbitration clauses unenforceable, just the use of arbitration clauses to preclude class actions. Essentially, the press release read in part:
“Today’s rule prohibits banks and other consumer financial companies from including mandatory arbitration clauses that block group lawsuits in any new contracts after the compliance date. The rule does not bar arbitration clauses outright. For these new contracts, however, these clauses have to say explicitly that they cannot be used to stop consumers from banding together to pursue relief as a group. The rule includes the specific language that financial companies must use. By restoring the ability of consumers to file or join group lawsuits, the rule gives companies more incentive to comply with the law. And the deterrent effect of such cases can more broadly influence the business practices of other companies as well.
Our new rule also requires companies to submit their claims, awards, and other information about the arbitration of individual disputes to the Bureau. This will help us better monitor arbitrations to make sure the process is fair for individual consumers. The companies are required to scrub these materials of personal information, and starting in July 2019, we will also post them on our website. This will promote transparency and give consumers, providers, and other regulators more insight into how arbitration works. “
We do not know where this will lead but it is a new step in arbitration law. Also, I again caution that the full rule is at: http://files.consumerfinance.gov/f/documents/201707_cfpb_Arbitration-Agreements-Rule.pdf.
The Newhandshake: Online Dispute Resolution and the Future of Consumer Protection
We used to buy goods and services in person. We’d introduce ourselves, look each other in the eye, and negotiate the terms of the transaction. If we thought it was a good deal, we’d seal it with a handshake. That handshake was more than a kind gesture – it signaled that if any problem arose, both sides were committed to getting it resolved quickly and fairly. That handshake was our personal trustmark.
Nowadays, it’s harder to close deals with a handshake. We can buy items from all over the world with just a few swipes on our iPhones, but when problems arise (as they inevitably do) the next step is often unclear. On the internet it is difficult, if not impossible, to tell the good merchants from the bad merchants, and the processes for resolving disputes are often confusing or hard to find. Customer service can feel like a runaround (e.g. long hold times, unfair refund policies) and formal redress mechanisms that work in the face-to-face world, like the courts, are generally impractical for online purchases — especially when purchases are low value and cross several legal jurisdictions.
The New Handshake: Online Dispute Resolution and the Future of Consumer Protection focuses on this lack of trust and access to remedies for online transactions. This groundbreaking book proposes a design for a “New Handshake” for the online world. This New Handshake uses Online Dispute Resolution (ODR) to provide fast and fair resolutions for low-dollar claims, such as those in most B2C (Business-to-Consumer) contexts. This revolutionary system is designed to operate independently of the courts, thereby eliminating procedural complexities and choice of law concerns. Furthermore, it can be integrated directly into the websites where transactions take place. It would provide consumers with free access to remedies, while saving businesses from costs and complexities of court. The New Handshake aims to rebuild trust in the B2C marketplace, and provide a blueprint for the future of online consumer protection.
This is not your typical “law” or “business” book. Instead, is a collaborative effort of a business leader and a law professor. The result is essential reading for:
Online merchants
Payment providers
Customer services
Lawyers
Judges
Law and business students
Consumer advocates
Policy makers
ODR systems designers
The New Handshake can be purchased on the ABA website here:
https://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=267464824&term=5100032
Getting Car Insurance? Your Zip Code Matters
First, many thanks to Amy Schmitz for inviting me to guest blog on My Consumer Tips. I’m excited to share some of the consumer credit issues I’ve happened upon during my work. My research includes empirical studies of bankruptcy and consumer credit. (Read more about me here.) Along with my co-authors on some articles, I’ve written about racially disparate uses of consumer bankruptcy by families and business bankruptcy by churches. This research is part of a growing body of research finding that lower-income individuals and minorities pay more for goods and services and, on average, receive less. This week, ProPublica and Consumer Reports published a new study that adds auto insurance to the list of services for which minorities pay more.
Although I blogged about the study briefly over at Credit Slips, I want to spend more time discussing the findings here. The study analyzes car insurance premiums and payouts by zip code in four states, California, Illinois, Texas, and Missouri. It finds that major insurers charge up to 30 percent more for insurance in minority neighborhoods than white neighborhoods with the same risk (meaning with similar accident costs). To put some numbers to this finding, the report begins with the stories of Nash and Hedges. Nash lives in a neighborhood in Chicago that from a car insurance perspective is safer than the Chicago neighborhood where Hedges lives. Nash’s neighborhood is predominately minority, while Hedge’s neighborhood is predominately white. Nash is 26 and drives a 2012 Honda Civic LX. Hedges is 34 and drives an Audi Q5 Quattro SUV. Both Nash and Hedges are employed and both receive a good driver discount. Who pays more for car insurance?
If you guessed Nash, you’re right. But what is more interesting and perhaps unexpected is how much more Nash pays. He pays $191 a month. Hedges pays $55, almost four times less than Nash. Why does this matter? Nash’s story includes struggling to make that hefty monthly payment while support his wife and daughter by working two jobs. An extra $140 a month would go a long way to easing Norm’s mind about making ends meet.
Moving beyond these two stories, the study confirms what some consumer advocates have suspected for years: That auto insurers seem to be using zip code as a proxy for race, and charging minority neighborhoods more for insurance, despite the fact that these drivers are just as safer as drivers in white neighborhoods and despite the fact that cars “residing” in these neighborhoods are no more likely to cost insurers more in payouts than cars in other neighborhoods. Consumer advocates’ assumptions about auto insurance were based on prior knowledge that where someone lives matters to economic opportunity and mobility. Auto insurance premiums now can be added to the list of the ways in which lower-income individuals and minorities pay more, and which hinder their efforts to save and achieve economic security. Read the full study here.
Pay to Play in Consumer Arbitration
Some companies that include predispute arbitration clauses in their contracts have refused to pay these arbitration costs as a defendant in consumer cases. In the case of the AAA, nonpayment of fees will result in the AAA refusing to administer the arbitration. Additionally, consumer claimants in such cases can then raise the same dispute in court, arguing that the arbitration requirement no longer applies because of the defendant’s material breach.
Roach v. BM Motoring, LLC, 2017 WL 931430 (N.J. Mar. 9, 2017), provides an example of what happens when a defendant refuses to pay arbitration costs. In that case, the New Jersey Supreme Court joined other courts that find the defendant’s refusal to pay arbitration costs waives the arbitration requirement by materially breaching the agreement. See e.g. Pre-Paid Legal Services, Inc. v. Cahill, 786 F.3d 1287 (10th Cir. 2015). The defendant car dealership included an arbitration provision in its consumer contracts that required arbitration in accordance with AAA rules, but did not explicitly require arbitration before the AAA. Nonetheless, the defendant failed to pay the AAA’s filing fees and arbitrator compensation deposit when a consumer filed a complaint against the dealership with the AAA. Indeed, the defendant ignored the AAA’s notices — leading the AAA to send the parties a letter stating that because of this failure it would not administer the arbitration or any other consumer disputes involving the dealership. The consumers then filed their claims in state court and the dealership moved to compel arbitration. The New Jersey Supreme Court concluded on appeal that the dealership was precluded from enforcing the arbitration agreement.
Confirmation of Pay to Play
The Roach court confirmed basic contract law: when a party breaches a material term of an agreement, the non-breaching party is relieved of its obligations under the agreement. The court then concluded that the arbitration terms (by requiring use of AAA rules) permitted arbitration before the AAA, even if the AAA was not stated as the exclusive forum for the arbitration. Accordingly, the court would not disturb the consumers’ choice to arbitrate with the AAA. The dealership materially breached the agreement where the consumer paid the consumer’s filing fee and the dealer did not pay its fees. Therefore, the consumers were then free to litigate their claims in court.
Missouri Takes a Strong Stance on Arbitration
In 2005 and 2007 respectively, Lee Hobbs and the Jonesburg Methodist Church bought Heritage Series Shingles, which are manufactured by Tamko. On the outside of each bundle of shingles was a limited warranty that provided a remedy for damages caused by manufacturing defects and included a binding arbitration provision. Neither Hobbs nor Jonesburg saw the limited warranty or was made aware of the warranty.
Then, in 2013, the shingles they purchased started warping, curling, and beginning to fail. In 2014, Hobbs and Jonesburg filed a class action complaint against Tamko alleging violations of the Missouri Merchandising Practices Act (MMPA), negligence, and entitlement to declaratory relief. Tamko responded with a motion to compel arbitration because of the binding arbitration provision slapped on to Tamko’s shingles packaging. The trial court denied Tamko’s motion, and Tamko appealed, arguing that the trial court erred because the parties had entered into a valid arbitration agreement. The court of appeals affirmed the judgment of the trial court, finding that the mere purchasing of the shingles did not create acceptance of the arbitration agreement; the plaintiffs had never signed any document agreeing to an arbitration clause. An appeal to the Missouri Supreme Court was denied, and a petition for certiorari is still pending before the Supreme Court of the United States.
First, Tamko argued that the plaintiffs accepted and agreed to the terms of the limited warranty because the plaintiffs kept and used the shingles. The court found this unpersuasive because there was no evidence that the consumers actually received the documentation; typically, shingles are a product that are not kept by the consumer after they are unbundled and used. Second, Tamko alleged that plaintiffs accepted the terms of the arbitration agreement by invoking their claims under the limited warranty. The court also rejected this argument; Hobbs and Jonesburg only became aware of the warranty after they had filed their claims with Tamko. The court took a firm stance: big business cannot bully consumers into arbitration.
As the law currently stands (and with the help of this case), the MMPA makes Missouri one of the most consumer friendly states in the nation. But, this is not the end of the story. A new bill, Senate Bill 5, was introduced in the Missouri legislature in the beginning of 2017. It amends the MMPA, stating that the MMPA does not apply to any business “regulated by the Federal Trade Commission or any other regulatory agency.” Passage of this bill would eliminate consumer protection in Missouri; almost every business is subject to regulation by the Federal Trade Commission or another regulatory agency. Consumers, unfortunately, would be left unprotected.
But as of now, Tamko provides some thread of hope for consumers who have been forced into arbitration clauses against their will. Simply attaching an arbitration agreement to a product’s packaging does not create a valid arbitration clause in Missouri. But Tamko still does not protect consumers who unknowingly enter into arbitration agreements in other contexts. The legislature, therefore, should be working to help all consumers fight back against abusive business practices rather than taking away the little protection they have now.
CFPB ORDERS TRANSUNION AND EQUIFAX TO PAY $23.1 MILLION FOR DECEIVING CONSUMERS
On Jan. 3, the the Consumer Financial Protection Bureau (CFPB) took action against Equifax, Inc., TransUnion, and their subsidiaries for deceiving consumers about the usefulness and actual cost of credit scores they sold to consumers. The companies also lured consumers into costly recurring payments for credit-related products with false promises. The CFPB ordered TransUnion and Equifax to truthfully represent the value of the credit scores they provide and the cost of obtaining those credit scores and other services. Additionally, TransUnion and Equifax must pay a total of more than $17.6 million in restitution to consumers, and fines totaling $5.5 million to the CFPB.
“TransUnion and Equifax deceived consumers about the usefulness of the credit scores they marketed, and lured consumers into expensive recurring payments with false promises,” said CFPB Director Richard Cordray. “Credit scores are central to a consumer’s financial life and people deserve honest and accurate information about them.”
Consumers are again advised to be aware of the terms when they sign up to receive a credit score or other credit-related products. All credit reports are not free, and credit scores are generally not provided free of charge directly from these companies. However, some credit card companies to provide scores to their customers without charge, and thus consumers would be wise to ask their credit card companies if they provide such information for free.
CFPB warnings regarding college-sponsored accounts
Notably, some of the nation’s largest colleges and universities continue to maintain deals with large banks that allow for the marketing of products that may not be in the best financial interests of their students and that contain costly features. Key findings from the Bureau’s report and analysis of college marketing deals for prepaid and debit accounts include:
- Dozens of bank deals with colleges fail to limit costly fees: The Bureau found that dozens of deals with banks for school-sponsored accounts, including deals at some of the nation’s largest colleges and universities, do not place limits on account fees, such as overdraft fees, out-of-network ATM fees, or other common charges. These costly fees remain a concern at dozens of campuses, even as safer and more affordable alternatives are widely available at many other schools across the county.
- Some students may pay hundreds of dollars per year in overdraft fees: College students may pay hundreds per year in overdraft fees when using student banking products. This is particularly concerning given that a growing body of evidence suggests that small financial shocks—such as a few hundred dollars— can cause significant financial hardship for students and even deter college completion. Further, the Bureau’s analysis found that fees associated with school-sponsored accounts can collectively cost a college student body hundreds of thousands of dollars per year.
- Deals provide financial benefits for banks and schools but offer few, if any, financial benefits for students: The Bureau found marketing agreements between colleges and banks often contain extensive details about how the school and the bank can profit. Contracts frequently include details on revenue sharing and other payments made in exchange for exclusive marketing access to colleges’ student population. At the same time, many of these agreements do not require banks to offer safe and affordable accounts—and may drive students to high-cost products.
- Some schools fail to disclose key details of marketing deals with banks: Most colleges were required by the Department of Education to publicly disclose marketing contracts by Sept. 1, 2016. However, the CFPB found that some agreements publicly announced by banks or colleges were not included in the Department of Education’s public database of agreements, suggesting that some schools did not submit their agreements to the Department before the agency’s disclosure website launched.
This is a good time to remind readers that the CFPB published a Safe Student Account Toolkit to help colleges evaluate whether to co-sponsor a prepaid or checking account with a financial institution. The Safe Student Account Toolkit is available at: http://files.consumerfinance.gov/f/201512_cfpb_safe-student-account-toolkit.pdf
New Used Car Disclosure Rules
On November 10, the FTC issued new rules regarding used car sales. See 16 CFR 455.
The new rule improves disclosures for service contracts and unexpired manufacturer warranties, increases Spanish language disclosure information, and adds air bags and catalytic converters to the sticker’s list of major defects that can occur. The rule also changes the language on the sticker describing an “as is” sale. The old language merely stated that “[t]he dealer assumes no responsibility for any repairs regardless of any oral statements about the vehicle.” The language the FTC initially proposed in its new rule as a replacement would have been even more unclear: “The dealer is not responsible for any repairs, regardless of what anybody tells you.” After opposition from consumer groups, the language is now changed to “The dealer does not provide a warranty for any repairs after sale.” Since the Rule prohibits the dealer from making an “as is” disclosure when there is a warranty under state law, this is an accurate statement.
Nonetheless, there are various ways to challenge an “as is” disclaimer. For example:
- 1. A car sold “as is” still has a warranty of good title–that the transfer is rightful, and that the car is delivered free from liens–unless excluded by specific language or by circumstances that give the buyer reason to know that the seller may not have clear title.
- 2. Express warranties generally cannot be disclaimed.
- 3. Federal law provides that a dealer that “makes any written warranty” or “enters into a service contract” cannot sell a car “as is.”
- 4. Many states have used car lemon laws that may limit “as is” sales and provide strong consumer remedies. States also may have minimum standards for used cars.
- 5. State vehicle inspection laws also may provide a remedy even in an “as is” sale where the vehicle does not pass inspection.
- 6. State deceptive trade practices statutes apply to oral or written misrepresentations or the failure to disclose defects or a wreck, flood, or other salvage history, even where a vehicle is sold “as is.”
- 7. The federal odometer statute, including $10,000 minimum damages and attorney fees applies, despite the “as is” sale, to odometer misrepresentations, mis-disclosures or tampering.
- 8. There are also common law fraud and other claims that may assist a consumer stuck with a faulty vehicle.