Mythbusters: Used Car Warranties

MYTHWhen a dealership sells a used car with the dealer’s warranty, the FTC buyer’s guide serves as the warranty document that the customer must receive.

THE FACTSA customer who buys a used car with the dealer’s warranty must also receive a separate warranty document. 

The FTC Used Car Rule simply requires that a dealer describe the warranty for the used car offered for sale. And if the dealer is not selling the used vehicle with its own warranty, the buyer’s guide is all that must be completed. If there is no express warranty, and the dealer disclaims implied warranties, the car is sold “as is”. In states where implied warranties may not be disclaimed, a dealer can still offer a car without an express warranty, but it must use a buyer’s guide that the vehicle is sold with “implied warranties only.” A dealer who sells a car with only the remaining manufacturer’s warranty, if that still applies, may simply state that clearly on the buyer’s guide. 

When the dealer is offering its own express warranty, however, such as ninety day powertrain coverage or thirty day 50/50 protection, the buyer’s guide is not the only document the buyer must receive. The seller must provide a separate warranty document.

The federal Magnuson Moss Warranty Act requires that a warranty must be a written description of a consumer’s rights in a clearly worded, single document. There is a simple answer why the buyer’s guide cannot be the warranty document – the buyer’s guide itself says that it isn’t. The form buyer’s guide states in the full or limited warranty section:

Ask the dealer for a copy of the warranty document for a full explanation of warranty coverage, exclusions, and the dealer’s repair obligations.

There is of course a more complicated answer – the buyer’s guide cannot function as the warranty document because, while it does or may contain some of the descriptions of coverage required by the MMWA, it does not have all the mandated terms.

The following list of items that must be disclosed in an MMWA compliant warranty may also be on the buyer’s guide.

(1) A statement whether the dealer’s warranty offered is “full” or “limited.” Incidentally, if you wonder which of these you should offer with your used cars you will warrant, we will make this easy. Never offer a “full” warranty. The obligations that accompany that description under federal law are more than any car dealer should accept. Always describe a used car warranty as “limited”

(2) A statement of the percentage of the repair costs that you will pay. 

(3) A list of the specific systems that are covered by the warranty. If you think that “powertrain” is a sufficient description on the buyer’s guide or on the warranty, think again. Each of the vehicle’s components under warranty – engine, transmission, etc. – must be separately described.

(4) A description of the duration of warranty coverage for each of the covered systems.

(5) An explanation of how a customer gets warranty service. You must include your company’s name, address, telephone number and the name or title of the person to call concerning warranty service. On the back of the buyer’s guide, you must describe who to see about complaints. If that is the same person to see for warranty service, that arguably would suffice under MMWA. But it is better to state who to see for warranty service in your warranty document.

(6) A list any of parts or systems that are excluded from coverage under the warranty, if it is necessary for clarification. If the battery, for example, is not covered on the same basis as other elements of the electrical system, that must be disclosed in the warranty document. That may be disclosed on the buyer’s guide, for example, by describing that the warranty covers the “Electrical System (except battery)”.

(7) A disclosure of all obligations that the consumer has, if any, as a condition to obtaining warranty service. The buyer’s guide may meet the MMWA requirement, for example, by stating a deductible a customer must pay to get service.

So far, so good. Unfortunately, the remaining terms of a warranty mandated by the Magnusson-Moss Warranty Act are not included on the buyer’s guide.

(8) Any warranty under the Magnusson-Moss Warranty Act must have this specific disclosure that does not appear on the buyer’s guide: “This warranty gives you specific legal rights, and you may also have other rights which vary from state to state.”

(9) While a buyer’s guide does not contain the following mandated disclosure when implied warranties are limited, a warranty must: “Some states do not allow limitations on how long an implied warranty lasts, so the above limitation may not apply to you.”

(10) Most warrantors wish to exclude or limit consequential or incidental damages in their warranties, but this is not even addressed on the buyer’s guide. A warranty document must include this language: “Some states do not allow the exclusion or limitation of incidental or consequential damages, so the above limitation may not apply to you.”

(11) Limitations on coverage must be disclosed in a warranty. For example, you will probably want to limit a used car warranty to your customer, not someone who may buy the car from the customer two weeks later. You may also want to exclude commercial use. Those are not disclosed on a buyer’s guide.

So protect your dealership against claims that you breached your obligations when you sold a used vehicle with an express dealer’s warranty that did not comply with the MMWA. Use a separate written warranty with the terms required by federal law to fully protect your dealership.