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Vol. 7, Issue 6
June 1, 2016

NY ATTORNEY GENERAL INVESTIGATES 
RECALL DISCLOSURES

     In May the New York State Attorney General's Office issued dozens of subpoenas to dealers throughout the State in an effort to determine if dealers are disclosing open recalls to consumers.  The New York Attorney General now considers the failure to disclose the existence of an open recall in an advertisement or to the consumer during a sales negotiation to be a deceptive trade practice. Therefore, dealers are advised to check all vehicles in their inventory for open recalls and to disclose the existence of any open recalls upon the sale of the vehicle.

       As the number of recalls continues to grow it is important for dealers to know their legal obligations in regards to selling vehicles subject to open recalls. 
 
1. SALE OF NEW VEHICLES
 
It is a violation of federal law to sell a new motor vehicle while the vehicle is still subject to an unrepaired recall. The National Highway Traffic Safety Administration ("NHTSA") has made it clear that dealers must not deliver a vehicle to a customer and promise to repair it later.  The best practice is to check each vehicle as it is entered into your police book and then check it again when it undergoes its final preparation for delivery.  If you have a new vehicle on your lot that is subject to a recall remove it from your available inventory as quickly as possible.  Once the recall repair(s) are complete you can once again offer that new vehicle for sale to the public.  
 
2. PARTS
 
Replacement motor vehicle parts in a dealer's inventory which are the subject of a manufacturer's recall are under the same rules as the sale of new vehicles.  A dealer must not sell recalled parts until the repairs (or replacements) are available.
 
3. USED VEHICLES
 
Used vehicles subject to recalls are a tricky issue for dealers.  Federal and NYS law do not specifically prohibit or penalize the sale of a used vehicle subject to a open recall.  However, dealers who sell used vehicles with an unrepaired recall, expose themselves to significant legal liability.  If there is an accident that is attributed, even in part, to the open recall, the dealership may be subject to a lawsuit by the customer (and/or third persons) seeking potentially millions of dollars in damages for negligence and/or fraud.  In addition, the "certification" of a used vehicle that has an open recall or the failure to disclose the  existence  of the open recall at time of sale can result in a charges of deceptive trade practices and/or fraud by consumers and regulatory agencies such as the Federal Trade Commission, Office of the Attorney General and the Department of Consumer Affairs.

Some manufacturers are placing restrictions on the sale of used vehicles by dealers selling their line of vehicles.  Check with your manufacturer to see if they have established any procedures concerning used vehicles and open recalls.  Failure to do so could result in a manufacturer denying your request for product liability indemnification.

As many regulatory agencies are starting to investigate the sale of vehicles with open recalls it is imperative that you check every vehicle to determine if an open recall exists and if so to disclose the nature of the recall to the consumer.  
 
4.  RECOMMENDATIONS
 
In order to reduce your exposure to liability and fines and violations you must establish procedures for the proper handling of all vehicles and parts with open recalls.  Procedures should include:  

 

1.  Forwarding of all recall notification material from the manufacturer to the sales department, parts department, and service department managers for immediate review and processing; 

 

2.  Immediate review of all vehicle inventories to determine whether the dealership has any vehicles in their inventory which are subject to an open recall and to take immediate action to have those vehicles repaired.  Dealers should check the recall status of any vehicle considered as a trade-in from a customer or any vehicle offered for sale at auction and refuse to purchase any such vehicles unless and until the recall repair is completed.  Visit https://vinrcl.safercar.gov/vin/ and enter the vehicle identification number to determine if the vehicle is subject to an open recall. 


3.  New vehicles which have open recalls cannot be delivered unless and until the recall repairs are completed. 
 

4.  Used Vehicles with open recalls should not be delivered (at retail or wholesale) unless and until the consumer (or wholesaler) receives a written disclosure of the open recall and acknowledges in writing that they are accepting the vehicle subject to the open recall.

 
5.  In the parts department, management should determine whether parts subject to the recall are in inventory.  If so, those parts cannot be sold until they can be repaired or until replacements arrive.  Dealers should order any parts needed for recall repairs at expected demand levels.
 

6.  The service department must implement procedures to carefully and appropriately handle customer requests for recall repairs and to handle recall repairs for units in inventory.  It is likely that call volume and service appointment requests from customers will be heavy so allocate appropriate levels of additional personnel to handle the additional calls and service appointments.

 

     For more information on recalls and your legal obligations please call Stevan LaBonte at 516-280-8580.


 


CFPB CONTINUES ITS ASSAULT
ON DEALERS AND  FINANCE COMPANIES 

Dealers advised to be on alert  for a
new round of letters from lenders
alleging discriminatory practices.

        Several clients of the LaBonte Law Group recently received new letters from lenders questioning the dealer's fair lending programs and practices and alleging potential discriminatory lending practices.  Dealers received similar letters from lenders in late 2015 after the Consumer Financial Protection Bureau ("CFPB") began to expand their supervision and examination of non-bank finance companies.  This new round of letters again allege that dealers have failed to initiate fair landing programs and a contain a warning for discriminatory lending practices against minorities.

    The letters, sent by lenders such as J.P. Morgan Chase and Mazda Capital Services, allege that the dealer's recent lending history suggests discriminatory lending practices in the dealer's discretionary markup of customer auto loans.  The letters advise the  dealers to be complaint with fair lending practices and follow a fair lending program.  I t is imperative that anyone who receives such a letter immediately issue a written response to the lender to deny the allegations and demand specific information on how the lender determined the existence of discriminatory lending practices.

     In order to protect the dealership from potential claims of discriminatory lending practices the LaBonte Law Group recommends that dealers implement the National Automobile Dealers Association's Fair Credit Compliance Policy and Program.  This program can provide your dealership with everything needed to implement a fair and balanced procedure for extending credit to consumers on an equal basis.  For more information on the program visit www.nada.org/faircredit.  

      Dealers who receive these warning letters from their lenders are advised to contact the LaBonte Law Group at 516-280-8580 to discuss the contents of the letter and how to formally respond to and deny the allegations.
Should you have any questions or need advice on anything related to dealership operations please do not hesitate to give me a call at 516-280-8580 or send me an e-mail to slabonte@labontelawgroup.com.  Your questions will be answered promptly.
Sincerely,

Stevan H. LaBonte
LaBonte Law Group, PLLC
100 Ring Road West, Suite 108
Garden City, NY 11530

516.280.8580 (Phone) 
631.794.2434 (Fax)