Court fines Used Car Dealer under Fair Trading Act

Court fines Used Car Dealer under Fair Trading Act

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Wellington, July 12, 2019

Used motor vehicle dealer 2 Cheap Cars Limited has been fined $438,000 for its use of ‘Warranty Waiver’ documents and for its ‘liquidation sale’ and ‘84% off’ advertising claims.

2 Cheap Cars had earlier pleaded guilty to 10 charges under the Fair Trading Act 1986, following a Commerce Commission investigation opened in November 2017.

In a written sentencing decision* Judge Robert Ronayne in the Auckland District Court said that the company made annual profits of more than $3 million and the Court’s response “should not amount to what might be considered a mere licensing fee or cost of doing business.”

Warranty waivers

Between January 1, 2014 and December 31, 2017, 2 Cheap Cars routinely asked car buyers to sign a ‘Warranty Waiver’ document if they chose not to purchase an extended warranty.

The ‘Waiver’ included terms such as (a) “the vehicle you are purchasing does not include a warranty of any kind” (b) “I do understand that 2 Cheap Cars will comply with the Consumer Guarantees Act. I also understand that I am, and would prefer to be, solely responsible for any repair bills” (c) “if any repairs are carried out it will be done by 2 Cheap Cars [L]imited at a time of their convenience and that there are no courtesy cars provided.”

In fact, consumers had the protections of the Consumer Guarantees Act (CGA), which applies to used and new goods, including vehicles.

“Untrue and Misleading”

Judge Ronayne said that the waiver “is blatantly untrue and misleading” and that “[b]y means of misinformation and untruths” the waiver creates an impression that unless an extended warranty is purchased “the purchaser had no rights. This must have been designed to encourage (unlawfully) the purchase of insurance product.”

The Commission estimates that consumers signed in excess of 20,000 warranty waivers during the charge period. 2 Cheap Cars stopped using them in December 2017 after being notified of the Commission investigation.

Consumers’ Rights misrepresented

Commerce Commission Chairperson Anna Rawlings said that 2 Cheap Cars misrepresented consumers’ rights under the CGA.

“It should not have told customers they had no warranty of any kind and it should not have attempted to limit its liability for repairs in the way that it did. Conduct such as this puts pressure on customers to buy an extended warranty and deters them from returning to the seller for help if something goes wrong, even though they may have rights under the CGA. As Judge Ronayne noted, 2 Cheap Cars would have profited by avoiding its obligations to repair,” she said.

Liquidation Sales

In advertising for its September 30 and October 1, 2017 sales, 2 Cheap Cars made statements including (a) “Japanese imported vehicles liquidation sale” (b) “2 Cheap Cars is in hot water, it must liquidate immediately” (c) “A massive price drop this weekend!”

In fact, most of the 710 vehicles then for sale nationwide were not discounted at all or had discounts of as little as $5, and 2 Cheap Cars was not in, or going into, liquidation.

Judge Ronayne said this advertising was “deliberately misleading rather than simply careless” and “behaviour which was a complete departure from the truth.”

For the Commission, Ms Rawlings said “This advertising was misleading because it suggested that many vehicles would be significantly discounted, due to the pressure of the company being in liquidation. Retailers should not encourage consumers to purchase with spurious calls to act urgently to take up a discount and they should not overstate the savings that are available when discounts are advertised.”

“84% off” claims

In January 2017 2 Cheap Cars’ newspaper advertising included the phrase “84% off.”

The discount was not off the price of a vehicle but off the price of a $300 GrabOne voucher that could then be used towards purchasing a vehicle.

Judge Ronayne said this behaviour was “misleading and careless and, when viewed as a complete advertisement, tantamount to devious.”

Background: Tip sheet for dealers

The Commission has recently released a tip sheet for motor vehicle dealers to help them meet their legal obligations.

Recent motor vehicle cases

The Commission has taken a number of recent enforcement actions against motor vehicle traders, particularly in regard to representations about consumers’ CGA rights:

Vehicle Logistics was fined $75,000 in 2018 for conduct including that it advertised vehicles “as is where is” and/or that “no guarantee or warranty” applied.

$1 Reserve Cars and its owner Adam Cooper were fined in 2018 for conduct which included stating in vehicle listings that “As this is an auction for a complete package of second hand parts the Consumer Guarantee’s [sic] Act does NOT apply.”

Earlier this year, Taieri Motor Court was warned about representations made in Facebook advertising of vehicles, such as the distance a vehicle offered for sale had travelled.

Source: Commerce Commission, Wellington

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