The FTC Credit Practices Rule and Used Car Rule Lawyer Manual

FTC credit practices rule

The credit practices trade regulation rule has 3 major provisions: 

• It prohibits creditors from using certain contract provisions that the FTC found to be unfair to consumers;
• The rule requires creditors to advise consumers who cosign obligations about their liability if the other person fails to pay; and
• The rule prohibits late charges in certain situations.

This rule prohibits the following practices by any lender or retail installment seller in connection with the extension of credit to consumers:

• Confessions of judgment or other waivers of the right to notice and opportunity to be heard in the event of suit;
• The debtor's waiver of protections concerning property exempt from attachment or execution;
• An assignment of wages or other earnings before judgment, unless by its terms its revocable at will, or is a preauthorized payment plan, or applies only to wages already earned at the time of assignment;
• Non-purchase money security interests in certain household goods;
• Pyramiding late charges by assessing more than one delinquency charge for one late payment; and
• Failure to provide cosigners with specific warning notice, as a separate document, indicating the potential obligations of a cosigner. It is also a deceptive practice for a lender or retail installment seller to misrepresent the nature or extent of cosigner liability.  

FTC used car rule

The Rule covers all used motor vehicles except motorcycles, leased vehicles sold to the lessee, businesses that sell vehicles to their employees or vehicles sold by banks and financial institutions. The Rule applies to all used car dealers who have sold at least five used vehicles in the last year.

The Used Car Rule requires that each used car offered for sale contain on a side window a "Buyer's Guide," which provides specified information and which must be in identical color, size, and wording as that specified in the Rule. When a sale is conducted in Spanish, the Buyer's Guide and contract language disclosures must be available in Spanish. 

What the "Buyer's Guide" contains

This disclosure document gives consumers important purchasing and warranty information. It tells consumers the following:

• Whether the vehicle is being sold "as is" or with a warranty. There is a box labeled in large print "As Is/No Warranty," which the dealer must check of the car is covered by no implied or express warranties. There is another box labeled in large print "Warranty," which the dealer must check if there is one
• What percentage of repair costs a dealer will pay under warranty. The Guide must provide a clear disclosure of any warranty coverage including its terms, conditions and duration
• That oral promises are difficult to enforce, and that the consumer is to get all dealer promises in writing
• To keep the Buyer's Guide for reference after the sale
• The major mechanical and electrical systems on the car, as well as some of the major problems that consumers should look out for. On the back of the window sticker, there is a list of the 14 major mechanical and safety systems of the car and within each system a partial list of defects that may occur in used cars
• To ask to have the car inspected by an independent mechanic before making the purchase

Among other things, the Guide contains a warning to the consumer to ask for all dealer promises in writing. It also explains the meaning of "as is." There is a box labeled in large print "as is/no warranty," which the dealer must check if the car is covered by no implied or express warranties. There is another box labeled in large print "warranty" which the dealer must check if there is one. The Guide must provide a clear disclosure of any warranty coverage including its terms, conditions, and duration. On the back of the window sticker, there is a list of the 14 major mechanical and safety systems of the car and within each system a partial list of defects that may occur in used cars.  

Other things constituting a deceptive practice under the rule

It is also a deceptive practice for a used car dealer to:

• Misrepresent the mechanical condition of a used vehicle
• Misrepresent the terms of any warranty offered with the sale
• Falsely represent that a vehicle is sold with a warranty
• Fail to disclose, prior to sale, that a used vehicle is sold without any warranty
• Fail to make available, prior to sale, the terms of any written warranty offered with the sale