Used Car Lemon Laundering

 

Ashley Cariveau

Serenity Lueschow

Mindy Points

Amy Romero

 

Consumer Issues

Final Draft

April 29, 2003

 

Audience: Consumers of used cars, used car dealers, victims of lemon laundered vehicles, state legislators and car manufacturers in Wyoming.

Introduction

 

In the year 2002, vehicle related issues were the #1 complaint according to the Wyoming Attorney General’s Office.  Since May 2002, the Attorney General’s Office has received 42 lemon law information requests. Also, since May, they have received 59 requests from consumers to explain what “AS IS” means once they have purchased a vehicle (Personal Interview - Arlene Delaney).  These statistics exemplify that there is a need by consumers for used vehicle information. More specifically, it illistrates the need for a Wyoming lemon laundered used vehicle law to be passed by legislators (Refer to appendix A for letters of support). “If Wyoming passes a strong lemon laundering law, consumers in the state will be better protected in terms of avoiding fraud and improving public safety,” (Personal Interview, Laura Polacheck).

Every single state in the United States now has a “Lemon Law” which provides consumers with specific rights when purchasing new vehicles.   In Wyoming the lemon law  defines a lemon as a vehicle that has been taken into the manufacturer or dealer for at least three unsuccessful repair attempts and the defect continues to exist or the vehicle has been out of service due to repair for a cumulative of thirty business days, in which the manufacturer shall replace the vehicle with a new or comparable vehicle of the same type.  Under this lemon law, SUV’s and pick up trucks are also covered under this state law (Personal Interview – Lora Huston).

However, in the state of Wyoming a “Used Car Lemon Law” remains elusive.  Such a law would entitle the consumer to explicit rights when purchasing used vehicles.  Such legislation would also inhibit the practice of used car “lemon laundering.” “Lemon laundering” occurs when vehicles that have been determined to be lemons under a “lemon law”, are intended to protect consumers from vehicles that can’t be fixed, are bought back onto the market by auto manufacturers.  Then the vehicles are sold again. Currently, all states have a lemon law; Wyoming ranks 31 out of 51 for its effectiveness (Center for Auto Safety).

Virtually any potential new or used vehicle buyer is a potential victim of a laundered lemon.  Even cars sold as “new” can be laundered lemons—sometimes the odometer is rolled back, or they sell executive cars as demos. Unless the consumer can track the true title history, there is no way to determine for certain that the car is a laundered lemon (Personal Interview- Laura Polacheck).

How lemon laundered vehicles affect consumers

Purchasing a vehicle is one of the biggest business transactions that most consumers will make.  It is not something one should do with little or no research.  Therefore, when people realize they have purchased a lemon, they tend to feel very deceived.  They feel as if a large amount of their money and time has been wasted.  The issue that arises is; “What should be done to protect consumers from the practice of ‘lemon laundering’ and purchasing used automobiles that are determined to be lemons?

            The reason for the need for protection is that businesses are not conducting fair practices.  They are doing fraudulent and unethical business.  Some laws are helping consumers, but in some cases there are loopholes that businesses use to their advantage. Loopholes exist when dealers and manufacturers are not required to brand titles on repurchased lemons.  Therefore, it is very easy for unscrupulous dealers to resell these cars without the proper disclosures, and without making the needed repairs to make sure they are safe and reliable (Personal Interview- Laura Polacheck).

These laws need to change in order to protect the consumer. The Wyoming statute is found in Title 40, Chapter 17, Section 101. As the law currently stands the consumers’ rights are not fully addressed. Also, in Wyoming there have been no reported complaints on laundered lemons under the lemon law, but this may be due to lack of consumer education and information.

Consumer Rights Affected

In many situations consumers purchase automobiles without doing the proper research.  In such instances, consumers are opening themselves up to a host of problems, one of those being the purchase of a laundered lemon.  However, it is not only consumers who are ignoring their consumer responsibilities, the dealers are too. The rights to service, redress, information, and safety are all being ignored when dealers are selling automobiles that manufacturers know are defective.

               The right to service is being violated because consumers are not being told the truth, and often dishonest sales measures are being used to sell faulty automobiles.  The consumer has to take his or her car in several times for repairs before they can claim lemon laws. This is a waste of consumer time and effort. When purchasing a vehicle consumers have the right to have full disclosure to the vehicles past.
               Consumers who do seek redress are not always being told the truth about the status of the car to begin with, so the repairs can be expensive and time consuming.  Specifically, in Wyoming there is no lemon laundering law in which used car buyers can seek redress.  There is also no disclosure required nor is there a penalty.  The only redress for Wyoming citizens against lemon laundered vehicles is through civil court.  Civil court poses many disadvantages for the consumer.  The disadvantages include, time and effort wasted, tax dollars being spent, and other costs associated with the judicial system.  
               Consumers are not informed of the condition of the automobile upon purchase and are sometimes even told that the car is new when in reality it is a laundered lemon. This violates consumer’s right to information because they are not told the history of the car and what is actually wrong with the automobile at the time of purchase.  “Used car buyers are at a further disadvantage when a vehicle’s salvage history is not disclosed” (Consumer Reports,2002, p.29). 
               The right to safety is being violated because many of the problems with lemon automobiles are concerned with the safety and performance standards. These standards are set in place to protect consumers from hazardous driving conditions. With defects consumers are jeopardizing their lives and well being and may have no knowledge of such defects.  Currently as the law stands in Wyoming, it is easier to sell vehicles that are not as safe because of the weaknesses in the law.

Laws and Gaps in the Law

On both the state and federal level only minimal protection is available against “lemon laundered vehicles.” At the local level, “It is not uncommon for laundered lemons to hopscotch from state to state, receiving new titles “washed” of any hint of past problems.” Many states require manufacturers to provide a disclosure statement to only the first transferee after repurchase by the manufacturer. In this aspect, “the Consumer Protection Act safeguards consumers by requiring merchants (auto dealers included) to disclosure to potential buyers any defects or problems with merchandise.” Although this law requires merchants and auto dealers to provide a disclosure statement, the law does not require manufacturers to disclose information to the dealership (Consumer Reports, 2002, p. 30).

Another loophole in lemon laundering exists when there is inconsistent use of title branding. “Some states provide for title branding to alert subsequent buyers of the vehicle’s buyback status; among the states that do brand, the branding phrases are not uniform. Further, some states carry over title brands from other states while others do not” (Consumer Reports,2002, p.28)   “ In all states except Wyoming and the District of Columbia, the used car’s certificate of title is supposed to tell about severe accident damage.  But title disclosure is incomplete. For starters, accident disclosure is required only if damage exceeds 70 percent or more of the vehicles’ pre-accident book value or the insurer declares the vehicle a total loss. Lesser damage is not disclosed on the title.”  Therefore, the title can easily be washed by registering the car in a state with more lenient thresholds for salvage or rebuilt branding, such as Wyoming.

At the federal level, the Magnuson–Moss Warranty Act is the only law that gives protection for consumers against lemon laundered vehicles. The federal law gives consumers rights in dealing with the manufacturers of lemon vehicles and allows consumers to pursue legal action in court to enforce these rights under this law. Specifically, this law “protects consumers who have purchased or leased cars which don’t work properly under warranty.” In order for this law to apply to used car buying, consumers need a portion of the original manufacturer’s non-expired warranty must be present. But, even at this level of authority, there is no guarantee that a consumer will be fully reimbursed for buying a laundered lemon vehicle (The Magnuson-Moss Act Law Summary).

Ethical Violations:

Ethics are “social standards of right and wrong behavior,” (Garman, 2002, p. 231).  When manufactures are not telling the complete truth about the car they are selling they are harming the consumer.  Not only are they being defrauded by buying a car that has

undisclosed defects, they may be driving a car that can kill or injure themselves, their passengers, or others on the road.

How other communities have approached laundered lemon vehicles:

               In comparing Wyoming’s bordering states, the lemon laws are quite similar (The Center for Auto Safety). Laws have been written in each of these states to protect consumers from purchasing or having to contend with automobiles that have been determined as lemons.  Wyoming, Colorado, Idaho, and Utah define many of the terms in the lemon laws the same way.  These laws have been designed by legislators to give comprehensive coverage for damages, repairs, or replacement of automobiles that have been determined as lemons. 

Key Players

            There are two main viewpoints on this issue.  The first viewpoint represents more of the business interest that favors limited government regulation.  The second consists of consumer groups and legislators that advocate for government regulation to protect consumer rights and safety.  Usually, the consumers that buy the used cars tend to be lower income consumers, with less education and access to information about laundered lemons, thus making them more vulnerable to this practice. 

Car dealers and some legislators in Wyoming support the viewpoint of limited government regulation.  One such Senator is Cale Case of Lander, Wyoming who believes that everyone is responsible for their actions (even the action of buying a used car), as well as checking on the history of a used car.  Senator Case feels if a law were to be implemented against laundered lemon vehicles, it would cost everyone money.  The cost would increase because dealers would have to collect money to insure themselves (for cars being sold to them), and in turn would have to increase the cost of vehicles sold (Personal Interview – Senator Cale Case).

Along with this perspective, auto dealers also feel that a law implemented for lemon laundered vehicles would be a burden, would increase their liability, and interfere with their profits (Personal Interview – Rosemary Shahan). Manufacturers and auto dealers use their power and money to tie up court cases.  By doing this, they are compromising the consumers’ right to redress.

One consumer group that is involved in helping with automobile concerns, particularly lemons and the lemon laws that protect consumers is the Center for Auto Safety.  This organization advocates for consumers and provides information about automobiles as well as information about how and where to seek redress, state and federal laws concerning automobiles, and consumer issues concerning automobiles. In Wyoming, The Center for Auto Safety has contacted the State Attorney General to point out the shortcomings in Wyoming’s lemon law.  They are advocating for improvements in the law to protect Wyoming consumers (Center for Auto Safety).

            Another organization that advocates for consumer protection is CARS (Consumers for Auto Reliability and Safety).  Rosemary Shahan, the President of CARS stresses that laundered lemon vehicles are a serious problem that jeopardized the safety of consumers.  Laundered lemon vehicles are also a violation of the consumer right of information. “When consumers buy used vehicles, they buy them in good faith, and expect it to be like any other used vehicle.  Then, when problems start to arise, which the manufacturer can’t fix, the consumer is stuck with unanticipated expenses.  It also is a problem with the right of consumer information when consumers can’t check out the whole history of the used vehicle they are purchasing.  When checking up on a vehicle, the whole warranty may not be disclosed or the database a consumer is using might not be totally up to date, and therefore contain holes” (Personal Interview-Rosemary Shahan). In this situation, manufacturers are concealing the history of a used vehicle to a consumer, which in turn enables the manufacturers to profit by deceiving people. This is known as fraud.

Voices Not Heard

            Consumers in general are the victims of this practice and their voices are not always heard. Some consumers may not know this problem exists, or they may not know or be able to prove that their cars were previously repurchased as lemons and resold without any disclosure.  Therefore, this debate generally involves the relatively few consumers who have prevailed in court or through a settlement, those that advocate for auto safety as a career, or those that have been victimized, have not gotten a remedy, yet want to publicize the problem as a public safety issue (Personal Interview-Laura Polacheck).

Alternatives to improve the status quo

            In order to improve the status quo there is a need to have some additions made in the Wyoming lemon law as it is written.  There is very little protection offered in the law to keep people from laundering lemons. This is because in the state of Wyoming it is easy for people to bring in lemons.  They have the titles of these cars washed only to resell the lemon without the buyer knowing the true history of the car. 

Wyoming needs to become more rigorous when it comes to registering vehicles that come into the state.  They should find out if the car has been determined a lemon and brand the title as such.  It would be even more effective if all of the states could be involved and have mandatory state-to-state title branding.  This way it would be much easier to watch for people that may be trying to commit fraud by laundering lemons to unknowing consumers.

The Advantaged and Disadvantaged

            Lemon laundering is a serious issue. Like all situations some people are advantaged and others are disadvantaged.  One group that is advantaged is the auto repair business. When the vehicle is sold a second time, the business is making more money through repair charges for the defective vehicle.  If there were not lemon laundering, the business would not be making profit through repeat repair charges.

             To reiterate the point, the consumers are disavantaged by lemon laundering.  They are the one who has paid for the initial cost of the vehicle then they are paying for any extra repairs that come up if the vehicle is a lemon.  Another place that the consumer is being affected is the safety of the consumer, if this vehicle is a laundered lemon, there could be more serious consequences that could result.

Summary

            As mentioned earlier the prevalent issue at hand is; What should be done to protect consumers from the practice of ‘lemon laundering’ and purchasing used automobiles that are determined to be lemons?

            In Wyoming, the state legislators need to attend to the issues of stricter regulation of registering out-of-state vehicles and more importantly title branding. “A law requiring the branding of titles of bought-back lemons as “repurchases under the lemon law” will not only warn consumers of the vehicles’ history, but place the dealers on notice to repair the defects before reselling the vehicle. The branding of vehicle titles will help honest dealers maintain their reputation as putting the consumer’s safety and satisfaction first” (Laura Polacheck - refer to Appendix A)

            As mentioned earlier, Wyoming should pass a strong lemon laundering law, in which consumers in the state will be protected both in terms of improving public safety and avoiding fraud. 

References

 

Garman, E.T. (2002). Consumer Economic Issues in America. (7th ed.) U.S. : Thomson

            Learning Custom Publishing.

 

Special Report : Wrecks in Disguise. (2002, January) Consumer Reports, 28, 35.

 

Magnuson-Moss Warranty Act Law Summary.  Retrieved April 2, 2003 from

            http://www.autopedia.com.

 

Center for Auto Safety. Retrieved April 22, 2003 from http://www.autosafety.org.

 

Personal Interview: Senator Cale Case. April 15, 2003.

 

Personal Interview: Rosemary Shahan, President of CARS. March 27, 2003.

 

Personal Interview: Lora Huston, Executive Vice President of Wyoming Auto Dealers    

            Association. April 7, 2003.

 

Personal Interview: Laura Polacheck, AARP Lawyer. April 7, 2003.

 

Personal Interview: Arlene Delaney, Director, Consumer Protection Unit, Wyoming

            Attorney General’s Office. April 27, 2003.

 

 

 

 

Word Count: 2, 684  minus the Reference page, title page, internal citations, and sub-headings.