OFT guidance for second hand car dealers

Compliance with the Consumer Protection from Unfair Trading Regulations 2008 and the Sale of Goods Act 1979 (as amended)
An OFT consultation

December 2009

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 Crown copyright 2009

This publication (excluding the OFT logo) may be reproduced free of charge in any format or medium provided that it is reproduced accurately and not used in a misleading context. The material must be acknowledged as crown copyright and the title of the publication specified.

Scope of this consultation

Topic of this consultation As part of its second hand car market study, The Office of Fair Trading is conducting a public consultation on draft guidance for second hand car dealers on compliance with the Consumer Protection from Unfair Trading Regulations 2008 and the Sale of Goods Act 1979 (as amended). Whilst the guidance is being produced primarily for second hand car dealers, it will also be of use to enforcers such as Trading Standards Officers, and to consumer advisors in understanding how the law applies to this sector. Scope of this consultation This consultation concerns the application of the Consumer Protection from Unfair Trading Regulations 2008 and the Sale of Goods Act 1979 (as amended) to second hand car dealers. The primary focus of the guidance is on used car sales made through forecourts or other trade premises. However, in respect of compliance with the Consumer Protection from Unfair Trading Regulations, it is also relevant to dealers who sell through auctions. The guidance does not cover the private sale of cars. Geographical scope Impact assessment UK-wide. There is no impact assessment linked to this consultation. The OFT does not conduct impact assessments when producing explanatory guidance.

Basic information
To This consultation is aimed at anyone with an interest in the second hand car market. This includes franchised and independent car dealers, industry trade associations, car manufacturers, other businesses operating in the second hand car market, enforcers, government departments and consumer groups.

Duration Enquiries

The consultation period begins on 18 December 2009 and will run until the 12 March 2010. By telephone: David Micklefield on 0207 211 8285 By email to: david.micklefield@oft.gsi.gov.uk By fax to: 020 7211 8926 By post to: David Micklefield, Used Car Market Study Team, Office of Fair Trading, Fleetbank House, 2-6 Salisbury Square, London EC4Y 8JX

How to respond

We would welcome your comments on the content of this draft guidance document. We want to ensure that the guidance is clear and comprehensive for its intended users and covers all relevant matters. Please respond to as many of the questions set out in Annexe A as you are able and provide any suggested changes or comments on the draft in writing (by email, or alternatively by letter or fax, as indicated above). When responding to this consultation please state whether you are responding as an individual or whether you are representing the views of an organisation. If responding on behalf of an organisation, please make it clear who the organisation represents and, where applicable, how the views of members were collated. We are publishing this consultation on the OFT website are sending it to a range of stakeholders to invite comments.

Additional ways to become involved

If you wish to request a meeting with the OFT team involved please contact David Micklefield (contact details given above). The OFT also plans to host half day workshops for industry, Trading Standards Officers and consumer groups during the consultation period. If you would be interested in attending a workshop please contact David Micklefield (contact details given above) as places will be strictly limited.

After the consultation

After the consultation we will publish our final guidance as well as a summary of responses received. Both documents will be available on our website at www.oft.gov.uk/publications. Following publication, the guidance will be kept under review, and we will consider adding to it on an ongoing basis in the light of user feedback, practical experience and case law.

Compliance with the Code of Practice on Consultation

This consultation complies with BRE's Code of Practice on Consultation. A list of the key criteria can be found at Annexe C, along with a link to the full document.

Background
Why produce guidance at this stage The OFT launched a market study into the sale of second hand cars in May 2009. The study follows concerns about the large number of consumer complaints about this market. The purpose of the study is to understand the causes of such high levels of consumer complaints and to consider whether existing consumer protection legislation is sufficient and effective in this sector. We have consulted with a range of stakeholders during the course of the market study including trade associations, local authority Trading Standards Services, consumer groups and other government departments. A number of those stakeholders identified the need for guidance on the application of two key pieces of consumer protection law, the Consumer Protection from Unfair Trading Regulations 2008 and the Sale of Goods Act 1979 (as amended), to second hand car dealers.

Previous engagement

In May 2005 the OFT published guidance for motor traders who sell new or used cars and other vehicles to consumers by distance means - such as online, by mail order or by telephone - on compliance with the requirements of the Consumer Protection (Distance Selling) Regulations 2000. In August 2008 the OFT published general guidance on the Consumer Protection from Unfair Trading Regulations 2008.

Feedback about this consultation

If you wish to comment on the conduct of this consultation or make a complaint about the way this consultation has been conducted, please write to: Jessica Nardin OFT Consultation Coordinator 5C9 Office of Fair Trading Fleetbank House 2-6 Salisbury Square London EC4Y 8JX Email: jessica.nardin@oft.gsi.gov.uk A copy of the key criteria from the Better Regulation Executive's Code of Practice on Consultation can be found in Annexe C.

Data use statement for responses

Personal data received in the course of this consultation will be processed in accordance with the Data Protection Act 1998. All information received (including personal data) is subject to Part 9 of the Enterprise Act 2002. We may choose to refer to comments received in response to this consultation in future publications. In deciding whether to do so, we will have regard to the need for excluding from publication, as far as that is practicable, any information relating to the private affairs of an individual or any commercial information relating to a business which, if published, would or might, in our opinion, significantly harm the individual's interests, or, as the case may be, the legitimate business interests of that business. If you consider that your response contains such information, that information should be marked 'confidential information' and an explanation given as to why you consider it is confidential. Please note that Information provided in response to this consultation, including personal information, may be the subject of requests from the public for information under the Freedom of Information Act 2000 (FOIA). In considering such requests for information we will take full account of any reasons provided by respondents in support of confidentiality, the Data Protection Act 1998 and our obligations under Part 9 of the Enterprise Act 2002. If you are replying by email, these provisions override any standard confidentiality disclaimer that is generated by your organisation's IT system.

CONTENTS
Chapter/Annexe 1 Using the guidance Page 1

PART A 2 Compliance with the Consumer Protection from Unfair Trading Regulations 2008 Overview of the CPRS Offences under the CPRS Steps to avoid committing offences What are the consequences of non-compliance?

2 4 5 10 19

3 4 5 6

PART B 7 Your obligations under The Sale of Goods Act 1979 (as amended) Your legal obligations Warranties Attempting to limit your liability under The Sale of Goods Act (as amended) What are the consequences of non-compliance? Summary of questions for consultees List of consultees Consultation criteria

20 21 31

8 9 10

32 33 35 36 38

11 A B C

1
1.1

USING THE GUIDANCE

This guidance is intended to help second hand car dealers comply with two important pieces of consumer protection law: the Consumer Protection from Unfair Trading Regulations 2008 (CPRs), and the Sale of Goods Act 1979 (as amended).

1.2 1.3

The guidance will also be of use to enforcers and to consumer advisors. The guidance is split into two parts. Part A contains guidance for second hand car dealers on compliance with the CPRs. Part B contains guidance on the legal obligations of second hand car dealers under the Sale of Goods Act 1979 (as amended). Part A of the guidance should be read in conjunction with the OFT's general guidance document on the CPRs, Guidance on the Consumer Protection from Unfair Trading Regulations 2008 OFT1008.1 For further advice contact your local Trading Standards Service and/or seek independent legal advice.

1.4

1.5

Call 0800 389 3158 for a free copy of this publication or download a copy at www.oft.gov.uk/advice_and_resources/publications/guidance/cprreg

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PART A: COMPLIANCE WITH THE CONSUMER PROTECTION FROM UNFAIR TRADING REGULATIONS 2008

Introduction Aim of the guidance

2.1 This guidance is principally intended to help second hand car dealers comply with the Consumer Protection from Unfair Trading Regulations 2008 ('CPRs'). It will also be of use to enforcers, and to consumer advisors in understanding what trading practices are likely to be prohibited.

Scope of the guidance

2.2 The guidance identifies the main kinds of trading practice or conduct specific to second hand car dealers which are likely to be considered unfair under the CPRs. The guidance also sets out some of the practical steps dealers should take to comply with the law. Although the focus of this guidance is on sales made through forecourts, it is also relevant to dealers who sell through auctions. Whilst consumers may have lower expectations when buying from an auction, many of the kinds of unfair trading practice highlighted for example in respect of applying misleading descriptions to vehicles or failing to disclose important information about the vehicles history or condition do, nevertheless, apply to auction sales. Not all points listed will apply to every car dealer, nor is the list intended to be exhaustive. It is based on the OFT's, Trading Standards Services', industry's, consumer groups' and other stakeholders' experiences of problems with unfair trading in the second hand car market. The guidance should be read in conjunction with the OFT's general guidance document on the CPRs, Guidance on the Consumer Protection

2.3

2.4

2.5

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from Unfair Trading Regulations 2008 OFT10082 as well as the OFT's guidance for used car dealers on their Sale of Goods Act obligations. For further advice contact your local Trading Standards Service and/or seek independent legal advice.

Call 0800 389 3158 for a free copy of this publication or download a copy at www.oft.gov.uk/advice_and_resources/publications/guidance/cprregs

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3
3.1

OVERVIEW OF THE CPRS

The CPRs3 came into force in May 2008. They replaced many of the provisions of the Trade Descriptions Act 1968 and some other legislation. The changes affect all traders whose practices may affect consumers, including those engaged in the motor trade. The CPRs prohibit businesses from engaging in unfair commercial practices when they supply goods or services to consumers. Unfair commercial practices can occur before, during or after a transaction between a business and consumer (and sometimes further up the supply chain between traders). An example of a transaction to which the Regulations will apply is a sale or purchase transaction between a business and a consumer.

3.2

Statutory Instrument 2008/1277

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4
4.1

OFFENCES UNDER THE CPRS

There are a number of criminal offences under the CPRs, and breaches can also be enforced through civil court injunctions.

Misleading actions (regulation 5)

4.2 It is an offence to give false information to consumers, or to deceive consumers, where this is likely to cause the average consumer to take a different decision ('misleading actions'). An unfair business practice may mislead consumers through the false information it contains, or through the practice itself, or because its overall presentation is deceptive or is likely to be deceptive. Misleading information may be given verbally or in writing. Examples include providing information over the telephone or in the course of discussions prior to the sale of the vehicle, or in writing in advertising on the car, in the showroom, in a newspaper, website, email, text, or other types of documentation provided to the prospective buyer. Regulation 5 applies to any misleading actions before, during or after the sale, provided that they are directly connected to the promotion, sale or supply of the vehicle to a consumer and are likely to result in the consumer making a different decision from the one he would have otherwise made. For example, the false or misleading information may cause the consumer: to buy the car when he would not otherwise have done so, and/or to buy the car at a much higher price or on more disadvantageous terms than he would have otherwise done.

4.3

4.4

4.5

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Examples: Misrepresenting the specification or history of the vehicle, for example by making misleading statements about the service history, any previous accident damage, or number of previous owners. Supplying, offering to supply or having on your forecourt for sale a vehicle with a false mileage reading that is, advertising an incorrect mileage. Altering, or arranging for the alteration of, the mileage on a vehicle's odometer to show an incorrect mileage reading. Advertising a vehicle for sale at one price for example, on a website or in a newspaper when the actual sale price of the vehicle is higher. Falsely claiming or creating the impression that cars have been checked by motoring organisations or that checks are used which meet such motoring organisation standards when they do not. Misleading consumers about their statutory or other rights, or seeking to restrict these rights, for example, by: Using or making restrictive statements such as 'Sold as Seen' or 'Trade Sale Only' or 'No Refund' even if the statement 'this does not affect your statutory rights' is included. Providing a warranty or guarantee the terms of which seek to take away or diminish any rights which the consumer would otherwise enjoy in law. Misleading consumers about the extent to which an offered warranty or guarantee enhances the rights which the consumer would in any event enjoy in law.

Creating a misleading impression that a vehicle has one previous private owner for example through the use of statements such as 'one previous owner' when in fact it is an ex-rental vehicle that has been rented out to many drivers.

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Misleading omissions (regulation 6)

4.6 It is an offence to mislead consumers by failing to give them the information they need in order to make an informed purchasing decision before the sale ('misleading omissions'). This might, for example, be by omitting or hiding important information or providing important information in an unclear, unintelligible, ambiguous, or untimely manner. Examples: Failing to disclose the existence and results of all checks carried out on the vehicle (for example, mechanical, history, mileage) and any adverse findings. Failing to disclose details of any additional charges payable, for example 'administration fees', until the point of sale. Failing to disclose that a vehicle for sale is an ex-rental vehicle which may have had a number of drivers/users - it is not sufficient to only inform the consumer of the mileage and the number of previous owners.

Aggressive practices (regulation 7)

4.7 It is an offence to engage in practices that intimidate or exploit consumers, restricting their conduct or ability to make free or informed choices and which are likely to cause the average consumer to take a different decision ('aggressive practices'). You must not, for example: Engage in high pressure selling techniques to sell a car (for example, stating a false deadline for a discount offer) or to sell additional services such as finance, insurance or warranties. Exploit a consumer's misfortune or circumstances and/or a position of power over a consumer.

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Intimidate, pressurise or coerce consumers into dropping complaints against your business, for example by the use of threatening or abusive language or behaviour.

Banned practices (schedule 1)

4.8 There are a number of other commercial practices which are considered unfair in all circumstances and which are prohibited ('banned practices'). Examples: You must not falsely claim, or create the impression, that you are acting for purposes unrelated to your business or falsely represent yourself as a consumer that is, as a private seller ('banned practice 22'). For example, a second-hand car dealer puts a used car on or near a road and displays a handwritten advertisement reading 'One careful owner. Good family run-around. 2000 or nearest offer. Call jack on 07734 765890.' The advert gives the impression that the seller is not selling as a trader, and would breach the CPRs. You must not use 'bait and switch' tactics, for example advertising a car, despite knowing theres no stock, with the aim of selling a more expensive alternative vehicle ('banned practice 6).

General prohibition of unfair commercial practices (regulation 3)

4.9 It is also an offence to knowingly or recklessly fail to act in accordance with honest market practice or in good faith in your dealings with consumers (known as 'professional diligence'), where such dealings are likely to change the decision that an average consumer would make. You are required to approach sales professionally and fairly (according to reasonable expectations). If you knowingly or recklessly fail to do so and your business practice significantly impairs the average consumer's ability to make an informed decision, you will be committing an offence, even if the practice is widespread in the industry.

4.10

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Examples: Failing to deal with complaints at all or in an honest, fair, reasonable and professional manner. Systematically failing to check that the vehicles you supply, offer to supply or expose for sale are safe and roadworthy in accordance with the requirements of the Road Traffic Act 1988, and of satisfactory quality in accordance with the Sale of Goods Act 1979. Ignoring your contractual obligations to customers, for example by refusing to provide appropriate redress to consumers who are seeking to exercise their contractual rights against you under the Sale of Goods Act 1979 (as amended).

4.11

The unfair practices highlighted at paragraph's 4.2 4.8 above will also contravene the requirements of 'professional diligence'.

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5 A.

STEPS TO AVOID COMMITTING OFFENCES You must take all reasonable steps and exercise all due diligence to ensure that any descriptions you apply to a vehicle are accurate. Pre-sale checks

5.1

Before you expose any vehicle for sale you must take all reasonable steps and exercise all due diligence to ensure that all descriptions applied are accurate. You should keep a full written record of all checks carried out on every vehicle. Trading Standards staff will want to see such records when they visit your premises. Examples of the types of checks you may need to carry out are given below. The specific checks you need to undertake will depend on the circumstances of each vehicle you intend to sell to consumers. If you decide not to undertake certain checks you will need to be able to show that you were justified in making that decision and that it was reasonable in those particular circumstances, for you not to do those checks.

5.2

5.3

Vehicle history
5.4 Before exposing any vehicle for sale you must take all reasonable steps to check the vehicles history, for example whether it has been stolen, is subject to a financial charge, has been written off as an insurance loss, or is ex-rental. You must also check that you have good title to sell the car - for instance, if the car is still security under a bill of sale, you do not own it.

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5.5

In most circumstances you would be expected to at least conduct a vehicle history check with an independent and reliable company or make and record your own effective enquiries. Other checks may include: Asking the seller about the history of the car is it correct, incorrect or unknown? Write the information on your purchase invoice and ask the seller to sign it - do not rely on verbal statements only. Checking the vehicle's registration details on the DVLA database. Checking with the Vehicle and Operator Services Agency (VOSA). If you have the document reference number from the V5 and the vehicle registration, you can check the MOT test results (if the vehicle is more than three years old).

Mileage
5.6 Before exposing any vehicle for sale you must take all reasonable steps to ensure that the stated mileage is accurate. In most circumstances you would be expected to at least conduct a formal check on the vehicle's mileage with an independent and reliable company. Other checks may include: Checking with VOSA. If you have the document reference number from the V5 and the vehicle registration, you can check the mileage shown on the MOT history (if the vehicle is more than three years old). Ensuring that the internal and external condition of the vehicle is comparable with described age and mileage of the vehicle the condition/appearance of the vehicle may give cause to suspect the accuracy of the mileage reading (for example, worn out seats/pedals but low mileage on odometer).

5.7

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Checking the mileage with all previous keepers shown in the vehicle V5 registration document. If you do not have this document, you can obtain details of previous owners by contacting the DVLA in Swansea in writing. Some companies such as HPI and Experian will provide this investigative service for you.

5.8

Unless you are satisfied that the mileage of a used car shown by its odometer is accurate, such mileage should not be quoted in advertisements, discussions or negotiations or in any documents related to the supply of the used car.

Disclosure of mileage discrepancies

5.9 As well as taking all reasonable steps to establish the vehicle's mileage, you must inform the consumer of the steps you have taken and the results of those steps. You should not rely on a disclaimer as a substitute for carrying out proper checks on a vehicle. Disclaimers should only be used where (i) if after completing all available checks you identify that the mileage is incorrect or (ii) it has been impossible to verify the correct mileage after the relevant checks have been carried out. Simply relying on a disclaimer of the mileage as a substitute for carrying out proper checks on a vehicle is likely to increase the risk of you committing an offence under the CPRs. If after completing all available checks you identify that the mileage is incorrect you should: display a notice alongside the mileage shown on the vehicle's odometer, which is more prominent than the mileage itself, stating that the mileage is incorrect and should be disregarded, and draw this to the customer's attention and state this information prominently on the sales invoice when the car is sold, and clearly inform the consumer of all the steps you took to try and establish the mileage.

5.10

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5.11

If after completing all available checks you are unable to verify the mileage of the vehicle you should: display a notice alongside the mileage, which is more prominent than the mileage itself, stating that the mileage may not be true and should not be relied on as an indication of the distance the vehicle has travelled, and draw this to the customer's attention and state this information prominently on the sales invoice when the car is sold, and clearly inform the consumer of all the steps you took to try and establish the mileage.

Vehicles under preparation

5.12 You should not sell a car to a consumer whilst that vehicle is still under preparation - for example, where you have not yet had the opportunity to complete all of your pre-sale history and mileage checks. You should not use a disclaimer in these circumstances as it cannot substitute for completing proper checks on a vehicle, and simply telling the consumer that the results will be provided to him after the sale will not remove the risk of an offence under the CPRs being committed.

B.

Checking the mechanical condition of the vehicle Roadworthiness

5.13

You should ensure that you have procedures in place to check that vehicles you supply, offer to supply or expose for sale are roadworthy. It is not sufficient to rely on MOT or service histories. This will usually mean arranging for a suitably qualified or competent person to carry out pre-sale mechanical inspections of vehicles and any problems that make them unroadworthy must be rectified.

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5.14

It is an offence under the CPRs to sell something that cannot legally be sold (Schedule 1, banned practice 9). To the extent that the unroadworthiness of any vehicle under the Road Traffic Act 1988, or the General Product Safety Regulations 2005, makes it an offence to supply such a vehicle, offer to supply it or expose it for sale on your forecourt, in your showroom or other part of your premises including on the highway, doing so will also breach the CPRs.

Satisfactory quality
5.15 You should also take reasonable steps through the pre-inspection procedures you have in place - to ensure that the used cars you sell are of satisfactory quality and fit for their purpose under the Sale of Goods Act 1979, taking into account the age, mileage, condition, description and price of each car. Prospective customers should be made aware, prior to sale, of any faults identified. You should keep a written record of inspections carried out on every vehicle.

5.16

C.

Providing consumers with important information prior to the sale

You must give consumers the information they need to make an informed choice, before a sale is made. You must not omit or hide such information, or provide it in an unclear, unintelligible, ambiguous or untimely manner. Non-exhaustive examples of the types of information you should inform the consumer about prior to the sale include: the main characteristics of the vehicle - for example: price make, model, engine capacity and other physical characteristics history.

5.17

5.18

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any problems you are or ought to be aware of, after taking reasonable steps, such as: if the vehicle has been written off as an insurance loss or has been accident damaged if the vehicle was imported into the UK if there are any 'MOT Advisory' items discrepancies in the mileage or service history of the vehicle faults with the vehicle.

5.19

if the vehicle is ex-rental details of any warranties offered (see section D below) details of your after-sales service and procedures.

The CPRs do not specify the format in which important information should be provided to consumers before the sale is made. However, only providing such information verbally - rather than in writing as well may increase the risk of you committing an offence under the CPRs. Providing important information in writing will help you to comply with the requirements of professional diligence and will also protect both you and your customers should disputes arise after the sale about what was said. If any important information is provided by alternative means then you will need to be able to demonstrate how you have complied with the information requirements. Where you provide important information in writing, it should be clear and prominent in the documentation given to the consumer and drawn to their attention before the sale is made. It is not sufficient to include such material information in small print or in a bundle of documents handed to the consumer at the time of sale.

5.20

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5.21

As a matter of good business practice, the OFT would strongly recommend that such information is provided in the form of a short summary document, such as a checklist, which could be displayed on the vehicle.

D.
5.22

Warranties
The key elements of warranties and, if applicable, any free extensions to warranties must be drawn to the attention of consumers. This includes details of what is and is not covered and the geographical scope of the warranties. Any relevant document published by the warranty provider must be handed over. The consumer must be advised of what type of warranty is being provided, for example, manufacturer's, free extended manufacturer's/dealer's, insurance backed used car or member's own warranty. The consumer must be informed of the identity of the warranty provider and the address to which claims may be directed. The different types of warranty and any significant differences between them should be explained to consumers as appropriate. The consumer must be informed of any conditions that need to be followed for the warranty to remain valid. You should give advice to consumers about who they should address a claim to if they have a problem regarding defective parts and accessories not covered by the manufacturer's warranty. The warranty document must include a statement advising the consumer that the warranty is in addition to his statutory and common law rights. Remember: where you sell a car with a manufacturer's warranty, this binds you - as the seller - as well as the manufacturer.

5.23

5.24

5.25

5.26

5.27

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E.

After-sales service Complaints and enquiries

5.28

You must have an accessible, appropriate and user friendly after-sales procedure to ensure that all customer enquiries are dealt with in an honest, fair and professional/reasonable manner. You must have an effective written customer complaints procedure, understood by all staff who may come into contact with the public. You must deal with complaints promptly, effectively and in a professional manner. You must make your best efforts to find a satisfactory solution to complaints. You need to ensure that the steps you take to satisfy the consumer are in accordance with reasonable expectations. You must record all complaints and note the final outcome. You must keep complaint records on file. You should cooperate with any appropriate representative or intermediary, for example a Trading Standards Service or Consumer Advice Bureau, consulted by a consumer in respect of a complaint.

5.29

5.30

5.31

5.32

5.33

Warranties
5.34 You should ensure that warranty work is carried out promptly and that completion dates are made clear to consumers before any work has commenced.

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Contractual obligations
5.35 You must follow practices and procedures that ensure that you fulfil your contractual commitments to customers, for example: by providing appropriate redress to consumers who are seeking to enforce their contractual rights against you under the Sale of Goods Act 1979 and the Sale and Supply of Goods to Consumers Regulations 2002 carrying out repairs to customer's faulty cars with reasonable care and skill and within a reasonable time (or within the specific time agreed) in accordance with your legal obligations under the Supply of Goods and Services Act 1982.

Aggressive practices
5.36 You must not intimidate, pressurise or coerce customers, for example through the use of threatening or abusive language, into dropping complaints against your business. Any aggressive practice that is likely to cause an average consumer to take a different decision is also prohibited under Regulation 7 of the CPRs.

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6
6.1

WHAT ARE THE CONSEQUENCES OF NON-COMPLIANCE?

If you do not comply with the CPRs you may face enforcement action. The OFT, local authority Trading Standards Services (TSS) and the Department of Enterprise, Trade and Investment in Northern Ireland have a duty to enforce the CPRs. Enforcers can use a range of tools to ensure that businesses are complying with the CPRs, including criminal and/or civil enforcement. If you are convicted of committing an offence under the CPRs the penalties are: on Summary conviction in the Magistrates Court (Sheriff or District Court in Scotland), a fine not exceeding the statutory maximum currently 5,000 on Conviction on indictment in the Crown Court (Sheriff or High Court of Justiciary in Scotland), an unlimited fine or imprisonment for up to two years, or both.

6.2

6.3

Trading Standards Services, the Department of Enterprise, Trade and Investment in Northern Ireland and the OFT may also take civil enforcement action under Part 8 of the Enterprise Act 2002 for a breach of the CPRs (as well as in respect of a breach of the Sale of Goods Act 1979, in relation to certain offences under the Road Traffic Act 1988, and for breaches of other consumer related legislation). This can include applying for a court order to prevent or stop breaches of consumer protection laws. Breach of any order could lead to up to two years imprisonment and/or an unlimited fine. The OFT is committed to ensuring enforcement action is necessary and proportionate. The OFT follows the guiding principles set out in it's Statement of Consumer Protection Enforcement Principles, details of which can be found at: www.oft.gov.uk/oft_at_work/enforcement_regulation/enforcement.

6.4

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PART B: YOUR OBLIGATIONS UNDER THE SALE OF GOODS ACT 1979 (AS AMENDED)

Introduction Aim of the guidance

7.1 The purpose of this guidance is to set out the legal obligations of second hand car dealers under the Sale of Goods Act 1979 (as amended). As a second hand car dealer you need to know how the law relating to the sale of vehicles affects you and your customers. The law on the sale of goods has evolved over many years. It is now principally set out in the Sale of Goods Act 1979 which has been amended by the Sale and Supply of Goods Act 1994 and more recently by the Sale and Supply of Goods to Consumers Regulations 2002.

7.2

Scope of the guidance

7.3 This guidance is intended for dealers who sell second-hand cars to consumers4 through forecourts. The guidance does not cover sales made through auctions or private sales. It should be read in conjunction with the OFT's guidance for used car dealers on the Consumer Protection from Unfair Trading Regulations 2008 - failure to meet your obligations under the Sale of Goods Act (as amended) may also constitute a breach of the Consumer Protection from Unfair Trading Regulations 2008. Although this guidance is not intended to cover every situation that may arise in the selling of a second hand car it is intended to provide some practical suggestions on how to comply with the law. For further advice contact your local authority Trading Standards Service and/or seek independent legal advice.

7.4

'Consumers' are defined as people who are buying for purposes not related to their trade, business or profession.

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8
8.1

YOUR LEGAL OBLIGATIONS

When you sell a second hand car to a consumer you have certain legal obligations under the Sale of Goods Act 1979 (as amended). The key obligations are set out below.

Before the sale A.

8.2

Make sure that the car is of satisfactory quality

'Satisfactory quality' means that the car you sell should be of a standard that a reasonable person would expect from that car taking into account a number of factors including: age of the car price paid car's history car's mileage car's intended use the make of car durability safety any descriptions made about the car.

8.3

Whether a car is of satisfactory quality will therefore depend on the particular facts and on the extent to which the actual condition of the car matches the buyer's reasonable expectations. For example, in judging whether a recently bought seven-year-old car was of satisfactory quality it would be reasonable to take account of the price paid. This could be far less than for a new vehicle and so expectations should be lower. It would also be reasonable to assume that the performance

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might not be as good and the quality of the finish could fall far short of A1 condition for example, there may be some scratches to the paintwork. However, it would still need to conform to any description given to it and should be judged in accordance with the standard and performance that was reasonable to expect in a similar car of that age, mileage and model. Examples: A three-year old car with 10,000 miles on the clock was purchased for 12,000 and was described as being in 'very good condition'. If after four months the car starts over-heating and stalling it is unlikely to have been of satisfactory quality when purchased. A 10-year old car with 120,000 miles on the clock was purchased for 250. After six months the clutch needs replacing. Given the low price paid, and the very high mileage travelled, a reasonable person might expect that the clutch might need replacing after a few months.

8.4

It is not sufficient that the car is merely roadworthy and safe under the Road Traffic Act 1988 the requirement of satisfactory quality extends to other matters besides safety and roadworthiness. Even where a car has a minor defect, it may still be of unsatisfactory quality if that defect has a serious knock on effect - for example, the defect causes extensive damage so that the car can never be restored to its previous condition, or the defect (for example, an oil leak) renders it dangerous to drive the car. You are liable for faults with the car that are present at the time you sold it, even though it may only become apparent later on so called 'latent' or 'inherent' faults. The fault may not become apparent immediately but it was there at the time of sale and so the car was not of satisfactory standard.

8.5

8.6

OFT1152con | 22

8.7

You are not liable however: for fair wear and tear, where the car broke down through normal use for misuse or accidental damage by the consumer if you specifically draw to the consumer's attention the full extent of any fault or defect before they buy the car for example, if you draw to the buyer's attention that a car has a specific worn part before they decide to buy it if the consumer examined the car before buying it and should have noticed the fault. Where the car is examined by the consumer rather than an expert, this mainly applies to cosmetic defects such as scratches or dents that are obvious. You will not be able to evade responsibility for defects if they were not apparent on examination. Also, it only applies where a buyer actually examined the car not to a buyer who has declined an opportunity to do so.

B.
8.8

Make sure that the car is fit for purpose

The consumer must be able to use the car for the purposes that you would normally expect from a car. This means not only driving the car from one place to another but doing so with the appropriate degree of comfort, ease of handling and reliability that a reasonable person would expect from that car. If a car keeps breaking down then it is not fit for purpose. Where the consumer makes known to you a particular purpose for which the car is required, there is an implied condition that the car will be fit for that purpose. If it is not fit for that purpose you will have breached the Sale of Goods Act (as amended).

8.9

OFT1152con | 23

Example: A consumer explains to your salesman that he wants a car that is suitable for towing his caravan and is assured by the salesman that the particular make of car is suitable. You will be subsequently liable if the car you sold him was not sufficiently powerful to tow the caravan as the consumer relied on the expertise of the salesman and the car was not fit for the purpose he made known to the dealer at the time of sale.

C.

Make sure that the car corresponds with any description you give to it
Any description of the car must be accurate, for example when given verbally over the telephone or in the course of discussions prior to the sale of the vehicle, in writing in advertising on the car, in the showroom, in a newspaper, website, email or text, or in documentation provided to the prospective buyer. If the car does not correspond with the description, you will be in breach of contract. Example: If you sell a car which you describe as '2003 registered, Full Service History,' you must ensure that it has been registered in that year and has a Full Service History.

8.10

D.
8.11

Make sure you have the right to sell the car

You must ensure that you have the right to sell the car and in the case of an agreement to sell, that you will have such a right when the car is sold. If you do not have the right to sell the car the buyer has the right to reject the car and recover the purchase price. You should therefore check that the car is not still subject to a finance agreement. If the loan remains unpaid when you purchase the vehicle, you will not acquire title to it and the lender may have the right to take possession of the car.

8.12

OFT1152con | 24

Example: You purchase a car - for example as a part-exchange which has an outstanding hire purchase agreement on it. You then sell the car to a customer. You will not have acquired good title to the car and your customer is entitled to reject the car and reclaim the purchase price from you.

After the sale A.

8.13

Your customer's rights

If you fail to fulfil your obligations under the Sale of Goods Act (as amended) in respect of either satisfactory quality, fitness for purpose, description or the right to sell the car - you will be in breach of contract and the consumer will be entitled to a number of remedies against you. What remedy the consumer is entitled to will depend on a number of factors, including: how long ago you sold the car to the consumer the remedy the consumer is asking for the seriousness of any fault or defect whether the fault or defect keeps recurring the cost of carrying out repairs or replacing the car.

Full refund
8.14 The consumer can request a full refund if this is within a reasonable time of the sale. 'Reasonable time' is not defined in law and will depend on the facts of each case - it can vary from a few weeks to a number of months. The customer is not obliged to return the car to you but must make it available for collection.

OFT1152con | 25

8.15

If you dispute the consumer's request for a full refund, it is for the consumer to prove that the car was not of satisfactory quality, fit for purpose or as described by you at the time of purchase.5 For example, if the car has a serious fault the consumer may need to provide evidence to you such as an independent report from a garage showing the fault was present at the time of sale to support their claim. If the consumer's complaint is valid you must accept the car back and provide a full refund - in such circumstances the consumer is also entitled to claim for reasonable losses suffered, including the cost of any independent report they have paid for to prove their case. Example: A consumer discovers that a one year old car he bought from a dealer for 10,000 a few days ago has a major engine fault. He takes it to a garage and they confirm that the engine was in a very poor condition. The consumer provides the dealer with a written report of the garage's findings and asks you for his money back. In these circumstances the dealer must accept the car back and provide a full refund, as well as paying for any reasonable losses suffered by the consumer such as the cost of the written report.

8.16

Within the reasonable period after the sale, buyers do not lose their right to reject the car and require their money back merely because they ask for or agree to let you try to repair the car. Where a consumer agrees to allow you to repair the faulty car (within the reasonable period after the sale) he is still entitled to a refund if the repair turns out to be unsatisfactory or was not done promptly enough.

The position is different when a consumer requests that you repair or replace a faulty car within the first six months of purchase from you.

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Examples: A consumer discovers that a three-year old car he bought from a dealer for 5,000 two weeks ago is faulty and hence not of satisfactory quality. He allows the dealer to try to repair the car. The car still has the same faults despite the repairs. The consumer will in these circumstances still be entitled to reject the car for a full refund. A consumer discovers that a one year old car he bought from a dealer for 10,000 a week ago is faulty and hence not of satisfactory quality. He allows the dealer to try to repair the car. The car is off the road for a considerable time whilst the dealer tries unsuccessfully to fix the defects. The consumer will in these circumstances still be entitled to reject the car for a full refund.

8.17

If the consumer is not entitled to a full refund, for example because a 'reasonable time' has elapsed, or if they chose not to request this, they can instead claim a reasonable amount of compensation (damages). This is designed to compensate the consumer for the actual losses and so normally amounts to the cost of repair or replacement of the car with one of a similar age, specification and price or the difference in value in the case of misdescribed goods. Any direct and predictable expense arising as a result of being supplied with faulty goods can also be claimed by the customer (Consequential Loss).

Repair or replacement
8.18 A consumer can - if they do not wish (or are not entitled) to reject the car or claim compensation - specifically request either a repair to the car or a replacement car. If a consumer seeks a repair or replacement (or when these are not practicable, a partial or full refund) in the first six months after the sale, and you dispute their claim, it will be for you to prove that the fault or defect was not present at the time of sale. Where a fault or defect emerges with a car in the first six months after purchase, it will be presumed that the fault was present at the time of the sale.

8.19

OFT1152con | 27

8.20

If you dispute the claim you will need to refute the presumption by providing reasonable evidence. It is not sufficient to rely on a pre-sale 'tick box' check of the mechanical condition of the vehicle as evidence that the fault was not present at the time of sale. You will need a more detailed report of the specific check you had carried out on the part. The consumer does not need to provide any proof of the cause of the fault or defect to be entitled to the repair or replacement it is sufficient that a complaint has been made to you. Example: A consumer complains to a dealer that a one year old car he bought from them for 8,000 three months ago has a faulty gearbox. He asks the dealer to repair the car. It will be presumed that the car had a faulty gearbox at the time of sale and the dealer must carry out the repair to the gearbox at no cost to the consumer unless they can prove otherwise.

8.21

It is important that the repair or replacement is carried out within a reasonable time and without causing significant inconvenience to the consumer. You must also bear any costs associated with doing so such as transporting the car to a garage for repairs. Any repairs must also be carried out with reasonable care and skill. You may offer a repair if a replacement car is not possible, significantly costlier, or vice versa. A decision on whether the cost is disproportionate should take account of the value of the car if it had conformed to the contract, the significance of the problem (such as the nature of the fault) and whether the alternative remedy could be completed without significant inconvenience to the consumer.

8.22

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Partial and full refund

8.23 If neither a repair nor replacement is realistically possible, the consumer can request a partial or full refund depending on what is reasonable in the circumstances. It may be the case that a full refund is not the reasonable option because the consumer will have used the car for some time before the problem appeared. Where faults or defects with the car only become apparent after six months, it is for the consumer to provide evidence that the fault or defect existed at the time of the sale. Consumers can switch between certain remedies if they find they are getting nowhere. However the consumer would have to give you a reasonable time to honour a request before they tried to switch and they could never pursue two remedies at the same time. Example: A consumer discovers that a one year old car he bought for 10,000 three months ago is faulty. He takes it to the dealer who agrees to repair the car. The dealer takes over two months to repair the car but the fault persists. The consumer in these circumstances may request a replacement car or a refund instead because the repairs have not remedied the fault, were not carried out within a reasonable time and have caused significant inconvenience to the consumer.

8.24

8.25

B.
8.26

Time Limit to bring a claim

A consumer can take legal action up to six years from the date they bought the vehicle (five years in Scotland). This does not mean that the car has to last or be fault free for six years; it is the time limit for making a claim in respect of a fault that was present at the time of sale. It will also be unrealistic for a consumer to take legal action for a fault in a second hand car, especially an older vehicle, once the consumer has been using it for a reasonable length of time.

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SUMMARY OF CONSUMER REMEDIES FOR THE SALE OF FAULTY SECOND HAND CARS
Has the consumer accepted the car, for example because the reasonable time for examining the car has passed?

No

Yes

Is it within 6 months of purchase? The consumer can choose between the two sets of remedies below: Yes No

Is it within 5 years (Scotland) or 6 years (England and Wales) of purchase? Yes Can the consumer prove that the fault existed at the time of purchase? Yes

Faults with the car emerge in first 6 months after purchase - presumed to have been present at time of sale. Burden of proof is with the dealer to prove fault not present at time of sale

No

Full Refund (Rejection): If car has a serious fault, the consumer can request a full refund. Burden of Proof is with the consumer to prove that the fault was present at time of sale

Repair or replacement: The consumer can demand either a repair or replacement from the dealer, who can only refuse if the remedy is impossible or disproportionate.

No

No legal remedy

If repair and replacement are disproportionate or impossible, or if the dealer fails to act in reasonable time and without causing unreasonable inconvenience: full or partial refund. The consumer can request a partial or full refund depending on what is reasonable in the circumstances. It may be that a full refund is not reasonable because the consumer will have used the car for some time before the problem appeared

Damages: For any other losses suffered (such loss being within the reasonable contemplation of the parties at the time of entering the contract) as a result of the faulty car, the consumer may claim a reasonable amount of compensation.

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9
9.1

WARRANTIES
Any warranty you sell or provide for free with the car is in addition to the consumer's legal rights under the Sale of Goods Act (as amended). You cannot, for instance, refuse to deal with a customer's complaint about a fault or defect with a car simply on the grounds that (i) the consumer's warranty has expired or (ii) the type of fault is specifically excluded from the warranty coverage. The warranty document should include a statement advising the consumer that the warranty is in addition to his statutory rights. Examples: A consumer buys a four-year old car from a dealer at cost of 9,000. The dealer provides the consumer with a free three-month warranty with the car. The engine seizes up after four months due to a fault it will be presumed to have been present at the time of purchase in the absence of any proof from the dealer to the contrary. The dealer cannot then refuse to repair or replace the car simply because it is out of warranty. The consumer is entitled to a repair or replacement as the car was not of satisfactory quality at the time of purchase. A consumer buys a five-year old car from a dealer at cost of 7,000. The dealer also sells the consumer a 12-month warranty with the car. The clutch breaks after four months due to a fault - it will be presumed to have been present at the time of purchase in the absence of any proof from the dealer to the contrary. The warranty cover specifically excludes problems with the clutch. The dealer cannot refuse to replace the clutch because it is not covered by the warranty. The consumer is entitled to a repair or replacement as the car was not of satisfactory quality at the time of purchase.

9.2

OFT1152con | 31

10

ATTEMPTING TO LIMIT YOUR LIABILITY UNDER THE SALE OF GOODS ACT (AS AMENDED)
A consumer's legal rights under the Sale of Goods Act (as amended) cannot be taken away or restricted, and any attempt by you to do so by using an exclusion clause or similar notice will be void and therefore unenforceable. You will also be committing an offence under the Consumer Protection from Unfair Trading Regulations 2008. Examples: Stating that all cars are 'sold as seen', or writing 'unroadworthy', 'Trade Sale Only' or 'No Refund' on the invoice for the car, even if the statement this does not affect your statutory rights is included. Including terms in a contract that require the consumer to make declarations about what had or had not been said about a car's mileage and defects and/or affirming that they had examined the car and had any faults pointed out to them. Such terms could be used to exclude liability arising under the Sale of Goods Act. If untrue, such 'declarations' are ineffective and may mislead buyers with legitimate grievances that they have signed away their rights. Where they are true, such declarations are unnecessary.

10.1

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11
11.1

WHAT ARE THE CONSEQUENCES OF NON-COMPLIANCE?

If you do not honour your obligations under the Sale of Goods Act (as amended), the consumer may bring a claim against you in the County Court using the small claims track for claims of 5,000 and below in England and Wales and 3,000 in the Sheriff's court in Scotland. You may also face enforcement action. The OFT, local authority Trading Standards Services (TSS) and the Department of Enterprise, Trade and Investment in Northern Ireland can take civil enforcement action against you under Part 8 of the Enterprise Act 2002 in respect of breaches of the Sale of Goods Act (as amended) which harm the 'collective interests of consumers' in the United Kingdom. Enforcers can use a range of tools to ensure that businesses are complying with the law. This can include applying for a court order to prevent or stop breaches. Breach of any order could lead to up to two years imprisonment and/or an unlimited fine. Failure to meet your obligations under the Sale of Goods Act (as amended) may also constitute a breach of the Consumer Protection from Unfair Trading Regulations 2008. The OFT is committed to ensuring enforcement action is necessary and proportionate. The OFT follows the guiding principles set out in it's Statement of Consumer Protection Enforcement Principles, details of which can be found at: www.oft.gov.uk/oft_at_work/enforcement_regulation/enforcement.

11.2

11.3

11.4

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ANNEXES

OFT1152con | 34

A
Content A.1 A.2 A.3 A.4 A.5

SUMMARY OF QUESTIONS FOR CONSULTEES

Is the draft guidance sufficiently clear? Does the draft guidance have any significant omissions? Is the draft guidance in need of clarification and, if so, in what respect? Are there any parts of the draft guidance that are not needed? Are the illustrative examples useful?

Format A.6 Is the draft guidance in the right format and length for the intended audience? Is the draft guidance sufficiently user friendly for the intended audience?

A.7

Access to the guidance A.8 Do you have any suggestions on how the final guidance should be disseminated to those who need to see it?

General A.9 Do you have any other suggestions for improvement of the draft guidance?

A.10 Are there are further comments you wish to make?

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LIST OF CONSULTEES

The following organisations are being consulted. We would welcome suggestions of others who may wish to be involved in this consultation process.
Automobile Association British Vehicle Rental and Leasing Association Citizen's Advice Scotland Citizens Advice Consumer Focus Department for Business Innovation and Skills Department for Transport Driver and Vehicle Licensing Agency Experian Finance and Leasing Association Glass's Information Services Ltd Home Office HPI Local Authorities Coordinators of Regulatory Services RAC Retail Motor Industry Federation Scottish Motor Trade Association

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Society of Motor Manufacturers and Traders Ltd Trading Standards Institute Trading Standards Northern Ireland Vehicle and Operator Services Agency What Car Which?

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CONSULTATION CRITERIA

Public bodies are required to perform consultations in accordance with the following criteria wherever possible:
A.1 When to consult formal consultation should take place at a stage when there is scope to influence the policy outcome. Duration of consultation exercises consultations should normally last for at least 12 weeks with consideration given to longer timescales where feasible and sensible. Clarity of scope and impact consultation documents should be clear4 about the consultation process, what is being proposed, the scope to influence and the expected costs and benefits of the proposals. Accessibility of consultation exercises consultation exercises should be designed to be accessible to, and clearly targeted at, those people the exercise is intended to reach. The burden of consultation keeping the burden of consultation to a minimum is essential if consultations are to be effective and if consultees' buy-in to the process is to be obtained. Responsiveness of consultation exercises consultation responses should be analysed carefully and clear feedback should be provided to participants following the consultation. Capacity to consult officials running consultations should seek guidance in how to run effective consultation exercises and share what they have learned from the experience. The full Code of Practice on Consultation can be found on the website of the Department for Business, Innovation and Skills: www.berr.gov.uk/whatwedo/bre/consultation-guidance/page44420.html.

A.2

A.3

A.4

A.5

A.6

A.7

A.8

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