‘Certified’ used cars may still be under recall

Consumer groups complain about FTC disclosure ruling.

The public has long been wary of used cars and the claims of roadworthiness by the dealers who sell them. On Friday, the nation’s main advertising regulator issued a ruling that consumer groups complained will give used car dealers too much leeway in the disclosures they are required to make.

The Federal Trade Commission, in a decision that also drew c ritic i sm from some lawmakers, said General Motors and two big usedcar chains could advertise their used vehicles as having been carefully inspected and repaired even if the cars might still be subject to safety recalls for problems that had not been fixed.

The o nly re qui re ment would be that the dealers must advi s e buyer s t hat the cars could be subject to recalls and tell them how to determine if they are. There would be no requirement that any recall problems be specified or that any repairs be made.

The ruling follows a succession of high-profile cases in which automakers concealed crucial information from car owners, including General Motors’ failure to disclose a deadly ignition switch flaw, Volkswagen’s misrepresentation of pollution emissions, and Honda’s failure to report potential safety problems for more than a decade.

Used car dealers, in particular, have drawn criticism for selling vehicles under recall without addressing their defects, including violently exploding air bags that have been linked to 11 deaths in the United States. Under lobbying pressure from the used-car industry, efforts to introduce tougher laws for used cars have languished in Congress.

Senators who had been among those pressing the FTC to take a harder line criticized the agency’s action. “The disclosure requirements do more to deceive than fully inform, and worse, could protect unscrupulous dealers,” Richard Blumenthal, D-Conn., said in a statement.

The ruling, in the form of a settlement with GM and the two car chains over their advertising claims, will be in effect for 20 years. The FTC also proposed a similar settlement with several other car retailers it had been investigating. The settlements could set a buyer-beware precedent for other used car dealers to adopt, consumer groups warned.

“It is the worst thing the FTC has ever done on any issue because it is allowing false advertising,” said Rosemary Shahan, president of Consumers for Auto Reliability and Safety, one of the groups that had been lobbying for months against the settlement.

The FTC’s action, which t h e a ge n c y d e f e n d e d a s providing consumers with enough information to make informed purchases, is at odds with the position of the country’s main auto safety regulator, the National Highway Traffic Safety Administration, which has called for used-car dealers to fix items subject to a recall before selling a vehicle. But the safety regulator does not have the authority to order such fixes.

Safety advocates said the ruling was particularly troubling at a time when the NHTSA is struggling with problems including the recall of 42 million vehicles for the exploding Takata air bags that have also been linked more than 180 injuries.

Because of the huge number of vehicles with recalled Takata air bags, it will take several years to fix them all. Under the FTC decision, it would not be necessary to for a dealer to tell consumers that the vehicle they are considering has a Takata bag, said Michael Brooks, acting director of The Center for Auto Safety.

Friday’s action settled a FTC complaint from June 2015 that GM had engaged in unfair or deceptive practices with ads on its website saying that its “certified” used vehicles had been carefully inspected and any mechanical problems had been fixed.

But the FTC said some of those vehicles still had unrepaired safety problems serious enough that they had been recalled, and GM was at fault for not providing that information. Those recalls included a GM ignition-switch defect linked to at least 124 deaths.

Also included in the settlement were two dealership chains that faced complaints and settlements similar to General Motors: Jim Koons Management Co., which sells vehicles in Virginia, Maryland and Delaware; and Lithia Motors, which is based in Medford, Oregon, and sells vehicles in 17 states.

In settling the case, GM, Koons and Lithia neither admitted nor denied wrongdoing, but agreed that in the future such ads would include a prominent disclosure that the vehicle “may be subject to recalls for safety issues that have not been repaired” along with information on how to check for recalls.

While the consent order does not require GM to carry out recall repairs on its certified used vehicles, the automaker is fixing them and has no plans to change, spokesman James Cain said. That was also the case when the FTC began its inquiry, he said.

The automaker’s website for used certified vehicles has a statement saying: “GM requires dealers to complete all safety recalls. However, because even the best processes can break down, we encourage you to check the recall status of any vehicle.”

The National Highway Traffic Safety Administration has an online database in which consumers can enter a vehicle’s identification number to see if it is subject to any safety recalls.

In a statement, the FTC said its decision will “empower consumers to make more informed purchasing decisions” and will also encourage all dealers to fix recalled vehicles.

The agency said that dealers who carry out repairs on used vehicles can use that as a sales pitch, giving them a competitive advantage over dealers who do not — and whose ads must carry a note that the vehicle may have a recall.

“Dealers a re t heref ore incentivized to repair open recalls in the cars they advertise,” the agency said.

But requiring that consumers only be warned of a possible recall may not be effective, said Omri Ben-Shahar, a professor at the University of Chicago Law School and the author of “More Than You Wanted To Know: The Failure of Mandated Disclosure.”

“The evidence is dramatic how little it affects people,” he said in an interview. “Consumers do not respond in the way the FTC hopes.”

The FTC had reached a preliminary settlement in January with GM and the two used-car chains. But the deal was subject to a period of public comments, during w h i c h m a n y c o n s u m e r groups and some lawmakers had pressed the agency to require fuller disclosure by those who sell used cars.

Norman I. Silber, a professor of consumer law at Hofstra University, said it was hard to understand how the FTC could approve the order and say “they have lived up to their consumer protection mandate.”

But FTC officials defended the disclosure requirement as adequate. The agency does not have the authorit y to require dealers to fix recalled vehicles, said Malini Mithal, the FTC’s acting associate director for the Division of Financial Practices.

“We absolutely share concerns about significant public safety risks posed by recalls in the used-car market,” she said.

The FTC also announced it had reached similar preliminary settlements with three other dealer chains — CarMax, Asbury Automotive Group and the West-Herr Automotive Group — over the agency’s claim that consumers were not adequately warned about outstanding recalls on used vehicles.

The dealerships did not admit any wrongdoing. The agency will accept public comments for 30 days before deciding whether to make the settlements final.

But Shahan at the Consumers for Auto Reliability and Safet y said the FTC could and should have told GM and the dealers they cannot indicate a vehicle is safe if a recall is pending.

When the preliminary settlement was announced, it immediately triggered criticism from five Democratic senators and about 20 consumer groups, including Consumers Union, The Center for Auto Safety and the Consumer Federation of America.

In July, the senators wrote to FTC Chairwoman Edith Ramirez arguing that the proposed settlements “would establish an anti-consumer, anti-safety precedent with far-reaching policy implications.” Besides Blumenthal, they were Chuck Schumer of New York; Edward J. Markey of Massachusetts; Bill Nelson of Florida, and Richard Durbin of Illinois.

Ms. Ramirez responded, defending the consent order as benefiting consumers. “T h e p r o p o s e d o r d e r s directly address the deceptive conduct identified in the complaints” and impose requirements to prevent such misconduct in the future, she said at the time.

An FTC spokesman said Friday that Ramirez was not available to comment.

The FTC’s approval of the consent order is likely to raise legal questions nationwide on whether a dealer can make false statements about a vehicle’s safety or condition and evade responsibility because there is also a disclaimer that those statements “may” not be true, said Bernard Brown, a consumer protection lawyer in Kansas City, Missouri.

“It will muddy the waters on everything from personal injury to fraud,” he said. “The settlement is totally outrageous, astonishing, and contradictory to the FTC’s charter and protection of consumers.”