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Congress Must Protect Used Car Buyers From Fraud, Shady Contracts

March 4, 2009 

Congress Must Protect Used Car Buyers From Fraud, Shady Contracts  

Public Citizen Urges House Subcommittee to Shore up Consumer Protections

WASHINGTON, D.C. – Congress should require states to participate in a national auto fraud database and urge the Federal Trade Commission (FTC) to prohibit sales contracts that require customers to give up their rights to take unscrupulous auto dealers to court, Public Citizen said in a statement submitted today to the U.S. House Subcommittee on Commerce, Trade and Consumer Protection.

The subcommittee, chaired by Rep. Bobby Rush (D-Ill.), is holding a hearing Thursday on how to protect consumers in the used and subprime car market, an area in which Public Citizen has lobbied and litigated extensively over the years.

Last year, Public Citizen, joined by Consumers for Auto Reliability and Safety and Consumer Action, successfully sued the Department of Justice (DOJ) to force the agency to implement a national auto fraud database after a 16-year delay. The Internet database would allow used car buyers to learn whether a vehicle has been stolen or rebuilt after a wreck. However, while the 1992 law that authorizes the database requires states, insurance companies and junk yards to submit regular reports, it does not contain penalties for states that don’t comply. (Several states have not been participating since the database went online in February.)

Congress should tie a small percentage of federal highway funding to full compliance with the reporting requirements of the auto database, Public Citizen said. Recent erroneous information distributed by Carfax, a used vehicle certification firm, highlights the need for quick action because it shows that consumers need a reliable source of information.

“Giving consumers access to the prior history of used vehicles will allow them to make informed purchases and protect themselves from fraud,” said Public Citizen attorney Deepak Gupta, who handled the suit against the DOJ. “Congress must ensure that all the states participate so that the information available to consumers is complete and credible.”

Protecting consumers from unwittingly buying junked or salvaged vehicles goes hand-in-hand with preserving their rights to take disputes with used auto dealers to court, rather than be forced into business friendly arbitration hearings. Binding mandatory arbitration clauses are routinely buried in the fine print of used vehicle sales, lease and finance contracts. The arbitration clauses require disputes between consumers and used car dealers to be settled by an arbitrator, who is handpicked by the dealer and who has a vested financial interest in siding against the consumer.

The FTC has the authority to prohibit these clauses under its powers to regulate unfair business practices. Congress should urge the FTC to do so, Public Citizen said.

READ the statement.