MOTOR DEALER ACT
Protecting the New ConsumerA Unit Plan prepared by Greg McCaffery a teacher in Surrey for SFU Education 448 – used by permission of the author
RATIONALE
For many young adults, one of their first major purchases is a motor vehicle. Many students have grown up hearing such statements as, "Used car salespersons cannot be trusted" or " it's a buyer beware world" and they enter into a purchase with a very negative attitude. They have little or no knowledge of what protection they have and what questions they should be asking when purchasing a used car. This lesson is to help young consumers prepare themselves to make this purchase whether through private, used car dealerships or new car dealerships.
OBJECTIVES:
At the completion of the lesson, students will have
- familiarized themselves with the terms in buying a vehicle
- become familiar with the Motor Dealer Act of British Columbia and how it relates to consumer laws
- participated in a purchase simulation
- familiarized themselves with some 'tricks of the trade' and
- discussed what actions could be taken upon completion of the contract.
UNIT OVERVIEW
Day 1
1) Lecture
Briefly cover the history and purpose of the Act and the terms pertinent to buyers. A review of the Sections that directly affect buyers will include the regulations that require disclosure of pertinent information on the behalf of dealers. The lecture will finish with a discussion period.
2) Student Activity
The students will be broken into pairs with one student being the buyer and one the seller. The 'sellers' will be provided with one of four randomly distributed scenarios or 'sales pitch' on the car to be purchased. The 'seller' is to advise the consumer what car is for sale. It will be made clear that the price is not to be haggled but it will be accepted that a 10% discount is available on all cars. The students will then switch roles with different partners.
Day 2
1) Discussion
What did the students see as the important issues in their purchase? Did they encounter any activity that made them question the validity of the sale? What action would they take to try to redeem the transaction if necessary?
2) Lecture
What authority does the Motor Dealer Act carry? What is the role of the Motor Dealer Compensation Board? What is the role of Motor Dealer Inspectors and Investigators?
3) Discussion
What are some of the worst-case scenarios?
What other Acts or Regulations may be involved? Criminal Code? Consumer Protection Act?
Day 3
1) Test
Three short paragraph questions
2) Review
Are the students now ready as new consumers to protect themselves?
RESOURCES FOR TEACHER PRESENTATIONS
The Motor Dealer Act and Consumer Protection
Introduction
Many students will be making their first major purchase, a car, in the next couple of years. Whether the purchase is done through private deals found in the Auto Trader, or other paper, a used car dealership or even a new car, there are a number of circumstances that the unwary consumer must be prepared for. As most students are not in a position to buy a new car, this lecture will pay particular attention to the purchasing of a used car, either through a private deal or through a used car lot. Although it is believed that most people are basically honest and dealers need to be honest to stay in business, it is also known that young people are targets in this area because of their inexperience and reluctance to challenge those that know how to abuse the system. Therefore it is important that new consumers should be armed with appropriate information to protect themselves.
Contrary to popular belief not all used car dealers are 'shysters' that are willing to say anything to make a dollar and there are strict guidelines that they must follow to be successful in their business. Also, not all private sales are as they seem and consumers must protect themselves. Although the Motor Dealer Act was passed to provide such protection to the consumer and to control the business practices regarding 'Car Dealers', it also gives pertinent direction to consumers who are considering buying through a private deal.
This short lecture series will provide the consumer with the necessary information for entering into a contract to buy a car from the legal and business perspective, not the mechanical or 'street value' aspect. It will do this by introducing the relevant sections of the Act and Regulations, provide the students with simulations, discuss the complexities in purchasing, the function of the Motor Dealer Compensation Fund and then administer a test and review of the material. It is expected that the individual student will become an informed consumer and as such not fall prey to questionable business practices.
Motor Dealer Act - Definitions and Scope of Jurisdiction
The first few sections of the Motor Dealer Act lay the groundwork for the selling of vehicles in British Columbia as a business enterprise. It orders all persons that are selling to be registered by the government and the government to keep proper records of these businesses. Therefore, a dealer must have a certificate displayed prominently at his/her place of business. This is separate from the business license that a person must get from the municipality in which the business will be operating. Not everyone wishing to get a license will obtain one, as the dealer must meet the requirements set out by the Registrar. As well as having the necessary security, the dealer must also have a good record in business and have premises that are acceptable. In other words, you could not go get a dealer's license on the basis that you were going to sell out of your back yard; you need to meet stringent guidelines. The person applying for a license must also be of 'good character' and a background search is done on the applicant. There are many other requirements, such as the business either having facilities for repair on the premises or a contract in place with a repair shop.
Two of the more important terms to be aware of when purchasing a vehicle are 'motor dealer' and 'sale'. A motor dealer is anyone who, in the course of business, holds themselves out as dealers, advertises vehicles for sale or brokers cars for others. (OH #1) Note here that, the sale must be in the 'course of business' so your ad in the Buy and Sell does not qualify you as a dealer. A 'sale' means a lease, exchange or other disposition or supply of a motor vehicle to an individual primarily for the individual’s personal or family use. As such, this Act does not apply to sales between businesses. So if you were buying a car for business purposes this Act would not apply to you. It is very important to note this difference here; the legislation was created to protect the consumer not people who are dealing in business affairs.
There are many people out there that fix up cars for a hobby and then sell them. These people are usually quite trustworthy because they have a passion for fixing and enjoying the car and are not looking for profits on the side. However, there are just as many that are selling cars as a second job or, even as their first job but do so on the false premise that they are just selling 'the family car'. These persons are known in the business as 'curbers' (because they sell their cars on the side of the road) and should be avoided or dealt with very carefully. Some are simply trying to make a living in a 'tough world' and are not out to 'rip off' anyone but their means of obtaining cars for sale are questionable and often they have the worst of all cars.
Pertinent Sections - Section 34 (Act) and Section 23 (Regulation)
Section 34 refers to the tampering of odometers and stipulates the responsibilities and penalties for doing so (OH #2). In brief, no one is allowed to tamper, disconnect, or replace an odometer and if caught doing so, it is grounds to have the dealer's license suspended or cancelled. It goes on to state that the dealer cannot try to blame other persons under his control for such tampering and that the dealer will be held responsible.
It is getting more and more difficult for dealers to get away with tampering with odometers because of manufacturing procedures but there are always those that find a way around technology. Considering that the value difference between buying a car with 200,000kms and one with 100,000kms can be as much as $4,000.00, the profit margin is high enough to tempt some people to try to change readings. There is usually a rule of thumb that a regular family car will travel approximately 20,000kms per year, however this is only a ballpark figure.
Section 23 of the Regulations points out what is required to be provided to a purchaser regarding the history and use of a vehicle, to the best of the knowledge of the dealer (OH # 3). The dealer must tell a prospective buyer:
whether the vehicle had been used as a taxi, police, emergency vehicle or used in racing; whether the vehicle had sustained damages requiring repairs; in particular in the case of a used vehicle damages in excess of $2,000.00; whether the vehicle had been used as a lease or a rental; whether the used vehicle was brought into the Province for the purpose of sale; whether the odometer accurately records the true distance of the vehicle
These terms must be recorded on the sales document and signed by both the dealer and the purchaser. Consumers have to be made aware of these material facts because they do have a significant impact on the value of a car.
Taxi and police vehicles are often driven hard for long periods of time and often with many different drivers. These vehicles are likely to have excessive mileage for their age and although they may have been kept mechanically sound, their lifespan has to be taken into consideration.
Vehicles that have sustained extensive damage are sometimes considered to be of less value because it may have affected the frame or integrity of the vehicle and as such this information should not be hidden from purchasers. However, some 'body shops' use such high quality material and equipment that the vehicle can actually be stronger than when it came off the 'assembly line'.
Lease or rental vehicles may have been for business purposes and as such may have had numerous drivers that may also affect the integrity of the car. 'Out of province' vehicles may have excessive underbody rusting depending on the winters in the location that the vehicle was brought from. Ontario and Quebec use a lot of salt to keep their roads and this can cause early corrosion.
There are a few standard forms that are used by dealers, which they obtain from their Associations and as such there are spots available on these forms to comply with the requirements of the Act and Regulations. This is the first step in protecting the consumer but it does not stop there because the regulation states, 'to the best of his knowledge or belief'. This short term can legally allow the dealer to be ignorant about the facts of the car he is selling. A 'dealer' is a businessperson who does not necessarily know much about mechanics (that is why he must have a contract or facility with a mechanic) nor about the intentions or honesty of other people. The 'dealer' often has to take the person's word for it when he is taking a trade-in or purchase from other sources. In some cases, it may appear that the dealer is 'willfully blind' as where a vehicle shows bubbling in the paint but the person who is selling it states that it was never in an accident.
Activities - Simulated Sales
There are four different sales scenarios that will be passed out. They either pertain to the private sale of a vehicle or a purchase through a used car dealer. Student instructions are as follows:
- Split class members into pairs with one person being the buyer the other the seller
- Sellers are to tell the purchaser what kind of car they are buying
- Sellers are given information as to what they are to acknowledge or not acknowledge regarding the sale of the vehicle; it is up to the seller to convince the purchaser that the information they are providing is valid
- Purchasers will be buying the car so that even though they may be convinced the information is false, take purchase anyway but note what is believed to be false information
- Do not haggle over price! It is an accepted practice (in many circles) that buyers can get 10% off the asking price, just for asking!
- Pairs have 15 minutes in which to complete the deal at which time they will switch to another partner and reverse roles
- Do not work with the same scenario
- The scenarios will be collected at the end of this class so keep records of the transactions.
Scenario 1 - A deep blue 1995 Mustang 5 Litre.
This car has been stolen and trashed three times and ICBC has paid for all repairs. The dealer does not want to tell about the damages over $2,000.00 because he believes that the vehicle never sustained any damage that would hinder the integrity of the vehicle and therefore would drop the price. The vehicle was originally bought in B.C. and the dealer was advised that it was a one-owner car but it actually had three previous owners. The car has always been privately owned. The dealer is not to admit to the damage.
Scenario 2 - A 1997 Mazda MPV, brown.
This vehicle was originally a business lease where vehicle was used in the courier business. The vehicle traveled more than 60,000 km per year and in 2001, the owner had to replace the engine and he replaced the odometer at the same time because it was defective. The dealer was advised at the time of his/her purchase that the odometer had been legally replaced but chose not to tell prospective buyers. Nor were perspective buyers to be advised that the vehicle had been a lease. The vehicle had never sustained any damage of consequence and was originally a B.C. vehicle.
Scenario 3 - A 1995 Volkswagen, green.
This car was bought by a dealer at an auction in Quebec. The vehicle had 212,000kms on it at time of purchase but was sold with only 112,000kms. The dealer did not sell the vehicle through his lot but as a private individual. His usual line is that it was his mother s car and she was no longer able to drive as she was placed in a home. He states that she bought it new and was the only driver. It never sustained any damage and he provided a copy of a printout from ICBC showing that there were no records of the vehicle being fixed.
Scenario 4 - A Chevy Blazer 4X4 White.
The dealer got a good deal on this vehicle because ICBC 'wrote it off' and a friend professionally bought it as salvage and got it fit for the road again. The dealer acknowledges that it is a 'rebuilt' and that it had been brought into B.C. just prior to it being 'totaled'. The dealer was told that it was a one-owner vehicle and that it had been privately owned. Upon purchasing the vehicle, the purchaser finds documents in the glove box, which indicate that the vehicle had been used for business purposes and that it had been owned by at least two people prior to the most recent purchase.
Discussion - Day 2
Each scenario requires students to question the validity of the sales of these vehicles and whether or not they asked the right questions to protect themselves. The class can be broken into groups of four where all four scenarios are presented and they can discuss issues such as:
- Did they ask the right questions?
- Was the Dealer responsible for all wrong information?
- Does inaccurate information negate the sale completely?
- What do you think you could have done to protect yourself?
- How do you protect yourself from the private sale?
- What action can be taken to correct the situation?
- Who can deal with the situation?
Teacher Presentation
As you have seen, as consumers, in your scenarios, there are times when you may have completed a deal and found out later that the information was false. The legal principle of Caveat Emptor, or better known as 'buyer beware' is not entirely correct here. The Act has given the consumer protection because the Legislature is aware that the regular consumer cannot be expected to know everything about cars and should be afforded protection. The Motor Dealer Act allows for government employees referred to as Ministry Inspectors and Investigators to act on the consumer's behalf to try and rectify situations. It has also created a Motor Dealer Compensation Fund to deal with issues that the Investigator and consumer cannot.
The Investigators are familiar with the legislation and the dealers and as such are able to act as a mediator to rectify situations (OH #4). Their first priority is to protect the consumer and not necessarily to take action against the dealer, unless it is deemed necessary. They are able to charge dealers with summary offences under the Act and are also able to issue tickets to the dealers. These Investigators double their responsibilities by also being the Inspectors who are responsible for inspecting the Motor Dealers in a given area and ensuring that they are meeting the requirements for them to keep their license.
It can be seen in the case of the 4X4 where the dealer did not know the history of the vehicle that there is no easy solution to the problem and that the dealer and consumer could easily get into a dispute. The dealer acted in good faith not knowing about the history of the vehicle and the consumer was not aware of the problem until after the contract was complete. The information, although it was in clear view in the glove box, is not deemed to have been readily available because a dealer does not have a reason to go into a glove box even though one would think s/he would. The consumer would like to think that the dealer did look in the glove box, however the dealer could respond by stating that if s/he were trying to hide the fact, s/he would have gotten rid of the information. The Ministry Investigator is in a position to explain the legalities and responsibilities of the dealer to the consumer in terms that should stop a court action from happening. The investigator is also in a position to explain that a rebuilt might not mean less value.
In the case of private sales, the Investigator is unable to deal with them unless s/he can tie in the person to a dealership or prove that the odometer had been tampered with. This is where the issue of selling 5 cars or more a year may be implemented as the person could be deemed a dealer for court purposes; some 'curbers' sell five cars a month and as such could be deemed to be a motor dealer and liable for fines for not being registered. What often happens is that a dealer will sell some of his cars privately so that he does not involve his company in questionable practices. It should be noted here that tampering with an odometer is tantamount to fraud but the police would be quite unwilling to deal with it unless they had numerous complaints and were sure of who was doing the actual tampering. The police would need proof “beyond a reasonable doubt” to charge for fraud whereas the Investigator is allowed to use Section 34, which does not require as strong a proof.
The Investigator can also advise consumers (OH#5) that they can take action through the Motor Dealer Compensation Fund, which is where the dealers throughout the Province are required to submit funds based on their records and longevity. This fund is then used to compensate consumers if the dealer is unable to do so if it is deemed that the consumer was taken advantage of (OH#6). The consumer is required to submit a written complaint to the fund that sits in Victoria once a month. The persons on the committee consist of usually the Registrar of Motor Dealers, a representative from a major dealership, representative from a minor dealership and a member or two of the public at large. Their decisions are considered final so that it is important that the consumer carefully present their written case because they do not appear in person. The fund must decide on the strict interpretation of the Act and Regulations but could eventually lead to changes.
Private Sales
Private sales are extremely popular and are the cheapest way of purchasing a vehicle because there is no overhead or regulations. However, the consumer has little recourse under a private sale and often finds him or her self unable to take the action to court because the seller cannot be found or has no funds to sue against.
The consumer also puts him/her self in a bad position if they enter into an agreement and then lie about the cost of the car so that taxes are not paid. The consumer loses all credibility in court if it is determined that they lied about this amount. Although individuals can represent themselves in Small Claims Court, there are many other problems that make this course not worthwhile.
There are other matters that you must be aware of when buying a vehicle through the paper. The vehicle's history is hard to determine so all the issues in Section 23 of the Regulations should be taken into consideration. The old maxim that, 'if a deal appears to be too good to be true then it probably is' must be considered but the professional 'curber' is aware of this maxim and does not even attempt to sell the vehicle for much less than what it would have been worth being honest about it!
Conclusion
Many people spend a significant amount of time researching the quality of vehicles through such books as Lemon Aid, which is a good start but this will only give you a general outline of the value of a vehicle and not the actual individual vehicle being pursued. Consumers must do their homework in this area as well if they are not to be taken advantage of.
As there is no guarantee that a consumer can find a dealer at fault for a case, it is important that the consumer protect himself or herself prior to completing the purchase of a car. It has been deemed that the contract is complete when the consumer drives off the lot except for where the consumer has been deliberately misled. Therefore, dealers take every action they can to complete the deal in one day by having Insurance and Finance readily available. They also know that many people feel 'buyers remorse' soon after the purchase, so they wish to have the deal completed.
It should be noted that large dealerships depend on a good reputation and that the media can destroy them so they are very careful about their actions and as such are competent and reasonable business people. Also, many of the small dealers are people struggling to make a living and are not mechanics or 'fortune tellers' so they can also be taken advantage of. The dealer's best chance of survival in a tough market is to get business through word of mouth, so the majority of dealers take your concerns seriously and do not wish to make a bad impression. However, as in all aspects of life, there are those that will take advantage whenever they can and as a consumer you need to protect yourself.
Aessessment: - Short Answer Test
1. What questions should you ask when purchasing a 1991 Honda Civic with 120,000kms from a private seller?
2. Explain what 'Tampering with Odometers' entails.
3. Explain the process if you make a complaint regarding a purchase.
WORKS CITED
www.qp.bc.gov.ca Motor Dealer Act and Regulations
www.bc.gov.ca Solicitor General, Consumer Services Section
BC Government Employee Job Descriptions
Note: For the purposes of brevity and individual preferences, the lecture has been presented in essay form so that individual teachers would be free to create their own notes on how they would present the lecture part of this paper.
Overheads for Motor Dealer Act Lectures
1) Motor Dealer – Section 1 - Definition
2) Motor Dealer Act - Section 34 - Odometers
3) Motor Dealer Act - Regulations - Section 23 - Material Facts
4) Motor Dealer Act – Sections 25 and 26 Complaints and Inspections
5) Motor Dealer Customer Compensation Fund - Section 4 - Who May Apply?
6) Motor Dealer Act - Customer Compensation Fund - Section 5 – What losses are eligible?
1) Motor Dealer
Means a person who, in the course of business;
a) engages in the sale or exchange of motor vehicles, whether for the person s own account or for the account of another person, or who holds himself or herself out as engaging in the sale or exchange of motor vehicles
b) advertises, exhibits or offers motor vehicles for the sale or exchange by him or her or
c) with or without enumeration, acts as a motor vehicle broker or, as an agent, sells motor vehicles on commission,
and includes a person who carries on any of the activities described in paragraphs (a) to (c) in respect of at least 5* motor vehicles within a 12 month period but does not include a person exempted by regulation.
This is important when considering private sales as a person who does not call him/herself a motor dealer may find that they are liable under this act because they sell more than 5 cars a year.
2) Odometers
34. (1) Except as permitted by the regulations, a person must not
(a) disconnect or tamper with the odometer of a vehicle operated under Section 38(3) and (4) of the Motor Dealer Act, or
(b) drive or operate a vehicle operated under section 38 (3) and (4) of that Act unless the odometer of the vehicle is in effective working order.
(2) A person must not alter, disconnect or replace, or cause to be altered, disconnected or replaced, a motor vehicle s odometer with the intent to mislead a prospective purchaser of the motor vehicle as to the distance traveled by the motor vehicle.
(3) A conviction of a motor dealer of an offense under subsection (1) or (2) is deemed to be cause for the suspension or cancellation of registration.
(4) If an offense under subsection (1) is committed by
(a) an employee or agent of the owner of the motor dealer, or
(b) any other person entrusted by the owner of the motor dealer with the possession of the motor vehicle,
the owner or motor dealer is deemed to be a party to the offense and is personally liable to the penalties prescribed for the offense as a principal offender …
3) Material Facts
23. A motor dealer shall ensure that every written representation in the form of a sale or purchase agreement respecting his offering to sell or selling a motor vehicle he discloses, to the best of his knowledge and belief:
(a) whether the motor vehicle has been used as a taxi, police or emergency vehicle or in organized racing:
(b) whether the motor vehicle has
(i) in the case of a new motor vehicle, sustained damage requiring repairs costing more than 20% of the asking price of the motor vehicle, or
(ii) in the case of a used motor vehicle, sustained damages requiring repairs costing more than $2,000.00
(c) whether the motor vehicle has been used as a lease or rental vehicle
(d) whether a used motor vehicle has been brought into the province specifically for the purpose of sale
(e) whether the odometer of the motor vehicle accurately records the true distance traveled by the motor vehicle
4) Complaints
25. (1) If the registrar receives a complaint in respect of a motor dealer, the motor dealer must provide to the registrar the information respecting the matter complained of that the registrar requests in writing.
(2) The request under subsection (1) must indicate the nature of the complaint.
(3) For the purposes of subsection (1), the registrar or person designated in writing by the registrar may, at any reasonable time during normal business hours, enter the business premises of the motor dealer to make inspection with respect to the complaint.
Inspection
26. A motor dealer must, at a reasonable time during normal business hours, on request of the registrar or a person authorized in writing by the registrar, permit the registrar or authorized person to
(a) enter the motor dealer’s place of business,
(b) inspect the records of the business
(c) enter premises in which any motor vehicle owned, possessed or controlled by the motor dealer for his or her business is kept or stored, and
(d) inspect all vehicles on the premises.
5) Who may apply for compensation
4. An individual who, on or after the day the regulation comes into force,
(a) purchases from a registered motor dealer
(i) a motor vehicle to be used primarily for personal or family use, or
(ii) an extended warranty or service plan in respect of such a vehicle, or
(b) delivers a motor vehicle to a registered motor dealer for sale by the motor dealer as an agent on commission,
and who suffers an eligible loss referred to in section 5, may apply
for compensation from the fund.
6) What loses are eligible for compensation
5 (1) The following losses are eligible for compensation from the fund:
(a) with respect to the purchase of a motor vehicle, the loss of a trade-in, full payment, deposit, down payment or other liquidated amount resulting from
(i) the refusal of the motor dealer, without lawful justification, to deliver the motor vehicle contracted for or the return of the trade-in, full payment, deposit, down payment or other liquidated amount
(iii) the dishonest conduct of the motor dealer or the misappropriation or wrongful conversion of money or other property entrusted to the motor dealer or
(iv) the failure of the motor dealer to provide clear title to the motor vehicle or to ensure that the motor vehicle was free from charge or encumbrance…
(b) with respect to the purchase of an extended warranty or service plan, the loss of the unexpired portion of the warranty or plan resulting from the bankruptcy, insolvency, receivership or other failure of the motor dealer.
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