Revamp of car laws in first gear

The Government has announced a review of laws surrounding the sale of motor vehicles. Consumer reporter CHRIS DANIELS checks out the latest proposals for change.

Different Governments have promised to shake up the rules covering the sale of vehicles. Here comes the latest move, made in the face of increasing criticism that the present law is outdated and cumbersome.

Laws already exist to stop misleading advertising and unfair business practices. Why have special laws for selling motor vehicles?


A car is a complex, expensive mechanical product that often loses value quickly. It is by its very nature highly mobile and usually has several owners over its lifetime.

It can be hard for a buyer to work out the true value of a car. The person selling it has a real advantage - defects can be hidden, odometers can be wound back, history can be easily lied about.

A common fear when buying a car, for instance, is of the dealer telling a potential buyer that a car has been owned by only "one careful driver" when it has really been owned by a teenage hoon.

And vehicles are often used as security for loans and the like, so can be sold without clear title. There might still be money owing on the car without the new owner realising it.

Cars, despite the drop in prices caused by the removal of tariff protection and the growth of the used import trade, are still usually the second-largest purchase an average person makes in his or her life.

Who sells most of the used cars in New Zealand?


That's a bit of a curly one. Only around 28 per cent of used car sales are made by licensed motor vehicle dealers.

"It is readily apparent that many used cars are being sold by vendors who simply choose not to be licensed," says the Ministry of Economic Development.

It estimates that 55,760 used imports - around 40 per cent of the market - were sold on the black market in 1999.

I bought my car privately through the newspaper. What protection will I get?


A private sale is just that - private, not trade - and is usually a one-off, or occasional, disposal of a car by a person.

If you buy privately you have very limited rights.

It is a case of "caveat emptor," or let the buyer beware. You don't pay as much for the car, but there is more risk.

The proposed changes for motor vehicle dealers will not affect private sales.

Why the need for change? What are the problems with the existing law?


Both the Government and the industry say the present rules are too strict and encourage car dealers to work outside the law.

The Motor Vehicle Dealers Act 1975 is widely viewed as an outdated and cumbersome law.

For instance, it is illegal for a dealer to sell a used car on the internet or through an 0800 number. Licensed dealers must pay fees, make applications, advertise and register as salespeople. It appears that it is simply easier to sell cars on the black market.

The Ministry of Economic Development says the present regime is costly, inflexible and does not meet the needs of consumers. Many car buyers are choosing to buy privately, or at auctions and car fairs, where they assume a greater risk.

So what are the proposed changes?


The proposals are described by the bureaucrats as a trade-off. The proposed regime will reduce the costs that licensed dealers face by removing some of the measures to protect consumers.

On the other hand, a greater range of vehicle sales will be brought within the regime.

This will raise the compliance cost for some vendors who do not operate as licensed dealers. The trade-off is justified, say the officials, because more consumers are now choosing to buy their vehicles from outlets where the risk of being ripped off is greater.

Everyone who sells cars "in trade" (not private) will have to be registered. The industry will become more self-regulated, allowing some organisations to promote themselves as offering better protection than other car dealers.

Organisers of auctions and car fairs will be included for the first time. There will be no statutory industry body.

Cars sold by these people will have to have a standard "window card" with relevant information printed on it.

The window card will have to include a "representation" of distance travelled by the vehicle. The seller will be bound by this representation, even if he or she did not know it was wrong.

This is designed to make it easier to take action against odometer tampering, as there will no longer be a need to prove an "intent to mislead."

Consumers who buy a car from a registered dealer will continue to be guaranteed ownership and will not face repossession if there is money still owing on it.

Who will have to be registered?

Anyone who deals in more than six cars a year, car auctioneers, those who run display-for-sale car yards and car fairs. They will have to be aged over 18 and cannot have certain convictions.

Undischarged bankrupts, convicted odometer tamperers and those convicted of certain crimes of dishonesty in the past five years will not get registration.

The proposal includes establishing a blacklist of people banned from any involvement in the motor vehicle trade.

What will happen if a car-buyer gets ripped off?


The Motor Vehicle Disputes Tribunal will receive wider powers. It will be given the role of hearing any consumer dispute arising from the sale of motor vehicles in trade (that is, not private).

At the moment it can hear claims relating only to licensed motor vehicle dealers. And it can hear disputes involving less than $12,000. The review suggests increasing this to $50,000.

The membership of the tribunal will change under the proposals. The chairman will continue to be a senior barrister or solicitor, but the industry representative will be replaced by a person with technical knowledge of motor vehicles.

A consumer representative will remain on the tribunal.

What about the fidelity fund that covers licensed motor vehicle dealers?


The fund is designed to protect consumers when a dealer:

* Cannot pay a compensation order (these are made by the Motor Vehicle Disputes Tribunal or a district court).

* Fails to account for money it holds as an agent.

* Fails to meet any other claim arising out of any activity or business of a licensed dealer.

A financier can also claim against the fund when a car over which he or she holds security is sold to a third party. The fund covers legal, investigatory and administration expenses incurred.

Claims can be made relating only to sales from licensed motor vehicle dealers. As already explained, only around 30 per cent of all used car sales are made by these people.

How many people have claimed against this fund? How many got some money?


Not very many. Of the 92 claims made last year, 60 were from consumers, 32 from financiers. Only 12 payments were made and the average was $4514.

This figure is extremely small, say the officials, especially in light of the number of complaints about vehicles.

So how do they propose to change the fund?


The Government has put forward a few ideas on the matter and wants public submissions on what will be the best option.

One idea is to restrict the scope of the fund, limiting it to claims from financiers who hold security over vehicles.

Another is to bring in a "performance bond."

This might be a third-party guarantee from a bank or insurance company. The company would pay out any claim made against this bond.

A third idea is to require vendors to buy indemnity insurances that will cover losses arising from theft or negligence by staff.

This would be limited, though, because sole traders could not take out insurance against their own dishonesty.

Who supports the new proposals?


The plan has been put together by the Ministry of Economic Development and the Ministry of Consumer Affairs. It was announced by Labour cabinet minister Paul Swain and Alliance minister Phillida Bunkle.

This would indicate a fair level of support from both Coalition parties.

In a joint statement, the ministers said that after 25 years, "it is high time this piece of legislation was changed."

"It is clear the current act no longer adequately addresses the needs of consumers or the industry. It has been a political football which has been kicked about over the last decade."

National commerce spokesman Lockwood Smith says National supports the basic thrust of the proposals, but will be looking at them carefully to ensure the industry does not become over-regulated.

The Motor Vehicle Dealers Institute also supports the intention of the change and has been arguing for some time that the onerous rules in place at present cost too much for the honest dealers and encourage people to sell cars on the black market.

The public affairs director of the Automobile Association, George Fairbairn, says the AA supports 90 per cent of the proposals.

But there are some concerns, such as the minimum age for a registered dealer.

Mr Fairbairn says 18 is too young and a youth could be used as a front-person for more disreputable car dealers.

So when will all this happen?


After submissions have been received, it is hoped the proposal will be reported back to the cabinet in June. Legislation could be introduced to Parliament shortly after that. Any new law would have to be drafted and go through the select committee process. So any new rules would be unlikely to come into effect until next year.

How can I get more information?


Most of the information above is available from the Ministry of Economic Development's website.

How can I have a say on the proposals?


Submissions on the proposals must be received by March 28. They should be posted to:

Karen Chant,

Competition and Enterprise Branch,

Ministry of Economic Development,

PO Box 1473,

Wellington.


Links


Ministry of Economic Development