Two of the most important and widely used forms in a dealership include the Prior Use Disclosure Form (sample below) and Prior Use and Damage Disclosure Acknowledgment Form. (sample below) These forms were developed by NJ CAR. The Prior Use Disclosure Form is used by dealers to disclose all possible prior uses of a vehicle, including use as a Company Vehicle/Factory Executive Vehicle (ex. Demonstration and Loaner vehicles), Program Vehicle/Factory Repurchase Vehicle, Rental Vehicle/Off-Lease Vehicle, and Wholesale Vehicle. If applicable, each disclosed use should be signed for by the customer.
The Prior Use and Damage Disclosure Acknowledgement Form is primarily used to disclose prior uses of a vehicle and damages that have been repaired on a vehicle. It can also be used to disclose any other items that a dealer believes a customer should or would want to know when buying a vehicle. This form is basically a combination of the two disclosure forms; therefore, it can also be used to accomplish both prior use disclosures.
The obligation to disclose information that could affect a customer’s decision to purchase a vehicle is derived from the New Jersey Consumer Fraud Act (CFA). Dealers often ask: what is the threshold dollar amount of damage to a vehicle that requires disclosure to a customer? This is an important question given the potential penalties for failure to disclose prior damages to a vehicle under the CFA. With its complicated requirements, imposition of strict liability, treble damages and award of attorney fees, the CFA has become a vehicle for claims against automotive dealers.
Under the CFA, a seller must disclose to a buyer any “material defect” known to the seller. “Material defect” is defined as any defect that a reasonable buyer would consider important in deciding to buy a car at a given price. Therefore, what constitutes a material defect can mean anything to the average person. Dealers should be extra cautious because they could be held to a higher standard as being particularly knowledgeable about the automotive industry.
The Used Car Lemon Law requires mandatory disclosures to customers during the sale of a used vehicle. The Used Car Lemon Law provides that it is a violation of the CFA to do any of the following:
- To fail to disclose to the buyer any material defects in the mechanical condition of a vehicle, which is known to the dealer;
- To represent that a vehicle is free from any defects unless the dealer has a reasonable basis for making this statement (such as a mechanical inspection);
- To fail to disclose any existing warranty covering the vehicle when that warranty is transferable; or
- To misrepresent the physical condition of a vehicle, the terms of any warranty, to fail to disclose that a vehicle is sold without a warranty or to fail to explain, in writing, the meaning of the term “as-is” if a vehicle is sold as-is.
Throughout the years, NJ CAR has combined all the statutes and regulations that impose an obligation to disclose under the CFA. The following list of disclosures should be considered mandatory to avoid or reduce the possibility of lawsuits against the dealership when selling a used vehicle:
- Odometer reading. N.J.A.C. 13:45-26A.5(b), 13:45-26A.6(f).
- Nature of prior use, unless the vehicle was exclusively owned or leased by an individual for personal use, whenever the dealer knew or should have known the prior use. N.J.A.C. 13:45-26A.5(b)(2). This includes fleet vehicles, rental vehicles, police cars, etc.
- Whether the vehicle is a “demo” vehicle. N.J.A.C. 13:45-26A.5(b), 13:45-26A.6(f).
- Any prior damage that the dealership knew or should have known about that would cost more than $1,000 to repair. N.J.A.C. 13:45-26A.7(a)(7).
- In many cases, prior damage, which would cost less than $1,000 to repair, provided the damage was severe enough that a reasonable person would not have bought the car if they had known about it. This would include damage such as flood damage and damage from a collision resulting in significant body or frame repair work.
- Whether the vehicle was returned or repurchased by the manufacturer under the “lemon law.” N.J.A.C. 13:45A-26.3.
- Any damage or defect to the emission system.
A new vehicle sometimes sustains damage during transportation or on the dealership’s premises. This damage may be small or fairly significant. A dealer may also make warranty repairs of mechanical defects on a vehicle. There is a duty to disclose significant damage or repairs done on a new vehicle before sale to a customer. As with a “material defect,” “significant damage” could be subject to interpretation. At least one court decision found $220 in repairs to be significant enough to require disclosure.
NJ CAR has always advised dealers to disclose all damages even though the cost to repair the vehicle is less than the $1000 threshold set by the Consumer Fraud Act’s advertising regulations.
Another use for the form is the disclosure of recall information. Federal law prohibits the sale of a new vehicle under an open safety recall. However, neither federal law nor New Jersey law prohibits the sale of a used vehicle under an open safety recall. When a used vehicle is sold with an open safety recall, the Consumer Fraud Act likely requires disclosure because of the requirement to disclose any defect or condition that would be considered material to a purchase decision. NJ CAR has always advised dealers that the decision to sell a used vehicle with an open safety recall is a business decision that should be made, taking into account all aspects, especially the safety of the customer.
Both the Prior Use Disclosure Form and the Prior Use and Damage Disclosure Acknowledgement Form serve important purposes that protect dealers against potential Consumer Fraud Act claims. The forms can be ordered by calling NJ CAR Services, Inc. at 1-609-884-5056 Ext. 402 or visiting njcarservices.com. They are also available through Dealer Management System providers, including CDK, DealerTrack, Reynolds and Reynolds and DealerSocket.
Greyson Hannigan is NJ CAR’s Director of Legal and Regulatory Affairs. He can be reached at 609.883.5056, x340 or, via email, at ghannigan@njcar.org.
