I broke down and bought a new car recently. Because I spend a little more than half of my time in South Carolina, I decided to do business with a dealer in Myrtle Beach. The sales guy, the F&I guy and I all did our little dance, and pretty soon it was time to sign on the dotted line.
The buyers order was the first document I looked at, and I instantly saw two problems with it. When you look at as many buyers orders as I do, you get a pretty good feel for the sorts of mistakes that the drafters of these forms make when they don’t do their homework. Sure enough, the drafter of this form made a couple of common mistakes.
I signed it anyway, because no one was paying me to fix the thing, and because both of the problems worked in my favor or could be used for leverage if I had problems with the deal, the dealer or the car. I won’t identify the dealer, by the way, because I’d just as soon not tip off some plaintiff’s lawyer to the dealer’s problems.
The first problem that jumped off the page was a violation of the Federal Trade Commission (FTC)’s Used Car Rule. That rule requires that a certain notice appear in the contract of sale. It also requires that the notice be “conspicuous.” The dealer’s form contained the required notice, but it appeared in the same type size and font that was used in most of the rest of the document. The failure to use a “conspicuous” notice violates the Used Car Rule, exposing the dealer to the FTC’s tender mercies.
The second jump-off-the-page problem was similar to the first. The Uniform Commercial Code (UCC) provides that a sale of goods (that includes vehicles) is subject to certain “implied warranties.” These warranties apply whether the buyer and seller expressly agree to them or not. The UCC, however, permits a seller of goods to “disclaim” any implied warranties, provided any such disclaimer is conspicuous. This dealer’s disclaimer, like his Used Car Notice, was not conspicuous. You can bet a car buyer would argue that the failure to use a conspicuous disclaimer results in the disclaimer being ineffective.
When I arrived home with my new ride, I sat down and perused the paperwork more closely. That turned up an additional issue: One of the documents I had signed was an arbitration agreement. I read through it and concluded that it wasn’t in bad shape, except for one little problem. The drafter had provided in the arbitration agreement that South Carolina’s arbitration law would apply, which is a bad idea.
When we draft arbitration agreements, we specifically state that arbitration under the agreement will be pursuant to the Federal Arbitration Act. The reason we reference the FAA is that there are a number of business-friendly published court decisions that say the FAA trumps, for the most part, state judicial and legislative attempts to prohibit or limit the ability of businesses to use arbitration agreements as a means of defending themselves against class action lawsuits and potentially large “runaway” jury verdicts. Electing the state’s arbitration law to govern the document deprives the dealership of the benefit of these favorable precedents.
After thinking some more, I decided that it would be a waste not to at least mention these problems to the dealer. So I called up the nice F&I man and explained what I’d found. I’m sure he immediately alerted the owner of the dealership of the form’s deficiencies, and that they then immediately called the dealership’s lawyer to fix the problems.
Sure he did.