Used Car SS '10 FIN_mtd

Supporting Statement
Used Motor Vehicle Trade Regulation Rule
16 C.F.R. Part 455
(OMB Control Number 3084-0108)
(1)

Circumstances Making the Collection of the Information Necessary

The Magnuson-Moss Warranty Act,1 which became effective in 1975, directed the Federal
Trade Commission (“FTC” or “Commission”) to conduct a rulemaking proceeding dealing with
“warranties and warranty practices in connection with the sale of used motor vehicles.”2 After
notice and extensive oral hearings, the compilation of a large written record (including reports by
the Presiding Officer and FTC staff), and oral presentations to the Commission from selected
rulemaking participants, the Commission promulgated a final Used Car Trade Regulation Rule (“the
Rule” or “Used Car Rule”). 46 Fed. Reg. 41,328 (Aug. 14, 1981).
On November 19, 1984, the Commission promulgated a revised final Used Car Rule that
requires used car dealers to post a “Buyers Guide” on used cars offered for sale to consumers. The
Commission amended the Used Car Rule on December 5, 1995.3 The Buyers Guide must disclose
information about the warranty coverage offered, the meaning of an “as is” sale, and other related
information.
The Commission based its decision to adopt a revised version of the Rule on its finding that
the purchase of a used car represents a substantial, necessary investment in a reliable means of
transportation. The Commission concluded that:
Despite the significance of this investment and the relative unfamiliarity of most
consumers with the mechanical operation of an automobile, used car buyers currently
receive little accurate warranty and mechanical condition information to assist them
in their purchase. Consumers’ ability to obtain this information has been hampered
by various unfair and deceptive practices identified during the course of [the]
rulemaking proceeding; as the record established, these practices have resulted in
substantial consumer injury in the used car market.4
The Commission found that the rulemaking record demonstrated that used car dealers and
their agents frequently engaged in deceptive sales practices including: (1) misrepresenting the
mechanical condition of a used vehicle; (2) misrepresenting the terms of any warranty offered; and
(3) representing that a used vehicle is sold with a warranty when the vehicle is sold without one.
The Commission also found that used car dealers and their agents engaged in unfair practices
including: (1) failing to disclose, before sale, that the used vehicle is sold without any warranty; and
1

15 U.S.C. §§ 2301 - 2132.

2

15 U.S.C. § 2309(b).

3

60 Fed. Reg. 62,195 (Dec. 5, 1995), effective January 4, 1996.

4

Statement of Basis and Purpose (“SBP”), 49 Fed. Reg. 45,692 (Nov. 19, 1984).

(2) failing to make available, before sale, the terms of any written warranty offered in connection
with the sale of the used vehicle.5 The Commission determined that requiring point-of-sale
disclosure of information about warranty coverage would discourage used car dealers from engaging
in the deceptive practices established in the rulemaking record.
(2)

Use of the Information

The Used Car Rule requires dealers to display a one page, two-sided Buyers Guide. The
Buyers Guide must contain three verbatim disclosures specified by the Rule. Because the Rule
explicitly sets forth each of these disclosures (and the format for disclosure of other required
information), the requirement constitutes “the public disclosure of information originally supplied
by the federal government to the recipient for the purpose of disclosure to the public.” Thus, these
disclosures are not “collection[s] of information” for Paperwork Reduction Act purposes. See 5
C.F.R. § 1320.3(c)(2).
In addition to the above-referenced disclosures, used car dealers must supply certain
identifying information, including the dealer’s name and address (16 C.F.R. § 455.2(c)), the make,
model, model year, and vehicle identification number for the vehicle (16 C.F.R. § 455.2(d)), and the
name and telephone number of the person who should be contacted if complaints arise after sale (16
C.F.R. § 455.2(e)), as well as supply information about warranties. Dealers may either check a box
on the Buyers Guide to indicate that a used vehicle is sold “as is” or provide specific information
about the warranty offered. This information must include the warranty terms, including whether
the warranty offered is “full” or “limited,” which systems are covered, the warranty’s duration, and
the percentage of the repair cost the dealer will pay. If the vehicle is still under the manufacturer’s
warranty, the dealer may so state. If the dealer offers a service contract on the vehicle, this
information must also be disclosed by marking the proper box on the Buyers Guide.
The Buyers Guide must be displayed on the vehicle for review by prospective customers.
It may be placed anywhere on the vehicle as long as it is displayed prominently and conspicuously
so that both sides are readily readable. 16 C.F.R. § 455.2(a)(1). The dealer must give the buyer of
a used vehicle a completed Buyers Guide reflecting the warranty coverage agreed upon. An
accurate copy of the original form may be substituted if the dealer wishes. 16 C.F.R. § 455.3(a).
Finally, the information contained on the final version of the Buyers Guide must be
incorporated into the contract of sale for each used vehicle. The Rule requires that dealers inform
the customer of this fact by including a verbatim statement in each contract of sale. 16 C.F.R.
§ 455.3(b). This latter provision is also not a “collection of information” under 5 C.F.R.
§ 1320.3(c)(2).
Prospective purchasers use the information provided by the Buyers Guide to evaluate
whether a warranty is offered and, if so, its terms. Each Buyers Guide is specific to the particular
used vehicle to which it is attached. This provides a basis for consumers to compare various

5

SBP at 45,692.

2

vehicles and negotiate warranty coverage. This information also may be used to assess the condition
of the vehicle. In addition, the posting of Buyers Guides and the mandatory disclosures contained
thereon allow for possible “spot-check” by FTC officials and state law enforcement agencies.
(3)

Consideration of the Use of Information Technology to Reduce Burden

The disclosure provisions of the Rule permit used car dealers to use any available improved
information technology to reduce their compliance burden. In fact, many used car dealers use
existing office automation technology to comply with the Rule by, for example, using computergenerated Buyers Guides or using photocopied Buyers Guides. Since the Rule requires that
information be disclosed to consumers by displaying Buyers Guides on the vehicles themselves,
electronic disclosure pursuant to the Government Paperwork Elimination Act, 44 U.S.C. § 3504
note, is inapposite and not practicable.
(4)

Efforts to Identify Duplication

The Rule has been in effect since 1985. No other federal law or regulation requires that the
Buyers Guide disclosures be made when a used vehicle is placed on the dealer’s lot or when it is
offered for sale.6 Two states, Maine and Wisconsin, require the disclosure of related but different
information regarding used car sales.7
(5)

Efforts to Minimize Burden on Small Organizations

Many of the approximately 54,000 used car dealers in the United States are small businesses.
The Commission sought to reduce the burden on small businesses by crafting the Rule to minimize
the compliance burden upon dealers generally.8 The Commission concluded that the disclosures
described above were the most efficient means to address the problems found in the rulemaking
record. On January 4, 1996, an amendment to the Rule became effective allowing dealers to display
the Buyers Guide anywhere on the vehicle if it is displayed prominently and conspicuously such that
both sides are readily readable. 60 Fed. Reg. 62,195 (Dec. 5, 1995). Before this amendment became
effective, dealers were required to post the Buyers Guide on the side window of the vehicle.

6

Some states also have adopted the Rule as state law. In addition, the Magnuson-Moss Warranty Act, 15
U.S.C. §§ 2301-2312, requires that written warranties on consumer products be available before sale, as
specified by 16 C.F.R. Part 702, but displaying warranty information is not required.
7

Both states were granted exemptions from the Rule pursuant to 16 C.F.R. § 455.6.

8

See SBP at 45,712 - 45,719. The Commission considered ten other remedial alternatives proposed in the
Used Car rulemaking, such as requiring disclosure of defects, requiring a pre-sale inspection opportunity,
requiring a cooling-off period for used car buyers, and requiring other disclosures concerning the condition of
the used car.

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(6)

Consequences of Collecting the Information Less Frequently

Less frequent disclosure of the warranty and other information related to the sale of a used
vehicle would undermine the purpose of the Rule. Every consumer benefits from receiving the
warranty information and other information contained on the Buyers Guide. To require less frequent
disclosure of this information would mean that consumers would not have the same or similar ability
to make informed used car purchase decisions.
(7)

Circumstances Requiring Collection Inconsistent With Guidelines

The collection of information in the Rule is consistent with all the applicable guidelines
contained in 5 C.F.R. § 1320.5(d)(2).
(8)

Consultation Outside the Agency

The original rulemaking proceeding provided an opportunity for comment and input from
all sectors of society affected by the proposed rule. Public hearings were held in six cities, affording
additional opportunity for public participation in the proceeding. Consumer and industry groups
represented affected interests during the entire proceeding. FTC staff has been in contact with
interested industry members and trade association since the Rule became effective in 1985.
More recently, as required by 5 C.F.R. § 1320.8(d)(1), the FTC sought public comments on
its proposal to extend its current OMB clearance for the Rule’s information collection requirements.
See 75 Fed. Reg. 62,538 (Oct. 12, 2010). No comments were received. Pursuant to the OMB’s
implementing regulations, the FTC is providing a second opportunity for public comment while
seeking OMB approval to extend the existing PRA clearance for the Rule.
(9)

Payments or Gifts to Respondents
The Rule contains no provisions for payments or gifts to respondents.

(10) & (11)

Confidentiality/Matters of a Sensitive Nature

Not applicable to the Rule’s disclosure provisions. All information required to be disclosed
by the Rule is public, non-proprietary, and factual. To the extent that the Commission collects
information for law enforcement purposes, all trade secrets and confidential commercial information
submitted to the agency are protected under the Federal Trade Commission Act, the Freedom of
Information Act, and other applicable law. See Sections 6(f) and 21 of the Federal Trade
Commission Act, 15 U.S.C. §§ 46(f) and 57b-2; 16 C.F.R. §§ 4.10-4.11.

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(12)

Estimated Annual Hours and Labor Cost Burden
Estimated total annual hours burden: 1,974,589 hours

The Rule has no recordkeeping requirements. The estimated burden relating solely to
disclosure requirements is 1,974,589 hours. As explained in more detail below, this estimate is
based on the number of used car dealers (53,7359), the number of used cars sold by dealers annually
(approximately 24,531,37410), and the time needed to fulfill the information collection tasks required
by the Rule.11
The Rule requires that used car dealers display a one-page, double-sided Buyers Guide on
each used car that they offer for sale. The component tasks associated with the Rule’s required
display of Buyers Guides include: (1) ordering and stocking Buyers Guides; (2) entering data on
Buyers Guides; (3) displaying the Buyers Guides on vehicles; (4) revising Buyers Guides as
necessary; and (5) complying with the Rule’s requirements for sales conducted in Spanish.
1.
Ordering and Stocking Buyers Guides: Dealers should need no more than an average
of two hours per year to obtain Buyers Guides, which are readily available from many commercial
printers or can be produced by an office word-processing or desk-top publishing system.12 Based
on a population of 53,735 dealers, the annual hours burden for producing or obtaining and stocking
Buyers Guides is 107,470 hours.
2.
Entering Data on Buyers Guides: The amount of time required to enter applicable
data on Buyers Guides may vary substantially, depending on whether a dealer has automated the
process. For used cars sold “as is,” copying vehicle-specific data from dealer inventories to Buyers
Guides and checking the “No Warranty” box may take two to three minutes per vehicle if done by
hand, and only seconds for those dealers who have automated the process or use pre-printed forms.
Staff estimates that this task will require an average of two minutes per Buyers Guide. Similarly,

9

CNW Marketing Research, Inc. As of July 2010, CNW lists 15,631 new vehicle franchised outlets with
used car operations and 38,104 independent used car outlets, for a total of 53,735 used car dealers.
10

Id. This figure reflects total used car sales by franchised and independent dealers in 2009, the most recent
complete annual figures available.

11

Some dealers opt to contract with outside contractors to perform the various tasks associated with
complying with the Rule. Staff assumes that outside contractors would require about the same amount of time
and incur similar cost as dealers to perform these tasks. Accordingly, the hour and cost burden totals shown,
while referring to “dealers,” incorporate the time and cost borne by outside companies in performing the tasks
associated with the Rule. In addition, the time estimates that follow repeat those that the FTC published in the
2007 PRA clearance renewal-related Federal Register notices (72 FR 46487 (Aug. 20, 2007); 72 FR 71911
71912 (Dec. 19, 2007)) without receiving public comment. Absent prospective specific industry estimates to
the contrary, staff will continue to apply these estimates, which staff believes are reasonable.

12

Buyers Guides are also available online from the FTC’s Web site, www.ftc.gov, as links to A Dealer’s
Guide to the Used Car Rule at http://www.ftc.gov/bcp/edu/pubs/business/autos/bus13.shtm.

5

for used cars sold under warranty, the time required to check the “Warranty” box and to add
warranty information, such as the additional information required in the Percentage of Labor/Parts
and the Systems Covered/Duration sections of the Buyers Guide, will depend on whether the dealer
uses a manual or automated process or Buyers Guides that are pre-printed with the dealer’s standard
warranty terms. Staff estimates that these tasks will take an average of one additional minute, i.e.,
cumulatively, an average total time of three minutes for each used car sold under warranty.
Staff estimates that approximately fifty percent of used cars sold by dealers are sold “as is,”
with the other half sold under warranty. Therefore, staff estimates that the overall time required to
enter data on Buyers Guides consists of 408,856 hours for used cars sold without a warranty
(24,531,374 vehicles x 50% x 2 minutes per vehicle) and 613,284 hours for used cars sold under
warranty (24,531,374 vehicles x 50% x 3 minutes per vehicle) for a cumulative estimated total of
1,022,140 hours.
3.
Displaying Buyers Guides on Vehicles: Although the time required to display the
Buyers Guides on each used car may vary substantially, FTC staff estimates that dealers will spend
an average of 1.75 minutes per vehicle to match the correct Buyers Guide to the vehicle and to
display it on the vehicle. The estimated burden associated with this task is approximately 715,498
hours for the 24,531,374 vehicles sold in 2009 (24,531,374 vehicles x 1.75 minutes per vehicle).
4.
Revising Buyers Guides as Necessary: If negotiations between the buyer and seller
over warranty coverage produce a sale on terms other than those originally entered on the Buyers
Guide, the dealer must revise the Buyers Guide to reflect the actual terms of sale. According to the
original rulemaking record, bargaining over warranty coverage rarely occurs. Staff notes that
consumers often do not need to negotiate over warranty coverage because they can find vehicles that
are offered with the desired warranty coverage online or in other ways before ever contacting a
dealer. Accordingly, staff assumes that the Buyers Guide will be revised in no more than two
percent of sales, with an average time of two minutes per revision. Therefore, staff estimates that
dealers annually will spend approximately 16,354 hours revising Buyers Guides (24,531,374
vehicles x 2% x 2 minutes per vehicle).
5.
Spanish Language Sales: The Rule requires that contract disclosures be made in
Spanish if a sale is conducted in Spanish.13 The Rule permits displaying both an English and a
Spanish language Buyers Guide to comply with this requirement.14 Many dealers with large
numbers of Spanish-speaking customers likely will post both English and Spanish Buyers Guides
to avoid potential compliance violations.
Calculations from United States Census Bureau surveys indicate that approximately 6.5
percent of the United States population speaks Spanish at home, without also speaking fluent

13

16 CFR 455.5.

14

Id.

6

English.15 Staff therefore projects that approximately 6.5 percent of used car sales will be conducted
in Spanish. Dealers will incur the additional burden of completing and displaying a second Buyers
Guide in 6.5 percent of sales assuming that dealers choose to comply with the Rule by posting both
English and Spanish Buyers Guides. The annual hours burden associated with completing and
posting Buyers Guides is 1,737,638 hours (1,022,140 hours for entering data on Buyers Guides plus
715,498 hours for displaying Buyers Guides). Therefore, staff estimates that the additional burden
caused by the Rule’s requirement that dealers display Spanish language Buyers Guides when
conducting sales in Spanish is 112,947 hours (1,737,638 hours x 6.5%). The other components of
the annual hours burden, i.e., purchasing Buyers Guides and revising them for changes in warranty
coverage, remain unchanged.
Estimated annual cost burden: $26,301,525
Labor costs are derived by applying appropriate hourly cost figures to the burden hours
described above. Staff has determined that all of the tasks associated with ordering forms, entering
data on Buyers Guides, posting Buyers Guides on vehicles, and revising them as needed, including
the corresponding tasks associated with Spanish Buyers Guides, are typically done by clerical or
low-level administrative personnel. Using a clerical cost rate of $13.32 per hour16 and an estimated
burden of 1,974,589 hours for disclosure requirements, the total labor cost burden would be
approximately $26,301,525.
(13)

Estimated Annual Capital or Other Non-labor Costs

Although the cost of Buyers Guides can vary considerably, based on industry input staff
estimates that the average cost of each Buyers Guide is twenty cents. The estimated cost of Buyers
Guides for the 24,531,374 used cars sold by dealers in 2009 is approximately $4,906,275. In making
this estimate, staff conservatively assumes that all dealers will purchase preprinted forms instead
of producing them internally, although dealers may produce them at minimal expense using current
office automation technology. Capital and start-up costs associated with the Rule are minimal.
(14)

Estimate of Cost to the Federal Government

Staff estimates that the annualized cost to the federal government attributable to enforcement
of the Used Car Rule will be approximately $275,000, inclusive of benefits. This estimate is based

15

U.S. Census Bureau, Table S1601. Language Spoken at Home. 2008 American Community Survey 1-Year
Estimates, available at:
http://factfinder.census.gov/servlet/STTable?_bm=y&-qr_name=ACS_2008_1YR_G00_S1601&-geo_id=010
00US&-ds_name=ACS_2008_1YR_G00_&-_lang=en&-redoLog=false&-CONTEXT=st. The table indicates
that 12.2% of the United States population 5 years or older speaks Spanish or Spanish Creole in the home and
46.7% of these in-home Spanish speakers speak English less than “very well.”
16

The hourly rate is based on Bureau of Labor Statistics estimate of the mean hourly wage for office clerks,
general. Occupational Employment and Wages, May 2009, available at
http://www.bls.gov/oes/current/oes439061.htm#nat.

7

upon the assignment of two work years (including clerical and other support) to the Rule during the
fiscal year, as well as an estimated $9,000 in other operating expenses required to support the Rule.
(15)

Program Changes or Adjustments

There are no program changes. The estimated total annual hours burden has decreased from
2,250,000 hours in 2007 to the current estimate of 1,974,589 hours due to a decrease in the number
of used car dealers and number of cars sold.
(16)

Publication of Information
Not applicable.

(17)

Requested Permission Not to Display OMB Expiration Date
Not applicable.

(18)

Exceptions to Certification
Not applicable.

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