By Mark Sanborn
Senior Product and Regulatory Counsel
Starting August 19, 2024, Pennsylvania car dealerships must comply with updated inspection and disclosure requirements as per the Attorney General’s update to the state’s Unfair and Deceptive Acts and Practices regulations (37 Pa. Code § 301.2(5), (5.1)). Let’s take a look at the new disclosure and inspection requirements and their impact on dealership operations.
Vehicle Condition Disclosure Requirements
Dealers are required to disclose in advertisements and sales presentations the following conditions if they know or should know that these conditions exist:
- Frame Issues: Bent, cracked, or twisted frame.
- Engine Problems: Cracked engine block or head.
- Inspection Failure: Vehicle unable to pass state inspection.
- Transmission Defects: Damaged, defective, or severely deteriorated transmission requiring replacement.
- Flood Damage: Vehicle has been flood-damaged.
- Differential Defects: Damaged, defective, or severely deteriorated differential requiring replacement.
Vehicle Inspection Requirements
- Initial Inspection: Before advertising or offering a vehicle for sale, dealers must have a certified inspection mechanic inspect a vehicle within 30 days of it entering their inventory, covering all six conditions listed above.
- Re-inspection: If the vehicle accumulates 500 or more miles while in inventory, it must be re-inspected within 30 days before the sale, excluding condition 3 (state inspection failure).
- Exemptions: The inspection requirements do not apply if the vehicle is:
- Sold to another dealer.
- Sold pursuant to an authorized auction license.
- Holding a salvage or nonrepairable certificate.
- Located outside Pennsylvania during advertisement or sale.
Impacts on Dealership Operations and Processes
Key Points to Note:
- Vehicles Should be Inspected Before Being Offered for Sale, or Appearing on Websites or in Advertisements. The requirements state that a dealer must disclose the listed condition issues in advertisements, a dealer will not know if a vehicle has condition issues if it does not inspect the vehicle before it is offered for sale.
- Applicability to All Vehicles: The requirements apply to both new and used vehicles.
- No “As-Is” Exemption: Vehicles sold “as-is” are not exempt. Dealers must perform inspections and disclose known or discoverable conditions.
- “Should Have Known” Standard: Dealers must be proactive in identifying issues, not relying on cursory inspections.
Recommended Actions for Compliance:
- Inventory Management:
- Implement a system to inspect vehicles before listing them for sale and ensure that no vehicle is posted for sale online until it has undergone inspection. If vehicles are listed prematurely, it may create a potential liability. To mitigate this, dealers should consider setting the default online listing to show no price, along with a notice indicating that the vehicle is not available for sale while it is undergoing inspection. This could help prevent a violation if a vehicle was inadvertently listed before it was inspected. The notice would be replaced after the inspection process is complete.
- Establish a system to monitor vehicles accumulating 500 or more miles while in inventory and flag for re-inspection.
- Schedule re-inspections within the required 30-day window before sale.
- Document all inspections and re-inspections.
Inspection Checklists:
- Develop checklists covering the specified conditions and any additional inspected elements.
- Include the mechanic’s name, signature, date of vehicle acquisition, inspection date, and mileage.
- Have the customer sign the form.
- Retain a copy in the deal file as proof of inspection and disclosure.
- Disclosure Documents:
- Create a form to disclose identified issues to potential buyers.
- This can be integrated into the inspection checklist or be a separate document.
- Ensure the customer signs it.
- Keep a copy in the deal file as evidence of compliance.
- NMVTIS Reports:
- NMVTIS reports are vehicle history documents provided by the National Motor Vehicle Title Information System, a government database overseen by the U.S. Department of Justice. They offer information about a vehicle’s title, odometer readings, and whether it has been reported as salvage, flood damage, or a total loss. These reports help consumers avoid fraud and make informed decisions when purchasing used vehicles.
- NMVTIS reports include information from law enforcement, insurance companies, and state agencies.
- Since dealers are required to disclose conditions that they “should” know exist, dealers should strongly consider obtaining NMVTIS reports. NMVTIS reports can often be run in conjunction with CarFax/AutoCheck reports.
- NMVTIS reports should be maintained in the deal file to demonstrate compliance.
- Vehicle History Reports:
- Since dealers are required to disclose conditions that they “should” know exist, dealers should strongly consider implementing a process to obtain one or more vehicle history reports (e.g., CarFax and/or AutoCheck reports) on all vehicles, in addition to NMVTIS reports.
- Share pertinent information with prospective buyers.
- Have buyers sign to acknowledge receipt.
- Best practice to have buyer sign/initial pages with disclosures (e.g., prior damage, rental status, etc.).
- Maintain these records in the deal file to demonstrate compliance.
- Deal Jacket Audits:
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- Establish a process to periodically review deal jackets for compliance with these requirements.
- Compliance issues that are identified and mitigated early can help reduce the risk and exposure associated with consumer claims and regulatory enforcement actions.
- Consider using software solutions to help automate and streamline this process.
These new inspection and disclosure requirements may feel burdensome for dealerships, but with planning and training, compliance is achievable. While the added responsibilities will require changes to existing processes, software tools like ComplyAuto Guardian can ease the administrative workload by automating deal jacket audits and can help mitigate risks associated with consumer claims and regulatory enforcement actions.