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The Federal Lemon Law: How Well Does Your Dealership Understand the Rules?

Only dealership customers with warranties are protected under the Federal Lemon Law.01-The Federal Lemon Law-01

You undoubtedly take a lot of pride in your dealership and the inventory you offer. However, whenever you are selling cars — especially used cars — no matter how careful you are about choosing them, there’s a chance they could be destined for a lifetime of constant repairs (and headaches for the owners).

But what do you do if a customer you sold a car to comes back and complains that you sold them a “lemon”? How can you tell the difference between a fluke (like the car randomly stalling) and a pattern that proves consistent mechanical issues? And what are your obligations to the consumer according to the law?

Every dealership needs to understand the Magnuson-Moss Warranty Act, more commonly known as the Federal Lemon Law, which was instituted in 1975 to govern consumer product warranties.

What your dealership needs to know about the Federal Lemon Law02-The Federal Lemon Law-01

The idea of the Federal Lemon Law isn’t about whether or not a vehicle works, it’s about the warranty a customer buys to protect that purchase. If you have a customer that returns to complain about a lemon, but they did not get a warranty, the Federal Lemon Law doesn’t apply in that case; only consumers with written warranties are covered.

To understand your obligations under the Federal Lemon Law, it’s helpful to think about why Congress passed it in the first place. They wanted to:

• Ensure consumers could get complete information about warranty terms and conditions.

• Give consumers the opportunity to compare warranty coverage before buying.

• Promote competition among dealerships on the basis of warranty coverage.

• Strengthen incentives for dealerships to perform their warranty obligations in a timely and thorough manner.

According to the Federal Trade Commission (FTC), there are three basic requirements that could apply to your dealership:

1. As a warrantor, you must designate, or title, your written warranty as either “full” or “limited.”
2. As a warrantor, you must state certain specific information about the coverage of your warranty in a single, clear, and easy-to-read document.
3. As a warrantor or a seller, you must ensure that warranties are available where your warranted consumer products are sold so that consumers can read them before buying.

It’s not just the Federal Lemon Law — read up on state laws, too

The Federal Lemon Law applies to every dealership in every state, but you may also have state-specific Lemon Laws that you must comply with as well. Some states have these laws on the books, while others have used-car buyers’ rights, but it’s up to you to know the exact laws in your state.03-The Federal Lemon Law-01

While the definite legal details vary from state to state, there is a general idea that applies to most. Usually, if a vehicle continues to have a defect within the warranty period, and it’s been repaired four or more times (or out of service at your dealership for more than 30 days), it’s labeled as a lemon — especially if the defect has a big impact on the vehicle’s value, use, or safety. Once the car meets the state’s definition of a true lemon, the consumer can customarily decide if they want their money back or if they want a replacement vehicle.

What happens if you violate the Federal Lemon Law?

When it comes to Federal Lemon Law cases, if a consumer feels their rights have been violated, they can retain the services of an attorney. In most instances, it’s not the dealership that is taken to court, but the manufacturer of the defective vehicle. Dealerships can end up being involved, though, so it’s best not to tempt fate — stay open and honest with your dealership’s vehicle warranties, read up on your state’s lemon laws, and always put the needs of your customers first.

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Ty W.
Ty W.

Ty was born and raised in the automotive world. He's an enthusiastic expert who writes exquisite content about cars, automotive sales, and dealership best practices. When not writing for AutoRaptor, you'll find Ty on the golf course.