If you bought a new car or truck in North Carolina, then it most likely came with a manufacturer warranty, which requires the manufacturer to repair a covered defect that shows up within the warranty period. If the manufacturer is unable or unwilling to repair any covered defect, your warranty probably requires you to participate in a non-binding “informal dispute settlement procedure” (arbitration) through either the BBB’s Auto Line program or another provider called the National Center for Dispute Settlement. This arbitration is non-binding in the sense that if you don’t like the outcome, you can pursue the warranty claim in court. If you win, however, the manufacturer has to accept and abide by the arbitrator’s decision. Although for reasons we will discuss later, you can still reject a “favorable” award if you wish.
On the surface, this seems like a good system. Unfortunately, it presents some pitfalls for the unwary if your warranty requires arbitration by the BBB.
In fact, if you have been awarded a repurchase or replacement from the Auto Line program from some of these manufacturers (Honda, Acura, and Ford, for example), you have most likely actually received less than the North Carolina Lemon Law (or another state’s law) allows you! Put another way, you have been the victim of a rigged set of rules that have been agreed to by vehicle manufacturers and the BBB where, even if you win, you can only hope to recover a fraction of what you should be entitled to under the law.
This patently unfair system is illustrated by a recent Ford lemon law case I handled, which illustrates how the rules are being used to line the pockets (by minimizing the losses) of vehicle manufacturers participating in the BBB Auto Line.
Understanding how the system actually works in practice requires an understanding of the Magnuson-Moss Warranty Act (the federal law that allows these “informal dispute settlement procedures”) and the Federal Regulations that actually set up the rules of the game. Only by understanding how the system is supposed to work can one see how this negatively impacts consumers.
As part of the warranty dispute process, the Magnuson-Moss Warranty Act, specifically, 15 U.S.C. § 2310(a), allows manufacturers to set up “informal dispute settlement procedures” to process warranty disputes in what is supposed to be a timely and cost-effective manner (and, probably more importantly to the manufacturers, without any meddlesome lawyers getting involved).
The Mag-Moss Act includes a glossy, pleasant-sounding policy:
“Congress hereby declares it to be its policy to encourage warrantors to establish procedures whereby consumer disputes are fairly and expeditiously settled through informal dispute settlement mechanisms.”
Sounds great, right? Of course, manufacturers jumped on this, and some contracted with the BBB, setting up procedures that are reflected in the BBB Auto Line program. This pre-litigation requirement is included in most manufacturers’ warranty books. For example, Ford Motor Company’s 2013 warranty states the following:
“You are required to submit your warranty dispute to the BBB AUTO LINE before exercising rights or seeking remedies under the Federal Magnuson-Moss Warranty Act, 15 U.S.C. § 2301 et seq. To the extent permitted by the applicable state ‘‘Lemon Law’’, you are also required to submit your warranty dispute to the BBB AUTO LINE before exercising any rights or seeking remedies under the ‘‘Lemon Law’’. If you choose to seek remedies that are not created by the Magnuson-Moss Warranty Act or the applicable state ‘‘Lemon Law,’’ you are not required to first use BBB AUTO LINE to resolve your dispute – although the program is still available to you.” (emphasis added).
Ford requires this program to be used before you can bring a lawsuit for any claims for breach of warranty. If you don’t follow this step, then you lose your right to bring the claim in court, and your case can be dismissed.
This arbitration requirement is fine in theory. As discussed below, however, the BBB Auto Line rules drastically limit a consumer’s available lemon law recovery in many cases, which only benefits the manufacturer.
Comparison of NC Lemon Law and Ford Motor Company BBB Auto Line
NC Lemon Law Liability: A defect has to show up within the first twenty-months or 24,000 miles after the purchase date.
The law presumes that the manufacturer has been given a reasonable number of attempts to fix a defect if the vehicle has been out of service for 20 business days or if the vehicle has been taken for repair four or more times for the same problem. The defect only has to substantially impair the value of the vehicle to the consumer.
BBB Auto Line Liability (Ford Motor Company): Under the Ford BBB Auto Line rules,
The arbitrator may award a repurchase or replacement only if the arbitrator finds that the claim meets the following conditions:
- The defect(s) in material or workmanship covered by the Ford New Vehicle Limited Warranty was first reported to Ford or an authorized dealer within 18 months or 18,000 miles – whichever occurs first – after the vehicle’s warranty start date; and
- Either (1) the same defect was subject to repair four or more times and continues to exist, or (2) the vehicle was out of service for 30 or more cumulative calendar days for repairs to any defect(s); and
- The defect(s) substantially impairs the use, value, or safety of the vehicle to the reasonable consumer.
Ford’s rules make it harder to establish liability under the BBB Auto Line program because Ford vehicles have to be out of service longer (30 calendar days versus 20 business days), and the defect has to show up within 18 months or 18,000 miles from the warranty start date (as opposed to the date you purchased the vehicle). Often, even if a vehicle is purchased new, it may have more miles on it due to test drives, use as a demonstrator vehicle or, in some instances, prior sales. Thus, it is entirely possible for your warranty to start before you buy a vehicle. Also, if you have a lemon vehicle that has been out of service for 21-29 business (but not calendar) days, then you do not qualify under the BBB, even though your claim would be valid under North Carolina law.
The problem also must begin and be reported to Ford or a dealer within 18 months or 18,000 miles rather than the longer 24 month/24,000 period allowed by statute. Good luck trying to win (or even file) an arbitration against Ford if your problem started after 18 months/18,000 miles.
Not only is it more difficult to prove liability under the BBB, the BBB and Ford limit how much you can recover in the event that you do win the arbitration.
NC Lemon Law Remedy: A consumer is entitled to recover the following:
“A replacement vehicle with a comparable new vehicle, or return of the vehicle and refund of the following:
(1) The full contract price including, but not limited to, charges for undercoating, dealer preparation and transportation, and installed options, plus the non-refundable portions of extended warranties and service contracts;
(2) All collateral charges, including but not limited to, sales tax, license and registration fees, and similar government charges;
(3) All finance charges incurred by the consumer after he first reports the nonconformity to the manufacturer, its agent, or its authorized dealer; and
(4) Any incidental damages and monetary consequential damages.
N.C.G.S. § 20-351.3(b) (emphasis added).
If your vehicle is repurchased, then the manufacturer is entitled to an offset for the mileage that you have driven. A mileage offset is essentially a “rental” charge for the miles that you drove before the problem(s) started.
“The refund to the consumer shall be reduced by a reasonable allowance for the consumer’s use of the vehicle. A reasonable allowance for use is calculated from the number of miles used by the consumer up to the date of the third attempt to repair the same nonconformity G.S. 20-351.3 which is the subject of the claim, or the twentieth cumulative business day when the vehicle is out of service by reason of repair of one or more nonconformities, whichever occurs first. The number of miles used by the consumer is multiplied by the purchase price of the vehicle or the lessor’s actual lease price, and divided by 120,000.”
N.C.G.S. § 20-351.3(c) (emphasis added).
Importantly, there is no usage allowance at all if you get a replacement vehicle.
BBB Auto Line Remedy (Ford Motor Company):
“Deductions/Exclusions from a Repurchase or Replacement Award
- If the arbitrator awards a replacement, the award will require payment for the customer’s use of the vehicle in accordance with the following formula:
mileage at first repair of the defect for which a replacement is awarded x purchase price
- If the arbitrator awards a repurchase, the award will be reduced for the customer’s use of the vehicle in accordance with the following formula:
all accrued mileage – 100 miles x purchase price
BBB Auto Line Program Summary – Ford Motor Company – North Carolina
So under the BBB, what you thought was a good result (you won!), actually turns out to not be so good after all. No matter what the outcome, the consumer ends up losing out.
Let’s take an example to illustrate the point:
Customer buys a new Ford vehicle for $25,000.00.
The new car is a lemon, and the customer reads the warranty and tries the BBB Auto Line on his or her own, without contacting an attorney.
After the hearing, the BBB awards a repurchase.
At the time of the arbitration, assume that the customer has 20,000 miles on the car. Assume that the problem started at 5,000 miles, and the third repair happened at 15,000 miles.
Under the BBB, Ford Motor Company could deduct $4,975.00 from the total repurchase amount (this hypothetical leaves out taxes, tag, and title fees, and interest charges):
20,000 – 100 x $25,000.00 = $4,975.00
Under the North Carolina Lemon Law, however, Ford could only legally deduct $3,125.00.
15,000 (miles at 3rd Repair) x $25,000.00 = $3,125.00
This is a $1,850.00 benefit to Ford because it does not have to pay Customer as much for her lemon!
It gets worse if there is a replacement. If Ford has to replace the vehicle, Ford will be able to deduct $1,250 even though the lemon law does not allow them to do this!
5,000 x $25,000.00 = $1,250.00
If you are unfortunate enough for the defect to start after 5,000 miles, then you could be left with thousands of dollars being deducted from your total recovery. Because Ford uses an MSRP as the litmus test for a replacement value, it is entirely possible for a Customer to buy a Ford Focus ($16,310 MSRP), and end up with a Ford Fiesta ($14,000 MSRP).
Also, it is possible (and probable) that, if the remaining balance owed is more than the repurchase amount after the BBB Auto Line offset, the customer may even have to pay money out of pocket to pay off her lienholder! This assumes that the customer would (or could even afford to) take such a terrible deal in the first place.
So under the BBB, you could end up having to pay to get rid of your lemon.
What You Should Do
First and foremost, if your vehicle has a mandatory arbitration procedure, you need to look very closely at the wording in the warranty book itself. If arbitration is required, this obviously needs to be done first, no matter how stacked the rules are against you. You also need to look at the actual remedies that you can get under the arbitration program’s rules for each manufacturer. To see the rules available for your vehicle under the BBB, check the BBB Auto Line website.
Secondly, know your rights and the remedies to which you are entitled. The serious problems with the BBB arbitration rules show that you should be careful going into a BBB arbitration without a lawyer. The pressure to accept a substandard decision in your favor can be great, especially when you have to consider the prospect of extended litigation. However, because the BBB decision can be used against the manufacturer in court, if you get a favorable decision but don’t like the remedy, you should feel confident in standing your ground and forcing the manufacturer to comply with the law.
Finally, give us a call before making the decision to arbitrate. As always, your options are only as strong as the facts of your case, so contact us discuss your situation. Our case review and consultation are free, so you don’t have anything to lose by calling us to review your situation.