Motor Vehicle Sales Information Disclosure

Section 14 of the MVSA requires motor vehicle traders to display with any used motor vehicle for sale a supplier information notice (SIN). It also requires consumers selling cars through a car market operated by a motor vehicle trader to display a supplier information notice.

Supplier information notices are a form of regulated information disclosure and are referred to as a pre-market consumer protection control. Their objective is to provide consumers with information to assist the purchasing decision.

Pre-market controls are usually applied when there are important safety issues that need to be managed or when the technology involved is complex or when it is considered important to provide consumers with information to allow for better, more informed decision-making and pre-market intervention is the most economically efficient way of achieving the desired policy objective.

The main legislative mechanism for detailing the requirements for the supplier information notice for used motor vehicles being sold by traders is the Consumer Information Standards (Used Motor Vehicles) Regulations 2003. These regulations are made under the Fair Trading Act 1986. They are not discussed in this discussion paper but, as noted, are being separately reviewed alongside the Review of the Operation of the Motor Vehicle Sales Act 2003.

Changes to the requirements for private sellers (consumers) at markets to display SINs and for trader to trader transactions to provide SINs were suggested in the Review of the Operation of the Motor Vehicle Sales Act 2003. As a result of further consideration of these matters it is proposed that amendments to the MVSA be made in the following areas.

Clarification and Tightening of Requirements on Car Market Operators to Provide Supplier Information Notice

The Review of the Operation of the Motor Vehicle Sales Act 2003 recommended that section 14 of the Act be clarified as to the responsibilities placed on car market operators with regard to providing the SIN, in particular in relation to internet sales, and that consideration be given to removing the section 14(2) provision that requires car market operators only to take reasonable steps to ensure that a private seller provides a SIN.

As noted above, the information disclosure requirements relating to the sale of used motor vehicles are found in two pieces of legislation. The relevant provisions are sections 14 to 18 and sections 101 to 102 of the MVSA and the Consumer Information Standards (Used Motor Vehicles) Regulations 2003 made under the Fair Trading Act 1986, commonly known as the SIN regulations. In brief, the two pieces of legislation say a SIN notice must be displayed with any used motor vehicle offered for sale by a motor vehicle trader which includes through the facility of a car market operator. Currently car market operators are considered to be motor vehicle traders and therefore have to register as such.

When motor vehicles are physically displayed for sale, the SIN must be attached in a prominent position that makes it clearly visible from outside the vehicle. A SIN is also required for vehicles on display or for sale on the internet (where a contract for sale may be entered into online). The SIN (or access to it, for example, through a hypertext link) must be clearly and prominently displayed on the same web page as the offer, and the contract for sale, relating to that vehicle.

Policy Objectives

As car market operators are classed as motor vehicle traders, all sales at car markets - both by traders and private sellers (consumers) - require the display of a SIN. The policy objectives underlying the need for a SIN for all sales at a car market appear to have been:

• To identify who is a trader and who is selling privately and to stop motor vehicle traders from passing themselves off as private sellers. Despite this side by side trading environment, different rights are still attached to private sales and sales by traders, so it is in the consumer's interest to have the distinction indicated clearly. The SIN was intended to provide a tool for making this distinction by providing a tick box to indicate who was selling.
• An individual selling through a car market is taking advantage of a market-type venue. Requiring all sellers to provide basic information about their motor vehicle, and those who carry on the business of facilitating such sales to make sure this information is provided, is not onerous.
• Private sales should be comparable to a trade with a motor vehicle dealer when using a car market. This was intended to ensure the consumer choosing a vehicle in a venue that offers a mix of private and trade sales has access to the same kind of information on all the vehicles on display.

The Ministry of Consumer Affairs has revisited this situation to see if the policy objectives are justifiable and are being met. The fundamental question has been posed: if a private sale outside a car market does not require a SIN, does the car market environment change the nature of the transaction enough to require private sellers to be subject to SIN display requirements.

Discussion

All motor vehicle traders when selling a used motor vehicle, must, at any venue, display a SIN under section 14(1). Failure to do so contravenes the MVSA. Inspectors can check the status of the vehicle seller on the Motor Vehicle Traders Register as all motor vehicle traders are required to be registered.

Due to a concern that people were avoiding their trader obligations when selling at car markets, the MVSA extended the definition of a motor vehicle trader to include car market operators. Effectively, this made it also the car market operator's responsibility to ensure that motor vehicle traders and private sellers (consumers) who use their services display a SIN. To recognise the difficulties of achieving compliance from private sellers, section 14(2) then requires that the car market operator takes reasonable steps to ensure private sellers display a SIN.

The requirements on car market operators, however, are not proving an effective way of monitoring whether traders do not pose as private sellers (and thus avoid their statutory obligations). It was anticipated that having everyone displaying a SIN in a car market would make enforcement easier in that all transactions would occur with a SIN and the consumer could identify who was privately selling and who was a trader. This can only occur if the SIN is honestly completed and displayed. A trader, however, can simply fill in the SIN and claim to be a private seller. Any set-up is extremely difficult to enforce. To determine if the private seller is indeed a private seller the inspector will need to investigate further than what is provided in the SIN.

With regard to private sellers, when a person enters into a private sale they are not looking for the same kind of deal as that offered by a motor vehicle trader. They are looking for a cheaper price than that offered by a motor vehicle trader and so are accepting that there are possibly risks such as less redress rights with the private sale.

While lack of knowledge of the requirements is no defence for a breach of the law, it is likely given the infrequency with which they participate in the private sale vehicle market that many private sellers are unaware that when they use such a market they are required to produce a SIN. One example is the auction site Trade Me. Even though Trade Me has noted in its terms and conditions of using the site that a SIN must be displayed, the vast majority of private sellers (and detrimentally, motor vehicle traders as well) do not display a SIN.

It also appears that enforcement activity at car markets is being spent on ensuring private sellers understand and complete the SIN as required rather than being directed to identifying traders using car markets and not disclosing they are traders. As well, although a private seller is required to complete and display a SIN, there is no redress or enforcement provisions under the MVSA if the details provided are misleading or incorrect.

Although the SIN notes on its reverse that rights regarding security interests do not apply to private sales, the Ministry has the strong concern that consumers who purchase a vehicle through a car market may be misled as to their redress rights (which go beyond security interests). The Ministry believes people who use a car market, accordingly, may be being led into a sense of false security especially when dealing with generally inexperienced car market sellers and buyers who can reinforce the misconception.

Conclusion

It is concluded that the current situation where all sellers at a car market have to display a SIN and where car market operators have to take reasonable steps to ensure that all participants display a SIN does not meet the policy objectives. It is anomalous and confusing that private sellers at car markets have to complete a SIN and the current requirement is diverting enforcement activity away from the original intention.

An option that was considered during the development of the MVSA was to require all sellers - in all selling situations, private and trader, to be required to display a SIN. This option was considered to be too difficult to enforce and the cost would outweigh the benefits to consumers. It also would increase the chance that information on the SIN would be incorrect if private sellers did not know, or could not access, the required information. Enforcement activity on private sellers would be extremely difficult. It was also felt that it may increase the perception that consumers in private sales have rights they do not have.

The Ministry of Consumer Affairs considers that these arguments are valid for all private sales including those at car markets.

Accordingly, it is concluded that there should not be any obligation for private sellers at car markets to display a SIN. To achieve this outcome will require either that car market operators are exempted from the obligation of needing to ensure SINs are provided for sales at car markets by private sellers (consumers) or that car market operators are no longer classified as motor vehicle traders and thus no longer have the requirement of section 14(1) to ensure a SIN is attached to a used motor vehicle for sale at a car market.

The second option is recommended and this is discussed further below. Complementing this recommendation, it is recommended that section 14(2) of the MVSA be amended to reflect an obligation on the car market operator to take reasonable steps to ensure that a motor vehicle trader displays the SIN when using the car market. This would mean that traders would have to provide a SIN when selling at a car market, but private sellers would not. It should then be clearer to consumers which sellers are traders. As noted, consumers have better protections buying from traders than from private sellers. By amending section 14(2) it would mean that private sellers at car markets are not treated differently from any other private seller of cars or other items. It also would ensure that consumers are not accidentally misled into believing they have greater consumer protection rights. It also meets the policy proposals and concentrates enforcement activity where it is most required.

Public Policy Objectives Summary

• Compliance costs reduced for private sellers and car market operators.
• Improved clarity that there are different requirements regarding car sales that apply to traders and private sellers.
• Reduced enforcement costs to government.
• Motor vehicle traders still have obligation to provide a SIN.

Definition of Motor Vehicle Trader

Given that the proposal to change section 14(2) removes the requirement for car market operators to ensure private sellers display a SIN, there is no longer any policy reason for a car market operator to be registered as a motor vehicle trader. This is not a reduction in the obligation of the motor vehicle trader to display the SIN, but a move to a more pragmatic arrangement that reduces business compliance costs to the car market operator.

A car market operator is usually removed from the buyer and seller relationship and is merely the means for initiating the sale. Given the proposals recommend the removal of the sole reason why car market operators be registered as a motor vehicle trader, it is recommended to remove the reference to car market operator from section 7 of the MVSA.

Exemption from Requirements to Provide a SIN When Transactions Are Exclusively between Registered Traders

Currently, section 14(1) of the MVSA requires all used vehicle sales by traders to have a SIN. This requirement applies to sales to consumers and also to sales from one trader to another. In comparison to the MVSA requirement for a SIN for all used vehicle sales by traders, the Consumer Information Standards (Used Motor Vehicles) Regulations 2003 does not require a SIN to be displayed for transaction exclusively between motor vehicle traders.

The MVSA requirement for a SIN for trader to trader transactions is questioned. The SIN is intended to assist consumers to get the information they need to make an informed decision about the vehicle they are considering buying. Sales of used motor vehicles between traders are not consumer sales. Traders purchasing motor vehicles do not face the same information problems as consumers and can be expected to have knowledge of the industry, market values, vehicle type and roadworthiness. Traders also do not receive the same protection as consumers under the Personal Property Securities Act 1999 that provides for consumers purchasing a motor vehicle from a registered trader to receive the vehicle free of any undisclosed security interest. Therefore, the information provided in a SIN format does not need to be a requirement for such transactions.

Similarly, a SIN is also not needed for sales between traders and car wreckers, where the vehicle is most likely sold for parts. Concern has been raised regarding the possibility of creating a loophole where car wreckers can repair then on-sell a vehicle without any record of the damage being notified via the SIN. However, the nature of the SIN is not to inform purchasers of previous damage to the vehicle, except for vehicles imported as damaged.

It is recommended that section 14 of the MVSA be amended to exempt from the SIN requirements, transactions exclusively between registered motor vehicle traders, and between registered motor vehicle traders and car wreckers. Consequential to the recommendation to amend section 14 of the MVSA, it is also recommended that section 16, relating to obtaining a written acknowledgment that a SIN has been provided, be amended to not apply to transactions exclusively between registered motor vehicle traders and between registered motor vehicle traders and car wreckers.

Public Policy Objectives Summary

• Reduced compliance costs on industry.
• No increased costs to government or consumer detriments with the proposed change have been identified.

Other Amendments to Motor Vehicle Information Disclosure Considered

Display Provisions for Motor Cycles

Industry has voiced concern that the requirement to display an A4 sized SIN card on motorcycles displayed outdoors is impractical. Whereas the SIN housed inside a car is safe from the weather, a SIN on a motorcycle is not. Some motorcycle dealers have indicated they have been unable to produce a cost effective means of displaying a SIN on the motorcycle which is both water proof and that will not damage the paint finish of the motor cycle in blustery conditions, or blow free of the motorcycle.

The problems raised here may be somewhat overstated. There is not enough evidence to suggest that these problems outweigh the benefit of displaying the SIN and therefore exempting motor cycle dealers from displaying it. There are no constraints about how the SIN is attached to the motor cycle and visits to a selection of dealers have shown that many are adequately securing the SIN to the bike.