Executive Summary | Review of the Operation of the Motor Vehicle Sales Act 2003: Report Presented to the House of Representatives Pursuant to Section 163 of the Motor Vehicle Sales Act 2003

Review of the Operation of the Motor Vehicle Sales Act 2003

Review of the Operation of the Motor Vehicle Sales Act 2003: Report Presented to the House of Representatives Pursuant to Section 163 of the Motor Vehicle Sales Act 2003

Executive Summary

The Motor Vehicles Sales Act 2003 (MVSA) came into force in December 2003. This legislation made fundamental changes to the way in which sales of motor vehicles were regulated. A registration regime, administered and enforced by government agencies, replaced the previously industry controlled licensing regime. Some restrictions on who could participate and how they could participate in this market were lifted. The Motor Vehicle Fidelity Guarantee Fund was discontinued and the scope of claims that could be taken to the Motor Vehicle Disputes Tribunal was widened. New information disclosure requirements were introduced in the form of a Consumer Information Standard under the Fair Trading Act 1986.

Section 163 of the MVSA requires the Ministry of Consumer Affairs to undertake a review of the operation of the MVSA within two years of its commencement, and to report back to the Minister with recommendations on whether any amendments to the MVSA are necessary, or desirable.

The MVSA put in place three core operational mechanisms or instruments. This report focuses its discussion on these core instruments -

Registration - The Motor Vehicle Traders Register (MVTR)

Under the MVSA all motor vehicle traders must be registered. A motor vehicle trader is defined as any person who carries on the business of motor vehicle trading and includes a car market operator, a car auctioneer and a car consultant. A motor vehicle trader is also any person, who in any way represents that they are carrying on the business of motor vehicle trading, or sells more than six vehicles within a 12 month period, or imports more than three vehicles within a 12 month period.

The major focus of the Motor Vehicle Traders Registrar in the first 18 months to June 2005 was to manage the transition from an industry controlled licensing regime, to ensure that all those participating in the business of motor vehicle trading were informed of their obligations to register and to encourage voluntary compliance with those obligations.

Systems for administering the registration regime are established and operating well. As of 30 June 2005, the Registrar had handled 6,274 applications and there were 3,182 motor vehicle traders registered under the MVSA, which exceeds the pre 2003 estimate and includes motor vehicle importers (12.4 percent), auctioneers and those operating car markets or selling through the internet (6.3 percent). Seventy percent of registered traders made an online application.

The final six months of the review period have seen an increase in prosecution activity, signalling a move from a voluntary compliance approach to a more enforcement oriented approach.

It is suggested that the removal of the requirement for motor vehicle traders to operate from a physically located car yard has introduced a less visible type of trader into the retail market and that consumers are more vulnerable to "fly-by-night" operations. Some traditional operators have felt compelled to change their own methods of operating, to reduce overheads, in order to compete with those not maintaining an independent car yard. Internet sales, both private and commercial, have also increased markedly.

In the two years of operation, 83 applicants were refused registration. Ninety-five people have had their registration cancelled or surrendered. People who have their registration cancelled are disqualified from registration for a further five year period, while those struck-off must meet the Registrar's requirements before re-registration will be considered. Two people have been banned outright and convictions have been entered against the names of three others for illegal trading. There are currently 14 cases before the courts and 13 under investigation.

At this early stage of the MVSA, it is considered that for the most part the registration criteria have been set at an appropriate level and that the legislation has sufficient tools within it to deal adequately with those who are prepared to behave unethically. There are some minor changes that could be made to the MVSA to reduce unnecessary compliance costs, but overall the registration aspects of the regime are functioning well.

Information Disclosure - The Supplier Information Notice (SIN)

The information disclosure requirements are commonly referred to as the Supplier Information Notice (SIN). The SIN relates to used motor vehicles only and contains detailed information about the particular motor vehicle offered for sale as well as general consumer information relevant to motor vehicle purchases. The vehicle information relates to details about the vehicle's age, usage, make and model, whether another person has a security interest in it, etc. A SIN must be attached to all used motor vehicles that are offered or displayed for sale by a motor vehicle trader, or by persons selling through a car market operator. The New Zealand Commerce Commission is charged with responsibility for enforcing the SIN.

By December 2005 (after two years of operation of the MVSA) the Commission had received 187 complaints or enquiries about the MVSA. It had undertaken 185 inspections, from which 65 warning notices have been issued. In 79 instances compliance advice was provided, in 3 cases settlements were negotiated, and 1 prosecution was undertaken.

In the first year of operation of the MVSA, monitoring activity has shown that SIN display compliance was poor. This could be attributed to the fact it was the initial education phase where motor vehicle traders were coming to grips with their obligations. More recent investigation has shown that SIN display compliance has improved, providing customers with the required information relating to their purchase.

There is a general impression, however, that the levels of compliance vary within different parts of the industry. Traditional traders, particularly those operating from a physical car yard and who are supported through their membership of an industry association, appear more likely to meet the SIN requirements than those trading either through the internet or through car fairs or display for sale operations.

Other concerns have been raised which impact on whether consumers are provided with accurate and meaningful information. There is also demand from motor vehicle traders and consumers to have additional information such as features and accessories as well as information about the number of owners on the SIN. Presently including such information on the SIN is not permitted, but it may be supplied on a supplementary form.

It is considered that the concept of the SIN remains sound. It is an important information tool for providing essential and meaningful details about a particular motor vehicle that a consumer is considering purchasing and is a fundamental means to assisting consumers to transact with confidence.

There are concerns, however, that the SIN attempts too much, and in doing so, negates its effect as an effective information resource. Due to its prescriptive nature several issues have arisen with the information required and the form in which it is to be provided. These issues are mainly minor and technical in nature but the way in which the information is currently presented detracts from the value of that information.

There are many different viewpoints and concerns regarding the SIN. Proposals to address the concerns raised need to be more fully developed and consulted widely with both industry and consumer interests. An early and comprehensive review of the SIN is, accordingly, recommended and is underway.

Disputes Resolution - The Motor Vehicle Disputes Tribunal (MVDT)

The Motor Vehicle Disputes Tribunal (MVDT) is a special Tribunal set up to hear claims relating to purchases of motor vehicles. It is administered by the Tribunals Unit of the Ministry of Justice.

There are currently four Motor Vehicle Disputes Tribunals; three permanent and one travelling Tribunal. There are 3 adjudicators, 2 based in Auckland and 1 based in Wellington. Each Tribunal consists of an adjudicator and an assessor.

On average, for the period 15 December 2003 to 30 June 2005, the MVDT 0800 telephone number received 533 calls per month, 141 information packs were sent out per month and 31 applications were filed per month. In the same period the MVDT received a total of 390 claims. More than half of the disputes were filed at the Auckland MVDT and the majority of claims heard at the MVDT were founded upon consumer protections set up in the Consumer Guarantees Act 1993.

The MVDT is intended to be an efficient means of redress for consumers and largely, this is the case. There are concerns relating to the frequency and geographic location of hearings, delays in hearings, and lack of both consumer and industry awareness and understanding of the full provisions of the MVDT. This is not unexpected given the short period of operation, and the need for the MVDT to complete claims arising under the previous regime before it could fully focus on the new Act. However Schedule 1 of the MVSA which outlines the administrative procedures for dealing with applications should be reviewed to allow more appropriate administrative support for the adjudicators.

For many consumers the purchase of a motor vehicle is not just based on the particulars of the vehicle but may rest equally on the finance that may be made available for the purchase. The motor vehicle trader often takes an active part in facilitating these finance arrangements and consideration should be given to extending the jurisdiction of the MVDT to also include claims made under the Credit Contract and Consumers Finance Act 2003.

Consideration also needs to be given to providing wider information on the role of the MVDT and to regularly promoting its existence as well as emphasising the benefits of the specialist expertise of the MVDT.

The MVDT should have a focus on dealing more firmly with non-compliant traders who flout the processes of the Tribunal so that consumers gain more confidence in the MVDT and thus the wider industry. It will also be important that information is shared across agencies in relation to claims that are made but cannot be pursued because the trader has ceased trading. This will enable better utilisation of the banning powers under s68(b) or s69 of the MVSA .

The removal of the Motor Vehicle Dealers Fidelity Guarantee Fund has denied some consumers a full remedy. For others, the wider application of the MVDT to enable access to redress under the Consumer Guarantees Act has brought better remedies. It will be important to continue to monitor trader behaviour in this area and for government agencies to develop robust information sharing arrangements.

Overall Conclusions

Compliance is a key component of the successful implementation of the MVSA. It is not unexpected therefore that the agencies charged with the various administrative and enforcement functions of the MVSA have focussed their activity in the first two years of operation, on ensuring that industry participants are informed about their obligations and encouraged to meet these through voluntary compliance.

The report has identified some minor amendments to the Act that would be desirable. In addition a full and comprehensive review of the regulations prescribing the Supplier Information Notice is recommended and is underway.

In the longer term it will be critical to the effectiveness of the regime, and for optimal protection for consumers, that the enforcement agencies develop a visible enforcement profile, particularly in those areas where the traders themselves are not as clearly identified in the market to consumers. Between them, the Registrar, National Enforcement Unit, Commerce Commission and the Motor Vehicle Disputes Tribunal collect considerable information about trading activity and behaviour. More regular information sharing between agencies will assist in prioritising enforcement effort.

It has been suggested that the number of agencies involved in administering and enforcing the MVSA has the potential to confuse consumers and deter them from following through with reporting incidences of non-compliance. The nomination of at least four agencies holding consumer information on the Supplier Information Notice highlights the range of agencies a consumer may have to deal with. It is recommended that consideration be given to the creation of a single central consumer contact point.

Recommended Amendments to the Motor Vehicle Sales Act 2003

A specific requirement of this review is to make recommendations on whether any amendments to the MVSA are necessary or desirable.

Recommendation 1: Renewal of Registration of Motor Vehicle Traders

It is recommended that section 39(2) be amended to remove the requirement for motor vehicle traders to make an annual statutory declaration of their trading details where these have not changed. This would be replaced by the requirement to confirm with each annual renewal that details have not changed (see discussion paragraphs 92 to 93).

Recommendation 2: Provision of IRD Number as Part of the Details Required on Registration Application

It is recommended that consideration be given to amending section 32 to include the requirement that applicants for registration as a motor vehicle trader provide details also of their IRD number (see discussion paragraph 98).

Recommendation 3: Technical Amendment to the CC Rating of Motor Cycles

It is recommended that section 6 (b)(iii), the definition of motor vehicle, be amended to exclude motor cycles up to 50 cc (not 60 cc as currently worded) to reflect ratings used on other relevant legislation (see discussion paragraphs 109 to 112).

Recommendation 4: Amendment to Banning Provisions

It is recommended that section 68(1)(c) be amended to ensure that persons convicted of breaches of the MVSA that would invoke the banning provisions while registered, are similarly banned regardless of their registration status at the time of conviction (see discussion paragraphs 122 to 125).

Recommendation 5: Clarification and Tightening of Requirements on Car Market Operators to Provide SIN

It is recommended that section 14 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 consumer provides a SIN, thereby strengthening car market operators responsibility in this area (see discussion paragraphs 193 to 203).

Recommendation 6: Extension of Inspection Powers to Commerce Commission

It is recommended that consideration be given to amending the inspection powers of sections 124 to 129 to also include the Commerce Commission to allow appropriate enforcement of the information provisions of the MVSA (and this should be explored in conjunction with work already in progress regarding similar powers under the Fair Trading Act 1986) (see discussion paragraphs 218 to 219).

Recommendation 7: Exemption from Requirements to Provide a SIN When Transactions Are Exclusively between Registered Traders

It is recommended that section 14 and section 16 be amended to exempt from the SIN requirements, transactions that are exclusively between registered motor vehicle traders, and between registered motor vehicle traders and car wreckers as defined in the MVSA (see discussion paragraphs 221 to 222).

Recommendation 8: Ability to Award Costs to Any Party for Non Attendance at Motor Vehicle Disputes Tribunal Hearings

It is recommended that section 14 of Schedule 1 be amended to allow costs to be awarded against any party to a claim, for non attendance at a hearing for no good cause (see discussion paragraphs 265 to 271).

Recommendation 9: Administrative Procedures of the Tribunal

It is recommended that Schedule 1 be reviewed and administrative procedures amended to reflect those of the ordinary Disputes Tribunal, where appropriate (see discussion paragraphs 272 to 274).

Recommendation 10: Submission of Adjudicators' Annual Reports

It is recommended that section 87 be amended to provide a timeframe within which the Adjudicators' annual reports are to be submitted and to deal appropriately with the receipt of multiple reports (see discussion paragraph 289).

Recommendation 11: Extension of the Jurisdiction of the Motor Vehicle Disputes Tribunal

It is recommended that section 89 be extended to allow the Motor Vehicle Disputes Tribunal to also consider claims under the Consumer Credit and Consumer Finance Act 2003 (see discussion paragraphs 297 to 301).

Recommendation 12: Publication of Decisions of the Motor Vehicle Disputes Tribunal

It is recommended that consideration be given to amending section 94 to allow the Motor Vehicle Disputes Tribunal to direct the publication of a notice of a decision made against the applicant, where there is a public benefit in so doing (see discussion paragraph 320).

Recommended Amendments to the Consumer Information Standards (Used Motor Vehicles) Regulations 2003

Recommendation 13: Review of the Supplier Information Notice

It is recommended that a comprehensive review of the information requirements and the form in which the information be provided as set out in Schedules I and II of the Regulations be undertaken. This review is underway (see discussion paragraphs 153 to 170).

Recommendation 14: Exemption from Requirements to Provide a SIN When Transactions Are Exclusively between Registered Traders and Car Wreckers

It is recommended that the exemption in section 4 of the Consumer Information Standards (Used Motor Vehicles) Regulations 2003 be extended to include transactions between registered motor vehicle dealers and car wreckers as defined in the MVSA (see discussion paragraphs 221 to 222).