At the writing of this article, I debate whether to wish you a Happy New Year or say that I hope you had a great holiday season. Regardless, I hope your time with your family and friends will be, or was, well spent.

In this edition of Counselor’s Corner, I wish to caution everyone about a new legal theory, at least here in West Virginia, that has arisen and also discuss some legal trends my fellow lawyers and I have been seeing over the last six months. Recently, dealers have faced claims based upon the fact pattern that begins when a motor vehicle was originally manufactured for the Canadian market and then legally transferred into the United States. Most of you likely had trouble finding used motor vehicles during COVID, and dealers, including those in West Virginia, purchased Canadian vehicles through auctions in order to replenish supply. Canadian vehicles are perfectly legal to sell in the United States and West Virginia as long as the Canadian motor vehicle has passed required EPA inspections. Otherwise, Canadian motor vehicles are manufactured to meet all safety and other United States standards. It now seems that some dealers, upon trade-in, are arguing that because the trade-in vehicle is a Canadian vehicle, it is a “grey vehicle” and worth less than their United States counterpart.

Please do not take my comments as a negative statement towards the trade allowance amount that a willing buyer and willing seller agree upon, but this has caused some legal exposure for the dealerships who initially sell the Canadian vehicles. One argument now being presented is that because these motor vehicles are Canadian “grey vehicles,” a selling dealer should advise the consumer of the potential significant decrease in market value at the later time of trade-in. While this is quite a stretch of a legal theory, nevertheless, dealers are now faced with this particular type of claim. Objectively, models of all motor vehicles vary in how they hold “value.” I do not believe it to be a dealer’s legal duty to advise a consumer on such a detail.

On the other hand, there are legal concerns that are real and need to be considered when selling a vehicle originally manufactured for, and sold in, Canada:

• Be careful about recalls. Recalls are specific to the country of the vehicle’s origin. For example, a recall on a United States vehicle may not apply to the Canadian vehicle and vice versa. Also, can an open recall on a Canadian vehicle be repaired here in the United States, and a dealer receives manufacturer warranty payment? These are issues that have arisen in recent litigation.
• A dealer should consider whether the manufacturer’s warranty coverage applies to a Canadian vehicle that has been transferred to the United States. This varies and is dependent upon the manufacturer. I encourage you to do your due diligence on this point before representing that the used motor vehicle has any remaining manufacturer’s warranty when a Canadian vehicle. This will impact how you complete the FTC Used Car Buyer’s Guide.
• Be concerned that a service contract provider may or may not provide coverage for the Canadian vehicle or that parts may be unavailable, potentially giving the buyer a breach of contract or a breach of warranty claim against a motor vehicle dealer.
• I have also seen issues arise about dealer-provided warranties placed upon used motor vehicles, i.e., the powertrain warranty that is commonly available these days, and whether those provide coverage for a Canadian vehicle.

Situations may arise in which a claim is made on a Canadian vehicle under the dealer’s provided service contract or warranty, and it may not provide the coverage that the customer purchased or that the dealer may have mistakenly represented to the consumer solely because the motor vehicle was originally built for and sold initially in Canada. Interestingly, I have learned of class actions that have arisen both in Ohio and Indiana over Canadian vehicles. These class actions contain allegations of the types of legal claims discussed.

Please understand I am not suggesting that Canadian vehicles are not valuable, marketable and not legal to sell in the state of West Virginia. I believe they are quite legal to sell. However, a dealer needs to clarify whether the voluntary protection products we sell are applicable to Canadian vehicles. I encourage our dealers to ensure that the Canadian motor vehicle can be covered as if they were a United States-manufactured vehicle.

Over my 36 years of the practice of law, I’ve observed that litigation increases as the strength of the economy decreases. I believe we are in one of those cycles. Unfortunately, consumer default and late payments are on the rise with automobile purchases. The dealer is facing legal challenges based upon allegations of misrepresentation or failure to properly disclose the purchase of voluntary protection products. It is also common to face claims that consumer incomes are overinflated. Now is the time to check your transactional paperwork and F&I procedures.

On the lending side, lenders are becoming stricter and demanding that the dealer assume the note and refund the loan proceeds when there is consumer litigation. This is based upon incorrect vehicle features or options represented to the lender or any consumer allegation against the lender. Frequently now, the consumer is placing the lender and dealer at odds and creating a litigation advantage.

We have seen a significant increase in consumer claims. More specifically, we are seeing more lawsuits that were initially lender instituted against an alleged defaulting consumer. The consumer then sues the dealer over some alleged misrepresentation which then puts the dealer at odds with the lender. I advise you of this trend and, again, encourage you to evaluate your consumer compliance practices.

For the last year, dealers have been extremely focused on compliance with the new regulations governing the privacy of consumer information. However, this does not equate to proper compliance with the sale of a motor vehicle and any voluntary protection products. It is becoming imperative that dealers emphasize proper training and certification, if needed, and stress an audit process for compliance quality control. Compliance can be accomplished in many ways and can be flexible based upon the size and scope of a dealership’s operations. You may have a DMS provider who can provide the training for you, or perhaps there are vendors related to your voluntary protection products who can train on compliance. The key is consistency and establishing procedures to ensure that things are disclosed and recorded properly.

Please work with knowledgeable counsel to make sure that your internal compliance program or your third-party-provided compliance program is sufficiently detailed and entails a quality control element. Of course, as General Counsel for the West Virginia Automobile Dealer Association, the Association and I are always available to assist you with these questions and prepare you for a more challenging consumer environment and a hostile regulatory scheme.