Submission to Victoria Lemon Laws Consultation November 2007
CHOICE is an independent, not for profit, consumer organisation addressing the interests of all Australian consumers, particularly on national issues, and also on key local matters. CHOICE has been seeking the introduction of Lemon Laws for motor cars in Australia for many years. Very specific Lemon Laws for cars exist in the United States of America at federal and state levels. These have operated successfully for many years. Clearly the business of selling and servicing motor cars in America has not been destroyed by these laws. However, many consumers have been treated far more fairly, transparently and honestly because of them. Because of the very specific nature of motor cars and the cost of purchasing even a modest car CHOICE believes that it is necessary to very clearly define how a Lemon Law operates with respect to motor cars, whether or not similar status is conferred on other “lemon” consumer products, and whether or not the law is introduced by way of amending the Fair Trading Act or another related piece of legislation.
5.1 What incidences of defects in new vehicles are not satisfactorily repaired? CHOICE has no data in relation to this question. However, this is not entirely the issue, it is how many defects are repeatedly un-repaired. We suspect it will be very hard to ever obtain definitive, unbiased data on this question, until a Lemon Law is in place. It appears that in the US state of Florida in 2004 there were 2,727 claims submitted and in 2005 there were 2,904 claims. In each year approximately 1/3rd were either ineligible or withdrawn. 45% were mediated to conclusion and about 22% were arbitrated. See http://www.800helpfla.com/pdfs/annualreports/LLBBB2005.pdf. Of the mediated vehicles 60% were repaired and 28% (374 vehicles in 2005) were either replaced or refunded. Of the arbitrated claims 577 vehicles were replaced or refunded in 2005. Florida had a population in 2005 of around 17,800,000 people, compared to Victoria’s 5,000,000. This would suggest that if Victoria’s vehicle population and vehicle types was similar to Florida’s (which it is not, though the manufacturer representation is somewhat similar) there could be around 250-300 replaceable lemons in Victoria in one year.
57 Carrington Road Marrickville NSW 2204 Phone 02 9577 3333 Fax 02 9577 3377 Email ausconsumer@choice.com.au www.choice.com.au
The Australian Consumers’ Association is a not-for-profit company limited by guarantee. ABN 72 000 281 925 ACN 000 281 925
5.2.2 Threshold Criteria CHOICE believes that it is necessary to be quite specific about the maximum number of attempts to repair a defect. We believe that after three unsuccessful attempts to repair most defects a consumer should be entitled to a full refund or replacement. However, for safety related defects that might cause serious injury, CHOICE believes, consistent with American laws, that one failed repair attempt is enough to trigger replacement. The onus of proof that a vehicle was misused or abused should be with the repairer/importer/manufacturer. It is impossible for a consumer to prove a negative (ie they did not abuse or misuse). And, “proof” cannot be the repairer’s “expert opinion”. This is clearly an area that requires independent expertise and almost invariably arbitration of the outcome.
5.2.3 Entitlement to Relief & 5.2.4 Actions against manufacturers/importers The onus of proof regarding use or alleged abuse leading to defects or repeated failures should be on the supplier/importer/manufacturer, whoever wishes to take the lead in the matter. Ideally the law should be framed so that once a consumer lodges a claim through the appropriate process all the supply side parties are joined to the action. What is critical is that the consumer not be bounced back and forth between supplier, importer or manufacturer as we believe happens now according to the consumers’ reports we do receive.
5.3.1 What type of vehicles should be covered? All passenger motor vehicles, derivatives such as utilities and panel vans/station wagons, light commercial vehicles including vans and 4WD/SUV/All Terrain vehicles, and motor cycles purchased by any person for non-commercial use, while under the original supplier’s warranty should be covered. A vehicle purchased by a business or government as well as private consumers should be covered. If a vehicle is used for business then it should still be covered while within its (usually reduced) warranty period. Vehicles purchased second hand that are still covered by the original warranty should be included under the same terms that that warranty is provided – subject to reasonable evidence of appropriate maintenance. Non-related outside specification servicing should not rule out Lemon Law coverage (eg use of the wrong engine oil filter should not affect a claim for brake failure). Vehicles purchased second hand outside of the time/distance of the original warranty should be covered by a declining scale statutory warranty, similar to the current provisions in Victoria (and most Australian states/territories). We note that at least Massachusetts as well as New York state has such Lemon Law warranties for second hand cars. (www.carlemon.com is a useful website to quickly refer to all American Lemon Laws.)
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5.3.2 How should a “lemon” be defined? “..impair use, value and safety” seems to have served the purpose well in America, although we note that some states only refer to use and safety, not value. CHOICE believes in such an expensive product diminution of value should be included – many thousands of dollars of value can be wiped off a car if a persistent defect is evident. CHOICE feels that to define a defect as necessarily “serious” is no better and is too subjective and likely to lead to dispute. “Persistent” is fine and perhaps adds to the clarity of impairment. All defects that impair the use, value or safety should be included. Persistent, annoying noises that cannot be cured are a good example of a non-specific defect that most definitely impairs use, and probably value – whether it be wind noise, transmission whine, or other source. CHOICE does not believe a list of defects is helpful because as we say above all and any matter may give rise to a “lemon”. It is not entirely clear what “design flaws” is intended to cover and why it is singled out for query. Many “manufacturing flaws” are in fact the result of “design flaws”. If the question is “should a consumer obtain relief from a defect that all samples of that model of vehicle exhibit?” then our response is “yes”. CHOICE sees no reason why such an unfortunate consumer, making a valid claim, should be penalised compared to consumers with “one-off” problems. That such a decision may make a case for all consumers of such vehicles to be compensated is not a reason to refuse such claims! CHOICE believes that both repair attempts and time off the road should be included in the parameters for lemon status. A consumer does not spend $20,000, or $40,000, or $100,000 on a vehicle to have it sit unusable in a repairer’s premises. A reasonable consumer will accept one or two days perhaps during the warranty period in which they may have to forgo use of their vehicle for repairs, on top of one or two days a year for servicing. But prolonged days off the road for repair is quite unacceptable. American laws in the main work around 3 or 4 attempts to repair the same defect and a total of 15 to 30 days off the road for all repairs during a relevant (eg original warranty) period. CHOICE would also argue that more than 10 days off the road to repair one defect should also qualify for lemon status. CHOICE does not believe there is any reason to vary these parameters for different types of faults, other than as we say above for safety related defects, where a much lower threshold is appropriate.
5.3.3 What limitations should be placed on the law? We refer to discussion above regarding second hand/statutory warranties and the policies of American states such as New York and Massachusetts. They deal effectively with these matters by providing a declining scale of protection with age and distance travelled of a vehicle.
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5.3.4 How does a consumer prove that the threshold criteria have been met? One of the important attributes of the protection provided in Massachusetts is the requirement for repairers to issue repair statements in a prescribed form. CHOICE thinks that Victoria should also introduce this requirement for motor vehicle repairs (by authorised dealers operating on cars under warranty – though there is value in extending this further of course at the very least as a general form of consumer protection for claims against repairers). Also, in the absence of a record being kept by consumers, whatever the reason, repairers should be required by law to provide a record to the consumer of the original repair. Consumers in all likelihood may dispose of or misplace an original repair document assuming the repair has been affected (and if it is under warranty it will have been done at no cost to the consumer, thus making the document even less likely to be retained). Unfortunately their does not seem to be a readily available independent assessor for consumers to turn to for advice and expertise. We understand that the RACV is not really in a position to perform this role. Perhaps expertise could be available as part of VCAT.
5.3.5 What process should a consumer be required to follow to seek relief? CHOICE believes that VCAT can provide the appropriate process and forum for a consumer to obtain relief. VCAT already has a mediation service that can be used for this purpose. We don’t believe it is necessary to establish another body to deal with this issue. If mediation fails the consumer can lodge a normal claim in the tribunal. CHOICE does not believe that mediation should be binding and that a consumer can in fact by-pass mediation if they clearly have a claim that meets the lemon criteria. Consumers need a clear process to follow and after a Lemon Law is established in Victoria obviously an extensive education campaign needs to address consumers’ and businesses’ needs. A form prescribed by statute should be readily available for consumers to use to serve notice on the repairing dealer that they consider the repair to be unsatisfactory and that they believe it may lead to making a lemon claim. The onus would be on the dealer receiving the form to copy it to their importer/manufacturer. The consumer would obviously need to keep a copy. A website could be established to facilitate this, which would also enable the generation of a database of consumer experience and concerns. Also such a site could provide consumers with a means to check for lemons amongst models of cars and, preferably, by specific VINs – as is commonly available in America, see http://www.is-it-a-lemon.com/ for example.
5.3.6 What should be the extent and the nature of redress available? CHOICE believes that a vehicle that is eligible for refund or replacement in its first year of service should be replaced at full original cost. After the first year the value of the vehicle could be reduced 5% per completed year. While it recognised that vehicles depreciate at a faster rate in their early life most vehicles today have at least a 20 year life so that amortising at a flat rate is reasonable for this purpose.
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If a dealer/importer/manufacturer is shown to have not followed the spirit and letter of the Lemon Law or attempted to deceive the consumer then the vehicle should be fully refunded/replaced no matter what the age. For matters dealt with by VCAT there should be no legal fees as part of the process, and we believe that the lawyer-free approach should be maintained in these matters too. Therefore there should be no case for awarding legal costs. If the matter moves to a higher court the legal costs should be able to be awarded, at the discretion of the court, but only against the plaintiff. It’s most likely that an action in a higher court will be initiated by a repairer/importer/manufacturer dissatisfied with VCAT’s ruling.
5.3.7 Should a consumer be able to opt out of lemon cover? CHOICE doesn’t see any reason why this should be made possible. The only reason why this might be seen as attractive is if some purchase benefit was conferred in exchange. Such an exchange would in all likelihood be unbalanced as the trader offering the benefit is almost certainly in an advantageous position, and a consumer accepting such an offer and waiving their rights will probably be worse off.
5.3.8 What should happen to a vehicle after it is deemed a lemon? Vehicles taken back as lemons under the proposed Victorian law should be treated essentially as they would be in America, and be clearly identified in those ways. Consideration also needs to be given to moving such vehicles interstate for disposal and it will be essential that Victoria seek to obtain the cooperation of all the states and territories with regard to tagging and disclosure. A VIN database, freely accessible on the Internet would be one effective way of ensuring that lemons can be tracked and discovered before resale, within Victoria or elsewhere in Australia.
Contact Officer: Norm Crothers, Deputy CEO, normcrothers@choice.com.au, 02 9577 3218
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