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May 2, 1985 To the Bank Addressed: Enclosed is a notice by the Board of Governors of the Federal Reserve System of its decision not to adopt a rule for banks substan tially similar to the Federal Trade Commission's "Used Car Rule." The notice has been reprinted from the Federal Register of March 26, 1985. Questions on this matter may be directed to our Regulations Division (Tel. No. 212-791-5914). Circulars Division Federal Reserve Bank of New York BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Doeistosi! Not T® Actopft a Substantially Similar RuS® for Banks on the Sal® ©f Used Motor Vehicles AGENCY: Board of Governors of the Federal Reserve System. ACTSOW: Notice of the Board’s decision not to adopt a rule for banks that is substantially similar to the Federal Trade Commission’s trade regulation rule on the sale of used motor vehicles. SUM ARY: On November 19,1984, the M Federal Trade Commission published a final trade regulation rule on the sale of used motor vehicles. The rule, commonly referred to as the "Used Car Rule,” will take effect on May 9,1985. Generally, the Board is required by the Federal Trade Commission Act to issue a substantially similar rule for banks whenever the Commission adopts a final trade regulation rule under its authority to prohibit unfair oh deceptive acts or practices. The Board has concluded, however, that since banks do not engage in the activity being regulated by the Commission—the sale of used motor vehicles in a retail sales environment— adoption of a rule substantially similar to the Commission's Used Car Rule that would be applicable to banks is unnecessary. of a used motor vehicle before offering the vehicle for sale to a consumer (16 CFR 455.1(c), 455.2, and 455.3). The Buyers Guide would include information about the warranty coverage offered, the meaning of an “as is” sale, and other related information. The rule also prohibits the making of any statem ents, oral or witten, or taking any actions w hich alter or contradict the Buyers Guide; requires a dealer conducting sales in Spanish to make the required disclosures in th at language; and contains stan d ard s that will be used by the Commission in determ ining w hether a state may obtain an exem ption from the rule. Section 18(f)(1) of the Federal Trade Commission Act (15 U.S.C. 57a(f)(l)) provides that when the Commission issues a rule under its authority to prescribe unfair or deceptive acts or practices, the Board is required to issue a substantially similar rule, within 60 days of the rule’s effective date, prohibiting acts or practices of banks that are substantially similar to those prohibited by the Commission. The Board is not required to issue a similar rule if it finds that such acts or practices of banks are not unfair or deceptive, or that implementing similar regulations for banks would seriously conflict with essential monetary and payments FOR FURTHER ^FORMATION CONTACT: systems policies of the Board, and Gerald P. Hurst, Senior Attorney, publishes the findings and reasons for Division of Consumer and Community them in the Federal Register. In addition Affairs, Board of Governors of the to these two exceptions, the Board is not Federal Reserve System, Washington, required to consider adoption of a D.C. 20551, (202) 452-3667. substantially similar rule if banks do not On November 19,1984 (49 FR 45692), engage in the activity being regulated by the Federal Trade Commission (the the Commission. Generally, if banks do “Commission”) published a final trade regulation rule on the sale of used motor not engage in the activity being regulated, there will not be any acts or vehicles, with an effective date of May 9,1985. The rule, referred to as the Used practices of banks that are substantially similar to those prohibited by the Caf Rule, includes a list of acts or practices that the Commission views as Commission. The Board believes that unfair or deceptive (16 CFR 455.1 (a) and this is the case with the Used Car Rule. (b)) and requires dealers to prepare and Banks do engage in the sale of used display a window sticker, referred to as motor vehicles—for exam ple, vehicles the "Buyers Guide,” on the side window that have been repossessed. However, it app ears th at banks do not engage in the activity the Commission sought to regulate in adopting the U sed Car Rule, that is, selling in a retail sales environm ent. The Com mission narrow ed the scope of the U sed Car Rule by defining a “d ealer” so as “to remove from the scope of the Rule used car sales w here the absence of a retail sales environm ent substantially dim inishes the risk of the deceptive practices . . . found to be characteristic of used car sales p resentations.” (49 FR 45708, N ovem ber 19,1984). The Com mission concluded that banks and other financial institutions do not engage in the sale of used motor vehicles in a retail sales environm ent and specifically excluded banks from the rule’s “d ealer” definition. The Board contacted Reserve Bank exam iners and bankers about the m ethods used by banks to dispose of used m otor vehicles. These inquiries support the Com mission’s conclusion that b anks do not engage in the sale of used motor vehicles in a retail sales environm ent. In addition, the Board agrees w ith the Com mission's conclusion that, in the absence of a retail sales environm ent, the risk of deceptive practices, such as m isrepresentations concerning vehicle w arran ties or the condition of the vehicles, is substantially diminished. Since generally banks do not engage in the activity being regulated by the Com mission in the U sed Car Rule—the sale of used motor vehicles in a retail sales environm ent— the Board has concluded that it is not required to issue "a substantially sim ilar rule for banks on the sale of used motor vehicles. By order of the Board of Governors of the Federal Reserve System, March 20,1985. W illiam W. W iles, Secretary o f the Board. |FR Doc. 85-7051 Filed 3-23-85; 8:45 amj
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