Dealers must investigate liens on trade-in vehicles

By Staff

Auto dealers selling trade-in vehicles are required to disclose a long list of items — from the odometer reading and the condition of the vehicle to how it was used and whether it was involved in an accident, says Toronto licensing and compliance lawyer Anar Dewshi.

But the “most important” issue for dealers handling trade-ins is the prospect of a lien, which is placed on a vehicle whenever the owner receives financing, Dewshi, principal of Dewshi Law Practice, tells

Under Ontario’s Motor Vehicle Dealers Act (MVDA), when a consumer trades in a vehicle at a dealership, “that consumer has to let the dealer know that there’s a lien. Notwithstanding that, there’s still an onus on the dealer to investigate and do your due diligence. Someone trading in a car won’t necessarily tell you everything you need to know. So it’s your job to make sure,” she says.

“Once it’s determined there is a lien, the consumer has the option to pay it off or the dealer will pay it off. If that is the arrangement, there must be a statement in the trade-in disclosure form that the dealer will pay off the lien.”

But dealers aren’t always honouring their commitment to pay off liens, which creates a big problem for someone purchasing a trade-in vehicle — and very likely for the dealer as well, Dewshi says.

Despite disclosure requirements, “people are buying cars that have liens on them. And that car can be taken away” from the consumer, she says. “You might think that only happens in a private sale, but it’s prevalent in dealerships as well.”

Car buyers who find themselves in such a predicament can file a complaint with the Ontario Motor Vehicle Industry Council (OMVIC), a regulatory body whose mandate is to protect consumers and enhance the professionalism of the industry, Dewshi says, explaining that the council can initiate an investigation and suggest that the dealer refund the consumer’s money or pay off the lien.

She says she’s aware of a few cases where OMVIC issued immediate suspensions of a dealer’s licence. The council can also issue a notice of proposal to revoke a dealer’s licence before the province’s Licensing Appeal Tribunal.

“Even when OMVIC does an immediate suspension, the dealer is closed down temporarily pending a hearing before the Licensing Appeal Tribunal,” Dewshi says. “The minute the licence is suspended, you can’t sell. And if you do sell, you’re curbsiding, and that’s illegal sale of vehicles, which is a criminal offence.”

In addition to discharging of liens, the MVDA also includes record-keeping and mandatory disclosure requirements for vehicle trade-ins, she notes.

The disclosure concerns any detail about a vehicle’s past use, history or condition, and encompasses such basic information as make, model, year, colour, vehicle identification number, odometer reading and condition.

But, Dewshi points out, the legislation also requires more detailed information, such as whether the vehicle had ever been used by the police or emergency services, or as a taxi or limousine; whether any collision or incident damage was greater than $3,000; whether it had been classified as “irreparable, salvage or rebuilt”; and whether it had ever been reported stolen.

“It doesn’t matter if the dealer is selling the car to a person or to another dealership. The disclosure requirements are the same,” she says.

The record-keeping requirements in the legislation include:

  • consumer trade-in disclosure forms completed (regardless of the trade value);
  • trade-in disclosure forms kept together with original deals and subsequent sale of the trade-in aftermarket products;
  • aftermarket items and/or inducements individually priced and identified on bills of sale without short forms or industry jargon;
  • mandatory products included in the all-in advertised price; and
  • other products are described verbally and on option sheets in a clear and comprehensible fashion that the products are indeed optional.

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