2 Cheap Cars fined $438,000 under the Fair Trading Act

  • Advertising
  • July 16, 2019
  • The Register Team
2 Cheap Cars fined $438,000 under the Fair Trading Act

Used car dealer 2 Cheap Cars has been fined $438,000 for its use of “warranty waiver” documents and marketing statements described as “deliberately misleading”.

New Zealand owned and operated, 2 Cheap Cars was founded in 2011 and has 17 branches nationwide. In his written sentencing decision, judge Robert Ronayne said the company made annual profits of more than $3 million. He said the court’s response to those of its activities which broke the law “should not amount to what might be considered a mere licensing fee or cost of doing business.”

2 Cheap Cars had earlier pleaded guilty to 10 charges under the Fair Trading Act 1986, following a Commerce Commission investigation opened in November 2017.

Between 1 January and 31 December 2017, the “warranty waiver” document was routinely presented to customers who chose not to buy an extended warranty. It included language which, according to Judge Ronayne, used “misinformation and untruths” to create an impression that unless the extended warranty was purchased, the customer had no rights.

Examples include:

  • “the vehicle you are purchasing does not include a warranty of any kind.” 
  • “I do understand that 2 Cheap Cars will comply with the Consumer Guarantees Act. I also understand that I am, and would prefer to be, solely responsible for any repair bills.”
  • “if any repairs are carried out it will be done by 2 Cheap Cars [L]imited at a time of their convenience and that there are no courtesy cars provided.”

In fact, consumers had the protections of the Consumer Guarantees Act (CGA), which applies to used and new goods, including vehicles.

The Commerce Commission estimates that more than 20,000 warranty waivers were signed during the charge period. 2 Cheap Cars stopped using the documents after being warned of the Commission’s investigation.

“2 Cheap Cars misrepresented consumers’ rights under the CGA. It should not have told customers they had no warranty of any kind and it should not have attempted to limit its liability for repairs in the way that it did. Conduct such as this puts pressure on customers to buy an extended warranty and deters them from returning to the seller for help if something goes wrong, even though they may have rights under the CGA. As Judge Ronayne notes, 2 Cheap Cars would have profited by avoiding its obligations to repair,” says Commission Chair Anna Rawlings.

2 Cheap Cars also contravened the Fair Trading Act in its advertising for sales on 30 September and 1 October 2017. It made statements implying vehicles would receive a “massive” discount and that it was in liquidation, such as “2 Cheap Cars is in hot water, it must liquidate immediately”.

These were not consistent with fact – the Commerce Commission says most of the 710 vehicles then for sale nationwide were not discounted at all or had discounts of as little as $5, and 2 Cheap Cars was not in, or going into, liquidation.

Judge Ronayne described this advertising as “deliberately misleading rather than simply careless” and “behaviour which was a complete departure from the truth”.

Rawlings says retailers should not encourage consumers to purchase with “spurious calls to act urgently to take up a discount”, and should also avoid overstating the savings available when discounts are advertised.

This case is one of several enforcement actions the Commerce Commission has recently taken against motor vehicle traders. It has released a tip sheet with advice aimed at helping motor vehicle dealers meet their legal obligations.

This article was originally published on The Register. 

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