OVERVIEW

If an automobile under warranty contains a defect and the manufacturer/dealer cannot repair the defect after a reasonable number of attempts, the consumer can chose to receive a refund for or replacement of the car under the Lemon Law. There are variants of the Lemon Law in each state- the general purpose of the law and the remedies available to an aggrieved consumer are reviewed in this article.

SOURCES OF THE LAW

The Magnuson-Moss Warranty Act is a federal law that protects buyers of any product that costs more than $25 and comes with an express written warranty, such as a new car. The Uniform Commercial Code (UCC), the primary statutory law governing sales contracts, provides that a buyer is entitled to reject any goods that fail in any respect to conform to a contract. All states have enacted versions of the so-called ‘Lemon Law’, which provides that if the manufacturer or dealer cannot fix a vehicle to conform to a warranty after a “reasonable” number of repair attempts during the warranty period, then the manufacturer must replace the vehicle or reimburse the buyer or lessee for its purchase price.

Finance Companies

The Federal Trade Commission’s “Holder Rule” 16 CFR 433, provides that where financing is arranged by the dealer, the finance company will be subject to all of the consumer’s claims and defenses arising out of the transaction. Thus, the buyer or lessee of a defective vehicle will be able to assert his/her claims against the seller and manufacturer against the finance company, as well.

LEMON DEFINED

The law generally defines a “lemon” as a vehicle that has a defect that substantially impairs its use, safety, or value, and which has not been repaired after a reasonable number of attempts. If a vehicle is found to be a ‘lemon’ then the manufacturer must give the purchaser a replacement vehicle or refund the purchase price and incidental expenses.

Substantial Impairment

The Lemon Law generally does not list specific defects that are considered substantial. A consumer must be able to show how the vehicle has been substantially impaired. Peeling paint, “funny noises” and other minor defects in a vehicle that is otherwise drivable, will not qualify the vehicle for Lemon Law protection. For example, to prove substantial value impairment, one could show that the retail value of the vehicle is significantly less than it would be without the defect. Although a defect may be annoying, it is not necessarily “substantial”.

Non-Covered Defects or Conditions

Any defect or condition that results from an accident, abuse, neglect, vandalism, modification, repair or alteration of the vehicle by persons other than the manufacturer’s authorized service agent.

Used Vehicles

Whether a used vehicle is covered by the Lemon Law depends upon which State the car was purchased or leased in. Some states include used and leased cars in their Lemon Law statutes and some have separate laws for used vehicles. Generally, if the used vehicle is still under the manufacturer’s warranty, the Lemon Law applies.

Motor Homes/Motorcycles

Most States cover the drive train portion of motor homes (that part which is not used for dwelling purposes). Motorcycles are generally not covered but a few states do include them in their Lemon Law statutes.

Other Remedies

If the state’s Lemon Law does not cover a defective motorcycle, motor home, used car, leased car, or a car used for business purposes, the recourse available for defective products through the Uniform Commercial Code and the Federal Magnuson-Moss Warranty Act may still apply and the purchaser may be entitled to damages or rescission (revocation of the sales agreement).

APPLICATION OF THE LAW

The Lemon Law allows for a “reasonable” number of repair attempts to have been made on a vehicle before the buyer or lessee can avail him/herself of statutory remedies:

  • The manufacturer or its agents must have made 3-4 attempts to repair the same problem, or the vehicle has been ‘out of service’ for more than 15-30 days (not necessarily all at the same time) while being repaired for any number of problems. The number of necessary repairs or ‘out of service’ period will vary according to state law.
  • The repair attempts or ‘out of service’ period have occurred within 12-18 months of the vehicle’s delivery to the consumer or 12,000-24,000 miles on the odometer, whichever occurs first. These periods and mileage will vary according to state law.

Proof that Vehicle is a ‘Lemon’

The warranty materials or the owner’s manual accompanying the vehicle may require the consumer to notify the manufacturer about any problem(s) directly. It is important that keep complete and accurate records of all contacts with the manufacturer or dealer, and all receipts are maintained. A consumer has a right to an itemized bill for any repair work, including warranty repair work. Make sure the dealer records complaints on any Repair Order accurately. Be sure to describe the defect exactly the same way on each repair visit as otherwise, rights under the “reasonable attempts to repair for the same defect” clause may be forfeited. Dates, times in/out, and odometer reading should be recorded each time the car is repaired.

Defects Discovered Outside the Warranty Period

Occasionally, a new car is not suspected of being a ‘lemon’ until it is too late (out of warranty, over the mileage limit, etc). If a record of every repair visit is maintained, rights under the Lemon Law may not be lost.

Notice

Once the vehicle is out of service for repair by the manufacturer or its agent for one or more defects for a the required number of days days, the consumer must ordinarily give written notice, by registered or express mail, to the manufacturer of the need for repair. The manufacturer then has a final chance to repair the nonconformity (see Final Chance to Repair, below).

Final Chance to Repair

If the defect continues or recurs despite the repair attempts the next step in the Lemon Law process is to offer the manufacturer a final repair opportunity, usually for a period of 7 business days. Should the final attempt to correct the nonconformity fail, the consumer can then seek to enforce his/her rights to either replacement or repurchase of the vehicle.

Mediation/Arbitration

Under virtually all Lemon Law statutes, if there is a dispute as to entitlement, the case is referred to mediation or arbitration. Arbitration is an inexpensive and informal way to resolve a complaint without going to court. In arbitration, the consumer and the manufacturer present evidence about the condition of the vehicle to an impartial arbitrator who decides the case and issues a written decision. If the manufacturer has a dispute-settlement procedure then the consumer must ordinarily apply for relief under that procedure. Mediation allows both parties to reach a mutually agreeable resolution with the help of a facilitator; it is a voluntary process, requiring both parties’ consent. Many states offer mediation facilities for disputants.

Manufacturer’s Arbitration

The manufacturer’s arbitration program can result in an order for additional repairs, replacement or a refund;  the state arbitration program can only order a replacement vehicle, a full refund or no relief at all.

State Arbitration

The purpose of a state-run arbitration hearing is to determine whether or not a vehicle qualifies for refund or replacement under the Lemon Law. If the arbitrator determines that the vehicle meets the Lemon Law standards, an award of a full refund or replacement will be made. If the arbitrator decides that the vehicle is not a “lemon,” there will be no award.

Costs and Expenses

Attorney’s fees, time lost from work and other consequential damages are not reimbursable after a favorable Lemon Law arbitration decision.

Court Actions

If the state arbitrator’s decision is not favorable, a court action may be initiated.  In the lawsuit, the consumer can ask for Lemon Law remedies or other relief that may be available under the Uniform Commercial Code, common law or other state or federal laws.

Attorney’s Fees

Approximately half of the states allow for recovery of attorney’s fees in a successful court action. If suit is brought under the Magnuson-Moss Warranty Act, an attorney’s fee will be awarded to the prevailing party. Additionally, court costs and expert witness fees may be recovered.

REMEDIES

The consumer’s basic remedy under the Lemon Law is replacement or repurchase of the vehicle.

Replacement

If the vehicle qualifies as a lemon and the manufacturer offers a replacement vehicle, it must be one that is acceptable to the consumer; a replacement vehicle can be rejected and a refund demanded. A refund cannot, however, be rejected and a replacement demanded. Replacement vehicles under the Lemon Law come with a new warranty effective as of the date of delivery of the replacement vehicle.

Refunds

If the refund option is selected, it will be in the amount of the total contract price of the vehicle including the down payment, any trade-in allowance plus collateral charges, including, sales tax, license and registration fees, costs incurred for towing and storage of the vehicle and for procuring alternative transportation while the vehicle was out of service by reason of repair or was not drivable; if the vehicle was leased, the total of lease payments made to date are refunded as well. Ordinarily, the refund will be reduced by a reasonable allowance for use. The owner may continue to use the vehicle until given a refund or replacement.