More needs to be done to protect consumers against errant car dealers

For some years now, the motor trading industry has come up as Number One or Two on the complaints list of the Consumer Association of Singapore (Case). The consumer watchdog has recently said that from December 2018 to September this year, it had received 26 complaints involving over S$820,000 in prepayment losses relating to the closure of at least seven car dealers.

This raises the question on whether the law here adequately protects car buyers. What can car buyers do to safeguard their interests?

Complaints against car dealers fall into two broad categories. The first is by customers who have bought  “lemon” cars, a colloquial term used for second-hand cars that are defective. Where “lemon” cars are sold to car buyers, this form of deceptive trade practice can be remedied provided the car dealers remain afloat and are contactable.

The second type of complaint arises when car dealers do not deliver these vehicles or fail to transfer ownership of the vehicle even though deposits or full payments have been made. In such a situation, the car buyers have little recourse if these car dealers close down or abscond with their deposits.

WHAT DOES THE LAW SAY?

In Singapore, buyers of second-hand vehicles are afforded statutory protection from car dealers who sell “lemon” cars through the Consumer Protection (Fair Trading) Act (CPFTA).

The CPFTA protects buyers who buy a second-hand car from a dealer if it fails within the next six months to perform in a manner that may be reasonably expected of a car of that mileage and model.

In a 2014 case, a buyer who bought a three-year-old hybrid Lexus car for S$138,000 from Speedo Motoring filed a complaint with the Small Claims Tribunal against the company for incorrectly claiming that the car had been regularly serviced by the authorised agent when this was not the case.

Just two months after the buyer bought the car, the hybrid battery broke down. As the defective hybrid battery led to the finding that the vehicle was not of satisfactory quality at the time of delivery, the tribunal ordered Speedo Motoring to compensate the buyer S$4,500 for the cost of a new battery, which cost S$6,206.

The company appealed the ruling but the High Court upheld it, though the court noted that in all likelihood, both the buyer and seller were in the dark about the faulty hybrid battery as the problem only surfaced two months after the buyer took delivery of the vehicle.

While this case shows how the CPFTA works, it is useful to note that CPFTA has a prescribed limit of S$30,000 for such claims. So if the cost of the repairs had been higher than S$30,000, a buyer would not have been able to make a claim under the CPFTA unless he disclaims the excess amount.

I would suggest that this prescribed limit should be increased given that it does not adequately protect car buyers where the cost of repairs exceeds S$30,000.

The CPFTA also covers the second common complaint of second-hand dealers suddenly going bust or becoming uncontactable with customers’ deposits or payments without having actually transferred ownership or delivered the vehicles.

Yet in practical terms, there seems to be little recourse for these affected car buyers. They could apply for a writ of seizure and sale but this has little use if the business does not have any assets left.

Oftentimes, the car buyers would have to resign themselves to losing whatever payments they have made. Given the higher costs of cars in Singapore, these are usually fairly large sums of money.

To increase the likelihood of car buyers receiving compensation, perhaps car buyers may consider obtaining an interim freezing injunction against the errant car dealer.

An interim freezing injunction is a type of court order that freezes the assets of the car dealer at an early stage in order to prevent the car dealer from dissipating whatever is left of the business’ assets. This seeks to preserve the remaining assets to aid the car buyer to recover at least some money if the car buyer is eventually successful in obtaining compensation.

A stronger deterrence would be to criminalise unfair trade practices. Oftentimes, these disputes are treated as civil rather than criminal in nature.

If legislation could be introduced to target unfair trade practices which sometimes fall short of the criminal standard of cheating, then that could deter would-be offenders.

Criminal sanctions would have to commensurate with the egregious conduct of such offenders and a sliding scale could be employed to determine culpability, taking into account factors such as the amount of money involved and the number of individuals affected.  

BUYING FROM ACCREDITED DEALERS

So, what can car buyers do to prevent getting cheated?

For one thing, they should always remain vigilant and ensure that they have in hand their SingPass to check their OneMotoring accounts regularly to confirm that their purchased cars have been transferred to them once they have made their payments in full.

Car buyers can also approach dealers who are jointly accredited by CaseTrust and the Singapore Vehicle Traders Association (SVTA).

Besides being certified as businesses that have good sales practices and standards, these dealers are required to furnish an insurance bond of S$50,000 to protect the customers' fees and deposits paid in the event of unresolved disputes.

While the sum may be paltry compared to the deposits paid for higher-end vehicles, it could somewhat mitigate the sting faced by those cheated by errant car dealers who abscond with their deposits.

The downside is that there are currently only 54 car dealers who have been accredited by CaseTrust-SVTA. This is believed to be less than 10 per cent of the car dealers operating in Singapore. Given that the scheme has been in place for over 10 years, Case and SVTA should aim to include more dealers in the joint accreditation scheme.  

Another possible solution the industry could consider is an insurance scheme similar to that used in the spa industry, where customers who sign up for prepaid spa packages with participating CaseTrust accredited outlets are able to obtain insurance for their prepayments.

However, the difficulty with implementing this for the second-hand car dealer industry is that car deposits are usually significantly higher than prepaid spa packages. This means that the cost of such insurance would also be higher and would likely be passed on to car buyers.

All things considered, this is still a small price to pay if car buyers would like complete peace of mind for a big-ticket purchase such as a car.

A final and more drastic option to boost consumer protection would be for the Government to license second-hand car dealers and impose minimum capitalisation requirements. One downside is that it may cause cash flow problems for many car dealers in Singapore, as they could depend on the deposits paid and payments made in advance by customers as working capital for the purchase of other second-hand vehicles to form their stock.

However, such a move should not be ruled out if the situation of second-hand car buyers being cheated of their payments worsens.

ABOUT THE AUTHOR:

Ben Chester Cheong is a lecturer at the School of Law, Singapore University of Social Sciences.

Note: This piece has been edited to better reflect the facts of the case involving Speedo Motoring.