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Wednesday, August 29, 2007

Laundered Lemons Sold To Unsuspecting Consumers

When Stephen and Michelle Steiner won their lemon-law case against Volkswagen of America last fall, the Stratham, N.H., couple were thrilled. At last they were free of the 2003 Passat wagon that they were afraid to drive.

But delight turned to dismay early this year when Mrs. Steiner, curious about what had become of the car, searched the Internet and found it advertised by a used-car dealer near Rochester as a “perfect family car” with a “clean title.”

The Passat had been anything but perfect. The car had already had three repairs for fuel-pump problems, and the Steiners had become so worried about its stalling that they stopped driving it last summer. New Hampshire had declared it a lemon, so Mrs. Steiner could not believe there was no warning in the online ad about its troubled past.

“I was flabbergasted,” she said. “I thought they would have to let it be known that it was a lemon.”

A few states to the west, Julia and Manuel Moreno found themselves on the other end of a transaction involving a used lemon. In 2005 while living in Wooster, Ohio, they bought a used 1998 Kia Sportage. After a series of problems, they discovered that in 2000 Kia Motors America had bought the vehicle back from its original owner as a lemon. The Morenos said the S.U.V. had steering and suspension problems.

The definition of a lemon varies by state, but in general the vehicle has had a serious problem that remains uncorrected despite several attempts to fix it. A car could also be a lemon if it has had a series of different problems that has made it unavailable to the consumer for a long period, often 30 days.

All 50 states have lemon laws, according to the International Association of Lemon Law Administrators. Once a car is determined to be a lemon, usually by an independent arbitration board, the manufacturer is required to buy it back.

But as the Steiners and Morenos have learned, the car can cause problems after that, because of inconsistent state laws on how lemons are handled. Even if one state requires the title to be branded as a “lemon” or “buyback,” consumer advocates and state officials say there is a good chance the car can be sold in another state with no indication on the title of its troubled past.

“Crossing state lines opens very dangerous opportunities for washing titles or eliminating the branding,” said Attorney General Richard Blumenthal of Connecticut.

Bob Russo, who headed New Jersey’s lemon law program for 16 years and is now president of the Consumers League in that state, said society was so mobile that without a uniform national policy consumers cannot be protected against buying vehicles that had serious problems or might be dangerous.

To see what happens to lemons, Experian Automotive, which specializes in collecting and analyzing automotive data, picked at random 1,000 Florida vehicles that were branded lemons, from a list on a state Web site. Experian found that 555 had been taken out of the state. And four-fifths of those 555 cars no longer had titles branding them as lemons, according to an analysis conducted for The New York Times.

Automakers say that if a lemon’s history is lost it is not their fault. They insist that they require paperwork intended to make sure used-car dealers and consumers know the vehicle had been bought back. In addition, they say, mechanical problems are fixed before the vehicles are resold.

But consumer advocates are skeptical about such claims, saying that if lemons were easy to repair they wouldn’t be lemons. They also note cases where automakers or dealers were caught reselling lemons without warning consumers.

In 2002, the California Department of Motor Vehicles settled an eight-year-old case with Chrysler. The automaker paid $325,000 after the agency found that Chrysler committed fraud by selling 119 lemons — some with unrepaired safety defects — to consumers. Chrysler did not admit any wrongdoing, said Armando E. Botello, a spokesman for the agency. Lisa Barrow, a Chrysler spokeswoman, said that the case was old and that Chrysler “is an ethical company that adheres to all state lemon laws.”

That same year, General Motors paid a $110,000 fine to the State of Ohio because the titles of 515 lemons were not properly branded.

While all states have lemon laws, only 19 — including New York, New Jersey and Connecticut — require the title of a lemon vehicle to be branded with a warning like “lemon” or “manufacturer buyback,” according to a survey by The New York Times.

That warning can easily be lost when the vehicle is sold in another state, because so many states lack provisions for carrying over the lemon designation, said Keith Kiser, vice president for vehicle services at the American Association of Motor Vehicle Administrators.

The number of lemons bought back each year is unclear because automakers decline to provide details, and they are not required to do so. But estimates by consumer groups and state officials range from 25,000 to 60,000 a year.

Whatever the annual number, it is clear that hundreds of thousands of lemons have been bought back by automakers and resold to consumers since lemon laws became more common about 15 years ago, said Rosemary Shahan, president of Consumers for Auto Reliability and Safety, an advocacy group in Sacramento.

After a lemon is bought back, the automaker usually sells it at a car auction for dealers. Rodney Davis, vice president for dispute resolution with the Council of Better Business Bureaus, said automakers made sure lemons were clearly marked when they were sent to those auctions. The potential for the lemon branding to be lost is greater when the dealer then resells the vehicle, he said.

“In some cases it may be an innocent mistake,” Mr. Davis said, “and in other cases it may not be an innocent mistake.”

In 2003, while he was attorney general of New York, Eliot Spitzer required 56 used-car dealers to pay $50,000 in penalties and refund $200,000 to 37 consumers who had not been warned that the cars they bought were lemons.

The Steiners said their Passat is proof that the system can fail and that it can be the automaker’s fault. On the “repurchased vehicle disclosure statement” that accompanied the Passat when it went to auction, VW did not mark the section that reads, “to resolve lemon law claim.”

That disclosure form was filled out and signed by the VW official in Michigan to whom the Steiners sent all the lemon-law paperwork. So that official had to know the car was a lemon, Mrs. Steiner said.

A VW spokesman, Keith Price, said an error was made on the form.

Tony LoCurto, sales manager at the dealership that offered the Passat for sale, Sutherland Auto Sales in Pittsford, N.Y., said he did not know the Passat was a lemon because of the incorrect disclosure form. Mr. LoCurto said Sutherland, which is not a Volkswagen dealer, probably paid more for the Passat than it should have, given that it was a lemon.

Mr. Price said recently that VW had repurchased the Passat from Sutherland. It was sold yet again this month at a Pennsylvania auction, but no details were available last week.

While New Hampshire had declared the Passat a lemon, Mr. LoCurto could send potential buyers the Steiner’s original “clean” title. That was possible because although New Hampshire considered the Passat a lemon and put that information in its computer, the vehicle moved out of state, said Katie Daley, a spokeswoman for the state Division of Motor Vehicles. Had the car been repurchased in New Hampshire, the new owner would have received a lemon-designated title. But when VW sold the vehicle in New York, the car’s lemon history was lost, she said.

Ken Brown, a spokesman for the New York Department of Motor Vehicles, said a New York title was not required for the vehicle to be brought into the state and sold.

As for the Morenos with the troubled Kia Sportage, the problem wasn’t that the S.U.V. was sold out of state. Rather, its title was never properly branded as a lemon, as required under Ohio law.

In 2005, the Morenos sued Kia. The company’s lawyers did not deny that Kia had failed to notify the state, but argued that the Morenos had waited too long to file suit, according to court records.The suit was settled out of court. The Morenos, who now live in West Virginia, still have the car but say they are afraid to drive it. A Kia spokesman, Alex Fedorak, said a company hired by Kia was supposed to brand the title. That company no longer works for Kia, he said.

The issue of lemon laundering has concerned consumer groups for more than a decade; the Federal Trade Commission called a meeting on lemon laundering in 1996. At the meeting, auto company officials said they would accept strong safeguards against laundering as long as the regulations applied nationally, making compliance easier by reducing state-to-state variations.

But consumer groups expressed concern that a federal rule, which would pre-empt state laws, might offer less protection than the strongest state laws, according to several participants. Faced with a lack of consensus, the F.T.C. took no action. “The F.T.C. didn’t really do anything,” said Ms. Shahan, whose group had asked for the meeting.

As a result, there is not much buyers can do to protect themselves, consumer advocates say. Buyers can use a vehicle-history service like Experian Automotive’s AutoCheck ( and Carfax ( But some consumer advocates say there may be gaps or delays in the car’s history before information is updated.

What is really needed to protect consumers is a national database of lemon vehicles, said Carol Roberts, executive director of the International Association of Lemon Law Administrators.

Article excerpt from the New York Times - 8/26/07.

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