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CarMax, Inc., Analysis of Proposed Consent Order To Aid Public Comment

American Government Special Collections Reference Desk

American Government Topics:  CarMax

CarMax, Inc., Analysis of Proposed Consent Order To Aid Public Comment

Donald S. Clark
Federal Trade Commission
22 December 2016


[Federal Register Volume 81, Number 246 (Thursday, December 22, 2016)]
[Notices]
[Pages 93928-93931]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-30868]


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FEDERAL TRADE COMMISSION

[File No. 142 3202]


CarMax, Inc., Analysis of Proposed Consent Order To Aid Public 
Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or

[[Page 93929]]

deceptive acts or practices. The attached Analysis to Aid Public 
Comment describes both the allegations in the draft complaint and the 
terms of the consent order--embodied in the consent agreement--that 
would settle these allegations.

DATES: Comments must be received on or before January 17, 2017.

ADDRESSES: Interested parties may file a comment at https://ftcpublic.commentworks.com/ftc/carmaxconsent online or on paper, by 
following the instructions in the Request for Comment part of the 
SUPPLEMENTARY INFORMATION section below. Write ``In the Matter of 
CarMax, Inc., File No. 142 3202--Consent Agreement'' on your comment 
and file your comment online at https://ftcpublic.commentworks.com/ftc/carmaxconsent by following the instructions on the web-based form. If 
you prefer to file your comment on paper, write ``In the Matter of 
CarMax, Inc., File No. 142 3202--Consent Agreement'' on your comment 
and on the envelope, and mail your comment to the following address: 
Federal Trade Commission, Office of the Secretary, 600 Pennsylvania 
Avenue NW., Suite CC-5610 (Annex D), Washington, DC 20580, or deliver 
your comment to the following address: Federal Trade Commission, Office 
of the Secretary, Constitution Center, 400 7th Street SW., 5th Floor, 
Suite 5610 (Annex D), Washington, DC 20024.

FOR FURTHER INFORMATION CONTACT: Evan Zullow, (202) 326-2914), 
Attorney, Financial Practices Division, Bureau of Consumer Protection, 
Federal Trade Commission, 600 Pennsylvania Avenue NW., Washington, DC 
20580.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 16 CFR 2.34, 
notice is hereby given that the above-captioned consent agreement 
containing consent order to cease and desist, having been filed with 
and accepted, subject to final approval, by the Commission, has been 
placed on the public record for a period of thirty (30) days. The 
following Analysis to Aid Public Comment describes the terms of the 
consent agreement, and the allegations in the complaint. An electronic 
copy of the full text of the consent agreement package can be obtained 
from the FTC Home Page (for December 16, 2016), on the World Wide Web 
at: http://www.ftc.gov/os/actions.shtm.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before January 17, 
2017. Write ``In the Matter of CarMax, Inc., File No. 142 3202--Consent 
Agreement'' on your comment. Your comment--including your name and your 
state--will be placed on the public record of this proceeding, 
including, to the extent practicable, on the public Commission Web 
site, at http://www.ftc.gov/os/publiccomments.shtm. As a matter of 
discretion, the Commission tries to remove individuals' home contact 
information from comments before placing them on the Commission Web 
site.
    Because your comment will be made public, you are solely 
responsible for making sure that your comment does not include any 
sensitive personal information, like anyone's Social Security number, 
date of birth, driver's license number or other state identification 
number or foreign country equivalent, passport number, financial 
account number, or credit or debit card number. You are also solely 
responsible for making sure that your comment does not include any 
sensitive health information, like medical records or other 
individually identifiable health information. In addition, do not 
include any ``[t]rade secret or any commercial or financial information 
which . . . is privileged or confidential,'' as discussed in Section 
6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 16 CFR 
4.10(a)(2). In particular, do not include competitively sensitive 
information such as costs, sales statistics, inventories, formulas, 
patterns, devices, manufacturing processes, or customer names.
    If you want the Commission to give your comment confidential 
treatment, you must file it in paper form, with a request for 
confidential treatment, and you have to follow the procedure explained 
in FTC Rule 4.9(c), 16 CFR 4.9(c).\1\ Your comment will be kept 
confidential only if the FTC General Counsel, in his or her sole 
discretion, grants your request in accordance with the law and the 
public interest.
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    \1\ In particular, the written request for confidential 
treatment that accompanies the comment must include the factual and 
legal basis for the request, and must identify the specific portions 
of the comment to be withheld from the public record. See FTC Rule 
4.9(c), 16 CFR 4.9(c).
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    Postal mail addressed to the Commission is subject to delay due to 
heightened security screening. As a result, we encourage you to submit 
your comments online. To make sure that the Commission considers your 
online comment, you must file it at https://ftcpublic.commentworks.com/ftc/carmaxconsent by following the instructions on the web-based form. 
If this Notice appears at http://www.regulations.gov/#!home, you also 
may file a comment through that Web site.
    If you file your comment on paper, write ``In the Matter of CarMax, 
Inc., File No. 142 3202--Consent Agreement'' on your comment and on the 
envelope, and mail your comment to the following address: Federal Trade 
Commission, Office of the Secretary, 600 Pennsylvania Avenue NW., Suite 
CC-5610 (Annex D), Washington, DC 20580, or deliver your comment to the 
following address: Federal Trade Commission, Office of the Secretary, 
Constitution Center, 400 7th Street SW., 5th Floor, Suite 5610 (Annex 
D), Washington, DC 20024. If possible, submit your paper comment to the 
Commission by courier or overnight service.
    Visit the Commission Web site at http://www.ftc.gov to read this 
Notice and the news release describing it. The FTC Act and other laws 
that the Commission administers permit the collection of public 
comments to consider and use in this proceeding as appropriate. The 
Commission will consider all timely and responsive public comments that 
it receives on or before January 17, 2017. You can find more 
information, including routine uses permitted by the Privacy Act, in 
the Commission's privacy policy, at http://www.ftc.gov/ftc/privacy.htm.

Analysis of Proposed Consent Order To Aid Public Comment

    The Federal Trade Commission (``FTC'' or ``Commission'') has 
accepted, subject to final approval, an agreement containing a consent 
order from CarMax, Inc. The proposed consent order has been placed on 
the public record for thirty (30) days for receipt of comments by 
interested persons. Comments received during this period will become 
part of the public record. After thirty (30) days, the FTC will again 
review the agreement and the comments received, and will decide whether 
it should withdraw from the agreement and take appropriate action or 
make final the agreement's proposed order.
    The respondent is a car dealership that sells used motor vehicles. 
According to the FTC complaint, discussed further below, respondent has 
represented that used motor vehicles it sells have been subject to 
rigorous inspection, including for safety issues, but has failed to 
disclose adequately that some of these vehicles are subject to open 
recalls for safety issues. Federal law currently does not prohibit car 
dealers from selling used vehicles subject to open safety recalls; 
Congress and some states are considering

[[Page 93930]]

legislation that would do so. The Commission, however, can take action 
under the FTC Act to prohibit companies from making claims that mislead 
consumers about safety-related and other material issues. Further, the 
FTC can take such action in addition to (and entirely independent of) 
any private rights of action consumers themselves can bring under state 
law. This proposed action thus does not replace or alter any state laws 
or legislative proposals; rather, it offers additional protections 
beyond those afforded under other such laws, as they exist now or may 
be amended.
    More specifically, the complaint in this matter alleges that the 
respondent has posted advertisements on its Web site that make the 
following representations:

125+ Point Inspection

    Experienced technicians put every vehicle through a rigorous 
Certified Quality Inspection--over 125 points must check out before 
it meets our high standards.

No Cars With Flood or Frame Damage

    Not every car that looks good is good. We're confident in the 
safety and reliability of our vehicles because our technicians are 
trained to detect those with hidden damage.

Every Used Car Is Renewed

    CarMax cars undergo (on average) 12 hours of renewing--
sandwiched between two meticulous inspections--for a car that 
doesn't look or feel used.

    Even though it makes such claims, the respondent has allegedly 
advertised on its Web site numerous used vehicles that were subject to 
open recalls for safety issues. In numerous instances, when the 
respondent allegedly advertised used vehicles that are subject to open 
recalls for safety issues, it provided no accompanying clear and 
conspicuous disclosure of this fact. The proposed complaint alleges 
that this failure to disclose constitutes a deceptive act or practice 
under Section 5 of the FTC Act.
    The proposed order is designed to prevent the respondent from 
engaging in similar deceptive practices in the future. Part I prohibits 
the respondent from representing that used motor vehicles it offers for 
sale are safe, have been repaired for safety issues, or have been 
subject to a rigorous inspection unless the used motor vehicles are not 
subject to any open recalls for safety issues or the respondent 
discloses, clearly and conspicuously, in close proximity to such 
representation, any material qualifying information related to open 
recalls for safety issues. Part II is a provision that orders the 
respondent to notify consumers who purchased a used motor vehicle from 
a CarMax dealership between July 1, 2013 and November 20, 2014 that 
some of the used vehicles it sold during this time had been recalled 
for safety issues which weren't repaired as of the date they were sold. 
The notice also must specify how consumers can check whether the 
vehicle is subject to an unrepaired recall at the National Highway 
Traffic Safety Administration's Web site, https://vinrcl.safercar.gov/vin/ vin/. This Web site also provides information on how to get a vehicle 
fixed if it is subject to an open recall.
    Parts III through VII of the proposed order are reporting and 
compliance provisions. Part III requires the respondent to maintain for 
five years, and produce to the Commission upon demand, any relevant ads 
and associated documentary material. Part IV is an order distribution 
provision. Part V requires the respondent to notify the Commission of 
corporate changes that may affect compliance obligations. Part VI 
requires the respondent to submit a compliance report to the Commission 
60 days after entry of the order, and also additional compliance 
reports within 10 business days of a written request by the Commission. 
Part VII ``sunsets'' the order after twenty years, with certain 
exceptions.
    The purpose of this analysis is to aid public comment on the 
proposed order. It is not intended to constitute an official 
interpretation of the complaint or proposed order, or to modify in any 
way the proposed order's terms.

Statement of the Federal Trade Commission Concerning Auto Recall 
Advertising Cases \1\
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    \1\ In the Matters of General Motors Company, File No. 1523101; 
Jim Koons Management Company, File No. 1523104; Lithia Motors, Inc., 
File No. 1523102; CarMax, Inc., File No. 1423202; West-Herr 
Automotive Group, Inc., File No. 1523105; and Asbury Automotive 
Group, Inc., File No 1523103.
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December 15, 2016

    Unrepaired auto recalls pose a serious threat to public safety. Car 
manufacturers and the National Highway Traffic Safety Administration 
have recalled tens of millions of vehicles in each of the last several 
years for defects that pose significant safety risks to consumers. In 
2015, for example, recalls affected 51 million vehicles nationwide.\2\ 
And defects that have been the subject of recalls have led to severe 
injuries and even death for many consumers. Federal law requires that 
all new cars sold in the United States be free from recalls, but it 
does not prohibit auto dealers from selling used cars with open 
recalls. As a result, absent a change in law, neither NHTSA nor any 
other federal agency has the authority to ban the sale of used cars 
that have open recalls across the industry.
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    \2\ Gordon Trowbridge, National Highway Traffic Safety 
Administration, U.S. Department of Transportation launches new 
public awareness campaign, Jan. 21, 2016, https://www.nhtsa.gov/About-NHTSA/Press-Releases/nhtsa_launches_safe_cars_save_lives_campaign_01212015.
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    Section 5 of the Federal Trade Commission Act, however, enables the 
Commission to stop car sellers from engaging in false or misleading 
advertising practices that mask the existence of open recalls, and we 
are committed to doing just that. As part of this effort, the 
Commission is issuing final orders against General Motors Company, Jim 
Koons Management Company, and Lithia Motors, Inc. and announcing 
proposed orders against CarMax, Inc., West-Herr Automotive Group, Inc., 
and Asbury Automotive Group, Inc. In these enforcement actions, the 
Commission is challenging what we allege are deceptive advertising 
claims by these companies that highlight the rigorous inspections they 
perform on their used cars, but fail to clearly disclose the existence 
of unrepaired safety recalls.
    More specifically, we allege that the companies named in these 
actions touted the rigorousness of their car inspections by claiming, 
for example, to engage in a ``172-point inspection and 
reconditioning,'' an ``exhaustive 160-checkpoint Quality Assurance 
Inspection,'' or a ``rigorous and extensive inspection.'' Some of these 
inspected cars were subject to open recalls. We charge that the 
companies' representations about their inspections, absent clear and 
conspicuous information about open recalls, were likely to mislead 
reasonable consumers into believing that the inspections included 
repairing open recalls. Therefore, the companies' failure to disclose 
this information was deceptive.\3\
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    \3\ Under Section 5 of the FTC Act, ``it can be deceptive to 
tell only half the truth, and to omit the rest. This may occur where 
a seller fails to disclose qualifying information necessary to 
prevent one of his affirmative statements from creating a misleading 
impression.'' See In re International Harvester Co., 104 F.T.C. 949, 
1057 (1984).
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    Our orders stop this deceptive conduct and provide important 
additional protections for consumers. First, the orders prohibit each 
company from making any safety-related claim about its vehicles unless 
(1) the vehicles are recall-free, or, alternatively, the company 
discloses clearly and conspicuously and in close proximity to the 
representation both that the vehicles may be subject to open recalls 
and how

[[Page 93931]]

consumers can determine the recall status of a particular car, and (2) 
the claims are not otherwise misleading.\4\
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    \4\ For instance, a claim could still be misleading, even with 
the required disclosure, if a dealer represents that it inspected 
specific cars when it failed to do so, makes false oral statements 
to consumers that specific cars are free of recalls, or states a car 
may be subject to a recall (or otherwise implies it does not know 
the recall status) but in fact knows the car is actually subject to 
an open recall.
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    This means that, if any car on the companies' lots is subject to an 
open recall, every time the companies make these types of inspection 
claims, they must prominently disclose that their cars may be subject 
to open recalls and tell consumers how to determine the recall status 
of specific cars. And they must provide this information wherever the 
inspection claims are made--in the showroom, on the lot, and in any TV, 
radio, or Web site ad that consumers may view before they even visit a 
car dealer.
    Further, the orders require each company to warn consumers who 
recently purchased one of its used cars that the vehicle may have an 
open recall. The Commission can seek civil penalties for violations of 
these orders, and we will not hesitate to do so if we discover a 
violation.\5\
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    \5\ See U.S. v. New World Auto, No. 16-cv-2401 (N.D. Tex. Aug. 
22, 2016) (requiring auto dealers to pay civil penalties for 
violations of FTC order).
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    These enforcement actions will help empower consumers to make more 
informed and safer purchasing decisions in a market that, absent a 
change in federal law, continues to include cars subject to open 
recalls. Dealers that repair all of their cars can continue to make 
truthful claims that they are recall-free, and can benefit from the 
competitive advantages of doing so. Dealers that cannot, or do not, 
repair all of their cars must instead prominently disclose that the 
cars may have open recalls when they make certain safety-related 
claims, such as claims about comprehensive inspections. Dealers are 
therefore incentivized to repair open recalls in the cars they 
advertise. At the same time, dealers can continue conducting their 
inspection programs and truthfully advertising them, provided they 
prominently disclose that cars may be subject to open recalls and do 
not misrepresent the recall status or safety of their cars.\6\
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    \6\ Dealer inspection programs often involve checking that vital 
components of a car, like the brakes and drivetrain, are working 
properly and thus can provide important consumer benefits.
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    Finally, we note that other laws, including state product safety, 
tort, and other consumer protection laws, provide important safeguards 
to consumers affected by defective cars. Of course, the Commission's 
orders do not affect the protections afforded by those laws. Rather, 
the Commission's orders provide independent protection for consumers, 
requiring that they be given information about open recalls before they 
purchase a used car.
    Congress has been considering legislative proposals that would 
prohibit the sale of used cars with unrepaired recalls altogether, and 
we support efforts seeking to address this serious public safety issue. 
Although the Commission's enforcement actions against individual 
companies cannot substitute for legislative solutions, they provide 
important protections for consumers to help ensure that they can make 
informed and safer purchasing decisions in the used car marketplace.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 2016-30868 Filed 12-21-16; 8:45 am]
 BILLING CODE 6750-01-P

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