lemon law

n.
A law obligating manufacturers or sellers to repair, replace, or refund the price of motor vehicles that prove to be defective.

This entry contains information applicable to United States law only.

Laws governing the rights of purchasers of new and used motor vehicles that do not function properly and which have to be returned repeatedly to the dealer for repairs.

Laws in all fifty states and the District of Columbia provide remedies to purchasers of defective new vehicles, often called lemons. These so-called lemon laws protect consumers from substantial defects occurring within a specified period after purchase, and provide that a manufacturer must either replace the lemon with a new, comparable car or refund the full purchase price. According to the consumer advocate group Consumers for Auto Reliability and Safety, automakers repurchase fifty thousand vehicles a year, about .33 percent of the 15 million vehicles sold annually.

California and Connecticut passed the first lemon laws in 1982, in response to dissatisfaction with remedies in state sales laws and the 1975 federal Magnuson-Moss Warranty Act (15 U.S.C.A. § 2301 et seq.). Magnuson-Moss and other laws previously in effect provided remedies for the breach of full warranties, but the automobile industry typically provided only limited warranties. Other states quickly followed California and Connecticut in an effort to provide relief to new-car buyers under limited warranties.

Lemon laws typically provide consumer protection for owners of new cars, trucks, and vans. A significant minority of states also provide coverage for leased vehicles. Many states specify coverage for one year from delivery or for the written warranty period, whichever is shorter; a handful of states mandate coverage for the shorter of two years or twenty-four thousand miles.

Lemon laws cover only substantial defects, meaning defects that substantially impair the use, value, or safety of the vehicle. If a defect is safety related, the manufacturer is usually allowed just one chance to fix it before the owner may invoke the lemon law; if a defect impairs the use or value of a vehicle, the manufacturer is usually permitted three or four attempts to repair it. A consumer may also invoke the law if a vehicle is out of service for a certain number of days because of any combination of substantial defects. The time out of service is cumulative, not consecutive, and ranges from fifteen to forty days. Paint defects, rattles, cosmetic flaws, jumpy suspensions, premature wear of the tires, and the like are not normally considered substantial defects.

The purchaser of a new car typically returns to the dealership to have repair work done. Therefore, the dealer knows that a defect exists. However, lemon laws generally require that the purchaser give the manufacturer written notification of a problem within a specific time frame. The manufacturer then has a final opportunity to repair the vehicle before a lawsuit may be commenced. It has been argued that this notice requirement is unduly burdensome for consumers, who are often unaware of it. Consumer advocates have also argued that such notice is redundant. A substantial defect means that the defect would be covered by the automobile's warranty. If a car requires repair for an item covered by warranty, it is done at no cost to the consumer. The manufacturer reimburses the dealer for the warranty repair; the manufacturer would have notice of the defect when the dealer requests reimbursement from the manufacturer for the repair.

After a consumer invokes the lemon law, the parties arbitrate the matter in an attempt to resolve it. Some statutes provide for a state-run arbitration process. Others provide for arbitration provided by private groups such as the Better Business Bureau, or even a manufacturer-sponsored panel. Arbitration is an informal trial with a panel or individual deciding the matter. Each side tells its story. Mechanics might testify on behalf of either side. Lawyers are not required but may increase a consumer's likelihood of prevailing or settling prior to the arbitration hearing.

According to one report, fewer than 10 percent of the cases handled by a manufacturer-sponsored panel are decided in the consumer's favor. Consumers tend to fare slightly better in cases handled by the Better Business Bureau, and fare best of all under state-run arbitration procedures. An early 1990s survey of three states with state-run arbitration found that consumers were awarded a full refund or replacement car in at least half of the cases. Many states make the arbitrator's decision binding on the manufacturer but not on the consumer.

During arbitration automakers frequently argue that the consumer abused the car or failed to service the vehicle properly, or that the defect does not substantially affect the car's safety or value. For this reason consumers should save all documentation about a vehicle, as well as keep meticulous records of any service problems. One owner of a top-of-the-line luxury car succeeded in arbitration for a whining noise in the air conditioner because an advertising brochure promised that the car would be a soothing and calming haven.

States vary on whether the manufacturer or the consumer chooses the remedy. A lemon owner is entitled to a refund of the vehicle's purchase price, including sales tax, license, and fees, or a new, comparable car — minus a deduction for the value of the owner's use of the lemon. Some states also provide that the manufacturer reimburse the owner's attorneys' fees and costs for bringing the lawsuit.

Used-car purchasers must also be wary of lemons. Once a lemon has been repurchased by the manufacturer, either voluntarily or pursuant to an arbitrator's or judge's decision, scant protections prevent its resale elsewhere. States vary greatly on how much information must be disclosed to subsequent purchasers. Some states require the title of a lemon to carry a notation reflecting the lemon status. The notation varies from "nonconforming vehicle" to "defect substantially impairs use, value, or safety." A handful of states require that buyback stickers be placed on the vehicle. However, enforcement of such requirements is often a low priority for state governments, and enforcement of lemon laws effectively ends at a state's border. In response to complaints about resold lemons, in 1996 the Federal Trade Commission began investigating the possibility of imposing a national standard for the resale of lemons.

See: automobiles.

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