Proposed Amendments to Motor Vehicle Sales Bill: Regulatory Impact and Compliance Cost Statement
[ Last Updated 15 December 2005 ]
26 March 2002
Contents
Nature and Magnitude of the Problem and the Need for Government Action
Used motor vehicle purchases entail a number of risks. Vendors generally have an information advantage over consumers and, as relatively high-value consumer goods, vehicles are often used as security for finance and may be subject to prior security interests which are not always disclosed. These risks are not unique to the purchase of used motor vehicles but the combination of risks is uncommon in the purchase of other consumer goods.
The current regime has high compliance costs, and a restricted scope. For these reasons over 70% of transactions occur outside the scope of the regime. In addition, consumer law and consumer expectations have changed significantly since the current Act was introduced.
Public Policy Objective
The overall objective is to ensure appropriate and accessible consumer protections through the provision of accurate information for consumers' purchase decisions; credible and accessible redress; coverage of the full range of sales in trade; and effective enforcement.
Feasible Options
| The "no legislation" option has already been considered and eliminated. The Cabinet Finance, Infrastructure and Environment Committee decided on 11 December 2000 that legislation is required to address the needs of consumers and the motor vehicle industry. | Simplifying the current licensing regime would not meet the policy objective of broader coverage for appropriate consumer protections. The small proportion of sales under the existing limited regime indicates that many purchasers do not value the set of protections it potentially offers them. |
| The industry self-regulation model would not by itself ensure that consumers receive adequate, meaningful information at the time of sale, as some sellers would opt out of industry requirements. | The extension of simplified consumer protection measures across all motor vehicle sales "in trade" appears to offer the most cost-effective option to address the problem and achieve the stated objectives. |
The preferred option is to: require all sellers of motor vehicles "in trade" to register; simplify registration requirements; strengthen information disclosure requirements at the time of sale; remove the requirement to contribute to a mandatory fidelity fund; and retain provisions that consumers purchasing a used vehicle from a registered seller receive title unencumbered by any prior security interest.
Net Benefits of the Proposal
Consumers
The proposal will extend consumer protections to a larger number of transactions, improve access to dispute resolution and improve enforcement.
Motor Vehicle Traders
Compliance costs for established licensed motor vehicle dealers would drop by an estimated $4.42 million per annum under the proposed regime (business compliance costs are discussed in the following section).
Motor vehicle sellers in other categories (e.g. auctioneers, display-for-sale traders and car-fair operators) would incur total additional compliance costs of an estimated $0.44 million per annum over the status quo.
Finance Companies
Removing the mandatory fidelity fund and increasing the coverage of clear title obligations will increase the risk to finance companies of failing to recover on extinguished securities. This risk is currently estimated at 0.0025% of the annual value of the used vehicle finance market. (Total fidelity fund compensation to financiers in 1999 was $32,381, while the estimated value of loans for the purchase of used cars from dealers was $1.3 billion.) Even if total risk increased by several hundred percent as a result of proposed changes, it would still be very low relative to the total value of vehicle finance. The risk will be further reduced if motor vehicle sellers are encouraged to implement alternative arrangements, such as performance bonds or indemnity insurance.
Government Fiscal Implications
The following table summarises the potential fiscal implications for the Government:
| Ministry of Economic Development (Operations Branch): Motor Vehicle Sales Register and Banned Persons List
One-off costs of $0.391 million and ongoing costs of $1.500 million, funded from existing baselines; and ongoing costs of $1.500 million per annum, funded from third-party revenue: Establishment costs of $0.090 million (excl GST) to set up the Motor Vehicle Sales Register and associated controls will be funded from within existing baselines. Capital costs of $0.301 million (GST not applicable), for software development for the register and related computer hardware will be funded from the Ministry's existing capital resources. Ongoing costs estimated at $1.500 million per annum (GST inclusive) are to be fully funded from levies received from traders requiring registration, the funds being applied to administer and enforce the system in line with the fees schedule within Vote Commerce. This proposal will have no impact on the Government's operating provisions. | Department for Courts: Motor Vehicle Disputes Tribunal
If increased claims obliged the Disputes Tribunals to double their current sitting days to 270 annually (similar to the workloads in 1996-98), there could be a funding shortfall in the order of $200,000 excluding GST. The Tribunal could be partly funded through user charges, an annual levy payable by traders upon registration as a motor vehicle trader, or from existing Department for Courts baselines. |
| Ministry of Consumer Affairs: Education and Information Programmes
One-off costs of $0.562 million (incl GST), funded from third-party levies, for publicity to support the introduction of the Consumer Information Standard (CIS) for "window cards". A detailed proposal will be submitted to Cabinet when the Bill is introduced. |
| Commerce Commission: Window Cards
Increased operating costs of up to $0.222 million per annum (incl GST) for enforcement and publicity associated with the CIS. This issue would be considered in the current resource review of the Commerce Commission. It will have a negative impact on the Government's operating provisions, as it is intended that these costs be met by the Crown. |
Consultation
A discussion paper that outlined the proposals as agreed by Ministers on 11 December 2000 was circulated for comment on 16 January 2001. Submissions closed on 28 March 2001. A total of 46 submissions were received from a cross-section of the motor vehicle trade, a variety of agencies with an interest in that trade, a number of consumer groups, individual consumers and several representatives of the legal and insurance professions. In general, the submissions acknowledged a need for reform of the present regime and were supportive of changes along the lines proposed in the discussion paper.
Business Compliance Cost Statement
Source of Compliance Costs
Compliance costs will fall for established licensed motor vehicle dealers due to the simplified registration regime, which will reduce direct fees (both initial and ongoing) and the management time expended. The removal of the fidelity fund and other regulatory requirements will further reduce costs. Compliance costs for other motor vehicle sellers will increase, primarily due to the extended coverage of registration requirements and the extension of the information standard.
Parties Affected
Established licensed dealers and other sellers of used motor vehicles "in trade" will be affected. Depending on the nature of the decisions to be taken by the Government, private sellers may be affected by the requirement to provide window cards.
Quantitative/Qualitative Estimates of Compliance Costs
The total annualised industry-wide reduction in compliance costs would be $3.98 million. This is made up of a reduction in compliance costs for currently licensed dealers of $4.42 million, partially offset by an increase of $0.44 million for vendors not currently covered by licensing requirements. The compliance costs of the existing and proposed regimes are compared in the following table:
Comparison of Compliance Costs
(assuming 35% increase in firms covered, 75% increase in sales covered)
| Current Regime | Proposed Regime |
|---|
| Source | First Year | Ongoing | Source | First Year | Ongoing |
|---|
| Fees | | | Fees | | |
| MVDLB | $700 | $140 | Registration | $450 | $450 |
| MVDI (Nat'l) | $750 | $750 | | | |
| MVDI (Branch) | $244 | $244 | | | |
| Fidelity Fund | $500 | $190 | | | |
| Other approvals (average) | | $51 | | | |
| Total | $2,194 | $1,375 | | | |
| Advertising | $281 | $195 | | | $0 |
| Time | $5,200 | $107 | Time | $204 | $102 |
| Total | $7,675 | $1,677 | Total | $654 | $552 |
| | Change | ($7,021) | ($1,125) |
| Average annualised cost per firm | $2,461 | $2,461 | Average annualised cost per firm | $515 | $515 |
| Information standard |
| Window cards (17 cents/card) | $35,000, industry wide. | $62,000, industry wide. (Increase, due to increased sales covered, falls on new dealers) |
| Register checks ($20 manual, $4 electronic) | Register checks are required anyway, as a normal part of business, and so do not represent an additional compliance cost. |
Reductions in compliance costs stem from the simplification of the licensing system. The proposed regime would eliminate virtually all of the cost components in the far left column, requiring essentially only payment of the registration fee, the obligation to display a consumer information card, and to check for clear title.
Compliance costs of enforcement have not been quantified. These include management time and stress, and the fees of any legal or other advisors. Under the proposed new regime, some actions will shift from the District Court to the Tribunal, and the Motor Vehicle Dealers Licensing Board (MVDLB) will no longer play a role. The net impact on compliance costs is unclear at this stage.
Longer-Term Implications
Accurate data on the number of firms currently operating outside the regulatory regime is not available. The estimates above are based on the median assumptions that the number of firms covered by the regulatory regime will increase by 35%, and the number of used vehicle sales covered by 75%, as a result of the changes. If the increase in coverage resulting from expanded registration requirements varies from these assumptions, total compliance costs will vary as well.
Key Compliance Cost Issues Identified during Consultation
Issues raised in consultation tended to focus on difficulties in defining the nature of sales transactions covered by the reformed regime. Although the Motor Vehicle Dealers Institute (MVDI) supported the abolition of a mandatory fidelity guarantee fund, the Financial Services Federation expressed reservations about impacts on the availability and costs of vehicle financing.
Overlaps with Other Agencies
The proposed changes overlap with several other pieces of consumer protection and/or industry regulation provisions. Where such overlaps occur, care has been taken to ensure that the requirements are complementary, in order to avoid duplication of compliance costs. For example, the banned persons list would be constructed in similar fashion to the register of banned directors under the Companies Act 1993.
Steps Taken to Ensure Compliance Costs Are Minimised
Few if any of the provisions contained in this proposal involve compliance requirements new to the used motor vehicle trade. Care has been taken to avoid regulatory overlaps and to streamline the compliance requirements as much as practicable. For example, auctioneers whose primary focus is used car sales may be exempted from also registering under the Auctioneers Act 1928.
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