Who is Liable for Damages When Recalled Cars are Resold?

An estimated 46 million cars in the U.S. have an open recall that's never been fixed, according to Carfax. From defective airbags to electrical faults and engine problems, the problems associated with recalls are often wide-ranging and dangerous. But what happens if those recalled vehicles are sold? Who is liable if the recalled vehicle causes injuries?

By law, car dealerships are prohibited from selling a new vehicle with an open recall. Franchised dealers of new vehicles with open recalls are required to remove them from the lot until the safety repairs are made.

Used car dealerships don't have to follow the same rules as new car dealerships. Generally, they're not legally obliged to remove unrepaired cars from the market. The legal loophole is profitable for dealerships and dangerous for consumers.

While not mandated by the National Traffic and Motor Vehicle Safety Act, manufacturer-backed certified pre-owned programs typically require dealerships to check for and perform open recall repairs as part of the certification process.

But non-manufacturer certification or inspection programs may not require the dealership to check for or address open recalls.

With private sales, there are even fewer regulations. Individuals selling vehicles with unrepaired recalls are under no legal obligation to disclose this information during a private sale.

If an individual or entity is lying or misrepresenting the recall status of a vehicle, the party can be held liable for injuries, accidents and any property damage that results from their omissions.

Ultimately, it is up to the consumer to check whether a vehicle has been recalled and verify that the necessary repairs have been made before purchasing a used vehicle.

The consequences of not repairing or disclosing recalls is far-reaching. The General Motors (GM) recall of 2009 is a great example of this. The company sent registered letters to owners of more than 1.4 million of its cars with 3.8-liter V6 engines notifying them of a recall due to a potential engine fire hazard.

By the time the recall had been issued, almost 250 fires had already occurred in GM vehicles. While rates of incidents declined, there were at least 250 additional fires three years after the recall was issued.

In many cases, owners of the burned-up vehicles said they were unaware of the recall, and most said that they purchased the vehicle used. Many had no idea whether the recall repair work had ever been done. In some cases, the vehicles had been parked in garages, where the fire caused structural damage or spread to other vehicles.

While used car dealerships are legally allowed to sell vehicles with open recalls, consumer advocacy groups are fighting back, and the legal loophole may soon change.

Recently, the Federal Trade Commission (FTC) was sued by the Center for Auto Safety, the U.S. Public Interest Research Group and Consumers for Auto Reliability and Safety over the FTC's decisions in recent cases that allow dealers to advertise vehicles with open recalls as safe.

According to the complaint, some of the recalls could cause serious injury from issues such as faulty airbags or ignition switches. As part of the settlement, the FTC determined that the dealers could claim used cars with unrepaired recalls as "safe" or subject to "rigorous inspection."