Recently in class we discussed the idea of lemon markets. A lemon market is one in which there is asymmetry of information. That is, sellers know more about the products that they are selling than buyers do, and they use this to their advantage to make more profit. In these markets, sellers can sell goods for more than they are worth because buyers are unable to accurately gauge the true value of the goods. Also, in these markets, there aren’t usually warranties or other types of money back guarantees for the buyers. Obviously, these markets are inherently unfair to buyers. If a buyer spends a substantial sum of money in one of these markets and finds that he has been ripped off, he may want a legal way to get his money back. Luckily for these buyers, there are federal and state laws to protect citizens from the consequences of lemon markets. These laws are usually called “lemon laws.”

The most important federal lemon law is the Magnuson-Moss Warranty Act, which took effect in 1975. It essentially controls warranties and guarantees on almost all consumer products. It states that any warranty on any product must be easily understood and disclose all terms of the warranty. A warranty cannot contain any vague or unclear statements that the seller can use to take advantage of the buyer. While the Magnuson-Moss Warranty Act covers warranties and guarantees, it does not provide any compensation if no warranty or guarantee exists.

There are many state laws to protect buyers in lemon markets, and they vary from state to state. The most common example of a lemon market is a used car market, and thus many state lemon laws apply specifically to used car markets. These laws put forth the standards about when a buyer is entitled to a refund or replacement by the seller when he unknowingly purchases a lemon. In general, a car that has a faulty door handle or a broken window switch is not a lemon. A lemon is a car that is undrivable (at least at times) or dangerous to you or others. Also, cars that have mechanical problems not revealed to the buyer, stolen cars, and cars that have altered odometers qualify as lemons in most states. Try Googling “lemon laws,” and you will find a lot of information about the specifics of the laws (along with a lot of lemon law specialists looking for business). California’s lemon laws are more extensive than those of other states. They include anything mechanical, while most states only cover cars.

Lemon laws, though complicated, only offer a buyer protection in specific circumstances, usually in car markets. You might be thinking that a buyer should do some research before making a purchase that might turn out to be a lemon. In many cases this is true, but in others it may be unavoidable. There was a recent blog post about lemon markets and Ebay, which looked at how some buyers were being unknowingly scammed on Ebay. There are many ways for sellers to get around lemon laws. One example is selling a good “as is,” which forces a buyer to forfeit his lemon law rights. As is the case with most laws, there are loopholes in lemon laws which sellers can use to their advantage, but for the most part lemon laws do a good job protecting buyers.

References: http://en.wikipedia.org/wiki/Magnuson-Moss_Warranty_Act

http://www.carlemon.com/lemons.html

http://en.wikipedia.org/wiki/Lemon_law

http://www.free-lemon-law-guide.com/index.php