Can the cost of an extended warranty on a used car be financed along with the car loan in Maryland?

Plain-English summary

The chair of the Senate Finance Committee asked the Attorney General in 1990 to clarify a 1989 law, Chapter 830 (House Bill 1159), that allowed the cost of a vehicle mechanical repair contract, essentially an extended warranty or service contract, to be financed along with a car purchase, but only for a vehicle "covered by an original manufacturer's warranty." Banks were confused about how far that phrase reached, and some had stopped financing used-car sales that included extended warranty coverage because they could not easily tell whether a used vehicle was still under a factory warranty.

The Attorney General concluded that the phrase should be read broadly. The law said "an" original manufacturer's warranty, and "an" ordinarily means "any," so a vehicle qualified if any factory warranty still applied, not just when a full basic warranty was in force. A typical new vehicle comes with several warranties: a basic warranty covering most parts, a longer powertrain warranty, and a federally required emission control warranty. Because the powertrain and emission warranties can last several years or tens of thousands of miles, the opinion recognized that even a used car a few years old, or one that had changed hands, could still be covered, so long as the owner met the warranty's terms. The law did not reach a car old enough that all its warranties had expired, but if the General Assembly wanted to limit financing to genuinely "newer" cars, it would have to amend the statute, perhaps by tying eligibility to a specific age or mileage.

Currency note

This opinion was issued in 1990. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

The opinion interpreted a specific 1989 amendment and the vehicle-financing provisions of the Commercial Law Article as they stood in 1990, and it described manufacturer warranty terms for model years around 1987 to 1990. Statutes, warranty practices, and the federal emission warranty rules have changed since. The editor's note also records that the circuit court in the pending case referenced here later ruled the disputed fees could be financed under the Retail Installment Sales Act. Do not rely on the specific sections, warranty lengths, or figures here as current law.

Common questions

Could a Maryland car buyer finance an extended warranty on a used vehicle?
Under this 1990 opinion, yes, so long as any original manufacturer's warranty still applied to the vehicle. The cost of the mechanical repair contract could be rolled into the financing for the car, provided it was separately itemized in the financing agreement.

What counted as "an original manufacturer's warranty" for this purpose?
The opinion read "an" to mean "any." So a still-valid basic warranty, powertrain warranty, or the federally required emission control warranty could each satisfy the requirement. The vehicle did not need all of its original coverage intact; one applicable factory warranty was enough.

Did the car have to be brand new to qualify?
No. Because powertrain and emission control warranties commonly run for several years or tens of thousands of miles, even a used car a few years old could still be "covered by an original manufacturer's warranty." Only a car whose factory warranties had all expired fell outside the law.

Why were banks confused by the law?
Because they often could not tell whether a used vehicle was still under a factory warranty. As the Maryland Bankers Association explained, different makes and models carry different warranties, coverage for different parts runs for different lengths, and some warranties transfer to later owners only after an application or a fee. That uncertainty led some banks to refuse to finance used-car sales that included extended warranty coverage.

Background and statutory framework

The law grew out of an earlier dispute about what can be financed when a car is bought on credit. In 1988, the Attorney General's office had opined that certain fees and charges could not be financed under the Retail Installment Sales Act (RISA). The 1989 General Assembly responded with House Bill 1159, whose preamble said it was meant to clarify whether mechanical repair contracts sold with a vehicle could be financed. As passed by the House, the bill allowed the cost of a mechanical repair contract to be included in the financing if it was separately itemized. The Senate Finance Committee then added the limiting phrase at issue: such a contract "may be sold only for a vehicle which is covered by an original manufacturer's warranty," codified at §§12-609(b)(3) and 12-1012(a) of the Commercial Law Article. A "mechanical repair contract" is itself defined in §15-311.1(a) of the Transportation Article to include extended warranties and extended service contracts.

The interpretive question was how much the phrase "an original manufacturer's warranty" narrowed the law. The opinion started with the statute's words, citing Kaczorowski v. City of Baltimore, and concluded the indefinite article "an" generally means "any," relying on decisions from several jurisdictions (United States v. Hudson; Kaufman v. Superior Court; First Amer. Nat'l Bank v. Olsen) and a leading treatise on statutory construction. It presumed the General Assembly knew that every new vehicle carries multiple warranties, including a federally mandated emission control warranty (Board of Educ. v. Lendo, on the presumption of legislative knowledge). A typical vehicle comes with a basic warranty on most parts, a longer powertrain warranty (engine, transmission, and related components), and an emission control warranty whose minimum length federal law fixes (42 U.S.C. §§7521(d) and 7541; 40 C.F.R. §85.2103). Any one of these, if still in force, could make the vehicle "covered by an original manufacturer's warranty."

That reading answered the practical concern. Since powertrain and emission warranties last well beyond the basic warranty, a vehicle several years old, or one resold with mileage in the tens of thousands, could still qualify, provided the owner complied with the warranty's terms. The opinion agreed the law did not reach a car so old that all warranty coverage had expired, but it noted that limiting the statute to "newer" cars, as the committee chair's letter suggested might have been intended, would require a further amendment, perhaps one tied to a specific age or mileage. Its bottom line: if any of a manufacturer's original warranties applied to the vehicle, the cost of a mechanical repair contract for that vehicle could be financed.

Citations and references

Statutes and regulations:

• Chapter 830 (House Bill 1159) of the Laws of Maryland 1989, the amendment being construed
• §§12-609(b)(3) and 12-1012(a) of the Commercial Law Article, the "covered by an original manufacturer's warranty" limitation
• §15-311.1(a) of the Transportation Article, defining "mechanical repair contract"
• CL §12-609, and its penalty provisions CL §§12-630(d) and 12-636(a); CL §§12-1017 and 12-1018 for Subtitle 10 violations
• 42 U.S.C. §§7521(d) and 7541 and 40 C.F.R. §85.2103, the federal emission control warranty requirements

Cases:

• Kaczorowski v. City of Balto., 309 Md. 505, 513, 525 A.2d 628 (1987), on beginning statutory analysis with the words the legislature chose
• United States v. Hudson, 65 F. 68, 71 (W.D. Ark. 1894); Kaufman v. Superior Court, 115 Cal. 152, 46 P. 904, 905 (1896); and First Amer. Nat'l Bank v. Olsen, 751 S.W.2d 417, 421 (Tenn. 1987), for the rule that "an" generally means "any"
• Board of Educ. v. Lendo, 295 Md. 55, 63, 453 A.2d 1185 (1982), on presuming the General Assembly knows prior law
• Maryland New Car & Truck Dealers Ass'n, Inc., v. State, Case No. 10-522/7272 (Cir. Ct. for Harford County), the pending RISA case referenced in the opinion and its editor's note

The opinion also cited a prior Attorney General opinion, 73 Opinions of the Attorney General 117 (1988), and 2A Sutherland Statutory Construction §47.34 (4th ed. 1984).

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1990/Volume75_1990.pdf (this opinion appears at printed pages 137-141 of the bound annual volume; Maryland's site does not publish a standalone PDF of this opinion)

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

CREDIT REGULATION

Vehicle Sales — Mechanical Repair Contracts — Cost of Mechanical Repair Contract May Be Financed if Any Manufacturer's Warranty Applies to Vehicle

February 16, 1990

The Honorable Catherine I. Riley
Chairman, Senate Finance Committee

 You have asked our opinion concerning the scope of Chapter 830 (House Bill 1159) of the Laws of Maryland 1989, which became effective July 1, 1989. Specifically, you ask for clarification of the amendment that allows for the financing of the costs of a mechanical repair contract only when the vehicle "is covered by an original manufacturer's warranty."

 For the reasons stated below, it is our opinion that Chapter 830 permits the financing of the cost of a mechanical repair contract for a vehicle if any manufacturer's warranty still applies to the vehicle.

I

Background

 In 1988, this office issued an opinion discussing permissible charges when the purchase price of a vehicle is financed under the Retail Installment Sales Act ("RISA"). 73 Opinions of the Attorney General 117 (1988). We concluded that certain fees and charges may not be financed under RISA.1

 In the aftermath of our opinion, House Bill 1159 was introduced in the 1989 Session of the General Assembly. The bill's preamble stated that it was intended to clarify any ambiguities "as to whether mechanical repair contracts sold in connection with the sale of a motor vehicle may be financed along with the sale of motor vehicles ...."

 As enacted by the House, the bill provided that the cost of a mechanical repair contract could be included in the financing for the purchase of a motor vehicle, "provided that the cost of mechanical repair contract is separately itemized in the financing agreement."2 The Senate Finance Committee then added the amendment in question: "For purposes of this section, a mechanical repair contract may be sold only for a vehicle which is covered by an original manufacturer's warranty." §§12-609(b)(3) and 12-1012(a) of the Commercial Law Article ("CL" Article).

 The amendment has apparently caused some confusion, at least in the banking industry. The Maryland Bankers Association, in a letter to you dated August 23, 1989, stated that the prohibition against financing a mechanical repair contract for a vehicle that is not covered by an original manufacturer's warranty has created significant difficulties for banks that buy motor vehicle sales contracts. Specifically, the Association noted: "The bank has no knowledge whether a used vehicle is still under an original manufacturer's warranty.... Different makes and models of motor vehicles have different original manufacturer's warranties. Moreover, warranties for different parts of a vehicle may be offered for different lengths of time ...." The Association further commented that, because of the uncertainties of the original warranty coverage for used vehicles, "many banks are refusing to finance the sale of used vehicles if the contracts of sale include extended warranty coverage."3

 Such confusion is understandable, given the diversity of original warranties offered by manufacturers. The terms of each manufacturer's warranty vary as to both the duration of the warranty for various component parts and the application of the warranty to subsequent purchasers.4 Typically, an original manufacturer's warranty consists of (1) a basic warranty, covering most component parts of the vehicle; (2) a powertrain warranty, spanning a period of time exceeding the basic warranty period;5 and (3) an emission control system warranty, also running for a period of time longer than the basic warranty period.6

II

Analysis

 We begin with the words of the amendment in question, "because what the legislature has written in an effort to achieve a goal is a natural ingredient of analysis to determine that goal." Kaczorowski v. City of Balto., 309 Md. 505, 513, 525 A.2d 628 (1987). Indeed, "[s]ometimes the language in question will be so clearly consistent with apparent purpose (and not productive of any absurd result) that further research will be unnecessary." 309 Md. at 515.

 The phrase used in the amendment to Chapter 830 is "an original manufacturer's warranty." The indefinite article "an" generally means "any." See, e.g., United States v. Hudson, 65 F. 68, 71 (W.D. Ark. 1894); Kaufman v. Superior Court, 115 Cal. 152, 46 P. 904, 905 (1896); First Amer. Nat'l Bank v. Olsen, 751 S.W.2d 417, 421 (Tenn. 1987). "[A] term introduced by 'a' or 'an' applies to multiple subjects or objects unless there is reason to find that singular application was intended or is reasonably understood." 2A Sutherland Statutory Construction §47.34 at 249 (4th ed. 1984).

 We have no basis on which to conclude that any meaning other than the ordinary one was intended by the phrase "covered by an original manufacturer's warranty" in Chapter 830. Presumably the General Assembly knew that every new vehicle has multiple warranties, one of which - for emission control equipment - is specified by federal law.7 See, e.g., Board of Educ. v. Lendo, 295 Md. 55, 63, 453 A.2d 1185 (1982) (General Assembly presumed to have knowledge of prior law). Hence, we conclude that any of the warranties mentioned above could constitute "an original manufacturer's warranty" under Chapter 830 if the owner or owners complied with the terms of the warranty.8

 Your letter suggests that, as a result of the amendment, Chapter 830 was limited in its scope to "newer vehicles." We agree with you that Chapter 830 does not apply, as your letter put it, "to any car which has sufficient age as to have totally expired all warranty coverage." But, because of the length of powertrain and emission control warranties, vehicles several years old will be covered by Chapter 830.9 If the statute's reach is to be limited to vehicles "newer" than that, an amendment (perhaps linking coverage to specified age or mileage) will be necessary.

III

Conclusion

 In summary, it is our opinion that if any of the original warranties provided by a manufacturer are applicable to a vehicle, the cost of a mechanical repair contract for that vehicle may be financed.

                                            J. Joseph Curran, Jr.
                                            Attorney General

                                            Edward R. K. Hargadon
                                            Assistant Attorney General

                                            Jack Schwartz
                                            Chief Counsel
                                              Opinions & Advice

Editor's Note:

 In the case referred to in note 1, the circuit court held that the fees and charges at issue could lawfully be financed under RISA.

1
The applicability of RISA to these fees and charges is the subject of currently pending litigation. Maryland New Car & Truck Dealers Ass'n, Inc., v. State, Case No. 10-522/7272 (Cir. Ct. for Harford County).

2
A mechanical repair contract is defined in §15-311.1(a) of the Transportation Article as follows:

          (1) For the purposes of this section, the term "mechanical repair contract" means any agreement or contract between a licensed vehicle dealer and a customer by which the dealer agrees to perform over a fixed period of time, for a specific duration and for a specific identifiable price, services relating to the maintenance or repair of a motor vehicle; provided that the purchase of the contract is optional to the purchaser.
          (2) The term "mechanical repair contract" includes, but is not limited to, extended warranties and extended service contracts.

3
A violation of CL §12-609 may result in the holder forfeiting any finance, delinquency, or collection charge and, if the violation was committed knowingly, constitutes a misdemeanor. CL §§12-630(d) and 12-636(a). A violation of Subtitle 10 of Title 12 also subjects the credit grantor to various civil and criminal penalties. CL §§12-1017 and 12-1018.

4
For example, the warranty on the 1989 and 1990 Ford models (6 year/60,000 miles) remains in effect regardless of the number of owners, while the second or subsequent owners of 1987 and 1988 models (6 year/60,000 miles) can obtain warranties only by filing an application with the manufacturer and paying a $100 fee. The 1989 Chrysler warranty provides a 7 year/70,000 mile warranty for the powertrain, and allows the powertrain warranty to be transferred to a second buyer for a fee of $100, but that warranty may not be transferred to a third or subsequent purchaser. In contrast, the 1990 warranty for a Toyota is fully transferable to subsequent vehicle owners.

5
A powertrain warranty generally covers the engine, transmission, transaxle, differential, and driveshaft assembly. The extent of the coverage varies from one manufacturer to another.

6
Under federal law, an emission control performance warranty for light duty vehicles extends for a period of at least 2 years or 24,000 miles and the emissions equipment warranty extends for a period of 5 years or 50,000 miles. 42 U.S.C. §§7521(d) and 7541; 40 C.F.R. §85.2103.

7
See note 6 above.

8
Your letter indicates that the Senate Finance Committee "intended that original manufacturer's warranties include all those that are issued by the original manufacturer, whether they apply to the entirety of the vehicle, or parts of it."

9
Conceivably, for example, a twice-resold vehicle with 49,000 miles on it would still be "covered by an original manufacturer's warranty" on its powertrain and emissions control system.