However, a study which took nine months to produce has decided existing laws are sufficient to clean up the sector.
The industry said car buyers should ensure they use a reputable garage that is a member of a trade association.
Second hand car purchases have been the biggest source of consumer complaints for the fourth year running. There were 65,000 complaints about these used vehicles bought from dealers to complaints line Consumer Direct in 2009. Ironically, rather than buying from private buyers, customers preferred to go to dealers for peace of mind, spending more with a dealer than they would with a private buyer.
Roughly two thirds of problems with second hand cars - often mechanical - became known within a month of the car being bought. If the customer can prove that the vehicle was defective when sold, then the dealer should resolve the problem, with a refund, repair or replacement.
However, the OFT survey showed that nearly 30% of buyers did not have their problem rectified and instead spent an average of £425 to get it fixed.
The report claimed that dealers often failed to tell customers whether they had made checks on a car's history. Less than 30% of the OFT's mystery shoppers were shown the car's service history.
Other issues highlighted by the report included:
* Dealers selling cars while pretending to be private sellers accounted for £40m of car sales.
* Disclaimers such as "sold as seen" and "no refunds are available" being used illegally.
* One in eight cars having a mileage discrepancy, according to HPI, caused by illegal clocking - increasing the value of cars on average by £1,700.
Clocking costs consumers an estimated £580m a year in higher prices, with the average car clocked by 67,000 miles.
Some legitimate instances of correcting mileage exist - such as when a counter is broken and replaced, or when a digital counter's software fails. However, the OFT claimed that this was not enough to allow 50 companies in the UK to continue to openly offer mileage correction services. Software is also advertised online by other parties with ways to alter mileage.
The OFT has repeated its recommendation - first called for in 1997 - that a registration scheme be set up for these businesses, or for them to be banned. It also recommended that MOT test mileage data should be shared with vehicle check companies.
It said that enforcement of these laws was now a priority, but accepted that trading standards departments which policed the sector had limited resources as they are funded by local government.
When asked about the OFTs' report, a car industry trade body said legitimate traders should offer a good service.
"We have been working closely with the OFT on its current investigation into the used car industry," said Paul Williams, chairman of the Retail Motor Industry Federation (RMI).
"We strongly encourage car buyers to go to a reputable garage that is a member of the RMI as we are confident in the standards of excellence that our members deliver.
"Should any problems unexpectedly arise we also offer conciliation services to assist both consumers and garages. We fully support the OFT in its effort to ensure dealers are aware of the law and that these laws are effectively enforced."
AA president Edmund King said the report gave more weight to the fact that buyers should "use their heads not their hearts" when purchasing a vehicle. One thing is for certain, if your new second hand car needs second hand car parts, you know where to find us.