Legislators in one state tend to keep a watchful eye on the actions of legislators in other states to see if newly enacted laws and regulations produce the intended effects. All eyes are on California and their newly enacted Car Buyers Bill of Rights which goes in effect July 1, 2006. This law will change the way used vehicles are sold. In 2005, Governor Schwarzenegger signed a comprehensive law which included a right of rescission option for used vehicle purchases. Although consumer groups wanted much more, the new law is a negotiated solution which prevented dealers from having to offer consumers a three-day right of rescission for new and used cars and trucks.
The mantra when selling vehicles in California until now has always been “no cooling off period.” This new law allows a customer the right to purchase a contract cancellation option for a used vehicle valued under $40,000. If the customer decides to purchase this option, they have the right to return the vehicle within two business days after the delivery of the vehicle. If the customer returns the vehicle, the dealer can charge a nominal restocking fee. In no circumstance can a dealer charge more than $500 total for the contract cancellation option and restocking fee combined. The fees are mandated by statute and vary based on the value of the vehicle. The fees can be as low as $175 for a lower value vehicle and as high as $500 for vehicles over $10,000. The consumer cannot put more than 250 miles on the vehicle and must bring it back to the dealer with normal wear and tear only.
If the consumer does not return the car after purchasing the contract cancellation option, the money collected is 100 percent profit to the dealership. If the consumer returns the vehicle with more mileage, excess damage or after the two-day rescission period, the dealer can refuse to take it back.
Along with this big change, the Car Buyers Bill of Rights restricts the amount of finance interest the dealer can earn from the finance company for placing a contract. There is also a payment packing prohibition. Two new disclosures are also included in the Bill of rights. A credit score disclosure if the dealer runs any credit report and a separate form to disclosure any item added after determining the original sales price. All of these changes are designed to better disclose the sales process to the consumer.
Finally, the California law will help define what a certified vehicle is or is not. The law actually stipulates what excludes a vehicle from being labeled “certified” and forces a dealer to prominently display, in writing, the features of a certified vehicle. Any car or truck that has a branded history (lemon law, salvage, junk, etc.) cannot be certified, and any car or truck sold “as is” must also be excluded from the “certified” label.
So, what is really going to be interesting is how many dealers will actively attempt to sell this option and how many consumers will take advantage of this new law. In early discussions with various dealers, franchise dealers say they will explain the new law to the consumer, tell them they stand behind their used vehicles and advise consumers to shy away from the “option contracts.” However, used vehicle dealers have mixed reactions. Some like the opportunity to offer and sell this new product. Others believe they will sell the same car several times, and still others do not like the concept at all.
You can expect a follow-up report in six months with a summary of the impact the legislative changes have caused for local dealerships. For now, prepare yourself for what just might happen in your state next.
