The Used Motor Vehicle Trade Regulation Rule is a federal rule issued by the Federal Trade Commission (FTC) in 1984 that sets requirements for used car dealerships in the United States. The rule is aimed at preventing deceptive and unfair practices in the sale of used motor vehicles and applies to all used car dealerships, including those in California.
The Used Motor Vehicle Trade Regulation Rule requires used car dealers to display a “Buyers Guide” on each used car that they offer for sale. This guide provides information about the vehicle, including whether it comes with a warranty and what types of defects are covered. It also includes information about the dealer’s return policy and the terms of any warranty offered.
The rule also requires dealers to disclose certain information about the vehicle’s history, including whether it was previously used as a rental car or a taxi, and whether it has been in any accidents or had any major repairs. Dealers are also required to provide consumers with a copy of any warranty offered and to obtain a signed acknowledgment of the sale from the buyer.
In California, used car dealerships must comply with both federal and state laws governing the sale of used motor vehicles. The California Department of Motor Vehicles (DMV) has its own set of regulations that dealers must follow, which cover issues such as advertising, sales contracts, and disclosure requirements.
Overall, the Used Motor Vehicle Trade Regulation Rule aims to protect consumers from deceptive and unfair practices in the sale of used motor vehicles and to ensure that the customer has the information they need to make informed purchasing decisions.
As a part of the Used Motor Vehicle Trade Regulation Rule of 1984, the definition of the expectations that must be met by a used vehicle dealer were more clearly outlined. This would become what the Federal Trade Commission outlined as the Used Car Rule.
Before a used vehicle is offered for sale, a Buyer’s Guide must be filled in based on the details of the vehicle and the dealer it is offered for sale at. It also needs to be posted on the vehicle so you can clearly see the front and back of the buyer’s guide when looking at the vehicle.
The Federal Trade Commission’s (FTC) Used Car Rule requires used car dealerships to display a “Buyers Guide” on every used car offered for sale. The Buyers Guide must contain the following information:
Customers can use the Buyers Guide to get information about the vehicle’s condition and history, the warranty coverage, and any defects that may need repair. The Buyers Guide can also help customers compare different vehicles and dealerships and make more informed purchasing decisions.
In California, used car dealerships must comply with both federal and state laws governing the sale of used motor vehicles. The California Department of Motor Vehicles (DMV) has its own set of regulations that dealers must follow, which cover issues such as advertising, sales contracts, and disclosure requirements.
Under California law, the Buyers Guide must include additional information about the vehicle’s history, including whether it was previously used as a rental car or a taxi, and whether it has been in any accidents or had any major repairs. California also requires dealers to provide a Spanish-language Buyers Guide if the vehicle is sold in a primarily Spanish-speaking area.
Overall, the Buyers Guide is an important tool for customers buying a used car, and dealerships in California and across the United States must comply with the federal Used Car Rule and any applicable state regulations to ensure that customers are fully informed about the vehicles that they are purchasing.
This is the way the form is broken down:
One of the first elements of filling in the Buyers Guide is making sure that the information is correct regarding the year, make, model and vehicle identification number on the vehicle.
There are two separate ways that the next portion can be displayed for your retail customer, but it greatly depends on what kind of a warranty policy you’re going to have at your dealership.
For many dealers who start initially, offering a vehicle As Is – No Dealer Warranty is how most dealers choose to operate. This can prove to be a setback for some retail customers when they look at whatever vehicles are potentially for sale at the dealership lot. Knowing how to overcome some of these objections can be crucial to the success of your sale. Here are some ways to overcome objections to offering vehicles as is:
If a warranty is offered by your dealership, the dealership should be extremely detailed when it comes to what is covered and outline exactly what on the vehicle are the covered items. There are two types of warranties that can be offered. Either full or limited:
It’s because of these parameters that most warranties are considered limited. A warranty operates on the basis of giving the selling dealer the opportunity to decide what they want to cover. It is important for dealers to outline specifically what percentage of the labor will be covered and what percentage of the parts will be covered as well.
There are certain circumstances where a deductible may come into play, therefore putting an * next to the number and provide a detailed explanation under the column that outlines the Systems Covered and Duration section:
“A $100 deductible is required for each service appointment.”
Listed on the Buyers Guide are two separate columns that outline what systems are covered and how long the warranty is for those items. It’s important to also note if the vehicle is still under the manufacturer’s warranty or if it’s a dealer-covered item.
It is required that a dealer lists on the buyer’s guide if a service contract is going to be offered. That is why it’s important as a dealer to understand what is included in a service contract, how they are used, and what benefit they can provide for both the dealer and the customer.
Vehicle service contracts (VSC), also known as extended warranties or service agreements, are contracts that provide additional coverage for repair or replacement of certain components or systems on a vehicle. These contracts are typically sold by dealerships or third-party providers and are designed to provide customers with added peace of mind and protection from unexpected repair costs.
Pros of purchasing a vehicle service contract include:
Cons of purchasing a vehicle service contract include:
In California, dealerships can offer VSC’s to customers to provide additional protection and peace of mind. California law requires dealerships to disclose certain information about VSCs to customers, including the cost of the contract, the coverage provided, and any deductibles or exclusions.
Examples of companies that sell service contracts for car dealers include Ally, Zurich, and CNA National Warranty Corporation. These companies offer a range of VSC options for dealerships to offer to customers, with varying levels of coverage and pricing. It is important for customers to research and compare different VSC options and providers to find the best fit for their needs and budget.
The last portion that needs to be signed off by the customer is the vehicle history report. There is one report that is required which is the NMVTIS report or the National Motor Vehicle Title Information System. The other two that are suggested are Carfax and Autocheck. Let’s learn how each of these can be used.
The National Motor Vehicle Title Information System (NMVTIS) is a federal database that provides information on the history of motor vehicles in the United States. The database contains data from state motor vehicle agencies, insurance companies, salvage yards, and other sources, and it is intended to help prevent vehicle-related fraud and theft.
NMVTIS was established by the Anti-Car Theft Act of 1992, and it became fully operational in 2009. It is overseen by the Department of Justice and managed by the American Association of Motor Vehicle Administrators (AAMVA).
When buying a car, an NMVTIS report can be used to provide information on the vehicle’s history, including:
The NMVTIS report can be purchased from authorized providers, and the cost varies depending on the provider and the level of detail included in the report.
The NMVTIS report gets its data from a variety of sources, including state motor vehicle agencies, insurance companies, salvage yards, and auto recyclers. By collecting and analyzing this data, NMVTIS helps to prevent vehicle-related fraud and theft, and it provides valuable information to consumers who are considering purchasing a used car.
Here is a little bit of the history on the company.
VinAudit.com is a web-based service that provides vehicle history reports to consumers who are considering purchasing a used car. The service is designed to help consumers make informed decisions about the vehicles they are interested in, by providing detailed information on the vehicle’s history, including accident history, title information, and other important details.
VinAudit.com uses data from a variety of sources, including the National Motor Vehicle Title Information System (NMVTIS), which is a federal database that collects information on the history of motor vehicles in the United States. By collecting and analyzing this data, VinAudit.com provides consumers with a comprehensive view of the vehicle’s history, which can help them to identify potential problems or issues before making a purchase.
To use VinAudit.com, consumers simply enter the vehicle identification number (VIN) of the car they are interested in, and the system generates a detailed report that includes information on the vehicle’s title history, accident history, odometer readings, and other important details. The report also includes a score that indicates the overall health of the vehicle based on its history, as well as a recommended retail value based on current market conditions.
VinAudit.com offers a range of pricing options, from a single report to a monthly subscription, depending on the needs of the consumer. The service is widely used by consumers who are considering purchasing a used car, as well as by car dealerships and other businesses that need to access vehicle history information on a regular basis.
On the following pages, here is an example of what an NMVTIS Report looks like:
Carfax is a web-based service that provides vehicle history reports to consumers who are considering purchasing a used car. The company was founded in 1984 and is based in Centreville, Virginia.
The Carfax report includes a variety of information about the vehicle’s history, including:
Consumers benefit from Carfax by being able to make more informed decisions about the vehicles they are considering purchasing. By reviewing the Carfax report, consumers can identify potential problems or issues with the vehicle’s history, which can help them to avoid purchasing a car with a hidden past.
Car dealers benefit from using Carfax by being able to provide more transparent information to their customers. By providing a Carfax report to a potential buyer, dealers can demonstrate that they are selling a vehicle with a clean history and no hidden problems. This can help to build trust with their customers and increase sales.
Carfax offers a range of pricing options, from a single report to a subscription service that provides access to multiple reports. The service is widely used by consumers who are considering purchasing a used car, as well as by car dealerships and other businesses that need to access vehicle history information on a regular basis.
Example of a Carfax:
AutoCheck is a web-based service that provides vehicle history reports to consumers who are considering purchasing a used car. The service is owned and operated by Experian, a global information services company based in Dublin, Ireland. The report is commonly used as a window into auction condition reports along with providing extra guidance for consumers.
The AutoCheck report is important to review before a customer buys a car because it provides a comprehensive view of the vehicle’s history, including any accidents, repairs, or other issues that may impact its value or safety. By reviewing the AutoCheck report, consumers can make more informed decisions about the vehicles they are considering and avoid purchasing a car with a hidden past.
For dealers, the AutoCheck report can be a valuable tool for building trust with customers and increasing sales. By providing a vehicle history report from AutoCheck, dealers can demonstrate that they are selling a car with a clean history and no hidden problems. This can help to build confidence with their customers and increase the likelihood of a successful sale.
The AutoCheck report includes a variety of information about the vehicle’s history, including:
AutoCheck offers a range of pricing options, from a single report to a subscription service that provides access to multiple reports. The service is widely used by consumers who are considering purchasing a used car, as well as by car dealerships and other businesses that need to access vehicle history information on a regular basis.
Example of an Autocheck Report:
TrueFrame is a company that provides independent vehicle inspections and certifications to dealerships, individuals, and other businesses. The company was founded in 2019 by Jeffrey Risch and Tony Leopoldino.
A TrueFrame report is a detailed inspection report that provides a comprehensive view of the vehicle’s condition and history. The report includes information on the vehicle’s structural integrity, previous damage, and repairs, as well as information on the vehicle’s history, including any accidents or other incidents that may have affected its value or safety.
The TrueFrame report is designed to help consumers make more informed decisions when purchasing a used car. By providing a detailed analysis of the vehicle’s condition and history, the report can help to identify any potential issues or concerns that may impact its value or safety. This can help consumers to avoid purchasing a car with hidden problems and ensure that they are getting a fair price for the vehicle.
In addition to providing valuable information for consumers, the TrueFrame report can also benefit dealerships and other businesses. By providing a certified inspection report, dealerships can demonstrate that they are selling a vehicle that has been thoroughly inspected and is in good condition. This can help to build trust with customers and increase the likelihood of a successful sale.
Overall, the TrueFrame report is a valuable tool for both consumers and dealerships. By providing a detailed analysis of the vehicle’s condition and history, the report can help to ensure that consumers make informed decisions when purchasing a used car, and that dealerships are selling vehicles that meet high standards of quality and safety.
TrueFrame, in addition to the other vehicle history reports, can give true full 360 transparency towards all the issues that have been reported regarding problems with potential vehicles. Keep in mind that these reports are only as good as the data that is being fed to them. It’s always in the dealer’s best interest to consider these as tools for guidance and trust, but always verify.
Example of a TrueFrame report:
The second page of the buyer’s guide goes over all the major defects on a used vehicle. When a dealer puts all their contact information on the back and both the customer, and the dealer sign it. It is a good idea and recommended to have a buyer sign the first page as well.
AB 68, also known as the Used Car Sales Law, is a California state law that was passed in 1985. The law is designed to protect consumers who purchase used vehicles by requiring dealers to disclose certain information about the vehicle’s condition, history, and warranty coverage.
Under the law, car dealers in California are required to provide buyers with a written disclosure document that includes information such as:
The law also requires dealers to provide buyers with a two-day cooling-off period during which they can return the vehicle for a full refund. Additionally, dealers are required to provide a warranty on certain vehicles, depending on their age and mileage.
The purpose of AB 68 is to give consumers more information and protection when purchasing a used vehicle, as well as to promote fair and honest practices in the used car industry.
To sell a vehicle under AB 68 laws, car dealers in California are required to fill out several forms, including a Vehicle History Report Disclosure form, a Used Vehicle Buyers Guide, and a Warranty Disclosure Statement. These forms are designed to provide buyers with the information they need to make an informed decision about the vehicle they are purchasing.
The California Foreign Language Acknowledgment Form is a document that must be included with certain legal documents, such as real estate deeds or powers of attorney, when those documents are signed by individuals who do not speak English. The form is intended to ensure that non-English speakers understand the content of the document they are signing, even if they are not fluent in English.
The California Foreign Language Acknowledgment Form must be provided in the language that the signee understands. If the signee does not understand English, the form must be provided in their native language. If the signee understands English but is more comfortable reading or speaking another language, the form must be provided in that language. There is no specific list of languages that must be included with the form, as it will vary depending on the signee’s needs.
The inclusion of the California Foreign Language Acknowledgment Form is beneficial to customers because it ensures that they fully understand the content of the legal document they are signing. This can help to prevent misunderstandings, disputes, or legal issues down the line.
As for the Used Vehicle Buyers Guide, it is required by law that it be provided in both English and Spanish if the dealer conducts sales in Spanish. The Buyers Guide must be displayed on the vehicle, and the Spanish version must be a mirror translation of the English version. This is to ensure that Spanish-speaking buyers have access to the same information as English-speaking buyers and can make informed decisions about the used vehicle they are considering purchasing.
One of the first forms that should be completed out of the AB 68 forms is the California Foreign Language Acknowledgement Form.
The beginning portion of the form is relatively easy to navigate. You need to make sure that the buyer’s name and address are listed correctly along with the name of the dealership and their address.
Next the customer needs to acknowledge which language they’d like to proceed with. Keep in mind, the dealership needs to provide buyers guides, purchase orders and contracts in:
Here are some of the situations that arise when it comes to interpreters:
Once the customer has selected which language that they would like to proceed with, both the customer and the dealer will sign and date.
This form outlines the buyer’s name and address, the co-buyer’s name and address and the dealership’s name and address. It establishes that, in the language the customer has designated, that the contract, buyers and purchase order has been provided to the customer in the language they have specified that they speak.
If the dealer does not speak the language that the customer is requesting, there are a few steps that must be taken to ensure the process is handled correctly:
A contract cancellation agreement for a used car purchased from a California dealer is a document that allows a buyer to cancel a contract for the purchase of a used car within a specified period of time. This type of agreement is typically offered as part of a dealer’s policy to provide customers with additional protection and flexibility in their purchase.
The agreement is beneficial to a customer because it allows them to cancel the contract and return the car for a refund if they are not satisfied with the purchase for any reason. This can provide peace of mind and reduce the risk of purchasing a car that turns out to have hidden issues or problems.
The requirements for the form may vary depending on the dealer, but it should typically include the following information:
In California, dealers are required to provide a contract cancellation agreement for used car purchases if the car is priced at $40,000 or less and the buyer’s financing was arranged by the dealer. The agreement must be provided in both English and Spanish if the dealer conducts sales in Spanish. The cancellation period must be at least two days and the agreement must include specific language required by California law.
According to the California Vehicle Code, a dealer needs to display a notice that is not less than eight inches high and ten inches wide in each office where numbers are discussed in the dealer’s place of business that indicates the following information:
“THERE IS NO COOLING-OFF PERIOD UNLESS YOU OBTAIN A CONTRACT CANCELLATION OPTION”
California law does not provide for a “cooling-off” or other cancellation period for vehicle lease or purchase contracts. Therefore, you cannot later cancel such a contract simply because you change your mind, decide the vehicle costs too much, or wish you had acquired a different vehicle. After you sign a motor vehicle purchase or lease contract, it may only be canceled with the agreement of the seller or lessor or for legal cause, such as fraud.
However, California law does require a seller to offer a 2-day contract cancellation option on used vehicles with a purchase price of less than $40,000, subject to certain statutory conditions. This contract cancellation option requirement does not apply to the sale of a recreational vehicle, a motorcycle, or an off-highway motor vehicle subject to identification under California law. See the vehicle contract cancellation option agreement for details.
The dealer must present to the consumer an agreement that the customer signs and contains the following:
When a vehicle is returned under a contract cancellation agreement, the dealer should conduct a thorough inspection of the vehicle to assess its condition and any changes that may have occurred while it was in the buyer’s possession.
The inspection should cover all aspects of the vehicle, including its mechanical, electrical, and safety systems, as well as its appearance and cleanliness. The dealer should look for any signs of damage or wear and tear that were not present at the time of the sale, such as dents, scratches, or stains.
If any issues are identified during the inspection, the dealer should address them before offering the vehicle for sale again. Depending on the nature and extent of the issues, the dealer may need to make repairs, replace parts, or lower the price of the vehicle to reflect its reduced value.
In addition to the inspection, the dealer should also complete any necessary paperwork to transfer ownership of the vehicle back to their possession. This may include updating the vehicle’s registration and title, as well as any financing or insurance documents related to the sale.
In California, dealers are not required to provide a contract cancellation agreement for certain types of used car purchases, including:
However, even if a contract cancellation agreement is not required by law, some dealers may still offer this type of agreement as part of their sales policy to provide additional protection and flexibility to their customers. Buyers should carefully review their purchase agreement and any other documents provided by the dealer to understand their rights and options in the event of a cancellation.
Example of what a Contract Cancellation Option Looks Like
An Optional Products and Service Disclosure form is a document that California car dealers are required to provide to customers to disclose any optional products or services that are being offered for sale in connection with the purchase or lease of a vehicle. This form is required under California law to ensure that consumers have a clear understanding of the cost and value of any additional products or services that they may be purchasing.
The disclosure form is beneficial to consumers because it allows them to make informed decisions about their purchase and avoid any unexpected or unnecessary costs. The form lists the optional products and services that are available for purchase, along with the cost of each item and a brief description of what it covers.
The following items are required to be listed on the Optional Products and Service Disclosure:
If a customer does not receive an Optional Products and Service Disclosure form from the dealer, they may be able to cancel any optional products or services that they were charged for. The customer may also be able to take legal action against the dealer for failing to provide the required disclosure.
Let’s look more in depth to each of these items:
GAP insurance is an optional type of auto insurance that covers the difference, or “gap,” between the amount that a driver owes on their car loan or lease and the actual cash value of the vehicle if it is totaled or stolen. GAP is short for Guaranteed Asset Protection, and it can be a great item for customers to purchase at your dealership. Let’s look at both sides.
The pros of GAP insurance are:
The cons of GAP insurance are:
GAP insurance is beneficial for car dealers to offer to their clients because it can help protect the dealership’s financial interests. If a customer’s vehicle is totaled or stolen and they owe more on their loan or lease than the car is worth, the dealership may not be able to recoup the full amount owed. By offering GAP insurance, dealerships can help ensure that they receive the full amount owed, which can reduce their financial risk and help them stay in business. Additionally, offering GAP insurance can be a selling point for customers who are looking for added protection and peace of mind.
We talked about service contracts earlier in class, however, let’s do another brief overview.
A service contract, also known as an extended warranty, is an optional contract offered by car dealerships that provides additional coverage for certain repairs and services beyond the manufacturer’s warranty. Service contracts typically cover major vehicle components, such as the engine, transmission, and electrical systems, and may include additional benefits like roadside assistance and rental car reimbursement.
Customers who buy used cars should consider service contracts because they provide added protection and peace of mind against unexpected repair costs. Used cars are more likely to require repairs than new cars, and the cost of these repairs can add up quickly. A service contract can help mitigate these costs and provide customers with assurance that their vehicle is covered if something goes wrong.
For dealerships, selling service contracts is beneficial because it can help increase revenue and customer satisfaction. Service contracts are typically sold at a markup, meaning that dealerships can earn additional profit on each sale. Additionally, offering service contracts can help build trust and loyalty with customers by providing them with added value and protection. This can lead to repeat business and positive word-of-mouth referrals.
It’s important for customers to carefully review the terms and conditions of a service contract before purchasing, as not all service contracts are created equal. Some contracts may have restrictions or exclusions that limit the coverage or only cover certain types of repairs. Customers should also be aware of the length of coverage, the deductible amount, and any other fees or costs associated with the contract.
A prepaid maintenance plan is an optional service offered by car dealerships that provides customers with scheduled maintenance services at a discounted rate. Typically, customers pay upfront for a set number of maintenance visits or a specified time period, such as three years or 30,000 miles. Maintenance services may include oil changes, tire rotations, brake inspections, and other routine services.
There are several benefits for customers to purchase a prepaid maintenance plan when they buy a used car from a dealer:
Overall, a prepaid maintenance plan can be a smart investment for customers who want to keep their used car in good condition and save money on routine maintenance services. It can also provide peace of mind and potentially increase the resale value of the vehicle. If a dealership offers repairs of any kind, even going so far as to refer a customer for work at another shop, the dealership must have a BAR License.
In California, if a dealership performs repairs, they must have a valid Automotive Repair Dealer license issued by the Bureau of Automotive Repair (BAR). This license is required for businesses that perform any type of repair work on vehicles, including mechanical, electrical, or body repairs.
To obtain a BAR license in California, there are several requirements that must be met. These include:
A BAR license is beneficial for a dealership in California because it demonstrates to customers that the dealership is licensed, trained, and qualified to perform repairs on their vehicles. It also provides customers with the assurance that their vehicle is being repaired by professionals who are accountable to the state regulatory agency. Additionally, having a BAR license can help a dealership stand out from its competitors and attract more customers who value quality repairs and professional service.
A vehicle appearance/protection plan is an optional service that dealerships may offer to customers to protect the appearance of their vehicle. This can include various services such as paint and fabric protection, rustproofing, windshield protection, and more. These plans typically come at an additional cost and can be added to a customer’s purchase price or financed into their auto loan.
The benefits of a vehicle appearance/protection plan for a customer include:
Overall, a vehicle appearance/protection plan can be a good investment for customers who want to protect their investment and keep their vehicle looking its best. It can potentially save the customer money on repairs and maintenance while also helping to preserve the resale value of the vehicle.
Vehicle etching is a process where a unique identification number is etched onto the windows of a vehicle, making it more difficult for thieves to steal and sell the vehicle. This process can deter thieves and may help to recover the vehicle if it is stolen.
Key, wheel, and tire replacement plans are optional services that dealerships may offer to customers to protect their investment in the vehicle. Key replacement plans offer coverage for lost or damaged keys, while wheel and tire replacement plans offer coverage for damage to wheels and tires caused by road hazards.
The benefits of purchasing these optional items when buying a used car from a dealership include:
Overall, while these optional plans come at an additional cost, they can provide customers with added protection and peace of mind knowing that their investment is safeguarded. It is important for customers to carefully consider these options and weigh the costs and benefits before making a decision.
Optional Products and Services Disclosure forms provide transparency to a used car deal that allow the customer to know exactly what they are paying for an itemized list of those products and lets the customer know what it would cost with or without the products being offered.
Some of the benefits to dealerships that offer services like this, beyond an increase in revenue, can be offsetting some of the costs that come with financing a customer that has subprime credit. Customers with subprime credit will often lead to discount fees that are extended to a dealership on behalf of the financial institution that they use during the financing process. In the next section, we’ll talk about financing and what forms are involved with that.
In addition to the optional goods and services, the form also outlines other miscellaneous charges that are included with the deal that aren’t options. Things like:
This form must be signed and dated by the customer and the customer must receive a copy.
Example of an Optional Products and Services Disclosure Form
The Gramm-Leach-Bliley Act (GLBA), also known as the Financial Services Modernization Act, is a federal law that regulates the collection, use, and disclosure of personal financial information by financial institutions, including car dealerships that provide financing and insurance products to their customers.
The Safeguards Rule is a part of the GLBA that requires financial institutions to develop, implement, and maintain a comprehensive information security program to protect customer information. The Safeguards Rule requires financial institutions to assess risks to customer information, design and implement a safeguard program to mitigate those risks, and regularly monitor and test the effectiveness of those safeguards.
Car dealerships in California are subject to the GLBA and the Safeguards Rule if they provide financing or insurance products to their customers. This means that dealerships must have a comprehensive information security program in place to protect customer information, including physical, administrative, and technical safeguards to prevent unauthorized access to customer information.
Under the Safeguards Rule, car dealerships must:
Overall, car dealerships in California must comply with the GLBA and the Safeguards Rule to protect their customers’ personal and financial information. This includes developing and maintaining a comprehensive information security program that addresses potential risks and safeguards customer information.
Example of a Privacy Policy
The Used Vehicle History Disclosure form is a document required for used car sales by dealerships in California. The form is designed to provide customers with information about the vehicle’s history, such as whether it has been involved in any accidents, if it has any liens, if it has ever been salvaged or rebuilt, or if it has had any major repairs.
The Used Vehicle History Disclosure form is required by law to be provided to customers before they purchase a used vehicle from a dealership in California. The purpose of this requirement is to ensure that customers are fully informed about the condition and history of the vehicle they are purchasing, and to protect them from any misrepresentation or fraud by the dealership.
By providing customers with a comprehensive history of the used vehicle they are considering purchasing, the Used Vehicle History Disclosure form allows customers to make an informed decision about whether to proceed with the purchase or not. It also helps customers to identify potential problems with the vehicle that may affect its value or safety.
Overall, the Used Vehicle History Disclosure form is an important tool for protecting customers and promoting transparency in the used car sales process. It allows customers to make informed decisions about their purchases and helps to prevent fraud and misrepresentation by dealerships.
When offering credit or financing at a dealership, it is important to remember that a dealership cannot give a customer a copy of their credit report. Instead, you give the customer a notice to the applicant going over their credit report. Here are some of the items that must be included in this report.
The Federal Trade Commission’s Identity Red Flags Rule is a set of regulations designed to protect consumers and businesses from identity theft. The rule requires financial institutions and creditors, including car dealerships, to develop and implement an identity theft prevention program that is tailored to their particular business and risks.
The Identity Red Flags Rule is important because identity theft can have serious financial and personal consequences for individuals and businesses. By implementing an effective identity theft prevention program, car dealerships can help to safeguard their customers’ personal and financial information, reduce the risk of fraud and identity theft, and comply with federal regulations.
The Identity Red Flags Rule program requires car dealerships to identify, detect, and respond to warning signs, or “red flags,” that may indicate the possibility of identity theft. Some examples of red flags in the automotive industry may include:
To comply with the Identity Red Flags Rule, car dealerships must create a written identity theft prevention program that includes:
Overall, the Identity Red Flags Rule is an important program for car dealerships in California and across the country. By implementing effective identity theft prevention programs, car dealerships can help to protect their customers’ personal and financial information, reduce the risk of fraud and identity theft, and comply with federal regulations.
It is important to note that ALL these forms lead up to breaking down the conditional sales contract into more compartmentalized sections that make it easier for customers to understand.
A consignment agreement for a used car dealer is a contract between the dealer and an individual (the “consignor”) who wants to sell their vehicle through the dealer. Under this agreement, the consignor entrusts the dealer to sell their vehicle on their behalf, with the dealer receiving a commission or fee for their services.
A typical consignment agreement for a used car dealer should include the following items:
In California, there is a 20-day timeline for a dealer to pay a consigner after the sale of their vehicle. The consignment agreement should specify the payment terms, such as when the consignor can expect to receive payment and how the payment will be made. It is important for dealers to honor the terms of the consignment agreement and make timely payments to consignors to maintain a good reputation and avoid legal disputes.
A conditional sales contract, in reference to used car sales at a dealership is a legal agreement between a buyer and a dealership, where the buyer agrees to purchase a vehicle on credit and makes payments over a period of time. This type of contract is commonly used in car financing, where the buyer does not pay the full purchase price upfront but rather makes payments over time.
The contract typically includes the terms of the sale, the vehicle information, the purchase price, the down payment amount, the interest rate, and the payment schedule. It may also include information about any warranties or service plans, as well as details about the buyer’s credit history and financing options.
A conditional sales contract is required to protect both the buyer and the dealership. The contract ensures that the buyer understands the terms of the sale and the financial obligations associated with purchasing the vehicle. It also protects the dealership by ensuring that the buyer is committed to making payments on time and that the dealership has legal recourse if the buyer defaults on the loan.
The detailed list of information on a conditional sales contract typically includes:
Disclosed on the front portion of the title, the contract needs to have a box outlined in red at least 1 inch squared. Here is the determining factor for a new or used vehicle:
A used vehicle, by definition, is any vehicle that has already been operated and titled.
According to the California Vehicle Code,
“A ‘used vehicle’ is a vehicle that has been sold, or has been registered with the department, or has been sold and operated upon the highways, or has been registered with the appropriate agency of authority, of any other state, District of Columbia, territory or possession of the United States or foreign state, province or country, or unregistered vehicles regularly used or operated as demonstrators in the sales work of a dealer or unregistered vehicles regularly used or operated by a manufacturer in the sales or distribution work of such manufacturer.” (Find Law Staff, 2019)
A new motor vehicle is a vehicle that is sold with a MSO (Manufacturer’s Statement of Origin) or MCO (Manufacturer’s Certificate of Origin)
According to the California Vehicle Code,
“A ‘new vehicle’ is a vehicle constructed entirely from new parts that has never been the subject of a retail sale, or registered with the department, or registered with the appropriate agency or authority of any other state, District of Columbia, territory or possession of the United States, or foreign state, province, or country.” (Find Law Staff, 2019)
Important elements of the truth in lending disclosures are:
It is important to list out the number of payments, what that total amount of the payment will be and when those payments will be due. It also needs to outline any kind of:
Beyond the traditional lending practices, dealers can also carry the contract as well. The same disclosures are required, and the dealer must set the same standards, payment schedule and APR as well.
Repossession occurs when the customer defaults on a contract and the lender goes through the process of repossession. It is important to note that if a dealer regularly collects debts, or repossesses on a regular basis, the Debt Collectors Licensing Act comes into play for Buy Here Pay Here dealers and finance companies that offer financing to automotive dealers.
A statement of insurance on a conditional sales contract is a document that outlines the insurance requirements for a vehicle that is being sold on credit. This statement of insurance typically includes information such as the type of insurance required, the amount of coverage needed, and the name of the insurance company.
It is important to include a statement of insurance on a conditional sales contract because it helps protect both the buyer and the dealership in the event of an accident or other incident involving the vehicle. Specifically, it helps ensure that the vehicle is adequately insured so that any damages or losses can be covered by the insurance company, rather than being the responsibility of the buyer or the dealership.
In many cases, the dealership will require the buyer to provide proof of insurance before they can take possession of the vehicle. This helps ensure that the buyer is complying with the insurance requirements outlined in the contract and that the vehicle is adequately protected.
Ultimately, a statement of insurance on a conditional sales contract is an important part of the overall agreement between the buyer and the dealership. By clearly outlining the insurance requirements for the vehicle, it helps ensure that both parties are protected and that there are no misunderstandings or disputes down the line.
An agreement to arbitrate on a conditional sales contract is a clause that stipulates that any disputes arising from the contract will be resolved through arbitration rather than through the court system. Arbitration is a form of dispute resolution that involves a neutral third party, known as an arbitrator, who listens to both sides of the dispute and makes a final, binding decision.
The agreement to arbitrate is important because it helps provide a faster, more efficient, and less expensive way to resolve disputes between the buyer and the dealership. Rather than going through the court system, which can be time-consuming and costly, arbitration allows both parties to resolve their differences in a more streamlined and informal process.
Another important benefit of an agreement to arbitrate is that it provides more privacy and confidentiality than a court proceeding. Arbitration hearings are typically held in private, and the arbitrator’s decision is not a matter of public record, which can be beneficial for both the buyer and the dealership.
It’s worth noting that while an agreement to arbitrate can be beneficial in many ways, it also has some potential drawbacks. For example, the arbitrator’s decision is final and binding, which means that there is no option to appeal the decision, even if one of the parties feels that the decision was unfair or unreasonable. Additionally, arbitration clauses may limit the buyer’s ability to participate in class action lawsuits, which can be an important tool for consumers in some cases.
Overall, an agreement to arbitrate on a conditional sales contract is an important legal provision that helps provide a more efficient and streamlined way to resolve disputes between the buyer and the dealership. However, it’s important for both parties to carefully consider the potential benefits and drawbacks of this approach before signing the contract.
In this example, the conditional sales contract is broken out over 7 pages, so the page number needs to be indicated in the lower right-hand corner. The customer will also be required to sign and date each page of the conditional sales contract as well.
If an Auto Broker is used in the transaction, as we talked about earlier in class, it needs to be disclosed on the face of the contract.
Example of the 1st page
On the conditional sales contract, every cost needs to be broken down, so it is easy to understand for the customer. Starting with the cash price for the vehicle and accessories without any addons.
Doc fees vary across the United States, however in California it is capped at the following breakdown:
Important to note that a doc fee is optional, but if you charge one customer with a doc fee, you must charge all your customers.
A doc fee is important because it can offset some of the ancillary fees that dealers face with each deal. Some examples of these costs are things like registration services and vehicle history reports etc.
The DMV has not modified their test to correct the true amount so on the DMV test, the correct answer is $50 to pass the test. The doc fees listed above are the correct charges for practical use at your dealership.
Sales tax is broken down as well, we will review later in class how sales tax is calculated.
Then comes the optional products and services for the vehicle are broken out and finalized as a sub total.
Next are the registration fees. Keep in mind that the basic transfer fee for any vehicle is always $15. This will be the minimum amount due. A KSR will be needed to get the exact amount needed for the registration total for the vehicle.
Then the totals are brought down below. Important to remember how much is paid as a down payment and how much is financed. Most DMS programs will break this down for you but in the event the dealer isn’t using a computer, the dealer will have to do the breakdown by hand.
An optional service contract and debt cancellation agreement are often listed out on a conditional sales contract for a used vehicle purchase from a car dealer to provide the buyer with additional options for protecting their investment and mitigating risk.
An optional service contract is a type of agreement that can be purchased in addition to the vehicle itself, which provides coverage for certain repairs and maintenance services over a specified period of time. These contracts are often referred to as extended warranties, and they can help provide buyers with peace of mind knowing that certain repairs or maintenance services will be covered if they arise.
A debt cancellation agreement, on the other hand, is an agreement that can be purchased to cancel or forgive the remaining balance on a loan if certain unforeseen events occur, such as the buyer’s death, disability, or involuntary unemployment. This type of agreement can help protect the buyer from the financial burden of repaying a loan in the event of an unexpected hardship.
Including these optional service contract and debt cancellation agreement options on a conditional sales contract for a used vehicle purchase from a car dealer provides buyers with the opportunity to consider additional protection options that may be valuable to them. By including these options in the contract, the dealership can make buyers aware of these options and provide them with the opportunity to purchase them if desired.
Ultimately, these types of optional agreements can help provide buyers with greater peace of mind and protection, and including them on a conditional sales contract is a way to make them more accessible and transparent to buyers.
Trade-in vehicles are typically listed on a conditional sales contract when buying a used vehicle from a dealer, in order to document the value of the trade-in and how it impacts the overall transaction. This information is important because it affects the final price that the buyer will pay for the vehicle.
When a buyer trades in a vehicle, the value of the trade-in is typically credited toward the purchase price of the new vehicle. The amount of the credit is determined by the value of the trade-in, which is typically assessed by the dealership using industry-standard appraisal methods.
Listing the trade-in vehicle on the conditional sales contract helps ensure that both the buyer and the dealership are in agreement about the value of the trade-in and how it is being credited toward the purchase price of the new vehicle. This information is also important for tax and regulatory purposes, as it helps document the overall value of the transaction.
Additionally, listing the trade-in vehicle on the conditional sales contract can be helpful for the buyer when it comes to financing the purchase. Including the trade-in value as part of the transaction can reduce the amount that the buyer needs to finance, which can help lower the overall cost of the transaction and potentially make it easier to obtain financing.
Example of Page 2:
The customer will then read and sign a series of paragraphs which include:
