CARS Act (SB-766): Major Changes Coming October 1, 2026

January 6th, 2026 by Garrett Eddings

There are some big changes happening in 2026 for vehicle sales laws. Below is a summary of the California CARS Act (SB-766), which is the biggest change we will see starting on October 1, 2026.

SB 766 represents the most significant modification to the vehicle sale process since California's Car Buyer's Bill of Rights in 2005.

Effective October 1, 2026, the new law contains:

1. A 3-day right to return used vehicles less than $50,000.
2. Advertising requirements on a vehicle's "total price". (This is meant to curb the current abuse of failing to list hard ad-ons in the advertised price. If it is on the car, it must be disclosed regardless if it is "optional" for the customer to purchase).
3. New consumer disclosure requirements.
4. A prohibition on the sale of optional products that customers cannot benefit from.
5. Prohibitions on material misrepresentations to consumers.
6. New records retention requirements.

Your form sources, such as Reynolds & Reynolds will update existing forms and develop new ones to help address some of these new compliance requirements, which will be ready in 2026 in advance of the bill's October 1, 2026, effective date. The bill is discussed in greater detail below.

California Dealer Academy Note: As these regulations take effect, proper dealer licensing and ongoing compliance education become even more critical. Our courses are updated to reflect all current DMV requirements and regulatory changes to ensure you're prepared for these industry shifts.

Applicability

After it becomes effective on October 1, 2026, SB 766 will apply to licensed dealers selling light-duty vehicles (GVWR of less than 10,000 pounds).

Exempt Transactions

The following types of transactions are additionally exempt from the bill:

• Wholesale transactions (i.e., sales that do not constitute a retail sale)
• Fleet sale transactions (more than one vehicle sold as part of a single transaction)
• Vehicles not required to be registered under the Vehicle Code
• Sales to "commercial purchasers" (i.e., a person who purchases five or more vehicles from a dealer per year for business/commercial purposes)

Put together, this means the bill principally applies to consumer motor vehicle transactions, but some commercial transactions involving small business owners may also be covered by the bill if they only involve the sale or lease of a single light-duty vehicle. For example, a small business that purchases a single F150 pickup would likely be covered by SB 766.

Right to Return Used Vehicles

Effective, October 1, 2026, SB 766 provides customers with a three-day right to return used vehicles sold or leased for $50,000 or less. During the sale or lease process, dealers must provide a new disclosure entitled "3-Day Right to Cancel Used Car Purchase or Lease." The disclosure describes how customers may exercise their rights under the bill. Key elements include:

The Deadline to Return the Vehicle

It must be no earlier than the dealer's close of business on the third calendar day. If a vehicle is delivered on a Monday, the end of the third day is COB Thursday.

Restocking Fees

Fees are equal to 1.5% of the vehicle price, with a $200 minimum and a $600 maximum.

Mileage Limitations

The customer may not drive more than 400 miles during the three-day period. If the customer drives more than 250 miles during the three-day period, the dealer may charge an additional $1 per mile over that amount (for a maximum of $150). This is in addition to the base restocking fee described above.

Restrictions on the Return Right

The return right only applies if the following are personally delivered to the dealer at the time the customer exercises the right to cancel:

• Restocking and mileage fees, but the dealer shall first deduct the fees from any down payment owed to the customer.
• All items and cash received from the dealer.
• The vehicle, in the same condition (minus ordinary wear and tear and any mechanical issue not caused by the customer) and free from any liens or encumbrances.

Trade-In Valuation

How customer trade-ins are valued if they have been sold, or the dealer has initiated the title transfer process. The trade-in value of a vehicle is the greater of the following:

• The value of the trade-in vehicle on the contract;
• The amount for which the dealer sold the trade-in vehicle; or
• The fair market value of the trade-in vehicle, as determined by either a nationally recognized pricing guide selected by the dealer (e.g., KBB, Edmunds), or the value in a written offer provided to the customer prior to the original sale of the vehicle. The dealer may also deduct any trade-in payoff amount from the trade-in amount refunded to the customer.

New Cooling-off Language

SB 766 adds new cooling-off language for the retail installment sale and lease contracts and requires dealers to update the cooling-off signage posted in F&I offices and any other cubicle or room where written terms are discussed and contracts are regularly executed. The updated signage must be in 36-point font and read the following:

"CALIFORNIA DOES NOT HAVE A COOLING-OFF PERIOD FOR NEW VEHICLES. BUT IF YOU PURCHASED OR LEASED A USED VEHICLE FOR $50,000 OR LESS, YOU HAVE 3 DAYS TO CANCEL THIS CONTRACT FOR ANY REASON. ADDITIONAL RESTRICTIONS MAY APPLY, INCLUDING A RESTOCKING FEE. ASK THE DEALER FOR MORE INFORMATION ABOUT HOW TO EXERCISE THIS RIGHT."

Advertising Requirements

SB 766 contains important clarifications on how a dealer may advertise the "total price" of the vehicle to the customer. These requirements are in addition to existing California advertising requirements.

What is a Vehicle's "Total Price"?

A vehicle's "total price" is the total sales price offered by the dealer, excluding taxes, fees, and charges specified by law, such as the dealer's document processing charge (or "doc fee"). However, the total price must include any dealer price adjustment (markup) and the cost of any item installed on the vehicle at the time of the advertisement (any "hard adds" such as tow hitches, roof racks, third brake lights, etc.).

The bottom line is that the customer must be able to buy the vehicle at its advertised total price, without any additional costs associated with hard adds or other optional products.

Can Rebates Be Included in the Advertised "Total Price"?

A vehicle's advertised "total price" may not include a deduction for any rebate, but a rebate may be separately advertised to customers. A dealer may still advertise a separate "net cost" amount that includes a deduction for a rebate, so long as it complies with preexisting law.

When Must a Vehicle's "Total Price" Be Communicated to Customers?

The total price must be disclosed in any of the following circumstances:

1. In any advertisement that references a specific vehicle for sale;
2. In any advertisement that references any monetary amount or financing term for a specific vehicle; and
3. In the first written communication to the customer that includes a reference to the specific vehicle for sale.

May a Dealer Advertise MSRP Instead of the Dealer's "Total Price"?

No. While a dealer may identify the vehicle's MSRP in an advertisement, advertising a vehicle's MSRP is not a substitute to advertising a vehicle's total price. "MSRP" is the manufacturer's suggested retail price, whereas a vehicle's "total price" is the dealer's total price of the vehicle, excluding only the charges identified above.

May a Dealer Sell a Vehicle at Above or Below Its "Total Price"?

A dealer may not sell a vehicle at an amount above the total price, but the dealer may sell the vehicle at an amount below the vehicle's total price. A dealer may also sell optional products (e.g., service contracts, vehicle upgrades requested by the customer, etc.), which increase the total transaction cost above the vehicle's total price. Optional products sold must comply with the disclosure requirements described below.

When Must Dealers Remove a Vehicle's Listing from Their Website?

A dealer may not advertise a specific vehicle for sale unless it's on the dealer's lot or available to the dealer directly from the manufacturer. After a vehicle is sold, the vehicle must be removed from the dealer's website within 48 hours.

Disclosure Requirements: Customer Worksheets and Optional Products

Prior to SB 766, precontract disclosure requirements only applied to financed sales, but SB 766 broadens these requirements to include lease and cash deals and expands the scope of the law to include all dealer "add-ons." New disclosures will also need to be added to the form. Updated precontract disclosure statements will be developed by Reynolds & Reynolds, which will include the new disclosures required by SB 766 on optional products. When dealers compare different monthly payment options, a statement must be added specifying that lower monthly payments often increase the total amount the consumer will pay to purchase or lease the vehicle.

Stay Compliant: California Dealer Academy provides comprehensive training on all DMV disclosure requirements and regulatory compliance. Our courses ensure you understand not just what forms to use, but why these protections exist and how to properly implement them in your dealership operations.

Optional Product Regulations

SB 766 prohibits dealers from charging for add-on products or services if the customer "would not benefit from" the add-on product or service. The bill identifies a non-exhaustive list of such unlawful products, which are:

1. Nitrogen-filled tire-related products or services that contain less than 95 percent nitrogen purity.
2. Products or services that do not provide coverage for the vehicle, the consumer, or the transaction.
3. A GAP agreement that is not in compliance with existing California law.
4. A service contract if the service contract is void due to preexisting conditions, including prior damage from a crash or flood or preexisting mechanical conditions. (Preexisting mechanical conditions (i.e. engine sludge) is a common reason for service contracts being void or claims denied.)
5. Oil changes for electric vehicles.
6. Catalytic converter markings for a vehicle that does not have a catalytic converter.
7. Surface protection products that render the manufacturer's warranty for the paint job void.

Important clarification: The scope of this prohibition is narrow. Just because a customer doesn't use a product doesn't mean they don't benefit from it. The law states that a customer still benefits from a product or service, even if a coverage event does not occur or if a customer later declines coverage.

Prohibitions on Material Misrepresentations

SB 766 prohibits dealers from making certain misrepresentations regarding material information. Most of these prohibitions overlap with existing law (e.g., Consumer Legal Remedies Act, Vehicle Code dealer prohibitions), but their inclusion in SB 766 may bring renewed focus on enforcement (discussed in the section on "Enforcement" below).

Under the law, dealers are prohibited from making any misrepresentation regarding material information about the following:

(a) The costs or terms of purchasing, financing, or leasing a vehicle.

(b) Any costs, limitation, benefit, or any other aspect of an add-on product or service.

(c) Whether the final contract is for the lease or sale of a motor vehicle.

(Presenting multiple payment options to customers does not constitute a violation).

(d) The availability of vehicles at a total price communicated by the dealer.

(A dealership complies if it withdraws the ad within 48 hours after the sale).

(e) Whether any consumer has been or will be preapproved or guaranteed for any product, service, or term.

(f) Information on or about a consumer's application for financing.

(g) Whether the dealer will keep cash down payments or trade-in vehicles, charge fees, or initiate legal process, or any action if a transaction is not finalized or if the consumer does not go forward with the transaction.

(h) Whether, and if so, when, a dealer will pay off some or all the financing or a lease on a consumer's trade-in vehicle, and what happens if a dealer fails to pay off the trade-in vehicle within the period required by law.

(i) The remedy available if a dealer fails to sell or lease a vehicle at the total price.

(j) Whether the dealership is affiliated with the government or military.

(k) Whether, or under what circumstances, a vehicle may be repossessed.

(l) Whether a vehicle can be moved outside of California or outside of the United States.

Records Retention

SB 766 includes a two-year records retention requirement for many dealership documents. Documents that must be retained include:

1. Records demonstrating that advertisements and communications on a vehicle's "total price" comply with the law.
2. Copies of purchase orders, financing and lease documents signed by the customer, and written communications between the dealer and the buyer.
3. Records demonstrating that add-ons sold provide a benefit to customers, including service contracts, GAP agreements, etc.
4. Copies of all cancellation requests, proof of refunds, and proof of return of trade-in vehicles.
5. Copies of written complaints sent by car buyers or lessees. This does not include responses to customer surveys or testimonials posted on the internet.

These requirements are in addition to existing records retention requirements, such as DMV regulations (requiring 3-year retention of deal jacket documents) and Automobile Sales Finance Act requirements (requiring 7+ year retention of the sale contract).

Documentation Best Practices: Proper record-keeping is a fundamental aspect of dealer licensing compliance. At California Dealer Academy, we teach aspiring dealers the critical importance of maintaining accurate documentation from day one—it protects both your customers and your business license.

Enforcement

Although SB 766 does not contain an express private right of action, we expect plaintiffs' attorneys to enforce violations of SB 766 through various means, including the state's Unfair Competition Law (Business & Professions Code Section 17200 which prohibits "unlawful business practices"). The California Attorney General and county district attorneys also may enforce the law. Additionally, the DMV may explore creative theories to enforce SB 766. The best way to avoid lawsuits and enforcement actions is to adopt compliant practices and minimize consumer complaints.

SB 766 reshapes many aspects of the sales process at dealerships. In advance of the bill's October 1, 2026, effective date, dealers must adopt compliant practices at their stores.

Tags: business, dealer license, law

Posted in: Education