A Preliminary Report
on
California’s Car Buyers Bill of Rights
Issued by
Consumers for Auto Reliability and Safety
And
Consumer Action
March 7, 2007
On July 1, 2006, California’s landmark Car Buyers Bill of Rights 1 took effect, generating news headlines statewide. This unprecedented law was aimed at curbing numerous abuses and forms of auto sales frauds that have plagued California car buyers.
The Car Buyers Bill of Rights is turning into a sour deal for California consumers. Most auto dealers have already found ways to undermine it. The spirit of the law, if not its letter, is being violated from one end of the state to the other.
This report is based on more than seven months of research, including:
The terms of the two-day return option are inherently confusing. Even experts at the DMV had difficulty sorting out what consumers would have to pay if they get the return option. The cost of the option is also a barrier, particularly to the low-income consumers who are most economically vulnerable and need protection the most.
Auto dealers have made the return option into a “Catch-22” scenario for California’s used car buyers. To get the return option, dealers demand that car buyers sign new, standardized forms that are now commonly used by auto dealers statewide. The forms state that the dealer--hardly an impartial judge--has “sole discretion” to decide whether a vehicle is eligible for a refund, or not. This puts the buyer at the dealer’s mercy.
Auto dealers are failing to disclose the terms of the deal in languages other than English. California’s Civil Code Section 1632 requires that contracts, including auto sales and lease transactions, be provided in common languages when the deal is negotiated in those languages. The Car Buyers Bill of Rights added several important new disclosure requirements. However, auto dealers are not providing the required disclosures about the existence of the return option, the cost of add-ons, or the consumers’ credit scores in a language their customers can understand. This defeats the whole purpose of the disclosure requirements.
Dealers continue to deceive buyers into believing they are getting “soft” add-ons at low cost, or free, when they are actually being charged high markups for products of little or no value. This highly sophisticated, high-tech crime can add thousands onto the price of a new or used vehicle, without buyers even being aware they have been cheated.
It is too soon to know whether dealers and lenders are complying with the caps in the law limiting dealers to 2.5% markups for loans up to 60 months, and 2% for longer loans.
Consumer complaints and reports to CARS about vehicles with frame damage that are being advertised and sold as “certified” used cars have dropped. This provision appears to have curbed some of the worst abuses, but without statewide systematic monitoring of “certified” used car sales, it is not possible to know with any certainty if dealers are fully complying with this provision of the law.
This section provides a more detailed explanation about the law’s major provisions and how the law is working for consumers. Or not.
The Car Buyers Bill of Rights requires auto dealers to offer consumers who buy used cars costing $40,000 or less a “return option” of at least 2 days, and limits how much dealers can charge for the option, depending on the price of the car.
The law allows consumers to return used cars for any reason if the vehicle is returned
“in the same condition as when it was delivered by the dealer to the buyer, reasonable wear and tear and any defect or mechanical problem that manifests or becomes evident after delivery that was not caused by the buyer excepted…” 3
This means that unless the purchaser abuses the vehicle, or damages it, he or she should be able to return it for a full refund. If the dealership refuses to accept the return, it must have a good reason for that refusal. This was one of the best parts about the new law.
However, auto dealers have found a clever way to get around the law. They now demand that car buyers who want the return option must first sign a standardized form.4 The form states that if the consumer tries to return the car under the return option, the dealer has “sole discretion” to decide if the vehicle has “excess wear and tear.”
This one-sided “take-it-or-leave-it” contract completely defeats the purpose of the return option. The new law was designed to put the consumer in the driver’s seat and allow them to return vehicles and get a refund, without a hassle. If the dealer refuses to accept the return, they should have the legal burden of proving they have legitimate grounds for their refusal. But the dealers’ standardized form turns the tables on consumers. Thus, auto dealers have made the return option into a trap for even the most wary car buyers.
Some experts have expressed the opinion that the form itself may be illegal. However, to date, no agency has prohibited dealers from using it.
Too often, auto dealers fail to provide the legally required disclosures in languages used by millions of Californians when the contracts are negotiated in those languages. This clearly violates Civil Code Section 1632, which was expanded in 2003 to include four languages in addition to Spanish. 5
According to legislative findings in AB 309 (Chu), more than 12 million Californians speak languages other than English in their homes.
California’s law requires dealers to provide contracts and other relevant disclosures in the language in which the transaction was negotiated, whenever the language is one of the five most commonly used languages in California, other than English--Spanish, Chinese, Tagalog, Vietnamese, and Korean. However, consumers throughout the state have not been receiving disclosures about the return option, credit scores, or added items commonly “packed” into loans in those languages, as required by the new law.
In some cases, defense attorneys for auto dealers claim that they do not have to obey the law, and are under no obligation to provide written disclosures in the five languages specified in Civil Code Section 1632.
AB 309 (Chu), was enacted partly due to alleged abuses by a dealership in the Assemblymember’s district, which led to a settlement negotiated with the Asian Pacific American Legal Center after APALC received numerous complaints from Chinese-speaking consumers.6
According to Reynolds & Reynolds, which prints and distributes forms for auto dealers, the form entitled the “Used Vehicle Delivery Condition Acknowledgement” – a crucial document for anyone who obtains the return option—is not even available in languages other than English. This is the form that informs the buyer that the dealer has “sole discretion” to decide whether a vehicle has sustained “excess wear and tear” that can render the entire Contract Cancellation Option Agreement null and void.
Dealers sometimes misrepresent the price consumers must pay to obtain the return option. In some cases, consumers were discouraged from getting the option because they were told it would cost hundreds of dollars extra, when the amount the dealer was allowed to charge was actually less than $100.
Some consumers were told that they did not need to pay for the option because the dealer already offered a return policy for free. But when they tried to bring back the car, they found out they were stuck.
Some low-income consumers are discouraged from getting the return option even when the price they are quoted is accurate. For example, one low-income consumer bought a used van from a dealership and decided he could not afford to pay extra for the return option. He also thought it was useless because he planned to embark immediately on a trip that would exceed the 250 mile limit. However, he drove the van only about 20 miles from the dealership when suddenly the engine blew up. Ultimately, he was forced to pay thousands of dollars in unanticipated repair costs to replace the engine. He also lost income and incurred substantial expenses staying in a hotel while he waited for the repairs to be completed.
Most auto lenders pay dealers a hidden fee to offer car buyers a higher interest rate than they deserve based on their credit histories. This extra interest is called a “markup,” extra profit that is split between the dealer and the lender.
California’s new law caps the “markup” amount dealers are allowed to receive. They may not receive more than 2.5% from lenders for loans up to 60 months, and 2% for longer loans.
Similar caps on dealer markups were imposed by class action settlements of cases that found dealer markup practices to be discriminatory, costing African American and Latino car buyers more, even when they have the same credit histories as white customers.
It is still too early to tell with certainty whether dealers are complying with this provision.
Scams involving markups are difficult for car buyers to detect, since they involve fraud, which by its nature means one side of the transaction has knowledge withheld from the other side. Therefore, while consumers may not complain about markups, class action lawsuits brought on behalf of millions of car buyers have uncovered widespread abuses in the past. It remains to be seen whether the new law is performing as intended to curb markup abuses.
Loan packing continues to occur. Sometimes, disclosures are not provided at all, or the disclosures are deceptive. Also, sometimes disclosures are not being provided in languages other than English, despite the requirements of California’s Civil Code Section 1632.
Dealers sometimes fail to provide disclosures to consumers in the same language that was used to negotiate the deal. Some consumers have complained that they were shown one credit score prior to reaching an agreement, to justify a higher interest rate, then given a different, higher score in writing after they had signed the contract.
This provision appears to have curbed some of the worst abuses. Consumer complaints and reports to CARS about vehicles with frame damage that are being advertised and sold as “certified” used cars have dropped. However, vehicles with other types of damage not specified in the law continue to be designated as “certified.” As noted above, without statewide systematic monitoring of “certified” used car sales, it is not possible to know with any certainty if dealers are fully complying with this provision of the law. For news reports about “certified” lemons that had been wrecked and rebuilt, see:
http://www.carconsumers.com/certified_cars.html
In sum, serious and widespread non-compliance with California’s Car Buyers Bill of Rights exists.
Note: California’s Legislature allowed the dealers an extra six months, beyond the normal effective date, to fully prepare for implementation of the new law. At the dealers’ request, the effective date was delayed from January 1, 2006, until July 1, 2006.
These three recommendations are not intended to be an exclusive list of what is needed to make the law fair and effective, but are aimed at curbing the worst abuses:
Minnesota State Senator Ron Latz has introduced similar legislation. However, unlike California’s law, Senator Latz’s bill requires dealers to offer at least a two-day cooling off period at no additional charge except a restocking fee if the vehicle is actually returned. If it passes, consumers in Minnesota will have a new right that California consumers are denied unless they pay extra in advance.
Senator Latz’s bill: http://ros.leg.mn/bin/bldbill.php?bill=S1333.0.html&session=ls85
California’s Car Buyers Bill of Rights is not a model that consumer groups are touting for other states to adopt. Instead, we urge caution, and recommend that other states wait and see how well California’s law works, and learn from our mistakes.
A pdf file of the standardized Reynolds & Reynolds form used by California auto dealers entitled
“Used Vehicle Delivery Condition Acknowledgement” is posted on CARS’ website, at http://www.carconsumers.com/Vehicle_Delivery_Condition1.pdf, along with this report.
Brochures in English and Spanish about California’s Car Buyers Bill of Rights, with tips for consumers, are posted on the Consumers for Auto Reliability and Safety Website, at: http://www.carconsumers.com/CBBR_summary.html
FAQs are posted at: http://www.carconsumers.com/CBBR_summaryFAQ.html
Brochures in English, Spanish, Chinese, and Vietnamese are posted on the Consumer Action website, at:
http://www.consumer-action.org/english/articles/california_car_buyers_bill_of_rights/
1 AB 68 (Montañez), compromise legislation enacted in 2005. On California Legislative website at: http://info.sen.ca.gov/cgi-bin/postquery?bill_number=ab_68&sess=PREV&house=B&site=sen. A summary of the Car Buyers Bill of Rights and brochures in English and Spanish with tips for consumers and FAQs are posted on Consumers for Auto Reliability and Safety’s website, at: http://www.carconsumers.com. Brochures in English, Spanish, Chinese, Korean, and Vietnamese are also posted at Consumer Action’s website, at: http://www.consumeraction.org.