In a move that could significantly impact the auto retail industry, California has introduced Senate Bill 766, known as the California Combating Auto Retail Scams (CARS) Act. Introduced by Senator Benjamin Allen (D) on February 21, this bill aims to impose stringent new regulations on auto dealers in the state, many of which echo back to the Federal Trade Commission’s (FTC) own CARS Rule.
Key Provisions of the CARS Act
- Prohibition of Misrepresentations: The bill makes it a violation for dealers to misrepresent material information about vehicle sales, including costs, financing terms, benefits of add-ons, and the availability of vehicles at advertised prices.
- Clear and Conspicuous Disclosures: Dealers are required to make certain disclosures clear and conspicuous, including the offering price, total amount the consumer will pay, required downpayment, and that the purchase of any add-on is not required.
- Ban on “Valueless” Add-Ons: The bill prohibits dealers from charging for add-on products or services that do not benefit the purchaser or lessee, such as nitrogen-filled tires; duplicative warranty coverage; a GAP agreement if the consumer’s vehicle or neighborhood is excluded from coverage or the loan-to-value ratio would not result in a financial benefit to the consumer; or a service contract that includes a limit that would not cover the market value price for the repair of a covered item or if the contract is void due to preexisting conditions.
- 10-Day Right to Cancel: For used vehicle sales, the bill mandates a 10-day right to cancel the purchase or lease, providing consumers with a cooling-off period to reconsider their decision.
- 7-Year Record Retention Requirement: Dealers must retain all records necessary to demonstrate compliance with the Act for seven years, marking an increase from the FTC’s version of the rule.
- No Waiver: Any purported waiver by a consumer of the provisions of the Act is deemed contrary to public policy and unenforceable.
A State-Level Response to Federal Inaction
The introduction of the CARS Act in California comes at a time when federal efforts to regulate the auto retail industry have faced significant setbacks. Notably, as discussed here, the U.S. Court of Appeals for the Fifth Circuit recently vacated the FTC’s Combating Auto Retail Scams Trade Regulation Rule (CARS Rule). The court’s ruling was based on procedural missteps by the FTC, specifically the failure to issue an advance notice of proposed rulemaking. The future of the CARS Rule is now back with the FTC, where a new Chairman may have a different agenda for the agency.
The CFPB’s Call to Action for States
As discussed here, the Consumer Financial Protection Bureau (CFPB) had anticipated a shift in federal regulatory priorities with the new administration and issued a report titled “Strengthening State-Level Consumer Protections” just days before President Trump took office. The report encouraged states to take a more aggressive stance on consumer protection, highlighting the need for state-level legislation to address evolving risks. The CFPB’s recommendations included banning abusive practices, enhancing investigatory authority, and enacting prohibitions against “junk fees.”
Our Take
The CARS Act introduces a new layer of regulatory complexity for auto dealers. The industry must now navigate these stringent requirements, which could lead to increased operational costs and potential legal challenges. The mandated 10-day right to cancel, in particular, could disrupt sales processes and create uncertainty for dealers. As we continue to monitor the progress of this bill, it will be crucial for auto dealers to stay informed and prepared to adapt to these regulatory changes.
