California’s recently enacted Combating Auto Retail Scams (CARS) Act is set to become operative on October 1, 2026. (Cal. Civ. Code § 1784.20, et seq.) Dealerships, banks, and finance companies should begin taking the necessary steps to ensure compliance with the California CARS Act. Given the significant changes the CARS Act imposes on how licensed automobile dealers sell vehicles starting in October, the California automotive industry would be well served to understand its impact.
The CARS Act is non-exclusive legislation that imposes a litany of obligations and outlines a number of prohibitions applicable to automobile dealers. The protections provided in the CARS Act cannot be waived by consumers. The CARS Act only applies to retail sales, and not wholesale transactions, unregistered vehicles, fleet sales, commercial purchasers, or the sale of a vehicle with a gross vehicle weight rating of 10,000 pounds or more.
CARS Act Prohibited Misrepresentations for California Dealers
Chief among the prohibitions of the CARS Act is the “Prohibited Misrepresentations” section. (Cal. Civ. Code § 1784.40.) Dealers are prohibited from misrepresenting to consumers:
- The cost or financing terms for the purchase or lease of a vehicle;
- All aspects of optional products or services;
- Whether the transaction involves a sale or a lease;
- The availability of advertised vehicles at a stated price;
- Guarantees regarding products and/or financing;
- The consumer’s application for financing;
- The retention of down payments or trade-in vehicles if a transaction is not finalized;
- The consequences of a dealer’s failure to pay off a trade-in;
- The remedies available to a consumer if the dealer fails to move forward with a transaction at the price advertised, excluding taxes, fees, and applicable charges;
- The dealer’s affiliation and/or endorsement by governmental agencies;
- The circumstances under which a vehicle could be repossessed;
- Under what circumstances a vehicle can be moved outside of California and/or the U.S.; and
- Any of the required disclosures imposed by the CARS Act.
Mandatory Dealership Price and Financing Disclosures
In addition to limiting misrepresentations (which a number of statutes likely already prohibited), the CARS Act also imposes “Mandatory Disclosures” on dealerships. (Cal. Civ. Code § 1784.41 & 1784.42.) Dealerships must disclose to consumers a vehicle’s price:
- In any advertisement that references a specific vehicle;
- In any advertisement that represents a monetary amount or financing term;
- In the first written communication to a potential purchaser; and
- How any downpayment and/or trade-in will be applied.
Dealerships must retain a copy of the first written communication containing the price disclosure for at least two years, and must make a copy of that written communication available to the consumer upon written demand. In addition, if the dealership engages in negotiation regarding monthly payments, the total amount to be paid must be disclosed, and if the monthly payment is reduced due to an extended term, that extended term must also be disclosed.
California Auto Dealer Add-On Product Rules
When discussing add-on products and services, a dealership must clearly and conspicuously disclose the optional nature of those products and services in writing and, if necessary, in the statutorily enumerated foreign language if the transaction is primarily negotiated in that language. (See Cal. Civ. Code § 1632.) While likely already prohibited from doing so by other statutes, the CARS Act prohibits dealers from selling optional products or services that provide no benefit to the consumer. The CARS Act specifies the following optional products or services which are prohibited:
- Nitrogen-filled tire-related products or services that contain less than 95-percent nitrogen purity;
- Products or services that do not provide coverage for the vehicle, the consumer, or the transaction;
- A GAP agreement that is not in compliance with the Automobile Sales Finance Act;
- 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;
- Oil changes for electric vehicles;
- Catalytic converter markings for a vehicle that does not have a catalytic converter; and
- Surface protection product that renders the manufacturer’s warranty for the paint job void.
Dealers must also pay third-party providers for all optional products and services either within 10 days of the sale, or within a set time period as agreed upon as between the dealer and the third-party provider so long as the consumer’s coverage is not impacted by the periodic payment relationship.
Used Vehicle 3-Day Right to Cancel in California
The likely most impactful change to how used vehicles will be sold in California under the CARS Act is the imposition of a 3-day right to cancel for used vehicles sold for $50,000 or less. (Cal. Civ. Code § 1784.43.) This changes the current law, which does not provide for a cooling-off period, by imposing a 3-day right to cancel for most used-vehicle sales.
The 3-day right to cancel is not a separate line-item cost, but must be provided free of charge. However, if the buyer utilizes the 3-day right to cancel, a dealership may charge a restocking fee equal to 1.5% of the returned vehicle’s purchase price, but not less than $200, and no more than $600. This charge may be recouped from refunds and/or shipping fees.
Under the CARS Act, the option must be exercised within 400 miles of the buyer’s purchase of a vehicle, and if the vehicle is driven more than 250 miles, the dealer may charge $1 for each mile driven but not exceeding $150 for the additional mileage. The 3-day right to cancel must be documented in a separate disclosure with the required statutory language.
Trade-In Requirements After a Used Vehicle Cancellation
If a dealership takes in a trade-in vehicle and the buyer exercises the 3-day right to cancel, the CARS Act dictates how that trade-in should be accounted for. If the trade-in vehicle has not been disposed of by the dealership, it must be returned when the 3-day right to cancel is exercised. If it has been disposed of, the dealership must pay the consumer the greater of:
- The agreed upon value of the trade-in;
- The amount for which the dealer sold the trade-in;
- The fair market value of the trade-in as noted in a nationally recognized pricing guide; or
- A written offer to purchase the trade-in received by the buyer and valid for at least 7 days.
This approach creates a potential pitfall, particularly if the trade-in was sold at retail. That retail price is likely the greater of all possible amounts, meaning the cash price for the trade-in will be the amount owed by the dealer to the consumer exercising a 3-day right to cancel.
Dealer Prohibitions Under the 3-Day Cancellation Rule
Dealers are prohibited from taking a number of actions with respect to the 3-day right to cancel. Per the CARS Act, dealers may not:
- Do anything to impede a buyer or lessee from exercising the 3-day right to cancel;
- Overcharge for the restocking fee;
- Withhold a downpayment or trade-in that must be returned upon the exercise of the 3-day right to cancel;
- Fail to provide a receipt or a sale contract for a disposed trade-in;
- Claim damage to the returned vehicle in excess of reasonable wear and tear without a reasonable basis to do so; or
- Claim that the person authorized to return the buyer’s or lessee’s downpayment or trade-in vehicle is not available.
Required Contract Language and Cooling-Off Period Signage
Dealers are obligated to ensure that a purchase contract which has been cancelled through the exercise of a 3-day right to cancel is voided within 48 hours of notification of the cancellation. The dealer must provide payment to the consumer exercising the 3-day right to cancel within two days if the consumer’s initial payment was not verified. The purchase contract must contain the following language:
CALIFORNIA DOES NOT HAVE A COOLING-OFF PERIOD FOR NEW VEHICLES. HOWEVER, 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. You have up to 3 days to return the vehicle to the dealer and cancel this contract and obtain a refund. Please review the disclosure, which the dealer is required by law to provide, for the details about this right and how to exercise it.
Dealership signs indicating that California does not have a cooling off period should also be revised.
Dealer Recordkeeping Requirements Under the CARS Act
The CARS Act also imposes new recordkeeping requirements on dealerships. (Cal. Civ. Code § 1784.44.) Dealerships must keep:
- Records demonstrating compliance with the CARS Act for at least two years, this includes communications with buyers and potential buyers as well as advertisements for all vehicles offered for sale;
- Copies of all purchase orders, financing and lease documents with the dealership signed by the consumer, even if the transaction was not finalized;
- All written communications relating to sales, financing, or leasing between the dealer and any car buyer or lessee who signs a purchase order or financing or lease contract with the dealer;
- Documents evidencing compliance with the CARS Act’s add-on product rules;
- All cancellation requests, proof of refunds, and return of trade-ins for the 3-day cancellation option; and
- Copies of all written complaints received from consumers.
The CARS Act imposes considerable changes upon dealerships. Given that the Act’s October 1, 2026, implementation date is rapidly approaching, all dealerships, banks, and finance companies doing business in the retail automotive space in California should take the necessary steps to ensure compliance. Please feel free to contact us to discuss what we can do to aid with compliance with the CARS Act.
James S. Sifers, Esq.
jsifers@madisonlawapc.com