Car Buyer’s Bill of Rights Detailed Analysis
Two Day Cooling Off Period
The Car Buyer’s Bill of Rights, signed into law by Governor Schwarzenegger on July 26,
2005, makes additional requirements of used motor vehicle dealers in 2006. Effective
July 1, 2006, used motor vehicle dealers will be required to do the following:
1. Two Day Cooling Off Period
A. Requirements
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Used motor vehicles dealers must
Offer a Two Day Cooling Off Period Option to
Retail buyers of vehicles sold for
Less than $40,000.00.
This excludes motorcycles, off-road vehicles, and RV’s.
The retail buyer can return the vehicle for any reason
Within two days of taking delivery, provided that he or she has
Driven fewer than 250 miles (or higher if the dealer agrees)
The vehicle must be returned “Undamaged”
a. “Undamaged” means in substantially the same condition as
at time of delivery, normal wear and tear excepted. The
dealer gets to determine whether the vehicle is
undamaged and in substantially the same condition as at
time of delivery.
Except for defects/problems that became evident after delivery.
The Two Day Cooling Off Period option must be a separate
document from the sales contract.
This separate document will most commonly be referred to as the
“Contract Cancellation Option Agreement”, or “Cancellation
Agreement.” See details below.
If the vehicle is returned, the dealer must cancel the contract and
provide a Full Refund to the buyer within two days of the date of
cancellation.
“Full Refund” includes sales tax, and reg. fees, but not:
a. The fee for the Cancellation Agreement (see below)
b. The Re-Stocking fee (see below). Note that the fee for
the Cancellation Agreement must be subtracted from
the Re-Stocking fee.
c. Note: You do not have to refund DMV fees if the buyer
demands title at the sale and completes the registration
themselves.
B. Measuring the “2 Days” for the Cooling Off Period
The two days of the cooling off period begin to run at time of delivery.
The two days must be two regular business days for that dealer. In other
words, if you sell the vehicle Friday evening at 7:00 p.m., and your
dealership is open Saturday, but not Sunday, the buyer has until 7:00 p.m.
Monday evening to return the car within the required two (business) day
time period.
C. Two Day Cooling Off Period Fee
New Vehicle Code Section 11713.21 (a)-(d) allows the dealer to charge
the following maximum amounts for the two day cooling off period
option contract:
1. Seventy-five dollars ($75) for a vehicle with a cash price of five
thousand dollars ($5,000) or less.
2. One hundred fifty dollars ($150) for a vehicle with a cash price
of more than five thousand dollars ($5,000), but not more than
ten thousand dollars ($10,000).
3. Two hundred fifty dollars ($250) for a vehicle with a cash price
of more than ten thousand dollars ($10,000), but not more than
thirty thousand dollars ($30,000).
4. One percent of the purchase price for a vehicle with a cash
price of more than thirty thousand dollars ($30,000), but not
more than forty thousand dollars ($40,000).
D. Re-Stocking Fee
The dealer may also charge a re-stocking fee. This fee must also be put in
writing. The restocking fee shall not exceed the following:
1. One hundred seventy-five dollars ($175) if the vehicle's cash
price is five thousand dollars ($5,000) or less;
2. Three hundred fifty dollars ($350) if the vehicle's cash price is
less than ten thousand dollars ($10,000); and
3. Five hundred dollars ($500) if the vehicle cash price is ten
thousand dollars ($10,000) or more.
4. Note: The dealer shall apply the cost of the option to cancel the
contract toward the restocking fee. For example, if the vehicle is
sold for less than $5,000, the dealer can charge $75.00 for the
option to cancel the contract. If the buyer then elects to cancel the
contract within the next two days, the dealer can also charge the
$175.00 re-stocking fee. However, the dealer must credit the
$75.00 already paid for the option to cancel at the time the sale was
made to the restocking fee. So, in effect, the dealer gets to keep the
original $75.00 collected for the option to cancel, and an additional
$100.00 for the re-stocking fee.
E. Trade Ins
If, as part of the purchase, the buyer traded in a vehicle and was not
charged for the cancellation option, the dealer shall return to the
buyer, no later than the day following the day on which the buyer
exercises the right to cancel the purchase, any motor vehicle the buyer
left with the seller as a down payment or trade-in. If the dealer has sold
or otherwise transferred title to the motor vehicle that was left as a down
payment or trade-in, the dealer must pay the buyer either the agreed value
of the vehicle as written into the contract or the fair market value,
whichever is higher.
F. The Contract Cancellation Option Agreement
This is the agreement the buyer pays for and signs for the option to bring
the vehicle back within two days of delivery. It must meet the following
requirements:
1. Must be a separate document from the sales document
2. Must include the VIN and description of the vehicle
3. Must specify a minimum of Two Business Days for cancellation
“Two Business Days” means the next two days you are open
for business.
4. Must specify the maximum number of miles allowed (minimum
of 250 required)
5. Must specify the condition of the vehicle for return
6. Must state the last date and time the buyer can cancel
7. Must include a place for the buyer to sign electing the option to
cancel
8. Failure to offer the buyer this Cancellation Agreement is a
cause for action against a dealer’s license.
G. The Sales Contract
1. Must include a new disclosure next to the place for the buyer’s
signature notifying the buyer that a used vehicle (sold for under
$40,000) may be returned and the purchase cancelled within the
time frame specified in the Cancellation Option Agreement.
2. Must contain the new two day cooling off period notice set forth in
Section 2, “Cooling Off Period Notice” below.
3. All of the form company providers should have these new
disclosures inserted into their standard form conditional sales
contracts by July 1, 2006, when this new law becomes effective.
However, make sure to throw out all your old forms so they are not
used by mistake.
H. 2 Day Cooling Off Period Sign Posting
1. You must remove your current “No Cooling Off Period” signs at
the dealership. Then you will need to conspicuously display the
new two day cooling off period notice, not less than eight inches
high and ten inches wide, in each sales office and sales cubicle of
your established place of business where written terms of specific
sale or lease transactions are discussed with prospective purchasers
or lessees. You will also need to place these new notices in each
room of your established place of business where sale and lease
contracts are regularly executed. These notices must state the
following:
"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 2day 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 motorcycle or
an off-highway motor vehicle subject to identification
under California law. See the vehicle contract
cancellation option agreement for details."
Note: This same notice must also appear in the conditional sale
contract. By the time this law goes into effect, July 1, 2006, all of
the form company providers should have this notice in their preprinted contracts and related software. They should also be able to
provide you the separate, standardized, “Cancellation Option
Agreement” referred to in the last sentence of the No Cooling Off
Period Notice above. Make sure to offer this Cancellation Option
Agreement during every used vehicle sale. Also make sure to
throw out all of your old, out-dated, contracts and forms.
I. Trade in Vehicle Sold Before 2 Day Period Expires
1. Where the Cancellation Contract was purchased:
Where the buyer trades in a vehicle and also purchases the
Cancellation Agreement, the dealer is prohibited from selling
the trade in until the expiration of the two day period. If,
however, the trade in is sold by mistake, (the dealer must prove the
dealership has procedures in place to avoid this problem or else
face a possible lawsuit), then the dealer must pay the buyer the fair
market value of the trade in, or the value as stated in the contract,
whichever is higher.
2. Where the Cancellation Contract was not purchased:
If the buyer was not charged for the Cancellation Contract, the
dealer does not have to retain the trade in. However, the dealer
must return the trade in if it is available, or refund the higher
of the fair market value or the value stated in the contract.
J. Prior Return Exception – No 2 Day Cooling Off Period Required
The dealer does not have to offer a contract cancellation option to the
buyer if the buyer has returned a vehicle to the dealer under a contract
cancellation option within the prior 30 days.
K. Handling Returns During 2 Day Cooling Off Period
The vehicle is sold, for DMV paperwork purposes, as of the date the buyer
signs the contract and takes delivery of the vehicle, even if they later
return the vehicle during the 2 Day Cooling Off Period. Therefore, do not
void the Reg 51, Report of Sale, even if you are still in possession of the
Reg 51 when the vehicle is returned. The buyer’s operation of the vehicle
during the 2 Day Cooling Off Period has caused DMV fees to be due so
you must continue to process the paperwork according the to normal used
vehicle rollback procedure. If you are unfamiliar with the rollback
procedure, see Section 26.3 of these course materials to learn how to do a
rollback.
Also, do not allow the buyer to drive the vehicle on dealer plates after they
have purchased it. That is prohibited, and it also exposes you to greater
liability in case of an accident.
L. Buyer’s Responsibilities
1. Return the vehicle to the dealer within two business days
2. Return the original contract and all original titling and registration
documents provided
3. Not exceed 250 miles (or higher agreed upon number)
4. Vehicle must be free of all liens and encumbrances other than
those arranged by the dealer or buyer at time of purchase.
5. Must return vehicle in same condition, less normal wear and tear.
M. Brokers and Consignment Dealers
Yes, the Customer’s Bill of Rights law also applies to you. You must
provide the buyer with 2 Day Cooling Off Period option for vehicles
selling for less than $40,000, as well as comply with all the other
requirements of Bill of Rights.
N. Vehicle Inspection Forms
Note: The DMV is currently working on a proposed regulation requiring
written vehicle inspection reports to be completed by dealers before
delivery of the vehicle to the buyer. These will be written records of the
condition of the car at the time of sale/delivery. The dealer gets to decide
what is inspected and its condition at the time of sale/delivery. As part of
the sale, the dealer can also contract to inspect and re-try (test drive) the
vehicle if it is returned within the Two Day Cooling Off Period.
© 2006 Motorsports Market