What’s The Deal With California’s Regulatory Environment?
There’s nowhere quite like California. As we wrote about last month, the nation’s most populous and economically active state is also home to a dazzlingly complex legal system. Lawsuits lead to court decisions; court decisions lead to new laws; and new laws lead to new regulatory compliance challenges.
To understand the extent and rate at which California’s businesses must contend with constantly changing regulations, take a look at the state’s automotive industry. From equity in trade-in vehicles to recalls to class action lawsuit waivers, California auto dealers have an heap of liabilities on their hands. There’s a lot of possible violations, and the risk of exposure seems to increase every day.
We recently teamed up with Auto Advisory Services to deliver a webinar about these issues. Over the course of an hour, AAS President Jonathan Morrison and Vice President of Consulting Shane McCallan walked us through the latest legal changes and why so many organizations struggle to keep their dealership management systems updated.
Missed the webinar? We’ll catch you up on a few of the latest regulatory challenges for California auto dealers, starting with the so-called “blank box” and the issue of selling used vehicles that are subject to recall.
What is the Blank Box, and Why Does It Matter?
Form 553-CA, the retail installment sale contract, changed in July to offer more flexibility for dealerships and finance companies. But with greater flexibility comes greater risk. And one perhaps surprising area of risk is the blank box, which dealers use for individualized agreements and which generally serves no purpose on an installment sale contract. An empty space on a contract may seem like a non-issue, but a dealership could court serious risk by including it.
Why? California’s single document rule prohibits dealers from allowing a customer to sign a contract with blank spaces to be filled in later. You’re better off, says Jonathan, if you don’t include it. If you do include it, be careful not to leave it completely blank—incorporate some default language such as “no additional terms to be entered in this box.” No matter the case, make sure it’s not left blank, as Jonathan imagines that the area may be ripe for legal challenges, however trivial they may seem.
An empty space on a contract may seem like a non-issue, but a dealership could court serious risk by including it.
Policies Regarding Used Vehicles That Are Subject to Recall
Federal law prohibits the sale of any new vehicle that is subject to recall, but the nature of used vehicles is much less clear. While a manufacturer may issue a recall due to a critical safety issue like inoperative airbags, a recall could just as well be for a mistyped hotline number in the owner’s manual. Dealers have to develop their own policies regarding the sale of used vehicles subject to recall, and every policy depends on the level of litigation risk with which the dealer is comfortable.
If a dealership does decide to sell a used vehicle subject to recall, AAS strongly recommends that the dealership disclose that fact to the customer. At intake, at the point when a customer decides to trade in a vehicle, the dealership should run the vehicle’s VIN through the NHTSA’s lookup portal. Secondly, because recalls may be announced in the interim period between intake and resale, dealerships check a used vehicle’s VINs once again on the day a customer decides to buy that vehicle.
While a manufacturer may issue a recall due to a critical safety issue like inoperative airbags, a recall could just as well be for a mistyped hotline number in the owner’s manual.
What Auto Dealers Can Do to Keep Up
Compli provides a way for dealers to manage regulatory changes across multiple locations in a way that is scalable, accurate and defensible. Our auto dealer workforce compliance management system integrates policies, guidelines and trainings, and automates delivery of information based on employees’ roles.
We partner with subject matter experts such as AAS to import guidelines such the new 553 form with instructions on how to fill out all elements of the form and room to capture attestations from key employees. Our system gives organizations access to up-to-the-minute federal and state laws, as well as dealership-specific policies. For example, once your organization has formulated its own practice on used vehicles that are subject to recall, you can upload it as a formal policy within our system.
We’re quite smart, but we’re not your lawyers. So you should always check with them. This blog post is for informational purposes and is not intended to provide legal advice.