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Effective July 1, 2006, California law requires dealers to offer a 2-day contract cancellation
option on used vehicles with a purchase price of less than $40,000.00. 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.
The law applies to all conditional sales contracts, which are contracts which are EITHER:
A contract for the sale of a motor vehicle under which possession is delivered to the buyer and either (A) the buyer does
not get title until the payment of all or a part of the price, or the performance of any other condition, or (B) a security
interest is given to the seller as security
for the payment of part or all of the price, or for the performance of any other condition (the registration reflects the
seller or financial institution as a lienholder); OR
A lease, but only if the lease provides for payments by which the bailee or lessee agrees to pay as compensation for use a
sum substantially equivalent to or in excess of the aggregate value of the vehicle and lessee will become, or for no other
or for a nominal consideration has the option of becoming, the owner of the vehicle upon full compliance with the terms of
the lease agreement. (This would rule out leases with large residual payments).
The new law also requires the sales contracts to include the amount charged for a theft deterrent device, the amount charged
for a surface protection product, and the amount charged for a used vehicle contract cancellation option agreement, within
the listing of "itemization of the amount financed." The new law further requires the sales
contract to disclose, the charge for a service contract, an insurance product, a debt cancellation agreement, a theft deterrent
device, a surface protection product, and a vehicle contract cancellation option agreement. The
new law prohibits a seller, in consideration of an
assignment of a conditional sale contract, from receiving or accepting from the assignee (the financial institution) any
payment or credit based upon any amount collected or received under the contract, or to be collected or received, in excess
of specified amounts. This limits the “dealer spread” to 2 1⁄2% for 60-month finance contracts and 2% for
contracts longer than 60 months. This new law expands existing provisions regarding advertising
to prohibit a dealer from advertising or selling a vehicle as "certified," or using similar
descriptive terms to imply that the vehicle meets the terms of a used vehicle certification program, unless that vehicle meets
specified criteria, and makes violations of this provision actionable under the Consumers Legal Remedies Act and the Unfair
Competition Law, and as false advertising. The new law prohibits a dealer from adding charges
to a sale or lease contract without the buyer's consent or inflating a payment or extending the maturity of a
contract for the purpose of disguising the actual charges for goods or services. The new
law requires a dealer that obtains a consumer credit score from a consumer credit reporting agency for use in connection with
an application for credit for the purchase or lease of a motor vehicle for non-commercial use to provide specific information
to the consumer prior to the sale or lease of that vehicle. The new law prohibits a dealer
from selling a used vehicle, having a purchase price of less than $40,000, at retail, to an individual for non-commercial
use without first offering the buyer a contract cancellation option agreement that contains specified information.
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