A new bill of rights for California car buyers provides grace periods for used-car purchases, caps dealer compensation on loans and features other provisions that are some of the strongest consumer protections in the country, according to state legislators and consumer advocates.
The law, which went into effect July 1, applies to motor vehicles bought in California from a dealer for personal, family or household use.
One of the most compelling parts of the law gives used-car buyers a two-day return option -- sort of a cooling-off period that allows the buyer to drive the vehicle for a while or have it checked out by a mechanic.
If the buyer is dissatisfied with the vehicle for any reason -- even the color -- he or she can return it as long as the vehicle has been driven fewer than 250 miles and is returned in the same condition.
But here's the catch: To get the return option, buyers have to be willing to pay a fee based on the price of the vehicle.
If the used vehicle is priced at $30,000, for example, the option fee is $250. If you decide to keep the car, you are out the $250.
If you decide you don't want the car, you can return it and get your purchase money back, but the dealer can keep the option fee and charge you a restocking fee of up to $500.
If you are charged both fees, the option fee must be deducted from the restocking fee. So in this case, the most a dealer could keep would be $500.
Fees are based on a sliding scale according to the value of the car or truck. The return-option charge for a vehicle priced at $5,000 or less can be no more than $75 and a restocking fee can be a maximum of $175.
"As long as you are willing to pay the restocking fee, you can get out of a bad deal," says Rosemary Shahan, president of Consumers for Auto Reliability and Safety, based in Sacramento. "Although it levels the playing field for car buyers," the dealerships are making money on the return options. And she questions how a $500 restocking fee can be justified.
Brian Maas of the California Motor Car Dealers Assn., a lobbying group that represents new-car dealers statewide, says the restocking fee is necessary. If a buyer decides to return the vehicle, the dealership has to clean the vehicle, conduct another safety check and determine if any parts of the vehicle were changed out during the cooling-off period.
"We supported the bill because we believe it will lend more transparency to the car-buying process," he says. "It's good for the dealer and the consumer because it prevents misunderstanding about the deal that's negotiated."
While dealers are required to offer customers the return option, they can waive the return fees at their discretion, says Maas.
The big question is how many consumers will want to fork over that kind of money to get the return protection.
"We want people to know that they can try to negotiate with dealers regarding return option and restocking fees," says Shahan, who supports the legislation but worries that high fees could be a barrier for some consumers.
The grace-period option does not apply to new cars. Used vehicles priced over $40,000 are also not eligible. That $40,000 cap was added to prevent people from buying a high-priced car for joyriding and then returning it. Purchases of motorcycles, off-road vehicles and RVs are also ineligible, under the legislation.
Initially, car dealers in the state opposed the bill. But after much negotiation, Assemblywoman Cindy Montanez (D-San Fernando) authored a compromise bill that finally earned support from dealers, including the CMCDA.
Other provisions in the law include buyer disclosures that auto dealers must give in writing to consumers. Dealers have to show you a copy of your credit score if you are getting a loan. They also have to show buyers the price of the vehicle without extra options and add-ons such as anti-theft devices, extended service contracts and other expensive extras that the customer may not want.
The law also puts a limit on interest-rate markups. The new law prohibits dealers from receiving more than 2.5% from lenders for arranging financing on 60-month new and used car loans or 2% if the loan is longer.
The law also prohibits dealers from advertising a vehicle as "certified" if the vehicle odometer does not indicate the actual mileage or the vehicle was branded as a lemon-law buyback, was salvaged or was damaged by flood or fire, says Mike Miller, spokesman for the California Department of Motor Vehicles.
The DMV is responsible for enforcing the new law, dubbed the Car Buyer's Bill of Rights, says Miller. Dealers who violate the law could face a fine or suspension of their license, depending on the violation.
Jeanne Wright can be reached at email@example.com.