Purchasing a car in California extends beyond selecting a vehicle and completing paperwork. Dealerships operate under state laws intended to promote fair business practices and shield consumers from fraudulent activities. These regulations influence dealer operations, advertising methods, and customer interactions.
Familiarity with these legal mandates benefits both dealership owners, who can avoid significant penalties through compliance, and car buyers, who can better understand their rights during a major purchase. This overview outlines how California regulates its car dealerships.
Licensing Requirements
Individuals and businesses planning to sell vehicles in California must obtain licenses through a state-managed system. This process aims to ensure that only qualified and accountable parties sell automobiles, protecting consumer interests.
Types of Mandatory Licenses
Selling vehicles in California requires an occupational license from the Department of Motor Vehicles (DMV). The main type is the vehicle dealer license, allowing sales of new or used vehicles. Classifications vary by vehicle type and sales model, including new vehicle dealer (authorized for specific new makes), used vehicle dealer, wholesale dealer (selling to other dealers), and autobroker. Securing the correct license type is necessary, as operating without it or beyond its scope can lead to penalties. General licensing requirements are detailed in the California Vehicle Code.
Renewal Steps
Dealer licenses in California are not permanent and must be renewed periodically, typically annually, to remain active. Before expiration, licensees must submit a renewal application, pay fees, and confirm ongoing compliance with all requirements, including a valid surety bond. The DMV sends renewal notices, but dealers are responsible for maintaining current contact information and renewing on time to avoid license invalidation and a halt to operations.
Bond Requirements
Obtaining and maintaining a California vehicle dealer license requires a dealer surety bond. This bond serves as a financial protection for consumers against losses from a dealership’s fraudulent or unethical conduct. Under California Vehicle Code Section 11710, most licensed dealers must file a $50,000 surety bond with the DMV.1Public.Law. California Vehicle Code Section 11710 (2025) The requirement is $10,000 for dealers selling only motorcycles and ATVs, or for wholesale-only dealers selling fewer than 25 vehicles annually. The bond, issued by an authorized California surety company, allows consumers to claim damages if a dealer violates license terms or causes financial harm. This bond must be maintained throughout the licensure period.
Advertising and Disclosure Rules
California imposes extensive advertising and disclosure rules on vehicle dealerships, primarily outlined in the Vehicle Code and Business and Professions Code, to ensure transparency and prevent consumer deception. All advertising must be truthful, non-misleading, and feature verifiable claims about vehicles, pricing, and features.
Advertisements must clearly identify the dealer by name and DMV license number. Advertised vehicles require identification by license plate or at least the last six VIN digits, plus year, make, and model. Ads for sold or unavailable vehicles must be removed within 48 hours. Dealers must honor advertised prices, regardless of buyer awareness of the ad, and all advertisements should state an offer expiration date.
The advertised total vehicle price must encompass all costs payable at sale, excluding government taxes and fees, registration fees, California tire fee, smog fees, and the dealer document processing charge.2Public.Law. California Vehicle Code Section 11713.1 (2025) This document processing fee cannot be misrepresented as a government fee. The Car Buyer’s Bill of Rights also mandates dealers provide an itemized price list for financial products like warranties and insurance, and disclose the buyer’s credit score with an explanation of its use, in a separate written document of at least 10-point type.3California DMV. Car Buyer’s Bill of Rights – FFVR 35
Strict rules govern disclosures about a vehicle’s history and condition. Prior use as a demonstrator, executive or service vehicle, rental, loaner, or lease vehicle must be clearly advertised. Former taxicabs, rental vehicles, publicly owned vehicles, and known salvage vehicles (including revived salvage) also require clear identification. Advertising a used vehicle as “certified” means the dealer must have performed a complete inspection and provided the report to the consumer. A vehicle cannot be advertised as “certified” if:
- The odometer does not reflect actual mileage.
- It was a “lemon law” buyback (unless specific disclosure and re-warranty conditions are met, as detailed elsewhere).
- It has certain unrepaired or poorly repaired damage (e.g., frame damage, significant collision, fire, or flood damage).
- Its title is branded (e.g., “salvage,” “junk,” “nonrepairable,” “flood”).
- It is sold “as is.”
“Bait and switch” tactics—advertising a vehicle or price without intending to sell as advertised, typically to attract customers for upselling—are illegal. Advertising a limited number of vehicles at a specific price requires disclosing the quantity available. Terms like “rebate” or “cash back” are allowed only for specific dollar amounts offered directly by the manufacturer or distributor to the buyer. Offers of “free” items or services tied to a vehicle purchase are also restricted.
These advertising rules apply equally to online platforms, demanding the same truthfulness and disclosure. Dealers need express consent for email or text advertising. Federal Trade Commission (FTC) regulations, such as the CARS Rule, also address deceptive auto retail practices by requiring clear communication on vehicle prices, availability, and financing, complementing California’s consumer protection laws.4Federal Trade Commission. FTC CARS Rule: Combating Auto Retail Scams – A Dealers Guide
Financing and Loan Regulations
Vehicle financing in California is subject to specific state regulations designed to ensure clarity and protect buyers. These rules govern how dealerships and lenders arrange loans, dictating finance contract content, charge disclosures, and procedures for various financing situations.
The Rees-Levering Automobile Sales Finance Act (California Civil Code section 2981) is central to California’s auto financing rules. It applies to conditional sale contracts, common for installment vehicle purchases where the seller or lender retains a security interest until payment is complete. This Act requires specific disclosures in these written contracts, which must meet type-size requirements. Contracts must detail all agreements and list items in a set order, including the vehicle’s cash price, down payment (cash vs. trade-in), dealer-arranged insurance costs, official fees, and the unpaid balance.
The Act also mandates itemizing the amount financed, covering the vehicle’s value, accessory charges, and licensing/registration fees. Contracts must clearly state the finance charge (cost of credit in dollars) and the Annual Percentage Rate (APR), the annual loan cost as a percentage.5Consumer Financial Protection Bureau. § 1026.18 Content of Disclosures (Regulation Z) These disclosures help consumers understand the total loan cost and compare offers. The Rees-Levering Act also addresses loan pre-payment, generally permitting early payoff without penalty and requiring refunds of unearned finance charges.
Federal law, particularly the Truth in Lending Act (TILA) implemented by Regulation Z, also governs auto financing. TILA compels lenders, including dealers arranging credit, to provide clear disclosures on credit terms and costs. Consumers must receive information on the APR, finance charge, amount financed, and total payments before committing to a loan. These federal rules supplement California’s laws.
California law targets certain financing practices to prevent abuse, such as “yo-yo” financing or conditional delivery. This involves a dealer letting a buyer take a vehicle “pending credit approval,” then later claiming financing changed or failed, pressuring the buyer into worse terms or an unfavorable unwinding of the sale. If a contract allows the seller to rescind if financing isn’t assigned within a set period (e.g., 10 days) and the seller does so, the buyer must be restored to their original position, including return of any down payment or trade-in.
The Car Buyer’s Bill of Rights offers further financing protections, especially for used car purchases. For used cars under $40,000, dealers must offer a two-day contract cancellation option for a fee.6FindLaw. California Vehicle Code – VEH § 11713.21 – Contract Cancellation Option Requirements The maximum fee varies with the vehicle’s price:
- $75 for vehicles $5,000 or less
- $150 for vehicles $5,001 – $10,000
- $250 for vehicles $10,001 – $30,000
- 1% of purchase price for vehicles $30,001 – $39,999.99
To cancel, the buyer returns the vehicle in nearly the same condition. The dealer issues a full refund, less the option fee and any limited restocking fee. This allows buyers time to reconsider the purchase or financing.
California law also governs vehicle repossession if a buyer defaults on a loan. While lenders can repossess for breached agreements (like missed payments), the Rees-Levering Act offers protections, such as the right to reinstate the contract under certain conditions by paying overdue amounts and costs. Strict rules apply to notices before and after selling a repossessed vehicle, and to handling any sales surplus or deficiency. Additionally, the FTC’s Holder Rule allows consumers to assert legal rights against the dealership (for issues like breach of contract or warranty) against the finance company holding the loan.7Federal Trade Commission. Holder in Due Course Rule
Lemon Law Protections
California’s Lemon Law, chiefly the Song-Beverly Consumer Warranty Act supplemented by the Tanner Consumer Protection Act, offers recourse for buyers of new vehicles with persistent, unfixable defects. These laws enable consumers to obtain a refund or replacement if a manufacturer cannot repair a substantial warranty defect after a reasonable number of attempts.
California’s Lemon Law covers new cars, trucks, vans, SUVs, and motorhome chassis components. It includes dealer-owned vehicles, demonstrators, and those for personal, family, or household use. Some business vehicles (if the business has five or fewer registered in California and gross vehicle weight is under 10,000 pounds) also qualify. Used vehicles may be covered if under the original manufacturer’s new vehicle warranty. The law generally excludes vehicles not registered under the Vehicle Code (e.g., off-road vehicles) and defects from owner abuse. The California Supreme Court’s decision in Rodriguez v. FCA US LLC (November 2024) clarified that the Song-Beverly Act typically does not cover most used vehicles, though exceptions exist for categories like certified pre-owned or demonstrator vehicles sold with a manufacturer’s warranty covering the defect.
The Lemon Law hinges on a “reasonable number” of repair attempts. The Tanner Consumer Protection Act creates a “Lemon Law Presumption,” suggesting a vehicle may be a lemon if, within 18 months or 18,000 miles (whichever is first):
- The same issue is repaired four or more times.
- The vehicle is out of service for repairs for over 30 cumulative days.
- A defect likely to cause serious injury or death is repaired two or more times, after the consumer directly notified the manufacturer.
This is a presumption; a vehicle might qualify as a lemon even if these conditions aren’t met, or not qualify despite meeting them.8FindLaw. California Civil Code – CIV § 1793.22 – Tanner Consumer Protection Act (Lemon Law Presumption) The main standard is whether the manufacturer had a reasonable repair opportunity. Usually, at least two repair attempts are needed for a claim, though exceptions exist.
If a vehicle is deemed a lemon, the consumer can choose a replacement vehicle or a repurchase (refund) from the manufacturer; the manufacturer cannot compel a replacement if a refund is preferred. A repurchase typically covers the price paid (including transportation, factory options, finance charges, sales tax, and registration fees), minus a reasonable offset for use before the defect was reported. Incidental costs like towing and rentals may also be recovered. A replacement must be a new, substantially identical vehicle, with the manufacturer covering associated taxes and fees.
Consumers may opt for arbitration, an alternative dispute resolution process, before legal action. Some manufacturers provide state-certified arbitration. If a manufacturer has a qualified, certified dispute resolution process, consumers might need to use it before asserting the Lemon Law presumption in court. In arbitration, a neutral party decides the case. The consumer can accept (binding the manufacturer) or reject (retaining court rights) this decision. The process, often taking about 40 days, includes notification, application, evidence presentation, and a hearing. Legislative updates like AB 1755 (effective in phases from early 2025) introduced procedures such as mandatory mediation in some cases, new pre-litigation notice rules for civil penalties, and standardized settlement processes to streamline disputes.
If a manufacturer reacquires a vehicle under the Lemon Law for resale in California, specific disclosures are mandatory.9California DMV. Lemon Law Buyback Vehicles – FFVR 17 The manufacturer must retitle it, have the DMV note “Lemon Law Buyback” on the ownership certificate, and affix a decal to the vehicle. Subsequent buyers must receive written notice of its history, including its buyback status and the original owner’s reported issues, ensuring transparency. For breach of warranty claims under the Song-Beverly Act, the statute of limitations is generally four years from defect discovery. AB 1755 modified this, typically requiring lawsuits within one year of express warranty expiration (but no more than six years from original delivery), with some tolling provisions.
Warranty Requirements
California’s vehicle warranty framework involves state and federal laws protecting consumers. These laws define warranty types, disclosure duties, and manufacturer/dealer repair obligations. The Song-Beverly Consumer Warranty Act is a key California law in this area.
The Song-Beverly Act mandates an implied warranty of merchantability for every retail sale of new consumer goods, including cars. This means the vehicle must be fit for ordinary automotive use. For new vehicles, this warranty lasts as long as any express written warranty (at least 60 days, up to one year post-sale). Used vehicles from dealers also have this implied warranty, though typically shorter (e.g., 30 days/1,000 miles, or 60-90 days/up to 3,000 miles if an express warranty is also given). Dealers can sell used vehicles “as is,” disclaiming implied warranties, if clearly disclosed via the federally required Buyer’s Guide. Selling a service contract within 90 days of an “as is” sale may negate the disclaimer, applying an implied warranty for the service contract’s duration.
Express warranties are specific written promises from the manufacturer or dealer about the vehicle’s condition or performance. They commit to repairing covered defects within a set period, not guarantee a problem-free vehicle. Manufacturers must provide reasonably accessible repair facilities. Warranty documents detail coverage and duration (e.g., 3 years/36,000 miles). A Song-Beverly Act amendment (July 1, 2023) states that for products delivered post-sale, express warranties begin on the delivery date.
Dealerships sell vehicle service contracts (often called extended warranties), distinct from manufacturer warranties under the Song-Beverly Act. These are separate, consumer-purchased agreements covering certain repairs after the original warranty ends or for non-covered items. Regulated under California law (e.g., the Insurance Code), service contract terms—covered parts/labor, deductibles, repair locations—must be clearly disclosed. Buyers generally can cancel service contracts for a full refund within 60 days (new vehicles) or 30 days (used vehicles), with prorated refunds available later. The Car Buyer’s Bill of Rights requires dealers to provide an itemized price list for service contracts and disclose their impact on monthly payments.
The federal Magnuson-Moss Warranty Act complements state laws like Song-Beverly. It governs consumer product warranties, mandating clear, pre-purchase written information and influencing consumer remedies if a warrantor defaults.
Enforcement and Penalties
California’s car dealership regulations are enforced through actions and penalties aimed at ensuring compliance and consumer protection. Various state bodies oversee dealership operations. The Department of Motor Vehicles (DMV), via its Occupational Licensing branch, investigates dealer complaints and can take disciplinary actions, from warnings and probation to suspending or revoking a dealer’s essential occupational license.
DMV investigations uncovering unlawful practices like misleading advertising, odometer fraud, or disclosure failures can lead to administrative proceedings. The California Vehicle Code details grounds for license suspension or revocation, such as false application statements, certain criminal convictions, or violations of sales and financing laws. Penalties vary based on the violation’s nature, frequency, and consumer harm.
Other state and local agencies, including the California Attorney General’s Consumer Protection Section, also enforce these laws. The Attorney General can prosecute dealerships under broader consumer protection statutes like the Unfair Competition Law (Business and Professions Code Section 17200) and the False Advertising Law (Business and Professions Code Section 17500), which bar deceptive or fraudulent practices.10FindLaw. California Business and Professions Code – BPC § 17200 – Unfair Competition Law Actions can result in civil penalties (e.g., up to $2,500 per violation under the Unfair Competition Law), injunctions, and consumer restitution.
Certain violations can also lead to criminal charges. Odometer tampering, for instance, is a felony under federal law (49 U.S. Code section 32703) and California state law (Vehicle Code Section 28051), carrying fines and imprisonment. False statements on credit applications or grand theft via fraudulent sales can also be criminally prosecuted, with penalties including fines, restitution, and jail time. Consumers can report suspected unlawful practices to the DMV, Attorney General’s Office, or local district attorneys to initiate investigations.