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New Laws and Regulations 2023

Robert Ebin /

I don’t know about you all, but for me, it sure felt like 2022 flew by and that I was just writing the 2022 new laws article. Like the past few years, many new laws going into effect in California in 2023 center on employment.  Although a discussion of these laws is beyond the scope of this article, KPA has provided extensive discussion about these laws here.

Unlike the past few pandemic years, there are a few pertinent new laws/regulations for 2023 that will affect dealer operations/sales and finance. Provided below are summaries of new laws and regulations that may impact dealer operations in 2023. This list is meant for instructional use only, and KPA makes no guarantees that this list is exhaustive of all laws for the upcoming 2023 year. Please also note that the list DOES NOT cover labor and employment (including wage and hour) laws, nor does it cover environmental, health, or safety laws. While this publication should serve as a helpful tool, dealers should be sure to work with their legal counsel to ensure the new laws are properly understood and implemented. As always, KPA hotline clients may call with any questions.

REMINDER-Amendments to Safeguards Rule

Summary: Various amendments to the FTC Safeguards Rule have a new delayed effective date of June 9, 2023.

Degree of Impact: High.

Effective: January 10, 2022, with some of the more pertinent requirements for dealers having delayed effective date of June 9, 2023.

Description: On October 27, 2021, the Federal Trade Commission (FTC), citing the need to better protect the public from breaches and cyberattacks that lead to identity theft and financial loss, announced updates to the Safeguards Rule.  These updates came after a years-long process of comments and proposed rulemaking.

As you may recall, the Gramm-Leach-Bliley Act (GLBA), enacted in 1999, requires that financial institutions (which includes dealerships that extend credit and lease terms) protect the security and confidentiality of personal information collected from customers.  Pursuant to the directive in the GLBA, the FTC created the Safeguards Rule, which became effective in 2003. The Safeguards Rule requires financial institutions to develop and implement an appropriate written information security program designed to protect customer information.  The requirements of the program include developing, implementing, and maintaining procedures to safeguard against risk to the security, confidentiality, and integrity of non-public customer information.

Recently, the FTC announced that some of the more onerous provisions (at least from a dealer’s perspective) of the amended Rule would now have a delayed effective date of June 9, 2023 (they were originally scheduled to go into effect on December 9, 2022).

We wrote a couple of articles about the amendments to the Safeguards Rule, and so rather than rehashing it, please click here access to the full article on the amendments and here for the article on the delayed effective date change.

Sale of Guaranteed Asset Protection (GAP)

Summary: Provides new requirements and restrictions on the sale of GAP.

Degree of Impact: High.

Effective: January 1, 2023

Description: At a high level, this new law prevents the sale of GAP to customers in certain instances and caps the price of GAP in other instances.

Specifically, the new law specifies content requirements for GAP waivers.  The GAP waiver must be on a document separate from the conditional sale contract to be separately signed by the buyer.  This separate document must state

  • 1) that the GAP waiver is optional;
  • 2) the name and mailing address of the GAP administrator; and
  • 3) the following notice with the heading in at least 12-point bold type and text in at least 10-point bold type:

STOP AND READ:

YOU CANNOT BE REQUIRED TO BUY A GAP WAIVER OR ANY OTHER OPTIONAL ADD-ON PRODUCTS OR SERVICES. IT IS OPTIONAL.

NO ONE CAN MAKE YOU BUY A GAP WAIVER OR ANY OTHER OPTIONAL ADD-ON PRODUCTS OR SERVICES TO GET FINANCING, TO GET CERTAIN FINANCING TERMS, OR TO GET CERTAIN TERMS FOR THE SALE OF A VEHICLE.

IT IS UNLAWFUL TO REQUIRE OR ATTEMPT TO REQUIRE THE PURCHASE OF THIS GAP WAIVER OR ANY OTHER OPTIONAL ADD-ON PRODUCTS OR SERVICES.

The new law also does the following:

  • Prohibits conditioning the extension of credit, the term of credit, or the terms of a conditional sale contract upon the purchase of a GAP waiver. In other words (and as you should already know), a dealer cannot require a customer to purchase GAP, which is an optional product, in order to get a deal financed.
  • Allows the buyer to cancel the GAP waiver at any time without any sort of penalty. Note that this does not mean the refund is not prorated if GAP is cancelled, it simply means that the buyer cannot be made to pay a cancellation fee, termination fee, penalty, or other similar fee if they decide to cancel the GAP waiver.
  • Restricts the price of a GAP waiver to 4% or less of the financed amount under a conditional sale contract.
  • Prohibits the sale of GAP if any of the following applies:
    • The amount financed exceeds a maximum dollar amount covered by the GAP waiver.
    • The conditional sale contract’s loan-to-value ratio exceeds the maximum loan to value ratio covered by the GAP waiver. The only exception to this would be where the terms of the GAP waiver conspicuously disclose the maximum loan-to-value ratio limitation, the buyer is informed in writing that the amount financed exceeds this limitation (i.e., that the GAP waiver will not cover the total amount owed on the conditional sale contract), and that this writing is signed by the buyer.
    • The amount financed is less than 70% of the MSRP for a new vehicle or the average retail value for a used vehicle (as determined by a nationally recognized pricing guide such as Kelley Blue Book, Edmunds, the Black Book, etc.). In other words, if a customer puts more than 30% down, GAP cannot be sold to that customer.
  • Governs the termination of a GAP waiver. At a high level, the GAP waiver would be considered terminated (and a refund due) if the consumer cancels it, the vehicle is repossessed, or the loan is repaid in full.  The customer must receive a full refund if within the first 30 days of the GAP waiver’s term, and a prorated amount thereafter.  Also, the lender must either return the money (or direct the GAP provider to do so) within 60 days of the GAP waiver’s cancellation (note that lenders can also refund the remaining auto loan balance).

Dealers should be contacting their GAP vendors as soon as possible to ensure that they have the proper documentation for GAP that have the required disclosures going forward.  Dealers should also be installing revised policies/procedures for the sale of GAP to their customers based on the aforementioned prohibitions/restrictions.

Citations: AB 2311 (Maienschein); Civil Code §§ 2981, 2982, 2982.2, 2982.12, 2983.1

Summary: Effectively restricts dealerships from selling GAP to active-duty military members and reservists.

Degree of Impact: High.

Effective: January 1, 2023

Description: Generally, this new law provides a variety of different purported protections for service members. Among the most important provisions of this new law as it concerns dealers is the following:

A security interest in a motor vehicle is void, and cannot be perfected, if it would cause a loan procured by a covered member in the course of purchasing the motor vehicle to be exempt from Section 987 of Title 10 of the United States Code, and the loan also funds the purchase of a credit insurance product or credit-related ancillary product.

Although the terms “credit insurance product” and “credit-related ancillary product” are not defined in this new law, most have interpreted the language of SB 1311 to mean that the security interest in a vehicle is void if you include GAP (or other credit-related products) in the sale of that vehicle to a covered service member.

Accordingly, dealers should refrain from selling GAP, or attempting to sell GAP to any active-duty military member or reservist.  Dealers will again need to resume screening finance customers for their covered borrower status prior to presenting F&I products to that customer. 

Citations: SB 1311 (Eggman); Business & Professions Code § 17206.2; Code of Civil Procedure § 116.540; Military and Veterans Code § 401, 409, 409.3, 800, 802, 804.

F&I Documents

Summary: Revisions to the Notice to Co-Signer and elimination of marriage exemption to the notice requirement.

Degree of Impact: High.

Effective: January 1, 2023

Description: Current law required that the co-signer notice be in both English and Spanish. The new law now requires that the notice be in English and “the languages set forth in subdivision (b) of Section 1632” of the Civil Code.  Some of you may recall that these languages are Spanish, Chinese, Vietnamese, Korean, and Tagalog. The new law now specifies that this notice be on a separate sheet that meets the following: 1) it shall not contain any other text except as is necessary to identify the creditor and consumer credit contract or lessor and lease to which the statement refers; 2) it must provide for the date and the person’s acknowledgment of receipt; 3) it must be attached to and precede the consumer credit contract or lease.  Effectively, what this means for dealers is that the current Notice to Co-Signer form is now obsolete.  It is our understanding that forms providers have already began creating new notices, and dealers should reach out to their forms providers to obtain these new versions accordingly.

Importantly, and something that may be overlooked at first glance, this new law now requires that all co-signers must receive the notice.  As some may recall, the old law carved out an exemption where co-signers were married. Although it has always been a best practice, and one that KPA/AAS always recommended, dealers must now make sure policies and procedures are in place to provide all co-signers with the required notice.

Citations: SB 633 (Limon); Civil Code §§ 1799.91, 1799.92, 1799.96.

Summary: Creates various new protections for consumers who file for bankruptcy, including new rights related to motor vehicle contracts and default.

Degree of Impact: Medium to High.

Effective: January 1, 2023

Description: If you ever managed to look at the back of the LAW-553-CA Retail Installment Sale Contact, it currently shows that one of the ways a customer can default is by filing for bankruptcy. This new law would prohibit the act of filing for bankruptcy as the sole reason for default on a contract.  Accordingly, if a customer continues to make their monthly payments on the contract and does not otherwise default, the mere act of declaring bankruptcy cannot put that customer into default on the contract. Dealers should be on the lookout for changes to the 553 coming out shortly, and in the interim, should reach out to their lenders to determine if the lenders have specific instructions in the meantime.

Citations: SB 1099 (Wieckowski); Civil Code § 2983.3; Code of Civil Procedure § 703.140, 704.010, 704.050, 704.113; Financial Code § 22329

Summary: Creates a new notice and disclosure requirement for partial driving automation features on vehicles.

Degree of Impact: Medium to High.

Effective: January 1, 2023

Description: The car world is now seeing forms of driving automation features on more and more new vehicle models. SB 1398 will require manufacturers and dealers to provide consumers with a notice that describes the functions and limitations of partial driving automation features (or software updates/vehicle upgrades that adds such features) on vehicles. The good news is that the law also requires manufacturers to provide dealers with the disclosures that are necessary to comply with this new law.  Specifically, the law requires manufacturers to provide “specific language recommended for the notice” to dealers. If not done already, dealers should get in touch with their factory reps to ensure that they will be receiving paperwork to comply with the requirements of this new law.  Dealers must present this notice to customers prior to the sale of the vehicle.  Dealers should also put in place procedures to have the customers initial the notice and retain a copy of the initialed notice in the deal jacket to evidence the dealer’s compliance with this new law.

Additionally, SB 1398 has a provision that prevents dealers (and manufacturers) from advertising or representing in a way that would lead a reasonable consumer to believe that a vehicle contains autonomous features when, in fact, it does not.  This new law also specifically states that such a violation “shall be considered a misleading advertisement” for the purposes of Vehicle Code section 11713. Although dealers should ensure that their advertisements are always truthful and never misleading, SB 1398 should provide dealers with extra incentive to double and triple-check their advertising, especially when it comes to vehicles with driving automation features.

Citations: SB 1398 (Gonzalez); Vehicle Code § 24011.5.

Consumer Warranties

Summary: Requires that express warranties start no earlier than the date of delivery of the vehicle.

Degree of Impact: Low.

Effective: July 1, 2023

Description: The current law, the Song-Beverly Consumer Warranty Act, provides that every sale of consumer goods sold at retail must be accompanied by the manufacturer’s and the seller’s implied warranty that the goods are merchantable, unless disclaimed in a prescribed manner. Existing law does not generally limit the ability of a manufacturer, distributor, or retail seller to make an express warranty, except where specified.

This new law would now require an express warranty made by a manufacturer, distributor, or retail seller to start no earlier than the date of delivery of the good. For dealers, this should generally not be an issue for the typical new vehicle sale because the vehicle is “punched” or “RDR’d” at the time the vehicle is delivered to the customer.  Where there could be an issue is if a vehicle is reported as “sold” to the factory before being delivered.  Accordingly, and as AAS/KPA has always advised, dealers should refrain from reporting vehicles as sold to the factory until delivery is taken by the customer. Similarly, for those dealers who provide their own warranties on vehicles, those dealer warranties should also commence no earlier than the date of delivery of the vehicle.

Citations: AB 2912 (Berman); Civil Code §§ 1793, 1793.01

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