During these hard times, I always want to start my articles first by saying that we at KPA are here for our clients. I also want to share a bit of good news (if you have not heard already!). On April 17, 2020, the Cybersecurity and Infrastructure Security Agency (CISA) updated its Memorandum on guidance on essential critical infrastructure workforce to include “workers critical to the manufacturing, distribution, sales, rental, leasing, repair, and maintenance of vehicles . . .” as essential workers. This is great news for dealers who have had to follow local orders that utilize CISA guidelines in determining what businesses are essential. But before returning to business as usual, dealers must be aware that some local orders are more stringent than the CISA guidelines, and dealers should always check with competent counsel before reopening their shop.
With that said, and in part because of the updated CISA Memorandum, many are circulating guidance and checklists on how to reopen dealerships. Others are providing information on how to create new sales department policies in this forever changed post-COVID-19 landscape, including online sales and remote deliveries policies. Amidst this flurry of information about how to sell, sanitize, social distance, and the like, we don’t want to forget what some may regard as more “minor” subjects in comparison. In light of that, this article is dedicated to two of the more popular calls we have been receiving on the Hotline of late: autobrokers and salesperson licenses. As they say, “the devil is in the details,” and this is a great time to brush up on these topics.
Possibly as a sign of the times, dealers appear to be working with autobrokers more than usual to stimulate sales. Now, more than ever, dealers must take precautions and be aware of potential scams involving autobrokers. As such, here are some useful FAQs on the subject.
Must an autobroker have a license?
Yes. An autobroker needs to have a valid California dealer license with an autobroker “endorsement.” You should always confirm that a broker has a valid, unexpired dealer license with the proper endorsement before entering into any agreement with the broker. You can search the DMV’s Occupation License Status Information System to see if the broker’s license is valid. If you cannot confirm that the broker has a valid California dealer license with an autobroker endorsement, do not go through with the transaction.
Can we pay a fee to an out-of-state broker?
Likely, no. A California dealer can only legally pay a broker fee to an autobroker having a California dealer license with an autobroker endorsement. §Vehicle Code section 11735(a) specifies that “No dealer shall engage in brokering a retail sales transaction without first paying the fee required by subdivision (d) of Section 9262 and obtaining from the department an autobroker’s endorsement to the dealer’s license.” Accordingly, unless the out-of-state broker also has a California dealer license with the proper endorsement, this is a no-go.
Does the selling dealer have to disclose anything to the purchaser?
Yes. Legally, you are required to disclose both that you paid a broker fee for the transaction and the name of the broker. You can find space for this disclosure on the LAW 553-CA-ARB Retail Installment Sale Contract. It is important to note that the law does not require you to disclose the amount of the fee paid to the broker.
Does the broker law apply to used vehicle transactions?
Yes. Brokering is defined in the Vehicle Code as “an arrangement under which a dealer … provides…the services of arranging, negotiating, aiding, assisting, or effectuating the purchase of a new or used motor vehicle . . .” [Vehicle Code § 232.5].
Does the broker law apply to lease deals?
No. Technically, all the statutes covering broker deals are written in terms of sale transactions. However, this is not to say that lease deals cannot be “brokered.”
Can a broker take the selling dealer’s contract and vehicle off-site to the consumer for signature and delivery?
No law prohibits this, [see Vehicle Code 11735(d)], but it is generally not a good idea. Remember, in this situation, the autobroker is likely acting as your agent during critical moments of the transaction process (i.e., contract execution, delivery, and perhaps payment). Thus, you can be held liable for any misconduct or misrepresentation made by the broker. Similarly, many franchise agreements require the selling dealer to ensure a vehicle is delivered by a salesman specifically trained on the qualities and features of the vehicles within the franchise. Common sense also dictates that it is unwise to trust a third-party autobroker with your contract and collateral off-site. Before allowing an autobroker such liberties, we highly recommend running this by upper management for approval.
What are some other best practices regarding broker deals?
- Obtain a signed brokering agreement that was executed between the broker and customer. A broker is required to provide the selling dealer with a copy of the brokering agreement per Vehicle Code section 11736.
- Obtain payment directly from the purchaser, and not from the broker.
- Ensure you verify the purchaser’s identity prior to delivering the vehicle. Remember, you must still follow your Red Flags policy and must run an OFAC check.
For a more detailed discussion about best practices, please refer to our Take Precautionary Measures When Doing Business With Autobrokers newsletter article.
Interestingly, but maybe not surprisingly, there has been quite an uptick of hotline calls regarding salesperson licenses. This increase likely has something to do with dealers shifting more to online sales and remote deliveries, as well as dealers getting creative with staffing. Here are some helpful FAQs on the subject:
Does a salesperson need to be physically present at the dealership to sell a vehicle?
No. There is no specific requirement that the salesperson be physically at the dealership throughout the entirety of the sales process. Salespersons can text, call, FaceTime, email, etc. customers from the comfort of their homes. You must still have a copy of the valid salesperson’s license displayed at the dealership. Note that this does not mean a salesperson can conduct a face-to-face sale with a customer off-site. [See Vehicle Code § 11714(b)]. This is especially true if the sale were to be conducted at the customer’s residence, as that would also potentially trigger a 3-day right to rescind the contract for the customer. [16 CFR § 429.0(a)]
My salesperson license is about to expire; what should I do?
Even though the DMV announced that all Occupation Licensing offices are closed temporarily due to the COVID-19 crisis, and in-person appointments are not available, you can currently renew your license through the mail. Check the DMV’s OLIN 2020-02 publication for more information.
I have a new “salesperson” from another state who has an out-of-state salesperson license. Can s/he sell vehicles at my dealership?
Likely no. Unless that salesperson has a valid California salesperson license, it is unlawful for him or her to act as a vehicle salesperson without having a license or temporary permit from the DMV. [Vehicle Code § 11800].
Where can I get more information about salesperson license requirements?
You can refer to the DMV’s Vehicle Salesperson License Handbook. For a more in-depth discussion on the topic, you can also refer to our previous newsletter article, “What’s Hot on the Hotline? Vehicle Salesperson Licenses.”
Questions? We know that these times are hard, and everyone everywhere has been affected by this global pandemic. We are all in this together, and this too shall pass. Hotline clients are invited to contact us at (800) 785-2880 (then press “4” for hotline) or [email protected]. We are here to answer any questions you may have.