Section 5: Auto Brokers
An auto broker is a dealer who, for a fee or other consideration, arranges, negotiates, assists, or effectuates the purchase of a new or used vehicle, not owned by the dealer, for another. [V.C. §§285, 232.5, and 166]
Auto Broker’s Endorsement
A used retail dealer may obtain, upon application to the DMV, an auto broker’s endorsement to their retail license, allowing the dealer to broker vehicles. As a broker, the dealer is still subject to all of the licensing, advertising, and other statutory requirements and prohibitions applicable to a dealer. [V.C. §11700.2]
Auto Broker’s Log
An auto broker must maintain an auto broker log. [V.C. §11735]. The log remains the property of the DMV. The log must record the brokered sales transactions and must be kept for three years. [V.C. §11736]. The log must contain:
- The vehicle ID number.
- Date of the brokering agreement.
- Name of the consumer.
- Selling dealer’s name and dealer number.
- Auto broker’s name and dealer number.
Auto Broker Agreement
- An auto broker must execute/sign a brokering agreement and provide a copy to the consumer and selling dealer. The consumer must be provided with a copy prior to signing an agreement for the purchase of the vehicle, or prior to the broker’s acceptance of $100.00 or more from that consumer – whichever occurs first. The selling dealer must be provided with a copy of the agreement prior to the selling dealer’s entering into a purchase agreement with the consumer.
- The broker must disclose to the consumer and selling dealer, as soon as practicable, whether the broker does, or does not, receive a fee or other compensation from the selling dealer, and the dollar amount of any fee the consumer must pay the broker.
- The broker must also maintain a copy of the executed brokering agreement and any other notices and documents related to the transaction for three years.
A broker cannot accept a deposit from a consumer in excess of 2.5% of the selling price of the vehicle described in the brokering agreement. [V.C. §11735(b)]
- A broker must refund any purchase money and purchase deposits upon demand prior the consumer’s signing a purchase agreement, and taking delivery.
- A broker must provide the consumer a refund if the final price of the brokered vehicle exceeds the purchase price listed in the brokering agreement, or if the vehicle is not as described in the agreement.
- A broker must provide the consumer a refund if the brokering agreement expires before the consumer is presented with a purchase agreement meeting the terms of the brokering agreement.
- A broker must advise the consumer, prior to accepting any money that a full refund will be provided if the vehicle is not obtained, or if the service orally contracted for is not obtained. [V.C. §11735(d-i)]
- The broker shall deposit any purchase money/deposits the broker receives into a federally insured trust account until used for the actual purchase.
- The broker may collect the interest on the deposits. [V.C. §11737(a-c)]
- The broker has a fiduciary responsibility with respect to all purchase money received from, or on behalf of, a consumer.
- For further trust account rules, see V.C. §11737, and V.C. §11738.
For the specific brokering agreement form rules and required contents see [V.C. §11738].
The fee for the original auto broker endorsement is $100.00 and $75.00 for annual renewals.
Licensed Retail Dealers Only
In 2018, DMV began prohibiting wholesale dealers from getting the auto broker endorsement. As of 2018, only retail dealers are permitted to get the auto broker endorsement to their retail dealer licenses. The application for the broker endorsement may be made at the same time the application is made for the retail dealer license, or can be done at a later time.
Auto Broker Advertising
- An auto broker may advertise his or her service of arranging or negotiating the purchase of a new motor vehicle from a franchised new motor vehicle dealer and may specify the line-makes and models of those new vehicles.
- Auto brokers may not advertise the price or payment terms of any vehicle and shall disclose that the advertiser is an auto broker or auto buying service.
- The broker must also clearly and conspicuously state the following: “All new cars arranged for sale are subject to price and availability from the selling franchised new car dealer.” If the ad is printed, this statement shall be printed in not less than 10-point bold type size and shall be separated from the other portions of the printed advertisement. However, brokering ads that measure two column inches or less do not have to include this statement. Also, radio advertisements that are less than 11 seconds that do not reference specific line-makes or models of motor vehicles do not have to include the statement either. V.C. 11712(b)(1-3).
A consignment is an arrangement under which a dealer agrees to accept possession of a vehicle from an owner of record for the purpose of selling the vehicle, and then to pay the owner of record, or the owner’s designee, from the proceeds of the sale. [V.C. §266]
Consignment Agreement Required
A dealer must execute a written consignment agreement complying with the requirements set forth in [V.C. §11730].
Consignment Agreement Key Terms
The consignment agreement must include, among other things, the following:
- Commitment to provide the consignor (the selling owner) a written accounting (supported by receipts) of the disposition of the sale proceeds, and to provide the remaining sale proceeds to the consignor within 20 days of the sale date. Failure to do so may result in suspension or revocation of the dealer’s license.
- A “sale” occurs upon the consignee (the dealer) receiving the purchase price, or its equivalent, executing a conditional sales contract, or when the consumer takes delivery of the vehicle- whichever occurs first.
- Current market value of the vehicle being sold, and the objective source where that information came from (i.e. Kelley Blue Book, NADA, etc.)
- List of outstanding liens and the lienholders.
- Repairs to be made.
- Amount due the consignor upon sale, either as a percentage of the sale price, a net fee, or as a flat fee. [V.C. §117.30]
Motor Vehicle Sales and Finance Act
Conditional Sales Contracts
“Conditional Sales Contracts” are what we commonly refer to as “finance contracts” or “installment contracts.” Example:
- The dealer offers to sell a vehicle for $10,000.00. The buyer agrees to pay $1000.00 now and pay the dealer the remaining balance of $9,000.00 in regular monthly payments over the next two years, including interest.
- Form and Filing Process: The dealer and buyer sign the conditional sales contract. The most common version of the conditional sales contract used in California is the “553” contract from Law Printing/Reynolds & Reynolds (www.reysource.com). Another good source for conditional sales contracts and other dealer form contracts is www.bpiautoforms.com BPI will also provide you a free catalogue with all of their forms.
- The dealer completes the conditional sales contract and processes the Report of Sale documents as usual. Remember to have the title issued showing the dealer’s name as the legal owner/lienholder and to have it mailed to the dealer, not the buyer. The title is the dealer’s security to insure the buyer makes all the required payments. If the buyer fails (defaults on the dealer’s loan), then the dealer must repossess the vehicle. Repossession is discussed in the following section.
All conditional sales contracts, including any promissory notes or any other evidences of indebtedness must meet the following criteria:
- Must be in writing. [C.C. §2981.9]
- Must be a single document. [C.C. §2981.9]
- Must be signed by both buyer and seller. [C.C. §2981.9]
- Must deliver copy to buyer at signing. [C.C. §2981.9]
Repossessions must be conducted by the owner of the vehicle to be repossessed, or a licensed repossession agency. Repossession agencies are licensed by the Dept. of Consumer Affairs. Employees hired by the repossession agency must also be registered with the Department of Consumer Affairs. If you are not certain if the business, or person, you are hiring is a license to do repossessions, contact the Dept. of Consumer Affairs at 916-322-4000.