2020 has truly been a year like no other, and its events have impacted and continue to impact everyone in many ways, some of which we will not fully understand for years to come. This ever-changing environment brought on by the COVID pandemic has also had a major legislative impact on both the amount and type of legislation passed over the year. As you can imagine, COVID and COVID relief has dominated the legislative landscape on the federal, state, and local levels. Most of these laws that were passed throughout the year, such as state and local health orders, the federal Families First Coronavirus Response Act (FFCRA), or the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act became effective immediately. Because of the extensive coverage these laws received throughout the year, this New Laws and Regulations summary will not be covering them again.
The silver lining to all of this is that there are not as many new laws/regulations going into effect that will affect dealer operations that perhaps one would have expected had this been a “normal” year. Provided below are summaries of new laws and regulations that may impact dealer operations in 2021 (unless otherwise noted).
This list is meant for instructional use only, and KPA makes no guarantees that this list is exhaustive of all laws for the upcoming 2021 year. Please also note that the list DOES NOT cover labor and employment (including wage and hour) 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.
Sales and Finance
Military Lending Act: Revised Interpretation
Summary: The Department of Defense (DOD) officially retracted the 2017 revised answer to Q&A #2 of the interpretive rule of the Military Lending Act (MLA). In withdrawing this amended question and answer, the DOD is reverting to the original Q&A # 2 published in the August 26, 2016, Interpretive Rule, meaning that dealers can now (once again) offer GAP and other credit-related products active military members and their dependents without performing an “MLA check.”
Degree of Impact: High.
Effective: February 28, 2020
Description: Although it seems like an eternity ago, this important change to the DOD’s official interpretation occurred in 2020, and this summary should serve as a reminder for dealers. Back on December 14, 2017, the DOD issued an amended interpretation of the MLA that took the industry by surprise. In issuing a revised answer to number 2 of the Q&A (Q&A #2) of the interpretative rule to the MLA, the DOD stated that:
“[A] credit transaction that includes financing for Guaranteed Auto Protection insurance or a credit insurance premium would not qualify for the [exemption].” (Federal Register, Vol. 82, No. 239, page 58740, December 14, 2017; emphasis added.)
This exemption can be found at 10 USC § 987(i)(6), and states:
“The term ‘consumer credit’… does not include… loan procured in the course of purchasing a car or other personal property, when that loan is offered for the express purpose of financing the purchase and is secured by the car or personal property procured.”
With the issuance of the December 14, 2017 revised interpretation, it appeared that selling GAP or other credit-related products to Covered Borrowers took dealers out of this exemption, and our guidance to dealers at that time was not to offer for sale GAP or credit-related products to those Covered Borrowers.
In withdrawing this amended question and answer, the DOD is reverting to the original Q&A # 2 published on August 26, 2016, which means that dealers can now (once again) offer GAP and other credit-related products to active military members and their dependents with relative impunity. This also means that dealers no longer need to perform an “MLA check” to confirm whether the customer is active military or a dependent of an active military member (assuming that dealers have no contractual obligation to do so with their lenders). If an “MLA Check” runs automatically as part of the sales process, dealers can discontinue this practice.
Citations: Federal Register, Vol. 85, No. 40, page 11842-43, February 28, 2020
Changes to Document Retention Requirement
Summary: The DMV has reduced the period for physical retention of original business records in the dealer’s principal place of business related to the purchase, sale, rental, or lease of a vehicle from 18 months to 90 days.
Degree of Impact: High.
Effective: October 1, 2020
Description: As you may recall, the 18-Month Rule requires dealers to physically maintain all original business records at its principal place of business or branch location for at least 18 months after the purchase, sale, rental, or lease of a vehicle. The Rule also allows dealers to make electronic copies of records at any time, and that after the 18-month period, an electronic record will satisfy record retention requirements should certain criteria be met.
The DMV has reduced this retention period to 90 days. The DMV believes this amendment will relieve dealers from the economic burdens of storing paper records. As a reminder, dealers should still be aware of and abide by the total retention period requirements for documents related to the purchase, sale, rental, or lease of vehicles.
Citations: 13 CCR section 272.02.
DMV Fees Increase
Summary: Various miscellaneous fee increases were issued by the DMV for 2021.
Degree of Impact: Medium.
Effective: January 1, 2021
Description: The DMV has issued various fee increases based on the consumer price index (CPI) effective January 1, 2021. Of note, included among these fee increases are increases in registration, California Highway Patrol, Road Improvement Fee (RIF), and Transportation Improvement Fee (TIF).
Citations: VIN 2020-17 Miscellaneous Fee Increases; various Vehicle Code sections (see VIN publication for specific references).
Foreign Language Translations
Summary: This bill expands the foreign language translation requirements for contracts and related sales documents to include any other person who will be signing the contract or agreement (i.e., cosigners or guarantors).
Degree of Impact: Medium.
Effective: January 1, 2021
Description: Existing law in California requires that dealers who negotiates a sale primarily in Spanish, Chinese, Tagalog, Vietnamese, or Korean provide translated copies of vehicle sales and lease contracts (and specific related documents) to the other party to the contract. The new law expands this requirement to include any other person (not just the other party to the contract) who signs the contract, including cosigners or guarantors.
Citations: Assembly Bill 3254 (2020, Limon); Civil Code section 1632.
Sales Tax
Used Vehicle Dealer Sales Tax
Summary: This bill creates a requirement for used vehicle dealers to remit any sales tax due on the sale of a used vehicle to the DMV at the time the dealer submits the vehicle transfer/registration application to the DMV.
Degree of Impact: High to low (depending on what type of dealer).
Effective: January 1, 2021
Description: Rather than paying quarterly sales tax to the California Department of Tax and Fee Administration (CDTFA), AB 85 will require used vehicle dealers beginning on January 1, 2021, to remit sales tax directly to the DMV, who will, in turn, remit the sales tax to CDTFA. According to the DMV, this requirement will be imposed on used vehicle dealers who were licensed by the DMV within the last 2 years, had a finding of underreporting by CDTFA in the last 2 years, had their seller’s permit reinstated in the last 2 years, or are not in the Business Partner Automation (BPA) Program. By January 1, 2023, this requirement will be extended to all used vehicle dealers.
Of note, this does not have any direct impact on new motor vehicle dealers.
Citations: Assembly Bill 85 (2020, Committee on Budget); Revenue and Taxation Code sections 6295 6363.9, 6363.10, 6902.5, 12209, 17039.3, 17236.23, 17053.95, 17935, 17941, 17948, 19533, 23036, 23036.3, 23695, 24416.23, 61015, 61020, and 61030; Vehicle Code sections 426, 4456, 4750.6. VIN 2020-16 Used Vehicle Dealers Pay Sales Tax to DMV.
Service Drive
California Motor Vehicle Brake Friction Material Law
Summary: The law provides that on or after January 1, 2021, any vehicle brake friction material (i.e., brake pads) containing greater than 5% copper by weight are prohibited from being sold in California.
Degree of Impact: Low.
Effective: January 1, 2021
Description: Back in 2010, then-Governor Schwarzenegger signed Senate Bill 346, which became known as the California Motor Vehicle Brake Friction Material Law. The law staggered certain prohibitions on brake pads sold in California that have more than trace amounts of certain materials. Among them was a prohibition by January 1, 2021, for the sale of brake pads in California having greater than 5% copper by weight.
The law provides for an exemption for vehicles manufactured prior to January 1, 2021, with non-compliant brake pads, meaning that a dealer would likely be fine to sell such a vehicle without changing the offending brake pads. However, the law does not specifically provide an exemption for any vehicle manufactured after January 1, 2021, with non-compliant brake pads (i.e., those with copper above the 5% threshold). It is unclear if this was by design or if this technicality was not thought of when drafting the law over 10 years ago. Although it is always a good thing to check, dealers generally should not worry about the brake pads in the parts department inventory because they probably will already meet this requirement, as the manufacturers/suppliers should be aware of this requirement too. Similarly, brake pads on new vehicle inventory will already likely be compliant. Where this law may really come into play is if an out-of-state vehicle manufactured after January 1, 2021, was traded into your dealership with non-compliant brake pads. Conservatively, we recommend that in this situation the dealer change the offending brake pads prior to offering the vehicle for sale.
Citations: Health and Safety Code section 25250.50-25250.65.
Privacy
California Consumer Privacy Act (CCPA) and Proposition 24
Summary: Proposition 24, titled the Consumer Personal Information Law and Agency Initiative or California Privacy Rights Act (CPRA), or colloquially, “CCPA version 2.0”, was passed on the November 2020 ballot by California voters. Prop 24 expands the CCPA in a variety of ways and goes into effect starting January 1, 2023.
Degree of Impact: (Currently) Low.
Effective: January 1, 2023
Description: In November, voters approved Prop 24, which expands the CCPA. Below are a few areas of interest pertaining to dealerships:
- Creates and expands consumer rights, including right to deletion, right to correct inaccurate personal information, right to know what personal information is being collected, and right to know what information is sold or shared.
- Removes the cure period for which business can correct violations before being penalized.
- Creates the California Privacy Protection Agency (CPPA), which will oversee implementation and enforcement.
Additionally, Prop 24 extends the California Legislature’s sunset provisions on rulemaking regarding employee and business-to-business obligations to January 1, 2023.
Citations: Proposition 24, Consumer Personal Information Law and Agency Initiative (2020)