In October 2025, Governor Gavin Newsom signed into law, Senate Bill 766 (SB 766), known as the California Combating Auto Retail Scams (CARS) Act (Cal. Civil Code Sections 1784.1 et seq). The law is intended to protect consumers from deceptive or unfair practices in auto retail, financing, and leasing.
Although the structural and operational requirements of this law apply directly to vehicles sold through dealerships, credit unions may be impacted as indirect lenders. Because auto loan contracts are subject to California’s Rees-Levering Act and the Federal Trade Commission’s (FTC) Holder Rule, compliance deficiencies or misrepresentations made during the dealer’s sales process can carry over to the financial institution holding the loan paper.
Its provisions take effect on October 1, 2026.
Who Does This Apply to?
- Primary Targets: This statute applies to “dealers” (as defined by the California Vehicle Code) engaged in the retail sale or lease of vehicles.
- Credit Union Impact: Because credit unions purchase these conditional sales contracts via indirect lending networks, this law functionally applies to your underwriting, funding, and legal teams. If your dealer partners fail to comply, your credit union may be exposed to the fallout.
Key Provisions of SB 766
SB 766 contains the following significant new compliance requirements:
1. Definitions and Scope
The law applies to “vehicles” (as defined in the Vehicle Code) in retail sales and leases, both new and used, with certain exceptions:
- Wholesale sales.
- Fleet sales.
- Commercial purchasers.
- A vehicle that has a gross vehicle weight rating of 10,000 pounds or more
“Add-ons” or “add-on products or services” are defined as those not provided by the manufacturer but charged by dealers in connection with a sale or lease.
2. “Total price” is defined to include the vehicle sale price, any dealer-installed items, and price adjustments (but excludes certain taxes, fees, rebates). Prohibited Practices and Disclosures (Cal. Civil Code §1784.40)
Misrepresentations: Dealers cannot misrepresent material facts regarding:
- The costs or terms of purchase, financing, or leasing.
- Add-on products or services (costs, benefits, limitations).
- Whether a transaction is a lease or purchase.
- Availability of a vehicle at a “total price” advertised.
- Consumer’s financing application status, etc.
Required Disclosures as per Cal. Civil Code §1784.41, clearly and conspicuously, in writing:
- The “total price” in advertisements, in first written communication, and in negotiations.
- When selling or leasing, if a monthly payment is quoted, the total amount that would be paid over time must be disclosed, along with assumptions (e.g. downpayment, trade-in).
- The add-ons must be disclosed as optional, with a statement that the buyer need not choose them.
Limits on Charging for Add-Ons (Cal. Civil Code §1784.42):
- Dealers cannot charge for add-on items the buyer would not benefit from (e.g. charging for an add-on that is irrelevant or void).
- Dealers must pay providers for the add-on within 10 days of sale, unless contract allows a later payment without affecting consumer coverage.
3. “3-Day Right to Cancel” for Used Vehicles ($50,000 or less) (Cal. Civil Code §1784.43)
A cancellation right applies for certain used vehicle sales: For used vehicles priced $50,000 or less, dealers must provide a 3-calendar-day right to cancel the purchase or lease. However, the right does not apply if the vehicle is driven more than 400 miles between contract signing and attempted cancellation. If cancellation is exercised:
- The dealer must return the buyer’s trade-in vehicle (or refund its value) and refund downpayments (minus allowed restocking fees).
- The dealer is allowed to charge a restocking fee, limited to 1.5% of the sale price (minimum $200, maximum $600). If more than 250 miles driven, an extra $1 per mile over 250 may be charged (up to $150).
- Dealer must cancel the contract and issue refund within 48 hours (or within two business days if verification is needed).
- The buyer must deliver the vehicle (in reasonable condition) and any other items (e.g. keys), and pay restocking fee (if applicable).
- A dealer must provide the buyer or lessee of a used vehicle subject to the right to cancel a copy of a disclosure titled “3-Day Right to Cancel Used Car Purchase or Lease” on a separate document.
Some exceptions to the 3-Day Right to Cancel:
- It does not apply if the used vehicle sale is over $50,000.
- It does not apply to vehicles sold at auctions.
- It does not affect any other legal rights to rescind or revoke acceptance under other laws.
- The dealer must clearly and conspicuously disclose on the first page of the purchase or lease agreement the following: “CALIFORNIA DOES NOT HAVE A COOLING-OFF PERIOD FOR NEW VEHICLES. HOWEVER, IF YOU PURCHASED OR LEASED A USED VEHICLE FOR $50,000 OR LESS, YOU HAVE 3 DAYS TO CANCEL THIS CONTRACT FOR ANY REASON. ADDITIONAL RESTRICTIONS MAY APPLY, INCLUDING A RESTOCKING FEE.
You have up to 3 days to return the vehicle to the dealer and cancel this contract and obtain a refund. Please review the disclosure, which the dealer is required by law to provide, for the details about this right and how to exercise it.”
Recordkeeping and Enforcement (Cal. Civil Code §1784.44)
- Dealers must retain records for two years to show compliance: advertisements, communications, contracts, add-on documentation, cancellation requests, refunds, complaints, etc.
- The statute’s remedies are in addition to other consumer protections under law.
- A waiver by a consumer of these rights is void.
Other Changes and Repeals
SB 766 repeals certain older “contract cancellation option” requirements that existed for used vehicle sales.
- It amends the law governing conditional sale contracts (Civil Code § 2982) to require more detailed disclosures.
- Some sections (e.g. the older cancellation option provision) only stay in effect until October 1, 2026, when the new regime fully takes over.
What Credit Unions Should Do Now
Regulatory and Legal Review:
- Engage legal counsel to interpret SB 766 in relation to your indirect loan business.
- Review your credit union’s dealer agreements, contracts, and indemnification language for alignment with new obligations (especially in add-on, disclosures, refunds).
Policy Adjustments:
- Update internal policies to require that dealer partners comply with the new disclosure and cancellation obligations.
- Institute due diligence or audit/monitoring of dealer partner compliance (e.g. spot checks on advertisements, communications).
- Require dealers to provide or certify that they maintain required records for 2 years.
Systems Changes:
- Build workflows for handling 3-day cancellations, vehicle returns and refunds.
- Prepare for handling consumer complaints or cancellation requests that may originate.
- Update internal training for frontline staff to understand the new rights (e.g. how 3-day cancellation works) so that they can respond appropriately.
Monitoring, Testing and Audit:
- Periodically audit dealer partners’ compliance (e.g. review advertisement disclosures, check whether add-on products are fairly represented, audit refunds).
- Establish escalation protocols for noncompliance (e.g. suspending dealer participation).
For More Information
Access the ‘Compliance Hotline’
Your League-member benefits include the Compliance Hotline — providing exclusive access to dedicated compliance experts:
Using the above phone number and email address, you can gain access to a knowledgeable team that’s ready to address all your credit union’s compliance inquiries — promptly and efficiently. With the Compliance Hotline, you can proactively respond to impromptu questions and issues by getting clarity and insight on technical topics that normally slow you down. We want to help you unlock the full potential of your League membership by leveraging the resources and support you need to navigate the complex world of compliance effortlessly. We’re ALWAYS just a phone call or email away!
Additionally, other League-member compliance resources include:
- ViClarity
- CU PolicyPro
- ComplySight
- InfoSight
- CU Store
- Record Retention Guide
- GRC Technology Solutions
For more information, email Lisa Quaranta.
Powered by ViClarity, a California’s Credit Unions and Nevada’s Credit Unions company.
