DMV Sales Contracts and Disclosures 5 — Questions and Answers
Question 1: A vehicle's title shows a 'salvage' brand. Before selling, the dealer must:
- Remove the brand through a state rebuilder inspection only
- Disclose the salvage brand to the buyer in writing before the sale (Correct answer)
- Sell the vehicle as-is with no additional disclosure beyond the title
- Apply for a clean title through the DMV before listing
Correct answer: Disclose the salvage brand to the buyer in writing before the sale
Dealers must disclose a salvage brand to the prospective buyer in writing; the branded title alone is insufficient without explicit pre-sale disclosure.
Question 2: A dealer offers 0% APR financing. Under TILA, the dealer must:
- Still disclose the APR and all other credit terms in writing (Correct answer)
- Only disclose the monthly payment amount
- Omit APR because no interest is charged
- Use a simplified one-page form instead of the full contract
Correct answer: Still disclose the APR and all other credit terms in writing
TILA requires full written disclosure of all credit terms—including a 0% APR—before the consumer signs any credit agreement.
Question 3: When a dealer assigns a retail installment sales contract to a bank or finance company, the dealer typically:
- Retains all risk of the buyer's default
- Transfers the financing obligation while the sale is complete (Correct answer)
- Must refund the down payment to the buyer
- Remains liable for any warranty claims
Correct answer: Transfers the financing obligation while the sale is complete
Assignment of a RISC transfers the financing obligation to the assignee (bank/finance company), who then collects payments and bears default risk.
Question 4: An elderly customer agrees to purchase a vehicle but appears confused about the contract terms. The salesperson should:
- Have the customer sign quickly to lock in the deal
- Ensure the customer understands all terms, offer time to review, and suggest bringing an advisor (Correct answer)
- Call a manager to close the deal faster
- Simplify the contract by removing optional disclosures
Correct answer: Ensure the customer understands all terms, offer time to review, and suggest bringing an advisor
Dealers must ensure customers understand what they are signing; failing to do so with a vulnerable buyer can constitute an unfair or deceptive practice.
Question 5: A dealer advertises a vehicle at $19,999 but adds a mandatory $1,500 'market adjustment' at the time of sale. This practice may violate:
- Federal odometer law
- FTC advertising rules requiring that advertised prices be the actual selling price (Correct answer)
- The Magnuson-Moss Warranty Act
- State title transfer statutes
Correct answer: FTC advertising rules requiring that advertised prices be the actual selling price
Advertising a price that does not reflect what the buyer must actually pay is a deceptive advertising practice under FTC guidelines.
Question 6: A buyer rescinds a vehicle purchase within the right of rescission window provided by state law. The dealer must:
- Charge a restocking fee before refunding
- Return all payments and the trade-in vehicle (or its value) to the buyer (Correct answer)
- Keep the down payment as liquidated damages
- Transfer the title regardless and then negotiate a refund
Correct answer: Return all payments and the trade-in vehicle (or its value) to the buyer
When a valid rescission is exercised, the transaction is unwound: the dealer must return all consideration received, including payments and trade-in.
Question 7: A dealer issues a 'we owe' slip promising to install floor mats after the sale. Legally, a 'we owe' document is:
- Unenforceable because it is not part of the main contract
- An addendum that creates a binding obligation on the dealer (Correct answer)
- Only enforceable if notarized
- Superseded automatically by the purchase contract
Correct answer: An addendum that creates a binding obligation on the dealer
A 'we owe' slip is a written dealer promise that constitutes a binding contractual addendum to the purchase agreement.
DMV Sales Contracts and Disclosures 5
A vehicle's title shows a 'salvage' brand.
Before selling, the dealer must: