Practice Test

Hint

ANY of the following actions could result in a Dealer license suspension:

• Misuse of Special (Dealer) Plates
• Bait & Switch advertising schemes
• Failure to pay Administrative Service Fees when due
• Submission of dishonored check to Department
• Selling at unlicensed locations
• Failure to transfer title
• Paying “Bird Dog” fees

Hint

The Guide must be in plain view (with both sides visible) and may be either:

• Hung from the rear-view mirror or outside side-view mirror
• Placed under a windshield wiper.
• Attached to a side window

A Guide in a glove compartment, trunk, or under the seat is not conspicuous because it is not in plain sight.

Hint

The DMV and State and Federal regulatory agencies can limit, suspend, or revoke a Dealer’s license and or impose penalties should they fail to abide by the laws and regulations governing Dealers.

Hint

All Dealers must have a Surety Bond valued on their license type and provide proof:

• OL 25 New or Used Auto-Commercial Dealer ($50,000)
• OL 25B Motorcycle Dealer, Motorcycle Lessor-Retailer, All-Terrain Vehicle Dealer, or Wholesale-Only Dealer (Less Than 25 Vehicles Per Year) $10,000

Hint

Never advertise or sell a used vehicle as “Certified” when:

• The odometer does not indicate the actual mileage of the vehicle
• The manufacturer or dealer reacquired the vehicle under state or federal warranty law (i.e., “lemon law”)
• The vehicle was damaged by a collision, fire, or flood unless repaired to a safe operational condition prior to the sale
• The title was branded as a lemon law buyback, manufacturer repurchase, salvage, junk, non-repairable, or similar designation
• The vehicle has frame damage or was sold “as is”

Hint

If the odometer cannot register the same mileage as before the repair, it must be adjusted to read “0” with a notice attached to the vehicle’s left door frame (specifying the prior mileage and the date on which it was serviced, repaired, or replaced) by the person performing the service or repair.

Hint

Dealers must securely store all records including their Reports of Sale and are required to “implement federal safeguard standards for storage” and maintain the records of vehicle transaction for 90 days (was 18 months) at the principal place of business or branch location.

After 3 months (90 days), use an offsite storage facility within the state or third-party vendor to maintain records for a total storage requirement of 36 months / 3 years.

• Digital storage is acceptable after the initial 90 days
• DMV requested records must be provided within 3 business days

Hint

California’s “Car Buyer Bill of Rights” (AB 68) limits a Dealer’s compensation from an institution financing the purchase of a vehicle is limited to no more than:

• 2.5% for terms up to 60 months
• 2.0% for terms of 60 months or longer

This limitation does not apply when the assignment requires the Dealer to bear the entire risk of financial performance for the consumer or when the assignment is more than six months after the date of the Conditional Sale Contract.

Hint

When a Dealer sells a Lemon Law buyback vehicle, they must notify the buyer on letter-size paper of the following:

• The year, make, model, and vehicle identification number
• That the vehicle title is marked “Lemon Law Buyback”
• The nature of each nonconformity reported by the vehicle’s original buyer or lessee
• Any repairs made to the vehicle in an attempt to correct each nonconformity

Hint

Dealers must now renew their license online yearly (a two-year term is optional, later) and upload:

• Proof of Continuing Education (every two years)
• Proof of Surety Bond
• Payment of Renewal Fees

Hint

(a) A sole owner, a general partner, a manager of a limited liability company, or a corporate officer or director of a Dealer provided that individual is actively engaged in the management and control of the Dealer’s business operations

(b) A general manager, business manager, or sales manager who is actively engaged in the management and control of the business operations of the Dealer when no other individual meets the criteria in (a) above

(c) A driver -if- an individual identified in section (b) is also in the vehicle.

(d) An unaccompanied adult who regularly resides in the household of individuals identified in section (b) to pick up or drop off that individual.

Hint

You must provide:

• A Contract Cancellation Option* with a “2-day cooling-off period”
• All costs and terms of payment
• Written Disclosure(s) for any aftermarket add-on items
• All financial aspects of the sale
• Signatures of both the Buyer and the Seller

Hint

You must disclose any vehicle modifications which alter the vehicle from the vehicle manufacturer’s original specification.

Examples of this would include suspension, oversized tires & wheel or exhaust systems.

Hint

Additional individuals may operate a vehicle with special plates:

(a) Employees of a Dealer when they are acting within the course and scope of their employment

(b) Drivers for special event purposes, if they carry a letter of authorization from the Dealer

(c) A prospective buyer or lessee, to test drive a vehicle, up to seven days.

(d) Employees of Dealer, who must operate a commercial vehicle in the course of their employment, taking a commercial test drive.

Hint

Dealers must convert all interest rates to standard APR (Annual Percentage Rate.

The Annual Percentage Rate (APR) is the annual rate charged for the Buyer’s loan, shown as a percentage that represents the actual yearly cost of borrowing over the term of a loan.

Hint

The Dealer must check the “Mileage EXCEEDS the mechanical limits” box on the REG 262.

Hint

California’s Vehicle Code requires that you do not sell or offer a vehicle for sale unless all of its safety equipment is in proper working condition.

It does not matter if you tell the Buyer about the safety defects – this requirement cannot be waived by a Dealer or Buyer.

The Code does not apply when the Vehicle:

• Is sold to another Dealer
• Is being legally wrecked, dismantled
• Used exclusively off-highway
• Is a leased, registered in California, and sold to the person leasing it (if they were in possession of the vehicle immediately prior to the sale)

Hint

California Vehicle Code Section 11721 provides for the automatic cancellation of a Dealer’s License and Special Plate when the:

• Dealer abandons or changes their location without immediately notifying the DMV
• Dealer fails to maintain an adequate Surety Bond
• Dealer voluntary or involuntary surrenders the Special Plates and License
• Person designated as the Dealer has changed
• Corporate status of the Dealer is suspended or revoked
• Board of Equalization suspends or revokes the Dealer’s Seller’s Permit

Hint

An additional DMV License or Permit is not required for “display only” areas if:

• The area is within 1,000 feet of your dealership
• No sales take place within that area

Hint

• The windshield’s condition must not impair the driver’s vision
• The windshield defrosting device and windshield wipers must be in good operating condition
• Sunglasses won’t help – you’ll still need a windshield

Hint

Within Ten (10) business days prior to the event, the Dealer must submit the following to the Inspector having jurisdiction over the temporary branch location:

• Application for Temporary Branch Location (form OL 73)
• For new product sales, submit the manufacturer’s authorization for each line/make being sold. The authorization must show the Temporary Branch address, on the correct form:
  • OL 124 for Auto/Commercial,Motorcycle and All-Terrain Vehicles
  • OL 73A for Motorhomes and Recreational Trailers
  • OL 73C for Trailers and Snowmobiles
• Copy of lease/rental agreement or copy of the promoter’s contract
• Property Use Verification for Vehicle Dealer’s License, OL 902 (required for some locations).

Hint

Dealer can apply for a Permanent Branch Location here. Paper applications are no longer accepted.

Hint

Dealers are required to provide a smog certificate for all vehicles prior to a vehicle being offered for sale including:

• Gas-powered 1976 and newer
• Diesel-powered 1998 and newer with a GVWR under 14,000

Smog Certificates are not required for vehicles:

• Four (4) years old or newer
• Sold to other licensed Dealers or sold at auctions

Hint

A vehicle must be in a Dealer’s inventory and for sale before anyone can use a Special (Dealer) Plate on it.

Hint

You may not sell any vehicle manufactured after January 1, 1968 unless it is equipped with seat belts for each seating position

Hint

The following documents must be submitted to the DMV for the basic Dealer transfer of ownership for a California-registered vehicle:

1. California Certificate of Title (or Application for Title, REG 227)
2. Vehicle/Vessel Transfer and Reassignment Form (REG 262) — with Power of Attorney
3. Report of Sale (REG 51)

Hint

Dealers are allowed to charge $50 for the smog test plus the actual State fees charged for Certificates

Hint

Odometers must be in working condition at the time of sale – it is illegal to rollback, disconnect, or reset the odometer of any motor vehicle.

Hint

1) The vehicle’s cash price alone

2) Any fees charged for:

• Contract Cancellation Option Agreement
• Document processing charges
• Debt cancellation agreements
• DMV registration or transfer fees
• Electric vehicle charging station or installation services (labeled “EV Charging Station”)
• Prior credit or lease balance remaining on trade-in (labeled “Prior Credit or Lease Balance”)
• Sales tax
• Smog Certification fees
• Service contracts
• Theft-deterrent products
• Surface protection products

3) The total cash price, which is the sum of #1 and #2

Hint

You must register with the Bureau of Automotive Repair (BAR) as an Automotive Repair Dealer (ARD) if your Dealership:

1. Performs repairs that require mechanical expertise
2. Performs repairs to a part of the vehicle essential to its safe operation
3. Receives compensation for any repair (including body repair work)

Hint

Some minor* repairs are permitted without BAR registration including:

• Repairs made as part of a business agreement between a repair dealer and a business or commercial enterprise
• Repairing or replacing tires, lubricating vehicles, installing bulbs, batteries, wiper blades, and minor accessories
• Replacing spark plugs, fan belts, filters, and other services customarily performed by gasoline service stations

“Repair” means all maintenance and repairs to motor vehicles performed, including automotive body repair work.

Hint

The VSCP contract company must hold a special license from the California Dept.

Only car dealers may legally sell a VSCP service contract.

Companies selling Service Contracts over the Internet directly to consumers are breaking the law.

Hint

If you collect estimated DMV fees that exceed the amount paid to the DMV, you must refund the difference to the Buyer – regardless of how small the amount is.

Hint

The maximum you may charge for Contract Cancellation Option Agreements is:

• $75 for a vehicle costing $5,000 or less
• $150 for a vehicle costing more than $5,000, but not more than $10,000
• $250 for a vehicle costing more than $10,000, but not more than $30,000
• One percent of the purchase price for a vehicle costing more than $30,000, but less than $40,000

Hint

Taxable portions of the Conditional Sales Contract include:

• The selling price of the vehicle
• Accessories installed, not included in vehicle price (parts and labor)
• The labor portion of the Smog Fee
• Document Preparation Service Fee

Non-taxable items of the Conditional Sales Contract include:

• DMV fees (license & registration)
• California State Smog Certificate fee

Hint

You must disclose to your Buyer if the vehicle is, or ever was a taxi, rental car, police, or law enforcement vehicle.

Hint

Dealers who fail to comply with the terms of a Consignment Agreement or pay the agreed amount to the Consignor within 20 days after the date of sale could have their license suspended or revoked.

Hint

California Used Vehicle Dealers are not required to disclose prior accidents or frame damage

Hint

When Advertising Always:

• Identify yourself as a dealer and include your dealership name & DMV license number
• Identify the vehicle advertised by its license number -or- VIN (last 6 digits or more) and the year, make, and model
• Fully specify and disclose all Terms of Sale in the advertisement, including all costs (except taxes, registration fees, tire fee, smog fees, and DOC fee)
• Withdraw ad(s) within 48 hours when the vehicle has been sold or is no longer for sale
• Honor an advertised price, even if the buyer is not aware of the advertisement

Hint

Dealers must disclose all Terms of Financing, including any item purchased.

Hint

The DMV will immediately cancel your license if you abandon your location without notifying them.

Hint

If the Dealer breaches the Contract after the Buyer leaves his motor vehicle as a down payment (trade-in) you must within five days:

• Return the vehicle to the Buyer -or-
• Pay the Buyer the fair market value -or- the value in the Contract (whichever is greater)

Hint

Each credit score obtained and used by the dealerDealers are required by the Car Buyer’s Bill of Rights (FFVR 35) to provide Buyers with a separate, written “Notice to Vehicle Credit Applicant” in at least 10-point type which discloses:

• The date the credit score was created
• The name of the consumer reporting agency for each credit score used by the dealer
• The range of possible credit scores used to generate that credit score
• Statements:
  • “A Consumer Report or Credit Report is a record of the consumer’s credit history and includes information about whether the consumer pays their obligations on time and the amount owed to creditors”
  • “A Credit Score numerical rating is derived from information in a consumer report and can fluctuate over time to reflect changes in the consumer’s credit history”
  • “Consumer’s credit scores may affect whether the Consumer can obtain credit and the cost of that credit”
• The distribution of the consumer credit score used to generate the same credit score provided to the consumer
• Contact information for the centralized source from which consumers may obtain their free annual consumer reports

Hint

You must post a Buyers Guide before you display a vehicle for sale even if the car is not fully prepared for delivery

Hint

License plates are registration “indicia” and, combined with the Vehicle Identification Number (VIN), can help identify stolen vehicles before purchasing or taking one on trade. VINs can be checked via the National Motor Vehicle Title Information System (NMVTIS).

Hint

A “Report of Sale — Used Vehicle” (DMV form REG 51) must be completed when you sell a vehicle to a Consumer and

• Attach the bottom tear-off section (bottom 1/3rd) of the Report of Sale to the sold vehicle* before delivery of the vehicle to the Buyer
• Submit the main (upper) portion of the REG 51 with other title transfer documents

*Choose an area that won’t block the driver’s vision such as the lower, passenger side of the windshield.

Hint

Dealers must collect Sales or Use Tax whenever you sell a vehicle and remit this to the DMV. This was changed in 2021 from the CDTFA.

Hint

Never use terms such as “no Down Payment” unless you will sell the vehicle to any purchaser without prior payment of any kind.

Hint

Should you unknowingly sell a stolen vehicle you are required to issue a full refund to the buyer.

Hint

Dealers must finalize a Used Vehicle application within 50 days of the date of sale or 30 days from the date DMV returned the application

Hint

The Dealer must pay the Consignor when they receive the purchase price -or- they execute a Conditional Sales Contract -or- the Purchaser takes delivery of the vehicle.

Hint

Dealers are not allowed to use Coupons or Simulated Checks in an Advertisement.

Hint

It is unlawful for any licensee to allow the use of their Dealer’s license, supplies, or books by any other person for the purpose of permitting that person to engage in the sale of vehicles.

Hint

It is unlawful for any licensed salesperson to perform the sales activities at any location other than the employing Dealer’s licensed location.

Hint

Dealers must notify the DMV when a salesperson had been terminated, within 10 days.

Hint

Dealers must include a calculation of the vehicle’s Net Value including the current market value, the outstanding lien(s), and the value of repairs to be made. The Agreement must also show money due to the Dealer shown as a percent of the selling price, a flat fee, or a specific formula.

Hint

Retail Dealers are required to have a display area at their Place of Business sufficient size to accommodate vehicle(s) of a type for which the dealership is licensed to sell. One parking space is acceptable.

Hint

The Retail Dealer Signage must be:

• Not less than 2 square feet and readable from 50 feet
• Show the Dealer’s name and address
• Permanent, able to withstand weather conditions and erected on the exterior of the office

Hint

California Dealers are allowed (not required) to charge a “Document Processing Fee” or “Doc Fee” for processing the Buyer’s vehicle into their name. The State increased the maximum fee to $70 on January 1, 2019. Dealers can charge $85 if they have a contractual agreement with DMV to be a private industry partner pursuant to Section 1685.

Hint

Individuals may not sell any vehicles with the intent to make a profit without a dealer license.

Hint

A special / dealer plate may be used on a vehicle that is owned or lawfully possessed by the dealer (it is in the dealer’s inventory for sale)

Hint

Dealer plates must be securely attached to the rear of the vehicle and should cover or replace the existing license plate.

Hint

The DMV will immediately cancel your license if you abandon your location without notifying them

Hint

When sold, the selling Dealer must complete a Report of Sale, DMV transfer documents and collect fees and taxes as they would with any other vehicle sale to a Consumer.

The Dealer is not required to complete Consignment transfers

Hint

Dealers must withdraw ads within 48 hours when the vehicle has been sold or is no longer for sale.

Hint

A Broker Endorsement is only available to Retail dealers. The Endorsement may be added on the initial application or at any time afterward.

Hint

It is never acceptable for the consumer purchasing the vehicle to perform the smog check. It is always the Dealer’s responsibility.

Hint

California’s Vehicle Code, Division 12 requires that you do not sell or offer for sale a vehicle unless all of its safety equipment is in proper working condition.

Hint

Dealers must renew their license every year and attend an approved Continuing Education Program every two years.

Expired Dealers may renew during a “30-day grace period” and must pay a penalty equal to the original application amount ($175).

The license will be automatically canceled on the 30th day.

Hint

Dealers are required to complete a “Continuing Education” course every two years from a DMV Approved Provider such as Dealer 101.

Hint

A Fictitious Name filing is required when:

• When applying as a Corporation or LLC and not using the exact Corporation or LLC name on the DMV Dealer Application
• When applying as an Individual and your Surname (last name) is not included in the business name on the DMV Dealer Application

Hint

If the vehicle is, or was, salvage, or the title contains a brand, the Dealer must display a red Warning Sticker.

Hint

A registration fee, California Highway Patrol fee, Vehicle License Fee (.65% of vehicle value), and county/district fees are due for most vehicles registered for on-highway use.

Hint

The most common DMV transfer fee is $15.

Hint

Hint

The California Vehicle Code is informally referred to as the Veh. Code or the CVC is the section of the California Codes that contains almost all statutes relating to the operation, ownership, and registration of vehicles in California.

Hint

The DMV Occupational License office will require your name on your Certificate to match your driver’s license. If it doesn’t match, they will reject it and not allow you to take the Dealer Test.

You will be charged a service fee if a new replacement Certificate is needed.