Increases disclosures of automobile brokers

1 Co-sponsor

• David Carlucci

BILL NUMBER:S5477A

Title of bill

An act to amend the general business law, in relation to increasing disclosures by automobile broker businesses

Purpose or general idea of bill

To regulate the practices of automobile broker businesses in New York.

Summary of specific provisions

Section 1 amends §738 of the General Business Law to require an automobile broker business ("broker") to include a disclosure in all contracts regarding the automobile dealer ("dealer") from which the automobile was purchased, as well as any consideration paid by a dealer to a broker for its services.

Section 2 adds a new §740-b of the General Business Law to require all brokers to obtain a surety bond in the amount of $75,000.

Section 3 adds a new §741-a of the General Business Law to require brokers to clearly and conspicuously disclose certain information in advertisements, namely that the broker is not a dealer, any fees imposed on a consumer for services rendered, and that no vehicle warranty repair services will be provided by the broker.

Section 4 sets forth the effective date.

Justification

The practices of brokers are not as strictly regulated as those of dealers. Dealers are required to comply with a variety of regulations pertaining to advertising, consumer disclosure and management of items containing personally identifiable information. However, brokers are held to lesser standards resulting in the proliferation of anti-consumer and anti-business practices. Consequently, broker practices should be more strictly regulated to ensure that the public is properly informed and safeguarded against the actions of unscrupulous brokers.

Currently brokers are not required to obtain a surety bond to operate in New York. Furthermore, unlike dealers, brokers are not required to make a significant investment to sell cars. Dealers are subject to franchise agreements which typically contain a myriad of expensive mandates and are also required to purchase all of the vehicles from the manufacturer that they offer for sale. In contrast, brokers have a limited personal stake in the business, and, therefore, limited incentive to ensure consumers' interests are protected. Therefore, brokers should be required to obtain a surety bond to protect consumers against a broker's failure to meet its obligations.

Brokers are also not required to comply with the same advertising guidelines as a dealer. Many broker advertisements are misleading and do not clearly indicate that a potential buyer would be doing business with a broker and not a dealer. Brokers should be held to the same

advertising standards as dealers to protect against deceptive trade practices and be required to disclose the nature of their services to ensure consumers are accurately informed.

In addition, brokers should be required to disclose the method by which its fee is determined. Some brokers claim to provide, their services "free to the consumer". However, such brokers are often compensated by a dealer which is typically commission-based. Consequently, the broker is incentivized to negotiate a better price for the dealer than the consumer. Disclosing the fee structure will enable a consumer to determine the validity of a broker's claims.

Prior legislative history

New Bill.

Fiscal implications

None.

Effective date

Ninety days after enactment.