Requires motor vehicle dealers to disclose price markups to the purchasers of motor vehicles

1 Co-sponsor

• George Latimer

BILL NUMBER:S5491 REVISED 5/20/15

Title of bill

An act to amend the vehicle and traffic law, in relation to requiring retail motor vehicle dealers to disclose to purchasers any markups in the cost of a motor vehicle as the result of financing the cost thereof; and to amend the financial services law, in relation to authorizing the financial frauds and consumer protection unit to study motor vehicle dealer price markups

Purpose

This bill requires auto dealers to disclose any financing markups to consumers. It also allows the Department of Motor Vehicles to take corrective action in the event that a dealership does not comply, and allows consumers an avenue of recovery if the dealership does not disclose this markup. This bill also authorizes the Financial Frauds and Consumer protection Unit of the Department of Financial Services to conduct a study on race impacts in auto dealer financing markups and to make recommendations regarding the elimination of practices that cause markups to have a race-based impact.

Summary of provisions

Section 1: Amends Section 415 of the vehicle and traffic law to require auto dealers to disclose any markups on the vehicle financing. In the event that an auto dealer fails to disclose a markup, the Department of Motor Vehicles shall have the power to suspend or revoke the registration issued to such dealer. This section also entitles an aggrieved purchaser to compensatory damages equal to the cost of the financing markup and reasonable attorney's fees.

Section 2: Amends Section 404 of the financial services law to authorize the Financial Frauds and Consumer Protection Unit of the Department of Financial Services to conduct a study of the patterns and practices of motor vehicle financing markups to identify problematic practices, including race discrimination, and to make recommendations for the elimination of such practices. This section also directs the Unit to send the findings of its study to certain parties.

Section 3: This act shall take effect on the first of January next succeeding the date on which it shall have become a law.

Existing law

Under current law, auto dealers do not have to disclose any markup on the back end of the financing and generally have discretion to add a cost of between 0-3% to the financing; this cost is shouldered by the consumer.

Justification

Dealerships earn additional revenue from the back-end of the financing when they include a markup between 0-3% on the financing. This is a legitimate means for dealerships to earn revenue by facilitating financing for a buyer, but the buyer should be aware that the dealership is charging them this extra fee to do so.

There is no transparency involving the markup and the consumer is almost never aware this markup even exists. It incentivizes auto dealers to seek more expensive financing (when that more expensive financing allows a larger. dealer markup) and roll add-ons into the financing to inflate back-end financing profits.

Additionally, Federal and advocacy organization investigations have demonstrated that these markups are being applied in a race-discriminatory fashion. One report found that in New York, African-Americans were being subjected to dealer markups at a rate 311% higher than those given to Caucasians.

Legislative history

This is a new bill.

Fiscal implications

None.

Local fiscal implications

None.

Effective date

This act shall take effect on the first of January next succeeding the date on which it shall have become a law.