Proposed California Ballot Initiative Targets Dealer Markups

Auto Finance

Recently, the consumer advocacy group Consumers for Auto Reliability and Safety announced that it submitted a new ballot initiative in California that would, among numerous other things, prohibit dealer markups in auto finance transactions. The text as proposed would prohibit, in connection with the assignment of a conditional sale contract for a motor vehicle, any seller or employee of a seller from accepting, and any purchaser of a conditional sale contract from paying to any person or entity, compensation of any kind for arranging, assigning, or otherwise transferring a loan that varies based on the interest rate or other finance charges, or varies based on any other factor related to such interest rate or finance charges. The prohibition would not apply to, among other things, (i) an assignment that is with full recourse or under other terms requiring the seller to bear the entire risk of financial performance of the buyer or (ii) an assignment that is more than six months following the date of the conditional sale contract. The proposal is in the early stages of California’s ballot initiative qualification process.