DMV Sales Contracts and Disclosures 4 — Questions and Answers
Question 1: A buyer purchases a used vehicle and later discovers it was previously declared a total loss by an insurer. The dealer did not disclose this. The buyer's strongest legal claim is likely based on:
- Product liability
- Failure to disclose a material fact (Correct answer)
- Breach of the Buyers Guide warranty
- Violation of the Truth in Lending Act
Correct answer: Failure to disclose a material fact
Total loss history is a material fact that must be disclosed; failure to do so supports a claim of fraudulent concealment or unfair trade practice.
Question 2: Under the Truth in Lending Act (TILA), the Annual Percentage Rate (APR) must be disclosed:
- Only if the buyer asks
- Before the credit contract is signed (Correct answer)
- After the first payment is made
- Only on loans over $10,000
Correct answer: Before the credit contract is signed
TILA requires clear disclosure of the APR and other credit terms before the consumer signs a credit agreement.
Question 3: A dealer sells a vehicle and the parties agree the purchase price includes a trade-in allowance. If the trade-in value is later adjusted downward without the buyer's consent, this could be:
- Standard practice requiring no notice
- A breach of the purchase agreement (Correct answer)
- Permitted if the vehicle appraisal changes overnight
- Required by state DMV rules
Correct answer: A breach of the purchase agreement
Once a trade-in value is agreed upon in a signed contract, unilaterally reducing it without consent constitutes a breach of that agreement.
Question 4: A 'four-square' worksheet is used by some dealers to negotiate. Regulators view it skeptically because it can:
- Accelerate the deal process unfairly for buyers
- Obscure the true cost by manipulating four variables simultaneously (Correct answer)
- Violate federal mileage disclosure laws
- Replace the required Buyers Guide
Correct answer: Obscure the true cost by manipulating four variables simultaneously
The four-square method can confuse buyers by shifting focus between price, trade-in, down payment, and monthly payment to obscure actual cost.
Question 5: Which of the following is NOT typically required to appear on a vehicle purchase contract?
- Vehicle identification number (VIN)
- Dealer's profit margin (Correct answer)
- Selling price
- Finance charge
Correct answer: Dealer's profit margin
Dealers are not required to disclose their profit margin on the purchase contract; VIN, selling price, and finance charges are required disclosures.
Question 6: A customer signs a purchase contract. The dealer then discovers the trade-in vehicle has a lien the customer did not disclose. The dealer's most appropriate action is:
- Rescind the contract immediately without notice
- Notify the buyer and renegotiate or require payoff before completion (Correct answer)
- Transfer title and absorb the lien cost
- Report the buyer to law enforcement immediately
Correct answer: Notify the buyer and renegotiate or require payoff before completion
An undisclosed lien on a trade-in affects the deal's terms; the dealer should notify the buyer and either renegotiate or require the lien be paid off.
Question 7: A dealer's finance manager adds a credit insurance product to the contract without telling the customer. Under TILA, this is:
- Permitted if it reduces the APR
- A violation because it is an undisclosed credit-related charge (Correct answer)
- Acceptable if the customer can cancel later
- Required by most state lending laws
Correct answer: A violation because it is an undisclosed credit-related charge
TILA requires all credit-related charges to be disclosed; adding undisclosed products inflates the finance charge and violates disclosure requirements.
DMV Sales Contracts and Disclosures 4
A buyer purchases a used vehicle and later discovers it was previously declared a total loss by an insurer.
The dealer did not disclose this.
The buyer's strongest legal claim is likely based on: