Illegal Incentives Related to Electronic Vehicle Registration

At its most basic level, California law prohibits dealers from profiting from this charge. Specifically, Vehicle Code section 4456.5(a)(2) provides:

An electronic filing charge, not to exceed the actual amount the dealer is charged by a first-line service provider for providing license plate processing, postage, and the fees and services authorized [by the DMV] including services related to reporting vehicle sales and producing temporary license plates…. The electronic filing charge shall not be used to pay for additional fees, goods, or services not directly related to the electronic registration of a motor vehicle, including, but not limited to, the receipt by the dealer of free or discounted goods, services, or financial incentives. (emphasis added)

To fully understand this restriction, a little history is in order.

Electronic vehicle registration (EVR) was basically made mandatory for California new car dealers in 2011 by AB1215. In addition to paving the way for a much more efficient registration process, the intent of this law was (and still is) that dealers cannot make a profit off of EVR. As such, the electronic filing charge was created strictly as a “passthrough” charge. In addition, this same law raised the document processing charge (“doc fee”) to $80 (now $85) for dealers that are contracted second-line business partners and only $65 (now $70) for dealers that are not. In other words, dealers’ only compensation for electronically filing vehicle registrations was/is to take the form of the increased doc fee. 

Nevertheless, some first-line service providers (“EVR providers”) started providing rebates and discounts on unrelated products to dealers. This concerned CNCDA because the practice was putting dealers at risk. The original version of VC 4456.5 (quoted above) did not contain the italicized language. So, to clarify that dealers should not be receiving financial incentives as a result collecting the electronic filing charge, the law was amended in 2016 by AB605 and the italicized language was added.

If dealers receive any kind of financial incentive back from an EVR provider, a claim could easily be made that such incentive is tantamount to the dealer impermissibly profiting from the collection of the electronic filing charge. Put another way, a class of customers could claim that they were overcharged for electronic filing (the overcharge being the total amount of the financial incentive paid back to the dealer). The label associated with any such incentive is irrelevant. 

Takeaways for Dealers

1. Only collect the Electronic Vehicle Registration or Transfer Charge from customers on deals that are electronically filed (which, by now, should be almost all of your deals).
2. The maximum charge for each electronic vehicle registration is the amount your first-line service provider charges you, or $33, whichever is LESS!
3. Rebates, discounts on unrelated services, or any other financial incentive are impermissible and should neither be offered, nor accepted. If a service provider is offering an incentive, ask for a written legal opinion from their attorney and discuss it with your attorney.
4. EVR service providers are expressly prohibited from requiring EVR services as a condition to receiving discounts on non-EVR products/services, consulting fees, or other financial benefits.