If you purchase a car in California, you must sign a Retail Installment Sales Contract (“RISC”). The RISC is 24 inches long and has small type on both the front and the back. The front side contains the deal numbers,finance terms and your signature. It also contains a small box on the left which is entitled SELLER’S RIGHT TO CANCEL. When you sign that box, you acknowledge that you have read the back of the contract which specifies the terms under which the seller may cancel the contract. Of course, you didn’t read it, but you acknowledged that you did.

There is another box on the back of the 24 inch RISC. It addresses the conditions under which the seller can cancel. The first item (a) states that you understand the car has not been financed and that it may take a few days. The second item (b) states that the seller shall give you written notice (or in any other manner in which actual notice is given to you) within 10 days of the date your contract was signed if seller elects to cancel. Upon receipt of such notice you must immediately return the car to the dealership. There are two more items in the box but they are not relevant to this discussion.

So what does this mean. It means that the dealer knew before you left the dealership in your new car that it was unlikely that the dealership could (1) get you financed under the terms on the RISC; or (2) the dealer could not get the terms it wanted from any of the finance companies it contacted. Yes, dealerships profit from the financing of your purchase.

The dealer sent you home in your new car so you could drive it, show it off and fall in love with it. The dealer also kept your trade-in car and/or your downpayment. The dealer most likely knew before you signed the RISC that it would be calling you to return the car. The dealer also knew that you would agree to higher, more burdensome terms, because you would not want to tell your family and friends you could not keep the car.

What are you to do?

1. You can return to the dealership and sign new documents at a higher interest rate, to be repaid over a much longer period of time, and possibly with a larger downpayment. This is a bad idea. Don’t do business with someone who is willing to deceive you.

2. The best option is to return the car, get ALL of your money and your trade-in vehicle back and find an honest dealership who will help you buy a car you can truly afford.

a. Did you give the dealership a trade-in car? Under California law, the dealership must maintain possession of your trade-in until the deal is financed and cannot be canceled. If the dealership tells you it does not have your trade-in, it is either lying or has violated California statutes. The dealership tells you it no longer has your trade-in to scare you into singing the second RISC with burdensome terms. Call an attorney to assist you.

b. Did you give the dealership a cash downpayment? Under California law, the dealership must reimburse you for every dime you paid to it. There is no offset because you drove the car for several days and put miles on the odometer. You get ALL of your money back. If the dealership tries to charge you for use or miles, call an attorney to assist you.

3. If the dealership contacts you beyond the 10 day limit (be sure it really is beyond the 10 days), you do NOT have to return the car. The dealership has 10 days and only 10 days to cancel the RISC. After that, the dealership is stuck with the original terms of the RISC which you signed on the day you purchased the car.

Before you shop for a car, find out what your credit score is. Join a credit union or talk to your bank to get an idea as to the size of car loan you qualify for, as well as the terms and the length of time to pay it back. When you arrive at the dealership, you are prepared to discuss real terms and, if necessary, get your own financing.


By: Ellen Turnage