Kara Sears
Texas has a variety of laws in place to regulate the operations of car dealerships and protect consumers from automotive scams. These laws cover a range of topics, including financing, warranties, odometer readings, and repossession. Dealerships in Texas are required to adhere to ethical standards and comply with several rules and guidelines to maintain their dealer's license. To obtain a dealer's license, specific premises requirements and financial conditions must be met. Understanding these laws is crucial for both consumers and dealers to ensure fair and legal transactions.
| Characteristics | Values |
|---|---|
| Dealership location | A physical location is required to sell vehicles |
| Dealer license | $700 for two-year terms |
| Dealer surety bond | $50,000 |
| Dealer training course | TxDMV eLICENSING online application and Texas Dealer Education pre-licensing training course |
| Display vehicles | Space to display at least five vehicles |
| Odometer statement | Required by Texas law |
| Liability insurance | Required by Texas law |
| Maximum interest rates | Set by Texas law for financing used cars |
| Repossession | Dealerships can repossess a car without prior notice |
| Cancellation | No 3-day cancellation period |
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What You'll Learn
Dealership licensing requirements
To obtain a dealership licence in Texas, you must meet certain eligibility criteria and complete various steps. The Texas Department of Motor Vehicles (TXDMV) oversees the licensing process and establishes the requirements you must meet to get your licence.
Firstly, you must determine what type of licence you need. All dealers must obtain a general distinguishing number (GDN), also called an independent dealer licence. When you apply for the licence, you must select one of the following categories:
- Independent Motor Vehicle: Buy, sell, and exchange used cars, trucks, motorhomes, and similar vehicles.
- Independent Motorcycle: Buy, sell, or exchange motorcycles, scooters, and ATVs.
- Travel Trailer: Buy, sell, and exchange used trailers.
- Wholesale Dealer License: Sell used vehicles only to other licensed dealers.
- Independent Mobility Motor Vehicle: Sell new vehicles equipped to transport a person with a disability.
- Franchised Dealer License: Authorizes you to sell new vehicles.
Before applying for your licence, you need to legally form your company and provide a certification of incorporation, organisation, or partnership. If your company is a corporation, limited partnership, limited liability partnership, or limited liability company, you must submit a copy of your approved certificate of formation or certificate of authority issued by the Texas Secretary of State. If you are a franchise dealer, you must also obtain a franchise licence.
You must also establish a permanent business location with the following requirements:
- The location must be in a building with connecting exterior walls on all sides.
- The location must comply with all applicable local zoning ordinances and deed restrictions.
- The dealership name must be at least six inches high or larger and be clearly visible.
- The business must have an office with, at a minimum, a desk, two chairs, internet access, and a working telephone listed in the business name or assumed name under which the dealer does business.
- The dealership must have an adequately illuminated on-site display area with a hard surface (not a driveway) and enough space for at least five vehicles.
In addition to your business incorporation, location, and bond documents, your application should contain the following:
- Proof of identity: A photocopy of a current driver's licence will suffice, or a passport or United States Armed Forces Identity Card.
- Assumed name certificates for the business if operating under an assumed name.
- Dealer development stores must show documentation that the business meets the requirements of Occupations Code §2301.476 and 43 TAC §215.113.
- A copy of the lease that cannot expire during the licence term or proof of ownership of the property if it is not leased.
Once you have received your licence, it must be displayed in a conspicuous place at each place of business.
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Dealership ethics
The National Automobile Dealers Association (NADA) has a Code of Ethics that emphasizes dealers' commitment to quality service and high ethical standards. NADA members pledge to treat customers fairly and honestly, comply with non-discrimination laws, and represent their products accurately. Ethical practices in dealerships can be promoted through comprehensive hiring processes, employee training, and the establishment of core values.
For instance, DCF, a car dealership in New Mexico, has implemented several ethical practices. They start by promoting ethical behavior in their Employee Handbook and continuously reinforcing it through various channels. DCF also conducts background checks and drug tests on new employees, with random monthly drug tests for existing staff. Additionally, they have a confidential employee hotline for reporting any ethical or legal issues. As a result of these practices, DCF became the first automotive dealership to receive the Ethics in Business Award of New Mexico's Samaritan Counseling Center in 2014.
In terms of legal requirements, dealership salesmen in Texas must adhere to the Occupations Code Chapter 2301, which outlines regulations for the sale or lease of motor vehicles. This includes provisions for franchised dealers, such as protections against retribution from manufacturers or distributors, and requirements for separate licenses for distinct dealerships. While I cannot provide specific legal advice, adhering to ethical practices and full disclosure can help dealership salesmen in Texas avoid legal issues and maintain their licenses.
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Consumer rights
When buying a car in Texas, consumers have a variety of rights that protect them from unfair practices and ensure they receive accurate information about their purchase. Here is an overview of some key consumer rights:
Warranties and Inspections: In Texas, used vehicles are typically sold "as-is," meaning there is no warranty coverage provided by the dealer. However, consumers have the right to purchase a warranty at the time of purchase, although this is not recommended for used cars. It is advisable to have a third-party inspection before buying a used car to identify any potential issues. While some reputable dealerships may work with you to resolve problems after the purchase, it is not a legal requirement.
Odometer and Mileage Disclosure: Texas law requires the seller of any used vehicle to disclose the total mileage of the car on the title assignment. Consumers should obtain a copy of the odometer statement when signing the contract. It is illegal to tamper with or change the number of miles on an odometer.
Financing and Insurance: Consumers in Texas have the right to arrange their financing and insurance separately from the dealership. You are not required to finance through the dealer or purchase credit insurance from them. However, if you do choose to buy credit insurance from the dealer, it must be disclosed in the Retail Installment Contract. Texas law sets maximum interest rates for financing used cars, and these rates vary based on the age of the vehicle and the amount owed.
Price Information and Negotiation: Consumers can use various resources, such as newspaper ads, the Texas DMV website, and online tools like "Blue Books," to get an idea of price ranges for both new and used cars. It is recommended to shop around and compare prices before making a purchase. Additionally, consumers should be aware of rebates and other incentives that may be available when buying a new car.
Lemon Law and Deceptive Trade Practices Act (DTPA): The Texas Lemon Law protects buyers of new vehicles still under warranty by enforcing the warranty with the manufacturer. If your vehicle has a defect, the TxDMV can require the manufacturer to buy back or replace it. The Lemon Law has different requirements depending on whether the defect poses a "serious safety hazard." Additionally, under the DTPA, if the seller knowingly sells a damaged vehicle without disclosing it and the buyer discovers the damage, they may have a legal claim even if the car was sold "as-is."
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Dealer complaints
The Texas Department of Motor Vehicles (TxDMV) investigates complaints against vehicle dealers licensed to sell vehicles in Texas. The TxDMV has a zero-tolerance policy for any dealer that does not follow the rules. The department encourages people to file complaints against Texas motor vehicle dealers, which can be done via phone, email, or an online dealer complaint form.
If a complaint is about a dealer's sales practices, the TxDMV requires a copy of the sales contract and other documents received from the dealer. For advertising complaints, a copy of the advertisement in question should be provided. The TxDMV also accepts complaints about defective vehicles, which may be covered under the Texas Lemon Law.
The TxDMV investigates complaints and may initiate administrative action against the dealer or entity if a violation is found. However, it is important to note that the TxDMV cannot pursue private claims for damages on behalf of the complainant. Civil claims against the dealer or entity may be separate from the administrative action, and seeking legal counsel is advised to understand these options better.
Some common reasons for complaints and dealer license application denials include:
- Failure to maintain an established place of business
- False or deceptive advertising
- Failure to notify TxDMV MVD of license entity changes within 10 days
- Failure to maintain the required dealer surety bond during the licensure period
- Filing false tax statements
- Criminal history
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Financing a car
When it comes to financing a car in Texas, there are a few options available to you. Firstly, you can consider taking out an auto loan from a financial institution such as a bank or a credit union. Several credit unions in Texas, such as the Credit Union of Texas (CUTX) and the Greater Texas Credit Union, offer auto loans with competitive rates and fast approvals. These institutions often provide online applications and flexible terms to suit your financial needs. It is worth noting that eligibility for financing may depend on factors such as the mileage of the vehicle and its registration within the state.
Another option is to explore financing directly through a dealership. Dealerships like Texas Auto offer nationwide financing options for their vehicles, which can be convenient if you are purchasing a car from out of state. They may also provide online tools to estimate the value of your trade-in and calculate your monthly payments. However, it is always a good idea to do your research and compare rates and terms from multiple lenders before making a decision.
Additionally, when financing a car, it is important to consider additional costs such as insurance and vehicle protection plans. Some lenders may require you to provide proof of insurance before approving the loan. You may also have the option to purchase additional protection plans, such as Guaranteed Asset Protection (GAP) or Vehicle Service Contracts (VSC), to safeguard your investment further.
Lastly, it is worth mentioning that the State of Texas has specific laws and regulations regarding the sale and lease of motor vehicles. While these laws primarily govern the relationship between manufacturers, distributors, and dealers, it is important to be aware of your rights and responsibilities as a consumer when financing a car in Texas.
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Frequently asked questions
To obtain a car dealer license in Texas, you need to complete the TxDMV eLicensing online application and take the Texas Dealer Education pre-licensing training course. You will also need to provide a $50,000 Motor Vehicle Surety Bond, proof of an established and permanent place of business, and a copy of your lease or proof of property ownership.
In Texas, consumers do not have three days to cancel a car purchase. The dealer is required to register and title the vehicle in the buyer's name within 30 days. Texas law requires the seller of any used vehicle to state the total number of miles the vehicle has traveled on the title assignment. It is illegal for the number of miles on an odometer to be rolled back or changed.
Texas dealerships are expected to operate with complete honesty and the highest ethical standards. The Texas Department of Motor Vehicles (TxDMV) has zero tolerance for any dealer that does not follow the rules, and customers can easily log complaints against dealerships. Dealerships that fail to uphold ethical standards may have their dealer licenses suspended or revoked.
