NHTSA allows electronic odometer disclosures, but roadblocks to fully electronic sales remain in California

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For decades the National Highway Transportation Safety Administration (NHTSA) has required a “wet signature” on an odometer disclosure for sales of vehicles 10 model-years old or less. That era came to an end this September as NHTSA released its final rule allowing states to develop new odometer disclosure forms that may use an electronic signature. The rule also expands the disclosure requirement to cover vehicles 20 model-years or less. However, for California dealers there remain state laws to prevent fully electronic vehicle sales, and therefore additional steps before California can move into the electronic future.

On October 2, 2019, NHTSA issued its final rule establishing regulations to permit states to adopt electronic odometer disclosure statements as part of electronic titling systems for the sales and transfer of vehicles. The rule amends prior regulations that required a wet signature, i.e. a handwritten signature, that were developed to prevent odometer fraud. Odometer disclosures typically appeared on the back of state issued paper vehicle titles. States across the country have made steps to move towards electronic vehicle titles, but have been held back by the wet-signature requirement. This change removes the remaining federal barrier to electronic titles and fully electronic vehicle sales.

For California dealers, though, an important barrier remains to moving to fully electronic vehicle sales: a California law that purports to ban electronic disclosures to consumers for vehicle sales and leases. To complicate it further, federal law may override this state law, but no California court has weighed in on this issue, leaving dealers with uncertainty that could lead to costly, even if eventually successful, litigation. The California New Car Dealers Association has introduced legislation in past years to clarify this issue, but to date this legislation has not been successful. This therefore leaves dealers that desire to offer the customers a quicker, fully electronic option in a predicament. The new NHTSA rule, though, may serve as the catalyst for change.

Federal law has allowed electronic signatures in commerce since 2000. The Electronic Signatures in Global and National Commerce Act (“ESIGN”) allows the use of electronic signatures to satisfy any statute, regulation or rule requiring written disclosures in a sales or lease contract so long as certain conditions are met. Those conditions are that (1) the consumer has consented to the use of electronic documents, (2) has not withdrawn their consent, and (3) certain pre-consent disclosures are made.

However, California passed its Uniform Electronic Transactions Act (“Cal UETA”) just before the federal law. The laws share a framework, but differ significantly. For dealer’s purposes, the most significant difference is that the Cal UETA excludes transactions governed by the Automobile Sales and Finance Act and the Vehicle Leasing Act.

The fact that Cal UETA excludes vehicle sales and leases may be read to mean that these transactions must be completed with paper disclosures, despite the existence of the ESIGN law. Typically when federal law covers a topic, federal law controls over state law. ESIGN includes a clause that explicitly states that it preempts state laws. However, if a state adopted the national model UETA, then the state law controls. California did in fact adopt much of the model UETA in passing the Cal UETA, but also included many more exclusions than the model law, including of vehicle sales and lease contracts. Cal UETA also imposes different standards for consumers to agree to conduct transactions by electronic means.

To put it another way, ESIGN controls unless the state adopted a model electronic signature law. California adopted a law based on the model law, but California’s law also differs in significant ways. As a result, there is a dispute as to whether ESIGN controls and allows electronic signatures for vehicle sales and leases, or Cal UETA controls and electronic transactions are barred.

With the law uncertain, NHTSA’s changes to its odometer disclosure law means that electronic sales and leases are still a matter for the future for most dealers. Many will find that without legal certainty, the risk of a court finding that electronic signatures are barred for vehicle sale and lease disclosures is too great. However, for companies that are willing to take on that risk, NHTSA’s change could present the beginning of an opportunity. The California DMV will now have the opportunity to adopt new electronic titling options, removing another barrier to electronic transactions. When that change comes, the business opportunity of a quicker sale or lease will tempt.