I live in Tampa, on Florida’s Gulf Coast. If you want to know tomorrow’s weather, you look to the west. Clouds form over the Gulf of Mexico and bring that moisture as welcome rain. If you see dark clouds in the west, grab your umbrella.

Compliance trends are like the weather in that regard. If you want to know what tomorrow’s regulatory environment might be, look west – to California.

In 2023, California enacted a law that adds paperwork, complexity and time to the retail transaction for very little meaningful consumer protection. If you’re from California, keep reading – and take notes. If you’re not, keep reading – and pray it doesn’t spread to a state near you.

Catalytic Converter Marking

Catalytic converter theft is a growing problem across the country. According to data from Carfax, such thefts rose from 1,300 in 2018 to over 52,000 in 2021 in California alone. This increase has been driven by the explosion in the value of the precious metals catalytic converters contain. The California legislature passed Senate Bill No. 55 to combat this disturbing trend. SB55 took effect on Jan. 1, and requires dealers to etch, engrave, weld or otherwise permanently mark the vehicle identification number of each new or used car they sell on their catalytic converters – unless the customer declines that etching. SB55 also imposes significant process and record-keeping obligations on catalytic converter core recyclers.

 As of Jan. 1, dealers have two choices:

Option 1

Permanently mark each catalytic converter with the vehicle’s VIN as a part of their presale preparation. This would apply to new cars as they roll off the truck from the factory, as well as used cars taken into inventory. Note that SB55 does not apply to leases, so vehicles destined for lease can go unmarked.

If the dealer wants to recapture the cost of marking catalytic converters with the vehicle’s VIN and it increases the cost above manufacturer’s suggested retail price (in the case of new vehicles), an addendum sticker should be placed on the window next to the Monroney Label. Also, be sure to include in any advertised prices the cost of the installation.

Option 2

Allow the customer to decline the marking and its associated cost. This requires postponing application of the mark until after it is sold, and the customer has been given an opportunity to decline it – and any related charge. The downside of this approach is that will slow delivery. The upside is that most cost-conscious customers might decline the coverage, so the impact on the dealership is minimized, along with the cost to the customer.

Finance-forms providers acted quickly to create documents to satisfy SB55’s requirement of written confirmation that the customer willingly and knowingly chose to decline the marking. CDK, for example, crafted a pair of forms to accomplish the same end but allow some flexibility to satisfy individual dealer preferences.

While SB55 does not specifically require disclosure of the dealer’s exact charge for the marking, or that that amount might include additional dealer profit, CDK thought it best to give dealers that level of protection. According to Kyle Wilke, manager of CDK’s DealerCAP forms division, “Given the risk of litigation, we take the position that dealers should always have a form designed to provide greater protection from consumer suits. But for those dealers who would rather not include that language, we offer a version that omits it. Ultimately, which version to use should be up to the dealers and their counsel.”

The Forecast

I predict the impact of SB55 on catalytic converter theft will be minimal. Why? Because the law will be followed only by law-abiding people and businesses. When a jewel thief steals a diamond ring, he doesn’t go to Jared to sell it – he goes to a fence. Catalytic converter thieves don’t try to sell their take to Pep Boys - they go to their nearest chop shop or illegal core converter.

In short, catalytic converter theft will drop when the value of the precious metals the devices contain drops. Be that as it may, honest dealers and core converters – and their customers – must bear the burden of compliance with a law that sounds good in theory but will likely fail in its stated goal. If you’re a California dealer, get your hands on a form like CDK’s and start using it. And if you’re not a California dealer, keep your eyes to the west …

ABOUT THE AUTHOR

James Ganther is president of Mosaic Compliance Services.