Be Careful When Charging Dealer Prep Fees and Other Fees
Dealer prep fee, service fee, detailing fee, etc…regardless of the terminology, a common point of confusion for Texas dealers centers around this idea of “additional charges.” For the purposes of this discussion, we will take that to mean any charges that are not included in the cash price of the vehicle. Additionally, we will delineate between a cash sale and a retail installment transaction. So what is allowable?In a cash sale, where a retail installment contract is not utilized, a seller is not subject to the provisions of Chapter 348 for installment loans. Therefore additional charges agreed to by both parties are generally allowable. However, there is one MAJOR caveat to that – advertising rules, specifically 43 Texas Administrative Code §215.250, which states in part:
The only charges that may be excluded from the advertised price are:
(1) any registration, certificate of title, license fees, or an additional registration fee, if any, charged by a full service deputy as provided by Transportation Code, §502.114;
(2) any taxes; and
(3) any other fees or charges that are allowed or prescribed by law.
Bear in mind the following definition of an advertisement from 43 TAC §215.244 (1): An oral, written, graphic, or pictorial statement made in the course of soliciting business, including, without limitation, a statement or representation made in a newspaper, magazine, or other publication, or contained in a notice, sign, poster, display, circular, pamphlet, or letter, or on radio, the Internet, or via an on-line computer service, or on television. The term does not include an in-person oral communication by a dealer's employee with a prospective purchaser.
Therefore a dealer who advertised a vehicle at a sale price of $12,995 would be in violation of the advertising rules if they required the customer to pay any additional fee not specifically listed above.
In a retail installment transaction, the seller is subject to Chapter 348, Texas Finance Code, which allows for the following itemized charges to be added to the cash price under Sec. 348.005:
(1) fees for registration, certificate of title, and license and any additional registration fees charged by a full service deputy under Section 502.114, Transportation Code;
(2) any taxes;
(3) fees or charges prescribed by law and connected with the sale or inspection of the motor vehicle; and
(4) charges authorized for insurance, service contracts, warranties, or a debt cancellation agreement by Subchapter C.
Over the years, the OCCC has typically taken the position that any itemized charges not explicitly authorized by this section are, in general, prohibited.
* Bear in mind that if a dealer charges a doc fee, that amount must be the same for both cash and financed sales.