Texas Dealer Ethics and Dealer License Suspensions


Texas Dealer Ethics and Integrity

It is imperative that you operate your new business with complete integrity and the highest ethical standards at all times. You must follow every State and Federal guideline on every transaction, PERIOD!

If you don’t operate strictly under all State and Federal regulations, your dealer’s license could result in suspension or revocation. Once you have had a dealer’s license revoked, it is time consuming and may be costly (legal fees for legal representation, if applicable) in order to obtain another dealer license.

Being completely honest with every one of your customers is a win-win situation. You will build your reputation your first few weeks in business and you must build an ethical reputation. A good, positive selling experience with a customer will lead to more sales to the customer’s friends, their co- workers, and their family. A bad, negative selling experience will result in customers leaving negative reviews of your dealership all over the internet. It is very easy for your customer to leave negative reviews and comments on Google, Facebook, Twitter, and more. When future customers see these reviews, they will not purchase vehicles from you.

CUSTOMERS WANT A DEALER THEY CAN TRUST!

To maintain your honest reputation, you must offer full disclosure on all vehicles before the sale. Always disclose every minor mechanical malfunction that you are aware of before the test drive. By disclosing everything you know about a vehicle before the test drive you will build an incredible reputation in your area.

Unethical dealers can never discard a dishonest reputation.

By operating your dealership with complete honesty and the highest ethical standards at all times, you will gain an honest reputation that will lead you to many more sales than that of a dishonest dealer.

Being completely honest with your customers is a win-win situation. You will have the best reputation in your area, you will have the highest profits, and you will be in business for many, many years.

OPERATING YOUR DEALERSHIP WITH COMPLETE INTEGRITY AND 100 PERCENT COMPLIANCE EQUALS MORE PROFITS WHILE ENSURING YOUR DEALER LICENSE WILL NEVER BE SUSPENDED OR REVOKED.

Reasons for Suspension or Revocation of a Used Motor Vehicle Dealer’s License

When you are granted a dealer’s license the state of Texas is giving you an opportunity to enter a business field that can be quite lucrative, however, you MUST follow several sets of rules and guidelines.

All Texas motor vehicle dealers must follow the laws we discuss in this course and the TXDMV has zero tolerance for any dealer that does not follow the rules. Any dealer that does not comply, or follow, the rules can have their dealer’s license suspended, revoked and pay extensive fines.

Reasons for License Suspension or Revocation of a Texas Motor Vehicle Dealer’s License: if you are following along in your training manual you can read these with me.

• Falsifying or forging documents. A dealer may not falsify or forge a title document, including an affidavit making application for a certified copy of a title
• Filing a false or forged document. A dealer may not file a false or forged tax document, including a sales tax affidavit
• Keeping Open Titles. A dealer may not fail to take assignment of any basic evidence of ownership, including a certificate of title or manufacturer’s certificate, for a vehicle the dealer acquires, known as an “open title.” Receiving, holding or delivering an open title is a violation and a very risky way to conduct business. An open title is like a blank check
• Not assigning titles. A dealer may not fail to assign any basic evidence of ownership, including a certificate of title or manufacturer’s certificate, for a vehicle the dealer sells
• Misuse of plates or tags. A dealer may not use or permit the use of a metal dealer’s license plate or a dealer’s temporary cardboard tag on a vehicle that the dealer does not own or control or that is not in stock and offered for sale
• Making Material Misrepresentations on Applications. If a person misrepresents a fact on any application to the department, whether it is a false statement of ownership, a false response to the felony question or a designation of a false place of business, a serious violation has occurred. Such violations could result, at the minimum, in denial of the application and possibly could result in a civil penalty
• Failing to maintain qualifications for GDN. The initial requirements to get a license must be maintained throughout the license period. This includes all requirements as to signs, business hours, office requirements, phones, allotted spaces, leases, etc. The department may deny an application for a license, revoke or suspend an outstanding license, impose a civil penalty a person whose license has been suspended or reprimand a licensee for any of the reasons set forth in the Occupations Code. The Texas Transportation Code, allows for a civil penalty of up to $1,000 for each act in violation and for each day of a continuing violation of the Texas Transportation Code. The Texas Occupations Code, allows for a civil penalty of up to $10,000 for each violation and for each day of a continuing violation of Chapter 2301, Texas Occupations Code, or Section 503.038(a), Texas Transportation Code. Section 2301.801, Texas Occupation Code also sets forth standards for assessing penalties. Civil penalties can range from $1000 to $10,000 per violation per day. Remember compliance is the name of the game in your business.
• The department shall cancel a dealer’s GDN if the dealer obtains the number by submitting false or misleading information
• Refusal to provide evidence of being in business. A dealer may not fail to provide to the department within 30 days after date of demand by the department, satisfactory and reasonable evidence that the person is regularly and actively engaged in business as a wholesale or retail dealer
• Not Remaining Regularly and Actively Engaged in the Business. Those people who are not really in the business as dealers normally carry a license for some other nefarious purpose. Maybe they just want a license to avoid paying sales tax for their personal vehicles, or possibly, they want access to the auction to buy their own vehicles at wholesale. Regardless, those persons who make fewer than five (5) sales per year will have their license challenged. Texas law now requires tax appraisal districts to turn in to the MVD the names of any dealers who either fail to file the annual VIT declaration and monthly statements or do not sell five vehicles within the calendar year. Wholesale transactions will count towards the required five (5) sales
• Failing to Report or Pay Taxes. Although the MVD does not collect taxes, those dealers who fail to properly report and pay state sales taxes or vehicle inventory taxes, could result in additional penalties and revocation of licenses from this agency
• Misuse of license. Misuse of a license involves any use of the license for purposes other than that specifically contemplated under the dealer law. Lending license numbers to unlicensed entities to buy or sell vehicles, or using the dealer location for illegal purposes are examples of misuse of a license
• Off-site Sales, Curbstoning. Dealers are not allowed to sell vehicles from anywhere but their duly licensed premises. (43 TAC §215.136) Dealers are strictly prohibited from curbstoning, which is the practice of selling vehicles away from a dealer’s licensed location. Dealers are also subject to penalty if they aid and abet curbstoning by selling vehicles to persons who practice curbstoning.
• Failure to apply for title within 30 working days of the date of sale. or 45 days if offering financing, or 60 days if sold to a military purchaser. The most common complaint received from consumers is they have not received their plates or title to the vehicle within 30 working days of the purchase. There are only two valid defenses to this violation. The first defense is if the consumer has misrepresented their credit history on a credit application. In that instance, the dealer has the right to rescind the contract. The second defense is if the dealer has promptly paid off the lienholder of the vehicle but the lienholder has failed to issue a release of lien within 10 days of the payoff. This is known as the “lienholder excuse.” A Seller-Financed sale allows 45 calendar days to apply for title, dealers are exempt from transferring title for certain vehicles based on vehicle weight.
• Giving the title work to the customer. Since January 1996, dealers are required to apply for the title and registration and not give the paperwork to consumers. The Tax Assessor-Collector offices have been very cooperative in turning in paperwork to MVD that has been filed by the consumer who bought a vehicle from a dealer. The only exception to his rule is when If a consumer is taking the vehicle out of state immediately, then a dealer should have the consumer fill out the Comptroller’s Sales Tax Exemption Certificate for vehicles taken out of state. This form is kept in the dealer’s sales file in case of an audit. Dealer has 20 working days to provide the buyer any necessary forms to register in their state
• Incomplete or No Records. Rules require records to be kept for at least 48 months. The current and immediately preceding 13 months must be available for inspection at the dealer's location. Records from the prior 35 months may be kept either on the licensed site or off-site within the same county. Failing to keep records at all or incomplete records is a serious violation.
• Not responding to request for records. Not keeping records is a serious violation, but not producing those records when a representative appears at a dealership is even more serious. Most information is requested by the MVD through certified mail. If a dealer fails to respond to this mail request, it is a violation and the agency representative may travel to the dealership to inspect not only the requested information, but the general state of records overall
• Forgery or Fraud. This encompasses rollbacks, title frauds and fraudulent sales of reconditioned vehicles. Also in this category are credit fraud or commercial fraud, floorplanner fraud and consignment fraud, which usually go hand in hand with these activities. In all of these instances, the perpetrator has made representations that have induced someone to buy a vehicle that he or she would not have purchased but for the fraudulent representations. Fraud is also cited when a dealer files a false tax or title document
• Spot Deliveries. This fraudulent practice consists of selling and delivering a consumer a car after signing a Retail Installment Contract and then calling the consumer back into the dealership to sign a new contract with higher interest, higher payments or to put more money down. This practice happens a lot when a dealer wants to tie the consumer to a sale but is unable to verify credit in a timely manner
• Dehorsing. Dehorsing is done in conjunction with a spot delivery and occurs when the consumer refuses to sign a new contract and demands back their trade-in, and are told their trade-in has already been sold, thus forcing him or her into the new contract or a vehicle of lesser value
• Parking on the Right-of-Way. Dealers are specifically prohibited from parking or displaying vehicles on the right-of-way adjacent to their dealership premises unless the governing body having jurisdiction of the easement, right-of-way, or driveway expressly consents to such use in writing. Use of right-of-way property that is part of the state highway system may only be authorized by a lease agreement entered into with the Texas Department of Transportation. This permission is given very seldom due to the nature of the safety hazard involved in allowing cars to obstruct the view of oncoming traffic. If a dealer wishes to inquire as to written permission, the dealer should call the local TxDOT office
• Failing to Settle Civil Penalties. One sure way to lose a license permanently is to refuse or neglect to settle any civil penalties assessed against a licensee by the department
• Odometer Tampering. Dealers are strictly prohibited from fraudulently tampering with an odometer to reduce the number of miles indicated on the instrument. This is a federal and state law with serious criminal penalties. Besides the criminal penalties, a person could be permanently denied a dealer license upon such a conviction
• Does not maintain established place of business
• Uses false or deceptive advertising
• Failed to notify TxDMV MVD of license entity changes within 10 days
• Failed to notify TxDMV MVD of ownership changes within 10 days (DON’T AD WORDS HERE)
• Failed to notify TxDMV MVD of physical or mailing address changes within 10 days
• Fails to maintain $25,000 dealer surety bond for entire licensure period

Failure To File Annual Vehicle Inventory Tax
Failure To File Monthly Tax
Failure To Sell 5 Vehicles Per Year
Premises Violations, Including Bond Violations
Filing False Tax Statements When Transferring Title (Example: Dealers Sells A Vehicle To A Consumer For $4,000 But When Doing The Title Transfer Says That He Sold The Vehicle For $2,000 that is a big, big no no

Reasons for Denial of a Texas Motor Vehicle Dealers License Application

• False statement of material facts in application
• Criminal History Specified in Texas Administrative Code §211.3
• Criminal History Specified in Texas Occupations Code §53.021
• Has no established place of business
• Does not have working telephone
• Does not have display lot/area
• Display Lot is Not Physically Separated from All Other Businesses’ Parking
• Business is not physically separate from another business

DEALERS MUST FOLLOW EVERY LAW, RULE, AND GUIDELINE IN ORDER TO OPERATE A SUCCESSFUL AND PROFITABLE DEALERSHIP. ANY DEALER THAT DOES NOT OPERATE COMPLETELY WITHIN THE LAW WILL FACE FINES AND/OR A LICENSE SUSPENSION OR REVOCATION.

TxDMV Dealer Motor Vehicle Dealer Fine Matrix

The TxDMV has what is known as the Motor Vehicle Dealer Fine Matrix. The fines for certain violations of State law are set in the Matrix and written into the Texas Occupational Code and the Texas Administrative Code.

It clearly states the punishments for Texas motor vehicle dealers that violate the law. The Low Sanction will normally set the minimum fine or punishment and the High Sanction will normally set the maximum fine or punishment. Depending on the circumstances for a specific case, the minimum or maximum penalties and fines can be changed dependent on the severity & number of the violations. The matrix does not contain all possible violations, nor does it limit the Department from seeking sanctions outside the disciplinary matrix recommended low and high sanctions when circumstances require.


Here you see the TxDMV Motor Vehicle Dealer Fine Matrix
As you can see if you willfully defraud a customer the fine starts at $1000 and can lead to revocation of the license
Falsification or forgery of tax documents starts at a 1000 fine and can lead to revocation, and the federal fines for this could be much more, so be advised we are looking at the State sanctions here, which would be in addition to any Federal penalties
Lets look at some more here, misrepresenting mileage starts at 2000 dollars and leads to revocation, federal penalties could also include prison time for odometer crimes
False VIT statements start at 1000 dollars and can lead to revocation

Lets look at some more violations here, allowing someone to used your GDN, allowing someone to use your dealer license carries fines of 500 to 4000, you can never let unlicensed persons act as a dealer with your dealer license
Take a look at this one towards the bottom, acting as a manufacturer or distributor will lead to fines that START at 5000 and can lead to charges being filed by the Attorney General, these are some serious violations

Take a look at a couple more here, violation of the Blue law can lead to fines up to 2000, selling or leasing a vehicle that does not meet emissions can lead to fines of up to 4000 dollars, overcharging documentary fees can lead to fines of up to 2000, we will show you how to comply with documentary fee laws later in the course so you will never over charge

If you follow every rule, law, and guideline required for your business you will never pay any fines and you will always keep your license. Remember 100 percent compliance equals100 percent profits,

TxDMV Enforcement Division

Texas laws are enforced by the Texas Department of Motor Vehicles Enforcement Division and they receive about 12,000 complaints a year, they investigate lemon law violations and also respond to dealer complaints. The Enforcement Division receives approximately 12,000 complaints per year. Enforcement investigators make contact with licensees and complainants to collect information based on complaints received. Investigators also assist law enforcement by training officers and other agents on rules and regulations that apply to licensees.

The Enforcement Division is made of five sections under the direction of a single director who reports to the TxDMV Executive Director.

The five sections are:
Administrative, Legal, Lemon Law, Motor Vehicle Investigations, and Motor Carrier Investigations.
The Legal section employs attorneys that review investigations and, if needed, prosecute violations.
Administrations supports the other sections with the functions of Human Resources, Purchasing, and Accounting
The Lemon Law section administers the Texas Lemon Law and Warranty compliance programs that mainly affect franchised dealers that sell new motor vehicles.
Motor Vehicle Investigations, and Motor Carrier Investigations are carried out as well.

Dealer Complaints

The TxDMV makes it very easy to log a complaint against any Texas motor vehicle dealer, they have several phone numbers, email address, and the online dealer complaint form they can complete at the following website:
https://txdmv.secure.force.com/Complaint/

As you can see it is very easy for customers to log a complaint against your dealership using this online form

Texas state laws are called statutes and if you ever want to read a statute, which is Texas law, you can go to google, or whatever search engine you use, and type in Texas Statute, then click on Texas Statutes

Then you can scroll down and click on the category you are interested in to read how the law applies to that category


We are here to help you obtain and renew your Texas Dealers License!

Texas Dealer License

Delus Johnson-Lead Instructor
Automobile Dealer Training Association