Dealer Fraud vs. Lemon Law in California: Know Your Rights

At The Beck Law Office, we represent clients under the California Lemon Law who have faced repeated, unsuccessful repair attempts on a defective vehicle still under the manufacturer’s warranty. We also regularly meet consumers who discover that a dealership misrepresented a vehicle’s condition, concealed prior accidents, or increased the purchase price with undisclosed add-ons and fees.

Two Different Legal Paths for California Car Buyers

Both scenarios are serious, but they fall under two different areas of California law: the Song-Beverly Consumer Warranty Act and the Consumer Legal Remedies Act (CLRA) - and related statutes that govern auto dealer fraud. Understanding the difference between a Lemon Law claim and a dealer fraud case can be the deciding factor in whether you recover a full refund, obtain a replacement vehicle, or pursue damages for fraudulent business acts.

In this article, we will outline how the law applies, the common deceptive practices we see in California dealerships, and how to determine whether your situation is best handled as a Lemon Law case or an auto fraud claim.

1. What is the California Lemon Law?

California offers some of the nation’s strongest consumer protections for car buyers through the Song-Beverly Consumer Warranty Act (Civil Code § 1790 et seq.). Within this statute, the California Lemon Law (California Civil Code § 1793.2 et seq.), specifically addresses motor vehicles, ensuring that consumers who purchase or lease a new car that proves to be defective, are entitled to meaningful remedies.

When Does the Lemon Law Apply?

The California Lemon Law applies when:

• You purchased or leased a new vehicle that is still covered by the manufacturer’s warranty.

• The vehicle has a defect that substantially impairs its use, value, or safety.

• The manufacturer, or its authorized dealer, has been given a reasonable number of opportunities to repair the defect, but the problem still persists.

What This Means in Practice

In practice, this usually means multiple visits to the dealership for the same problem. For example, we’ve seen clients return time and again for transmission failures, electrical malfunctions, or braking system defects. If the manufacturer fails to fix the defect after several repair attempts, or if your car is out of service for more than 30 days, the California Lemon Law presumes that your vehicle qualifies for relief.

What You Can Recover

If your vehicle meets these criteria, the manufacturer must either:

• Repurchase the vehicle, refunding your purchase price (minus a small deduction for use), or

• Provide a replacement vehicle of comparable value.

In addition, under California Civil Code § 1794, if the manufacturer willfully fails to honor its warranty obligations, you may be entitled to civil penalties of up to two times your actual damages. Prevailing consumers are also entitled to recover reasonable attorney’s fees and costs, meaning you don’t have to worry about paying legal fees out of pocket to pursue justice.

2. What is Dealer Fraud in California?

Not every bad car purchase involves a defective vehicle. Sometimes the problem is not the car itself but how the dealer sold it. That is where auto dealer fraud comes in.

Dealer Fraud Explained

Dealer fraud occurs when a car dealer engages in deceptive business practices during the sale or financing of a vehicle. These cases often fall under California’s Consumer Legal Remedies Act (CLRA), the Unfair Competition Law (Business & Professions Code § 17200), and other consumer protection laws.

Common Examples Include

While our firm focuses on California Lemon Law cases, we often speak with consumers who believe they may have a lemon on their hands, when in fact their situation involves auto dealer fraud.

Some of the most common deceptive practices in California car dealerships include:

• Bait and Switch Tactics - Advertising a vehicle at a low price, then claiming it’s unavailable and steering the buyer into a higher-priced car.

• Undisclosed Add-ons – Slipping service contracts, extended warranties, or unwanted products into the sales contract, inflating the purchase agreement and monthly payments.

• Concealing Prior Accidents or Title Status – Selling a car without disclosing a salvage title, title washing, or serious prior damage revealed in a vehicle history report.

• Odometer Fraud – Rolling back mileage to make a car appear newer.

• Yo-yo Financing Schemes – Sending buyers home in a vehicle, then calling them back days later claiming the loan “fell through” and demanding a higher monthly payment.

How Dealer Fraud Differs from the Lemon Law

Unlike Lemon Law cases, which usually involve the vehicle manufacturer, dealer fraud claims are directed at the dealership itself. And while a Lemon Law case requires multiple repair attempts to establish a defect, dealer fraud can be proven from the start if the purchase contract was based on misrepresentations or false claims.

Remedies for Auto Fraud

Consumers who pursue legal action for dealer fraud may be entitled to:

• Rescission (cancellation) of the sales contract.

• Restitution for money lost to fraudulent fees or add-ons.

• Recover attorney fees and costs under the CLRA.

• In some cases, civil penalties for intentional misrepresentation.

3. Dealer Fraud vs. Lemon Law: Key Differences

Clients often ask us: “How do I know if I have a lemon law claim or a dealer fraud case?” The answer comes down to what went wrong and who is responsible.

Defective Vehicles vs. Deceptive Practices

Lemon Law is about defective vehicles. If your new car has a substantial defect that persists even after several repair attempts under the manufacturer’s warranty, the Song-Beverly Consumer Warranty Act applies. In this instance, you are primarily pursuing the vehicle manufacturer for failing to stand behind its warranty.

Dealer fraud, on the other hand, is about deceptive practices in the sale itself. If the dealership misrepresented the vehicle’s condition, hid its accident history, or slipped unwanted products into your purchase contract, that qualifies as a dealer fraud case under the Consumer Legal Remedies Act and related California consumer protection laws.

Overlapping Protections

Of course, in practice, these situations can overlap. For example, a used car dealership might sell you a vehicle that is still under a valid manufacturer’s warranty, but conceal the fact it had a salvage title or prior major accidents. In those situations, you may pursue both legal remedies: a Lemon Law warranty claim for the persistent defect, and a fraud claim for the fraudulent business acts.

4. Why the FTC CARS Rule & California SB 766 Are Important

In January 2025, the Fifth Circuit Court of Appeals struck down the Federal Trade Commission’s Combating Auto Retail Scams (CARS) Rule. That rule would have required auto dealers nationwide to clearly disclose the full purchase price, banned certain add-ons and prohibited deceptive sales tactics. While the FTC’s rule never took effect, it reflected a growing concern about fraudulent dealerships.

California’s Proposed CARS Act: Stronger Rules for Auto Sales

Here in California, legislators responded with Senate Bill 766, also called the California CARS Act. This proposed law would:

• Require dealers to make the purchase price, down payment, and financing terms clear and conspicuous.

• Ban selling add-on products (such as duplicative warranties or nitrogen-filled tires) that don’t actually benefit the buyer.

• Crack down on bait and switch tactics and yo-yo financing schemes.

• Provide stronger remedies for consumers harmed by deceptive practices.

If signed into law, Senate Bill 766 would expand California’s consumer protection framework by imposing stricter limits on deceptive practices in auto sales. Under the bill’s current text, many of its provisions are scheduled to take effect on October 1, 2026.

5. What To Do if You’re Unsure Which Law Applies

If you are a vehicle owner facing problems, the first step is to gather documentation.

• Keep copies of your sales contract, purchase agreement, and any add-on forms.

• Save service records that show the multiple repair attempts or the number of days your car has been out of service.

• Obtain a vehicle history report to check for prior accidents, title washing or salvage titles.

• If possible, have an independent mechanic inspect the car to confirm its condition.

Once you have this evidence, speak with an experienced California Lemon Law attorney. At The Beck Law Office, we offer a free initial consultation to review your case. We can quickly determine whether your claim is best pursued as a dealer fraud case, or if the California Lemon Law applies, or both.

Protecting California Car Buyers

At The Beck Law Office, we've dedicates our practice exclusively to representing California consumers in Lemon Law cases under the Song-Beverly Consumer Warranty Act. If your vehicle qualifies as a lemon, we have the experience to guide you through the legal process and pursue the compensation and relief you deserve.

We also understand that some clients come to us with concerns that may involve fraudulent dealerships or other deceptive sales practices. While our firm does not litigate dealer fraud claims, we can assess your situation, point you in the right direction, and help you determine whether your case falls under the California Lemon Law or another consumer protection statute.

Contact Us Today

If you’re unsure how your situation fits under California law, don’t wait. Contact us today for a free initial consultation. We will carefully review your documents, outline your legal options and make sure you understand the legal protections available to you.