Filed 12/15/16




      IN THE SUPREME COURT OF CALIFORNIA


                                    )                             S222211
RACEWAY FORD CASES.                 )
                                    )                Ct.App. 4/2 E054517, E056595
                                    )                   Riverside County Super. Ct.
                                    )                         JCCP No. 4476
____________________________________)



       The Automobile Sales Finance Act (ASFA), also known as the Rees-
Levering Motor Vehicle Sales and Finance Act (Civ. Code, § 2981 et seq.) is a
consumer protection statute that governs the sale of vehicles where the buyer
finances all or part of the car‘s purchase price. We granted review to determine
(1) whether defendant Raceway Ford, Inc. (Raceway) violated ASFA when, after
agreeing to an initial finance contract, it would enter into a subsequent finance
contract with a buyer and backdate the second contract to the date of the first
contract; and (2) whether Raceway violated ASFA when a computer error caused
Raceway to incorrectly include smog-related fees in buyers‘ purchase contracts.
         We conclude (1) that Raceway‘s practice of backdating contracts did not
violate ASFA and (2) that Raceway did violate ASFA when it disclosed inaccurate
smog fees, but plaintiffs are not entitled to a remedy under ASFA because the
violation was due to an ―accidental or bona fide error in computation.‖ (Civ.
Code, § 2983, subd. (a).)
                                            I.
         ASFA, which took effect on January 1, 1962, ―is a consumer protection law
governing the sale of cars in which the buyer finances some, or all, of the car‘s
purchase price.‖ (Rojas v. Platinum Auto Group, Inc. (2013) 212 Cal.App.4th
997, 1002.) ―The act replaced the 1945 Automobile Sales Act and was designed
to provide a more comprehensive protection for the unsophisticated motor vehicle
customer.‖ (Hernandez v. Atlantic Finance Co. (1980) 105 Cal.App.3d 65, 69
(Hernandez).) The act was ―clearly designed to protect the purchaser of a motor
vehicle from economic hazards which the Assembly Interim Committee on
Finance and Insurance and the courts had found prevalent under the old act . . . .‖
(Ibid.) The Assembly interim committee was concerned with specific abuses by
dealers, including ―excessive interest charges; lack of full disclosures to the buyer;
taking of security in addition to the car to assure repayment; the use of more than
one document in connection with the sale and financing; and lack of protection in
the event of default and repossession.‖ (Kunert v. Mission Financial Services
Corp. (2003) 110 Cal.App.4th 242, 257–258; see Assem. Interim Com. on Finance
and Ins. Final Rep. (Dec. 1960), 1 Appen. to Assem. J. (1961 Reg. Sess.) pp. 8–29
(Final Report).) In determining whether the act applies to a particular transaction
―we look to the substance of the transaction and do not allow mere form to dictate
the result.‖ (Bermudez v. Fulton Auto Depot, LLC (2009) 179 Cal.App.4th 1318,
1323 (Bermudez).) Whether the act ―appl[ies] to a particular transaction, is
determined in light of the policies of the Act.‖ (Salenga v. Mitsubishi Motors
Credit of America, Inc. (2010) 183 Cal.App.4th 986, 998, disapproved on other
grounds in Aryeh v. Canon Business Solutions Inc. (2013) 55 Cal.4th 1185, 1196–
1197.)
         ASFA applies to a ―conditional sale contract,‖ that is, ―[a] contract for the
sale of a motor vehicle . . . under which possession is delivered to the buyer‖ and

                                            2
either ―(A) [t]he title vests in the buyer thereafter only upon the payment of all or a
part of the price, or the performance of any other condition,‖ or ―(B) [a] lien on the
property is to vest in the seller as security for the payment of part or all of the
price, or for the performance of any other condition.‖ (Civ. Code, § 2981,
subd. (a); all undesignated statutory references are to this code.) Every conditional
sale contract must contain ―in a single document all of the agreements of the buyer
and seller with respect to the total cost and the terms of payment for the motor
vehicle, including any promissory notes or any other evidences of indebtedness.‖
(§ 2981.9.) When selling a vehicle to a buyer who finances some or all of the
purchase, a car dealer must disclose the amount financed in compliance with the
specific itemization required by section 2982, subdivision (a) (section 2982(a)),
including a breakdown of the cash price and the downpayment. These disclosure
requirements are designed ―to enable the buyer to know just what his deal is.‖
(Final Rep., supra, 1 Appen. to Assem. J. at p. 32; see Stasher v. Harger-
Haldeman (1962) 58 Cal.2d 23, 29 (Stasher) [― ‗ ―The obvious purpose of the
statute is to protect purchasers of motor vehicles against excessive charges by
requiring full disclosure of all items of cost.‖ ‘ ‖].)
        In addition to the disclosures listed in section 2982(a), the introductory
paragraph of section 2982 says that ―[a] conditional sale contract subject to this
chapter shall contain the disclosures required by Regulation Z, whether or not
Regulation Z applies to the transaction.‖ (§ 2982.) Regulation Z (12 C.F.R.
§ 226.1 et seq. (2016)) was issued by the Federal Reserve Board pursuant to the
Truth in Lending Act (TILA; 15 U.S.C. § 1601 et seq.). Its purpose ―is to assure
that a consumer will be in a position to ‗compare more readily the various credit
terms available to him and avoid the uninformed use of credit.‘ ‖ (Drennan v.
Security Pac. Nat. Bank (1981) 28 Cal.3d 764, 770.) The core disclosures
required by Regulation Z are the finance charge and the annual percentage rate

                                            3
(APR) of the transaction. (15 U.S.C. § 1638(a)(4); 12 C.F.R. § 226.18(e) (2016).)
The finance charge is ―the cost of consumer credit as a dollar amount. It includes
any charge payable directly or indirectly by the consumer and imposed directly or
indirectly by the creditor as an incident to or a condition of the extension of
credit.‖ (12 C.F.R. § 226.4(a) (2016).) The APR is ―a measure of the cost of
credit, expressed as a yearly rate, that relates the amount and timing of value
received by the consumer to the amount and timing of payments made.‖ (12
C.F.R. § 226.22(a)(1) (2016).)
       A buyer is entitled to rescission and restitution for certain violations of
ASFA. Section 2983, subdivision (a) says: ―Except as provided in subdivision
(b), if the seller, except as the result of an accidental or bona fide error in
computation, violates any provision of Section 2981.9, or of subdivision (a), (j), or
(k) of Section 2982, the conditional sale contract shall not be enforceable, except
by a bona fide purchaser, assignee, or pledgee for value, or until after the violation
is corrected as provided in Section 2984, and, if the violation is not corrected, the
buyer may recover from the seller the total amount paid, pursuant to the terms of
the contract, by the buyer to the seller or his or her assignee.‖ And section 2983.1,
subdivision (d) says: ―When a conditional sale contract is not enforceable under
Section 2983 or this section, the buyer may elect to retain the motor vehicle and
continue the contract in force, or may, with reasonable diligence, elect to rescind
the contract and return the motor vehicle.‖
                                           II.
       Plaintiffs are consumers who purchased vehicles from Raceway, an
automobile dealership. The plaintiffs alleged 18 causes of action, including claims
on behalf of several separate classes, and other claims on behalf of certain
individual plaintiffs. The claims at issue in this appeal relate to two plaintiff
classes labeled as ―Class One‖ and ―Class Two‖ in the complaint.

                                            4
       Class One‘s claims concern Raceway‘s practice of backdating certain
finance contracts. In addition to selling vehicles, Raceway offered financing to its
customers and would attempt to assign the finance contract to a commercial
lender. According to the sale and financing contracts signed by Raceway‘s
customers, if Raceway could not find a lender willing to take on the finance
contract on the terms Raceway had negotiated with the customer within 10 days,
Raceway had the right to unilaterally rescind the contract. In some instances, after
the customer had taken possession of the vehicle, Raceway was in fact unable to
find a willing lender. In those cases, Raceway contacted the customer and
requested to change the terms of the sale and financing. Raceway then entered
into a second contract with the customer for the same vehicle under different
terms. Before late 2004, it was Raceway‘s practice to backdate the later contract
to the initial date of the sale. In addition to signing the second contract, the
customer would sign an ―Acknowledgment of Rescinded Contract‖ or
―Acknowledgment of Rewritten Contract,‖ which was also backdated to the date
of the initial sale.
       The trial court certified Class One as consisting of ―[a]ll persons who, since
January 12, 2001, (1) purchased a vehicle from Raceway Ford, for personal use,
(2) on a later date rescinded their original purchase contract, and (3) signed a
subsequent or second contract for the purchase of the same vehicle, which contract
was dated the date of the original purchase contract and involved financing at an
annual percentage rate greater than 0.00%.‖ According to plaintiffs, there are
1,100 members in this class.
       At trial, Class One asserted claims under ASFA, the Consumer Legal
Remedies Act (CLRA; Civ. Code, § 1750 et seq.), and the unfair competition law
(UCL; Bus. & Prof. Code, § 17200 et seq.) based on Raceway‘s backdating
practice. Specifically, Class One argued that because plaintiffs‘ second contracts

                                           5
were not consummated until the date of the execution of the second contracts,
plaintiffs were incorrectly charged interest for the period of time between the date
of the first contract and the date of the second contract.
       Class Two‘s claims stem from Raceway‘s concession that it erroneously
charged purchasers of diesel vehicles certain fees for performing a smog check
and obtaining state smog certification that should only have been charged to
purchasers of gasoline-powered vehicles. Raceway relied on a computer program
that calculated the smog fee based on an inventory clerk‘s entry for whether the
car used diesel fuel or gasoline. If the clerk classified a car as diesel, the computer
system was supposed to default the smog fees to zero. The clerk correctly
classified vehicles as diesel, but due to a programming error, the computer system
for a period of time incorrectly charged smog fees for diesel vehicles. Raceway
first learned of this problem when plaintiffs‘ attorneys notified Raceway of the
incorrect charges on January 14, 2005. Raceway was unable to fix the program on
its own and had to call an outside technician. Upon notification of the charges,
Raceway refunded the smog fees, plus taxes and interest, to all customers who had
been incorrectly charged.
       The trial court classified Class Two as consisting of all persons ―who, since
January 12, 2001, purchased a diesel vehicle from Raceway for personal use and
were charged a smog fee and a smog certification fee.‖ According to plaintiffs,
there are 48 members of Class Two. At trial, Class Two asserted an ASFA claim
alleging that Raceway violated section 2982(a).
       After a bench trial, the trial court on April 16, 2010, issued a statement of
decision that found in favor of Raceway on all claims relevant to this appeal. As
to the backdating claims, the trial court held that ―[a] rewritten contract does not
generate a new consummation date under either federal or state law, so there was
no incorrectly overcharged interest . . . .‖ As to the smog fee claims, the trial court

                                           6
found that ―Raceway is not legally required to do more to correct its erroneous
collection of smog fees on the used diesel vehicles brought by members of this
class . . . . The court finds it to have been a bona fide error corrected with full
refunds plus interest within a reasonable time under the [ASFA].‖ On December
10, 2010, the trial court withdrew its statement of decision and announced it was
finding for plaintiffs in light of Nelson v. Pearson Ford Co. (2010) 186
Cal.App.4th 983 (Nelson), which is discussed further below. Raceway petitioned
for a writ of mandate, and the Court of Appeal issued a peremptory writ directing
the trial court to vacate its December 10, 2010 order and enter judgment in
conformity with its April 16, 2010 statement of decision. The trial court did so
and made the judgment retroactive to June 10, 2010. Plaintiffs appealed.
       The Court of Appeal affirmed the trial court‘s judgment with respect to
plaintiffs‘ smog fee claims. It found no ASFA violation because ―[t]here are no
hidden, undisclosed costs in the contracts entered into by the members of Class
Two; the amounts charged for smog-related fees were accurately and explicitly
stated in writing, and the terms of the deal, including the smog fees, were accepted
by the customers when they signed their contracts.‖
       The Court of Appeal reversed the trial court‘s judgment in favor of
Raceway with respect to plaintiffs‘ backdating claims, explaining that customers
did ―not become legally obligated to the terms of the credit transaction embodied
in their second or subsequent contract with Raceway . . . until that second or
subsequent contract was signed. [Citation.] Thus, the date the second or
subsequent contract was signed would normally be the appropriate date to use as
the beginning of the term for purposes of calculating the APR . . . , under the
method required by Regulation Z.‖ But the Court of Appeal held that judgment in
favor of plaintiffs was not necessarily appropriate in all cases of backdating by
Raceway because ―Regulation Z contemplates certain circumstances where a

                                           7
second or subsequent contract between a buyer and a seller does not trigger any
requirement for further disclosures, including with respect to APR.‖ The Court of
Appeal also recognized that ―Regulation Z allows for a small margin of error with
respect to calculation of the APR. A disclosed APR is ‗considered accurate‘ under
Regulation Z if it is not more than 1/8 of 1 percentage point above or below‘ the
rate determined utilizing the authorized methods.‖ While recognizing that ASFA
may not provide any remedy for the potentially inaccurate APR disclosures, the
Court of Appeal nonetheless remanded the ASFA claims to the trial court because
―[a] judgment in favor of plaintiffs — even a symbolic judgment unaccompanied
by an award of monetary damages or other remedy — would necessarily alter the
trial court‘s ‗prevailing party‘ analysis.‖
       As to plaintiffs‘ other claims concerning backdating, the Court of Appeal
did not agree with Nelson that the backdating imposed an ―illegal finance charge,‖
and it rejected plaintiffs‘ argument that Raceway‘s actions violated sections
2981.9 and 2982(a). The court also rejected plaintiffs‘ UCL and CLRA claims.
       We granted review of plaintiffs‘ ASFA claims.
                                          III.
       Plaintiffs in Class One contend that Raceway‘s practice of backdating
contracts violated section 2982(a) because it resulted in an illegal finance charge.
Specifically, they argue that because the second contracts were not consummated
until the date of execution of the second contracts, Raceway was prohibited from
charging interest from the date of the first contracts. Plaintiffs also argue that
Raceway‘s backdating practice violated section 2981.9‘s ―single document rule‖
because plaintiffs were required to examine multiple documents to determine that
they paid an illegal pre-consummation charge.




                                              8
                                         A.
       At the outset, it is useful to further clarify the meaning of ―finance charge‖
and ―APR,‖ the two terms commonly used to quantify the cost of credit. As noted,
Regulation Z and ASFA define a finance charge as the ―the cost of consumer
credit as a dollar amount. It includes any charge payable directly or indirectly by
the consumer and imposed directly or indirectly by the creditor as an incident to or
a condition of the extension of credit.‖ (12 C.F.R. § 226.4 (a) (2016); see Civ.
Code, § 2981, subd. (i) [giving ―finance charge‖ the meaning set forth in section
226.4 of Regulation Z]; Rohner & Miller, The Law of Truth and Lending (2014)
p. 181 [―The finance charge is the consumer‘s cost of credit, in dollars and
cents.‖].) Conventional interest charges fall squarely within the definition of
finance charge. (12 C.F.R. § 226.4 (b)(1).) But a finance charge can include other
costs incidental to the extension of credit, including transaction fees and loan
origination fees. For example, if a consumer must pay a $25 credit report fee for
an auto loan, the fee must be included in the finance charge along with the sum of
the interest on the loan. (See Consumer Financial Protection Bur., CFPB
Supervision and Examination Manual (Oct. 2012) TILA Procedures [Sept. 2015
update] <http://files.consumerfinance.gov/f/201503_cfpb_truth-in-lending-
act.pdf> (as of Dec. 15, 2016) (CFPB TILA Procedures).)
       Although the finance charge and the APR are related, they are distinct
metrics. The APR is ―a measure of the cost of credit, expressed as a yearly rate,
that relates the amount and timing of value received by the consumer to the
amount and timing of payments made.‖ (12 C.F.R. § 226.22(a)(1) (2016).)
―[T]wo loans could require the same finance charge and still have different APRs
because of differing values of the amount financed or of payment schedules. For
example, the APR is 12 percent on a loan with an amount financed of $5,000 and
36 equal monthly payments of $166.07 each. It is 13.26 percent on a loan with an

                                          9
amount financed of $4,500 and 35 equal monthly payments of $152.18 each and
final payment of $152.22. In both cases the finance charge is $978.52. The APRs
on these example loans are not the same because an APR does not only reflect the
finance charge. It relates the amount and timing of value received by the
consumer to the amount and timing of payments made.‖ (CFPB TILA Procedures,
supra, at p. 15.)
                                          B.
       The consummation date of a transaction is directly relevant to the
calculation of the APR. Under Regulation Z, the transaction for purposes of
calculating the APR ―begins on the date of its consummation, except that if the
finance charge or any portion of it is earned beginning on a later date, the term
begins on the later date.‖ (12 C.F.R. § 226, appen. J, par. (b)(2).) Because the
APR involves a calculation of finance charges spread over the entire payment
period, using an earlier date as the consummation date will result in a lower APR
than using a later date, assuming the same final payment date.
       We agree with plaintiffs that the relevant consummation date in this case is
the date the second contract was signed. Under Regulation Z, consummation
occurs when a consumer ―becomes legally obligated to accept a particular credit
arrangement.‖ (Off. Staff Interpretations, 12 C.F.R. § 226, supp. I, subpt. A, par.
(2)(a)(13)(2) (2016).) Although plaintiffs did become bound to the initial finance
terms included in the first contract on the date the first contract was signed, they
were not bound by the specific financing terms of the second contract until the
date the second contract was signed. (See Gibson v. LTD, Inc. (4th Cir. 2006) 434
F.3d 275, 286 [subsequent contract consummated a finance arrangement];
Janikowski v. Lynch Ford, Inc. (7th Cir. 2000) 210 F.3d 765, 769 [suggesting that
the initial contract and subsequent contract had two separate consummation
dates].) That is true regardless of whether the second contract is deemed a

                                          10
novation of the first. (See Black‘s Law Dict. (7th ed. 1999) p. 1091, col. 2
[defining novation as ―[t]he act of substituting for an old obligation a new one that
either replaces an existing obligation with a new obligation or replaces an original
party with a new party.‖].) Even if the second contract were a novation of the
first, it would not change the fact that plaintiffs were not bound by the specific
financing terms in the second contract until they agreed to those terms by signing
that contract.
       Raceway argues that this interpretation runs contrary to state law deeming a
vehicle sale ―completed and consummated when the purchaser of the vehicle has
paid the purchase price, or, in lieu thereof, has signed a purchase contract or
security agreement, and has taken physical possession or delivery of the vehicle.‖
(Veh. Code, § 5901, subd. (d).) But this provision of the Vehicle Code concerns
the consummation of a sale rather than the consummation of a ―particular credit
arrangement‖ and is thus irrelevant for purposes of Regulation Z. (Off. Staff
Interpretations, 12 C.F.R. § 226, supp. I, subpt. A, par. (2)(a)(13)(2) (2016)
[consummation ―does not occur when the consumer becomes contractually
committed to a sale transaction, unless the consumer also becomes legally
obligated to accept a particular credit arrangement‖].)
       Although Raceway‘s practice of using the date of the initial contract to
calculate the APR disclosed on the second contract appears inconsistent with
Regulation Z, the APR disclosures on the second contracts do not necessarily
violate Regulation Z for two reasons. First, under Regulation Z, the disclosed
APR must only be accurate to within one-eighth of one percent of the properly
calculated APR. (12 C.F.R. § 226.22(a)(2) (2016).) Because some of the Class
One contracts were backdated by only a few days, it is possible that those APRs
fell within this margin of error permitted by Regulation Z.



                                          11
       Second, in certain situations, the ―irregular first period‖ exception provided
by 12 C.F.R. part 226.17(c)(4) allows creditors to ignore a long or short first
payment period in disclosing the APR. Under this exception, the first payment
period may be up to six days shorter or 13 days longer than a regular period for
transactions less than a year long, up to 11 days shorter or 21 days longer for
transaction between one and 10 years, and up to 32 days shorter or longer for
transactions 10 years long or more. (Ibid.) ―This provision permits ignoring, on
administrative convenience grounds, de minimis discrepancies in the annual
percentage rate . . . attributable to an irregular first payment period.‖ (Krenisky v.
Rollins Protective Services Co. (1984) 728 F.2d 64, 67 (Krenisky).) For any
contracts falling within the scope of part 226.17(c)(4), Raceway was permitted to
ignore the fact that the first period (using the correct consummation date) would
be shorter than a regular payment period and could base its calculations on an
assumption of equal intervals ―even though a precise computation would produce
slightly different amounts because of the shorter first period.‖ (Off. Staff
Interpretations, 12 C.F.R. § 226, supp. I, subpt. C, par. (17)(c)(4) (2016).)
       Plaintiffs do not dispute that the APRs disclosed in the second contracts
may be accurate within the tolerances allowed by Regulation Z. Plaintiffs contend
that ―[s]ince Petitioner sued for a violation of the disclosure requirements of the
ASFA, and the charging of and failure to disclose the charge for pre-
consummation interest violates Civil Code Section 2982(a), it is irrelevant for
purposes of this lawsuit whether the APRs were accurate within the tolerances
permitted by Regulation Z.‖ Plaintiffs‘ expert suggested at trial that the APRs
disclosed were inaccurate but within the tolerance permitted by Regulation Z,
noting that the accuracy of the APRs was ―not even an issue in this case.‖
Accordingly, we conclude that the Court of Appeal erred when it remanded this
case to the trial court for further proceedings involving the calculation of APRs.

                                          12
                                          C.
       Plaintiffs argue that regardless of whether the APR was accurately
disclosed, Raceway‘s backdating practice violates ASFA because Raceway
erroneously charged plaintiffs for interest that accrued before they signed the
second contract. At trial, plaintiffs‘ expert argued that because Raceway was not
permitted to include in the finance charge interest accrued before consummation
of the second contract, the finance charges disclosed to plaintiffs on the second
contracts were overstated. Plaintiffs rely on Nelson, supra, 186 Cal.App.4th 983,
where consumers similarly argued that a car dealer‘s practice of backdating
second or subsequent contracts violated ASFA. Nelson recognized that ―the
second contract contained all the disclosures required by subdivision (a) of section
2982 . . . . However, [the defendant‘s] act of backdating the second contract
resulted in Nelson paying a finance charge before consummation of the contract.
[Citations.] Accordingly, the backdating of the second contract caused Nelson to
pay interest on a contract that did not exist. We consider this pre-consummation
interest to be an illegal finance charge.‖ (Nelson, at p. 1003.)
       In reaching this holding, the court in Nelson relied on dicta from Krenisky,
supra, 728 F.2d 64, and Rucker v. Sheehy Alexandria, Inc. (E.D. Va. 2002) 228
F.Supp.2d 711 (Rucker I), but neither case is on point. As the Court of Appeal
below recognized, those cases stand for the proposition that the APR may not be
calculated using a date prior to the date of consummation. (Krenisky, supra, 728
F.2d at p. 67, fn. 3; Rucker I, supra, 228 F.Supp.2d at p. 717.) Neither case holds
that the finance charge cannot include interest that accrued under an initial
contract prior to the consummation date of a subsequent contract.
       Although Regulation Z instructs that the APR is to be calculated by
reference to the consummation date of a financing agreement, nothing in
Regulation Z or ASFA suggests that when a consumer signs an initial contract that

                                         13
is later supplanted by a second contract, the finance charge in the second contract
may not include interest that already accrued under the initial contract. Were it
otherwise, the consummation of a second contract would essentially require the
seller to give the buyer an interest-free loan for the period between execution of
the first contract and execution of the second. No statute or regulation entitles the
buyer to such a windfall.
       The court in Rucker v. Sheehy Alexandria, Inc. (E.D. Va. 2003) 244
F.Supp.2d 618 (Rucker II) recognized the distinction between a finance charge and
an APR in assessing the significance of the consummation date of a second
contract. There the court found that a car dealership had violated TILA by
backdating the contract at issue because the APR was incorrectly calculated using
the date of the first contract rather than the date of the second contract. (Rucker II,
at p. 623.) But the court held that ―the parties here could have entered into
precisely the same agreement reached here with regard to the amount financed, the
payment schedule, and the finance charge; all that TILA requires is that the APR
be disclosed as 25.35%, reflecting the April 13 consummation date, not 24.95%,
reflecting the April 3 effective date.‖ (Id. at p. 626, italics added.) Rucker II
confirms that the APR, but not the finance charge, must be calculated by reference
to the consummation date of the second contract.
       Contrary to what Nelson suggests, Raceway did not cause plaintiffs ―to pay
interest on a contract that did not exist.‖ (Nelson, supra, 186 Cal.App.4th at
p. 1003.) What Nelson and plaintiffs here describe as ―pre-consummation
interest‖ (ibid.) was interest that accrued under the initial contract. Plaintiffs
agreed to pay that interest under that contract, and there is nothing improper about
a finance charge in a second contract that includes interest already accrued under
the first contract before execution of the second contract.



                                           14
       The court in Nelson held that ―Nelson‘s consent to the backdating of the
second contract does not protect [the defendant] because it hid from Nelson the
costs associated with backdating the second contract.‖ (Nelson, supra, 186
Cal.App.4th at p. 1003.) Plaintiffs adopt this reasoning, arguing that even if the
parties can contract to include interest from a date prior to consummation in the
contract, Raceway violated ASFA because the pre-consummation interest charged
must be separately disclosed under section 2982(a).
       Section 2982(a) lists the specific itemized disclosures that make up the
―amount financed.‖ For example, it requires an itemized disclosure of the cash
price (§ 2982, subd. (a)(1)) and the downpayment (§ 2982, subd. (a)(6)). Because
section 2982(a) deals only with the itemized disclosures required for the amount
financed, it has no bearing on disclosure of the finance charge. Moreover,
although a creditor cannot ―charge, collect, or receive a finance charge that
exceeds the disclosed finance charge‖ (§ 2982, subd. (j)(2)), nothing in Regulation
Z or ASFA requires the finance charge to be separately itemized into pre-
consummation and post-consummation interest.
       While acknowledging that the contracts in that case contained all of the
disclosures required by section 2982(a), the court in Nelson relied on Thompson v.
10,000 RV Sales, Inc. (2005) 130 Cal.App.4th 950 (Thompson) to suggest that the
fact that all of the relevant disclosures were made is not sufficient. In Thompson,
the dealer manipulated the numbers in Thompson‘s contract, causing several of the
itemized disclosures required by section 2982(a) to be inaccurate. (Thompson, at
pp. 970–973.) The dealer also failed to adequately disclose the finance charge by
overinflating the cash price. The court recognized that ―the evidence . . . showed
that although the cash price, the value of the trade-in vehicle and the amount
financed were stated in the contract signed by Thompson, [the defendant] did not
disclose that the $24,000 trade-in over-allowance or the amount still owing on

                                         15
Thompson‘s trade-in vehicle were included in the cash price of the vehicle she
purchased. The contract showed Thompson had no prior credit balance on her
trade-in vehicle when, in reality, she had a remaining loan balance of $16,000 in
addition to the $30,000 value [the defendant] believed the trade-in was
worth . . . . Consequently, cost items that comprised the amount financed were
inaccurate and violated the ASFA‘s disclosure provisions . . . .‖ (Id. at p. 973, fn.
omitted.) Moreover, ―[b]ecause inclusion of the overallowance in the cash price
of the Safari was a condition of credit and therefore a finance charge, failing to
disclose the over-allowance as a finance charge violated the disclosure provisions
of the ASFA.‖ (Id. at p. 970.)
       But here, by contrast, because the interest charged prior to consummation
of the second contract was accurately disclosed as part of the finance charge,
Raceway did not run afoul of the disclosures required by section 2982(a).
Plaintiffs‘ own expert acknowledged that the interest charged between the date of
the initial contract and second contract was included in the finance charge listed
on the second contract, and plaintiffs do not contend that the interest charged was
inaccurate.
       Our holding on this point is consistent with the goals of ASFA. Plaintiffs
were first extended financing and allowed to take possession of the vehicle on the
date of the first contract. It is neither abusive nor deceptive to allow the creditor to
charge interest during the period between the first and second contracts. The court
in Nelson suggested that ―[w]hile it may have been logical for [the dealer] to
backdate the contract because Nelson used the car for six days before
consummating the transaction, there were other methods it could use in the event
an original contract is voided due to the failure to obtain financing,‖ including
charging a rental fee. (Nelson, supra, 186 Cal.App.4th at p. 1003.) We do not see
why such an arrangement would be appropriate if charging interest that accrued

                                          16
before consummation of the second contract is not. In both scenarios, the parties
pay a finance charge. In both scenarios, the charge is incidental to the extension
of credit and relates to a period of time before the parties become obligated to the
second contract. In sum, we agree with the Court of Appeal that Raceway did not
impose an illegal finance charge when it included interest accrued under the initial
contract in the finance charge disclosed in the second contract.
                                          D.
       Plaintiffs also contend that Raceway‘s backdating practice violated section
2981.9‘s requirement that a conditional sale contract ―contain in a single document
all of the agreements of the buyer and seller with respect to the total cost and the
terms of payment for the motor vehicle, including any promissory notes or any
other evidences of indebtedness.‖ The purpose of the single document rule is ―the
facilitation of the consumer‘s review of all of the parties‘ agreements before the
consumer signs the sale or lease contract, so that the consumer has complete and
accurate information.‖ (92 Ops.Cal.Atty.Gen. 97 (2009) p. 3.) The single
document rule is also designed to prevent the use of side-note financing
agreements. (Comment, Recent Legislation: The Rees-Levering Motor Vehicle
Sales and Finance Act (1962) 10 UCLA L.Rev. 125, 132.) In a side-note
financing agreement, ―the buyer informs the seller of the maximum monthly
payment that he can afford. The seller then sets the payment amount at that figure
for a specified period of time, and the buyer believes that this payment amount
will represent his total monthly obligation. The seller then tells the buyer to go to
a finance company to sign some papers. These papers are for a side-note to
finance a down payment which had not been previously discussed. Coupled with
his obligation under the conditional sale contract, the buyer must now make two
payments each period instead of one—an undertaking which he did not
anticipate.‖ (Ibid., fn. omitted.)

                                          17
       Plaintiffs rely on Nelson, where the court found that a backdating practice
similar to Raceway‘s violated the single document rule because ―anyone
reviewing the original contract and the second contract had no means of
determining (1) the operative contract; (2) the date the parties consummated the
transaction, and thus, the correct APR; or (3) that [the plaintiff] improperly paid a
finance charge when no contract existed.‖ (Nelson, supra, 186 Cal.App.4th at
p. 1004.) According to Nelson, ―[t]he only way to determine the date the parties
consummated the transaction, the correct APR, and that Nelson improperly paid a
finance charge when no contract existed is to review the three documents and
perform some calculations.‖ (Ibid.)
       But the analysis in Nelson is not convincing. Nothing in the original
contract or the ―Acknowledgment of Rescinded Contract‖ or ―Acknowledgment of
Rewritten Contract‖ signed by the consumer set forth an agreement that was not
included in the operative contract. The acknowledgments did not include any
additional terms, and it explicitly rendered the initial contract void. Moreover, the
consumer, having signed both the original contract and the subsequent contract,
can be presumed to know which contract is the operative one, and the operative
contract did contain the APR. The plaintiffs‘ arguments regarding the accuracy of
the APR and the finance charge implicated the disclosure requirements of section
2982(a), not the single document rule of section 2981.9. As the Court of Appeal
below observed, Nelson‘s interpretation suggesting otherwise would render the
disclosure requirements of section 2982(a) superfluous. Finally, because there is
nothing illegal about imposing an interest charge for the period between execution
of the initial contract and execution of the subsequent contract, there is no merit to
Nelson‘s assertion that the backdated rewritten contract violated the single
document rule because it ―provided for a finance charge when no contract
existed.‖ (Nelson, supra, 186 Cal.App.4th at p. 1004.) For these reasons, we

                                          18
agree with the Court of Appeal that Raceway‘s backdating practice did not violate
section 2981.9.
                                         IV.
       Plaintiffs in Class Two contend that Raceway violated section 2982(a)
when it erroneously charged the plaintiffs for smog-related fees.
       Under section 2982, subdivision (a)(1)(C), dealers must disclose, as part of
the amount financed, ―[t]he fee charged by the seller for certifying that the motor
vehicle complies with applicable pollution control requirements.‖ Under section
2982(a)(4), the seller must disclose ―[t]he amount of the state fee for issuance of a
certificate of compliance, noncompliance, exemption, or waiver pursuant to any
applicable pollution control statute.‖ Plaintiffs contend that because the smog-
related fees listed on the contracts were inaccurate, the smog fee disclosures were
not a ―full and honest disclosure‖ as required by ASFA. Raceway, by contrast,
urges us to adopt the Court of Appeal‘s reasoning and find ASFA to be
inapplicable because there were no hidden fees, because the amounts charged for
smog-related fees were accurately disclosed in writing, and because the fees were
accepted by the customers when they signed their contracts. Raceway also argues
that even if plaintiffs can establish a violation of section 2982(a), ASFA precludes
rescission because the violation was due to an ―accidental or bona fide error in
computation.‖ (§ 2983, subd. (a).)
       Raceway is correct that the smog-related fees paid by plaintiffs were not
hidden from them, and plaintiffs do not contend that they paid any more than the
fees listed on their contracts. But in determining whether ASFA applies to a
particular transaction, we must consider ―its remedial purpose of protecting
consumers from inaccurate and unfair credit practices through full and honest
disclosures.‖ (Thompson, supra, 130 Cal.App.4th at p. 978.) Moreover, ―we look
to the substance of the transaction and do not allow mere form to dictate the

                                         19
result.‖ (Bermudez, supra, 179 Cal.App.4th at p. 1323; see 13A Cal.Jur.3d (2016)
Consumer & Borrower Protection Laws, § 394 [whether the act ―appl[ies] to a
particular transaction, is determined in light of the policies of the Act‖].)
       The purpose of ASFA is to ― ‗ ― ‗protect purchasers of motor vehicles
against excessive charges by requiring full disclosure of all items of cost.‘ ‖ ‘ ‖
(Hernandez, supra, 105 Cal.App.3d at p. 69.) An item of cost cannot be said to be
―fully disclosed‖ to the consumer when the dealer concedes that the item was
mistakenly included and when it has no intention of performing the task for which
the fee was charged. (See Nigh v. Koons Buick Pontiac GMC, Inc. (4th Cir. 2003)
319 F.3d 119, 124, revd. on other grounds sub nom. Koons Buick Pontiac GMC,
Inc. v. Nigh (2004) 543 U.S. 50.) The court‘s holding in Thompson is instructive.
As noted, the court there made clear that the fact that disclosures are made is not
sufficient to satisfy ASFA; the dealership‘s actions caused ―cost items that
comprised the amount financed [to be] inaccurate and violated the ASFA‘s
disclosure provisions . . . .‖ (Thompson, supra, 130 Cal.App.4th at p. 973.)
Similarly here, by causing the cost item comprising the smog-related fees to be
inaccurate, Raceway violated ASFA‘s disclosure provisions.
       As for the availability of a remedy, section 2983, subdivision (a) says:
―Except as provided in subdivision (b), if the seller, except as the result of an
accidental or bona fide error in computation, violates any provision of Section
2981.9, or of subdivision (a), (j), or (k) of Section 2982, the conditional sale
contract shall not be enforceable . . . .‖ (Italics added.) And section 2983.1,
subdivision (d) says: ―When a conditional sale contract is not enforceable under
Section 2983 or this section, the buyer may elect to retain the motor vehicle and
continue the contract in force, or may, with reasonable diligence, elect to rescind
the contract and return the motor vehicle.‖



                                          20
       In their reply brief, Plaintiffs contend for the first time that Raceway is not
entitled to argue that its violation of ASFA was the result of an ―accidental or bona
fide error in computation‖ because Raceway failed to plead such a defense in its
answer to plaintiffs‘ complaint. We generally do not consider arguments raised
for the first time in a reply brief. (Varjabedian v. City of Madera (1977) 20 Cal.3d
285, 295, fn. 11.) But even if we were to consider plaintiffs‘ contention, we would
find it meritless. The motion judge granted Raceway‘s oral motion to amend the
answer to include the defense, and the trial judge acknowledged that decision as
part of the law of the case.
       Plaintiffs further contend that the defense is inapplicable here because an
―error in computation‖ is limited to those errors involving ―mathematical
calculations‖ and does not encompass the programming errors in this case. But
the word ―computation‖ is susceptible to a broader meaning. ―Computation‖ is
largely synonymous with ―calculation.‖ (See Webster‘s Third New Internat. Dict.
(1961) p. 468 [defining ―computation‖ as ―the act or action of computing:
calculation, reckoning‖].) A calculation may be understood to encompass both the
arithmetic operation and the specification of the numbers to be included in the
operation. For example, a football scoresheet that routinely assigned each field
goal two points instead of three in the course of calculating final scores may
readily be said to have committed an error in computation. Thus, section 2983,
subdivision (a)‘s reference to an ―error in computation‖ is broad enough to
encompass the type of programming error that Raceway claims led to the incorrect
calculations here.
       The Legislature is unlikely to have intended the narrow meaning of error in
computation that plaintiffs urge as opposed to the broader meaning just discussed.
The latter is consistent with the twin aims of ASFA: deterring dealer misconduct
and avoiding windfalls for plaintiffs. (Comment, Recent Legislation: The Rees-

                                          21
Levering Motor Vehicles Sales and Finance Act, supra, 10 UCLA L.Rev. at
p. 151.) When an accidental or bona fide error is the result of a computer glitch,
as in this case, the deterrent effect of enforcing a rescission remedy is minimal
because it is difficult to deter an inadvertent programming error. On the other
hand, allowing plaintiffs to rescind their contracts in this case, even after receiving
a refund of the excess charges plus interest, would provide them a windfall.
―Section 2982 and its companion provisions of the Civil Code constitute a shield,
not a sword, for the use of buyers in proper cases.‖ (Stasher, supra, 58 Cal.2d at
p. 29.)
          The trial court in this case made a factual determination that Raceway‘s
inclusion of the smog fee charges was a bona fide error. Raceway relied upon a
computer program that incorrectly calculated the smog fee for used diesel
vehicles. Upon learning of the error, Raceway reimbursed all the plaintiffs the
smog fees plus interest. This is not the type of ―abuse and malpractice‖ that the
act was designed to prevent. (Final Rep., 1 Appen. to Assem. J. at p. 8.) To allow
the plaintiffs to now rescind their contracts, after what could be years of using the
vehicle, ―would be to give plaintiff[s] an undeserved windfall at defendant‘s
expense and in disregard of the true intent of the Legislature.‖ (Stasher, supra, 58
Cal.2d at p. 33.) ―[I]n some of [the dealers‘] relationships with customers . . . it
will be the dealer rather than the customer who needs protection . . . . When
appropriate facts are shown courts should be equally as alert to protect the one
party to a contract as the other.‖ (Id. at p. 34.) This is such a case.
          We note that other buyers who are charged excessive charges are not
necessarily without a remedy. First, if the charges were not the result of an
―accidental or bona fide error in computation‖ (§ 2983, subd. (a)), the rescission
and restitution remedies under section 2983 may be available. Second, as the
Court of Appeal recognized, it seems likely that if, unlike Raceway, a dealer were

                                           22
not forthcoming with the payment or refunds, or if the dealer had charged
erroneous fees with fraudulent intent, one of the other provisions of California
statutory or common law may provide consumers a remedy. (See, e.g., Bus. &
Prof. Code, § 17200.)




                                         23
                                  CONCLUSION
       For the reasons above, we affirm in part and reverse in part the judgment of
the Court of Appeal with respect to Class One‘s claims. Because plaintiffs do not
assert the APRs disclosed on plaintiffs‘ contracts are inaccurate within the
tolerances permitted by Regulation Z, we reverse the judgment of the Court of
Appeal to the extent it directs the trial court to conduct further proceedings
concerning Class One‘s claims under the Rees-Levering Motor Vehicle Sales and
Finance Act (Civ. Code, § 2981 et seq.), and to the extent it vacates and directs
further proceedings concerning the award of attorney‘s fees related to Class One‘s
claims. In all other respects, we affirm the judgment of the Court of Appeal with
respect to Class One‘s claims and Class Two‘s claims. Finally, we disapprove
Nelson v. Pearson Ford Co., supra, 186 Cal.App.4th 983 to the extent it is
inconsistent with this opinion.
                                                  LIU, J.


WE CONCUR:

CANTIL-SAKAUYE, C. J.
WERDEGAR, J.
CHIN, J.
CORRIGAN, J.
CUÉLLAR, J.
KRUGER, J.




                                         24
See next page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion Raceway Ford Cases
__________________________________________________________________________________

Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted XXX 229 Cal.App.4th 1119
Rehearing Granted

__________________________________________________________________________________

Opinion No. S222211
Date Filed: December 15, 2016
__________________________________________________________________________________

Court: Superior
County: Riverside
Judge: Dallas Holmes*

__________________________________________________________________________________

Counsel:

Rosner, Barry & Babbitt, Hallen D. Rosner, Christopher P. Barry, Angela J. Patrick and Lacee B. Smith for
Plaintiffs and Appellants.

Arthur D. Levy for Consumers for Auto Reliability and Safety, Consumer Federation of California,
CALPIRG and Consumer Action as Amici Curiae on behalf of Plaintiffs and Appellants.

Callahan, Thompson, Sherman & Caudill, Atkinson, Andelson, Loya, Ruud & Romo, Kellie S.
Christianson and Yvette N. Siegel for Defendant and Respondent.

Arent Fox and Halbert B. Rasmussen for National Automobile Dealers Association as Amicus Curiae on
behalf of Defendant and Respondent.

Greines, Martin, Stein & Richland, Robert A. Olson and David E. Hackett for California New Car Dealers
Association as Amicus Curiae on behalf of Defendant and Respondent.

Severson & Werson, Jan T. Chilton and Mark J. Kenney for American Financial Services Association and
California Financial Services Association as Amici Curiae on behalf of Defendant and Respondent.




*Retired judge of the Riverside Superior Court, assigned by the Chief Justice pursuant to article V, section
6 of the California Constitution.
Counsel who argued in Supreme Court (not intended for publication with opinion):

Hallen D. Rosner
Rosner, Barry & Babbitt
10085 Carroll Canyon Road, Suite 100
San Diego, CA 92131
(858) 348-1005

Kellie S. Christianson
Atkinson, Andelson, Loya, Ruud & Romo
20 Pacifica, Suite 1100
Irvine, CA 92618-3371
(949) 453-4260
