California has enacted a new law regulating the use of artificial intelligence (AI) chatbots in customer service. Beginning January 1, 2027, certain larger businesses will be required to disclose their use of AI chatbots and provide customers with access to human customer service representatives.
The new law, Assembly Bill 1609 (AB 1609), could have significant implications for larger automobile dealership groups that increasingly rely on AI-powered chatbots to communicate with consumers, answer questions about vehicles, and schedule sales or service appointments.
Although the law does not apply to every dealership, groups meeting its revenue threshold should begin reviewing their customer service technologies and processes before the January 1 effective date.
Which Dealerships Are Covered?
AB 1609 applies to private businesses with more than $500 million in gross annual revenue nationally that provide goods and services to customers. The $500 million threshold means that smaller, independently operated dealerships generally will not be subject to the new requirements. However, larger dealership groups may exceed this threshold, even if their individual dealerships do not generate $500 million annually. The law does not expressly address how revenue should be calculated across affiliated entities. Dealer groups should therefore evaluate their corporate structures and whether their operations fall within the definition of a covered business.
Importantly, the law is not limited to businesses headquartered in California. A covered dealership group operating in multiple states may be subject to the requirements when providing customer service to California residents.
What Types of Chatbots Are Covered?
The law defines a customer service chatbot as an AI system that uses a natural language interface to provide adaptive, human-like responses to customer inquiries relating to the sale or delivery of goods and services or customer support. For dealerships, this could include AI-powered chat tools used on dealership websites to answer questions about vehicle availability, pricing, financing, or service appointments. It may also include AI-powered customer service tools used to respond to inquiries through other communication channels.
The law is directed at AI systems that generate adaptive, human-like responses, rather than every automated tool. Traditional chat tools that rely exclusively on predetermined responses may not meet the definition. Dealers should work with their technology providers to understand how their particular systems operate.
What Does the Law Require?
Covered businesses must comply with several new customer service requirements.
AI Disclosure.
Businesses cannot represent an AI customer service chatbot as a human. If a reasonable consumer would likely believe they are interacting with a human, the business must clearly and conspicuously disclose that the chatbot is artificially generated and not human. This disclosure must be provided through the same medium in which the interaction occurs.
Access to Human Customer Service.
During regular business hours, covered businesses must provide a simple way for customers to request assistance from a human customer service representative. This requirement applies across the business’s existing customer service platforms, including online chat and telephone systems.
Response Times.
When a customer requests human assistance, the business must make a good-faith effort to either connect the customer with a representative within 15 minutes or provide a specific appointment time within one business day for a representative to contact the customer.
Hold Times.
Businesses must also make a good-faith effort to prevent customers from waiting on hold for more than 15 minutes at any one time after connecting with a representative, with total hold times and escalation queues not exceeding one hour.
The law does not require businesses to establish new customer service communication channels that they did not already offer as of January 1, 2027. It also excludes email, web contact forms, and voicemail requests from the 15-minute connection requirement. Businesses offering telephone customer service alongside online services must prominently display their customer service telephone number on their websites.
Enforcement and Penalties
AB 1609 authorizes public prosecutors to enforce its requirements, with civil penalties of up to $5,000 for an initial violation and $10,000 for each subsequent violation. The law does not establish a private right of action. Importantly, the human assistance and hold-time requirements are generally based on good-faith efforts rather than guarantees of immediate service. Businesses using commercially reasonable and practicable compliance procedures can satisfy these standards.
What Should Dealers Do Now?
Larger dealership groups should begin by identifying the AI-powered customer service tools used across their websites, telephone systems, and other customer-facing platforms. Dealers should also communicate with their chatbot providers to determine whether existing systems provide appropriate AI disclosures and allow customers to request human assistance. Because many dealerships rely on third-party vendors for these technologies, coordination with those vendors will be important. Dealers should also review whether their existing staffing and customer service procedures can accommodate the new response-time requirements.
The Bottom Line
California’s new law reflects growing regulatory attention to how businesses use AI when interacting with consumers. Although AB 1609 is limited to larger businesses, it may affect some larger dealership groups. With the January 1, 2027, effective date approaching, covered dealers should assess their existing AI chatbot tools, disclosures, and customer service processes to ensure they are prepared for the new requirements.