BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
SB 1004 (Huff)
As Amended August 16, 2010
Hearing Date: August 23, 2010
Fiscal: Yes
Urgency: No
BCP:jd
PURSUANT TO SENATE RULE 29.10
SUBJECT
Licensed Vehicle Dealers and Salespersons: Credit Scores
DESCRIPTION
Existing law requires car dealers who finance a motor vehicle
sale to disclose the buyer's credit score(s) that was obtained
and used by the dealer, the range of possible credit scores
established by the credit reporting agency, and provide the
buyer with a written notice regarding credit scores.
This bill would revise that requirement by, instead, requiring
dealers to provide a credit score disclosure that, among other
things, informs the consumer of each credit score obtained and
used, and that includes a bar graph that shows the distribution
of credit scores among other consumers who are scored under that
same model.
This bill would provide that appropriate use of the model
federal form, as promulgated on January 15, 2010, is deemed to
comply with the revised requirements.
This bill would make other revisions regarding motor vehicle
dealers and salespersons.
BACKGROUND
In 2005, AB 68 (Montanez, Chapter 128, Statutes of 2005),
enacted the Car Buyer's Bill of Rights that required, among
other things, car dealers who finance a motor vehicle sale to
disclose the buyer's credit score(s) that was obtained and used
(more)
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by the dealer, the range of possible credit scores established
by the credit reporting agency, and provide the buyer with a
written notice regarding credit scores. Dealers are currently
complying with those requirements by providing consumers with a
one-page disclosure that includes the consumer's credit score
received from up to four credit reporting agencies, the score
range and contact information for each of those agencies, and
the required statutory notice about credit scores.
Concerns have arisen about how that current disclosure form
interacts with regulations recently adopted by the Federal Trade
Commission (FTC) regarding "Risk Based Pricing." Those
regulations generally require a creditor to provide a consumer
with a notice when, based on their credit report, the creditor
provides credit on less favorable terms than for other
customers. Due to issues in determining which customers may
fall into that category, the FTC's regulation permits a specific
notice to be provided to every customer who applies for credit -
that notice must contain certain pieces of information,
including the current or most recent credit score, range of
possible credit scores, and distribution of credit scores among
consumers, as specified.
This bill, sponsored by the California New Car Dealers
Association, would, among other things, amend the Car Buyers
Bills of Rights to, instead, permit dealers to provide a
disclosure that meets the requirements of the above federal
regulations. To accomplish that result, this bill would codify
the requirements of the federal regulation, authorize the use of
the federal form, and require the disclosure of each credit
score obtained and used by the dealer.
The requirements of this bill are similar, but not identical, to
the requirements of AB 2118 (Hernandez, 2010), which failed in
this Committee on June 29, 2010. The present version of this
bill includes a compromise that is similar to amendments
accepted by the author of AB 2118 during this Committee's June
29, 2010 hearing, except that dealers must disclose "each"
credit score obtained and used. This bill has been referred to
this Committee for evaluation of that provision pursuant to
Senate Rule 29.10; the remaining provisions relating to dealers
and salespersons were approved by the Senate Transportation and
Housing Committee on March 23, 2010.
CHANGES TO EXISTING LAW
1. Existing law requires a dealer that obtains a credit score
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from a consumer credit reporting agency for use in connection
with an application for credit initiated by a consumer for the
purchase or lease of a motor vehicle for personal, family, or
household use, to provide, prior to the sale or lease of the
vehicle, the following information to the consumer in at least
10-point boldface type on a document separate from the sale or
lease contract:
the credit score obtained and used by the dealer and the
name of the credit reporting agency providing the credit
score to the dealer; and
the range of possible credit scores established by the
credit reporting agency that provided the credit score.
(Veh. Code Sec. 11713.20.)
Existing law additionally requires the dealer to provide a
specified statutory notice, which must include the name,
address, and telephone number of each credit reporting agency
providing a credit score that was obtained and used by the
dealer. (Veh. Code Sec. 11713.202.)
Existing federal regulation requires dealers to provide a
"risk-based pricing notice" to specified consumers, but states
that that notice need not be provided if the consumer requests
an extension of credit other than credit that is or will be
secured by one to four units of residential property, and
provides a notice that includes the following:
a statement that a credit report is a record of the
consumer's credit history and includes information about
whether the consumer pays his or her obligations on time
and how much the consumer owes to creditors;
a statement that a credit score is a number that takes
into account information in a consumer report and that a
credit score can change over time to reflect changes in the
consumer's credit history;
a statement that the consumer's credit score can affect
whether the consumer can obtain credit and what the cost of
that credit will be;
the current credit score of the consumer or the most
recent credit score of the consumer that was previously
calculated by the consumer reporting agency for a purpose
related to the extension of credit;
the range of possible credit scores under the model used
to generate the credit score;
the distribution of credit scores among consumers who
are scored under the same scoring model that is used to
generate the consumer's credit score using the same scale
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as that of the credit score that is provided to the
consumer, as specified;
the date on which the credit score was created;
the name of the consumer reporting agency or other
person that provided the credit score; and
a statement that the consumer is encouraged to verify
the accuracy of the information contained in the consumer
report and has the right to dispute any inaccurate
information in the report. (16 C.F.R. 640.5(e).)
This bill would revise the current dealer requirements by
striking the existing statutory form and generally codifying
the above notice requirements contained in the federal
regulation for risk-based pricing notices, as promulgated on
January 15, 2010. This bill would further require consumers
to be provided with each credit score obtained and used by the
dealer.
This bill would provide that the appropriate use of the model
form described in those regulations shall be deemed to comply
with the requirements of the section.
This bill would clarify that nothing in the section limits or
restricts any rights or remedies otherwise available under
existing law.
2. Existing law imposes licensing and regulatory requirements
on vehicle dealers and vehicle salespersons. Existing law
requires a dealer's place of business to have posted the
license issued by the Department of Motor Vehicles to the
dealer and to each salesperson employed by the dealer. (Veh.
Code Sec. 11709.)
Existing law requires the applicant of a dealer's or
remanufacturer's license to procure and file with the
department a bond, as provided. Existing law authorizes the
director of the department, if a deposit is given instead of
the bond, to order the deposit returned at the expiration of
specified dates. (Veh. Code Sec. 11710.2.)
Existing law authorizes the department to refuse to issue, to
suspend, or to revoke a vehicle salesperson's license when it
determines that the applicant or licensee has acted as a
salesperson or engaged in that activity for, or on behalf of,
more than one licensed dealer whose business does not have
identical ownership and structure. (Veh. Code Sec. 11806.)
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Existing law requires the salesperson's license to be
displayed continuously during employment and requires that the
license be returned to the salesperson once employment is
terminated. (Veh. Code Sec. 11812.)
This bill would authorize the dealer to post a true and exact
copy of the license issued by the Department of Motor Vehicles
(DMV) to the dealer and to each salesperson employed by the
dealer.
This bill would also authorize the director to order the
deposit to be returned at the expiration of 5 years from the
date the licensee secured and maintained a dealer bond, after
posting a deposit, if the director is satisfied that there are
no outstanding claims against the deposit.
This bill would authorize the department to refuse to issue,
to suspend, or to revoke a vehicle salesperson's license when
it determines, among other things, that the applicant or
licensee has concurrently acted as a vehicle salesperson and
engaged in that activity for, or on behalf of, more than one
licensed dealer unless all of the licensed dealers, for whom
that salesperson works, have common controlling ownership.
The bill would also provide that the law does not preclude a
vehicle
salesperson from working for more than one dealer provided
that all of the licensed dealers for whom that salesperson
works have common controlling ownership.
This bill would require the dealer to display the license or a
true and exact copy of the license continuously at each
location where the salesperson is actually engaged in the
selling of vehicles. Once the employment is terminated, this
bill would require all copies used by the dealer for posting
or display to be destroyed by the dealer.
COMMENT
1. Stated need for the bill
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According to the author:
The new federal credit score disclosure law is more
comprehensive than, and differs from, the credit score
disclosure notice currently required as part of the Car
Buyers Bill of Rights. Since FTC regulations (which take
effect January 1, 2011) allow dealers to provide credit
score disclosures in lieu of risk-based pricing notices,
state legislation is needed to harmonize California's credit
score disclosure requirements with the new FTC rules.
The sponsor further notes that "SB 1004 implements a compromise
with the opponents to AB 2118 (Hernandez) of 2010. That
measure, which was defeated by the Senate Judiciary Committee
earlier this year, sought to [] duplicate the credit score
disclosure requirements in federal and state law . . . . The
amendments now contained in SB 1004 resolve the key issue of
dispute between dealers and consumer groups: what happens when
a dealer obtains and uses more than one credit score in a
transaction? As agreed to by the parties, dealers will be able
to use the federal model form in such instances, but must give
to the consumer each credit score obtained and used by the
dealer. With this agreement, there is no known opposition to
the credit score disclosure provisions, nor any other section,
of SB 1004."
2. Compromise protects consumers and permits use of federal
form
To address concerns about providing both a California and
federal disclosure to consumers after January 1, 2011 (which is
what would be statutorily required absent legislation to allow
use of the federal form in lieu of the state form), AB 2118
(Hernandez, 2010) sought to specifically permit the use of a
credit score disclosure notice that met the requirements of the
federal regulation, as that section may be amended. Although
consumer groups raised several other issues with AB 2118, there
appeared to be no objection to permitting dealers to use the
federal form in lieu of the California form.
The opposition to AB 2118 raised two main objections to the
language of that bill - one of which was addressed by amendments
offered in this Committee for AB 2118 while the other was
subject to extensive discussion during the hearing.
The first issue concerned a proposed cross reference in AB 2118
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to the federal regulation that raised concerns about the ability
to enforce violations of a federal regulation and the issue of
an improper delegation of legislative authority. Those concerns
were addressed by the amendments offered by the author of AB
2118 that sought to codify the specific requirements of the
federal regulation in California law, permit use of the federal
form to meet those requirements, and to clarify that nothing in
the section would be construed to restrict any rights or
remedies otherwise available under existing law.
The remaining issue raised by consumer groups was whether
dealers using the federal form should disclose either "a" credit
score or "the" credit score obtained and used by the dealer.
That distinction was significant in those circumstances where a
dealer obtained, and used, multiple credit scores to make a
credit decision - in the circumstance where the dealer obtained
and used only one score, the author's amendments to AB 2118 that
were offered in this Committee, consistent with existing law,
would have required disclosure of only that score. Where
multiple scores were obtained and used, those amendments would
have required disclosure of only one of those scores due to the
proposed requirement to only disclose "a" score.
In response to that remaining concern raised by consumer groups
about requiring the disclosure of "a" score, the August 16, 2010
amendments to this bill would require the dealer to disclose
"each" credit score obtained and used by the dealer. Since the
model federal form only permits one credit score to be disclosed
per form, the practical effect of that amendment would be to
require a separate federal form to be given for each score
obtained and used. For example, if only one score is obtained
and used, the consumer would receive one form with that score.
If three scores are obtained and used, the consumer would
receive a form for each score - a total of three disclosures.
From a policy standpoint, the proposed disclosure of each score
would appear to provide consumers with full transparency about
the credit scores used in the transaction.
It should be noted that while the bill codifies the contents of
the model form, it does not require use of that form. If a
dealer chooses to use that form, the bill would provide that
appropriate use of the model form, as promulgated on January 15,
2010, is deemed to comply with the requirements of the section.
3. Remaining provisions of the bill
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As noted above, this bill was referred to this Committee
pursuant to Senate Rule 29.10 for evaluation of the above
provision regarding disclosure of credit scores to consumers.
The remaining provisions of this bill were previously heard by
the Senate Transportation and Housing Committee on March 23,
2010.
Support : None Known
Opposition : None Known
HISTORY
Source : California New Car Dealers Association
Related Pending Legislation : AB 2118 (Hernandez, 2010) See
Background.
Prior Legislation : AB 68 (Montanez, Chapter 128, Statutes of
2005) See Background.
Prior Vote :
Assembly Floor (Ayes 76, Noes 0)
Assembly Appropriations (Ayes 17, Noes 0)
Assembly Transportation (Ayes 11, Noes 0)
Senate Floor (Ayes 34, Noes 0)
Senate Transportation and Housing (Ayes 8, Noes 0)
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