BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
AB 238 (Huber)
As Amended September 2, 2011
Hearing Date: September 7, 2011
Fiscal: No
Urgency: Yes
BCP
SUBJECT
Motor Vehicle Conditional Sale Contracts
DESCRIPTION
This urgency bill would provide that a motor vehicle conditional
sales contract shall not be made unenforceable solely because of
a violation of requirements to disclose specified government
fees and the total of those and other fees.
This bill would apply only to contracts executed or entered into
on or after January 1, 2012, and provide that, in addition to
other remedies that may be available, the buyer is entitled to
actual damages sustained as a result of a violation of the
disclosure requirements.
BACKGROUND
The Automobile Sales Finance Act ("ASFA" or Rees-Levering Act)
seeks to protect purchasers of motor vehicles from excessive
charges by requiring conditional sale contracts to contain
numerous disclosures. Those disclosures include the amounts
paid for vehicle license, registration, title, transfer, and
California tire fees. A violation of those disclosures makes the
contract unenforceable, as specified, unless the violation is
the result of an accidental or bona fide error in computation.
ASFA specifically provides that when the contract is
unenforceable, the buyer may elect to retain the vehicle and
continue the contract in force, or, elect to rescind the
contract and return the motor vehicle. (Civ. Code Sec. 2983.1.)
(more)
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This bill seeks to respond to recent class action lawsuits
against dealers that allege violations of AFSA's government fee
disclosure provisions and, among other things, seek to make the
associated contract unenforceable. As an example, a complaint
filed in San Mateo Superior Court makes the following
allegations:
First, Ýdefendant car dealership] fails to properly and
separately itemize and disclose
registration/transfer/titling fees, separate from license
fees, on purchase contracts for the vehicles it sells.
Regarding new and used vehicles alike, Ýthe dealership]
mis-stated the amount of license, registration, transfer,
and titling fees due and owing on the vehicles it sells its
customers.
Second, Plaintiff is one of many consumers who purchased a
used vehicle from Ýthe dealership] and who was charged a
California Tire Fee, even though the vehicle Plaintiff
purchased did not have new tires . . . . Since none of these
consumers received new tires in conjunction with their
vehicle purchase, these consumers should not have been
charged California Tire Fees. (Complaint filed September 2,
2010, Isble v. Redwood City Automotive LLC, San Mateo
Superior Court CIV 498544.)
In response to concerns expressed by the California New Car
Dealers Association (CNCDA) about the ability to rescind
contracts when dealers fail to comply with statutory
requirements regarding disclosure of fees paid by a buyer to
public officials, this bill would remove rescission as a remedy
for those violations but retain the ability to seek any other
remedy that may be available against the dealer.
CHANGES TO EXISTING LAW
Existing law , the Automobile Sales Finance Act (also known as
the Rees-Levering Motor Vehicle Sales and Finance Act), sets
forth numerous requirements with regard to disclosures required
in an automobile conditional sale contract, including, among
other things, amounts paid to public officials for vehicle
license, registration, transfer, titling fees, and California
tire fees. Those disclosures also include the subtotal of those
fees and other items. (Civ. Code Sec. 2982(a)(2), (a)(5).)
Existing law provides that if the seller, except as the result
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of an accidental or bona fide error in computation, violates the
above disclosure provisions, the conditional sale contract shall
not be enforceable except by a bona fide purchaser or until the
violation is corrected, as specified, 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. (Civ. Code
Sec. 2983.)
Existing law further provides that if a holder acquires a
conditional sales contract without actual knowledge of specified
violations, the contract shall be valid and enforceable by the
holder except the buyer is excused from payment of the unpaid
finance charge, unless the violation is corrected. (Civ. Code
Sec. 2983.1.) If the holder acquired the conditional sales
contract with knowledge of specified violations, the contract
shall not be enforceable except by a bona fine purchaser unless
the violation is corrected, as specified, and if the violation
is not corrected, the buyer may recover specified amounts.
(Civ. Code Sec. 2983.1.)
Existing law provides that when a contract is not enforceable
under the above sections, 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. The value of the returned vehicle shall be
credited as restitution by the buyer without any decrease that
results from the passage of time in the cash price of the motor
vehicle, as specified. (Civ. Code Sec. 2983.1.)
Existing law provides that reasonable attorney's fees and costs
shall be awarded to the prevailing party in any action on a
contract or purchase order. (Civ. Code Sec. 2983.4.)
This bill would provide that a conditional sales contract shall
not be made unenforceable solely because of a violation by the
seller regarding the disclosure of amounts paid to public
officials regarding various fees and the subtotal of those fees
with other amounts.
This bill would additionally provide that a buyer shall not be
excused from payment of any finance charge solely due to the
above violation with respect to a holder of a conditional sales
contract that was acquired without actual knowledge of the
violation.
This bill would provide that, in addition to any other remedies
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that may be available, the buyer is entitled to any actual
damages sustained as a result of a violation of the above
provisions.
This bill would state that nothing shall affect any legal
rights, claims, or remedies otherwise available under law, and
would apply only to conditional sales contracts executed or
entered into on or after January 1, 2012.
This bill would take effect immediately as an urgency measure.
COMMENT
1. Stated need for the bill
According to the author:
AB 238 narrowly refines the ASFA's disproportionate remedy
provisions by providing that a contract shall not be
rendered unenforceable solely because of a discrepancy in
the disclosure of specified government fees. This bill does
ensure that consumers retain the right to sue dealers that
violate these disclosure requirements in Superior Court in
an effort to obtain monetary damages and attorney's fees.
This proposal is the result of a careful collaboration
between interested parties to ensure that consumers are
adequately protected from unscrupulous dealers, and that
dealers who make technical disclosure violations are held
accountable without the prospect of a business-threatening
catastrophic lawsuit.
The California New Car Dealers Association, sponsor, further
notes that "the bill ensures that consumers retain the right
to sue dealers that violated government fee disclosure
requirements in Superior Court - in class or individual
action- and to obtain monetary damages and attorney's fees
when successful."
2. Unenforceable contracts
Existing law provides that a conditional sale contract is
generally not enforceable if the car dealer violates specified
provisions of ASFA, including the required disclosure of fees
paid to public officials. When a conditional sale contract is
not enforceable, the buyer may elect to retain the vehicle and
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continue the contract, or, may elect to rescind the contract.
(Civ. Code Secs. 2983, 2983.1.) Due to concerns by CNCDA about
the lawsuits discussed above, this bill would eliminate the
ability to make those contracts unenforceable solely based upon
violations relating to fees paid to public officials (and the
line totaling those and other amounts). CNCDA, in support,
contends:
ÝT]he broad remedy provision contained in ASFA provides that
a violation of any of these disclosure requirements renders
the contract unenforceable, and requires the dealer to
return to the consumer all amounts paid by the buyer - even
if the consumer has suffered no harm. Over the past several
years, a handful of plaintiff's attorneys have taken
advantage Ýof] this broad remedy provision (which equates to
an automatic right of rescission) by filing dozens of class
action lawsuits against dealers for technical violations of
ASFA's government fee disclosure provisions.
From a policy standpoint, statutory remedies such as the right
to rescission serve to both encourage compliance with the
statute and to provide individuals with the opportunity to seek
redress if parties are not complying with particular statutory
requirements. In this case, the statutory requirement is a
disclosure regarding the amount paid to public officials for
fees (moneys which are directly passed on to the appropriate
government entity and not used for profit), and the line
totaling those and other amounts. Potential violations of that
requirement include allegations in the above-cited complaint
that the specified dealer made a false statement by providing
that the "amount due for registration/transfer/titling fees was
'N/A' . . . since such fees were applicable to the sales."
Although this bill would eliminate a currently available remedy
with respect to certain government fees, this bill would not
eliminate all recourse against dealers who do not comply with
the required disclosure requirements.
First, this bill only removes the availability of rescission
solely due to the dealer's failure to accurately disclose fees
paid to government officials or the line totaling those and
other fees. Many of the pending cases include additional
allegations of ASFA that would, in turn, allow car buyers to use
rescission as one of their available remedies. Furthermore, as
stated by CNCDA, "if a dealer commits fraud when violating a
government fee disclosure requirement a consumer could still
retain his or her right to sue under the Consumer Legal Remedies
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Act, the Unfair Competition Law, or any other applicable
statutes." Car buyers subject to those deceptive practices
could potentially bring a class action seeking damages and
attorneys' fees. Although the settlement value of such a case
would arguably be significantly less after this bill, the
prospect of a class action and attorney's fees could provide
sufficient deterrent for a dealer to spend the extra time and
resources to ensure that the disclosures are properly filled out
(either by hand or properly updated computer software).
Finally, this bill would not modify the existing disclosure
requirements regarding fees paid to public officials. As an
example of potential violations of those requirements, a
complaint filed in the Santa Barbara Superior Court contends
that a car dealer in Santa Maria included the total fees paid
under the line for "license fees" and wrote "N/A" under the line
for registration/transfer/titling fees. While this bill would
remove the ability for a consumer to seek rescission for
misstatements regarding those fees, the bill would not prohibit
a consumer from seeking any other available remedy.
3. No interference with pending litigation
It should be noted that this bill would only apply to
conditional sales contracts executed or entered into on or after
January 1, 2012. As a result, this bill would not impact the
pending litigation cited by the CNCDA, and thus, would
appropriately allow the courts to determine the validity of
those cases based upon the law in existence at the time of
violation.
4. Provision not relating to rescission
Although the bill's provisions primarily deal with rescission,
the bill would additionally provide that a buyer shall not be
excused from payment of any finance charge under Section 2983.1
solely because the car dealer violated the provision requiring
disclosure of fees paid to public officials, or the total
including those fees. That excuse from payment would otherwise
occur where a holder acquires a conditional sale contract
without actual knowledge of the violation, as specified.
Consistent with the other provisions, the language excusing
payment would expressly allow the buyer to seek actual damages
and not affect other legal rights, claims, or remedies. Also
consistent with the rescission portion, that language could
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allow a class action of all buyers to recover their damages,
attorneys' fees, and any other remedies that may be available
for the misstatement of that information.
Support : None Known
Opposition : None Known
HISTORY
Source : California New Car Dealers Association
Related Pending Legislation : SB 287 (Fuller), would limit the
award of attorney's fees under ASFA to a prevailing party in an
action instituted by a person who has suffered injury in fact
and has lost money or property as a result of a violation of the
Act. This bill is in the Senate Judiciary Committee.
Prior Legislation : None Known
Prior Vote : Not Relevant
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