BILL ANALYSIS Ó
AB 238
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Date of Hearing: September 9, 2011
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 238 (Huber) - As Amended: September 2, 2011
FOR CONCURENCE
SUBJECT : Motor vehicle saleS contracts
KEY ISSUE : should RESCISSION BE ELIMINATED AS A REMEDY UNDER
THE AUTOMOBILE SALES FINANCE ACT FOR FAILURE TO DISCLOSE
ITEMIZED FEES ON AUTOMOBILE CONTRACTS?
SYNOPSIS
This is a new measure sponsored by the California New Car
Dealers Association. It would eliminate the existing remedy of
contract rescission for specified violations of the Automobile
Sales Finance Act regarding disclosure of certain government
fees, such as the Vehicle License Fee, and required subtotals.
Car dealers argue that this remedy is unnecessary and excessive
for technical and minor violations that cause no harm to a
buyer. The dealers argue that the bill preserves the underlying
obligations, which would remain potentially enforceable under
other provisions of law. There is no known opposition.
SUMMARY : Provides 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. Specifically, this bill :
1)Provides 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.
2)Provides 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.
3)Provides that, in addition to any other remedies that may be
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available, the buyer is entitled to any actual damages
sustained as a result of a violation of the above provisions.
4)States 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.
5)Contains an urgency clause, allowing this bill to take effect
immediately upon enactment.
EXISTING LAW :
1)Sets forth, under the Automobile Sales Finance Act (also known
as the Rees-Levering Motor Vehicle Sales and Finance Act),
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. (Civil Code section 2982.)
2)Provides that if the seller, except as the result 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. (Civil Code section 2983.)
3)Provides further 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. 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.)
4)Provides that when a contract is not enforceable under the
above sections, the buyer may elect to retain the motor
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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.)
5)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.)
FISCAL EFFECT : None
COMMENTS : According to the author, this bill seeks to respond
to recent lawsuits against car dealers alleging violations of
existing law regarding failure to properly disclose government
fees collected by dealers under the Automobile Sales Finance Act
(ASFA). In response to concerns expressed by the bill's
sponsor, California New Car Dealers Association (CNCDA), about
the ability of car buyers to rescind contracts when dealers fail
to comply with statutory requirements regarding disclosure of
these fees, this bill would remove rescission as a remedy for
those violations. 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 Automobile Sales Finance Act Requires Itemized Disclosure of
All Costs In A Sales Contract. The Remedy For Violation Of This
Obligation Is That The Contract Is Unenforceable. The ASFA
seeks to protect purchasers of motor vehicles from excessive
charges by requiring conditional sale contracts to contain
numerous disclosures.
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The California Legislature enacted the ASFA in 1961? to
increase protection for the unsophisticated motor vehicle
consumer and provide additional incentives to dealers to
comply with the law. The ASFA serves to protect motor
vehicle purchasers from abusive selling practices and
excessive charges by requiring full disclosure of all items
of cost. Under the ASFA, 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."
Conditional sale contracts must also contain all
disclosures and notices required under section 2982."
(Nelson v. Pearson Ford Co., 186 Cal. App. 4th 983 (2010).)
Relevant to this bill, section 2982 of the ASFA requires
specification of amounts paid for vehicle license, registration,
title, transfer, and tire fees. The law also requires that the
contract show a subtotal of these and other fees.
Under the ASFA, a violation of those disclosures generally makes
the contract unenforceable, 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. From a policy standpoint, statutory remedies
such as the right of rescission are designed to both encourage
compliance with the statute and to provide individuals with the
opportunity to enforce the obligations imposed by law.
This Bill Would Eliminate The Only Apparent Existing Remedy of
Contract Rescission For Violations of Specified Fee and Subtotal
Disclosures, Although It Would Allow Recovery Of Any Actual
Damages. The requirement that government fees be shown on the
contract has been a feature of the ASFA since its enactment 50
years ago. Initially the Act provided no right of rescission if
these fees were lumped together on the contract because dealers
could defend on the ground of substantial compliance. (Stasher
v. Harger-Haldeman, 58 Cal 2d 23 (1962).) However, the Act was
subsequently revised to require the current specific
itemization. The remedy of rescission therefore appears to be
available as a remedy - and apparently the only remedy -
specified in the statute for unlawfully aggregating these fees.
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Attorney's fees are added for the prevailing party. (Civil Code
Section 2983.4.)
Although it eliminates the one apparent existing remedy under
the ASFA for unlawful aggregation and failure to subtotal, the
bill does not actually eliminate the underlying obligation to
comply with these disclosure requirements. Failure to comply is
still technically wrongful under the bill. Indeed, an
uncodified provision of the bill states, "It is not the intent
of the Legislature in enacting this act to relieve a seller from
making full and accurate contract disclosures ?." Moreover, the
bill makes clear that actual damages are recoverable for any
such violation, although cases involving actual damages are
expected to be rare, and may be more difficult to discern if
buyers are not shown the breakdown of fees.
Any Other Potential Remedies Are Preserved. The bill expressly
provides that it does not "affectÝ] any legal rights, claims or
remedies otherwise available under law." This is underscored by
uncodified language stating, "It is not the intent of the
Legislature in enacting this act to ? limit other consumer
remedies for any disclosure violation."
It is not clear what if any rights, claims or remedies there
might be under existing law. A claim would appear to lie under
the Unfair Competition Law (UCL). (E.g., Nelson v. Pearson Ford
Co., 186 Cal. App. 4th 983 (2010).) "By proscribing any
unlawful business practice, Ýthe UCL] borrows violations of
other laws and treats them as unlawful practices that the unfair
competition law makes independently actionable." (Id., at
1013.)(quotations and citations omitted.) However, the UCL
imposes a heightened harm requirement for standing. A private
person has standing to sue only if he or she has suffered injury
in fact and has lost money or property as a result of such
unfair competition. These harm and causation requirements may
preclude many potential claims for failure to make the required
fee and subtotal disclosures covered by this bill, absent proof
of actual damages such as overcharging. While the UCL imposes
an elevated damages requirement, it paradoxically limits
remedies to injunctive and restitutionary relief, which moreover
are discretionary with the court under equitable principles, not
mandatory. In addition, attorney's fees are generally
unavailable under the UCL, unlike the ASFA.
A claim might also lie under the Consumer Legal Remedies Act,
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although the Committee's research found no reported cases
providing authority for such a claim.
Despite The Elimination of Remedies, It Is Expected That Car
Dealers Will Continue To Comply With All Disclosure Obligations.
The premise underlying the bill is that this change in the law
will deter excessive litigation and unwarranted remedies without
affecting compliance with the ongoing disclosure obligations.
It is hoped that the absence of the rescission remedy will not
lead to any increase in failure to disclose, which might
inadvertently put additional burdens on the Department of Motor
Vehicles, which is responsible for administrative monitoring and
enforcement of these obligations. What may be worse, if dealers
were to combine non-tax-deductible registration and other fees
on the same line of the contract with the tax-deductible VLF
fee, car buyers may mistakenly overstate VLF tax deductions on
their income tax returns - a development that would not only
cause potential difficulties for taxpayers but could lead to
reduced state revenue collection. It may be useful to evaluate
the impact of this measure in subsequent years to ensure that it
has the desired positive effect without inadvertent costs.
REGISTERED SUPPORT / OPPOSITION :
Support
California New Car Dealers Association
Opposition
None on file
Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334