BILL ANALYSIS Ó
AB 238
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 238 (Huber)
As Amended September 2, 2011
2/3 vote. Urgency
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|ASSEMBLY: | |(April 25, |SENATE: |33-0 |(September 9, |
| | |2011) | | |2011) |
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(vote not relevant)
Original Committee Reference: JUD.
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.
The Senate amendments delete the Assembly version of this bill,
and instead:
1)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.
2)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.
3)Provide that, in addition to any other remedies that may be
available, the buyer is entitled to any actual damages
sustained as a result of a violation of the above provisions.
4)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.
5)Contain an urgency clause, allowing this bill to take effect
immediately upon enactment.
EXISTING LAW :
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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.
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.
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 fide purchaser unless the violation is
corrected, as specified, and if the violation is not
corrected, the buyer may recover specified amounts.
4)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.
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.
AS PASSED BY THE ASSEMBLY , this bill amended the Civil Discovery
Act.
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FISCAL EFFECT : None
COMMENTS : 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.
According to the author and sponsor, 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. 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.
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.
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The CNCDA, 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."
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
continue the contract, or, may elect to rescind the contract.
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
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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
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.
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.
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 Civil Code
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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
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. Uncodified language
in the bill expressly states, "It is not the intent of the
Legislature in enacting this act to relieve a seller from making
full and accurate contract disclosures, or to limit other
consumer remedies for any disclosure violation."
Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334
FN: 0002875