BILL ANALYSIS Ó AB 238 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 238 (Huber) As Amended September 2, 2011 2/3 vote. Urgency ---------------------------------------------------------------------- |ASSEMBLY: | |(April 25, |SENATE: |33-0 |(September 9, 2011) | | | |2011) | | | | ---------------------------------------------------------------------- (vote not relevant) ------------------------------------------------------------------------ |COMMITTEE VOTE: |8-0 |(September 9, 2011) |RECOMMENDATION: |concur | | | | | | | ------------------------------------------------------------------------ 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 substitute the following 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 AB 238 Page 2 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. AS PASSED BY THE ASSEMBLY , this bill amended the Civil Discovery Act. 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 ASFA seeks to protect purchasers of motor vehicles from excessive charges by requiring conditional sale contracts to contain numerous disclosures. 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 AB 238 Page 3 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. 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. 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. 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." AB 238 Page 4 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).) 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, although the Committee's research found no reported cases providing authority for such a claim. 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. Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334 FN: 0002888 AB 238 Page 5