BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                AB 238
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        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)


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        |COMMITTEE VOTE:  |8-0  |(September 9, 2011) |RECOMMENDATION: |concur    |
        |                 |     |                    |                |          |
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        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 








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          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 








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        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."  









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        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 











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