BILL ANALYSIS Ó SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: AB 1215 SENATOR MARK DESAULNIER, CHAIRMAN AUTHOR: blumenfield VERSION: 6/22/11 Analysis by: Carrie Cornwell FISCAL: yes Hearing date: June 28, 2011 SUBJECT: Vehicles: electronic registration and dealer fees DESCRIPTION: This bill requires new car dealers to participate in a program to electronically title and register vehicles that they sell and to post specified warning notices on some used cars. The bill allows vehicle dealers to charge car buyers higher add-on fees on the sale of new and used vehicles. ANALYSIS: Vehicle license plates and registration Existing law prohibits a person from driving, moving, or parking a motor vehicle on the highway or in a public parking facility unless it is registered with the Department of Motor Vehicles (DMV). When someone buys a new car, it is not yet registered, nor does it display license plates. Sometimes used cars also do not have license plates, and in any case, the dealer must transfer the title and registration to the buyer. At the time of retail sale, the vehicle dealer is responsible for applying to DMV for the registration of a new vehicle and the transfer of registration for a used vehicle. Before the dealer can deliver the vehicle to the buyer, the dealer must affix to the vehicle's windshield a DMV-created report-of-sale showing that the vehicle is in the process of being registered. The dealer then has 20 days for a new vehicle or 30 days for a used vehicle to deliver to DMV the application and fees necessary to register the vehicle in the buyer's name. Once DMV receives and processes the application, it issues and mails to the new owner two license plates, a vehicle registration card, and the appropriate registration stickers for the vehicle's rear license plate. The two license plates must AB 1215 (BLUMENFIELD) Page 2 remain affixed to a vehicle, but the vehicle may be operated for 180 days after purchase while displaying a report-of-sale rather than license plates with registration stickers. In 2001, under SB 46 (Polanco), Chapter 127 of that year, DMV established an Electronic Vehicle Registration (EVR) program in which motor vehicle dealers may enter into contracts to act as DMV business partners for vehicle registration and titling purposes. A business partner either directly, or through a service provider, communicates electronically with DMV to register a vehicle it has sold and then mails license plates, registration cards, and registration stickers to the buyer. DMV estimates that less than half of new car dealers participate in this voluntary EVR program. Document processing fee Existing law requires any person acting as a dealer of motor vehicles subject to registration to be licensed by the Department of Motor Vehicles (DMV). Among other requirements and prohibitions, a motor vehicle dealer must advertise the total price of a vehicle, but may exclude taxes, registration and smog check fees, finance charges, and document preparation fees. In addition, the dealer must sell the vehicle at the advertised price, exclusive of the mentioned taxes and fees. Existing law caps dealer document preparation fees at $45 for a leased vehicle and $55 for a purchased vehicle. While existing law does not define what this fee is, generally vehicle dealers assert that the fee is meant to cover the cost to the dealer of processing paperwork, including that required to register the motor vehicle with the state. National Motor Vehicle Title Information Service (NMVTIS) The Federal Anti-Car Theft Act of 1992 provided for the establishment of a national information system to enable states and others to access vehicle titling information. In 1996, Congress reauthorized the act and gave U.S. Department of Justice (US DOJ) responsibility for implementation and development of the system, which is known as the National Motor Vehicle Title Information Service (NMVTIS). The federal government created NMVTIS to: Prevent the introduction or reintroduction of stolen AB 1215 (BLUMENFIELD) Page 3 vehicles into interstate commerce; Protect states, consumers, and others from fraud; Reduce the use of stolen vehicles for illicit purposes, including fundraising for criminal enterprises; and Provide consumer protection from unsafe vehicles, including showing when a vehicle title has been branded in a jurisdiction. (A "brand" is a descriptive label that states assign to a vehicle to identify the vehicle's current or prior condition, such as "junk," "salvage," or "flood.") For a consumer to access NMVTIS information about a particular vehicle's title and history, the consumer pays a small fee (typically $5 to $8) to one of several private companies that provide access to NMVTIS records. This bill : 1. Requires that a new motor vehicle dealer register motor vehicles -- new or used -- that it sells or leases using the EVR program. This provision does not apply to motorcycles, off-highway vehicles, or recreational vehicles. To this end, the bill makes any new car dealer that has not signed up as a business partner in DMV's EVR program by October 1, 2012 to be in violation of statutory dealer licensing requirements. 2. Changes the name of the document preparation fee to the "document processing charge" and expressly authorizes dealers to charge a purchaser or lessee the charge. The bill states that the document processing charge is "for preparation and processing of documents, disclosures, and titling, registration, and information security obligations imposed by state and federal law" but prohibits a dealer from representing it as a governmental fee. 3. Increases the cap on the document processing charge for both purchases and leases to $75 for those dealers that participate in electronic registration and $65 for those dealers - who could only be used vehicle dealers - who do not participate. Beginning six months after the effective date of the bill and annually thereafter, DMV will adjust these two caps by the California Consumer Price Index rounded to the nearest dollar amount and to a maximum of $100. 4. Authorizes a dealer to charge an electronic filing AB 1215 (BLUMENFIELD) Page 4 charge not to exceed the lesser of $29 or the actual amount the dealer pays to a DMV service provider for providing a license plate. The dealer may not represent this as a governmental fee either. (DMV regulations currently allow a dealer who is a business partner under the EVR program to charge consumers up to $29 for electronic registration.) 5. Shortens the period from six months to 90 days during which a vehicle may be operated while displaying a report-of-sale and without a license plate and registration stickers. The bill clarifies that a registered owner must affix license plates to a vehicle upon receiving those plates. 6. Prohibits a dealer from offering a used vehicle for sale unless the dealer obtains an NMVTIS report on that vehicle. If the report indicates that the vehicle is a junk automobile or a salvage automobile, that specified parties have reported it as such, or that its title contains a brand, then the dealer must affix to the vehicle a prescribed warning to that effect in 14 point font on a 4 inch by 5.5 inch, red background. The warning shall also advise the buyer that he or she may get a copy of the NMVTIS report from the dealer or obtain it independently and the web address at which to obtain it. The dealer must make the NMVTIS report available to the purchaser upon request prior to sale. 7. Takes effect on July 1, 2012. COMMENTS: 1.Purpose . According to that author, vehicle dealers register fewer than 40 percent of new cars electronically each year. He notes that the alternative, manual vehicle registration system is experiencing delays and backlog, impacting the delivery of license plates in a timely manner. It takes DMV weeks or even months to process vehicle registration documents manually and distribute license plates and registration cards. An electronic system would reduce this period to days. The timely distribution and affixing of plates to vehicles is important both to law enforcement and to toll collection agencies that use camera enforcement at their toll plazas. Transitioning to an EVR system would result also in a significant savings to DMV. The author and DMV believe that AB 1215 (BLUMENFIELD) Page 5 implementing a mandatory EVR program would result in a minimum net fiscal benefit to the state's Motor Vehicle Account of well over $9 million per year. 2.A reasonable balance . Historically, opposition to increases in the document preparation fee cap, which this bill increases by $20 for sales and $30 for leases, came from groups representing consumers. These groups see the fee as a cost solely borne by consumers and increasing the cap as simply increasing a fee on car buyers. Those groups have acquiesced to increases in the document preparation fee cap when legislation linked the increase to improved consumer protection measures for car buyers. This bill provides such a link as the NMVTIS warning provides crucial information about a vehicle's history to buyers in a timely fashion. Consumer groups supporting this bill note that vehicles with a history of major damage tend to be unsafe and worth far less that otherwise similar vehicles. Recent amendments that require dealers to check and post information from NMVTIS moved these groups from opposing to supporting the bill. 3.Another increase . The Legislature has raised the cap on document preparation fees a number of times over the past 25 years. In 1986, the cap went from $20 to $25. Two years later legislation increased it to $35, and in 1996, it reached $45. In 2006, SB 44 (Torlakson), Chapter 623, increased the cap to $55 for purchased vehicles only, but left the cap for leased vehicles at $45. Adjusting simply for consumer inflation, $45 in 1996 is equivalent to $65 today, and $25 in 1986 is equivalent to $52 today. Thus, the $75 cap in this bill is an increase far beyond that warranted by changes in prices. In addition, this bill provides that this significantly higher cap will increase automatically with inflation in the future. 4.Nonparticipating dealers get an increase, too . This bill requires that new car dealers participate in the DMV's EVR program, which saves the state money and speeds up the time in which a car buyer receives license plates, registration stickers, and a registration card. Used car dealers can participate at their option. Those who participate may charge up to $75 for document processing, but those who don't still can charge $65. The committee may wish to consider whether it is appropriate to reward dealers that don't participate in the EVR system with an increase of $10 for every vehicle they sell and $20 for each they lease. AB 1215 (BLUMENFIELD) Page 6 5.Double-referral . The Rules Committee referred this bill to both the Transportation and Housing Committee and to the Judiciary Committee. Therefore, if this bill passes this committee, it will be referred to the Committee on Judiciary. Assembly Votes: Floor: 75-3 Appr: 17-0 Judic: 9-0 Trans: 14-0 POSITIONS: (Communicated to the Committee before noon on Wednesday, June 22, 2011) SUPPORT: California New Car Dealers Association (sponsor) Consumer Action Consumers for Auto Reliability and Safety OPPOSED: None received.