BILL ANALYSIS                                                                                                                                                                                                    Ó






                             SENATE JUDICIARY COMMITTEE
                             Senator Noreen Evans, Chair
                              2011-2012 Regular Session


          AB 1215 (Blumenfield)
          As Amended June 22, 2011
          Hearing Date: July 5, 2011
          Fiscal: Yes
          Urgency: No
          BCP
                    

                                        SUBJECT
                                           
                    Vehicles:  Electronic Processing of Documents

                                      DESCRIPTION  

          Existing law allows a vehicle dealer to charge a maximum 
          document preparation charge of $55 for the sale of a vehicle, 
          and $45 for the lease of a vehicle. This bill would increase 
          those fees to $75 for dealers that participate in electronic 
          vehicle registration, and, to $65 for dealers that do not.  Fees 
          for participating dealers would be annually adjusted by the 
          Department of Motor Vehicles due to changes in the California 
          Consumer Price Index.

          This bill would require a motor vehicle sold or leased by a new 
          motor vehicle dealer to be registered using electronic programs 
          provided by a qualified private industry partner, and make 
          related changes.

          This bill would prohibit a dealer from displaying or offering 
          for sale at retail a used vehicle unless the dealer first 
          obtains a report on the vehicle from the National Motor Vehicle 
          Title Information System (NMVTIS). If the NMVTIS report 
          indicates that the vehicle is or has been a junk or salvage 
          automobile, or the vehicle has been reported as such by a junk 
          or a salvage yard, or an insurance carrier, or the certificate 
          of title contains a brand, the bill would require the dealer to 
          do certain things, including post a disclosure, as provided.

                                      BACKGROUND  

          In 2001, SB 46 (Polanco, Chapter 127, Statutes of 2001) 
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          established a voluntary electronic vehicle registration (EVR) 
          program by which vehicle dealers may enter into contracts to act 
          as partners with the Department of Motor Vehicles (DMV) for 
          vehicle titling and registration purposes.  New and used vehicle 
          dealers can become "second-line" business partners who must then 
          contract with a "first-line" service provider that registers the 
          vehicle, and mails license plates, registration cards, and 
          registration stickers to the buyer.  DMV regulations currently 
          allow a dealer who is a business partner under the EVR program 
          to charge consumers up to $29 for electronic registration.  In 
          response to concerns that fewer than 40 percent of vehicles are 
          registered electronically, this bill would, instead, require all 
          new motor vehicle dealers to participate in the EVR program; 
          participation by used car dealers would remain optional.  This 
          bill would additionally shorten the period from six months to 90 
          days during which a vehicle may be operated without a license 
          plate and registration stickers.

          This bill would also significantly increase the "document 
          preparation" fee to $75 from the current cap of $55 for vehicle 
          sales and $45 for leased vehicles; the amount would be increased 
          to $65 for used car dealers that do not participate in the EVR 
          program.  DMV would be required to adjust the $75 cap each year 
          in accordance with the California Consumer Price Index, and the 
          adjusted amount may not exceed $100.  Lastly, this bill would 
          prohibit a dealer from offering a used vehicle for sale unless 
          the dealer obtains a NMVTIS report, and, if the report indicates 
          the vehicle is junk, salvage, or contains a brand, the dealer 
          must affix a specified warning to the car.

          This bill was approved by the Senate Transportation amd Housing 
          Committee on June 28, 2011.

                                CHANGES TO EXISTING LAW
           
          1.    Existing law  allows a maximum document preparation charge 
            of $55 for the sale of a vehicle, and $45 for the lease of a 
            vehicle, by a vehicle dealer. (Veh. Code Sec. 11713.1; Civ. 
            Code Sec. 2985.8.)

             This bill  would increase the cap on the above charge for both 
            purchases and leases to $75 for those dealers that participate 
            in the EVR program and $65 for those dealers who do not 
            participate.  Beginning six months after the effective date of 
            the bill and annually thereafter, the Department of Motor 
            Vehicles (DMV) will adjust the $75 cap for participants in the 
                                                                      



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            EVR program by the California Consumer Price Index rounded to 
            the nearest dollar amount and to a maximum of $100.

             This bill  would change the name of the document preparation 
            fee to the "document processing charge" and expressly 
            authorize dealers to charge a purchaser or lessee the charge.  
            This bill would state 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" and prohibit a dealer from 
            representing the charge as a governmental fee. 

          2.   Existing law  requires the seller of a total loss ("salvage") 
            vehicle to disclose to the purchaser at, or prior to, the time 
            of sale that the vehicle has been declared a total loss 
            salvage vehicle.  (Veh. Code Sec. 11515(h)(1).))

             This bill  would additionally prohibit 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.  
           
           3.    Existing law  permits but does not require a new car dealer 
            to electronically register a vehicle with the DMV for an 
            additional fee through a qualified industry partner.  (Civ. 
            Code Sec. 2982.)

             Existing law  allows newly sold vehicles to be operated without 
            license plates until the plates are received or until the end 
            of a six-month period after the date of sale, whichever occurs 
            first.  (Veh. Code Sec. 4456.)

             This  bill would require 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.  

                                                                      



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             This bill  would authorize a dealer to charge an electronic 
            filing 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.)

             This bill  would shorten 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, and clarify that a registered owner must affix 
            license plates to a vehicle upon receiving those plates.

             This bill  would take effect on July 1, 2012.

                                        COMMENT
           
          1.   Stated need for the bill  

          According to the author:

            Annually, fewer than 40% of new cars are registered 
            electronically.  The manual vehicle registration system is 
            experiencing delays and backlog, impacting the delivery of 
            license plates in a timely manner. It is currently taking 
            DMV months to manually process vehicle registrations 
            documents when an electronic system would reduce this period 
            to weeks. Transitioning to an EVR system would increase the 
            delivery of license plates and would unequivocally result in 
            a significant savings to the DMV.  The net fiscal benefit to 
            the state by implementing a mandatory EVR program would 
            result in a minimum net fiscal benefit to the state well 
            over $9 million, annually.

          2.   Significant increase in the document preparation/processing 
          fee  

          Under existing law, a vehicle dealer may charge a document 
          preparation fee of up to $55 for the sale of a vehicle, and up 
          to $45 for the lease of a vehicle.  SB 44 (Torlakson, Chapter 
          623, Statutes of 2006) last increased the fee for purchased 
          vehicles from $45 to the present $55 amount; prior to that bill, 
          the last increase occurred in 1996 where the cap was increased 
          from $35 to $45.  In comparison, this bill would increase both 
          of those amounts to $75 ($65 for used car dealers that do not 
                                                                      



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          participate in the electronic registration program), and, 
          require the DMV to adjust the $75 cap based upon changes in the 
          California Consumer Price Index, provided that the amount does 
          not exceed $100.  In support of the proposed change, the 
          California New Car Dealers Association, asserts:

            To offset the new EVR requirement and to account for the 
            dozens of documentary burdens already imposed on dealers, AB 
            1215 increases to $75 the statutory cap on the document 
            processing charge (which is a negotiable, non-governmental 
            charge), and also provides for a periodic cost of living 
            adjustment in the cap up to $100.  At this $75 level, the 
            document processing charge will still be tied for the lowest 
            in the country even though dealer costs to comply with 
            government requirements to sell or lease a vehicle already 
            range from $75 for a simple transaction (involving the 
            purchase of a new car negotiated in English by a buyer and 
            co-buyer with good credit and no trade-in) to $180 for a 
            complex transaction (involving the purchased of a used 
            vehicle by a foreign language buyer and co-buyer with poor 
            credit and a trade-in).  

          It should be noted that although there is no opposition to this 
          bill as the result of the June 22, 2011 amendments, which added 
          the NMVTIS disclosure requirements, document preparation charges 
          have been controversial in the past.  Although no longer in 
          opposition after the June 22, 2011 amendments, the National 
          Consumer Law Center's (NCLC) oppose unless amended letter dated 
          June 3, 2011 (requesting the NMVTIS language discussed below) 
          argued that: 

            Doc fees provide pure profit for auto dealers at the expense 
            of California residents buying cars.  They should be 
            included in the purchase price of the vehicle, as 
            advertised, and as negotiated - rather than being tacked on 
            at the end, after a deal has already been struck.  The 
            current draft of AB 1215 increases a fee that should not be 
            charged to consumers. 

          From a practical standpoint, it is unclear why the proposed 
          increase to the document preparation fee could not just be 
          incorporated into the purchase price; in other words, a vehicle 
          dealer could just agree to sell the cars for $30 more and 
          arguably see similar financial returns. The practical difference 
          is in the timing of the charge - a consumer arguably knows the 
          price they are negotiating for a vehicle, but, may not be aware 
                                                                      



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          of all the additional fees and charges that may be added to the 
          negotiated price (provided that the negotiated price is not all 
          inclusive).  To the extent that the document preparation charge 
          is added to the total price along with other charges after the 
          consumer has spent a lengthy amount of time negotiating the 
          transaction, it would appear that a consumer may be more likely 
          to accept that increase in cost than if it were part of the 
          original negotiations.  Considering that the Legislature has 
          already acted to authorize such a charge, the question is 
          whether the proposed increases (and future inflation 
          adjustments) are appropriate in the context of the present bill.

            a.   Increase not consistent with inflation  

            Pursuant to the California Consumer Price Index, there has 
            been a 47.4 percent change in the index since January of 1997 
            (the date both fees were increased to $45).  That percentage 
            equates to an adjusted fee of $66.33, if based upon the 
            amounts as they existed on January 1, 1997.  Despite that 
            calculation, the Legislature already acted to increase the fee 
            for vehicle sales to $55 in 2006 and, at that sale time, did 
            not increase the fee for leased vehicles.  Performing the same 
            calculation, but basing it off of 2006 numbers, there has been 
            a 10.2 percent change, which equates to an adjusted fee of 
            $60.61 for vehicle sales and $49.59 for leased vehicles.  
            Under either calculation, the amounts proposed by this bill 
            are inconsistent with an adjustment for inflation.  Thus, if 
            appropriate, the current amounts must be justified by factors 
            other than inflation alone.

            b.   Other justifications for the amounts  

            As noted above, the California New Car Dealers Association 
            asserts that dealer costs to comply with government 
            requirements already range from $75 to $180 per transaction.  
            If the stated costs are accurate, the current document 
            preparation fee would be insufficient to cover those costs.  
            It should be noted that the proposed increase in the document 
            processing charge would apply equally to new/used car dealers 
            for the sale or lease of vehicles.  The equal application of 
            the increases raises interesting questions about its 
            rationale, for example:

                 If the increase is to pay for the costs of the National 
               Motor Vehicle Title Information System report and 
               associated sticker, those costs would apply to the sale of 
                                                                      



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               used cars only, thus, arguably imposing greater costs 
               mainly on used (not new) car dealers; and
                 If the increase is to pay for the electronic vehicle 
               registration, that registration would be mandatory for new 
               car dealers, but remain optional for used car dealers (used 
               car dealers who do not participate in EVR would still see 
               an increase to $65).

            c.   Increasing cap annually until it reaches $100
             
            This bill would additionally require DMV to annually adjust, 
            in accordance with the California Consumer Price Index (CPI), 
            the $75 document processing charge that may be charged by 
            dealers that use electronic registration.  Although the 
            maximum adjusted amount may not exceed $100, the effect of 
            that provision would be to automatically adjust a charge that 
            is to be paid by consumers.  

            From a policy standpoint, automatically adjusting regulated 
            fees based upon CPI acts to remove the independent judgment of 
            the Legislature regarding whether such an increase is, or, is 
            not appropriate.  When legislation is brought to increase 
            those amounts, that legislation provides the Legislature with 
            an opportunity to review the actual fee, evaluate any issues 
            that have arisen, and continue to exercise independent policy 
            judgment regarding the fee at issue.  Allowing the 
            controversial document processing charge to be automatically 
            increased annually based upon CPI would remove the 
            Legislature's ability to object to increases to that fee in 
            circumstances where it is not deemed appropriate.  

            In response to the above concerns, the author has agreed to 
            accept amendments to strike the CPI adjustment and allow 
            dealers that participate in electronic registration to collect 
            a total document processing charge of $80.  That charge would 
            arguably provide an additional incentive for used car dealers 
            to use electronic registration.

             Author's amendments:  

            1)  On page 34, strike out line 23 and insert:

            eighty dollars ($80).

            2)  On page 34, strike lines 28 through 35, inclusive.

                                                                      



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          3.   National Motor Vehicle Title Information System  

          The National Motor Vehicle Title Information System (NMVTIS) is 
          an electronic database that provides consumers with information 
          about a vehicle's condition and history.  Prior to purchasing a 
          vehicle, a prospective purchaser who purchases an NMVTIS report 
          can find out information regarding a vehicle's title, odometer, 
          and "brand history."  NMVITIS defines a "brand" as:

            . . .  a descriptive label that states assign to a vehicle 
            to identify the vehicle's current or prior condition, such 
            as "junk," "salvage," "flood," or another designation. By 
            capturing into one system specific information from multiple 
            entities (state motor vehicle titling agencies, automobile 
            recyclers, junk and salvage yards, and insurance carriers), 
            NMVTIS offers states and consumers protection from title 
            fraud, offers detection of stolen vehicles from being 
            retitled, and makes it more difficult for criminals to use 
            stolen vehicles for criminal purposes.

          This bill, as amended on June 22, 2011, would prohibit a dealer 
          from displaying or offering a used vehicle for sale unless the 
          dealer first obtains a NMVTIS vehicle history report.  If the 
          report indicates that the vehicle has been a junk, salvage, or 
          the certificate of title contains a brand, as specified, the 
          dealer must post the following 4 x 5.5 inch disclosure on the 
          vehicle:

            WARNING

            According to a vehicle history report issued by the National 
            Motor Vehicle Title Information System (NMVTIS), this 
            vehicle has been reported as a junk or a salvage automobile 
            or has a title brand which may materially affect the value, 
            safety, and/or condition of the vehicle. Because of its 
            history as a junk, salvage, or title-branded vehicle, the 
            manufacturer's warranty or service contract on this vehicle 
            may be affected. Ask the dealer to see a copy of the NMVTIS 
            vehicle history report. You may independently obtain the 
            report by checking NMVTIS online at  www.vehiclehistory.gov.

          Although diligent purchasers can arguably already search and 
          retrieve this information, the proposed disclosure would assist 
          consumers who are on a car lot comparing two vehicles side by 
          side - if one vehicle has a warning (and one does not), the 
          consumer is able to make an informed decision after asking the 
                                                                      



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          dealer to see a copy of the NMVTIS report.  Consumers for Auto 
          Reliability and Safety (CARS), in support, contends:

            Vehicles with a history of prior major damage tend to be 
            unsafe, and worth far less than similar undamaged vehicles.  
            For example, they may lack air bags, have bent frames that 
            make them prone to tipping over in an emergency braking 
            situation, or have electronic systems that are corroding and 
            will inevitable malfunction because the vehicle was 
            submerged in flood water.  In fact, whether a vehicle was 
            totaled or not may be the single most important piece of 
            information that car buyers need to know, in order to make 
            an informed comparison between two otherwise similar 
            vehicles. . . . AB 1215 promises to be a vitally important 
            next step toward curbing salvage and rebuilt wreck frauds 
            and ensuring that NMVTIS fulfills its potential for 
            benefiting the public.

          Consumer Action, in support, similarly asserts: "When consumers 
          purchase a 'totaled' or salvage vehicle, the manufacturer's 
          warranty is voided, their insurance company may refuse to offer 
          collision coverage, and consumers often face difficulties in 
          settling a claim even when a wreck was another driver's fault. 
          Insurance companies often will insist that the damage was due to 
          a pre-existing condition or made worse by previous damage. 
          Safety is also a critical issue; salvage title cars frequently 
          will no longer have functional airbags. To make matters worse, 
          salvage car resale values will be merely about half of what a 
          good car with a "clean" title sells for. It is vitally 
          important, therefore, that consumers be made aware when the 
          vehicles they are considering have been deemed salvage or junk 
          by insurers or by a NMVTIS vehicle history report."

          It is important to note that while NMVTIS contains 87 percent of 
          the vehicles in the United States', NMVITIS warns that "until 
          all entities are reporting into NMVTIS as required, consumers 
          should be aware of the possibility that a search may yield a 
          false negative indication, such as 'no junk or salvage history.' 
           These same gaps can exist in other, private vehicle history 
          databases and consumers should educate themselves on these 
          issues as well."  As a result, the proposed disclosure would 
          appear to provide valuable information to consumers but, as with 
          many disclosures, cannot provide one hundred percent certainty 
          for the purchaser.  

          CarFax, in an oppose unless amended position, expresses concern 
                                                                      



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          that "mandating NMVTIS alone may provide used car consumers with 
          a false sense of security" and that this bill would "offerÝ] no 
          incentive for the seller to research beyond NMVTIS to study 
          other more inclusive vehicle history reports which would 
          disclose hazardous safety data not disclosed by NMVTIS." To 
          address their concerns, CarFax proposes an amendment to allow 
          dealers to obtain either a NMVTIS or a commercially available 
          vehicle history report (thus allowing dealers to use CarFax 
          reports instead of NMVTIS).  The California New Car Dealers, in 
          response assert:

            While Car Fax and Experian Auto Check provide valuable 
            information that is beneficial to consumers and dealers, 
            their title database information is proprietary and not 
            subject to oversight by any governmental entity.  Commercial 
            providers who acquire vehicle title information from 
            entities other than NMVTIS purchase their information on an 
            ad hoc basis through commercial contracts with certain 
            states, insurers and other entities.  These contracts are 
            not subject to federal review, are subject to amendment, 
            cancellation, or expiration, and do not cover all entities 
            required to report information to NMVTIS.  No entity is 
            statutorily required to provide information to Car Fax, Auto 
            Check, or any other commercial vehicle history database.  
            The author, committee, the legislature and the motoring 
            public have no assurance that the information in any of 
            these commercial reports includes all the information in the 
            NMVTIS database.  The NMVTIS database is the floor for 
            disclosure of title information and these provisions of AB 
            1215 would be a model for the country.  Nothing in the bill 
            restricts the ability of commercial providers, like Car Fax, 
            from providing the additional accident and other information 
            they obtain through their own sources beyond NMVTIS.

          The California New Car Dealers further suggest amending the bill 
          to "include Ýa] provision to expressly provide that NMVTIS data 
          providers can supplement NMVTIS-based title information with 
          additional vehicle history information obtained from resources 
          other than NMVTIS."  Should the author agree to such an 
          amendment, the author should continue to work with this 
          committee, and the Senate Committee on Transportation and 
          Housing, to ensure that the language does not create additional 
          issues.

          4.   Electronic Vehicle Registration approved by the Senate 
          Transportation Committee  
                                                                      



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          This bill would, among other things, additionally require new 
          car dealers to use EVR, and reduce the time in which a car may 
          be driven without license plates from 6 months to 90 days.  The 
          use of EVR is expected to save the state up to $9 million 
          annually, and expediting the use of license plates would 
          arguably address some issues encountered by automated systems 
          (such as FasTrak) when a car without license plates passes 
          through and does not pay a toll.

          The League of California Cities, in a support if amended 
          position, expresses concern that "AB 1215 as written will result 
          in increased costs with no immediate benefit realized," and 
          requests that the bill be amended to: (1) increase penalties for 
          driving without a license plate; and (2) provide for better 
          identification of expiration of temporary registration.

           
          Support  :  California New Car Dealers Association; CarMax; 
          Consumer Action; Consumers for Auto Reliability and Safety 
          (CARS); National Salvage Vehicle Reporting Program (NSVRP); 
          North American Export Committee

           Opposition  :  R.L. Polk; CarFax

                                        HISTORY
           
           Source  :  Author

           Related Pending Legislation  :  None Known

           Prior Legislation  :  

          SB 46 (Polanco, Chapter 127, Statutes of 2001) See Background.

          SB 44 (Torlakson, Chapter 623, Statutes of 2006) See Comment 2.

           Prior Vote  :

          Senate Transportation & Housing Committee (Ayes 9, Noes 0)
          Assembly Floor (Ayes 75, Noes 3)
          Assembly Appropriations Committee (Ayes 17, Noes 0)
          Assembly Judiciary Committee (Ayes 9, Noes 0)
          Assembly Transportation Committee (Ayes 14, Noes 0)

                                   **************
                                                                      



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