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) (more) AB 1215 (Blumenfield) Page 2 of ? 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 AB 1215 (Blumenfield) Page 3 of ? 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. AB 1215 (Blumenfield) Page 4 of ? 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 AB 1215 (Blumenfield) Page 5 of ? 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 AB 1215 (Blumenfield) Page 6 of ? 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 AB 1215 (Blumenfield) Page 7 of ? 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. AB 1215 (Blumenfield) Page 8 of ? 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 AB 1215 (Blumenfield) Page 9 of ? 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 AB 1215 (Blumenfield) Page 10 of ? 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 AB 1215 (Blumenfield) Page 11 of ? 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) ************** AB 1215 (Blumenfield) Page 12 of ?