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)
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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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