BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 1447
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          ASSEMBLY THIRD READING
          AB 1447 (Feuer)
          As Amended  May 22, 2012
          Majority vote 

           JUDICIARY           8-2         APPROPRIATIONS      12-5        
           
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          |Ayes:|Feuer, Atkins, Dickinson, |Ayes:|Fuentes, Blumenfield,     |
          |     |Gorell, Huber, Monning,   |     |Bradford, Charles         |
          |     |Wieckowski, Alejo         |     |Calderon, Campos, Davis,  |
          |     |                          |     |Gatto, Hall, Hill, Lara,  |
          |     |                          |     |Mitchell, Solorio         |
          |     |                          |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |Nays:|Wagner, Jones             |Nays:|Harkey, Donnelly,         |
          |     |                          |     |Nielsen, Norby, Wagner    |
           ----------------------------------------------------------------- 
           
          SUMMARY  :  Establishes basic consumer protections for vehicles 
          bought or leased from "buy-here-pay-here" automobile dealers.  
          Specifically,  this bill  :   

          1)Defines "buy-here-pay-here dealer" (BHPH dealer) to mean a 
            seller who enters into conditional sale contracts or lease 
            contracts, as defined, and does not routinely assign those 
            contracts to an unaffiliated third-party finance or leasing 
            source.

          2)Prohibits a BHPH dealer, after selling a vehicle, from 
            tracking that vehicle with electronic tracking technology 
            without obtaining written consent from the buyer.

          3)Prohibits a BHPH dealer, after selling a vehicle, from 
            disabling that vehicle by using ignition override technology, 
            unless the dealer complies with both of the following:

             a)   Notifies the buyer, in writing, at the time of the sale 
               that the vehicle is equipped with ignition override 
               technology, which the dealer can use to shut down the 
               vehicle remotely; and, 

             b)   Ensures that the ignition override technology on that 
               vehicle provides a warning to the driver that the vehicle 








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               will become inoperable no less than 120 hours prior to the 
               vehicle being disabled and for a duration of no less than 
               20 seconds every time the vehicle is started within the 120 
               hour period. 

          4)Prohibits a BHPH dealer from requiring any buyer from making 
            payments to the seller in person, except for the down payment.

          5)Provides that any violation of items 2) through 4) above is a 
            misdemeanor punishable by a fine of up to $1,000.

          6)Prohibits a BHPH dealer from selling or leasing a used vehicle 
            unless that dealer gives the buyer or lessee a written 
            warranty having a duration of at least 30 days from the date 
            of the contract or when the odometer has registered 1,000 
            miles from that shown on the contract, whichever occurs first. 
             Further provides that a BHPH dealer that fails to provide the 
            warranty shall be deemed to have provided the warranty as a 
            matter of law.

          7)Requires the above warranty to provide that the BHPH dealer 
            must repair the failure of any covered part, as specified, or 
            at the election of the dealer, instead provide reimbursement 
            for the reasonable cost of repairing the failure of the 
            covered part.  Further permits the warranty to contain certain 
            exclusions from coverage, as specified.

          8)Requires a BHPH dealer, if notified by the retail buyer or 
            lessee within the specified warranty period that the vehicle 
            does not conform to the written warranties and the 
            nonconformity is not otherwise excluded from coverage, to 
            either repair the vehicle to conform to the written warranties 
            or cancel the sale or lease contract.

          9)Provides that any agreement entered into by a buyer for the 
            purchase or lease of a used vehicle which waives, limits, or 
            disclaims the rights set forth with respect to this warranty 
            shall be void as contrary to public policy.

           FISCAL EFFECT  :  According to the Assembly Appropriations 
          Committee:

          1)Unknown, likely minor nonreimbursable county costs for 
            investigation of alleged violation of the bill's provisions, 








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            which constitute a misdemeanor.

          2)Minor court cost associated with proceedings stemming from 
            alleged violations of the bill's provisions.
           
          COMMENTS  :  This bill defines a BHPH dealer to mean a seller who 
          enters into conditional sale contracts or lease contracts, and 
          who does not routinely assign those contracts to an unaffiliated 
          third-party finance or leasing source.  According to the author, 
          this definition closely reflects the federal definition of BHPH 
          dealers recently enacted as part of the Dodd-Frank Wall Street 
          Reform and Consumer Protection Act (Public Law 111-203).  

          Recent reports by consumer advocates and the Los Angeles Times 
          have documented a number of questionable practices used by BHPH 
          car dealers that, in the author's view, should no longer be 
          allowed without some basic consumer protections for the 
          predominantly low-income car-buyers who appear to be most 
          frequently victimized by these practices.  This bill seeks to 
          establish a number of basic, common-sense consumer protections 
          for vehicles purchased or leased from BHPH dealers, including, 
          importantly, a 30-day minimum warranty and restrictions on the 
          use of global positioning system (GPS) technology to track a 
          buyer's whereabouts and the use of ignition shutdown technology 
          to remotely disable the buyer's vehicle.

          "Buy Here, Pay Here" car dealers get their moniker from the 
          common practice in the field of requiring customers to return 
          once or twice a month to the dealership to make loan payments, 
          usually in cash.  According to the author, the typical BHPH 
          business model is to stock and sell older, high-mileage vehicles 
          to consumers who cannot otherwise qualify for conventional auto 
          loans.  In a conventional auto loan, traditional new and used 
          car dealers merely serve as the middleman where the purchase 
          money is provided by a bank or finance company.  Unlike those 
          dealers, however, BHPH dealers do not assign sale and lease 
          contracts they generate to third party finance or lease sources. 
           Because they instead maintain and administer their own sales 
          and lease portfolios, they do not have to comply with 
          underwriting and loan policies set by traditional lenders, and 
          thus are free to set financial terms that are significantly 
          higher than conventional auto loans and leases.  This can be 
          aptly summed up by a quote attributed to Ken Shilson, a founder 
          of the National Alliance of Buy Here Pay Here Dealers (NABD), a 








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          trade group:  "This is not the car business. This is the finance 
          business."  ("A vicious cycle in the used-car business," Los 
          Angeles Times, 10/30/2011.)

          According to the author, there are many reports of consumers who 
          have purchased a car from a BHPH dealer, often only because they 
          have few other options to obtain a much-needed car for work or 
          family reasons, yet are faced with a vehicle that has broken 
          down shortly after the purchase with no clear remedy for 
          addressing the problem.  This bill requires BHPH dealers, with 
          every sale or lease of a used car, to provide a written minimum 
          warranty that is good for at least 30 days from the contract 
          date or until 1,000 miles have been driven, whichever happens 
          first.  The bill provides that a BHPH dealer that fails to 
          provide the warranty shall be deemed to have provided the 
          warranty as a matter of law.  The terms of the warranty require 
          the buy-here-pay-here dealer to repair the failure of any 
          covered part, as specified, or at the election of the buyer or 
          lessee, provide reimbursement for the reasonable cost of 
          repairing the failure of the covered part.  In cases where the 
          buyer timely notifies the dealer that the vehicle has violated 
          the terms of the warranty, the bill requires the BHPH dealer to 
          either repair the car to conform to the warranty, or cancel the 
          contract and make the buyer whole, as provided.  The author 
          contends that these reasonable limited warranty requirements 
          will provide a baseline of protection for BHPH consumers who 
          simply want what they bargained for-a reliable mode of 
          transportation.

          This bill also forbids BHPH dealers from requiring any buyer to 
          make payments to the dealer in person.  Consumer advocates 
          contend that eliminating this requirement will address the 
          reported practice of unannounced repossession of cars at the 
          dealer's lot and the unfortunate stranding of the buyer that may 
          result.  In a time where virtually all consumer bills, including 
          new car payments, have long been made by putting a check in the 
          mail or by electronic payment, it is hard to understand what 
          useful purpose an in-person payment requirement serves, 
          particularly when it exists in only one sector of the auto 
          dealership industry.  

          According to the author, BHPH dealers employ other questionable 
          practices, like the in-person payment requirement, that are 
          designed primarily to facilitate the fast and cost-effective 








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          repossession of cars so they can quickly be resold again-a 
          practice known as "churning."  This includes installation of 
          electronic tracking technology (i.e., GPS technology) in cars so 
          they can easily be located at any time, and installation of 
          ignition override technology that allows the dealer to remotely 
          disable operation of the vehicle so it can be towed or 
          repossessed.  

          Existing law, Penal Code Section 637.7(b), authorizes use of 
          tracking technology when "the registered owner, lessor, or 
          lessee of a vehicle has consented to the use of the electronic 
          tracking device with respect to that vehicle."  This bill 
          requires BHPH dealers to obtain the buyer's written consent 
          before equipping the car with either GPS or ignition override 
          devices, and does not ban these devices altogether.  
           
           In support of the bill, Consumers for Auto Reliability and 
          Safety (CARS) and the Navy-Marine Corps Relief Society both 
          contend that this bill would be particularly helpful to veterans 
          and active duty military families in California, who they 
          contend are often affected by predatory practices of used car 
          dealers.  
           

          Analysis Prepared by  :    Anthony Lew / JUD. / (916) 319-2334 

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