BILL ANALYSIS Ó AB 1447 Page 1 ASSEMBLY THIRD READING AB 1447 (Feuer) As Amended May 22, 2012 Majority vote JUDICIARY 8-2 APPROPRIATIONS 12-5 ----------------------------------------------------------------- |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 AB 1447 Page 2 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, AB 1447 Page 3 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 AB 1447 Page 4 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 AB 1447 Page 5 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 FN: 0003745