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
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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 |
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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
FN: 0003745