BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 1447 (Feuer) - Automobile sales finance: sellers.
Amended: August 6, 2012 Policy Vote: Judiciary 3-1
Urgency: No Mandate: Yes
Hearing Date: August 6, 2012
Consultant: Jolie Onodera
This bill does not meet the criteria for referral to the
Suspense File.
Bill Summary: AB 1447 would prohibit a buy-here-pay-here (BHPH)
dealer from selling or leasing a used vehicle at retail price
without giving the buyer or lessee a written warranty that shall
have a minimum duration of at least 30 days from the date of
delivery or when the odometer has reached 1,000 miles from what
is indicated on the contract, whichever occurs first. This bill
would provide for additional prohibitions upon BHPH dealers, a
violation of which would be a misdemeanor, punishable by a fine
of up to $1,000.
Fiscal Impact:
First-year enforcement costs of approximately $28,500 to the
Department of Motor Vehicles (DMV), and $56,000 (Motor Vehicle
Account) annually thereafter, to the extent the provisions of
this bill result in an increase in investigative caseloads in
response to complaints involving BHPH dealer compliance.
Potential ongoing costs of $24,000 to $48,000 (General Fund)
to the Judicial Branch for 50 to 100 new misdemeanor court
filings to the extent BHPH dealers violate the provisions of
this bill, offset to a degree by fine revenue.
Background: This measure is one of three bills involving BHPH
dealers currently pending in the Legislature. This bill contains
the following uncodified Legislative findings and declarations:
"Some used car dealers, known as buy-here-pay-here, operate a
business model under which they stock and sell older,
high-mileage vehicles to consumers that cannot otherwise qualify
for conventional automobile loans. Unlike traditional new and
used car dealers, buy-here-pay-here dealers do not assign sales
and lease contracts they generate to third-party finance or
lease sources. Because buy-here-pay-here dealers maintain and
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administer their own sales and lease contract portfolios, they
do not have to comply with underwriting and loan policies set by
traditional lenders and are free to set financial terms that are
significantly higher than conventional automobile loans or
leases. It is the intent of the Legislature in enacting this act
to curb unfair and deceptive practices by buy-here-pay-here
dealers and to protect the consuming public."
Existing federal regulations require a car dealer, before
offering a used vehicle for sale to a consumer, to display a
window sticker called the "Buyer's Guide" that must disclose
whether any warranty is offered and the basic terms of any
warranty. If no express warranty is provided, the Buyer's Guide
must indicate that the vehicle is being offered for sale "as is"
with no express or implied warranties.
Proposed Law: This bill would prohibit a BHPH dealer from
selling or leasing a used vehicle without giving the buyer or
lessee a written warranty that has a minimum duration of 30 days
or 1,000 miles, whichever occurs first. If a dealer fails to
give the buyer a warranty, this bill would deem the dealer to
have provided the warranty as a matter of law. This bill
requires the warranty to cover 14 major types of components
including the engine, transmission, braking system, suspension
systems, and the seals and gaskets on covered components.
Additionally, this bill:
Requires the Used Car Buyer's Guide displayed on a vehicle
offered for sale or lease to list the covered systems and
components and shall specify that the BHPH dealer will pay 100
percent of the cost of parts and labor for repairs covered by
the warranty.
Provides that the BHPH dealer shall make the repair or provide
a refund notwithstanding the fact that the warranty period has
expired if the buyer/lessee notified the dealer of the failure
within the warranty period.
This bill would further prohibit a BHPH dealer from the
following activities after the sale of a vehicle:
Utilizing electronic tracking technology unless the buyer is
expressly made aware of the use of the tracking technology,
the buyer has provided written consent, and the location of
the vehicle is only used for specified purposes or the
technology is used as an optional service to the consumer.
Disabling the vehicle using starter interrupt technology
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unless the dealer notifies the buyer, in writing, at the time
of sale about the technology, provides a written disclosure
that a warning will be provided 48 hours before the technology
remotely shuts down the vehicle, and that the buyer can start
a disabled vehicle within 24 hours in an emergency situation.
Requiring the buyer to make payments to the seller in person
(aside from the down payment). The prohibition would not
preclude a buyer from returning to the BHPH dealer to make
payments if the option is available from the dealer, however,
the buyer would not be required to do so.
This bill would provide that violation of the tracking,
disabling, and payment provisions is a misdemeanor punishable by
a fine not exceeding $1,000.
This bill would define "buy-here-pay-here dealer" as a dealer
who enters into conditional sales or lease contracts and assigns
less than 90 percent of all unrescinded sale and lease contracts
to unaffiliated third-party finance or leasing sources within 60
days of consummation of those contracts. This bill would provide
that a BHPH dealer does not include a lessor who primarily
leases vehicles that are two model years old or newer, or, a
dealer that certifies 100 percent of used vehicle inventory and
maintains an onsite service and repair facility.
Related Legislation: SB 956 (Lieu) 2012 would enact the
Buy-Here-Pay-Here Automobile Dealers Act, as specified, to
regulate contract terms and other activities of entities meeting
the definition of BHPH automobile dealers. This bill has been
referred to the Assembly Appropriations Committee.
AB 1534 (Wieckowski) 2012 would require a BHPH dealer to affix a
label on any used vehicle being offered for retail sale that
states the reasonable market value of that vehicle. This bill is
scheduled to be heard today in this Committee.
Staff Comments: The Judicial Council has indicated this bill
could result in increased misdemeanor filings. Based on an
average cost to the court of a misdemeanor of $482, the court
costs associated with 50 to 100 new misdemeanor filings would be
approximately $24,000 to $48,000 (General Fund) annually to the
Judicial Branch, offset to a degree by fine revenue. The
provisions of this bill would not result in cost pressure on
county jails, as only a monetary fine is specified for the
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misdemeanor offense.
The Department of Motor Vehicles (DMV) has indicated the new
requirements on BHPH dealers could lead to increased DMV
investigative caseloads in response to complaints about
compliance with the provisions of the bill. This increase is
estimated to cost approximately $28,500 in Fiscal Year 2012-2013
and $56,000 (Motor Vehicle Account) annually thereafter.