BILL ANALYSIS Ó
AB 1447
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CONCURRENCE IN SENATE AMENDMENTS
AB 1447 (Feuer)
As Amended August 20, 2012
Majority vote
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|ASSEMBLY: |49-25|(May 29, 2012) |SENATE: |22-14|(August 23, |
| | | | | |2012) |
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Original Committee Reference: JUD.
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 an
automobile seller who does both of the following:
a) Enters into conditional sale contracts (within the
meaning of Section 2981(a) of the Civil Code) or lease
contracts (within the meaning of Section 2985.7(d) of the
Civil Code) and subject to specified provisions of Title 14
of Part 4 of Division 3 of the Civil Code governing vehicle
sales financing and leasing, except that a "conditional
sale contract" does not include a contract for the sale of
a motor vehicle if all amounts owed under the contract are
paid in full within 30 days.
b) Assigns less than 90% of all unrescinded conditional
sale contracts and lease contracts to unaffiliated
third-party finance or leasing sources within 45 days of
the consummation of those contracts.
2)Provides that the term "buy-here-pay-here dealer" does not
apply to either of the following:
a) A lessor who primarily leases vehicles that are two
model years old or newer; or
b) A dealer that certifies 100 percent of its vehicles
pursuant to Vehicle Code Section 11713.18 and that
maintains an on-site service and repair facility that is
licensed by the Bureau of Automotive Repair and employs a
minimum of five master automobile technicians who are
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certified by the National Institute for Automotive Service
Excellence.
3)Prohibits a BHPH dealer from requiring any buyer from making
payments to the seller in person, except for the down payment,
and prohibits the dealer from repossessing the vehicle or
imposing any other charge or penalty on the grounds that the
payment was not made in person if the buyer tenders timely
payment of a deferred down payment.
4)Prohibits a BHPH dealer from selling or leasing a used vehicle
unless that dealer gives the buyer or lessee a written
warranty having 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.
5)Requires the above warranty to provide that the BHPH dealer
shall pay 100% of the cost of labor and parts for any repairs
pursuant to the warranty, and may not charge the buyer or
lessee for the cost of repairs or for inspecting the vehicle,
tearing down the engine or transmission or other part, or for
any deductible.
6)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.
7)Prohibits a BHPH dealer, after selling a vehicle, from
tracking that vehicle with electronic tracking technology
without obtaining written consent from the buyer and certain
other conditions are also met, with violations punishable by a
misdemeanor fine of up to $1,000.
8)Prohibits a BHPH dealer, after selling a vehicle, from
disabling that vehicle by using starter interrupt technology,
unless the dealer complies with specified notification and
written disclosure requirements, with violations punishable by
a misdemeanor fine of up to $1,000.
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The Senate amendments :
1)Revise the definition of BHPH dealer and establish specified
exemptions to the definition.
2)Clarify that a conditional sale contract under this bill does
not include a contract for the sale of a motor vehicle if all
amounts owed under the contract are paid in full within 30
days.
3)Expand the required warranty to cover additional components of
the vehicle.
4)Require a BHPH dealer to pay for 100% of any repairs pursuant
to the warranty.
5)Make additional legislative findings and declarations about
practices employed by BHPH dealers and their impact upon
consumers.
AS PASSED BY THE ASSEMBLY , this bill was substantially similar
to the version approved by the Senate.
FISCAL EFFECT : According to the Senate Appropriations
Committee:
1)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.
2)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.
COMMENTS : 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,
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importantly, a 30-day minimum warranty and restrictions on
in-person payment practices and the use of electronic tracking
technology to track a buyer's whereabouts and the use of starter
override 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 bill
defines BHPH dealer to mean a seller who enters into conditional
sale contracts or lease contracts, and who assigns less than 90%
of all unrescinded conditional sale contracts and lease
contracts to unaffiliated third-party finance or leasing sources
within 45 days of the consummation of those contracts. Recent
amendments to the bill harmonize this definition with that
employed by two other pending pieces of legislation, namely AB
1534 (Wieckowski) and SB 956 (Lieu) of the current legislative
session.
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, and requires the BHPH dealer to pay
100 percent of the cost of labor and parts for any repairs
pursuant to the warranty. In addition, the dealer may not
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charge the buyer or lessee for the cost of repairs or for
inspecting the vehicle, tearing down the engine or transmission
or other part, or for any deductible. 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 prohibits 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.
The bill also restricts installation of electronic tracking
technology or starter interrupt technology, punishable by a
misdemeanor fine of up to $1,000, unless certain notification
and consent requirements are met. According to the author, BHPH
dealers employ these technologies to electronically locate
vehicles that have been sold and remotely disable their
operation, enabling a questionable business practice intended to
facilitate the fast and cost-effective repossession of cars so
they can quickly be resold again-a practice known as "churning."
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: 0005301
AB 1447
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