BILL ANALYSIS                                                                                                                                                                                                    Ó







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        |Hearing Date:June 25, 2012         |Bill No:AB                         |
        |                                   |1877                               |
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                      SENATE COMMITTEE ON BUSINESS, PROFESSIONS 
                               AND ECONOMIC DEVELOPMENT
                          Senator Curren D. Price, Jr., Chair
                                           

                           Bill No:        AB 1877Author:Ma
                      As Amended:April 24, 2012       Fiscal:Yes

        
        SUBJECT:  Repossession agencies: exemptions.
        
        SUMMARY:  Exempts a dealer and his or her bona fide employees from 
        licensure as a repossession agency if they regularly sell specified 
        collateral that is subject to a security agreement of the manufacturer 
        or a manufacturer's affiliate.

        Existing law:
        
       1)Establishes the Collateral Recovery Act (Act) governing collateral 
          repossessions by a legal owner, lienholder, lessor or lessee, or the 
          agent of any of them based on written authorization and a security 
          agreement.  (Business and Professions Code (BPC) § 7500 et seq.)

       2)Defines a "repossession agency" to include any person who engages in 
          business or accepts employment to locate or recover collateral, 
          whether voluntarily or involuntarily, which is subject to a security 
          agreement.  (BPC § 7500.2)

       3)Provides for the licensing and regulation of repossession agencies by 
          the Bureau of Security and Investigative Services (BSIS) under the 
          supervision and control of the director of the Department of 
          Consumer Affairs (Director).  (BPC § 7501.05)

       4)Authorizes the Director to establish and enforce rules and 
          regulations for the examination and licensing of applicants, for the 
          conduct of licensees, and for the general enforcement of the Act.  
          (BPC § 7501.6)

       5)Exempts the following as a repossession agency:  (BPC § 7500.3)





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           a)   Banks under the Commissioner of Financial Institutions of the 
             State of California or the Comptroller of Currency of the United 
             States (U.S.);
            
           b)   Any person organized, chartered, or holding a license or 
             authorization certificate to make loan;
            
           c)   Attorneys performing their duties;
            
           d)   The legal owner of collateral that is subject to a security 
             agreement or a bona fide employee employed exclusively and 
             regularly by that legal owner, as specified; 

           e)   An officer or employee of the U.S. or state government, or a 
             political subdivision; 

           f)   A qualified certificate holder or a registrant when performing 
             services for, or on behalf of, a licensee.  

        This bill:

       1)Revises and recasts the exemptions as specified in Item #5 from 
          above.

       2)Exempts a dealer and his or her bona fide employees from licensure as 
          a repossession agency if they regularly sell specified collateral 
          that is subject to a security agreement of the manufacturer or a 
          manufacturer's affiliate.  This bill would apply to those who sell 
          collateral designed for:  

           a)   Agricultural use; lawn and garden care;

           b)   Specified special construction equipment;

           c)   Use in the production, generation, storage, or transmission of 
             mechanical or electric energy

       3)Repeals these provisions (sunsets) on January 1, 2018.

        FISCAL EFFECT:  According to the Assembly Appropriations Committee, 
        there are no significant costs for the BSIS.

        COMMENTS:
        
       1.Purpose.  This bill is co-sponsored by  John Deere  and the  Far West 





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          Equipment Dealers Association  (Sponsors).  The Sponsors state:

             "Authorized dealers of agricultural, forestry, construction and 
             lawn care products would like to maintain good customer 
             relations and save costs to both parties when a repossession 
             situation arises.  

             "California law does not allow anyone other than a repossession 
             agency to perform this function unless they are licensed, or are 
             a financial institution that holds title to the property.  This 
             bill would only exempt products sold by an authorized dealer on 
             behalf of a manufacturer that is the legal owner of the property 
             through a security agreement, or an affiliate thereof, meaning 
             the financing arm of the company.

             "Currently, third party repossession and hauling fees creates an 
             additional and unnecessary cost to the customer.  Customers 
             would prefer to work directly with a dealer rather than an 
             unknown repossession agent, someone with whom they have had no 
             previous relationship, and to which is attached a social stigma, 
             both when a 'Repo Truck and Trailer' shows up at their home or 
             business, and local law enforcement is notified.

             "Licensed repossessors are also required to notify law 
             enforcement after equipment has been recovered, thereby 
             establishing a negative public record for the customer who is 
             already suffering through an embarrassment of having equipment 
             repossessed.

             "Repossession licensing requirements present hurdles for 
             manufacturers and authorized dealers of agricultural, forestry, 
             lawn care and construction equipment who sell thousands of 
             dollars' worth of products and whose repossessions represent a 
             very small portion of the dealer's overall business.

             "By exempting authorized dealers and financial entities from 
             repossession licensing requirements, dealers are allowed to 
             streamline their business practices and avoid or reduce 
             expensive repossession and hauling fees that would have been 
             passed on to the farmer.  More importantly, dealers want to 
             protect and preserve their relationships with their customers, 
             especially those who are subjected to circumstances outside his 
             or her control.

             "AB 1877 would give dealers, who have established relationships 
             with their customers, the option to negotiate with the customer 





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             or the farmer directly, to avoid the potentially embarrassing 
             act of repossession."

       2.Background.  There are currently 339 licensed repossession agencies 
          within the State of California.   In order to be eligible for 
          licensure as a repossession agency, the applicant must have at least 
          2 years (2,000 hours each year) of compensated experience totaling 
          not less than 4,000 hours as a registrant or a licensed repossession 
          agency.  In addition to meeting experience requirements, applicants 
          must pass a written examination.  Any applicant who worked for a 
          licensed repossession agency must have been registered as a 
          repossession agency employee to claim the experience.

          Under existing law, a creditor may use a collection agency to 
          recover loan payments in default from customers, and if that is 
          unsuccessful, a repossession agency will attempt to recover viable 
          collateral for resale and the proceeds of that will go towards the 
          outstanding loan amount.  While many car dealers offer financing on 
          site at the dealership, the financing component is actually covered 
          by a separate subsidiary or creditor, whose employees can repossess 
          a vehicle.  However, it is common practice for those creditors to 
          hire repossession agencies to recover those vehicles instead of 
          using its own employees.  

       3.Related Legislation.   SB 944  (Committee on Business, Professions and 
          Economic Development, Chapter 432, Statutes of 2011) made several 
          non-controversial, minor, non-substantive or technical changes to 
          various miscellaneous provisions pertaining to regulatory boards of 
          the Department of Consumer Affairs and professions including 
          authorizing a person to work as a qualified repossessor certificate 
          holder or as a registrant.  

          AB 515  (Hagman, Chapter 322, Statutes of 2009) made numerous 
          revisions to the Collateral Recovery Act and Vehicle Code Sections 
          relating to the impound of vehicles.
           
          AB 659  (Ma, Chapter 192, Statutes of 2007) specifies that the legal 
          owner of collateral registered under the Vehicle Code includes the 
          seller or lessee named on a valid conditional sales contract or 
          lease agreement and requires a licensed repossessor to provide 
          details about the incident to the person who made the assignment.  
          That person will then be required to notify a subsequent repossessor 
          of that information at the time of making another assignment to skip 
          trace, locate, or repossess that vehicle.
           
          AB 2318  (Calderon, Chapter 418, Statutes of 2006) provides that a 





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          repossessor shall not be required to remove property that is 
          attached to or that is on the collateral of being repossessed if the 
          repossessor cannot determine whether or not the item is a "personal 
          effect" (i.e., property that does not belong to the legal owner of 
          the collateral) or a part of the collateral, except that the 
          repossessor shall remove and inventory all items that can be removed 
          without using tools, and increases the fine to $250 on a 
          repossession agency that does not register repossessors with the 
          BSIS in a timely fashion.

       4.Arguments in Support.  According to the  Sponsors  , "Repossessions 
          represent a very small portion of a dealer's business.  Thanks to 
          the state's strong agricultural economy, they happen on a relatively 
          infrequent basis, hence requiring a dealer to become a full-time 
          repossession agent for this purpose makes no sense.  In order to 
          become licensed, current law would require them to have at least two 
          years of experience in the field, pay an $825 licensing fee, submit 
          to fingerprinting, and renew their license every two years.  
          Further, being licensed would require the dealer to notify local law 
          enforcement after a product has been recovered, thereby establishing 
          a negative public record for the poor customer who is already 
          suffering the embarrassment of having equipment taken on their 
          property by an unknown third party in broad daylight.  Customers 
          would prefer to work directly with a dealer because he or she is 
          someone they know, and there is no social stigma attached to them. 

          "Third party repossessions and hauling fees create an additional, 
          and we believe unnecessary, expense to the customer by increasing 
          the total amount they owe above and beyond the original cost of the 
          equipment.  By exempting dealers from licensing requirements, they 
          can streamline their business practices and avoid or reduce these 
          costs.  More importantly, dealers can protect their personal and 
          financial relationship with a customer in the hope they can do 
          business together again in the future."

       5.Arguments in Opposition.  According to the  California Association of 
          Licensed Repossessors  , "AB 1877 would undermine the licensed 
          repossession industry created by the Act as administered by the 
          ÝDepartment of] Consumer Affairs, which provides for the licensure 
          of repossession agencies.  The bill, as written, would amend the 
          definition of a repossession agency by carving out a bona fide 
          authorized dealer or either the legal owner of collateral that is 
          subject to a security agreement or an affiliate of that legal owner. 
           While there may be some instances in which a John Deere dealer 
          might work with a farmer to arrange a time to repossess a tractor, 
          this bill would also allow for non-voluntary repossessions conducted 





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          by non-licensed individuals that could potentially have violent 
          felony convictions who would not pass the background check to which 
          all licensed repossessors are subjected to.  This is one of the 
          primary public safeguards inherent in the Act and is an important 
          reason that licensure is required in California.

          "AB 1877 would exempt agricultural, construction, forestry, lawn, 
          and grounds care equipment, dealers or an affiliate of the legal 
          owner, from the current repossession agency licensing requirements.  
          An affiliate, however, is simply a company that is related to 
          another company in some way, not necessarily an employee of John 
          Deere nor licensed and subject to any or all of the provisions of 
          the Act."

        
        SUPPORT AND OPPOSITION:
        
         Support:  

        Deere & Company (Co-Sponsor)
        Far West Equipment Dealers Association (Co-Sponsor)
        California Farm Bureau Federation 
        The Apex Group
        Western Growers Association

         Opposition:  

        California Association of Licensed Repossessors



        Consultant:Michael Lynch