BILL ANALYSIS Ó ----------------------------------------------------------------------- |Hearing Date:June 25, 2012 |Bill No:AB | | |1877 | ----------------------------------------------------------------------- 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) AB 1877 Page 2 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 AB 1877 Page 3 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 AB 1877 Page 4 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 AB 1877 Page 5 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 AB 1877 Page 6 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