BILL ANALYSIS Ó AB 791 Page 1 Date of Hearing: May 7, 2013 ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER PROTECTION Richard S. Gordon, Chair AB 791 (Hagman) - As Amended: April 29, 2013 SUBJECT : Collateral recovery: repossessors. SUMMARY : Prohibits a repossessor from selling repossessed collateral or accepting payment from a debtor in lieu of repossession, forbids a repossession agency from disclosing personal employee information as specified, and also authorizes a repossessor to wear certain identification, as specified. Specifically, this bill : 1)Prohibits a licensed repossession agency (LRA) or its registrants from selling repossessed collateral, and authorizes the Bureau of Security and Investigative Services (BSIS) to fine the repossessor $100 for the first violation and $500 for each subsequent violation. 2)Prohibits a LRA or its registrants from making a demand for payment in lieu of repossession. 3)Includes the registrant's name, the licensee's name and address, and the license number amongst other information on the application that shall be treated as confidential pursuant to the Information Practices Act of 1977. 4)Prohibits a LRA from publicly disclosing, without a court order, the residential address, residential telephone number, cellular phone number, driver's license number, work schedule, location at any point in time, or any other personal information for any licensee, registrant, employee or independent contractor that it employs. 5)Authorizes a licensed repossessor to wear a badge, cap insignia, or jacket label if it includes all of the following: a) A substantial part of the LRA's name; b) The BSIS-issued license number; and, AB 791 Page 2 c) A word referring to the individual as a repossessor. 6)Authorizes BSIS to fine a licensed repossessor $25 for violating the above provisions related to identification requirements. EXISTING LAW : 1)Provides for the licensing and regulation of LRAs, repossessors, and repossessor qualified managers by the BSIS under the Department of Consumer Affairs. (Business and Professions Code (BPC) Section 7500 et al.) 2)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. (BPC 7500 et al.) 3)Authorizes a LRA to sell collateral with the written authorization from the legal owner of the collateral, and specifies how the sale proceeds shall be remitted to the legal owner. (BPC 7508.2(c)) 4)Authorizes BSIS to fine the repossessor, as specified, for failing to remit money from the sale of the collateral to the legal owner, as specified. (BPC 7508.2(c)) 5)Authorizes a LRA or its employees to demand for payment in lieu of repossession, if the demand is made pursuant to an assignment for repossession in accordance with the state Rosenthal Fair Debt Collection Act. Requires the repossessor to issue a receipt of payment to the individual and to submit the payment to the creditor. (BPC 7507.4) 6)Specifies that vehicle repossession is complete when the repossessor gains entry to the collateral or when the collateral becomes connected to the repossessor's tow vehicle. Prohibits any person other than the legal owner to direct a repossessor to release a vehicle without the legal authority to do so. (BPC 7507.12) 7)Authorizes BSIS to assess a $25 fine against a repossessor who uses any identification to indicate registration as a repossessor except an employer BSIS-approved identification card issued by the LRA. (BPC 7508.1(b)) AB 791 Page 3 8)Prohibits a LRA or its employees from false or misleading representation during the recovery of collateral, including the implication that the individual is vouched for, bonded by, or affiliated with the United States or with any state, county, city, or city and county, including the use of any badge, uniform, or facsimile thereof. Authorizes BSIS to issue a warning notice for the first violation, a $25 fine for the second violation, and a $100 fine for any subsequent violation. (BPC 7508.3) 9)Defines the following: 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 7500.1); b) "Repossessor's tow vehicle" to mean a tow vehicle which is registered to a licensed repossessor that is used exclusively in the course of the repossession business (Vehicle Code Section 615); and, c) "Security agreement" to mean an obligation, pledge, mortgage, chattel mortgage, lease agreement, deposit, or lien, given by a debtor as security for payment or performance of his or her debt, by furnishing the creditor with recourse to be used in case of failure in the principal obligation. (BPC 7500.1) FISCAL EFFECT : None. This bill is keyed non-fiscal by the Legislative Counsel. COMMENTS : 1)Purpose of this bill . This bill aims to provide additional protections for both consumers and licensed repossessors by revising the Act which governs how repossesors may legally recover collateral property on behalf of creditors. Those revisions include a prohibition on repossessors accepting payment on behalf of creditors - either by selling the collateral, or demanding payment in lieu of repossession - and then transmitting those payments to the creditor. This bill would also prohibit LRAs from publicly disclosing personal employee information without a court order, and authorize a AB 791 Page 4 repossessor to wear a badge, insignia, or jacket label, as specified. This bill is sponsored by the California Association of Licensed Repossessors (CALR). 2)Author's statement . According to the author, "AB 791 updates provisions of the Act to address issues pertaining to the activities of LRAs: confidentiality of licensee information, appropriate authorizations for licensed repossessors, and proper identification." 3)The profession of repossession . When a debtor defaults on payments for a home, vehicle, or product, the creditor is authorized to collect and resell the collateral to defray the delinquent amount owed by the debtor. Under existing law, a creditor may use a collections agency to recover loan payments in default from customers, and if that is unsuccessful, a creditor may hire a LRA to recover viable collateral for resale, with the proceeds going towards the outstanding loan amount. A substantial portion of repossessions involve vehicles due to their relatively high value, the ease of resale and the ability to repossess vehicles without home entry or permission since they are commonly parked outside. According to BSIS, there are currently about 400 LRAs, 1,100 repossessors, and 450 repossessor qualified managers operating in California. 4)Banning the sale of collateral . Generally, once repossessors recover collateral they will deliver it to an auctioneer to sell at fair market value. The proceeds of repossessed collateral, minus the costs for repossession and resale, are deducted from a debtor's outstanding balance owed to a creditor. For example, if a debtor owes $10,000 for a vehicle that is repossessed and sold for $6,000, the debtor still owes the creditor $4,000, even though he or she no longer owns or possesses the vehicle. While the majority of repossessed vehicles are sold at auction, a repossessor may personally sell the collateral if the creditor authorizes such a sale in the repossessor's contract. However, the sponsors contend that this outcome is problematic, because it does not guarantee that a repossessed vehicle will be sold at fair market value because a AB 791 Page 5 repossessor's sale is not subject to the same public bidding requirements as an auction. For example, an unscrupulous repossessor may intentionally sell a repossessed vehicle to a relative or friend at a lower price than what could have been fetched at an auction, which results in a smaller recovery and a larger outstanding debt for the consumer. The sponsor argues that repossessors usually deliver vehicles to auctions instead of selling them in order to avoid a dispute with the consumer over a vehicle's sale price. This bill simply prohibits a repossessor from selling collateral. BSIS would have the authority to issue a $100 fine for the first violation and $500 for each subsequent violation. 5)Banning collection in lieu of repossession . Currently, creditors can contractually require repossessors to attempt to collect payment from a debtor prior to the seizure of collateral during an unannounced repossession attempt. This process, referred to as "contact and collect," requires a repossessor to knock on the debtor's door and ask if the debtor would like to pay the debt in lieu of repossession. A debtor who agrees to pay under this process can keep the collateral and the repossessor will issue a receipt to the debtor as proof of payment and then deliver the collected payment to the creditor. The benefits of the "contact and collect" process is that it creates a win-win situation for all parties: the consumer gets to keep the car, the creditor is paid, and the repossessor is paid for services rendered and does not have to deliver a vehicle to auction or log repossessed inventory. However, if a debtor contests the repossession under the "contact and collect" process, the repossessor cannot collect payment nor can he or she repossess the vehicle because it would be illegal. A repossessor may leave and reattempt repossession on a later date, but the debtor may use the delay to conceal the vehicle. The "contact and collect" process also puts the repossessor in the position of being responsible for money collection when their expertise lies in property seizure. Alternatively, a repossessor is also allowed to seize a AB 791 Page 6 vehicle without the debtor's knowledge or consent, which is known as a "hook and book." Under this process, the repossessor simply seizes a vehicle that is publicly accessible (usually parked on the street or in the driveway). Once the vehicle is hitched to the repossessor's tow truck, repossession is technically complete and a debtor cannot stop the repossessor from driving away with the vehicle. If a debtor wants the vehicle back, the debtor must contact the creditor to work out a financial arrangement. If the debtor witnesses the repossession and wishes to pay for and keep the vehicle after repossession is complete, a repossessor will call the creditor to accept payment over the phone and release the vehicle once payment is received and authorization to release is granted by the creditor. This bill would prohibit "contact and collect" practices, leaving repossessers to rely on "hook and book" methods which do not require repossessors to announce their presence prior to attempting repossession. 6)Banning disclosure of an employee's personal information . The qualifying manager of a LRA is financially liable for employee negligence, such as any damage caused in the course of repossessing a vehicle. LRAs are not statutorily required to carry liability insurance coverage, but often do purchase it voluntarily to protect themselves against potential liabilities that may arise in the course of repossession. A LRA is also required to insure repossession tow vehicles. Repossessors who damage vehicles may be fired or released from service, but the LRAs may still experience an increase in their insurance premiums and deductibles. According to the sponsors, LRAs may retaliate against a former employee by informing a debtor whose vehicle was repossessed how to locate that former employee by disclosing personal information such as the new work address. Debtors might use that information to track a repossessor down and retaliate. Currently, the BSIS does not disclose personal information about a repossessor. An online license search of a licensed repossessor via the BSIS Web site will only display the repossessor's name and license number. This bill would prohibit the disclosure of personal information without a court order to protect the safety of a AB 791 Page 7 repossessor in the performance of duties. 7)Authorization to wear badges, insignia, and labels . Currently, repossessors are prohibited from using any identification other than the BSIS-issued registration card. The sponsor contends that the lack of obvious official identification has presented problems with debtors who see an individual dressed in plain clothes repossessing their vehicle and believe the repossessor is stealing the vehicle. This can result in a dangerous situation if the debtor resorts to violence to defend his or her property from a supposed thief. The sponsors believes that authorization to voluntarily wear badges, insignia, or jacket labels identifying the LRA's name, license number and role as a repossessor will help consumers visually identify a licensed repossessor for LRAs that choose to identify themselves in that manner. These uniform provisions were modeled after the uniform requirements of security guards who are also licensed by BSIS. 8)Questions for the Committee. Given that this bill authorizes and creates a standard for official identification gear (badges, insignia and labels) in order to better inform consumers of the repossessor's legitimate role and perhaps even prevent violent confrontations, it is unclear why these measures are voluntary. Presumably, protection of the consumer and the repossessor would be maximized if the repossessor were required to wear some form of badge/insignia/label while on duty - and particularly when repossessing a vehicle. The Committee may wish to inquire of the author and sponsor as to why identification measures should be voluntary rather than mandatory. 9)Technical amendments . The Committee and author may wish to consider the following technical amendments: According to the author, the April 29th amendments mistakenly did not delete the language that would have prohibited BSIS from publicly releasing information obtained in an application except for the applicant/licensee's name, address, and registration number. The Committee recommends rectifying that error with a technical amendment to delete the unnecessary language in question. AB 791 Page 8 On page 2, line 6, after "Code)" insert "and shall not be released to the public except for the registrant's full name, the licensee's name and address, and the registration number" On page 2, line 7 delete "the following" In order to prevent any potential conflict with other provisions of law, the employee privacy provision of this bill should be amended to make clear that it does not override other legitimate provisions of law that require or permit information to be disclosed: On page 4, line 36, strike "A" and insert "Except as otherwise provided by law, a" The badge/insignia/label requirement for the LRA's name should be amended to permit the use of the LRA's entire name, require the use of the word "repossessor," and be approved by BSIS, if possible. The suggested amendments would also clarify that these provisions do not apply to temporary permits that authorize repossessors to work prior to initial licensure, and prohibit a repossessor from wearing a badge on a belt, which is a style of identification usually reserved for law enforcement. On page 5, line 10, strike "A" and insert "All or a" On page 5, strike line 15, and insert "(3): The word "repossessor." On page 5, line 16, before "(b)" insert: (4) A repossessor shall not wear a badge on his or her belt. (5) All badges, cap insignias, or jacket labels worn by a repossessor shall be of a standard design approved by the director and shall be clearly visible. (6) These provisions shall not apply to temporary permits. 10)Arguments in support . According to the sponsor, the CALR, this bill is "intended to ensure privacy, legitimacy, and accountability within the [repossession] profession. Numerous AB 791 Page 9 situations have occurred where an individual at a LRA has disclosed, without a court order, personal information about the licensee who actually performed the repossession. Many times, the licensee no longer works for the LRA and left the LRA under unfavorable terms. This is information that cannot be found on the [BSIS] Web site. This information has usually been released to an individual whose vehicle was repossessed by the licensee? and claims the repossessed vehicle was damaged or is just angry and upset that their vehicle was repossessed. "Releasing personal information about individual who performed the repossession has the potential for serious consequences. Such release has resulted in the vandalizing of the licensee's truck and residence and, on some occasions, physical altercations? "An individual licensed to repossess automobiles is not trained in the laws and regulations that control collection of payments. The test a licensee must pass to receive a qualified manager's license does not cover [debt collection laws]. Therefore, it is not in the best interest of the California consumer to have an individual that has no formal training in debt collection [to be] in the field collecting money? It is simply better that the job of collecting payments be left to the individuals formally trained and knowledgeable about payment collection laws, rules, and regulations. "Situations often arise where a person who is having his or her vehicle repossessed becomes alarmed and believes that the vehicle is in the process of being stolen when in fact it is being lawfully repossessed by a licensed repossessor. In these instances, identification of the individual who is conducting the repossession would assist the public in having important information about the status of the individual as a repossessor, while diffusing possible [violent] situations during a repossession before it escalates." 11)Previous Legislation . AB 1722 (Hagman) of 2010 would have prohibited a LRA from publicly disclosing a repossessor's residential address, residential telephone number, cellular phone number, or driver's license number. AB 1722 was held in the Assembly Appropriations Committee. REGISTERED SUPPORT / OPPOSITION : AB 791 Page 10 Support California Association of Licensed Repossessors (sponsor) Opposition None on file. Analysis Prepared by : Joanna Gin / B.,P. & C.P. / (916) 319-3301