BILL ANALYSIS                                                                                                                                                                                                    







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        |Hearing Date:July 1, 2013          |Bill No:AB                         |
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                      SENATE COMMITTEE ON BUSINESS, PROFESSIONS 
                               AND ECONOMIC DEVELOPMENT
                              Senator Ted W. Lieu, Chair
                                           

                          Bill No:        AB 791Author:Hagman
                          As Amended:June 25, 2013 Fiscal:Yes

        
        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, and  
        authorizes a repossessor to wear certain identification

        Existing law:
        
       1)Provides for the licensing and regulation of repossession agencies,  
          repossessors, and repossessor qualified managers by the Bureau of  
          Security and Investigative Services (BSIS) under the Department of  
          Consumer Affairs (DCA).  (Business and Professions Code (BPC)  7500  
          et seq.)

       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 seq.) 

       3)Specifies that the Act does not prohibit using or taking personal  
          effects that are connected, adjoined, or affixed to the collateral.   
          (BPC  7505.2)

       4)Provides that until a repossessor registration certificate is issued  
          or denied, a person may be assigned to work with a temporary  
          registration on a secure form that has been embossed by BSIS with  
          the state seal.  (BPC  7506.9)  

       5)Authorizes a repossessor to sell collateral with the written  





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          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))

       6)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))

       7)Authorizes a licensed repossession agency (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) 

       8)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)

       9)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))

       10)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) 

       11)Defines the following:  (BPC  7500.1)

           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; 

           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);





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           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.

        This bill:

       1)Specifies that the Act does not prohibit the removal of a locking  
          mechanism or security device on the collateral, before, during, or  
          after a repossession.

       2)Deletes the requirement that a temporary registration card must be  
          embossed by BSIS with the State Seal, thereby better enabling BSIS  
          to implement the new DCA licensing and enforcement system BreEZe.

       3)Prohibits a repossessor from selling repossessed collateral, and  
          authorizes BSIS to fine the repossessor $100 for the first and  
          second violation and $500 for each subsequent violation.

       4)Revises the definition of when a vehicle repossession is complete to  
          also include when the repossessor moves the entire collateral  
          present, pushes the collateral, or gains control of the collateral.

       5)Prohibits a LRA or its registrants from making a demand for payment  
          in lieu of repossession.

       6)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.

       7)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.

       8)Authorizes a licensee, officer, director, partner, manager,  
          independent contractor, qualified certificate holder, qualified  
          manager, or employee of a repossession agency to wear an oval,  
          shield, round, square, or non-seven point badge, cap insignia, or  
          jacket patch if it includes all of the following: 

           a)   A substantial part of the LRA's name; 





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           b)   The BSIS-issued license number; and, 

           c)   A word referring to the individual as a repossessor. 

       9)Authorizes BSIS to fine a licensed repossessor $100 for the first and  
          second violation and $250 for each subsequent violation of the above  
          provisions related to identification requirements. 

        FISCAL EFFECT:  The May 24, 2013 Assembly Appropriations Committee  
        analysis states that costs associated with this legislation should be  
        minor and absorbable within existing resources.

        COMMENTS:
        
        1. Purpose.  This bill is sponsored by  California Association of  
           Licensed Repossessors  (Sponsor) to update provisions of the  
           Collateral Recovery Act (set forth in Chapter 11, commencing with  
           Section 7500 of the Business and Professions Code) to address three  
           issues pertaining to the activities of licensed repossession  
           agencies:  confidentiality of licensee information, appropriate  
           authorizations for licensed repossessors, and proper  
           identification.

       2.Background.  The Bureau of Security and Investigative Services (BSIS)  
          protects consumers by licensing and regulating the following  
          industries:  alarm company operator and alarm company employees,  
          locksmith companies and locksmith company employees, private  
          investigators, private patrol operators and security guards,  
          proprietary private security officer and employer, repossessor  
          agencies and repossessor agency employees.  BSIS also has  
          jurisdiction over firearm and baton training facilities and their  
          instructors.

       As part of its mission, the BSIS actively investigates complaints  
          against its licensees and works to punish unlicensed business  
          operations.  This includes the suspension and revocation of licenses  
          and seeking administrative, criminal, and civil sanctions against  
          violators.  According to the BSIS web site, undercover sting and  
          sweep operations are conducted on an ongoing basis throughout all of  
          California.

       The following provides background on the significant provisions of the  
          bill:  

           a)   Removing a Locking Mechanism or Security Device.  This bill  





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             specifies that the Act does not prohibit the removal of a locking  
             mechanism or security device on a vehicle, before, during, or  
             after a repossession.  This provision would authorize a  
             California licensed repossessor to remove the locking mechanism  
             or security device, such as a "Club," or other locking device  
             that is securing the vehicle that is being repossessed.  This is  
             not clearly authorized under current law, but is essential in  
             order to complete a safe repossession, according to the Sponsor.

           b)   Embossed Temporary Registration Card.  This measure deletes  
             the requirement in existing law that a temporary registration  
             card must be embossed by the BSIS with the State Seal.  This  
             change is intended to accommodate the DCA's pending  
             implementation of the BreEZe licensing and enforcement computer  
             system.  The temporary registration would still be required to be  
             on a secure form prescribed by the BSIS Chief and issued by the  
             qualified certificate holder.

           c)   When Repossession is Complete.  The bill revises the  
             definition of when a vehicle repossession is complete to also  
             include when the repossessor moves the entire collateral present,  
             pushes the collateral, or gains control of the collateral.

           The Sponsor states that these amendments update the statute to  
             include all collateral.  Often repossessors are repossessing  
             collateral such as jet skis, motorcycles, wheels and tires, and  
             office equipment that are covered by a conditional sales  
             contract.  The Sponsor indicates that this change is necessary  
             because often the repossession of these types of collateral is  
             where the repossessor does not "gain entry" as required by the  
             current law.

           d)   Protection of Licensee Information.  This bill prohibits  
             repossession agencies from disclosing to the public specific  
             information regarding the residence address, the residence  
             telephone number, the cell phone number, and the location or  
             driver's license number of an individual repossessor.  According  
             to the Author, this ensures the protection of personal and  
             sensitive information, while still maintaining access to the  
             entire entity's business information, if needed.

           The Author states that there have been instances where LRAs  
             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  





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             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 repossessor in  
             the performance of duties.

           e)   Demands for Payment in Lieu of Repossession.  The Act  
             authorizes licensed repossessors to make demands for payment in  
             lieu of repossession, and to sell collateral recovered, as  
             specified in the Act.  However, according to Sponsor, licensed  
             repossessors no longer engage in these practices.  Therefore,  
             this bill deletes the obsolete provisions of the Act that pertain  
             to these practices while including provisions to prohibit such  
             practices.
           
           f)   Banning Sale of Collateral.  Generally, once repossessors  
             recover collateral they will deliver it to an auctioneer to sell  
             at fair market value, according to the Sponsor.  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,  
             this outcome is problematic, because it does not guarantee that a  
             repossessed vehicle will be sold at fair market value because a  
             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.   
             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  





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             and second violation and $500 for each subsequent violation.  The  
             amendments would also eliminate the proposed restriction that the  
             fines be based on a BSIS audit.  This would ensure that BSIS  
             would not need to conduct an audit as a prerequisite to  
             establishing a violation. 

           g)   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 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. 






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           This bill would prohibit "contact and collect" practices, leaving  
             repossessors to rely on "hook and book" methods which do not  
             require repossessors to announce their presence prior to  
             attempting repossession.

           h)   Badges or Insignia.  According to the Sponsor, proper  
             identification within the industry is accomplished by adding a  
             section to the Act specifically authorizing a licensee to wear a  
             badge or cap insignia and to require that the badge or cap  
             insignia contain a substantial part of the repossession agency  
             name and license number.

           This identification will assist the public in having important  
             information about the status of the individual as a licensed  
             repossession agency, while diffusing possible situations during a  
             repossession before escalation.

           Currently, repossessors are prohibited from using any  
             identification other than the BSIS issued registration card.  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.

           Authorization to voluntarily wear badges, insignia, or jacket  
             patches 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.

           The Sponsor describes the recent amendments to these provisions as  
             follows:

                         Ensures the current prohibition against wearing  
                  badges in Section 7508.3 does not prohibit the authorization  
                  to wear a badge, cap insignia or jacket patch.

                         Adds specificity that the BSIS-approved badge, cap  
                  insignia, or jacket patch may be an oval, shield, round,  
                  square or non-seven point in shape.

                         Clarifies that "qualified certificate holders" and  
                  "qualified managers" would also be authorized to wear a  





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                  badge, cap insignia, or jacket patch.

                         Clarifies that the "repossession agency license  
                  number" must be on the badge, cap insignia, or jacket patch.

                         Adds a prohibition against a hanging badge being  
                  worn around the neck.

                         Increases the fines for violations of these  
                  provisions, from $25 per violation to a $100 fine on the  
                  first and second violation, then a $250 fine for a third and  
                  subsequent violations.

       1.Prior Legislation.   AB 1877  (Ma, Chapter 476, Statutes of 2012)  
          exempts, until January 1, 2018, an equipment dealer and its  
          employees from licensure as a repossession agency if they regularly  
          sell specified collateral subject to a security agreement of the  
          manufacturer or a manufacturer's affiliate.

        SB 944  (BPED Committee, Chapter 432, Statutes of 2011) an omnibus bill,  
          makes several changes to various provisions pertaining to the  
          regulatory boards of the DCA.  Established a four year retention  
          period for repossession agencies to keep inventory and adequate  
          information on file as to how, when, and to whom personal effects  
          were disposed of.  Further allowed a person to work as a repossessor  
          pending receipt of the qualification certificate or registration  
          card if he or she has been approved by the BSIS and carries a  
          printout of the Bureau's approval from the Bureau's Web site and a  
          valid picture identification.

        AB 1722  (Hagman, 2010), also sponsored by California Association of  
          Licensed Repossessors (CALR), would have made a number of changes to  
          laws that regulate vehicle repossession, impoundment, and release  
          from impoundment, and that specify licensing and qualification  
          requirements for licensed repossessors.  The bill would have made  
          the following changes similar to those proposed in AB 791:  prohibit  
          a repossession agency from publicly disclosing a registrant's  
          residential address, residential telephone number, cell phone  
          number, or driver's license; require a repossessor to record the  
          inventory, and the adequate information as to how, when, and to whom  
          the personal effects were disposed of in their permanent records for  
          a minimum of four years; specify that repossession is complete, when  
          the repossessor moves, pushes, or gains control of the collateral.   
          (  Status  :  This bill died without being heard in the Assembly  
          Appropriations Committee.)






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        AB 515  (Hagman, Chapter 322, Statutes of 2009) makes numerous revisions  
          to the Act and Vehicle Code Sections relating to the impound of  
          vehicles.

        SB 1469  (Calderon, 2008) would have allowed the impoundment of tangible  
          property used to violate the Act, required law enforcement agencies  
          that impound vehicles to remain open, without the necessity of  
          making an appointment, and to issue a release to the registered  
          owner or legal owner of a vehicle whenever the agency is open to  
          serve the public, required facilities where impounded vehicles are  
          stored to accept credit cards, and made various revisions to the Act  
          concerning tow vehicles.  (  Status  :  This bill was vetoed by the  
          Governor.)

        SB 659  (Calderon, Chapter 192, Statutes of 2007) makes several  
                                                                       revisions to the laws related to repossession of motor vehicles by  
          clarifying provisions related to vehicle ownership, dealing with  
          possible threats or violence towards a repossessor, and clarifying  
          the requirements for impounded cars.

        AB 2318  (Calderon, Chapter 418, Statutes of 2006) provides that a  
          repossessor shall not be required to remove property that is  
          attached to or on the collateral 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; however the repossessor  
          shall remove and inventory all items that can be removed without  
          using tools; increases the fine to $250 for a repossession agency  
          that does not register a repossessor with the BSIS in a timely  
          fashion.

        AB 481  (Calderon, 2005) would have provided that a repossessor shall  
          not be obliged to determine whether property is a "personal effect"  
          or who owns the "personal effect;" provides that no one shall  
          interfere with a repossessor in the performance of his or her lawful  
          duties once the repossession, as defined, is complete.  (  Status  :   
          This bill was vetoed by the Governor.)

       2.Arguments in Support.  The  California Association of Licensed  
          Repossessors  (Sponsor) states that the bill updates the Act to  
          addresses three issues pertaining to the activities of licensed  
          repossession agencies:  protection of licensee information; demands  
          for payment in lieu of repossession; badges or insignia.  The  
          revisions proposed by the bill are intended to ensure privacy,  
          legitimacy, and accountability within the profession, according to  
          the Sponsor.





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       3.Policy Issue: The use of badges by licensed repossessors.  This bill  
          would authorize a licensed repossessor to wear a badge, cap or  
          jacket patch as long as they contain a substantial part of the  
          repossession agency's name; the repossessor license number; and a  
          word referring to the individual as a repossessor.  The  
          identification is subject to approval by the BSIS and the badge may  
          be an oval, shield, round, square, but cannot be a seven point  
          badge.  

       The Sponsor states that repossessors are currently prohibited from  
          using any identification other than the BSIS issued registration  
          card, and indicates 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 dangerous situations if  
          the debtor tries to defend his or her property from a supposed  
          thief.  The Sponsor believes the identification in the bill will  
          assist the public in having important information about the status  
          of the individual as a licensed repossession agency, while diffusing  
          possible situations during a repossession before escalation.

       The Collateral Recovery Act already restricts a repossessor licensed in  
          California or any employee or registrant of a repossessor from using  
          any false or misleading representation during the course of a  
          repossession, prohibiting "The false representation or 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."  (BPC  7508.3 (a))

       This issue raises some concern, specifically regarding the use of a  
          badge by a repossessor.  On the federal level. the "Fair Debt  
          Collection Practices Act" prohibits debt collector from using any  
          false, deceptive, or misleading representation or means in  
          connection with the collection of any debt, and prohibits the false  
          representation or implication that the debt collector is vouched  
          for, bonded by, or affiliated with the United States or any State,  
          including the use of any badge, uniform, or facsimile thereof.  (15  
          USC 1692e  807 (1))

       In California, private investigators, which are also regulated by BSIS  
          are prohibited from wearing or using a badge in connection with an  
          investigation since it may mislead others to believe that he or she  
          is a peace officer or other government official.  (BPC  7539)






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       Furthermore, repossessors do not use the local sheriff or police to  
          assist in a repossession, because as peace officers they act under  
          "color of state law" and may not advance the completion of a  
          repossession or prevent a repossession from occurring.  The police  
          or sheriff may no more force a debtor to surrender a car than they  
          may, after a car has been repossessed, force the repossessor to  
          return it.  Without a court order, either action by a peace officer  
          would violate the "due process" requirements of the 14th Amendment  
          of the United States Constitution and Article 1, Section 13 and 15  
          of the California Constitution.

       Furthermore, the presence of a peace officer or a patrol car  
          accompanying a repossessor has been found by several courts to  
          constitute "color of law" and has taken the repossession out of the  
          area of "purely private conduct without state assistance."

       It is not so much whether the repossessor represents himself or herself  
          as a peace officer or not, it the use of a badge makes a debtor  
          think that the repossessor is a peace officer, then it is action  
          under "color of law."

        While, the stated purpose of these provisions in the bill is to give  
          clearer identification of the repossessor, the Committee may wish  
          exercise caution about this provision authorizing the use of badges  
          by a person affiliated with a repossession agency.  


        SUPPORT AND OPPOSITION:
        
         Support:  

        California Association of Licensed Repossessors (Sponsor)

         Opposition:  

        None on files as of June 27, 2013


        Consultant:G. V. Ayers