BILL ANALYSIS Ó
AB 265
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Date of Hearing: April 7, 2015
ASSEMBLY COMMITTEE ON PRIVACY AND CONSUMER PROTECTION
Gatto, Chair
AB
265 (Holden) - As Amended March 26, 2015
SUBJECT: Consumer protection: buy-here-pay-here dealers
SUMMARY: Requires a buy-here-pay-here automobile dealer to
provide ten days' notice to a consumer before using starter
interrupt technology to disable an automobile after the consumer
defaults on a finance payment. Specifically, this bill:
1)Requires a buy-here-pay-here (BHPH) automobile dealer to
provide a written disclosure to the buyer at time of sale that
a warning will be provided ten days before the use of starter
interrupt technology to disable the automobile in the event of
a default.
2)Clarifies that the violation of BHPH dealer consumer notice
requirements may be cumulative, with each such violation being
a misdemeanor punishable by a fine not exceeding one thousand
dollars ($1000).
3)Declares that no reimbursement is required pursuant to the
California Constitution because the only costs that may be
incurred by a local agency or school district will be incurred
because this act creates a new crime or infraction, eliminates
a crime or infraction, changes the penalty for a crime or
infraction, or changes the definition of a crime.
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EXISTING LAW:
1)Sets forth in the Rees-Levering Act requirements with regard
to disclosures required in a conditional sale contract for the
sale of a motor vehicle, including specified disclosures
regarding finance charges, and sets forth the permissible fees
and charges in an automobile conditional sale contract for the
sale of a motor vehicle. (Civil Code (CC) Section 2982)
2)Requires all car dealers to provide a document indicating the
price of specified items purchased, (including, among other
things, any service contract, insurance product, debt
cancellation agreement, or theft deterrent device) and stating
the cost of the monthly installment payments with and without
the items listed. (CC 2982.2)
3)Requires a car dealer selling a used vehicle for a purchase
price under $40,000 to offer the buyer a two-day contract
cancellation option agreement, priced as specified, and under
which the buyer may return the vehicle without cause so long
as certain conditions are met. (Vehicle Code (VC) Section
11713.21)
4)Defines a "buy-here-pay-here" car dealer as one that enters
into conditional sale or lease contracts and assigns less than
90% of such contracts to unaffiliated third party finance or
leasing sources within 45 days of consummation. (VC 241)
5)Requires, pursuant to federal regulation, a car dealer, before
offering a used vehicle for sale to a consumer, to display a
window sticker called the "Buyer's Guide" that must, among
other things, disclose whether any warranty is offered and the
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basic terms of any warranty. If no express warranty is
provided, then the Buyer's Guide must indicate that the
vehicle is being offered for sale "as is" (with no express or
implied warranties), or with only the applicable "implied
warranties" required by state law. (16 Code of Federal
Regulations (C.F.R.) 455.3)
6)Requires, pursuant to federal regulation, used car dealers, at
the time of sale, to give the buyer the original Buyers Guide
displayed on the vehicle or an accurate copy that contains all
of the required disclosures and reflects the final warranty
terms agreed on between the buyer and seller. (16 C.F.R.
455.3)
FISCAL EFFECT: Unknown
COMMENTS:
1)Purpose of this bill . AB 265 is intended to provide consumers
who purchase automobiles from BHPH dealers with an additional
measure protection by requiring the dealer to provide a
ten-day notice to the consumer (in addition to the two-day
notice required under existing law) before it can disable the
car remotely with a starter interrupt device after a missed
loan payment. This bill is author-sponsored.
2)Author's statement . According to the author, "[d]espite
efforts in recent years to crack down on abusive loan
practices by buy-here-pay-here car dealerships, many continue
to take advantage of car buyers with poor credit. Current
industry practices of giving 48 hours to make a payment is
still shorter and significantly less forgiving than lending
practices imposed on those with good credit. This practice by
the buy-here-pay-here dealerships results in a nearly 18% of
buyers being at least one-day delinquent on their loans. For
the working class car buyers forced to rely on
buy-here-pay-here car dealerships, two days is frequently
insufficient time to determine why a payment is late, if any
errors occurred in processing the payment and how much is past
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due while simultaneously juggling a job and other familial
responsibilities."
3)'Buy-here-pay-here' car dealerships . State law essentially
defines a BHPH car dealer as one that sells or leases an
automobile to a consumer, but maintains most of the financing
interest rather than assigning it to a bank or other lender.
Put another way, the BHPH dealer and lender are simply the
same entity - loan payments are made to the same entity that
sold the car.
In practice, BHPH arrangements are considered more financially
risky, and are aimed at individuals with poor or no credit
histories or those with a low credit score who would otherwise
have difficulty getting financing for a car, and who pay
higher interest rates to the BHPH dealer as a result. BHPH
customers are also often required to make loan repayments on a
bi-monthly or even weekly basis.
4)News coverage of the BHPH industry. In October 2011, the Los
Angeles Times published a series of articles on the BHPH
industry. Among other things, that series found that interest
rates on BHPH loans could be quite high, with some topping
30%. In contrast, average interest rates at other used-car
dealerships for customers with good credit ranged from 5 to
8%. BHPH dealerships were said to make about $80 billion in
loans annually, and sold 2.4 million cars nationally through
approximately 33,000 dealerships.
The LA Times article also found that about one in four customers
of BHPH dealerships default. Because of the risk of default,
repossession is common, so common in fact that some dealers
equip cars with GPS (Global Positioning System) devices to
track their locations and remote-control ignition blockers,
which allow the dealer to remotely disable a car when a
payment hasn't been made. It should be noted that consumers
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generally consent to the use of such devices as a precondition
to the sale.
If and when the car is repossessed, it is usually sold again to
a new buyer. For example, the Los Angeles Times used DMV
records to show that, for example, Repossess Auto in
Hawthorne, California and a sister lot had sold more than 130
vehicles at least three times between July 2008 and October
2011.
More recently, a September 2014 story from the New York Times
reported that high-risk subprime auto loans are in high
demand, even with interest rates on some loans exceeding 29%.
The use of GPS and starter-interrupt devices has also grown,
with two million vehicles equipped with such devices.
However, consumers also report a number of problems with such
devices: cars can be disabled after an owner falls only a
couple of days behind in payments, leaving some individuals
stranded away from home or in a potentially dangerous
situation. Moreover, the GPS capability theoretically allows
lenders to track the movement and activities of the owner.
The devices also emit a warning sound when shut down is
pending, which some borrowers see as more degrading than
helpful. Nevertheless, such devices are viewed as effective -
one device maker cited in the New York Times article said that
its interrupt technology reduced late payments for customers
from nearly 29% to roughly 7%.
5)Existing consumer protections . Under current law, a BHPH
dealer that wishes to use starter interrupt technology on a
car must notify the buyer in writing at the time of sale, and
provide a separate notice to the consumer at least 48 hours
before the technology would be used. Buyers must also be
provided with the ability to restart a disabled vehicle for at
least 24 hours in the event of an emergency. A violation of
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these and other protections is a misdemeanor punishable by a
fine of up to $1000.
6)Arguments in support . According to the Consumer Attorneys of
California, "Car buyers at buy-here-pay-here auto dealerships
currently have fewer protections than buyers at traditional
car dealerships? The buy-here-pay-here industry's statistics
show that although 18% of buyers make late payments, only 4%
of those buyers make payments more than 30 days late.
Traditional car dealerships obtain loans through large banks.
Buyers are given some leeway should the miss a payment as
banks frequently take weeks longer to take actions on past due
payments. Over 14% of buy-here-pay-here buyers can have their
cars disabled despite being able to make their payments within
the time frames required by traditional financing operations?
This bill will provide greater consumer protections by
enhancing the notice required before a buy-here-pay-here
dealership can disable a vehicle for failure to timely pay
loan payments. "
7)Previous legislation . AB 2503 (Hagman), Chapter 390, Statutes
of 2014, added, among other things, BHPH dealers to the list
of financial institutions that are subject to a misdemeanor
for knowingly engaging an unlicensed person to repossess
collateral on its behalf, and also specified that DMV may take
disciplinary action against a BHPH dealer who hires an
unlicensed repossessor.
AB 1447 (Feuer), Chapter 740, Statutes of 2012, prohibited a
BHPB dealer from selling or leasing a used vehicle at retail
price without giving the buyer or lessee a written warranty
with a minimum duration of at least 30 days from the date of
delivery or when the odometer has registered 1,000 miles from
what is shown on the contract, whatever occurs first. AB 1447
also prohibited a BHPH dealer from (1) utilizing electronic
tracking to obtain or record the location of the vehicle after
sale, unless the buyer is expressly made aware of the tracking
device by the dealer, provides written consent, and certain
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conditions are met, and (2) disabling the vehicle using
starter interrupt technology, unless the dealer complies with
specified requirements.
AB 1534 (Wieckowski), Chapter 741, Statutes of 2012, required a
BHPH dealer to affix a label on any used vehicle being offered
for retail sale that states the reasonable market value of
that vehicle.
SB 956 (Lieu) of 2012 would have enacted the Buy-Here-Pay-Here
Automobile Dealers Act to regulate contract terms and other
activities of entities meeting the definition of BHPH
automobile dealers. The bill was vetoed by Governor Brown.
REGISTERED SUPPORT / OPPOSITION:
Support
California District Attorneys Association
Consumer Attorneys of California
Consumer Federation of California
Payment Assurance Technology Association
Opposition
None received.
Analysis Prepared
by: Hank Dempsey/P. & C.P./(916) 319-2200
AB 265
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