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













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