BILL ANALYSIS Ó AB 265 Page 1 Date of Hearing: April 22, 2015 ASSEMBLY COMMITTEE ON APPROPRIATIONS Jimmy Gomez, Chair AB 265 (Holden) - As Amended March 26, 2015 ----------------------------------------------------------------- |Policy |Privacy and Consumer |Vote:|11 - 0 | |Committee: |Protection | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | ----------------------------------------------------------------- Urgency: No State Mandated Local Program: YesReimbursable: No SUMMARY: This bill requires the written disclosure provided by a buy-here-pay-here (BHPH) automobile dealer to a buyer to inform the buyer that a warning will be provided 10 days before the use AB 265 Page 2 of starter interrupter technology to disable the automobile in the event of a payment default. FISCAL EFFECT: As a violation of the BHPH notification provisions constitute a misdemeanor punishable by a fine of up to $1,000, potential minor nonreimbursable costs to local governments for enforcement, offset to some extent by fine revenues. COMMENTS: 1)Background. "Buy Here, Pay Here" car dealers are so-named from the common practice of requiring customers to return once or twice a month to the dealership to make loan payments, usually in cash. According to the author, the typical BHPH business model is to stock and sell older, high-mileage vehicles to consumers who cannot otherwise qualify for conventional auto loans. In a conventional auto loan, traditional new and used car dealers merely serve as the middleman where the purchase money is provided by a bank or finance company. BHPH dealers, on the other hand, do not assign sale and lease contracts to third party finance or lease sources. Instead they maintain and administer their own sales and lease portfolios, and therefore do not have to comply with underwriting and loan policies set by traditional lenders, leaving them free to set financial terms significantly higher than conventional auto loans and leases. Following reports by consumer advocates and the Los Angeles Times documenting a number of questionable practices used by BHPH dealers, legislation was enacted in 2012 (AB 1447, Feuer) providing consumer protections with regard to such dealers. AB AB 265 Page 3 1447 in part required a dealer to notify a buyer at the time of sale that a warning will be provided no less than 48 hours before the use of starter interrupter technology to shut down the vehicle. 2)Purpose. AB 265 is intended to provide an additional measure protection to consumers purchasing vehicles from BHPH dealers by requiring that the dealer provide the buyer a 10-day notice (in addition to the two-day notice required under existing law) before the dealer can disable the car remotely after a missed loan payment. 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 due while simultaneously juggling a job and other familial responsibilities." Analysis Prepared by:Chuck Nicol / APPR. / (916) 319-2081 AB 265 Page 4