BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     AB 265


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          Date of Hearing:  April 22, 2015


                        ASSEMBLY COMMITTEE ON APPROPRIATIONS


                                 Jimmy Gomez, Chair


          AB  
          265 (Holden) - As Amended March 26, 2015


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          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


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          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  








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            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


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