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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|Committee: |Protection | | |
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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
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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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