BILL ANALYSIS Ó
AB 265
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ASSEMBLY THIRD READING
AB
265 (Holden)
As Amended March 26, 2015
Majority vote
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|Committee |Votes |Ayes |Noes |
|----------------+------+------------------------+-------------------|
|Privacy |11-0 |Gatto, Wilk, Baker, | |
| | |Calderon, Chang, Chau, | |
| | |Cooper, Dababneh, | |
| | |Dahle, Gordon, Low | |
|----------------+------+------------------------+-------------------|
|Appropriations |17-0 |Gomez, Bigelow, Bloom, | |
| | |Bonta, Calderon, Chang, | |
| | |Daly, Eggman, | |
| | |Gallagher, Eduardo | |
| | |Garcia, Holden, Jones, | |
| | |Quirk, Rendon, Wagner, | |
| | |Weber, Wood | |
| | | | |
| | | | |
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SUMMARY: Requires a buy-here-pay-here automobile dealer to
provide 10 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:
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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 10 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 $1,000.
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.
FISCAL
EFFECT: According to the Assembly Appropriations Committee, 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)Purpose of this bill. This bill is intended to provide
consumers who purchase automobiles from BHPH dealers with an
additional measure protection by requiring the dealer to provide
a 10-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
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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."
3)BHPH 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
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annually, and sold 2.4 million cars nationally through
approximately 33,000 dealerships.
The Los Angeles 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 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 generally
consent to the use of such devices as a precondition to the
sale.
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 these and other
protections is a misdemeanor punishable by a fine of up to
$1,000.
Analysis Prepared by:
Hank Dempsey / P. & C.P. / (916) 319-2200 FN:
0000199
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