BILL ANALYSIS Ó AB 265 Page 1 ASSEMBLY THIRD READING AB 265 (Holden) As Amended March 26, 2015 Majority vote -------------------------------------------------------------------- |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 | | | | | | | | | | | | -------------------------------------------------------------------- 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: AB 265 Page 2 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 AB 265 Page 3 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 AB 265 Page 4 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 AB 265 Page 5