BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                       AB 265


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          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:  










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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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