BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 265|
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THIRD READING
Bill No: AB 265
Author: Holden (D)
Amended: 6/23/15 in Senate
Vote: 21
SENATE JUDICIARY COMMITTEE: 6-0, 6/16/15
AYES: Jackson, Moorlach, Anderson, Hertzberg, Leno, Monning
NO VOTE RECORDED: Wieckowski
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
ASSEMBLY FLOOR: 77-0, 4/30/15 - See last page for vote
SUBJECT: Consumer protection: buy-here-pay-here dealers
SOURCE: Author
DIGEST: This bill amends existing disclosure requirements for
buy-here-pay-here dealers by requiring dealers to provide a
warning 10 days before using starter interrupt technology, or
five days before using the technology for all weekly payment
term contracts, and a final warning no less than 48 hours before
using the technology to remotely shut down a vehicle. This bill
also increases the penalty assessed for violating
buy-here-pay-here dealer disclosure requirements to $2,000 per
occurrence.
ANALYSIS:
Existing law:
1)Sets forth, in the Rees-Levering Act, requirements with regard
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to disclosures required in a conditional sale contract for the
sale of a motor vehicle, including specified disclosures
regarding finance charges, and sets forth the permissible fees
and charges in an automobile conditional sale contract for the
sale of a motor vehicle. (Civ. Code Sec. 2982.)
2)Requires all car dealers to provide a document indicating the
price of specified items purchased (including, among other
things, any service contract, insurance product, debt
cancellation agreement, or theft deterrent device) and stating
the cost of the monthly installment payments with and without
the items listed. (Civ. Code Sec. 2982.2.)
3)Defines a "buy-here-pay-here" dealer to mean a dealer that
does both of the following, except as specified:
Enters into conditional sale contracts or lease
contracts, as specified; and
Assigns less than 90% of all unrescinded conditional
sale contracts and lease contracts to unaffiliated
third-party finance or leasing sources within 45 days of
the consummation of those contracts. (Veh. Code Sec. 241.)
1)Provides that after the sale of a vehicle, a buy-here-pay-here
(BHPH) dealer shall not do any of the following:
Utilize electronic tracking technology to obtain or
record the location of the vehicle, unless the buyer is
expressly made aware of the existence and use of the
tracking technology by the BHPH dealer, the buyer's written
consent is obtained, and either or both of the following
apply:
o The electronic tracking technology is used solely to
verify and maintain the operational status of the
tracking technology, to repossess the vehicle, or to
locate the vehicle to service the loan or keep the loan
current; or
o The electronic tracking technology is used solely
for any optional service to the buyer and both of the
following conditions are met:
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§ The agreement to utilize electronic tracking
technology for the optional service is separate from
the purchase and sale agreement, is not a condition of
the purchase or sale agreement for the vehicle, and is
executed after the completion of the purchase or sale
agreement for the vehicle; and
§ The buyer is permitted to cancel the optional
service at any point in the future without affecting
the sale of the vehicle, and is informed of his or her
ability to do so. (Civ. Code Sec. 2983.37(a)(1).)
1)Provides that after the sale of a vehicle, a BHPH dealer shall
not disable the vehicle by using starter interrupt technology,
unless the BHPH dealer complies with all of the following
provisions:
Notifies the buyer in writing at the time of the sale
that the vehicle is equipped with starter interrupt
technology, which the BHPH dealer can use to shut down the
vehicle remotely;
The written disclosure provided to the buyer at the time
of sale informs the buyer that a warning will be provided
no less than 48 hours before the use of the starter
interrupt technology to shut down the vehicle remotely and
discloses the manner and method in which that warning will
occur. The dealer shall offer the buyer a choice of
warning methods, including warning from the device,
telephone call, email, or text message, if available,
provided that the warning method does not violate
applicable state or federal law; and
In the event of an emergency, the buyer will be provided
with the ability to start a dealer-disabled vehicle for no
less than 24 hours after the vehicle's initial disablement.
(Civ. Code Sec. 2983.37(a)(2).)
1)States that a violation of these provisions is a misdemeanor
punishable by a fine not exceeding $1,000. (Civ. Code Sec.
2983.37(c).)
This bill:
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1)Provides that after the sale of a vehicle, a BHPH dealer shall
not disable a vehicle by using starter interrupt technology
unless, in addition to the above requirements, the written
disclosure provided to the buyer at the time of sale informs
the buyer that a warning will be provided 10 days before the
use of the starter interrupt technology, or five days before
using the technology for all weekly payment term contracts,
and that a final warning will be provided no less than 48
hours before using starter interrupt technology to shut down
the vehicle remotely.
2)Specifies that each violation of the above requirements is a
misdemeanor punishable by a fine not exceeding $2,000.
Background
BHPH dealers are automobile dealers that generally handle
financing for consumer auto loans internally, not through the
services of third party lenders. These dealers typically have
more flexibility to approve financing for consumers with poor
credit histories by accepting a borrower's credit risk
themselves instead of finding a willing outside lender, and in
some cases will approve an automobile loan without checking a
consumer's credit. Since BHPH dealers self-finance their
customer's vehicle purchases, they are typically able to
structure financing arrangements based on an individual
consumer's financial situation, including allowing for weekly
payments for purchasers who receive a weekly paycheck. However,
because of the increased credit risk BHPH dealers take on, their
vehicles tend to be older than those sold by other used vehicle
dealers and the interest rates on their loans tend to be higher
than third-party financed automobile loans.
BHPH dealers gained statewide attention after the Los Angeles
Times published a three-part series on these dealers in fall of
2011, which described the situation of several BHPH consumers,
including Tiffany Lee:
Tiffany Lee wanted a car. She was weary of the two-hour bus
ride to her job at a UCLA Health System clinic. She hated
having to ask friends to drive her 7-year-old son to his
asthma treatments. But as a single mother with three
children, bad credit and a $27,000-a-year salary, she couldn't
find a bank or dealership willing to give her a loan . . .
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Another buyer might have balked at the deal she was offered.
Lee figured she had no choice. She put $3,000 down and drove
off in a 2007 Ford Fusion, agreeing to pay $387 a month for
four years. The interest rate: 20.7 [percent], nearly triple
the national average for a used-car loan . . .
In this little-known but fast-growing corner of the auto
market, dealers command premium prices for road-worn vehicles
and finance the sales at interest rates that can top 30
[percent]. In a kind of financial alchemy, they have found a
way to turn clunkers into cash cows and make money off the
least creditworthy customers: the millions of Americans who
are stuck in low-paying jobs, saddled with debt and unable to
qualify for conventional auto loans. For most of those
people, having a car is the only way to stay employed, and
they'll accept almost any terms to get one.
Buy Here Pay Here lots sold nearly 2.4 million cars nationwide
[in 2010], up from 1.3 million a decade ago, according to CNW
Marketing Research. CNW estimates that there are more than
33,000 such lots nationwide, compared with about 20,000
dealerships selling new cars. Buy Here Pay Here dealers make
$80 billion in loans every year, according to the Federal
Deposit Insurance Corp. Although dealers are loath to open
their books, profit margins average nearly 40 [percent],
according to a trade group, the National Alliance of Buy Here
Pay Here Dealers. That's twice what new-car dealers make.
Many of the lots require customers to return once or twice a
month to make loan payments in cash - hence the term Buy Here
Pay Here.
A key reason for the industry's growth in tough times is that
dealers can come out ahead whether or not customers keep up
with their loan payments. About 1 in 4 buyers default. In
the real estate and credit card industries, that would be bad
news. In the world of Buy Here Pay Here, it's just another
avenue for profit: The car can be repossessed and put back on
the lot for sale in short order. A new buyer makes a down
payment, takes on a high-interest loan and the cycle starts
anew. Provided they don't get wrecked, these recycled
vehicles just keep paying dividends. At some dealerships,
cars have been sold and resold over and over - three, four,
even eight times apiece, motor vehicle records show . . .
Default and repossession are so central to the business that
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many dealers plan on both. They equip cars with hidden GPS
devices and remote-control ignition blockers to make the repo
man's work easier. (Ken Bensinger, A Vicious Cycle in the
Used-Car Business, Los Angeles Times (Oct. 30, 2011)
Page 7
Related/Prior Legislation
SB 956 (Lieu, 2012) would have enacted the Buy-Here-Pay-Here
Automobile Dealers Act. The bill would have defined a
"buy-here-pay-here" dealer as a dealer who enters into
conditional sale contracts or lease contracts and assigns less
than 90% of all unrescinded contracts to an unaffiliated
third-party finance or leasing source, as specified. The bill
would have required those dealers to obtain a finance lender
license, would have subjected them to specified provisions of
the California Finance Lenders Law, and would have given the
Department of Corporations regulatory jurisdiction over the
lending and repossessing activities of BHPH automobile dealers.
The bill would have governed the terms and conditions of
contracts entered into by a BHPH automobile dealer and the
rights of the parties, including requiring a notice to a
buyer-borrower of specified rights under the contract. The bill
was vetoed by Governor Brown.
AB 1447 (Feuer, Chapter 740, Statutes of 2012) established
consumer protections for vehicles bought or leased from BHPH
dealers. Among other things, the bill requires BHPH dealers to
issue a 30-day or 1,000-mile warranty to the buyer or lessee of
a used vehicle bought or leased at retail price, and requires
the warranty to cover the engine, transmission, drive axle,
front and rear wheel drive components, engine cooling system,
brakes, front and rear suspension systems, steering, seatbelts,
inflatable restraint systems, catalytic converter or other
emissions components, heater, seals and gaskets, electrical,
electronic, and computer components, alternator, generator,
starter, and ignition system. The bill prohibits BHPH dealers
from repossessing a vehicle or charging a penalty following
timely payment of a deferred downpayment, and prohibits a BHPH
dealer from, after the sale of the vehicle, tracking the vehicle
using electronic tracking technology or from disabling the
vehicle with starter interrupt technology, except as specified.
AB 1534 (Wieckowski, Chapter 741, Statutes of 2012) requires
BHPH dealers to affix to and to prominently and conspicuously
display a label on any used vehicle offered for retail sale that
states the reasonable market value of the vehicle, as well as
specified information used to determine the vehicle's reasonable
market value and the date the value was determined. The bill
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also requires BHPH dealers to provide to prospective buyers a
copy of any information obtained from a nationally recognized
pricing guide that the BHPH dealer used to determine the
reasonable market value of the vehicle.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: Yes
SUPPORT: (Verified6/16/15)
California District Attorneys Association
Consumer Attorneys of California
Consumer Federation of California
County of Los Angeles
Silicon Valley Community Foundation
OPPOSITION: (Verified6/16/15)
None received
ASSEMBLY FLOOR: 77-0, 4/30/15
AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom,
Bonilla, Bonta, Brough, Brown, Burke, Calderon, Chang, Chau,
Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd,
Eggman, Frazier, Gallagher, Cristina Garcia, Eduardo Garcia,
Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley,
Harper, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer,
Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis,
Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte,
O'Donnell, Olsen, Patterson, Perea, Quirk, Rendon,
Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark
Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams,
Wood, Atkins
NO VOTE RECORDED: Campos, Chávez, Beth Gaines
Prepared by:Tobias Halvarson / JUD. / (916) 651-4113
7/8/15 12:01:28
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