BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2015-2016 Regular Session
AB 287 (Gordon)
Version: June 13, 2016
Hearing Date: June 28, 2016
Fiscal: Yes
Urgency: No
TH
SUBJECT
Vehicle Safety: Recalls
DESCRIPTION
This bill would restrict the rental, loaning, advertising, and
sale of vehicles subject to an automobile manufacturer's recall
as follows:
vehicles may not be advertised or sold as "certified" if
subject to an unremediated manufacturer's recall; and
vehicle dealers and rental car companies may not loan or rent
vehicles subject to an unremediated manufacturer's recall;
This bill would also clarify that automobile manufacturers shall
be liable for costs associated with the disposal of hazardous
materials associated with a recall, and would require the
Department of Motor Vehicles to notify registered owners of an
unrepaired recall in a notice of registration renewal, as
specified.
BACKGROUND
The National Highway Traffic Safety Administration (NHTSA) has
the authority under federal law to issue vehicle safety
standards and to require manufacturers to recall vehicles that
have safety defects or do not meet safety standards. If a
safety defect is identified, manufacturers are required to
notify the NHTSA, owners, dealers and distributors, and, correct
the defect at no change (unless the vehicle is more than 10
years old). Recently, concerns have been raised about the risks
of purchasing or renting a car subject to a safety recall and,
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as a result, steps that could be taken to reduce those risks.
As an example of the serious risks posed by safety recalls, a
2012 article published on Edmunds.com entitled "Recalled but
Unrepaired Cars Are a Safety Risk to Consumers," reported:
In April 2009, General Motors [(GM)] began sending
registered letters to owners of more than 1.4 million of its
cars equipped with 3.8-liter V6 engines, notifying them of a
recall for 1997-2003 V6-equipped Chevrolets, Buicks,
Oldsmobiles and Pontiacs to address a potential engine fire
hazard. The previous year, the company had sent letters to
owners of 207,000 Buicks and Pontiacs with turbocharged
versions of the same engine for the same problem.
By the time the 2009 recall was issued, there had been
reports filed with the [NHTSA] of almost 250 fires in such
cars. The problem was thought to be caused by oil that had
spilled or leaked onto heated exhaust manifold surfaces. In
some cases, the oil caught fire and the flames spread to
plastic parts, including the spark plug wiring channel and
the upper intake manifolds and engine covers.
As almost all car-fire warnings do, the letters also urged
owners not to park the cars in their garages or near homes
or other flammable structures until the recall work had been
completed. But not every owner of a fire-prone GM vehicle
has seen that letter. Although the rate of incidents is
steadily declining, there have been at least 250 additional
engine fires since the recall was announced three years ago,
according to reports filed with NHTSA.
In many cases, the owners of the burned-up cars said they
were not aware that there had been a recall. Most had
purchased the vehicles used. Many didn't know if the
required repair work had ever been done. Some of the cars
that were parked in garages are believed in several cases to
have caused structural damage or damage to other vehicles as
flames spread. (John O'Dell, Recalled But Unrepaired Cars
Are a Safety Risk to Consumers, Edmunds (August 20, 2014)
[as of June 25,
2016].)
In response to concerns about unrepaired recalled vehicles,
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this bill would generally prohibit the renting and loaning of
vehicles subject to a manufacturer's recall, and would
prohibit a dealer from advertising or selling a used vehicle
as "certified" if it is subject to a manufacturer's safety
recall. This bill would also direct the Department of Motor
Vehicles to inform registered owners of unrepaired recalls via
a statement on their annual vehicle registration renewal
notice.
CHANGES TO EXISTING LAW
Existing federal law , Part 577 of 49 C.F.R. 577.1, sets forth
the requirements for when manufacturers must notify vehicle
owners, dealers, and distributors about a defect that relates to
motor vehicle safety or noncompliance with a federal motor
vehicle safety standard. (49 C.F.R. 577.1 et seq.)
Existing state law prohibits any person from acting as a dealer,
remanufacturer, manufacturer, or transporter, as specified,
without having first been issued a license or temporary permit,
as specified. (Veh. Code Sec. 11700.)
Existing law prohibits a holder of a license from, among other
things, making or disseminating any statement which is untrue or
misleading and which is known, or which by the reasonable
exercise of case should be known to be untrue or misleading, as
specified. (Veh. Code Sec. 11713(a).)
Existing law provides that it is a violation of the Vehicle Code
for a holder of any dealer's license to advertise or sell a used
vehicle as "certified" or use any similar descriptive term in
the advertisement or sale of a used vehicle that implies the
vehicle has been certified to meet the terms of a used vehicle
certification program if any of the following apply: (1) the
dealer knows or should have known that the odometer does not
indicate actual mileage; (2) the dealer knows or should have
known that the vehicle was reacquired by a dealer or
manufacturer pursuant to state or federal warranty laws; (3) the
title has been inscribed with "lemon law buyback," "manufacturer
repurchase," "salvage," " junk," "nonrepairable," "flood," or
similar title designation; (4) the vehicle has sustained damage,
as specified, that after repair substantially impairs the use or
safety of the vehicle; (5) the dealer knows or should have known
that the vehicle has sustained frame damage; (6) the dealer
fails to provide a completed inspection report; (7) the dealer
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disclaims any warranties of merchantability; (8) the vehicle is
sold "AS IS" or (9) the term "certified" or any similar term is
used in a manner that is untrue or misleading. (Veh. Code Sec.
11713.18.)
Existing law prohibits a dealer or person holding a retail
seller's permit from selling a new or used vehicle that is not
in compliance with the Vehicle Code and departmental
regulations, unless the vehicle is sold to another dealer, sold
for the purpose of being legally wrecked or dismantled, or sold
exclusively for off-highway use, as specified. (Veh. Code Sec.
24007 (a)(1).)
Existing law provides that when a federal motor vehicle standard
is established under federal law, as specified, no dealer shall
sell or offer for sale a vehicle to which the standard is
applicable, and no person shall sell or offer for an item of
equipment sale for use upon a vehicle to which the standard is
applicable unless: (1) the vehicle conforms to the applicable
federal standard; or (2) the vehicle or equipment bears a
certification, as specified. (Veh. Code Sec. 24011.)
Existing law provides that every franchisor shall properly
fulfill every warranty agreement made by it and adequately and
fairly compensate each of its franchisees for labor and parts
used to fulfill that warranty when the franchisee has fulfilled
warranty obligations of diagnostics, repair, and servicing and
shall file a copy of its warranty reimbursement schedule or
formula with the board. The warranty reimbursement schedule or
formula shall be reasonable with respect to the time and
compensation allowed to the franchisee for the warranty
diagnostics, repair, and servicing, and all other conditions of
the obligation. (Veh. Code Sec. 3065.)
This bill provides that a warranty reimbursement schedule or
formula shall be reasonable with respect to the time and
compensation allowed to the franchisee for the warranty
diagnostics, repair, servicing, and all other conditions of the
obligation, including all costs associated with the disposal of
hazardous materials that are associated with a recall.
This bill prohibits the holder of any dealer's license to
advertise for sale or sell a used vehicle as "certified" or use
any similar descriptive term in the advertisement or the sale of
a used vehicle that implies the vehicle has been certified to
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meet the terms of a used vehicle certification program if the
vehicle is subject to an unremedied manufacturer's recall, as
specified.
This bill provides that no later than 48 hours after receiving a
notice of a manufacturer's recall, or sooner if practicable, a
dealer or rental car company shall not loan, rent, or offer for
loan or rent a vehicle subject to that recall until the recall
repair has been made. If a recall notification indicates that
the remedy for the recall is not immediately available and
specifies actions to temporarily repair the vehicle in a manner
to eliminate the safety risk that prompted the recall, the
dealer or rental car company, after having the repairs
completed, may loan or rent the vehicle, however once the remedy
for the vehicle becomes available to the dealer or rental car
company, the dealer or rental car company shall not loan or rent
the vehicle until the vehicle has been repaired.
This bill states that for every used vehicle advertised for sale
as "certified" or any similar descriptive term that implies the
vehicle has been certified to meet the terms of a used vehicle
certification program, a dealer shall obtain a recall database
report before the display or offer and every 30 days thereafter
until the vehicle is no longer displayed or offered for sale.
If a recall database report obtained by a dealer indicates that
a used vehicle is subject to a manufacturer's recall, the dealer
shall not advertise for sale or sell that vehicle as "certified"
or use any similar descriptive term that implies the vehicle has
been certified to meet the terms of a used vehicle certification
program until the recall repair has been made.
This bill provides that before mailing a notice of registration
renewal to the registered owner of a vehicle, the Department of
Motor Vehicles shall obtain a recall database report for that
vehicle. If the recall database report indicates that the
vehicle is subject to a manufacturer's recall, the department
shall notify the registered owner by checking the box next to
the recall disclosure statement, and shall include the following
recall disclosure statement on the notice of registration
renewal:
"WARNING. This vehicle has an unrepaired manufacturer's
recall. You can get this recall repaired for free. You can
check for any recalls and how to get the recall repaired at
the National Highway Traffic Safety Administration's Internet
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Web site."
This bill states that its provisions shall become operative on
July 1, 2017, except as specified.
This bill makes related findings and declarations.
COMMENT
1.Stated need for the bill
According to the author:
While vehicles have become safer, the number of vehicles
subject to a recall has grown dramatically. Over the past
decade, the number of traffic-related deaths has dropped
significantly; however, 2014 saw a new record number of
recalls in the U.S. with more than 63.8 million recalls. This
number of recalls is more than twice as many recalls as any
previous year and is equivalent to roughly 25 [percent] of the
vehicles on the road today. While slightly lower, 2015 saw 51
million recalls and 2016 is on pace to compare to the past two
years, as manufacturers face potential fines from federal
regulators, threats of increased litigation, and as the issue
receives greater coverage in mainstream media.
Federal regulations now require most vehicle manufacturers to
provide recall information applicable to the vehicles they
manufacture on the Internet and available to the public.
Federal law prohibits the sale of a new vehicle with an
unrepaired recall. However, neither federal nor California
law specifically requires the disclosure or repair of a used
vehicle subject to a recall.
The CARS Act [AB 287] would help address problems related to
recalls in four important ways, and ensure that car dealers,
rental car companies, manufacturers, and the government all
have "skin in the game" to enhance consumer protection:
1. Truth in Advertising: Recalls
AB 287 would expand consumer protection law to prohibit a new
or used car dealer from advertising for sale or selling a used
vehicle as "certified" if it has an unrepaired manufacturer's
recall.
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2. Rental & Loaner Car Protections
In December 2015, Congress passed and the President signed a
five year transportation funding measure - the Fixing
America's Surface Transportation Act (FAST Act). The measure
included a provision that prohibits a rental car company or
car dealer, with 35 or more vehicles available for rental or
loan, from renting or loaning a vehicle with an unrepaired
manufacturer recall.
AB 287 would close the fewer than 35 vehicle loophole and
prohibit a rental car company or car dealer from renting or
loaning any vehicle with an unrepaired manufacturer recall.
3. Government Responsibility to Notify Owners
[It] is estimated that 30 [percent] of all vehicles subject to
a manufacturer recall are never repaired. Moreover, with the
increased frequency of notifications from manufacturers, as
well as notifications attempting to sell warranties that
appear official, vehicle owners may receive a lot of paper. .
. . AB 287 would direct the Department of Motor Vehicles to
establish a means to notify the owners of vehicles subject to
recall at the time of annual registration that there is a
recall and how to get it repaired. This requirement would be
conditioned upon a determination that the department has
access to the necessary data and funds to implement.
4. Manufacturer Responsibility for Proper Disposal of
Its Recalled Parts
Currently, when there is a manufacturer recall, the repair can
be completed by a manufacturer-authorized facility, typically
a franchised new car dealer, at no cost to the consumer. The
manufacturer will reimburse the repairing dealer for the
necessary new part(s) and for the cost of labor to make the
repair. However, if the recall repair includes removal of a
part that is considered hazardous material and cannot be
disposed of through waste pick-up, the dealer is responsible
for that expense. Federal regulations specify how
manufacturers shall reimburse the vehicle owner, who pays to
have service done on their vehicle and later the part that is
replaced is recalled. The federal regulations include
reimbursing vehicle owners for "miscellaneous fees such as
disposal of waste."
AB 287 would require that the automobile manufacturer take
financial responsibility for this additional expense
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associated with repairing its recalled vehicles, thereby
conforming state law for reimbursing dealers to federal
regulations for reimbursing vehicle owners.
2.Safety recalls
Vehicle safety recalls are necessary when a motor vehicle or
item of motor vehicle equipment does not comply with a Federal
Motor Vehicle Safety Standard, or when there is a safety-related
defect in the vehicle or equipment. The National Highway
Traffic Safety Administration (NHTSA) notes that "[g]enerally, a
safety defect is defined as a problem that exists in a motor
vehicle or item of motor vehicle equipment that: (1) poses a
risk to motor vehicle safety; and (2) may exist in a group of
vehicles of the same design or manufacture, or items of
equipment of the same type and manufacture." Sample defects
provided by the NHTSA include steering components that break and
cause a loss of control, problems with fuel system components
that may cause vehicle fires, accelerator controls that may
stick, and child safety seats that contain defective safety
belts that create a risk of injury. (See Motor Vehicle Defects
and Safety Recalls: What Every Vehicle Owner Should Know, U.S.
Department of Transportation
[as of
June 25, 2013].)
This bill takes a multi-faceted approach toward limiting the
sale and use of vehicles with unrepaired safety recalls. At the
point of sale, this bill would prohibit dealers from selling
used vehicles as "certified" if they have an unrepaired recall.
Outside the sale context, dealers and rental car companies would
be prohibited from renting or loaning vehicles subject to
recall. Finally, at the point of registration, this bill would
require the Department of Motor Vehicles to inform owners of the
fact that their vehicle is part of a recall campaign and has not
been repaired. While not a complete prohibition on the sale of
used vehicles subject to recall, this bill would arguably help
take some proportion of unrepaired recalled vehicles off the
road, thereby making the driving environment safer for all
drivers.
3."Certified" vehicles
As noted above, this bill would prohibit a dealer from
advertising or selling a used vehicle as "certified" if the
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vehicle is subject to a manufacturer's recall. Considering that
"certified" vehicles are generally perceived as being superior
to other non-certified vehicles, applying this sale prohibition
to certified vehicles arguably aligns the law with the
expectation of consumers in the marketplace. Under this bill, a
dealer would have the duty to obtain a specified report from a
vehicle recall database before the vehicle is displayed or
offered for sale, and again every 30 days thereafter, until the
vehicle is no longer displayed or offered for sale. If the
report indicates that the vehicle is subject to an unrepaired
recall, this bill would prohibit its sale.
While relying on the recall database makes compliance with this
provision easier for automobile dealers, there could be
instances where a dealer learns directly that a vehicle is
subject to a recall through other means, such as a recall
notification sent from NHTSA. If the dealer learns of an
unrepaired recall after running the database report, but fails
to consider that separate firsthand knowledge as sufficient to
stop the sale of a vehicle as "certified," such conduct would
arguably border on fraud. The Committee may, therefore, wish to
consider amending this bill to include actual knowledge of a
recall as sufficient to invoke this bill's "stop-sale" provision
to sell that vehicle as "certified."
Additionally, while the recall database is a useful tool to
screen vehicles that can be marketed as "certified," there is a
risk that vehicles initially clear of unrepaired recalls could
become subject to a recall campaign before they are sold, but
before 30 day recall re-check provision in this bill kicks in.
This potential gap between a recall issuing and the re-check
provision could lead to vehicles being sold as "certified" even
though they have open safety recalls. The Committee may,
therefore, wish to consider amending this bill to require more
frequent checks of the recall database, including at the point
of sale.
4.Comments from rental car industry
While not taking a position on this bill, the American Car
Rental Association (ACRA) has submitted suggested amendments to
this bill in order to harmonize certain aspects of it with
federal law pertaining to rental car companies. ACRA states:
ACRA is concerned that the current draft of AB 287
inadvertently conflicts with the language of the federal car
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rental recall statute. Such conflicts will, if left
unaddressed, cause confusion among the car renting and buying
public, as well as among car rental companies charged with
compliance with both the federal and state statutes, and
perhaps among used car dealers as well.
To address its concerns, ACRA suggests the following amendments:
exclude car rental companies with 35 or more vehicles in their
fleets, which are already regulated by the federal statute,
from coverage by the provisions of AB 287;
change the timetable for "grounding" rental vehicles after
receipt of a manufacturer's recall notice to 24 hours, which
is consistent with the federal statute's mandate; and
clarify that the recall database report provisions which
respectively apply to dealers and the Department of Motor
Vehicles, do not apply to car rental companies.
Support : California New Car Dealers Association; Independent
Automobile Dealers Association of California
Opposition : None Known
HISTORY
Source : California New Car Dealers Association
Related Pending Legislation : None Known
Prior Legislation :
SB 686 (Jackson, 2013) would have prohibited a vehicle dealer
from selling, leasing, renting, loaning, or otherwise
transferring ownership of a used vehicle if the dealer knows or
should have known that the vehicle is subject to a
manufacturer's safety recall, unless the repairs required to
correct the defect have been performed. This bill died in the
Assembly Business, Professions and Consumer Protection
Committee.
AB 964 (Bonta, 2013) would have included manufacturer's safety
recalls on the list of prohibited conditions for certified
vehicles. This bill also would have added a required pre-sale
disclosure for all used vehicles regarding manufacturer's
recalls and the other safety and warranty issues. This bill
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died on the Assembly Floor inactive file.
Prior Vote :
Senate Transportation and Housing Committee (Ayes 11, Noes 0)
Assembly Floor (Ayes 76, Noes 0)
Assembly Appropriations Committee (Ayes 16, Noes 0)
Assembly Privacy and Consumer Protection Committee (Ayes 11,
Noes 0)
Assembly Transportation Committee (Ayes 16, Noes 0)
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