BILL ANALYSIS Ó
AB 1743
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Date of Hearing: May 3, 2016
ASSEMBLY COMMITTEE ON JUDICIARY
Mark Stone, Chair
AB 1743
(Dababneh) - As Amended April 25, 2016
As Proposed to be Amended
SUBJECT: Electronic transactions: motor vehicle finance
KEY ISSUE: Should the UNIFORM ELECTRONIC Transaction Act be
amended to permit the use of electronic contracts in conditional
sale and lease contracts for motor vehicles, so long as
consumers must opt-in and existing consumer protections remain
intact?
SYNOPSIS
California's Uniform Electronic Transaction Act (UETA) allows
parties to conduct most business transactions by electronic
means. UETA provides that a contract will not be denied legal
effect or rendered unenforceable simply because it is in an
electronic form with an electronic signature. So long as the
electronic contract conforms to the standard formalities of
contract formation and execution, it is treated no differently
than a paper contract. However, UETA excludes from its
provisions certain kinds of transactions, including conditional
sale and lease contracts for motor vehicles. This bill would
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remove this exclusion from UETA, thereby authorizing the use of
electronic contracts in automobile conditional sale and lease
contracts. Authorizing conditional sale and lease contracts for
automobiles will not alter or eliminate any of the consumer
protections provided in the Rees-Levering Automobile Financing
and Sales Act (AFSA) or under federal law. In order to make
sure that car dealers do not force consumers to form and sign
contracts electronically, the bill would also require the dealer
to offer the buyer the option of signing an electronic contract
and require the buyer to affirmatively opt-in by signing a
separate consent agreement. The buyer would have the right to
opt-out at any time, and the dealer will not be able to offer
any incentive or disincentive for the buyer to opt-in or
opt-out. For reasons discussed in the analysis, the bill will
be amended to clarify that in the event of a dispute over any
discrepancy between copies of the electronic contracts held by
the buyer and seller, respectively, there would no presumption
as to which copy would be the accurate or prevailing copy, and
no contract provision suggesting otherwise would be valid or
enforceable. The bill is sponsored by the California New Car
Dealers Association who contend that this bill will modernize
and improve the car buying process for consumers by allowing
electronic contracts for those consumers who opt to use them.
It is opposed by the Consumers for Auto Reliability and Safety
(CARS) who argue that the measure is unnecessary, inconsistent
with various provisions of existing state and federal law, and
will make it easier for unscrupulous car dealers to mislead or
deceive consumers.
SUMMARY: Authorizes the use of electronic contracts in
conditional sale and lease contracts for motor vehicles.
Specifically, this bill:
1)Amends the Uniform Electronic Transactions Act (UETA) so that
it no longer excludes conditional sale and lease contracts for
motor vehicles, thereby authorizing the use of electronic
contracts and electronic signatures in conditional sale and
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lease contracts for motor vehicles.
2)Requires that prior to the execution of a conditional sale or
lease contract for motor vehicles, the seller or lessor shall
offer the buyer or lessee the option of signing an electronic
conditional sale or lease contract. Specifies that a person's
consent to opt-in to electronically signing a contract may be
acquired in writing or electronically, as specified, and shall
be in a document that is separate from the conditional sale or
lease contract. Requires the consent form used for opting-in
to disclose to the buyer all of the following:
a) The election to electronically sign the conditional sale
or lease contract is voluntary.
b) The buyer may opt out at any time.
3)Prohibits the seller from doing either of the following:
a) Charging a buyer for the decision not to sign a
conditional sale or lease contract electronically.
b) Charging more or less to a buyer opting to sign a
conditional sale or lease contract electronically.
4)Requires the conditional sale or lease contract to be signed
at the seller's or lessor's place of business.
5)Provides that in the event of a dispute over a discrepancy
between an electronic copy of the executed contract in the
possession of the seller and a copy of the executed contract
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provided to the buyer, there shall be no presumption that
either the seller's copy or the buyer's copy is the accurate
or prevailing copy for purposes of determining the buyer's
obligations. Any provision in a contract that purports to
provide otherwise is void.
EXISTING LAW:
1)Provides, under the federal Electronic Signatures in Global
and National Commerce Act (E-SIGN), for the transmission of
electronic signatures, but does not apply to a contract or
other record that is governed by: a statute, regulation, or
other rule of law governing the creation and execution of
wills, codicils, or testamentary trusts; a state statute,
regulation, or other rule of law governing adoption, divorce,
or other matters of family law; or the Uniform Commercial
Code, as in effect in any state, as specified. (15 United
States Code (U.S.C.). Secs. 7001, 7003 (a).)
2)Excludes, under E-SIGN, the following specific transaction
types from electronic transmission: court orders or notices,
or official court documents for court proceedings; notices of
cancellation or termination of utility services; notices of
default, acceleration, repossession, foreclosure, or eviction,
or the right to cure, under a credit agreement secured by, or
a rental agreement for, a primary residence; cancellations or
terminations of health insurance or benefits or life insurance
benefits; recalls of a product, or material failure of a
product, that risks health or safety; and documents required
to accompany transportation or handling of hazardous
materials, pesticides, or other toxic or dangerous materials.
(15 U.S.C. Sec. 7003 (b).)
3)Generally authorizes, under California's UETA, the transaction
of business, commerce and contracts by electronic means,
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except for transactions that are subject to certain laws, such
as laws governing the creation and execution of wills,
codicils, or testamentary trusts, and specific transactions
described under various statutes, including conditional sale
contracts for the sale of a motor vehicle between a buyer and
a seller. (Civil Code Sections 1633.1 and 1633.3.)
4)Sets forth principles that govern the legal effect of
electronic transactions, including that: a record or signature
may not be denied legal effect or enforceability solely
because it is in electronic form; a contract may not be denied
legal effect or enforceability solely because an electronic
record was used in its formation; if a law requires a record
to be in writing, an electronic record satisfies the law; and
if a law requires a signature, an electronic signature
satisfies the law. (Civil Code Section 1633.7.)
5)Provides that an electronic record or electronic signature is
attributable to a person if it was the act of the person,
which may be shown in any manner, including a showing of the
efficacy of any security procedure applied to determine the
person to which the electronic record or electronic signature
was attributable. (Civil Code Section 1633.9.)
6)Specifies that all parties must agree to conduct the
transaction electronically; that an agreement in a standard
form contract may not be conditioned on an agreement to
conduct transactions by electronic means; and that a party
that agrees to conduct a transaction electronically may refuse
to conduct other transactions by electronic means. (Civil
Code Section 1633.5.)
7)Provides that if a law other than UETA requires that a notice
of the right to cancel be provided or sent, then an electronic
record may not substitute for a writing under that other law
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unless, in addition to satisfying the requirements of that
other law and UETA, the notice of cancellation may be returned
by electronic means. (Civil Code Section 1633.16.)
8)Sets forth in the Rees-Levering Motor Vehicle Sales Finance
Act requirements with regard 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.
(Civil Code Section 2982.)
9)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. (Civil Code Section 2982.2.)
10)Requires a car dealer selling a used vehicle for a purchase
price under $40,000 to offer the buyer a two-day contract
cancellation option agreement, priced as specified, and under
which the buyer may return the vehicle without cause so long
as certain conditions are met. (Vehicle Code Section
11713.21.)
11)Defines a "buy-here-pay-here" car dealer as one that enters
into conditional sale or lease contracts and assigns less than
90% of such contracts to unaffiliated third party finance or
leasing sources within 45 days of consummation. (Vehicle Code
Section 241.)
FISCAL EFFECT: As currently in print this bill is keyed
non-fiscal.
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COMMENTS: California's Uniform Electronic Transaction Act
(UETA) allows parties to conduct most business transactions by
electronic means. UETA provides that a contract will not be
denied legal effect or rendered unenforceable simply because it
is in an electronic form with an electronic signature. So long
as the electronic contract conforms to the formalities of
contract formation and execution, it is treated no differently
than a paper contract. UETA was enacted in 1999, as electronic
communications and documents were coming into widespread use.
In the past seventeen years electronic communications and
devices for creating, sending, and reading them have become
ubiquitous. However, UETA did not authorize electronic
transactions in all areas of commerce. UETA excluded from its
provisions certain kinds of transactions, including conditional
sale and lease contracts for motor vehicles. This bill would
remove this exclusion from UETA, thereby authorizing the use of
electronic contracts in automobile conditional sale and lease
contracts.
In addition, in order to make sure that car dealers do not
coerce consumers to accepting electronic contracts, this bill
would require the dealer to offer the buyer the option of
signing an electronic contract and require the buyer to
affirmatively opt-in by signing a separate consent agreement.
The buyer would have the right to opt-out at any time, and the
dealer could not offer any incentive or disincentive to opt-in
or opt-out. Finally, as proposed to be amended, the bill would
specify that in the event of a dispute over any discrepancy
between the dealer's electronic contract and the copy of the
executed contract furnished to the buyer, there shall be no
presumption that either the seller's electronic copy or the
buyer's copy is the accurate or prevailing copy for purposes of
determining the buyer's obligations under the contract.
Consumer Protections under Existing State and Federal Law: In
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light of the important consumer protection issues raised by
opponents to this bill, it is worth reiterating that authorizing
electronic contracts will not alter any consumer protections
provided by existing law, most notably the Rees-Levering
Automobile Financing and Sales Act (AFSA) and the financial
disclosure requirements under federal laws and regulations,
including the Truth in Lending Act (TILA) and Regulation Z.
California enacted AFSA in 1961 for the express purpose of
providing more comprehensive protection for automobile
consumers, who had very little real bargaining power in
financing the purchase of a vehicle and were instead largely
dependent upon financing arrangements controlled jointly by the
seller and lender. (See e.g. Hernández v. Atlantic Finance Co.
of Los Angeles (1980) 105 Cal. App. 3d 65.) AFSA regulates
content and formalities of the "conditional sale contract,"
which is essentially defined as a credit sale in which the buyer
obtains immediate possession of the vehicle but title does not
vest in the buyer until the final payment is made. Of
particular relevance to this bill, Civil Code Section 2981.9 of
AFSA requires that the contract be in writing and that it
contain all of the terms of the contract within a "single
document," meaning that the terms shall be set forth in the
document and not incorporated by reference from other documents.
Section 2981.9 also requires that an exact copy of the contract
be provided to the buyer at the time the contract is signed and
specifies that no motor vehicle shall be delivered to the buyer
until the seller delivers to the buyer a fully executed copy of
the contract. This section also prohibits a document from
containing any blank spaces that could be filled in after the
contract has been signed.
Section 2982 of AFSA sets forth a list of required disclosures
that must be contained in the contract. These disclosures are
in addition to those required under Regulation Z, a federal
regulation promulgated pursuant to the Truth in Lending Act
(TILA). (15 USC 1601 et seq.) Required disclosures are
designed to protect the consumer against excessive charges and
ensure that he or she is aware of the full cost of his or her
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purchase, including financing charges and interest rates. In
addition, federal regulations require a creditor to disclose all
financial terms and conditions to the buyer, in clear and
conspicuous writing "prior to" the execution of the contract and
"in a form that the consumer may keep." This allows the
consumer, if he or she chooses, to take those terms and
conditions and go elsewhere to compare different offers. (12
CFR 226.17.) Of particular significance to this bill, federal
law and regulations expressly permit these disclosures to be
provided to the consumer in electronic form, so long as they
comply with consumer consent and other applicable provisions of
the Electronic Signatures in Global and National Commerce Act
(E-Sign Act). (15 U.S.C. 7001 et seq.)
Section 2982 of AFSA expressly states that all state-required
disclosures are in addition to disclosures required under
federal law. This bill does nothing to weaken state
requirement, and of course it is preempted from weakening
federal requirements. TILA-required disclosures must still be
made prior to the execution of the contract and in a form that
the consumer can keep. Electronic contracts must still comply
with the content and formalities required by AFSA, including the
requirement that the seller deliver to the buyer a fully
executed copy of the original contract for the buyer to keep.
Traditionally, the disclosures that the buyer carried away to
comparison shop, like the copy of the fully executed contract,
were in paper form. However, there is no reason that electronic
forms cannot also comply with these requirements. For example,
because the TILA disclosures must be in a form that the buyer
can keep and carry away, if the buyer did not have an electronic
device to which the disclosures could be sent electronically or
uploaded, then it follows that the seller must provide the buyer
with a paper copy. Similarly, AFSA requires the seller to
provide the buyer with a copy of the fully executed contract.
If the buyer does not have the capacity to receive the copy
electronically, then the buyer will need to be provided with a
paper copy. In short, all of the existing laws and regulations
governing disclosures, contract formation, and the respective
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obligations of buyers and sellers, and creditors and debtors,
will remain in place; the only difference is that the words
constituting those disclosures and contracts will be recorded in
electronic form and readable from an electronic device, instead
of recorded in ink on a piece of paper.
Will Electronic Contracts in Automobile Sales and Lease
Contracts Pose a Greater Risk to Consumers? Although the
opponents cite many potential pitfalls of electronic contracts
in car sales, their more general concern is this bill will give
car dealers (who opponents contend receive more consumer
complaints than any other business) a new tool to take advantage
of vulnerable consumers, especially the poor and the elderly who
may not have the same familiarity with modern electronic devices
as a salesperson. Opponents contend that standard-form
contracts and disclosures are already difficult to read and
comprehend for many consumers, especially under the pressure of
a sales pitch, and attempting to read them from something as
small as a smartphone screen will make the process all the more
difficult. Opponents also express concerns about potential
discrepancies between what the consumer reads on the screen and
the final version of the contract that may have more charges and
different rates than what the consumer thought he or she had
agreed to on the screen. Finally, for reasons that are not
entirely clear, opponents contend that it will be more difficult
to prove what was agreed to in an electronic contract than what
was agreed to in a paper contract. This fear is apparently
based on the assumption that the electronic contract in
possession of the dealer will be more subject to manipulation,
and changes made to an electronic copy will not be as obvious as
changes made to a paper copy.
While the concerns raised by opponents should not be dismissed,
many of the dangers cited by the opposition could just as easily
occur with paper contracts. Indeed, the examples provided by
opponents occurred under existing law, and they suggest that
unscrupulous car dealers can mislead with paper contracts just
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as easily as they can mislead with electronic contracts. For
example, a clinical professor at the Santa Clara University Law
School writing in opposition to this bill claimed that many of
the clients who visit the law school's clinic have been victims
of consumer fraud or deception. However, none of the examples
cited involved car dealers or electronic contracts. Some of the
examples involved consumers who did not speak English, but
presumably non-English speakers would have as much trouble with
paper contracts as electronic contracts. An article cited by
the professor reached the unsurprising conclusion that the vast
majority of people who purchase and download computer software
and applications online do not read the lengthy terms and
conditions. However, the same article noted that people do not
generally read standard-form contracts of any kind, whether
paper or electronic. It is not at all clear that someone
initialing boxes while flipping through pages of fine print is
any more attentive to important details than a person scrolling
through a screen and clicking boxes.
Opponents make the important point that, despite the increasing
use of electronic documents and devices, some people may still
feel uncomfortable with this technology, especially when making
what for most people is a very substantial financial commitment.
Indeed, except for our homes, an automobile may be the most
expensive purchase that many of us will make. However, this
bill accounts for this possibility by requiring the seller to
offer the buyer the "option" of using an electronic contract and
electronic signature and requiring the buyer to affirmatively
"opt in" by signing a consent form that is separate from the
electronic contract. Under this bill, the buyer may opt-out of
the electronic transaction at any time during the process.
Finally, this bill would prohibit the seller from offering any
incentive or disincentive for the buyer to opt-in or opt-out,
such as charging an extra fee to a person who refuses to opt-in
or charging less to someone who does. People who feel more
comfortable transacting business in tangible, paper documents
will still be able to do so.
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Possible Discrepancies between Copies of the Contract: As
detailed in the arguments section below, the consumer advocacy
group Consumers for Auto Reliability and Safety (CARS) argues,
among other things, that electronic contracts will create
potential discrepancies between the electronic version of the
contract maintained by the dealer, and the copy of the contract
provided to the buyer. For example, CARS points to a provision
in standard form "Retail Installment Sales Contract" (RISC) that
anticipates this possibility. Specifically, CARS provided the
Committee with a sample RISC with a provision stating that the
buyer agreed that the electronic version maintained by the
dealer shall be deemed the "authoritative" copy of the contract.
Although the import and purpose of this provision is not clear,
to the extent that it suggests that the dealer's electronic
version would prevail over the buyer's copy of the contract in
the event of a dispute over a discrepancy in copies of the
contract, the Committee believes that such a provision would be
unfair to the consumer. In response to this concern, the author
has agreed to take the following amendments in this Committee:
- On page 8, after line 4, insert a new subdivision (d)
that reads:
(d) In the event of a dispute over a discrepancy between
an electronic copy of the executed contract in the
possession of the seller and a copy of the executed
contract provided to the buyer pursuant to section 2981.9,
there shall be no presumption that either the seller's
copy or the buyer's copy is the accurate or prevailing
copy for purposes of determining the buyer's obligations.
Any provision in a contract that purports to provide
otherwise is void.
- On page 8, after line 29, insert a new subdivision (d)
that reads:
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(d) In the event of a dispute over a discrepancy between
an electronic copy of the executed contract in the
possession of the lessor and a copy of the executed
contract provided to the lessee pursuant to section
2986.4, there shall be no presumption that either the
lessor's copy or the lessee's copy is the accurate or
prevailing copy for purposes of determining the lessee's
obligations. Any provision in a contract that purports to
provide otherwise is void.
ARGUMENTS IN SUPPORT: In support of this measure, the author
observes that it has been more than fifteen years since
California enacted the Uniform Electronic Transaction Act (Cal
UETA). While that law authorized the use of electronic
contracts in most business transactions, its authorization
excluded "the use of electronic contracts and signatures on
automobile sales and lease contracts. Since Cal UETA's
enactment," the author notes, "the federal Electronic Signatures
in Global and National Commerce Act (ESIGN) was enacted to
empower both consumers and businesses to conduct many kinds of
transactions electronically. However, since ESIGN was signed
subsequent to Cal UETA the issue remains in the automotive
industry if Cal UETA's prohibition is preempted. This legal
uncertainty has prevented many of California's new car dealers
from moving to electronic contracts and signatures." This bill,
the author contends, will remove the restrictions and resolve
the conflict between state and federal law. "For consumers who
chose to sign these documents electronically," the author
argues, "this bill will streamline and expedite the car buying
process. All existing consumer protections afforded in existing
law for both the automobile sales and lease contracts will be
maintained under the bill."
The California New Car Dealers Association (CNCDA) supports this
bill for the same reasons stated by the author, but stresses
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that AB 1743 is a straight-forward measure that "simply deletes
the language that prohibits electronic transitions in auto sales
and leasing under Cal UETA." CNCDA believes that by deleting
this language, "the legal uncertainty involving the use of
electronic signatures on sales and lease contracts would be
removed for car dealers and their customers. AB 1743 will allow
car buyers to opt in to electronically sign a contract, and does
not change any of the strong existing consumer protections
available . . . In sum, AB 1743 will modernize and improve the
car buying process for consumers while maintaining the strong
existing consumer protections provided for in California law."
ARGUMENTS IN OPPOSITION: Consumers for Auto Reliability and
Safety (CARS), a non-profit auto safety and consumer advocacy
organization, opposes this bill because it would "eliminate the
protections for car buyers inherent in the exclusion of
transactions involving conditional auto sales contracts from the
California Uniform Electronic Transactions Act (UETA)."
According to CARS, UETA excludes conditional automobile sale and
lease contracts for a good reason: for "most Californians, motor
vehicles are the single-most expensive product they can
purchase," other than a home. Automobile purchases "represent
an enormous, high-stakes commitment that can have lasting
repercussions impacting the health, safety, and economic
viability of car buyers, their families, and their communities."
According to CARS, new and used car dealers "are the #1 most
complained-about businesses based on consumer complaints to the
Better Business Bureau," and they have a "long history of
engaging in dangerous, deceptive, and fraudulent practices."
CARS believes that the use of electronic contracts presented on
electronic devices will only aid car dealers in committing acts
of fraud, deception, and misrepresentation. CARS also maintains
that it will be even more difficult than it is now to prove a
claim against a car dealer, as the shift to electronic contracts
will require victims and law enforcement to obtain access to a
car dealer's internal computer records. CARS implies that the
use of electronic devices will make it easier to hide excess
fees and charges that the consumer does not want because instead
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of paper document with a wet signature, "there would be an
electronic document solely in the possession of the dealer,
which anyone could have signed by clicking a computer screen or
signing with an e-signature, making it difficult or impossible
to prove forgery."
One individual, a clinical professor at the Santa Clara
University Law School, opposes the bill for substantially the
same reasons as those set forth by CARS.
REGISTERED SUPPORT / OPPOSITION:
Support
California New Car Dealers Association (sponsor)
Opposition
Consumers for Auto Reliability and Safety (CARS)
One individual
Analysis Prepared by:Thomas Clark / JUD. / (916) 319-2334
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