BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2015-2016 Regular Session
AB 1743 (Dababneh)
Version: June 20, 2016
Hearing Date: June 28, 2016
Fiscal: No
Urgency: No
TH
SUBJECT
Electronic Transactions: Motor Vehicle Finance
DESCRIPTION
This bill would authorize sellers of motor vehicles to offer
buyers entering into a conditional sale or lease contract for
the purchase or lease of a vehicle the option of signing their
respective contracts electronically at the seller's place of
business.
BACKGROUND
In 1999 with the passage of SB 820 (Sher, Ch. 428, Stats. 1999),
California enacted the Uniform Electronic Transactions Act
(UETA), which was based on a model law to set rules by which
electronic commerce may be conducted across the country proposed
by the National Conference of Commissioners on Uniform State
Laws (NCCUSL). One of the motivating factors for enacting a law
validating electronic records was the Statute of Frauds, which
requires that certain contracts be in writing. In California,
the Statute of Frauds is codified at Section 1624 of the Civil
Code, which expressly states that certain contracts are invalid
(i.e., unenforceable) unless they, or some note or memorandum
thereof, are in writing and subscribed by the party to be
charged or by the party's agent. Such contracts include, for
example: an agreement that by its terms is not to be performed
within a year from its making; an agreement for a lease lasting
for a period longer than one year; an agreement for the sale of
real property, or of an interest therein; or specified
contracts, promises, undertakings, or commitments to loan money
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or to grant or extend credit, in an amount greater than
$100,000.
California's UETA provides that a record or signature may not be
denied legal effect or enforceability solely because it is in
electronic form, that a contract may not be denied legal effect
or enforceability solely because an electronic record was used
in its formation, and that an electronic record or signature
satisfies a requirement in the law that a record be in writing
or a signature be affixed or if a law provides consequences if
there is no record or signature. UETA, however, does not apply
to all contracts. For example, expressly excluded from UETA
are: transactions that are subject to a law governing the
creation and execution of wills, codicils, or testamentary
trusts; specified transactions in the Uniform Commercial Code
that were specifically drafted in consideration of electronic
records; and transactions subject to a law that requires that
specifically identifiable text or disclosures in a record or a
portion of a record be separately signed or initialed, such as
real estate transactions. Also specifically excluded from UETA
are conditional sale contracts for the purchase of a motor
vehicle (Civ. Code Sec. 2981, et seq.) and contracts to lease a
motor vehicle (Civ. Code Sec. 2985.7).
This bill would eliminate the exclusion of conditional sale and
lease contracts for motor vehicles from UETA, and would
establish specified conditions for electronic conditional sale
and lease contracts for motor vehicles.
CHANGES TO EXISTING LAW
Existing federal law , the Electronic Signatures in Global and
National Commerce Act (E-SIGN), generally provides for the
transmission of electronic signatures, but does not apply to a
contract or other record that is governed by: (1) a statute,
regulation, or other rule of law governing the creation and
execution of wills, codicils, or testamentary trusts; (2) a
state statute, regulation, or other rule of law governing
adoption, divorce, or other matters of family law; or (3) the
Uniform Commercial Code, as in effect in any State, as
specified. (15 U.S.C. Secs. 7001, 7003(a).)
Existing federal law also excludes the following specific
transactions from electronic transmission: (1) court orders or
notices, or official court documents (including briefs,
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pleadings, and other writings) required to be executed in
connection with court proceedings; (2) any notice of (A) the
cancellation or termination of utility services (including
water, heat, and power), (B) 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 of an individual, (C) the cancellation or
termination of health insurance or benefits or life insurance
benefits (excluding annuities), or (D) recall of a product, or
material failure of a product, that risks endangering health or
safety; or (3) any document required to accompany any
transportation or handling of hazardous materials, pesticides,
or other toxic or dangerous materials. (15 U.S.C. Sec. 7003(b).)
Existing law , the Uniform Electronic Transactions Act (UETA),
generally authorizes the transaction of business, commerce, and
contracts by electronic means. (Civ. Code Sec. 1633.1.) UETA
does not apply to transactions that are subject to certain laws,
such as laws governing the creation and execution of wills,
codicils, or testamentary trusts. (Civ. Code Sec. 1633.3(a).)
Existing law exempts motor vehicle conditional sales contracts
and lease contracts from the scope of transactions governed by
UETA. (Civ. Code Sec. 1633.3(c).)
Existing law , the Rees-Levering Act, sets forth 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. (Civ. Code Sec. 2982.)
Existing law , the Vehicle Leasing Act, sets forth requirements
with regard to terms and disclosures required in a lease
contract for a motor vehicle. (Civ. Code Sec. 2985.7.)
This bill strikes those provisions exempting motor vehicle
conditional sales contracts and lease contracts from the scope
of transactions governed by UETA.
This bill states that prior to the execution of a conditional
sale contract, the seller shall offer the buyer the option of
signing electronically the conditional sale contract and
agreements as part of the transaction of the vehicle. A
person's consent to opt in to signing electronically may be
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acquired in writing or electronically.
This bill states that the consent form for opting in shall
disclose, in writing or electronically, all of the following:
the election to sign electronically the conditional sale
contract and other agreements as part of the transaction of
the vehicle is voluntary;
the buyer may opt out at any time; and
the buyer's signature, in writing or electronically, shall be
set forth immediately below the opt-in consent disclosure.
This bill states that the seller shall not charge a buyer for
the decision not to sign a conditional sale contract
electronically, and that the seller shall not charge more or
less for the purchase of a vehicle to a buyer opting to sign a
conditional sale contract electronically.
This bill states that an exact copy of a contract executed
electronically shall be furnished to the buyer by the seller at
the time the buyer and the seller have electronically signed it,
as specified.
This bill states that a conditional sale contract to which UETA
applies shall be signed at the seller's place of business.
This bill enacts identical requirements for the execution of a
lease contract for a motor vehicle governed by UETA.
COMMENT
1.Stated need for the bill
The author writes:
Under current law, within the California Uniform Electronic
Transaction Act (UETA), the use of electronic contracts and
signatures on automobile sales and lease contracts is
prohibited. In 2000, the Federal Electronic Signatures in
Global and National Commerce (E-SIGN) Act was signed which
provides specific procedures and fights under which a
transaction may be executed electronically and confirms the
enforceability of compliant electronic transactions. As part
of the E-SIGN Act, broad preemption language was inserted to
prevent a "patchwork" of inconsistent state laws governing
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electronic transactions. This preemption language likely
means that Cal UETA conflicts with the federal E-SIGN
requirements.
Assembly Bill 1743 would remove restrictions within
California's Automobile Sales Finance Act and the California
Vehicle Leasing Act that prohibits consumers from purchasing
or leasing a vehicle with an electronic signature. This bill
will improve the car buying process for customers while also
resolving the legal uncertainty surrounding the use of these
electronic contracts and signatures. All existing consumer
protections in statute for both the automobile sales and lease
contracts will be maintained.
2.Modernizing car sales and leases
This bill would remove specific restrictions in California law
that prevent automobile dealers from using electronic contracts
when selling or leasing vehicles to consumers. The California
New Car Dealers Association, the sponsor of this bill, states:
Electronic signatures and records have revolutionized the way
commercial transactions are conducted. For over 15 years, the
nationwide automotive financing industry has been aggressively
moving towards electronic forms of contracting and acceptance
of electronic signatures. Unfortunately, the California
Uniform Electronic Transactions Act (Cal UETA) expressly
prohibits the use of electronic signatures in auto sales and
leases contracts. Since Cal UETA's enactment, the federal
Electronic Signatures in Global and National Commerce Act
(ESIGN) was passed to empower both consumers and businesses to
conduct many kinds of transactions electronically. With
federal ESIGN enacted subsequently to Cal UETA, the issue
remains for the automotive industry whether Cal UETA's
prohibition on electronic transaction and signatures is
preempted. Currently, no court case has addressed this issue
- meaning dealers are stuck in the 20th century while other
industries are free to modernize and conform to consumer
demand.
AB 1743 simply deletes the language that prohibits electronic
transactions in auto sales and leasing under Cal UETA. 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
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will allow car buyers to opt in to electronically sign a
contract, and does not change any of the strong existing
consumer protections available.
3.Undermining required disclosures
Several consumer organizations opposed to this measure argue
that allowing automobile sale and lease contracts to be entered
into electronically will undermine the effect mandatory
disclosures have in such contracts, and will harm the ability of
consumers to read and understand what they are signing.
Purchasing an automobile is often a stressful and confusing
experience for consumers. Having paper contracts to read and
review provides consumers with moments of calm reflection. This
may disappear if electronic contracting is adopted in this
industry, especially where customers feel pressure to scroll
quickly through an electronic document without reading or
understanding its contents. Consumers for Auto Reliability and
Safety (CARS), for example, states:
Existing law requires that consumers be provided with a
completed, written document that includes all of the terms of
the contract in a single document, in advance of their
agreeing to the terms and signing the document. This is
intended to ensure that consumers are not presented with the
transactions in a piecemeal fashion, and are able to review
and consider the document in its entirety prior to signing it.
However, if the transaction were conducted on a computer
screen, the entire, completed document may not be visible at
any point prior to signing. This is problematic, as a single
clause may affect the entire contract. The most glaring
example: an arbitration clause, which could deny the car buyer
access to justice and the benefit of federal and state
consumer protection laws, if they are defrauded or otherwise
harmed.
. . .
There are a number of additional factors to consider that
raise concerns. Among them:
For most Californians, motor vehicles are the
single-most expensive product they purchase, unless they
[are homeowners,] and in that instance, motor vehicles are
generally the second-most expensive product. They
represent an enormous, high-stakes commitment that can have
lasting repercussions impacting the health, safety, and
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economic viability of car buyers, their families, and their
communities.
Auto sales transactions are complicated and complex, and
usually involve several transactions, negotiations, and
numerous decisions, so car buyers should not be rushed, and
they should be allowed to review the completed contract, in
its entirety, before entering into any agreement.
Car dealers are the [number one] most-complained-about
businesses, based on consumer complaints to the Better
Business Bureau. Auto sales and service complaints
perennially top the charts among consumer complaints to
state and local consumer protection agencies, and rank
among the "Top Ten" in complaints to the Federal Trade
Commission.
. . .
Instead of a paper document, where there is a "wet" signature,
there would be an electronic document solely in the possession
of the dealer, which anyone could have signed by clicking on a
computer screen or signing with an e-signature, making it
difficult or impossible to prove forgery. The difficulty and
expense of obtaining the computerized records would put them
out of reach for millions of California car buyers,
particularly vulnerable low-income consumers, who may be
attempting to obtain justice in small claims court. It may
not be possible to access the records at all if the case ends
up being tossed into the privatized arbitration system, where
discovery may not be granted.
Given the concerns articulated by consumer groups such as
(CARS), the Committee may wish to consider whether removing
restrictions on electronic contracting in automobile sale and
leasing ought to be done only in tandem with new consumer
safeguards that allow purchasers time to read and understand
sale and lease contracts, such as a limited right of rescission.
Support : None Known
Opposition : California Rural Legal Assistance Foundation;
Consumer Action; Consumers for Auto Reliability and Safety;
Consumer Federation of California; Consumer Watchdog; Housing
and Economic Rights Advocates; One Individual
HISTORY
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Source : California New Car Dealers Association
Related Pending Legislation : None Known
Prior Legislation :
AB 1097 (Holden, Ch. 439, Stats. 2015) permits alarm companies,
upon the consent of the contracting customer, to execute home
solicitation contracts electronically, as specified, and allows
for the execution of a notice of cancellation by electronic
means pursuant to the Uniform Electronic Transactions Act
(UETA).
AB 1131 (Dababneh, Ch. 638, Stats. 2015) amended the UETA to
authorize an insurer, agent, broker, or any other person
licensed by the Department of Insurance to send life insurance
records by electronic transmission. This bill also allowed
these licensees to send any written record by electronic
transmission if not specifically excluded and if the licensee
meets specified requirements.
SB 820 (Sher, Ch. 428, Stats. 1999) See Background.
Prior Vote :
Assembly Floor (Ayes 76, Noes 0)
Assembly Judiciary Committee (Ayes 10, Noes 0)
Assembly Privacy and Consumer Protection Committee (Ayes 11,
Noes 0)
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