BILL ANALYSIS Ó AB 2387 Page 1 Date of Hearing: April 19, 2016 ASSEMBLY COMMITTEE ON PRIVACY AND CONSUMER PROTECTION Ed Chau, Chair AB 2387 (Mullin) - As Amended April 14, 2016 SUBJECT: Vehicle equipment: counterfeit and nonfunctional airbags SUMMARY: Prohibits the intentional manufacture, importation, installation, reinstallation, distribution, sale, or offer for sale of a counterfeit or nonfunctional airbag, and also prohibits a person from knowingly and intentionally selling, installing or reinstalling any device that would cause a vehicle's diagnostic systems to fail to warn when the vehicle is equipped with a counterfeit airbag or nonfunctional airbag, violation of which is a misdemeanor punishable by a $5000 fine and up to one year in jail. Specifically, this bill: 1)Prohibits the manufacture, importation, installation, reinstallation, distribution, sale, or offer for sale of any device with the intent that the device replace an airbag in any motor vehicle if the person knows or reasonably should know that the device is a counterfeit airbag or a nonfunctional airbag, or does not meet federal safety requirements, violation of which is a misdemeanor punishable by a fine of up to five thousand dollars ($5,000) or by imprisonment in a county jail for up to one year, or both. AB 2387 Page 2 2)Prohibits a person from knowingly and intentionally selling, installing or reinstalling in a vehicle, any device that causes the vehicle's diagnostic systems to fail to warn when the vehicle is equipped with a counterfeit airbag or nonfunctional airbag, or when no airbag is installed, violation of which is a misdemeanor punishable by a fine of up to five thousand dollars ($5,000) or by imprisonment in a county jail for up to one year, or both. 3)Deems a violation of either prohibition provided above to be deemed an unfair or deceptive act or practice for purposes of the Consumers Legal Remedies Act, with each act of manufacture, importation, installation, reinstallation, sale, or offer for sale constituting a separate and distinct violation. 4)Provides that an installation or reinstallation shall not have occurred for purposes of these provisions until the work is complete. 5)Defines "airbag" to mean a motor vehicle inflatable occupant restraint system device, including all component parts, such as the cover, sensors, controllers, inflators, and wiring, that the vehicle manufacturer recommends be replaced after deployment that meets both of the following criteria: a) Operates in the event of a crash; and AB 2387 Page 3 b) Is designed in accordance with federal motor vehicle safety standards for the specific make, model, and year of the motor vehicle in which it is or will be installed. 6)Defines a "counterfeit airbag" to mean a replacement airbag that displays a mark identical or substantially similar to the genuine mark of a motor vehicle manufacturer or a supplier of parts to the manufacturer of a motor vehicle without authorization from the manufacturer of the motor vehicle or supplier. 7)Defines a "nonfunctional airbag" to mean a replacement airbag that meets any of the following criteria: a) The airbag was previously deployed or damaged; b) The airbag has an electric fault that is detected by the vehicle's airbag diagnostic systems after the installation procedure is completed; and c) The airbag includes a part or object, including, but not limited to, a counterfeit or repaired airbag cover or airbag component, installed in a motor vehicle to mislead the owner or operator of the motor vehicle into believing that a functional airbag has been installed. 8)Deletes and recasts existing law that prohibits the installation, reinstallation, rewiring, tampering, alteration or modification for compensation of a vehicle's airbag systems to falsely indicate the system is in proper working order, and prohibits the knowing distribution or sale of a previously deployed airbag or component that no longer meets the original AB 2387 Page 4 equipment specifications. 9)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, or changes the penalty for a crime or infraction, or changes the definition of a crime. EXISTING LAW: 1)Makes it a misdemeanor for a person to: (a) install, reinstall, rewire, tamper with, alter, or modify for compensation, a vehicle's computer system or supplemental restraint system, otherwise referred to as an airbag, so that it falsely indicates the supplemental restraint system is in proper working order; or (b) knowingly distribute or sell a previously deployed airbag or component that will no longer meet the original equipment manufacturing form or function for proper operation. Violations are a misdemeanor punishable by a fine of up to $5000 and up to one year in county jail. (Vehicle Code Section 27317) FISCAL EFFECT: Unknown COMMENTS: 1)Purpose of this bill . This bill is intended to curb the illegal market for dangerous replacement vehicle airbags by prohibiting the intentional manufacture, importation, installation, reinstallation, distribution, sale or offer for sale of counterfeit and nonfunctional airbags. AB 2387 Page 5 2)Author's statement . According to the author, "AB 2387 is a consumer protection measure. It strengthens existing laws aimed at deterring the fraudulent distribution and installation of counterfeit airbags by more clearly defining key terms and increasing the penalty for knowingly exposing the public to this potentially deadly hazard." 3)The counterfeit airbag problem . The National Highway Traffic Safety Administration (NHTSA) states on its website that it "has become aware of a problem involving the sale of counterfeit air bags for use as replacement parts in vehicles that have been involved in a crash. While these air bags look nearly identical to certified, original equipment parts - including bearing the insignia and branding of major automakers - NHTSA testing showed consistent malfunctioning ranging from non-deployment of the air bag to the expulsion of metal shrapnel during deployment. NHTSA is not aware of any deaths or injuries connected to counterfeit air bags." NHTSA goes on to point out that: " [w]hile the full scope and scale of the problem of counterfeit air bags is uncertain from currently available data, NHTSA has identified certain vehicle makes and models for which these air bags may be available and believes this issue affects less than 0.1 percent of the U.S. vehicle fleet. Only vehicles which have had an air bag replaced within the past three years by a repair shop that is not part of a new car dealership may be at risk." 4)Recent efforts to deal with counterfeit airbags . According to the author, current state and federal law has been insufficient to stop the trade in counterfeit and nonfunctional airbags. Since 2011, "Federal authorities have made at least 16 arrests AB 2387 Page 6 across the county, including in California, relating to counterfeit airbags. In these cases the Feds cited a violation of federal trademark law (Title 19, Section 133.21), which occurs when a registered trademark or a mark substantially similar to a registered trademark is used on a fake airbag without approval. Unfortunately, the majority of legitimate airbags, including passenger and side-curtain airbags, do not contain trademarks and therefore counterfeits cannot be prosecuted or even confiscated by federal authorities. When they are discovered by law enforcement they must eventually be released and can find their way into the marketplace. Once in the country, the manufacturer's insignia is attached and the counterfeit product is sold." With trademark law proving to be ineffective in stopping the trade, "a coalition of stakeholders has enacted similar laws to AB 2387 in ten states (AL, CT, FL, IA, LA, NJ, NM, NY, OH & TX) by a combined vote of 1,386-1. This policy was also adopted as model legislation by the Council of State Governments in its 2015 'Suggested State Legislation' docket." In modernizing the existing prohibition against the trade in counterfeit airbags, this bill would do two things. First, by defining the terms "airbag," "counterfeit airbag," and "nonfunctional airbag" broadly, the statute would encompass and prohibit all airbags not designed in accordance with federal motor vehicle safety standards. Second, the bill would take aim at the root of the problem by penalizing not only the individuals who install counterfeit and nonfunctional airbags, but those who intentionally manufacture, sell and import them as well. 5)The Consumer Legal Remedies Act . The CLRA exists to provide protection to consumers from unfair methods of competition and unfair or deceptive acts or practices related to the sale or lease of goods or services. The statute currently prohibits 26 commercial practices, which cover a range of general misrepresentations as well as specific restrictions on solicitations related to prerecorded messages, public social service applications, home solicitations of senior citizens, AB 2387 Page 7 and veteran's benefits. The CLRA provides a range of remedies to an injured consumer, including actual damages of at least $1000, injunction, restitution, punitive damages, attorney's fees, and other relief as the court may direct. The law also contains provisions for class action suits. However, the CLRA provides an affirmative defense for unintentional violations and bona fide errors if corrected within 30 days of being notified by the consumer. 6)Arguments in support . According to Honda, "In 2010, federal authorities made Honda aware of a growing problem with cheap and ineffective counterfeit bags entering the U.S. stream of commerce from China. While those airbags looked authentic from the outside?the counterfeiters were unable to replicate the technology required to protect consumers in the event of a collision?[M]any counterfeiters?chose to fill airbags with sawdust, newspaper, paper towels, Styrofoam or other items never intended to provide vehicle occupants with protection during a crash?Over the past few years, several thousand counterfeit airbags have been confiscated in raids across the country." "Despite their best efforts, federal agents have limited authority to combat this problem. Federal authorities are only able to prosecute counterfeiters when they violate federal trademark law?Unfortunately the majority of legitimate airbags, including passage and side-curtain airbags do not contain trademarks and therefore fakes cannot be prosecuted under trademark law. Even when these fake airbags are discovered by authorities they must eventually be released and can eventually find their way into the marketplace. Additionally, counterfeiters are becoming increasingly aware of this loophole and are shipping driver-side airbags without the trademark in order to avoid confiscation and AB 2387 Page 8 prosecution?Existing California laws relating to airbag fraud do not address this specific and growing problem, but are consistent with the legislature's original intent of protecting consumers?" According to auto safety advocates, Consumers for Auto Reliability and Safety, "This bill will prohibit any person from manufacturing, importing, installing, reinstalling, selling, or offering for sale counterfeit or nonfunctioning air bags. It will prohibit selling any device designed to mislead car buyers into believing they have a fully functioning air bag, by altering the vehicle's diagnostic system . It will also make a knowing violation of these prohibitions an unfair and deceptive act or practice, for purposes of invoking the Consumer Legal Remedies Act, and a felony criminal offense. Such acts are a serious threat to motorists' safety. Unfortunately, too many dealers continue to sell vehicles without air bags, inducing consumers to sign contracts that state the dealer is not liable for the condition of the air bags. Therefore, a blanket prohibition is all the more important." 7)Recent negotiations . This bill was substantially amended to recast and reorganize its original language. Significant changes include lowering the penalty for violation from a felony and five years in jail to a misdemeanor and one year in jail. Further discussions between the author, supporters and opponents have been ongoing over the remaining issue of the precise scope of the definition of "airbag." According to the author's office and opponents, a tentative agreement over that definition has been reached that would lead opponents to take a neutral position, although no formal letter to that effect has been received. AB 2387 Page 9 8)Previous legislation . SB 869 (Yee), Chapter 430, Statutes of 2011, increased the penalty for a person who, after preparing a written estimate to repair a deployed airbag, fails to properly repair and restore that airbag to its original condition to a misdemeanor penalty of up to one year in jail, a $5,000 fine, or both. SB 427 (Negrete McLeod) of 2009 would have established a misdemeanor penalty of up to one year in jail, a $5,000 fine, or both for an automotive repair dealer who prepared for a customer a written estimate that includes replacement of a deployed airbag and who fails to repair and restore the airbag to original operating condition. Governor Schwarzenegger vetoed SB 427, citing that it was duplicative of existing law and, therefore, added little additional benefit to consumers. 9)Double-referral . This bill was double-referred to the Assembly Public Safety Committee, where it was heard on April 5, 2016, and passed on a 7 to 0 vote. REGISTERED SUPPORT / OPPOSITION: Support Association of Global Automakers Consumers for Auto Reliability and Safety (CARS) Honda North America, Inc. Alliance of Automobile Manufacturers (previous version) AB 2387 Page 10 Automobile Club of Southern California (AAA) (previous version) California Association of Highway Patrolmen (previous version) California Professional Firefighters (previous version) Ford Motor Company (previous version) Opposition Auto Dismantlers Association of Southern California (previous version) California Auto Dismantlers and Recyclers Alliance (previous version) Inland Auto Dismantlers Association (previous version) State of California Auto Dismantlers Association (previous version) Valley Auto Dismantlers Association (previous version) AB 2387 Page 11 LKQ Corporation (concerns) (previous version) Analysis Prepared by:Hank Dempsey / P. & C.P. / (916) 319-2200