BILL ANALYSIS Ó SB 778 Page 1 Date of Hearing: June 14, 2016 ASSEMBLY COMMITTEE ON PRIVACY AND CONSUMER PROTECTION Ed Chau, Chair SB 778 (Allen) - As Amended June 9, 2016 SENATE VOTE: 22-12 SUBJECT: Automotive repair: oil changes: notification to customers SUMMARY: Requires oil change shops to register as Automotive Repair Dealers (ARDs) with the Department of Consumer Affairs' Bureau of Automotive Repair (BAR), and further requires ARDs that recommend to consumers the date or mileage for the next oil change to follow the oil drain interval specified in the vehicle manufacturer's published maintenance schedule, with certain exceptions. Specifically, this bill: 1)Deletes oil replacement and vehicle lubrication from the list of vehicle maintenance services that are excluded from the definitions of "repair of motor vehicles" and "automotive technician" so that oil replacement and vehicle lubrication are considered a "repair" under current law. 2)Requires oil change shops to register as ARDs with BAR, as a practical result of redefining oil replacement and vehicle lubrication as vehicle "repairs." SB 778 Page 2 3)Requires an ARD that performs an oil change and recommends a date or mileage for an oil drain interval to follow the vehicle manufacturer published maintenance schedule. 4)Allows an ARD to make a recommendation that deviates from the published maintenance schedule if the ARD notes the basis for the deviation on the final invoice or a document attached to the invoice. 5)Specifies that the bill does not prohibit a customer from selecting an oil change interval of their own choice. 6)Defines the terms "recommended" and "recommendation" to mean any written recommendation including, but not limited to, a window sticker, a key tag, or by programming the settings in the vehicle's oil life indicator, but clarifies that resetting a preset or nonprogrammable oil life indicator or monitor does not constitute a "recommendation." 7)Requires an ARD that performs an oil change to include the following statutory disclosure on the final invoice or document attached to the final invoice: "It is important to change your oil at the proper intervals. Your vehicle manufacturer publishes oil change intervals in your owner's manual and on the manufacturer's website." 8)Makes legislative findings and declarations of legislative SB 778 Page 3 intent regarding the environmental protection and consumer protection benefits of these provisions. EXISTING LAW: 1) Establishes the Automotive Repair Act (ARA) and BAR under the supervision and control of the Director of the Department of Consumer Affairs (DCA) for the purpose of regulating the business of automotive repair. (Business and Professions Code (BPC) Section 9880, et seq.) 2) Defines an "automotive repair dealer" (ARD) as "a person who, for compensation, engages in the business of repairing or diagnosing malfunctions of motor vehicles." (BPC 9880.1(a)) 3) Defines the "repair of motor vehicles" to mean "all maintenance of, and repairs to, motor vehicles," except the following: a) Repairing tires; b) Changing tires; SB 778 Page 4 c) Lubricating vehicles; d) Installing light bulbs, batteries, windshield wiper blades, and other minor accessories; e) Cleaning, adjusting, and replacing spark plugs; f) Replacing fan belts, oil, and air filters; and g) Other minor services the Director of DCA determines to be customarily performed by a gasoline service station. (BPC 9880.1(e)) 1) Requires ARDs to do all of the following: a) Register with BAR annually, which includes paying a $200 annual registration fee per ARD facility location in the state. (BPC 9884-9884.6, 9886.3); b) Post a sign at each location containing a notice that customers have the right to request and receive any car parts that were replaced as part of the service and the phone number and website address of BAR (BPC 9884.17); c) Provide an estimate of parts and labor before performing services (BPC 9884.9); d) Provide an invoice after performing services (BPC 9884.8); and SB 778 Page 5 e) Maintain its transaction records for three years. (BPC 9884.11). 2) Requires "auto body repair shops," as defined, to register with BAR using the ARD registration form but indicating that the shop is registering as an "auto body repair shop" not an ARD. (BPC 9889.51 - 9889.52) 3) Exempts wholesale parts suppliers from BAR registration, but requires wholesale parts suppliers to provide customers with a "written description of the services to be performed" and a notice to each customer stating that the business is not regulated by BAR and including BAR's toll-free consumer phone number. (BPC 9880.2(d)) 4) Makes a violation of the ARD provisions of ARA, which include among other things prohibitions on making untrue or misleading statements; committing fraud or gross negligence; and willful disregard for accepted trade standards for good and workmanlike repair; a misdemeanor punishable by a fine of up to $1,000 or six months imprisonment, or both. (BPC 9884.7 and 9889.20) 5) Authorizes BAR to promulgate regulations and to enforce violations of the ARA against registered and unregistered ARDs by: investigating on its own initiative or in response to a consumer complaint; gathering evidence of violations; suggesting measures to compensate for damages suffered; issuing citations and notices of abatement; pursuing administrative disciplinary proceedings against registered ARDs (and unregistered ARDs who in BAR's opinion should be registered); pursuing disciplinary proceedings against a registered ARDs, including registration denial, suspension, revocation or probation proceedings using the administrative hearing process; pursuing injunctive relief against registered and unregistered ARDs in superior court; and SB 778 Page 6 filing criminal charges with the district attorney or city attorney against a registered or unregistered ARD. (BPC 9882.(a), 9882.5, 9884.7, 9882.12-9882.15, 9884.19, 9884.22) 6) Gives the Director of DCA the discretion to remove a service designation as "minor" if the Director finds that the service "requires mechanical expertise, has given rise to a high incidence of fraud or deceptive practices or involves a part of the vehicle essential to its safe operation." (BPC 9880.1(e)) 7) Defines "automotive technician" as an "employee of an automotive repair dealer or is that dealer, if the employer or dealer repairs motor vehicles and who for salary or wage performs maintenance, diagnostics, repair, removal, or installation of any integral component parts of an engine, driveline, chassis or body of any vehicle, but excluding repairing tires, changing tires, lubricating vehicles, installing light bulbs, batteries, windshield wiper blades, and other minor accessories; cleaning, replacing fan belts, oil and air filters; and other minor services which the director, by regulation, determines are customarily performed by a gasoline service station." [Emphasis added] (BPC 9880.1(g)) FISCAL EFFECT: According to the Senate Appropriations Committee analysis of a prior (April 20, 2015) version of this bill, "unknown costs, possibly in the hundreds of thousands of dollars, from the General Fund and various special funds for increased automotive oil costs for the state's automotive fleet." COMMENTS: SB 778 Page 7 1)Purpose of this bill . This bill is intended to protect consumers and the environment by ensuring that all drivers receive accurate information about when they need to change the oil in their cars, so they can avoid needless oil changes, save time and money, and reduce oil waste. The bill would prohibit auto dealers, repair shops, and maintenance shops from using window stickers and other written reminders that recommend oil changes more frequently than the vehicle manufacturer recommends. This bill is sponsored by Californians Against Waste. 2)Author's statement . According to the author, "For decades, drivers have been told that taking proper care of their vehicle means getting the oil changed every three months or 3,000 miles. While this may have been true 30 years ago, advances in motor oil and engine technology have allowed drivers to extend oil change intervals greatly. Most vehicles built since 2000 call for an oil change at intervals of 7,500 [miles] or greater. Further, many new vehicles require the use [of] high quality motor oil that can last 10,000 or even 25,000 miles between changes. "Most busy car owners rarely read their owner's manuals; and therefore, have no idea how often they should change their oil. They simply follow the windshield reminder sticker, which stubbornly insists on following the outdated 3,000 miles change interval. In fact, a 2012 survey by CalRecycle indicated almost 10 million Californians change their motor oil every 3,000 miles or less. This means Californians are unnecessarily wasting money and needlessly wasting oil simply because they are cautiously following the recommendations of their repair dealer. [This bill] will finally put an end to this wasteful practice by requiring automotive repair dealers to follow the manufacturer's maintenance schedule when recommending how soon to return for the next oil change. SB 778 Page 8 "The bill also ensures that all shops that perform oil changes will be regulated by the Bureau of Automotive Repair (BAR), leveling the playing field for millions of small businesses that are currently registered and regulated. This will ensure all shops follow the statutory and regulatory requirements in place to protect customers from fraud and overselling of parts or service." 3)Automotive oil changes and recommended change intervals . Changing the oil in a motor vehicle is necessary to protect the engine, keeping vital engine parts well lubricated so that they do not overheat or wear too quickly. An engine cannot function without it and going too long between oil changes can cause permanent damage to an engine over time. Depending on the vehicle and the type of oil used, the intervals for required oil changes vary. Many newer models require an oil change every 5,000 miles and some models require a change every 15,000 miles. Oil change information is located in a vehicle owner's manual and many automakers post their manuals online. In addition, CalRecycle has an easily accessible, interactive webpage where consumers can see how often they should change oil based on the make, model, and year of the car. Automaker oil change recommendations differ depending on driving conditions as well as car make, model and year. According to car manufacturers, for driving conditions sometimes called "severe" (e.g. extensive idling or stop and go traffic; extreme weather or humidity; repeated short-distance trips of less than five miles; or towing a trailer or hauling heavy materials), the manufacturer recommends oil should be changed more frequently or at shorter mileage intervals than for conditions considered normal or ideal. Some automakers have installed oil life monitors in their vehicles with varying capabilities - the basic versions are SB 778 Page 9 maintenance reminders based on mileage while the more advanced systems take information from various sensors throughout the vehicle and use an algorithm to predict the life of the oil. These systems are calibrated to work with the factory-recommended oil. Although these systems take the guess work out of knowing when the next oil service should be, many consumers have preconceived notions about oil change intervals, such as all cars need oil changed every 3,000 miles. 4)Protecting consumers and the environment . According to an article published by Edmunds, a web-based automotive information provider, a Jiffy Lube customer who buys high quality oil but follows the window sticker recommendation of "three months or 3,000 miles" would waste $369 and 15.2 quarts of useable oil every year. Over five years of the car's life and 60,000 miles of driving, this would amount to $1,847 and 125 quarts of wasted oil. ("Stop Changing Your Oil! Breaking the 3,000 Mile Habit" Edmunds, April 23, 2013.) While California has a motor oil collection and recycling program, only about half of used oil is recycled. In February 2016, the California Department of Resources Recycling and Recovery (CalRecycle) released a report entitled "Used Oil Life Cycle Assessment Report to the Legislature" which examined the agency's oil recycling program and suggested improvements to decrease the amount of oil negatively impacting the environment. One of the policy recommendations in the report includes "Service stations that change customer oil would be required to indicate the next recommended oil change service based on the manufacturer's recommended drain interval for their particular vehicle (windshield reminder stickers) rather than the typical 3,000 miles." According to CalRecycle, "Changing motor oil according to the manufacturer specifications would reduce motor-oil demand in California by about 10 million gallons a year." SB 778 Page 10 This bill would adopt CalRecycle's policy recommendation by requiring all car repair and oil change shops to make oil change recommendations based on the manufacturer's published maintenance schedule. Specifically, this bill requires car repair and maintenance shops to make recommendations for oil changes based on the specific vehicle manufacturer's published oil change interval for a given car, rather than using a one-size-fits-all sticker or notice that recommends "three months or 3,000 miles." If the shop makes a recommendation that deviates from the manufacturer's published schedule, then this bill requires the shop to write basis for that deviation on the customer's invoice, or on a document attached to the invoice. The bill also requires shops to educate consumers about the vehicle manufacturer's published intervals by including the following statement on every oil change invoice: "It is important to change your oil at the proper intervals. Your vehicle manufacturer publishes oil change intervals in your owner's manual and on the manufacturer's website." 5)How will this bill be enforced ? Under current law, new car dealers as well as independent car dealers that service and repair cars have to register with BAR as ARDs. However, so-called "oil change shops" that only provide "vehicle maintenance" services, such as oil changes and lubrication, do not have to register as ARDs because the services they provide are not defined as "repairs" in statute - raising the question of how these provisions would be evenly enforced. SB 778 Page 11 In response, this bill changes the statutory definitions of "repair" and "automotive technician" to include oil changes and vehicle lubrication, which would effectively require all oil change shops to register with BAR as ARDs and be subject to BAR oversight if this bill becomes law. The author contends that oil change shops should be required to register as ARDs because this gives BAR direct authority to enforce these provisions against all businesses in California that provide oil change services. The author also argues that this bill ensures an even playing field for all businesses because BAR will have the same enforcement authority against all businesses that change oil in California. Current law allows BAR to investigate and cite registered and unregistered ARDs, pursue administrative remedies such as fines and registration revocation, and file criminal charges in superior court against ARDs. Current law makes it a misdemeanor for an ARD to violate any of ARA's provisions. Because this bill amends ARA, a violation of this bill would be a misdemeanor. Interestingly, ARA specifically prohibits ARDs from making untrue or misleading statements or committing fraud. Some industry representatives contend that even without this bill, BAR could already pursue an action for making misleading statements or fraud against a registered ARD that places a sticker on every car or prints a notice on every invoice telling consumers to return for service within 3 months or 3,000 miles. 6)Does this bill step into the debate over whether BAR should regulate car maintenance shops? In recent years, BAR and the Legislature have grappled with the question of whether vehicle SB 778 Page 12 maintenance services, such as oil changes and tire repairs, should be regulated by BAR. In its 2014 sunset review hearing, BAR suggested that because of advances in automotive technology, many car maintenance services now require specialized repair skills and may require the removal of automotive systems, engine components, and electrical equipment. AB 1665 (Jones) of 2014 would have deleted the repair and changing tires from the list of excluded minor services, but the bill was vetoed by the Governor in order to give BAR the opportunity to include more stakeholder input and decide which other automotive repair services require regulation. In 2015, BAR held an industry workshop where industry stakeholders and BAR representatives discussed a range of issues including major/minor services, compliance with advertising requirements, and the definition of roadside services. This year the Legislature is also considering AB 873 (Jones), which is sponsored by DCA and currently pending in the Senate Business, Professions and Economic Development Committee. AB 873 requires the Director of DCA to promulgate regulations by 2018 that would revise the list of services excluded from the current statutory definition of "repair." AB 873 would also give DCA the authority to update that list to keep up with technology. This bill proposes changing the definition of "repair" in statute to specifically include oil changes and vehicle lubrication services, so that if this bill were passed and signed, on January 1, 2017, all shops - including oil change shops - would have to comply with the bill and be subject to BAR enforcement actions if they do not. If both AB 873 and this bill are signed into law, DCA could SB 778 Page 13 theoretically adopt regulations that again change the definition of repair to specify that oil changes are "minor" repairs, eliminating the need for oil change shops to be registered with and regulated by BAR. However, this is unlikely given BAR's suggestion at its sunset review hearing, as noted above, that many services now excluded from the definition of "repair" should be included due to advances in car technology. 7)What would the impact of BAR oversight be ? Representatives of the oil change industry, who oppose this bill, contend that requiring oil change shops to register with BAR as ARDs is unnecessary and unfair, given that they do not diagnose and repair malfunctioning vehicles, but rather simply provide maintenance services, such as oil changes. Supporters of the bill contend that without BAR oversight and BAR's ability to discipline ARDs through the administrative hearing process, it would be difficult to enforce the provisions of this bill because BAR would have to rely on an overworked city attorney or district attorney to pursue an action in criminal court to enforce these provisions. Absent egregious circumstances, a violation of this bill likely would not make it to the top of a city attorney's or D.A.'s priority list of cases to pursue. 8)Oil change industry arguments against BAR oversight . From a business standpoint, oil change industry representatives have underscored that it would be difficult to stay in business if they are required to register as ARDs because profit margins in the industry are very small, approximately 10%. Similar to some other industries, such as the supermarket industry, the oil change industry business model is based on the ability to serve a high volume of consumers at a very small profit margin. SB 778 Page 14 Oil change industry representatives also contend that registration as an ARD would trigger a 40% increase in liability insurance costs alone, due to being officially categorized as a "repair" shop which carries a much higher risk for liability insurance purposes. In addition, the cost of creating new systems to prepare printed estimates of "parts and labor" before each oil or lubrication service, and the cost of annual registration of $200 for each shop location each year, would further reduce already narrow margins, according to industry representatives. 9)Discussions over the exact form of regulatory oversight may continue . In its current version, this bill requires oil change shops to register with BAR as ARDs. If the bill passes this Committee, it will be heard next in the Assembly Business & Professions Committee, which has been working with BAR and the industry on potentially developing a new regulatory scheme for minor repair and maintenance services. The author's office has stated an interest in continuing the conversation with stakeholders on how best to balance the need to enforce this bill across all businesses that provide oil change services and the potential impact this bill could have if oil change shops in California have to register with BAR as "repair" shops, i.e., ARDs. One option under consideration is whether a new registration category should be added, so that oil change shops could simply register as "maintenance service" shops rather than ARDs. 10)Arguments in support . According to the bill's sponsor, Californians Against Waste, "Used motor oil, which is insoluble and contains heavy metals and toxic chemicals, if improperly disposed can enter our oceans and fresh waters via the storm water systems, endangering humans, fish and wildlife. In addition, one gallon of used motor oil can foul the taste of 1 million gallons of water. This hazardous waste SB 778 Page 15 is also often burned as fuel, creating dangerous air pollution. While California has a motor oil collection and recycling program, source reduction makes the best environmental and economic sense. In addition to saving consumers money by reducing oil changes, [this bill] will reduce greenhouse gas emissions by reducing our consumption of petroleum." According to Consumers for Auto Reliability and Safety, "Oil technology has changed enormously over the last 30 years making the 3,000 mile oil change unnecessary in nearly all vehicles. The majority of automakers today call for oil changes at either 7,500 or 10,000 miles, and the interval can go as high as 15,000 miles in some cars. And yet, a 2012 survey by CalRecycle indicates almost 10 million Californians change their motor oil every 3,000 miles or less. It is for this very reason that CalRecycle launched their "Check Your Number" campaign to encourage drivers to rethink their current driving habits and only change the motor oil as needed. While consumer education is important, many maintenance facilities, including those specializing in oil changes, continue to promote the old standards, perpetuating the myth. It is particularly important that the bill apply equally to currently unlicensed facilities that perform oil changes, and require them to properly register with the Bureau of Automotive Repair, become licensed, and comply with all applicable laws. Given the stakes involved, ensuring compliance with environmental and consumer protections is important enough to warrant uniform licensing and uniform enforcement of the law." 11)Arguments in opposition . The Automotive Oil Change Association (AOCA), which represents the lube and oil change industry, including 54 California companies at two hundred locations, states that it "must respectfully oppose SB 778 SB 778 Page 16 unless amended to protect the existence of true automotive maintenance providers (AMPs) by creating a specific category to distinguish them from repair facilities. Failure to do so would be catastrophic for AMPs' business model and ultimately result in significant increases in consumer costs and time spent trying to obtain basic preventive automotive maintenance services. "The current exception for preventative maintenance services, including oil changes, in the Automotive Repair Act of 1971, represents a core principal of that Act, which is to protect and promote consumer access to the preventative maintenance services historically associated with full service gasoline stations at the time the Act was written. Checking and changing oil was the hallmark of that maintenance category. "Failure to create a separate AMP category will destroy a highly effective business model that provides services consumers need most, faster, in more convenient locations, and at less cost than typical repair industry competitors. In order to accomplish this, AMPs generally operate on a 7-10% profit margin?[P]ushing AMPs to become "automotive repair dealers" would also change their risk category for insurance purposes, raising their total rates up to 40%. ?As the name indicates, AMPs do only automotive maintenance services associated with fluid and filter changes, fluid treatments, and belt and windshield wiper blade replacement-a nearly identical category of the core preventative maintenance services originally recognized as deserving exception in the ARA." 12)Related legislation . AB 873 (Jones) deletes the current list of minor repairs exempted from registration with BAR, SB 778 Page 17 effective January 1, 2018, and requires the Director of DCA, prior to January 1, 2018, to adopt regulations defining a new list; excludes propulsive batteries from the current list of minor services; and excludes motor clubs and operators of tow trucks from the definition of roadside services. AB 873 is currently pending in the Senate Business, Professions and Economic Development Committee. AB 1174 (Bonilla) would require BAR to adopt regulations on its complaint, investigation, and mediation process and would require BAR to track and retain data on every mediation attempted and completed for each ARD. The bill also would require BAR to study the feasibility, effectiveness, and impact of requiring all service workers who are employed by ARDs to be licensed or certified by BAR and report to the Legislature on this by July 1, 2018. AB 1174 is currently pending in the Senate Business, Professions and Economic Development Committee. 13)Prior legislation . AB 1665 (Jones) of 2014 would have deleted "repairing tires" and "changing tires" from the list of repair services exempt from registration as an automotive repair dealer under the BAR. It would have also required an ARD to be capable of diagnosing and servicing vehicles, as specified. AB 1665 was vetoed by Governor Brown. SB 202 (Galgiani) of 2013 would have deleted repairing and changing tires from the list of repair services exempt from registration as an automotive repair dealer under the BAR. However, it would have excluded tire services provided by or on behalf of a motor club holding a specified certificate of authority or an operator of a tow truck owned or operated by a person or entity possessing a valid motor carrier permit from the definitions of "repair of motor vehicles" and "automotive SB 778 Page 18 technician." SB 202 was held in the Assembly Appropriations Committee. AB 2065 (Galgiani) of 2012 was similar to SB 202 (Galgiani) of 2013. AB 2065 was held in the Assembly Appropriations Committee. SB 546 (Lowenthal), Chapter 353, Statutes of 2009, made broad changes to the California Oil Recycling Enhancement Act to encourage the best re-use of used oil and reduce air pollution from the use of used oil, including: raising the fee paid by lubricating oil manufacturers from $0.16 to $0.26 per gallon; increasing the incentives paid for recycling used oil; increasing the testing requirements for used oil transporters; and requiring a life-cycle analysis of used oil. 14)Double-referral . This bill was double-referred to the Assembly Business & Professions Committee, where it will be heard if passed by this Committee. REGISTERED SUPPORT / OPPOSITION: Support SB 778 Page 19 Californians Against Waste (sponsor) Biosynthetic Technologies California League of Conservation Voters California Product Stewardship Council CALPIRG CarMax Auto Superstores Clean Water Action Consumer Federation of California Consumers for Auto Reliability and Safety Honda Natural Resources Defense Council Sierra Club California Solid Waste Association of North America SB 778 Page 20 StopWaste Opposition Automotive Oil Change Association (AOCA) Auto Care Association California Automotive Wholesalers' Association Integrated Services, Inc. Service Station Dealers of America and Allied Trades Tire Industry Association 802 individuals Analysis Prepared by:Jennie Bretschneider / P. & C.P. / (916) 319-2200 SB 778 Page 21