BILL ANALYSIS
SB 289
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Date of Hearing: June 24, 1997
ASSEMBLY COMMITTEE ON CONSUMER PROTECTION,
GOVERNMENTAL EFFICIENCY, AND ECONOMIC DEVELOPMENT
Susan Davis, Chair
SB 289 (Calderon) - As Amended: June 17, 1997
SUBJECT : Expands the provisions of the "Lemon Law"
SUMMARY : Expands time, mileage, public notification, and other
specified provisions of the Tanner Consumer Protection Act, also
known as the "Lemon Law". Specifically, this bill :
1) Extends the period under which "Lemon Law" protections may be
utilized from 12 months/12,000 miles to 24 months/24,000 miles,
whichever occurs first.
2) Creates three tiers of nonconformity application for "lemon"
new motor vehicles:
a) if the problem "substantially impairs the safety of the new
motor vehicle to the buyer or lessee" and has been repaired
twice or more (new),
b) if the problem has been subject to repair four or more
times and the buyer has notified the manufacturer at least once
of the repair need (same as current law),
c) if the vehicle is out of service for more than 30 days
during the relevant time period (same as current law).
3) Requires, as part of a "qualified third party dispute
resolution process" (QDRP) that the manufacturer replace the
vehicle or make restitution if the QDRP orders the manufacturer
to do so.
4) Requires the QDRP to " apply " in rendering decisions all
relevant legal and equitable factors, including the written
warranty, relevant Federal Trade Commission regulations, and
other equitable considerations appropriate in the
circumstances. Current law requires that the process " take
into account ...all legal and equitable factors".
5) Requires the QDRP to provide the parties, including the buyer
or lessee, the opportunity to make an oral presentation to any
arbitrator assigned to the dispute, to speak in rebuttal of any
arguments or evidence presented in the QDRP, to examine
evidence in the QDRP, and to question witnesses in the QDRP.
6) Redefines new motor vehicle beyond personal, family, or
household purposes to include vehicles used or bought for
business purposes by a person, including a partnership, limited
liability company, corporation, association, and other legal
entity, up to the limit of five vehicles registered in the
state to that person.
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7) Requires, "by July 1, 1988 [1988 actually appears in the bill]
that if a
manufacturer does not provide a QDRP certified by the Department
of Consumer Affairs, then that manufacturer shall "clearly and
conspicuously" disclose that fact in writing to prospective
customers on the second page of sales and promotional literature
describing the product. The statement is required to read:
"IMPORTANT LEMON LAW RIGHTS NOTICE: THE MANUFACTURER OF THIS
VEHICLE DOES NOT PROVIDE A WARRANTY DISPUTE RESOLUTION PROGRAM
THAT IS CERTIFIED BY THE STATE OF CALIFORNIA. IF THE
MANUFACTURER DOES NOT COMPLY WITH THE WARRANTY, THE
MANUFACTURER DOES NOT PROVIDE A CERTIFIED PROGRAM AS AN
ALTERNATIVE TO GOING TO COURT."
8) States that if any provision of the code section is held
unconstitutional, this invalidity shall not affect the other
provisions of the code section (severability).
EXISTING LAW :
1) States that the period within which a new motor vehicle may be
presumed to be out of conformity with its express warranty
(lemon), if the circumstances detailed in #2 below are met, is
within the first 12 months after delivery to the buyer or the
vehicle's first 12,000 miles, whichever occurs first.
2) States that a new motor vehicle may be presumed to be out of
conformity with its express warranty provisions (a.k.a. a
lemon) if, during the time period specified in #1 above:
a) the same nonconformity has been subject to repair four or
more times by the manufacturer or its agents and the buyer has
at least once directly notified the manufacturer of the need
for repair of the nonconformity, or
b) the vehicle is out of service by reason of repair of
nonconformities for a total of more than 30 days since delivery
of the vehicle, as specified.
3) Defines what a "qualified third-party dispute resolution
process" (QDRP) is, including stating that a QDRP must meet
specified Federal Trade Commission minimum requirements,
specified timelines for decisions, requirements for
arbitrators, consumers, and manufacturers, requirements for
process considerations, and certification procedures with the
California Department of Consumer Affairs, in addition to other
specified requirements.
4) States that QDRP decisions are binding on the manufacturer if
the buyer elects to accept the decision, and that the QDRP must
" take into account " specified information, including the
conditions of the written warranty, the rights and remedies in
relevant Federal Trade Commission regulations, and any other
"equitable considerations appropriate in the circumstances".
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5) States that if a QDRP exists, then the buyer may not assert the
presumptions of #1 and #2 above "until after the buyer has
initially resorted" to the QDRP. This provision does not apply
if:
a) a QDRP does not exist,
b) the buyer is dissatisfied with the QDRP decision, or
c) the manufacturer neglects to promptly fulfill the terms of
the QDRP decision after the buyer accepts the decision.
6) Defines new motor vehicle as one which is bought for use
primarily for personal, family, or household purposes.
7) Does not state that a manufacturer without a QDRP must disclose
that fact in specified sales and promotional literature.
FISCAL EFFECT : Unknown costs to the Department of Consumer
Affairs to the extent that vehicle manufacturers without currently
certified qualified third-party dispute resolution processes
(QDRPs) request that DCA certify their QDRP.
This bill is keyed nonfiscal and will not be reported to the
Assembly Appropriations Committee.
COMMENTS :
1) Background of "Lemon Law"
The Tanner Consumer Protection Act, or "Lemon Law", was first
enacted in 1982. California was the first state in the nation
to introduce such legislation, and the second (following
Connecticut) to enact a "Lemon Law." The purpose of the
legislation was to create a presumption under the Song-Beverly
Consumer Warranty Act provisions; this presumption was that a
vehicle failed to conform to its express warranty if it
required repeated repairs or the vehicle spent significant time
out of service. Vehicles meeting these requirements could then
be returned to the manufacturer for replacement or refund.
2) Overview of Sponsor's Arguments
The sponsor of SB 289, Consumers for Auto Reliability and
Safety (CARS), argues that this legislation will make
California's law "fairer and easier to use", by
a) extending lemon law protections to working people and small
business owners
b) requiring auto manufacturers to disclose prior to sale when
they do not offer a state-certified arbitration program to
resolve lemon disputes
c) requiring arbitrators to apply the law, and for
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manufacturers to allow consumers to speak at their own
hearings, thereby reducing the sense that arbitration decisions
were unfair, a major reason for lemon litigation
d) allowing only 2 failed repair attempts, instead of 4,
before vehicles with substantial safety impairments are
presumed to be lemons, and
e) lengthening the "lemon presumption" period from 12
months/12,000 miles to 24 months/24,000 miles.
3) Overview of Opponents' Arguments
Opponents of the measure, led by the auto manufacturers, the
California Chamber of Commerce, and the California
Manufacturers Association, argue that the bill would
a) greatly increase litigation in the state with the most
lemon law litigation currently, particularly through the
doubling of the "lemon presumption" period, but also by
extending the lemon law to commercial vehicles, establishing an
overly broad definition of safety defects, and making the
findings and decision of a qualified third-party dispute
resolution process admissible in subsequent court proceedings
b) add a provision of dubious legality by making California
the first state in the nation to require "unreasonable
advertising mandates" on sales and promotional literature for
manufacturers who choose not to have a state-certified
arbitration program. Additionally, many opponents believe this
provision would commence prematurely, thereby not giving
relevant manufacturers sufficient time to comply with the law.
Opponents believe that litigation in the current program would
be reduced if vehicle owners were required to utilize a
state-approved dispute resolution process. They have proposed
amendments which would state that consumers would be unable to
qualify for civil penalties in lemon lawsuits unless a consumer
had first resorted to a state-certified dispute resolution
process. The amendments would also eliminate the mandatory
advertising provision for those without a certified dispute
resolution program.
4) Technical Amendment Needed
On page 7, line 13, the bill contains a technical error. The
date "1988" should be changed to "1998".
5) Doubling of "Lemon Presumption" Period Controversial
The bill doubles the "lemon presumption" period from 12
months/12,000 miles on the odometer of the vehicle to 24
months/24,000 miles "from the mileage on the odometer on the
date of delivery" (note the difference in standards as it
relates to mileage).
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Supporters argue that this merely attempts to keep California
on pace with other states which have longer lemon presumption
periods. Approximately 16 other states and the District of
Columbia have a longer time and mileage period, with a few
other states having either a longer time or a longer mileage
period, but not both. Additionally, supporters argue that as
car warranties have gotten longer in duration, it is
appropriate for the lemon presumption period to increase also.
Opponents contend that without relevant legal liability
reforms, doubling the period will essentially double the
litigation manufacturers will face. They note that lemon law
litigation volume and loss in California far exceeds that for
any other state. For example, approximately 33% of Ford's
national litigation defense costs are spent in California,
while only 10% of its national sales are transacted here.
Additionally, California payouts are, on average, as much as
40% higher than the average payout in the rest of the country.
Supporters counter that the doubling of litigation argument is
baseless, since the manufacturers are already liable for the
entire duration of their express warranty - generally at
least 36 months/36,000 miles.
Is doubling of the presumption period warranted? Would
increasing the period/mileage to 18 months/18,000 miles be more
reasonable?
6) Additional Tier of Lemon Law Qualifiers Raises Definitional
Questions
The bill creates a third tier of lemon law qualifying vehicles,
beyond the existing 30 days out of service and 4 times fixing
the same nonconformity.
The new tier would relate to a nonconformity which
"substantially impairs the safety of the new motor vehicle to
the buyer or lessee and have been subject to repair two or more
times" by the manufacturer or its agents. The buyer must also
at least once directly notify the manufacturer of the need for
repair of the problem, as is the case with the current "four
times fixing required" tier of lemons.
The sponsor and supporters argue that this provision is similar
to existing law in eleven other states, and that "when a new
vehicle has a serious safety problem, the owner should not have
to repeatedly risk his [or her] life while it undergoes
unsuccessful repairs." The supporters note that they recently
took an amendment stating that the definition would apply only
to auto warranty matters, and may not be used in other cases.
Opponents believe that this definition is overly broad, even
more so than the previous definition contained in the original
version of the bill, which was "a nonconformity that is likely
to cause death or bodily injury if the motor vehicle is
operated for ordinary purposes." The opponents also state that
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despite the recent amendment attempting to apply the relevant
subparagraph only to the purposes of the Lemon Law code
section, it still may open the door to increases in legal costs
in product liability lawsuits.
7) Intent of "Election of the Buyer" Provision Unclear
The bill recasts an existing provision by requiring the
manufacturer, through the QDRP, to replace the motor vehicle or
make restitution "at the election of the buyer", if the QDRP
"orders the manufacturer" to replace the motor vehicle or make
restitution.
Existing law stated that a QDRP must require the manufacturer,
"when the process orders", either that the vehicle "be replaced
if the buyer consents to this remedy or that restitution be
made to the buyer".
Staff is unclear why this change is necessary, as well as what
the impact of the change might be. The author and sponsor
should clarify to the committee the impetus behind this
recasting.
8) Sponsors Contend that Current Arbitrators Often Ignore the Law
The bill changes an existing QDRP requirement currently stating
that the process "take into account...all legal and equitable
factors", as specified. Under the bill, this provision would
be changed to read that the QDRP must "apply...all relevant
legal and equitable factors", as specified.
The sponsor argues that this change is needed because often the
existing
arbitration process ignores the law, thereby leading to
unnecessary litigation from unhappy consumers. They state that
the provision "will improve the consistency of results" in
voluntary dispute resolution programs. Opponents dispute the
contention that arbitrators ignore the law, and believe the
provision is a solution in search of a problem.
9) Bill Provides Consumers the Opportunity to Make Presentations
and Rebut Arguments at Arbitration
SB 289 requires that a QDRP "provide the parties...with the
opportunity to make an oral presentation to any arbitrator
assigned to the dispute, to speak in rebuttal of any arguments
or evidence presented in the ...process, and to examine
evidence presented by the parties and question witnesses."
Supporters believe that this will improve the fairness of
voluntary dispute resolution programs. They note that "auto
manufacturers have in the past denied their customers the
opportunity to speak at their own hearings", or held hearings
across the country where consumers were unable to attend. The
sponsor notes that "Not surprisingly, this has led to
unnecessary litigation." Opponents believe that this
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provision, while not significantly objectionable, presumes an
overstatement of the nature of any arbitration problems that
may currently exist.
10) Bill Expands Lemon Law Provisions to Include Commercial
Vehicles
The bill expands the definition of new motor vehicle to include
vehicles used for commercial purposes, up to a limit of five
motor vehicles registered in California to a person. This may
include corporations, partnerships, and other examples
generally encompassing small businesses.
Again, supporters believe that this provision will benefit
individual entrepreneurs and small businesses. They state that
many states protect small business in this way, even including
Michigan, the home state of the industry, where their lemon law
applies up to 10 vehicles.
Opponents, though they appreciate the attempt to assist small
businesses, believe that expanding Song-Beverly warranty
protections violates the original intent of Song-Beverly, as
well as sets a dangerous precedent which could be used to
extend warranty protections to other products. They believe
that any good done by the small business expansion is far
outweighed by other provisions of the bill which increase
litigation significantly.
11) Measure Would Require Specified Written Disclosure by
Manufacturers Not Providing a Certified Third-Party Dispute
Resolution Process; Opponents Cite Constitutional and
Logistical Problems
The bill requires that manufacturers not having a QDRP
certified by the Department of Consumer Affairs disclose,
beginning July 1, 1988, (see comment #4 regarding this error)
"clearly and conspicuously" in writing to prospective buyers
"on the second page of sales and promotional literature
describing the product" the following statement:
"IMPORTANT LEMON LAW RIGHTS NOTICE: THE MANUFACTURER OF THIS
VEHICLE DOES
NOT PROVIDE A WARRANTY DISPUTE RESOLUTION PROGRAM THAT IS
CERTIFIED BY THE
STATE OF CALIFORNIA. IF THE MANUFACTURER DOES NOT COMPLY WITH
THE
WARRANTY, THE MANUFACTURER DOES NOT PROVIDE A CERTIFIED
PROGRAM AS AN
ALTERNATIVE TO GOING TO COURT."
Supporters believe that this will more fully inform consumers
prior to purchase whether a manufacturer offers a QDRP. They
state that currently consumers do not discover such information
until after they have purchased a new vehicle and a problem
arises. The sponsor notes that "Manufacturers selling over
300,000 vehicles a year in California fail to offer certified
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arbitration programs." Finally, they argue that this approach
is not as strong a mandate as either a) creating a state-run
arbitration program, which 11 states currently have, or b)
mandating that a manufacturer have a certified QDRP, which some
states require.
Opponents state that some manufacturers have decided that
certification is not cost-effective under the current statutory
scheme where consumers are not required to access the QDRP
before going to court. The California Manufacturers
Association, for example, calls this provision "burdensome,
unnecessary, and likely to confuse consumers and lead to even
more litigation." They also note that this provision lacks an
enforcement mechanism and is "reminiscent of the state's
propensity to overregulate", adding that California would be
the first state in the nation to contain such a requirement.
Were the supporters more certain that the provision was in fact
legal, opponents argue, they would not have included language
which allows this (or any other) provision to be severed from
the rest of the code section without impact on the remainder of
the section.
Additionally, opponents believe that the 6-month period within
which manufacturers would have to certify their QDRP or be
forced to print the required statement is too short.
According to the Department of Consumer Affairs, the following
manufacturers do not have arbitration programs certified by the
department:
BMW
Daihatsu
Ferrari
Jaguar
Lexus
Lotus
Mazda
Mercedes Benz
Mitsubishi
Subaru
Suzuki
Toyota
Volvo
Yugo
12) Opponents Propose Amendments to Delete Mandatory Disclosure
Provision and Limit Civil Penalties Unless Dispute Resolution
is First Pursued
Opponents of SB 298 have proposed amendments with two
provisions:
a) A deletion of the public disclosure provision relating to
manufacturers without certified QDRPs (fully detailed in
Comment #11 above), and
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b) Limiting consumers' ability to collect civil penalties
unless they
have first resorted to a QDRP, if one is available.
Regarding provision b), the amendment specifically states that
if a manufacturer maintains a QDRP that "substantially
complies" with lemon law requirements for QDRPs, then "no civil
penalty shall be imposed under this section unless the
manufacturer acts in bad faith." The amendment goes on to
state that "Bad faith shall be presumed if (1) the manufacturer
refuses to participate in state-certified arbitration
proceedings or (2) the manufacturer unreasonably failed to
comply with an arbitration decision rendered." The amendment
concludes by stating that no civil penalties shall be imposed
unless the buyer first utilizes a QDRP, if one is available.
This amendment raises the issue of whether California would
then have a policy of de facto mandatory arbitration, which may
be inconsistent with the intent of arbitration and other
dispute resolution processes, namely to provide an optional
alternative to court action. Supporters of the bill are
strongly opposed to these amendments.
Staff recommends three changes to these amendments, without
prejudice as to the overall propriety of the amendments. These
recommended changes are as follows:
1) Delete "substantially" from the phrase "substantially
complies" on the second line of the amendment. Either a
manufacturer's qualified third-party dispute resolution process
complies with the lemon law provisions, or it does not. The
word "substantially" adds a significant element of uncertainty
to the phrase.
2) Change the phrases "state-certified arbitration
proceedings" on line 4 of the paragraph and "arbitration" on
line 5 of the paragraph to "qualified third-party dispute
resolution process". This keeps all references consistent with
the phraseology used in existing law.
3) Delete "unreasonably" from the phrase "unreasonably failed
to comply with a...decision rendered". Again, either a
manufacturer complies with a QDRP decision, as required by law,
or it fails to comply, which is illegal. There is no
appropriate place for "unreasonably" in that sentence.
REGISTERED SUPPORT / OPPOSITION :
Support
Consumers for Auto Reliability and Safety (sponsor)
Attorney General Dan Lungren
Automobile Club of Southern California
California Public Interest Research Group
California State Automobile Association
Center for Auto Safety
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Consumer Action
Consumer Attorneys of California
Consumers First
Consumers Union
Council of Better Business Bureaus
Granite Excavation & Demolition Inc.
Hubbell Landscapes
L.A. Excursions
Los Angeles Center for Law and Justice
Mexican American Health and Educational Services Center
Productive Finance
D.A. Silverberg & Company
University of San Diego Center for Public Interest Law
14 Individuals
Opposition
American Automobile Manufacturers Association
Association for California Tort Reform
Association of International Automobile Manufacturers
California Chamber of Commerce
California Manufacturers Association
Ford Motor Company
General Motors Corporation
Nissan North America, Inc.
Toyota Motor Sales, USA, Inc.
Analysis prepared by : Robert Herrell / aconpro / (916) 324-7440