BILL ANALYSIS
SB 289
Page 1
Date of Hearing: June 30, 1998
ASSEMBLY COMMITTEE ON CONSUMER PROTECTION,
GOVERNMENTAL EFFICIENCY, AND ECONOMIC DEVELOPMENT
Susan Davis, Chair
SB 289 (Calderon) - As Amended: June 8, 1998
SUBJECT : Expands the provisions of the "Lemon Law"
SUMMARY : Makes numerous changes generally expanding the
provisions of the "lemon law", including creating a separate set
of rules for a safety impaired vehicle, allowing consumers to more
actively participate in arbitration proceedings, and expanding the
lemon law into vehicles purchased by businesses, as specified.
Also redefines numerous terms in the Song-Beverly Consumer
Warranty Act to include new motor vehicles, as specified.
Specifically, this bill :
1) Modifies the existing Song-Beverly Consumer Warranty Act by
redefining consumer goods to include "new motor vehicle", as
defined in the lemon law. Also redefines "buyer" or "retail
buyer" to include those purchasing new motor vehicles as
described in the lemon law, and redefines "lease" and "lessee"
to include lease contracts for the use of new motor vehicles,
as specified.
2) Creates three tiers, instead of the current two, of
nonconformity application for "lemon" new motor vehicles in the
Tanner Consumer Protection Act (lemon law):
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
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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 an individual or a legal entity, including
a corporation, partnership, limited liability company or
association, if the individual or legal entity has no more than
five motor vehicles registered in this state to that individual
or legal entity."
7) 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) Prescribes, through the Song-Beverly Consumer Warranty Act,
certain obligations on manufacturers, distributors and retail
sellers of consumer goods with respect to warranties, including
express warranties. Consumer goods are defined to mean any new
product or part thereof used, bought, or leased for use
primarily for personal, family, or household purposes, as
specified.
2) States that, pursuant to the Tanner Consumer Protection Act
(lemon law), 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.
3) 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.
4) 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.
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5) 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".
6) States that if a QDRP exists, then the buyer may not assert the
presumptions of #2 and #3 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.
7) Defines new motor vehicle as one which is bought for use
primarily for personal, family, or household purposes.
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 as 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) Summary of June 8, 1998 Amendments
The most recent set of amendments modified the definition of
the terms "consumer goods", "buyer", "retail buyer", "lease",
and "lessee" in the Song-Beverly Consumer Warranty Act to
include new motor vehicles, as defined in the Tanner Consumer
Protection Act.
The June 8 amendments also deleted the previous doubling of the
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lemon presumption period, thereby returning this provision to
current law's 12 months or 12,000 miles.
The most recent amendments also nonsubstantively modified the
definition of "new motor vehicle", as previously expanded by
the bill to include business use vehicles.
Finally, the latest amendments delete a provision in the the
bill that would have required a specified disclosure statement
in promotional literature from manufacturers that do not
provide a qualified third-party dispute resolution process
certified by the California Department of Consumer Affairs.
This set of amendments have not modified the position of any
organizations that support or oppose the measure.
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The author and sponsor should explain to the committee why the
bill was amended to modify the Song-Beverly Consumer Warranty
Act, and not just the "lemon law", and what impact, if any,
they believe it would have on lemon law litigation.
3) Bill's Language In Conflict With Business Use Language in AB
1848 (Davis)
The language in the bill expanding the lemon law to business
vehicles conflicts with AB 1848 (Davis), currently on the
Senate Floor and previously heard and passed by this committee
in March 1998.
4) Overview of Supporters' 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 arbitrators to apply the law, and for
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
c) allowing only 2 failed repair attempts, instead of 4,
before vehicles with substantial safety impairments are
presumed to be lemons.
5) 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 greatly
increase litigation in the state with the most lemon law
litigation currently by 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.
Opponents believe that litigation in the current program would
be reduced if vehicle owners were required to utilize a
state-approved dispute resolution process prior to seeking
relief from the courts. They have proposed amendments in 1997
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.
6) Additional Tier of Safety Defect 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.
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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 the amended language is
virtually identical to existing Song-Beverly warranty
protection provisions relating to new motor vehicles. They
also note that eleven other states allow only one or two repair
attempts when vehicles have "significant safety problems"
(sponsor's term), 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 their June 17 amendment states 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
despite a previous 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".
The sponsor has indicated that this change was made at the
request of the Department of Motor Vehicles. Staff is unclear
as to the impact of the change. The author and sponsor should
clarify to the committee what, if any, impact this change would
have.
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
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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
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...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
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.
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.
REGISTERED SUPPORT / OPPOSITION :
Support
Consumers for Auto Reliability and Safety (sponsor)
Attorney General Dan Lungren (also supporting the amendments of
opponents)
Automobile Club of Southern California
California Public Interest Research Group
California State Automobile Association
Center for Auto Safety
Consumer Action
Consumer Attorneys of California
Consumers First
Consumers Union
Council of Better Business Bureaus
Granite Excavation & Demolition Inc.
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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.
PACCAR Inc. (Kenworth and Peterbilt truck manufacturer)
Toyota Motor Sales, USA, Inc.
Analysis prepared by : Robert Herrell / aconpro / (916) 319-2089