BILL NUMBER: SB 1291 CHAPTERED
BILL TEXT
CHAPTER 800
FILED WITH SECRETARY OF STATE OCTOBER 9, 1997
APPROVED BY GOVERNOR OCTOBER 8, 1997
PASSED THE SENATE SEPTEMBER 10, 1997
PASSED THE ASSEMBLY SEPTEMBER 5, 1997
AMENDED IN ASSEMBLY SEPTEMBER 3, 1997
AMENDED IN ASSEMBLY AUGUST 25, 1997
AMENDED IN ASSEMBLY JULY 23, 1997
AMENDED IN ASSEMBLY JULY 1, 1997
AMENDED IN SENATE APRIL 14, 1997
INTRODUCED BY Senator Calderon
FEBRUARY 28, 1997
An act to amend Sections 1799.90, 1799.91, 2985.7, 2986.3, 2986.4,
2986.13, and 2989.2 of, to add Section 2987 to, to repeal Section
2986.2 of, and to repeal and add Sections 2985.71 and 2985.8 of, the
Civil Code, relating to motor vehicle leases.
LEGISLATIVE COUNSEL'S DIGEST
SB 1291, Calderon. Motor vehicle leases.
(1) Existing law requires a creditor, as defined, who obtains the
signature of more than one person on a consumer credit contract, as
defined, to deliver a prescribed notice to each person who does not
in fact receive any of the money, property, or services which are the
subject matter of the contract, except as specified.
This bill would revise the definition of a consumer credit
contract to include a lease contract for a motor vehicle, as
specified, and would require a creditor who is a lessor under such a
lease contract to provide a prescribed notice, in lieu of the above
described notice, in English and in Spanish to each person who does
not in fact receive the vehicle, prior to that person becoming liable
on the lease contract, unless the persons are married to each other.
(2) Existing law provides that if any solicitation to enter into a
lease contract for a motor vehicle includes a statement of the
amount of payment, the number of payments, or that any capitalized
cost reduction, any or no downpayment, or other payment is required
at the inception of the lease, the solicitation shall also include a
specified statement.
This bill would delete this provision and require a solicitation
to enter a lease contract for a motor vehicle that includes a
statement as to the amount of any payment or a statement of any
capitalized cost reduction or other payment required, or that no
capitalized cost reduction or other payment is required, to state
prescribed items.
(3) Existing law specifies requirements for contracts for leases
of motor vehicles, including the requirement that the contract
contain prescribed information regarding the motor vehicle and the
terms of the lease.
This bill would revise and recast these provisions to, among other
things, authorize the contract operative January 1, 1998, and
require the contract operative March 1, 1998, to contain all
disclosures prescribed by specified federal regulations. The bill
also would provide that a lessee has the right to terminate a lease
at any time prior to the scheduled expiration date and sets forth
methods for calculating the lessee's liability in the event of an
early lease termination, as specified. It also would make related
changes.
(4) Existing law relating to paragraphs (2) and (3) provides that
it is a misdemeanor for a person to knowingly and willfully violate
those provisions. By changing the definition of a crime, this bill
would impose a state-mandated local program.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 1799.90 of the Civil Code is amended to read:
1799.90. As used in this title:
(a) "Consumer credit contract" means any of the following
obligations to pay money on a deferred payment basis, where the
money, property, services or other consideration which is the subject
matter of the contract is primarily for personal, family or
household purposes:
(1) Retail installment contracts, as defined in Section 1802.6.
(2) Retail installment accounts, as defined in Section 1802.7.
(3) Conditional sales contracts, as defined in Section 2981.
(4) Loans or extensions of credit secured by other than real
property, or unsecured, for use primarily for personal, family or
household purposes.
(5) Loans or extensions of credit for use primarily for personal,
family or household purposes where such loans or extensions of credit
are subject to the provisions of Article 7 (commencing with Section
10240) of Chapter 3 of Part I of Division 4 of the Business and
Professions Code, Division 7 (commencing with Section 18000),
Division 9 (commencing with Section 22000), or Division 10
(commencing with Section 24000) of the Financial Code, whether
secured by real property or otherwise.
(6) Lease contracts, as defined in Section 2985.7.
(b) "Creditor" means an individual, partnership, corporation,
association or other entity, however designated, who enters into or
arranges for consumer credit contracts in the ordinary course of
business.
SEC. 2. Section 1799.91 of the Civil Code is amended to read:
1799.91. (a) Unless the persons are married to each other, each
creditor who obtains the signature of more than one person on a
consumer credit contract shall deliver to each person who does not
in fact receive any of the money, property, or services which are the
subject matter of the consumer credit contract, prior to that person'
s becoming obligated on the consumer credit contract, a notice in
English and Spanish in at least 10-point type as follows:
NOTICE TO COSIGNER (Traduccion en Ingles Se Requiere Por La
Ley)
You are being asked to guarantee this debt. Think carefully
before you do. If the borrower doesn't pay the debt, you will have
to. Be sure you can afford to pay if you have to, and that you want
to accept this responsibility.
You may have to pay up to the full amount of the debt if the
borrower does not pay. You may also have to pay late fees or
collection costs, which increase this amount.
The creditor can collect this debt from you without first trying
to collect from the borrower. The creditor can use the same
collection methods against you that can be used against the borrower,
such as suing you, garnishing your wages, etc. If this debt is ever
in default, that fact may become a part of your credit record.
This notice is not the contract that makes you liable for the
debt.
AVISO PARA EL FIADOR (Spanish Translation Required By Law)
Se le esta pidiendo que garantice esta deuda. Pienselo con
cuidado antes de ponerse de acuerdo. Si la persona que ha pedido
este prestamo no paga la deuda, usted tendra que pagarla. Este
seguro de que usted podra pagar si sea obligado a pagarla y de que
usted desea aceptar la responsabilidad.
Si la persona que ha pedido el prestamo no paga la deuda, es
posible que usted tenga que pagar la suma total de la deuda, mas los
cargos por tardarse en el pago o el costo de cobranza, lo cual
aumenta el total de esta suma.
El acreedor (financiero) puede cobrarle a usted sin, primeramente,
tratar de cobrarle al deudor. Los mismos metodos de cobranza que
pueden usarse contra el deudor, podran usarse contra usted, tales
como presentar una demanda en corte, quitar parte de su sueldo, etc.
Si alguna vez no se cumpla con la obligacion de pagar esta deuda, se
puede incluir esa informacion en la historia de credito de usted.
Este aviso no es el contrato mismo en que se le echa a usted la
responsabilidad de la deuda.
(b) Whenever notice is required to be given under subdivision (a)
or (d) and the consumer credit contract is written in a language
other than English or Spanish, the creditor shall deliver the notice
as required in subdivision (a) or (d) in English and, in addition to
or in lieu of Spanish, in the language in which the consumer contract
is written.
(c) The requirements of subdivisions (a) and (b) do not apply to a
creditor offering or extending open-end credit, as defined in
Regulation Z, to joint applicants if all of the following conditions
are satisfied:
(1) The application or agreement signed by each applicant clearly
and conspicuously discloses that after credit approval each applicant
shall have the right to use the open-end credit plan to the extent
of any limit set by the creditor and may be liable for all amounts
extended under the plan to any joint applicant.
(2) After credit approval, the creditor issues for the use of each
applicant any credit device such as a credit card which may be used
to obtain credit under the open-end credit plan and sends the credit
device to the address specified in the application or otherwise
delivers the credit device in a manner specified in the application
or agreement signed by each applicant.
This paragraph does not apply to a creditor who does not issue a
credit card or other credit device in order to obtain credit under
the creditor's open-end credit plan.
(d) Unless the persons are married to each other, a lessor under a
lease shall deliver to each person who does not in fact receive the
vehicle which is the subject of the lease contract, prior to that
person becoming liable on the lease contract, the following notice in
English and Spanish in at least 10-point type in lieu of the notice
required by subdivision (a):
NOTICE TO COSIGNER (Traduccion en Ingles Se Requiere Por La
Ley)
You are being asked to guarantee this lease. Think carefully
before you do. If the lessee doesn't pay, you will have to. Be sure
you can afford to pay if you have to, and that you want to accept
this responsibility.
You may have to pay up to the full amount owed on the lease if the
lessee does not pay. You may also have to pay late fees or other
collection costs, which increase this amount.
The lessor can collect on the lease from you without first trying
to collect from the lessee. The lessor can use the same collection
methods against you that can be used against the lessee, such as
suing you, garnishing your wages, etc. If this lease is ever in
default, that fact may become part of your credit record.
This notice is not the contract that makes you liable for the
lease obligation.
AVISO PARA EL FIADOR (Spanish Translation Required By Law)
Se le esta piediendo que garantice este arrendamiento. Pienselo
con cuidado antes de ponerse de acuerdo. Si el arrendatario no paga,
usted tendra que pagar. Este seguro de que usted podra pagar si sea
obligado a pagar y de que usted desea aceptar la responsabilidad.
Si el arrendatario no paga, es posible que usted tenga que pagar
la suma total debida en el contrato de arrendamiento, mas los cargos
por tardarse en el pago o el costo de cobranza, los cuales aumentan
el total de esta suma.
La compania arrendadora puede cobrarle a usted por la suma debida
en el arrendamiento, sin, primeramente, tratar de cobrarle al
arrendatario. Los mismos metodos de cobranza que pueden usarse
contra el arrendatario, podran usarse contra usted, tales como
presentar una demanda en corte, quitar parte de su sueldo, etc. Si
alguna vez no se cumpla con la obligacion del arrendamiento, se puede
incluir esa informacion en la historia de credito de usted.
Este aviso no es el contrato mismo en que se le echa a usted la
responsabilidad del arrendamiento.
(e) "Regulation Z" has the meaning set forth in Section 1802.18.
(f) The word "your" in the last sentence of the third paragraph of
the notice in English set forth in subdivisions (a) and (d) shall be
italicized.
SEC. 3. Section 2985.7 of the Civil Code is amended to read:
2985.7. (a) "Motor vehicle" means any vehicle required to be
registered under the Vehicle Code. Motor vehicle does not include
any trailer which is sold in conjunction with a vessel.
(b) "Lessor" includes "bailor" and is a person who is engaged in
the business of leasing, offering to lease or arranging the lease of
a motor vehicle under a lease contract.
For the purpose of this subdivision, "person" means an individual,
partnership, corporation, limited liability company, estate, trust,
cooperative, association or any other legal entity.
(c) "Lessee" includes "bailee" and is a natural person who leases,
offers to lease or is offered the lease of a motor vehicle under a
lease contract.
(d) "Lease contract" means any contract for or in contemplation of
the lease or bailment for the use of a motor vehicle, and the
purchase of services incidental thereto, by a natural person for a
term exceeding four months, primarily for personal, family or
household purposes, whether or not it is agreed that the lessee bear
the risk of the motor vehicle's depreciation. Lease contract does
not include a lease for agricultural, business or commercial
purposes, or to a government or governmental agency or
instrumentality.
(e) "Regulation M" means any rule, regulation, or interpretation
promulgated by the Board of Governors of the Federal Reserve System
under the federal Consumer Leasing Act (15 U.S.C. Secs. 1667-1667e),
and any interpretation or approval issued by an official or employee
of the Federal Reserve System duly authorized by the board to issue
such interpretations or approvals.
(f) "Constant yield method" means the following:
(1) In the case of a periodic payment lease, the method of
determining the rent charge portion of each base payment in which the
rent charge for each computational period is earned in advance by
multiplying the constant rate implicit in the lease contract times
the balance subject to rent charge as it declines during the
scheduled lease term. At any time during the scheduled term of a
periodic payment lease, the balance subject to rent charge is the
difference between the adjusted capitalized cost and the sum of (A)
all depreciation and other amortized amounts accrued during the
preceding computational periods and (B) the first base periodic
payment.
(2) In the case of a single payment lease, the method of
determining the periodic earning of rent charges in which the rent
charge for each computational period is earned in advance by
multiplying the constant rate implicit in the lease contract times
the balance subject to rent charge as it increases during the
scheduled lease term. At any time during the scheduled term of a
single payment lease, the balance subject to rent charge is
determined by subtracting from the residual value the total rent
charge scheduled to be earned over the term of the lease contract and
adding to the difference all rent charges accrued during the
preceding computational periods.
(3) Periodic rent charge calculations are based on the assumption
that the lessor will receive the lease payments on their exact due
dates and that the lease does not end before its scheduled
termination date.
SEC. 4. Section 2985.71 of the Civil Code is repealed.
SEC. 5. Section 2985.71 is added to the Civil Code, to read:
2985.71. (a) Any solicitation to enter into a lease contract that
includes any of the following items shall contain the disclosures
described in subdivision (b):
(1) The amount of any payment.
(2) A statement of any capitalized cost reduction or other payment
required prior to or at consummation or by delivery, if delivery
occurs after consummation.
(3) A statement that no capitalized cost reduction or other
payment is required prior to or at consummation or by delivery, if
delivery occurs after consummation.
(b) A solicitation to enter into a lease contract that includes
any item listed in subdivision (a) shall also clearly and
conspicuously state all of the following items:
(1) All of the disclosures prescribed by Regulation M set forth in
the manner required or permitted by Regulation M, whether or not
Regulation M applies to the transaction.
(2) The mileage limit after which mileage charges may accrue and
the charge per mile for mileage in excess of the stated mileage
limit.
(3) The statement "Plus tax and license" or a substantially
similar statement, if amounts due for use tax, license fees, and
registration fees are not included in the payments.
(c) No solicitation to aid, promote, or assist directly or
indirectly any lease contract may state that a specific lease of any
motor vehicle at specific amounts or terms is available unless the
lessor usually and customarily leases or will lease that motor
vehicle at those amounts or terms.
(d) A failure to comply with the provisions of this section shall
not affect the validity of the leasing contract. No owner or
employee of any entity, other than the lessor, that serves as a
medium in which a lease solicitation appears or through which a lease
solicitation is disseminated, shall be liable under this section.
SEC. 6. Section 2985.8 of the Civil Code is repealed.
SEC. 7. Section 2985.8 is added to the Civil Code, to read:
2985.8. (a) Every lease contract shall be in writing and the
print portion of the contract shall be printed in at least
eight-point type and shall contain in a single document all of the
agreements of the lessor and lessee with respect to the obligations
of each party.
(b) At the top of the lease contract, a title which contains the
words "LEASE CONTRACT" or "LEASE AGREEMENT" shall appear in at least
12-point bold type.
(c) Every lease contract shall disclose all of the following:
(1) All of the information prescribed by Regulation M set forth in
the manner required or permitted by Regulation M, whether or not
Regulation M applies to the transaction.
(2) A separate statement labeled "Itemization of Gross Capitalized
Cost" that shall appear immediately following or directly adjacent
to the disclosures required to be segregated by Regulation M. The
Itemization of Gross Capitalized Cost shall include all of the
following and shall be circumscribed by a line:
(A) The agreed-upon value of the vehicle.
(B) The aggregate amount of premiums agreed to be included for
policies of insurance.
(C) The aggregate amount charged for service contracts.
(D) Any outstanding prior credit or lease balance.
(E) An itemization by type and amount of other items included in
the "gross capitalized cost" disclosed pursuant to Regulation M.
(3) The vehicle identification number of the leased vehicle.
(4) A brief description of any trade-in vehicle and the
agreed-upon value thereof if the amount due at lease signing or
delivery is paid with a net trade-in allowance or the "Itemization of
Gross Capitalized Cost" includes any outstanding prior credit or
lease balance from the trade-in vehicle.
(5) The fee, if any, to be retained by the lessor for document
preparation, which fee shall not exceed forty-five dollars ($45) and
shall not be represented as a governmental fee.
(d) Every lease contract shall contain, in at least eight-point
bold type, above the space provided for the lessee's signature and
circumscribed by a line, the following notice: "(1) Do not sign this
lease before you read it or if it contains any blank spaces to be
filled in; (2) You are entitled to a completely filled in copy of
this lease; (3) Warning--Unless a charge is included in this lease
for public liability or property damage insurance, payment for that
coverage is not provided by this lease."
(e) Every lease contract shall contain, in at least eight-point
bold type, on the first page of the contract and circumscribed by a
line, the following notice:
"THERE IS NO COOLING OFF PERIOD
California law does not provide for a "cooling off" or other
cancellation period for vehicle leases. Therefore, you cannot later
cancel this lease simply because you change your mind, decided the
vehicle costs too much, or wish you had acquired a different vehicle.
You may cancel this lease only with the agreement of the lessor or
for legal cause, such as fraud."
(f) Every lease contract shall contain, in at least eight-point
bold type, the following notice: "You have the right to return the
vehicle, and receive a refund of any payments made if the credit
application is not approved, unless nonapproval results from an
incomplete application or from incorrect information provided by you."
(g) The lease contract shall be signed by the lessor and lessee,
or their authorized representatives, and an exact copy of the fully
executed lease contract shall be provided to the lessee at the time
of signing.
(h) No motor vehicle shall be delivered under a lease contract
subject to this chapter until the lessor provides to the lessee a
fully executed copy of the lease contract.
(i) The lessor shall not obtain the signature of the lessee to a
contract when it contains blank spaces to be filled in after it has
been signed.
(j) If the lease contract contains a provision that holds the
lessee liable for the difference between (1) the adjusted capitalized
cost disclosed in the lease contract reduced by the amounts
described in subparagraph (A) of paragraph (5) of subdivision (b) of
Section 2987 and (2) the settlement proceeds of the lessee's required
insurance and deductible in the event of theft or damage to the
vehicle that results in a total loss, the lease contract shall
contain the following notice in at least eight-point boldface type on
the first page of the contract:
"GAP LIABILITY NOTICE
In the event of theft or damage to the vehicle that results in a
total loss, there may be a GAP between the amount due upon early
termination and the proceeds of your insurance settlement and
deductible. THIS LEASE PROVIDES THAT YOU ARE LIABLE FOR THE GAP
AMOUNT. Optional coverage for the GAP amount may be offered for an
additional price."
(k) This section shall become mandatory with respect to lease
contracts entered into on and after March 1, 1998. However, with
respect to lease contracts entered into prior to March 1, 1998, a
person who complies with this section shall be deemed to have
complied with Section 2985.8 as added by Chapter 1284 of the Statutes
of 1976.
SEC. 8. Section 2986.2 of the Civil Code is repealed.
SEC. 9. Section 2986.3 of the Civil Code is amended to read:
2986.3. No lease contract shall contain any provision by which:
(a) A power of attorney is given to confess judgment in this
state, or an assignment of wages is given; provided that nothing
herein contained shall prohibit the giving of an assignment of wages
contained in a separate instrument pursuant to Section 300 of the
Labor Code.
(b) The lessee waives any right of action against the lessor or
holder of the contract or other person acting on his or her behalf
for any illegal act committed in the collection of payments under the
contract or in the repossession of the motor vehicle.
(c) The lessee relieves the lessor from liability for any legal
remedies which the lessee may have against the lessor under the
contract or any separate instruments executed in connection
therewith.
(d) The lessor or holder of the contract is given the right to
commence action on a contract under the provisions of this chapter in
a county other than the county in which the contract was in fact
signed by the lessee, the county in which the lessee resides at the
commencement of the action, the county in which the lessee resided at
the time the contract was entered into or in the county in which the
motor vehicle leased pursuant to such contract is permanently
garaged.
SEC. 10. Section 2986.4 of the Civil Code is amended to read:
2986.4. Any acknowledgment by the lessee of delivery of a copy of
a lease contract or purchase order and any vehicle lease proposal
and any credit statement which the lessor has required or requested
the lessee to sign, and which the lessee has signed, during the
contract negotiations, shall be printed or written in size equal to
at least 10-point bold type and, if contained in the contract, shall
appear directly above the space reserved for the lessee's signature.
The lessee's written acknowledgment, conforming to the requirements
of this section, of delivery of a completely filled in copy of the
contract, and a copy of such other documents shall be a rebuttable
presumption of delivery in any action or proceeding by or against a
third party without knowledge to the contrary when he or she acquired
his or her interest in the contract. If such third party furnishes
the lessee a copy of such documents, or a notice containing items set
forth in subdivision (c) of Section 2985.8, and stating that the
lessee shall notify such third party in writing within 30 days if he
or she was not furnished a copy of such documents, and no such
notification is given, it shall be conclusively presumed in favor of
such a third party that copies of the documents were furnished as
required by this chapter.
SEC. 11. Section 2986.13 of the Civil Code is amended to read:
2986.13. (a) Any payment made by a lessee to a lessor pending the
execution of a lease contract shall be refunded to the lessee in the
event the lease contract is not executed.
(b) In the event of breach by the lessor of a lease contract where
the lessee leaves his or her motor vehicle with the lessor as a
trade-in downpayment and the motor vehicle is not returned by the
lessor to the lessee for whatever reason, the lessee may recover from
the lessor either the fair market value of the motor vehicle left as
a downpayment or its value as stated in the lease contract,
whichever is greater. The recovery shall be tendered to the lessee
within five business days after the breach.
(c) The remedies of the buyer provided for in subdivision (b) are
nonexclusive and cumulative and shall not preclude the lessee from
pursuing any other remedy which he or she may have under any other
provision of law.
SEC. 12. Section 2987 is added to the Civil Code, to read:
2987. (a) A lessee has the right to terminate a lease contract at
any time prior to the scheduled expiration date specified in the
lease contract. Except as provided in subdivision (f), all of the
following subdivisions of this section apply in the event of an early
termination.
(b) The lessee's liability shall not exceed the sum of the
following:
(1) All unpaid periodic lease payments that have accrued up to the
date of termination.
(2) All other amounts due and unpaid by the lessee under the lease
contract, other than excess wear and mileage charges and unpaid
periodic lease payments.
(3) Any charges, however denominated, that the lessor or holder of
the lease contract may assess in connection with termination not to
exceed in the aggregate the amount of a reasonable disposition fee,
if any, disclosed in the lease contract and assessed upon termination
of the lease contract.
(4) In the event of the lessee's default, reasonable fees paid by
the lessor or holder for reconditioning of the leased vehicle and
reasonable and necessary fees paid by the lessor or holder, if any,
in connection with the repossession and storage of the leased
vehicle.
(5) The difference, if any, between the adjusted capitalized cost
disclosed in the lease contract and the sum of (A) all depreciation
and other amortized amounts accrued through the date of early
termination, calculated in accordance with the constant yield or
other generally accepted actuarial method, and (B) the realized value
of the vehicle as provided in subdivision (c).
(c) Subject to subdivision (d), the realized value of the vehicle
used to calculate the lessee's liability under paragraph (5) of
subdivision (b) shall be (1) if the lessee maintains insurance on the
leased vehicle as required in the lease contract and the vehicle is
a total loss as a result of theft or damage, the amount of any
applicable insurance deductible owed by the lessee and the proceeds
of the settlement of the insurance claim, unless a higher amount is
agreed to by the holder of the lease contract, (2) if the lessee
elects to have an appraisal conducted as provided in Regulation M,
the value determined on appraisal, (3) if the holder of the lease
contract or lessor elects to retain ownership of the vehicle for use
or to lease to a subsequent lessee, the wholesale value of the
vehicle as specified in the current edition of a recognized used
vehicle value guide customarily used by California motor vehicle
dealers to value vehicles in this state, including, but not limited
to, the Kelley Blue Book Auto Market Report and the N.A.D.A. Official
Used Car Guide, or (4) under all other circumstances, the higher of
(A) the price paid for the vehicle upon disposition, or (B) any other
amount established by the lessor or the lease contract.
(d) (1) The lessor or holder of the lease contract shall act in
good faith and in a commercially reasonable manner in connection with
the disposition of the vehicle.
(2) In addition to the requirements of paragraph (1), any
disposition of the vehicle shall be preceded by a notice complying
with both of the following:
(A) The notice shall be in writing and given by the holder of the
contract to each lessee and guarantor at least 10 days in advance of
any disposition or the date by which the value of the vehicle will be
determined pursuant to paragraph (3) of subdivision (c). The notice
shall be personally served or shall be sent by certified mail,
return receipt requested, or first-class mail, postage prepaid,
directed to the last known address of each lessee and guarantor. One
notice is sufficient if those persons are married to each other and
the most recent records of the holder of the lease contract indicate
that they reside at the same address. The last known address of each
lessee and guarantor shall be presumed to be the address stated in
the lease contract or guaranty for each lessee and guarantor unless
the lessee or guarantor notifies the holder of the lease contract of
a change of address.
(B) The notice shall set forth (i) the time and place of any
public sale, the time on or after which a private sale or other
intended disposition is to be made, or the date by which the value of
the vehicle will be determined pursuant to paragraph (3) of
subdivision (c), (ii) an itemization of all amounts claimed under
paragraphs (1) to (4),
inclusive, of subdivision (b), (iii) the amount of the difference
between the adjusted capitalized cost and the sum of all depreciation
and other amortized amounts paid through the date of early
termination as provided in paragraph (5) of subdivision (b), (iv) the
total of these amounts identified as the "Gross Early Termination
Amount," and (v) one of the following statements, whichever is
applicable:
(To be inserted when the realized value will be determined
pursuant to paragraph (3) of subdivision (c))
"The amount you owe for early termination will be no more than the
difference between the Gross Early Termination Amount stated above
and (1) the appraised value of the vehicle or (2) if there is no
appraisal, the wholesale value specified in a recognized used vehicle
value guide.
You have the right to get a professional appraisal to establish
the value of the vehicle for the purpose of figuring how much you owe
on the lease. If you want an appraisal, you will have to arrange
for it to be completed at least three days before the scheduled
valuation date. The appraiser has to be an independent person
acceptable to the holder of the lease. You will have to pay for the
appraiser. The appraised value will be considered final and binding
on you and the holder of the lease."
(To be inserted in all other circumstances)
"The amount you owe for early termination will be no more than the
difference between the Gross Early Termination Amount stated above
and (1) the appraised value of the vehicle or (2) if there is no
appraisal, either the price received for the vehicle upon disposition
or a greater amount established by the lessor or the lease contract.
You have the right to get a professional appraisal to establish
the value of the vehicle for the purpose of figuring how much you owe
on the lease. If you want an appraisal, you will have to arrange
for it to be completed at least three days before the scheduled sale
date of the vehicle. The appraiser has to be an independent person
acceptable to the holder of the lease. You will have to pay for the
appraiser. The appraised value will be considered final and binding
on you and the holder of the lease."
(3) The lessee shall have no liability under subdivision (b) if
the lessor or holder of the lease contract does not comply with this
subdivision. This paragraph does not apply under all the following
conditions:
(A) Noncompliance was the result of a bona fide error in stating
an amount required to be disclosed pursuant to clause (ii), (iii), or
(iv) of subparagraph (B) of paragraph (2).
(B) The holder of the lease gives the lessee written notice of the
error within 30 days after discovering the error and before (i) an
action is filed to recover the amount claimed to be owed or (ii)
written notice of the error is received by the holder of the lease
from the lessee.
(C) The lessee is liable for the lesser of the originally claimed
amount or the correct amount.
(D) The holder of the lease refunds any amount collected in excess
of the amount described in subparagraph (C) within 10 days after
notice of the error is given. "Bona fide error," as used in this
paragraph, means an error that was not intentional and occurred
notwithstanding the maintenance of procedures reasonably adapted to
avoid that error. Examples of a bona fide error include clerical
errors, calculation errors, errors due to unintentionally improper
computer programming or data entry, and printing errors, but does not
include an error of legal judgment with respect to a lessor's or
lease contractholder's obligations under this section.
(4) This subdivision does not apply when the lessee maintains
insurance on the leased vehicle as required in the lease contract and
the vehicle is declared a total loss by the insurer as a result of
theft or damage.
(e) The lessor or holder of the lease contract shall credit any
security deposit or advance rental payment held by the lessor or
holder of the lease contract against the lessee's liability under the
lease contract as limited by this section. The portion of a
security deposit or advance rental payment, if any, remaining after
the lessee's liability under the lease contract as limited by this
section has been satisfied shall be returned to the lessee within 30
days of the satisfaction of the obligation.
(f) Subdivisions (b) to (d), inclusive, do not apply if, prior to
the scheduled expiration date specified in the lease contract, the
lessee terminates the lease and purchases the vehicle or trades in
the vehicle in connection with the purchase or lease of another
vehicle. In such an event, the selling price of the leased vehicle,
exclusive of taxes and other charges incidental to the sale, shall
not exceed the sum of the following and shall relieve the lessee of
any further liability under the lease contract:
(1) All unpaid periodic lease payments that have accrued up to the
date of termination.
(2) All other amounts due and unpaid by the lessee under the lease
contract, other than excess wear and mileage charges and unpaid
periodic lease payments.
(3) Any charges, however denominated, that the lessor or holder of
the lease contract may assess in connection with termination of the
lease contract and the acquisition of the vehicle, not to exceed in
the aggregate the amount of a reasonable purchase option fee, if any,
disclosed in the lease contract and assessed upon the scheduled
termination of the lease contract.
(4) The adjusted capitalized cost disclosed in the lease contract
less all depreciation and other amortized amounts accrued through the
date of early termination, calculated in accordance with the
constant yield or other generally accepted actuarial method.
(g) If the lessee terminates a lease contract, voluntarily returns
possession of the vehicle to the lessor, and timely pays all sums
required under the lease contract as limited by this section, the
lessor or holder shall not provide any adverse information concerning
the early termination to any consumer credit reporting agency.
(h) The Rule of 78 shall not be used to calculate accrued rent
charges.
(i) This section shall only apply to lease contracts entered into
on and after January 1, 1998.
SEC. 13. Section 2989.2 of the Civil Code is amended to read:
2989.2. Where the lessee is to bear the risk of the motor vehicle'
s depreciation upon the scheduled expiration of the lease contract,
the following applies:
(a) When disposing of a vehicle or obtaining cash bids for the
purpose of setting the fair market value of a vehicle, the lessor
shall act in a commercially reasonable manner in the customary market
for such vehicle.
(b) Any provision in a lease contract to the contrary
notwithstanding, at least 10 days written notice of intent to sell
such motor vehicle shall be given by the holder of the contract to
each lessee and guarantor, unless the lessor and lessee have agreed
in writing to the amount of the lessee's liability under the lease
contract after the lessee returns the motor vehicle to the lessor, or
the lessee has satisfied the lease contract obligations by payment
to the lessor. The notice shall be personally served or shall be
sent by certified mail, return receipt requested, directed to the
address of the lessee shown on the contract, unless the lessee has
notified the holder in writing of a different address. The notice
shall set forth separately any charges or sums due and state that the
lessee will be liable for the difference between the amount of
liability imposed on the lessee at the expiration of the lease term
and the actual cash value of the motor vehicle when it is sold. The
notice shall also state that the lessee has the right to submit a
cash bid for the purchase of the vehicle.
SEC. 14. Section 6 of this act shall become operative on March 1,
1998.
SEC. 15. No reimbursement is required by this act pursuant to
Section 6 of Article XIIIB of 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, within the meaning of Section 17556 of the Government
Code, or changes the definition of a crime within the meaning of
Section 6 of Article XIIIB of the California Constitution.
Notwithstanding Section 17580 of the Government Code, unless
otherwise specified, the provisions of this act shall become
operative on the same date that the act takes effect pursuant to the
California Constitution.