BILL ANALYSIS
SB 95
Page A
Date of Hearing: June 30, 2009
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
SB 95 (Corbett) - As Amended: May 28, 2009
As Proposed to be Amended
SENATE VOTE : 21-17
SUBJECT : California Car Buyers' Protection Act of 2009
KEY ISSUE : SHOULD CONSUMERS RECEIVE BETTER PROTECTION AGAINST
UNSCRUPULOUS AUTO DEALERS WHO FAIL TO SATISFY OUTSTANDING LIENS
ON TRADE-IN VEHICLES?
FISCAL EFFECT : As currently in print this bill is keyed fiscal.
SYNOPSIS
This bill is designed to improve consumer protection when
dealers receive trade-in vehicles. According to the sponsor,
Consumers for Auto Reliability and Safety (CARS), unscrupulous
dealers have increasingly failed to satisfy the outstanding loan
on trade-in vehicles, making consumers responsible for loan on
the traded-in vehicle, in addition to the new car loan. Many of
these dealers apparently have or are about to go out of
business, leaving consumers with little recourse. As proposed
to be amended, the bill reflects consensus reached between
supporters and the new car dealers association, which had
previously been opposed to the bill. The proposed amendments
provide a means by which dealers must pay the prior credit or
lease balance owing on the vehicle or tender the amount
necessary to discharge the prior credit or lease balance within
21 calendar days. Dealers would be prohibited from selling or
transferring any ownership interest in the vehicle until they
have complied with this obligation. As proposed to be amended,
it is believed that all opposition has been removed.
SUMMARY : Enacts the California Car Buyer' Protection Act of
2009. Specifically, this bill :
1)Increases the fee for a license issued to dealers and
lessor-retailers by $25 for the original license, or an
ownership change which requires a new application and for the
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annual renewal of a license, and the fee for an autobroker's
endorsement to a dealer's license and annual renewals by $50.
2)Provide that it is the intent of the Legislature by increasing
the fee for the annual renewal of the license of a dealer and
of a lessor-retailer by $25 that $40 of the total fee shall,
when appropriated, be utilized by the Department of Motor
Vehicles for the investigation of those dealers and
lessor-retailers who demonstrate the greatest potential for
causing losses to consumers as shown by repeated consumer
complaints, habitual violations of the requirements of their
licenses, the issuance of a probationary license by the
department, or a violation of other standards and criteria
established by the department for these purposes.
3)Provides that when a dealer purchases or obtains a vehicle in
trade in a retail sale or lease transaction and the vehicle is
subject to a prior credit or lease balance, all of the
following apply:
a) If the dealer agreed to pay a specified amount on the
prior credit or lease balance owing on the vehicle
purchased or obtained in trade, and the agreement to pay
the specified amount is contained in a written agreement
documenting the transaction, the dealer shall tender the
agreed upon amount as provided in the written agreement to
the lessor registered in accordance with Section 4453.5, or
to the legal owner reflected on the ownership certificate,
or to the designee of that lessor or legal owner of the
vehicle purchased or obtained in trade within 21 calendar
days of purchasing or obtaining the vehicle in trade. This
time period may be shortened if the dealer and consumer
agree, in writing, to a shorter time period.
b) If the dealer did not set forth an agreement regarding
payment of a prior credit or lease balance owed on the
vehicle purchased or obtained in trade, in a written
agreement documenting the transaction, the dealer shall
tender to the lessor registered in accordance with Section
4453.5, or to the legal owner reflected on the ownership
certificate, or to the designee of that lessor or legal
owner of the vehicle purchased or obtained in trade, an
amount necessary to discharge the prior credit or lease
balance owing on the vehicle purchased or obtained in trade
within 21 calendar days of purchasing or obtaining the
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vehicle in trade. This time period may be shortened if the
dealer and consumer agree, in writing, to a shorter time
period.
c) A dealer shall not sell, consign for sale, or transfer
any ownership interest in the vehicle purchased or obtained
in trade until an amount necessary to discharge the prior
credit or lease balance owing on the vehicle has been
tendered to the lessor registered in accordance with
Section 4453.5, or to the legal owner reflected on the
ownership certificate, or to the designee of that lessor or
legal owner of the vehicle purchased or obtained in trade.
4)Provides that a dealer does not violate the foregoing section
if the dealer reasonably and in good faith gives notice of
rescission of the contract promptly, but no later than 21 days
after the date on which the vehicle was purchased or obtained
in trade, and the contract is thereafter rescinded on any of
the grounds in Section 1689 of the Civil Code.
EXISTING LAW :
1)Provides that before any dealer's or remanufacturer's license
is issued or renewed by the DMV to any applicant, the
applicant must procure and file with the DMV a bond executed
by an admitted surety insurer, approved as to form by the
Attorney General, and with the condition that the applicant is
prohibited from practicing any fraud or making any fraudulent
representation that would cause a monetary loss to a
purchaser, seller, financing agency, or governmental agency.
(Vehicle Code (VC) section 11710(a).)
2)Provides that a dealer's bond must be in the amount of
$50,000, except the bond of a dealer exclusively in
motorcycles or all-terrain vehicles must be in the amount of
$10,000. Before the license is renewed by the DMV, the
dealer, other than a dealer who deals exclusively in
motorcycles or all terrain vehicles, is required to procure
and file a bond in the amount of $50,000. A remanufacturer
bond must also be in the amount of $50,000. (VC section
11710(b).)
3)Provides that, if any person (1) suffers any loss or damage by
reason of any fraud practiced on him by a licensed dealer or
one of the dealer's salesmen acting for the dealer, in his
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behalf, or within the scope of employment of such salesman and
such person has possession of a written instrument furnished
by the licensee, containing stipulated provisions and
guarantees which the person believes have been violated by the
licensee, or (2) suffers any loss or damage by reason of the
violation of any of the registration provisions of this code,
or (3) is not paid for a vehicle sold to and purchased by a
licensee, than any such person has a right of action against
such dealer, his salesman, and the surety upon the dealer's
bond, in an amount not to exceed the value of the vehicle
purchased from or sold to the dealer. (VC section 11711.)
4)Provides that claims, against the surety upon a dealer's bond,
of a financing agency that has loaned money to a licensee are
allowed only to the extent that the claims of any other person
or entity with respect to the bond have been satisfied first.
Such claims are entitled to preference over the claims of the
financing agency. However, as to any conditional sales
contract, as defined, acquired by way of purchase or pledge, a
financing agency is entitled to protection under the bond with
the same preference as other persons if the financing agency
has been defrauded by a licensee. (VC section 11722.)
5)Provides pursuant to the Consumer Legal Remedies Act, the
CLRA, that 24 specified unfair methods of competition and
unfair or deceptive acts or practices undertaken by a person
in a transaction intended to result or that results in the
sale or lease of goods or services to a consumer are unlawful.
(Civil Code (CC) section 1770.)
COMMENTS : According to the author, this bill is intended to
require dealers to pay-off car liens before trading or selling
the vehicles so consumers are not stuck with two car payments.
As proposed to be amended, the bill would require a dealer to
payoff a lien before it sells or trades the vehicle, and do so
within 21 days. In addition, the bill increases funding for DMV
investigators by a small increase in the dealer license fee.
The author explains the need for the bill as follows:
Consumers are losing confidence in the automotive
marketplace. They are unable to tell in advance whether a
dealer is solvent or about to close its doors, posing
unacceptable risks and causing a ripple effect throughout
our economy. SB 95 is a comprehensive solution that will
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require dealers to pay outstanding liens on traded-in
vehicles before they trade or sell the vehicle to ensure
the consumer is protected.
In 2008, 120 new-car dealerships and over 416 used car
dealerships went out of business in California. Industry
analysts have predicted that at least 500 new car dealers
will close their doors in California this year. Hundreds
more independent dealers will close their doors. This is
eroding consumer confidence, which is vital for restoring
auto sales.
As dealerships close their doors, they are leaving
consumers with unpaid liens on vehicles they traded-in, as
well as a second loan on the newer vehicle they purchased
at the dealership. Too often the consequence is
destruction of consumer credit, repossession of the
vehicles, job losses due to the lack of transportation to
get to work, and consumers being forced into bankruptcy.
The DMV reports that the number of consumer complaints
involving a dealer's failure to pay off a trade-in has
risen significantly from prior years. As of the end of
February 2009, the DMV states that it is investigating 256
active cases where a dealer has failed to pay off a
consumer's trade-in and 564 additional consumer complaints
that the consumer had not yet received verification that
title to a vehicle bought from or sold to a dealer had been
transferred.
The sponsor, Consumers for Auto Reliability and Safety (CARS),
writes:
When dealerships go out of business they not only fail to
pay off liens, but also fail to honor warranties, service
contracts, and other services for which car buyers have
paid in advance, costing car buyers millions of dollars and
eroding consumer confidence. While SB 729 last year
created a fund to help consumers whose lives are destroyed
by these irresponsible car dealers, SB 729 did not address
the problem. Dealers still can sell vehicles without
paying off the title.
In 2008, 120 new-car dealerships and over 416 used car
dealerships went out of business in California. Industry
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analysts predict that even more dealerships will go out of
business in 2009. As dealerships close their doors, they
are leaving consumers with unpaid liens on vehicles they
traded-in, as well as a second loan on the newer vehicle
they purchased at the dealership. Too often the
consequence is destruction of consumer credit, repossession
of the vehicles, job losses due to the lack of
transportation to get to work, and bankruptcy.
This Bill Responds To Increased Consumer Complaints. According
to supporters, the DMV reports that the number of consumer
complaints involving a dealer's failure to pay off a trade-in
has risen significantly from prior years. As of the end of
February 2009, the DMV states that it is investigating 256
active cases where a dealer has failed to pay off a consumer's
trade-in and 564 additional consumer complaints that the
consumer had not yet received verification that title to a
vehicle bought from or sold to a dealer had been transferred.
CARS describes the problems as follows:
The stark reality in California is that many more
dealerships are going to go out of business this year and
for the foreseeable future. The challenge we face is to
prevent the collateral damage to thousands of consumers
that is causing enormous hardship to victims and their
families, shrinking the auto market, and eroding consumer
confidence at a time when our economic recovery depends in
large part upon consumers being willing to buy cars again.
As reported by the Associated Press, San Francisco
Chronicle, KOVR-TV, Los Angeles Times, KCRA-TV, KXTV,
KGO-TV, New York Times, and other news organizations, many
car buyers are falling victim to auto dealers who engage in
illegal activity prior to closing their doors.
According to the auto industry trade publication Automotive
News, "Peter Welch, president of the California Motor Car
Dealers Association... said California lost 116 [new car]
dealerships in the first 11 months of 2008...He believes
closures will total 150 [new car dealerships] by year end
and predicts as many as 500 closings in 2009."
According to a chart California's Department of Motor
Vehicles provided to the news media, more than 416
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independent used car dealers also went out of business
during the first 11 months of 2008. Some of the
individuals associated with those dealerships then turned
around and re-opened under different names, sometimes at
the same locations.
The dilemma that car buyers face: hundreds of dealerships -
including large franchised dealerships that have been in
business for years - are suddenly closing their doors
without any warning, taking hundreds of their customers
down with them. Existing laws make those acts a violation
of consumer protection statutes and/or criminal statutes.
However, when a dealer is out of business, its victims lack
effective recourse. Criminal sanctions have not proven to
be a sufficient deterrent, and generally fail to provide
restitution or relief to victims. Even the most diligent
prosecutor cannot obtain restitution from a defunct
dealership, where typically many creditors are lined up
seeking to recover their losses.
According to CARS, the existing Consumer Recovery Fund fails to
provide adequate relief:
The Consumer Recovery Fund (CRF) established by SB 729
(Padilla) is inadequately funded to handle the amount of
losses consumers are suffering, severely limits the types
of violations that trigger eligibility for relief, and
cannot restore damaged credit, lost jobs, or undo other
serious harm resulting from dealer insolvencies.
Based on information provided by California District
Attorneys Association (CDAA) to the Judiciary Committee in
support of SB 729, when dealerships go out of business they
sometimes leave many victims holding the bag, resulting in
more than $1 million in losses at a single dealership.
The Consumer Recovery Fund is capped at $5 million per
year, and reportedly has collected only approximately
$721,000 to disburse. Even if it were funded at the
maximum level allowed by law, based on prior history, the
demise of five large new car dealerships could deplete the
entire fund. Meanwhile, hundreds of new car dealerships
are predicted to close this year. The CRF also allows
claims for only a narrow subset of violations, involving
only 1) failures to pay off liens, 2) failures to provide
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clear title, or 3) pocketing the proceeds from consignment
sales.
CARS concludes, "The bottom line: many millions of California
car buyers still remain at risk, including from dealers who fail
to pay off liens. According to a recent Associated Press
report, "About a quarter of all car buyers are vulnerable
because they still owe money on their trade-in or lease when
they buy another vehicle, according to industry tracker
Edmunds.com. It's become more common for a driver to owe money
on a trade-in as people stretch their car payments over six or
seven years to make them more affordable. Dealers' failure to
provide clear title due to unpaid liens also harms subsequent
purchasers, who may make every payment in full and on time, only
to have their vehicle repossessed by the former owner's
lienholder, leaving them with no transportation, no compensation
for their losses, and little recourse. In some cases, dealers
who engage in "car kiting" have caused car buyers to lose their
jobs, and/or forced them into bankruptcy.
Author's Narrowing Amendments. As outlined above, the author
proposes to narrow the bill to remove opposition. The attached
mockup reflects the proposed amendments.
REGISTERED SUPPORT / OPPOSITION :
Support
Consumers for Auto Reliability and Safety (sponsor)
Alameda County District Attorney's Office
American Federation of State, County and Municipal Employees
Congress of California Seniors
California Immigrant Policy Center
California Statewide Law Enforcement Association
California Teamsters Public Affairs Council
Consumer Federation of California
Consumers Union
Consumer Watchdog
California Public Interest Research Group
Consumer Attorneys of California
Los Angeles County District Attorney's Office
Opposition (As Proposed to be Amended)
None on file
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Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334