BILL ANALYSIS �
AB 1877
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Date of Hearing: April 17, 2012
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
AB 1877 (Ma) - As Amended: April 10, 2012
SUBJECT : Repossession agencies: exemptions.
SUMMARY : Exempts a dealer and his or her bona fide employees
from licensure as a repossession agency if they regularly sell
specified collateral that is subject to a security agreement of
the manufacturer or a manufacturer's affiliate. Specifically,
this bill :
1)Exempts a dealer and his or her bona fide employees from
licensure as a repossession agency if they regularly sell
specified collateral that is subject to a security agreement
of the manufacturer or a manufacturer's affiliate. This bill
would apply to those who sell collateral designed for:
a) Agricultural use;
b) Lawn and garden care;
c) Specified special construction equipment; or,
d) Use in the production, generation, storage, or
transmission of mechanical or electric energy
EXISTING LAW :
1)Establishes the Collateral Recovery Act (Act) governing
collateral repossessions by a legal owner, lienholder, lessor
or lessee, or the agent of any of them based on written
authorization and a security agreement.
2)Provides for the licensing and regulation of repossession
agencies by the Bureau of Security and Investigative Services
(BSIS).
3)Defines a "repossession agency" to include any person who
engages in business or accepts employment to locate or recover
collateral, whether voluntarily or involuntarily, which is
subject to a security agreement.
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4)Exempts the following as a repossession agency:
a) Banks under the Commissioner of Financial Institutions
of the State of California or the Comptroller of Currency
of the United States (U.S.);
b) Any person organized, chartered, or holding a license or
authorization certificate to make loan;
c) Attorneys performing their duties;
d) The legal owner of collateral that is subject to a
security agreement or a bona fide employee employed
exclusively and regularly by that legal owner, as
specified;
e) An officer or employee of the U.S. or state government,
or a political subdivision thereof; or,
f) A qualified certificate holder or a registrant when
performing services for, or on behalf of, a licensee.
5)Security agreement" means an obligation, pledge, mortgage,
chattel mortgage, lease agreement, deposit, or lien, given by
a debtor as security for payment or performance of his or her
debt, by furnishing the creditor with a recourse to be used in
case of failure in the principal obligation.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author's office,
"Current law generally requires people/entities to be
licensed as a repossession agency in order to recover
property that is the subject of a security agreement,
pursuant to Sections 7500-7504 of the Business and
Professions (B&P) Code. Banks, and under specific
circumstances auto dealerships and financial lenders, can
send employees to repossess property without having to be
licensed.
"Authorized dealers of agricultural, forestry, construction
and lawn care products would like to maintain good customer
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relations and save costs to both parties when a repossession
situation arises? Third party repossession and hauling fees
also create an additional and unnecessary expense to the
customer, increasing the total amount above and beyond the
original cost of the equipment.
"This bill intends to exempt from repossession licensing
requirements a dealer that has sold product on behalf of a
manufacturer which was then financed by an affiliate company who
has a security interest in the equipment."
Background . The Act (commencing with B&P Code Section 7500)
requires authorized dealers who repossess collateral to hold a
Repossession Agency license issued by BSIS. A repossession
agency is defined as any person paid or employed to locate or
recover collateral, whether voluntarily or involuntarily,
including, but not limited to, collateral registered under the
provisions of a security agreement.
In order to be eligible for licensure as a repossession agency,
the applicant must have at least two years (2,000 hours each
year) of compensated experience totaling not less than 4,000
hours either as a registrant of a licensed repossession agency
in the state during the five years preceding the date
application is filed or experience in recovering personal
property sold under a security agreement within this state. In
addition to meeting experience requirements, applicants must
pass a written examination. Any applicant who worked for a
licensed repossession agency must have been registered as a
repossession agency employee to claim the experience.
Existing law allows legal owners of collateral and their
employees, banks, individuals licensed or authorized to issue
loans, attorneys, government employees, repossession agencies
and their employees, to repossess collateral when enforcing the
terms of a security agreement. A "security agreement" includes
any obligation, pledge, mortgage, chattel mortgage, lease
agreement, deposit, or lien, given by a debtor as security for
payment or performance of his or her debt, by furnishing the
creditor with a recourse, more commonly referred to as
collateral, to be used in case of failure in the principal
obligation. When a debtor defaults on payments for a home,
vehicle, or product, the creditor is authorized to collect and
resell the collateral to defray the loan amount owed by the
debtor. This bill would authorize dealers to repossess
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collateral even though they may have no financial obligation or
entitlement to collect the collateral or to renegotiate any
financial terms and conditions of a loan with the debtor.
Authorized dealers who sell products under an umbrella
organization never own the product they sell, but earn money
based upon sales. With the exception of a cash payment, when an
individual purchases a product, a financial institution or
creditor agrees to finance the transaction for the debtor. This
can appear in the form of a credit card transaction or other
loan. These credit card purchases or loans result in a security
agreement between the debtor and a financial institution, with
the financial institution making an advance payment to the
vendor in exchange for receiving potential interest payments
from the debtor. Once the sales transaction is completed, the
vendor is considered paid in full, and the debtor owes money to
the financial institution, not the vendor. Financial
institutions may utilize collection agencies to recovery money
from debtors who default on their credit card payments.
Under existing law, a creditor may use a collections agency to
recover loan payments in default from customers, and if that is
unsuccessful, a repossession agency will attempt to recover
viable collateral for resale and the proceeds of that will go
towards the outstanding loan amount. While many car dealers
offer financing on site at the dealership, the financing
component is actually covered by a separate subsidiary or
creditor, whose employees can repossess a vehicle. However, it
is common practice for those creditors to hire repossession
agencies to recover those vehicles instead of using its own
employees.
The sponsor contends that this bill would enable authorized
dealers to pick up collateral with lower or no repossession
fees, without delays, and that customers prefer a local dealer
to pick up collateral versus having the stigma of a repossession
company appear at their residence or business. The intent is
to protect and preserve the relationship with the customer in
hopes of doing more equipment sale, parts or service business in
the future.
As laudable as these objectives are, a pre-existing relationship
between an authorized dealer and a customer may present its own
challenges for the dealer in recovering property. This bill
exempts authorized dealers from licensure as a repossession
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agency and from regulation and requirements under the Act,
including criminal background checks, notification to law
enforcement of repossessed collateral, and itemization of
inventory.
Support . According to Deere & Company, "Repossessions represent
a very small portion of a dealer's business. Thanks to the
state's strong agricultural economy, they happen on a relatively
infrequent basis, hence requiring a dealer to become a full-time
repossession agent for this purpose makes no sense. In order to
become licensed, current law would require them to have at least
two years of experience in the field, pay an $825 licensing fee,
submit to fingerprinting, and renew their license every two
years. Further, being licensed would require the dealer to
notify local law enforcement after a product has been recovered,
thereby establishing a negative public record for the poor
customer who is already suffering the embarrassment of having
equipment taken on their property by an unknown third party in
broad daylight. Customers would prefer to work directly with a
dealer because he or she is someone they know, and there is no
social stigma attached to them.
"Third party repossessions and hauling fees create an
additional, and we believe unnecessary, expense to the customer
by increasing the total amount they owe above and beyond the
original cost of the equipment. By exempting dealers from
licensing requirements, they can streamline their business
practices and avoid or reduce these costs. More importantly,
dealers can protect their personal and financial relationship
with a customer in the hope they can do business together again
in the future."
Opposition . According to the California Association of Licensed
Repossessors, "AB 1877 would undermine the licensed repossession
industry created by the Act as administered by the �Department]
of Consumer Affairs, which provides for the licensure of
repossession agencies. The bill, as written, would amend the
definition of a repossession agency by carving out a bona fide
authorized dealer or either the legal owner of collateral that
is subject to a security agreement or an affiliate of that legal
owner. While there may be some instances in which a John Deere
dealer might work with a farmer to arrange a time to repossess a
tractor, this bill would also allow for non-voluntary
repossessions conducted by non-licensed individuals that could
potentially have violent felony convictions who would not pass
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the background check to which all licensed repossessors are
subjected to. This is one of the primary public safeguards
inherent in the Act and is an important reason that licensure is
required in California.
"AB 1877 would exempt agricultural, construction, forestry,
lawn, and grounds care equipment, dealers or an affiliate of the
legal owner, from the current repossession agency licensing
requirements. An affiliate, however, is simply a company that
is related to another company in some way, not necessarily an
employee of John Deere nor licensed and subject to any or all of
the provisions of the Act."
REGISTERED SUPPORT / OPPOSITION :
Support
Deere & Company (co-sponsor)
Far West Equipment Dealers Association (co-sponsor)
California Farm Bureau Federation
Western Growers Association
Opposition
California Association of Licensed Repossessors
Analysis Prepared by : Joanna Gin / B.,P. & C.P. / (916)
319-3301