BILL ANALYSIS �
AB 1877
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 1877 (Ma and Olsen)
As Amended August 21, 2012
Majority vote
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|ASSEMBLY: |70-0 |(May 25, 2012) |SENATE: |35-0 |(August 23, |
| | | | | |2012) |
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Original Committee Reference: B.,P. & C.P.
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, until January 1,
2018. 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.
2)Provides that a violation of this bill, as part of the
Collateral Recovery Act (Act), constitutes a misdemeanor, and
is punishable by a $5,000 fine, by imprisonment in the county
jail for up to a year, or by both fine and imprisonment. In
addition, any tow vehicle used to violate the Act is subject
to removal and impoundment.
3)Sunsets the provisions of this bill on January 1, 2018.
The Senate amendments :
1)Require specified dealers and bona fide employees, in order to
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be exempt from licensure as a repossession agency, to meet the
following requirements:
a) The dealer or the secured party does the following:
i) Maintains adequate records of all repossessions;
ii) Completes a collateral condition report;
iii) Records any odometer or hour meter readings;
and,
iv) Creates records of all transactions pertaining
to the sale of the collateral, including:
(1) Bids solicited and received;
(2) Cash received;
(3) Remittances to the seller; and,
(4) Allocation of any money not remitted to
appropriate ledger accounts.
b) The dealer does the following:
i) Removes and stores any personal effects that
were taken with the collateral for a minimum of 60 days
in a secure manner;
ii) Completes an inventory of the personal effects;
and,
iii) Notes the date that the inventory is taken;
and,
c) The dealer requests written authorization from the
debtor to release personal effects that were taken with the
collateral and are to be released to someone other than the
debtor. The dealer may dispose of personal effects after
storing them for at least 60 days in a secure manner.
2)Prohibit an authorized dealer, bona fide employee, debtor,
lienholder, lessor or lessee, or an agent, directly or
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indirectly, expressed or implied, from instructing, coercing,
or attempting to coerce another person into violating any law,
regulation, or rule regarding the recovery of collateral, the
Act, or existing law relating to the recovery or disposal of
collateral by a secured party. (Commercial Code Section 9609)
EXISTING LAW :
1)Establishes the Act governing collateral repossessions by a
legal owner, lienholder, lessor or lessee, or specified agent
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)Provides that a violation of the Act constitutes a
misdemeanor, and is punishable by a $5,000 fine, by
imprisonment in the county jail for up to a year, or by both
fine and imprisonment. In addition, any tow vehicle used to
violate the Act is subject to removal and impoundment.
4)Exempts the following entities from licensure 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.
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5)Creates the following definitions:
a) "Repossession agency" to include any person who engages
in business or accepts employment to locate or recover
collateral, whether voluntarily or involuntarily, that is
subject to a security agreement; and,
b) "Security agreement" to mean 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 recourse to be used in case of failure in the
principal obligation.
AS PASSED BY THE ASSEMBLY , this bill exempted 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, until January 1, 2018.
FISCAL EFFECT : According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
COMMENTS : The Act requires authorized dealers who repossess
collateral to hold a repossession agency license issued by the
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,
an applicant must have at least two years, or 4,000 hours, of
compensated experience either as a registrant of a licensed
repossession agency within the state during the five years
preceding the date the application is filed, or experience in
recovering personal property sold under a security agreement
within the 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
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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 recourse, 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 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 recover money
from debtors who default on their credit card payments.
Under existing law, a creditor may use a collection 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, with the sale proceeds applied
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
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dealers to pick up collateral with lower or no repossession fees
and without delays. The sponsor further contends 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 selling more
equipment, parts, or services in the future.
The author amended this bill in the Senate to add consumer
protection measures. This bill, as amended in the Senate, is
consistent with Assembly actions.
Analysis Prepared by : Joanna Gin / B.,P. & C.P. / (916)
319-3301
FN: 0005416