Bill Text: CA SB956 | 2011-2012 | Regular Session | Enrolled
Bill Title: Buy-here-pay-here automobile sellers and lenders.
Spectrum: Partisan Bill (Democrat 5-0)
Status: (Vetoed) 2012-09-29 - In Senate. Consideration of Governor's veto pending. [SB956 Detail]
Download: California-2011-SB956-Enrolled.html
BILL NUMBER: SB 956 ENROLLED
BILL TEXT
PASSED THE SENATE AUGUST 30, 2012
PASSED THE ASSEMBLY AUGUST 28, 2012
AMENDED IN ASSEMBLY AUGUST 24, 2012
AMENDED IN ASSEMBLY AUGUST 20, 2012
AMENDED IN ASSEMBLY AUGUST 6, 2012
AMENDED IN ASSEMBLY JUNE 19, 2012
AMENDED IN SENATE MAY 21, 2012
AMENDED IN SENATE MAY 1, 2012
AMENDED IN SENATE APRIL 9, 2012
AMENDED IN SENATE MARCH 26, 2012
INTRODUCED BY Senator Lieu
(Principal coauthor: Assembly Member Feuer)
(Coauthor: Senator Correa)
(Coauthors: Assembly Members Alejo and Wieckowski)
JANUARY 9, 2012
An act to add Chapter 1b (commencing with Section 18500) to
Division 8 of the Business and Professions Code, to amend Section
22054 of the Financial Code, and to add Sections 241 and 241.1 to the
Vehicle Code, relating to automobile sellers and lenders.
LEGISLATIVE COUNSEL'S DIGEST
SB 956, Lieu. Buy-here-pay-here automobile sellers and lenders.
(1) Existing law prohibits a person from acting as a dealer in
vehicles, as specified, without a license issued by the Department of
Motor Vehicles. Existing law governs conditional sale contracts, as
defined, for the purchase of motor vehicles, including the
enforceability of those contracts. Existing law also governs lease
contracts, as defined, for the lease of motor vehicles, including the
enforceability of those contracts. Existing law, the California
Finance Lenders Law, the violation of which is a crime, provides for
the licensure and regulation of finance lenders by the Commissioner
of Corporations, but exempts from its provisions a bona fide
conditional contract of sale involving the disposition of personal
property when that form of agreement is not used for the purpose of
evading provisions of that law.
This bill would enact the Buy-Here-Pay-Here Automobile Dealers
Act. The bill would define a "buy-here-pay-here" dealer as a dealer,
as defined, who enters into conditional sale contracts, as defined,
or lease contracts, as defined, and assigns less than 90% of all
unrescinded contracts to an unaffiliated 3rd-party finance or leasing
source, within 45 days of the consummation of those contracts. The
bill would exclude from this definition automobile sellers who meet
specified requirements. This bill would require those dealers to
obtain a finance lender license and subject them to specified other
provisions of the California Finance Lenders Law. The bill would also
define a "buyer-borrower" as a person who enters into a conditional
sale contract or lease contract with a buy-here-pay-here automobile
dealer. The bill would provide that the Department of Corporations
would have regulatory jurisdiction over the lending and repossessing
activities of buy-here-pay-here automobile dealers, as specified.
This bill would govern the terms and conditions of contracts
entered into by a buy-here-pay-here automobile dealer and the rights
of the parties, including, but not limited to, requiring a notice to
a buyer-borrower of specified rights under the contract.
(2) Existing law, the Collateral Recovery Act, provides for the
licensure and regulation of repossession agencies, as defined, and
their employees by the Bureau of Security and Investigative Services
within the Department of Consumer Affairs.
This bill would impose additional requirements on a
buy-here-pay-here automobile dealer seeking to repossess a vehicle,
including, but not limited to, prohibiting a dealer from commencing
repossession proceedings due to failure to make a scheduled loan
payment prior to the 16th day following the day on which that payment
was due, requiring a dealer to hire a licensed repossession agency
to repossess the vehicle on the dealer's behalf, and prohibiting the
dealer from charging the buyer-borrower a fee exceeding $500 for the
dealer's costs in connection with the repossession. The bill would
also establish a cap on interest rates that could be charged under a
conditional sale or lease contract and require a buy-here-pay-here
automobile dealer to allow a buyer-borrower 45 days to repay any
penalties, fees, and other charges imposed by the dealer on the
buyer-borrower in connection with past due payments that have been
brought current.
(3) The bill would state findings and declarations of the
Legislature with regard to buy-here-pay-here automobile dealers.
(4) Because this bill would expand the scope of a crime, the bill
would create 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. The Legislature finds and declares all of the
following:
(a) A growing number of Californians who need cars to get to work
cannot qualify for conventional automobile loans and have little or
no negotiating leverage when purchasing a vehicle.
(b) Some used-car dealers, known as buy-here-pay-here dealers,
operate a business model under which they stock and sell older,
high-mileage vehicles to consumers who cannot otherwise qualify for
conventional automobile loans. Unlike traditional new and used-car
dealers, buy-here-pay-here dealers do not assign sales and lease
contracts they generate to third-party finance or lease sources.
Because buy-here-pay-here dealers maintain and administer their own
sales and lease contract portfolios, they do not have to comply with
underwriting and loan policies set by traditional lenders and are
free to set financial terms that are significantly higher than
conventional automobile loans or leases. The result of these high
cost financial terms is a considerable increase in the number of
defaults compared to conventional loans or leases, often including
large downpayments.
(c) The buy-here-pay-here dealers' business model of maintaining
and administering their own contract portfolios creates less of an
incentive to work with consumers to maintain their vehicles. The
incentive for buy-here-pay-here dealers is to recover the consumer's
vehicle and resell that same vehicle to another consumer. This
incentive does not exist for other used-car dealers, as their
contract portfolios are assigned to third-party finance or lease
sources. Third-party sources want consumers to pay off their loans in
full and do not receive an economic advantage from repossessing the
vehicle.
(d) Consumers who have little or no alternative other than to buy
or lease a used vehicle from a buy-here-pay-here dealer are
vulnerable to unfair or deceptive practices by buy-here-pay-here
dealers.
(e) It is the intent of the Legislature in enacting the
Buy-Here-Pay-Here Automobile Dealers Act to curb unfair and deceptive
practices by buy-here-pay-here dealers and to protect consumers and
the public.
SEC. 2. Chapter 1b (commencing with Section 18500) is added to
Division 8 of the Business and Professions Code, to read:
CHAPTER 1b. BUY-HERE-PAY-HERE AUTOMOBILE DEALERS ACT
18500. This chapter shall be known, and may be cited, as the
Buy-Here-Pay-Here Automobile Dealers Act.
18501. As used in this chapter:
(a) "Dealer of vehicles" is one within the meaning of Section
11701 of the Vehicle Code, subject to the provisions of Article 1
(commencing with Section 11700) of Chapter 4 of Division 5 of the
Vehicle Code.
(b) "Conditional sale contract" is one within the meaning of
subdivision (a) of Section 2981 of the Civil Code, subject to the
provisions of Chapter 2b (commencing with Section 2981) of Title 14
of Part 4 of Division 3 of the Civil Code.
(c) "Lease contract" is one within the meaning of subdivision (d)
of Section 2985.7 of the Civil Code, subject to the provisions of
Chapter 2d (commencing with Section 2985.7) of Title 14 of Part 4 of
Division 3 of the Civil Code.
(d) "Buyer-borrower" means a person who enters into a conditional
sale contract or lease contract with a buy-here-pay-here automobile
dealer.
(e) "Licensed repossession agency" means a "repossession agency"
as defined in Section 7500.2 that is licensed pursuant to the
Collateral Recovery Act (Chapter 11 (commencing with Section 7500) of
Division 3).
(f) "Buy-here-pay-here automobile dealer" is a dealer within the
meaning of Section 241 of the Vehicle Code.
18502. (a) Notwithstanding Section 22054 of the Financial Code or
any other law, and except as otherwise expressly provided in this
chapter, a buy-here-pay-here automobile dealer shall not do business
in California unless licensed by the Department of Corporations
pursuant to the California Finance Lenders Law (Division 9
(commencing with Section 22000) of the Financial Code).
(b) A dealer of vehicles shall obtain a California Finance Lenders
Law license no later than six months following the date on which it
meets the definition of a buy-here-pay-here automobile dealer.
(c) The Department of Corporations shall have regulatory
jurisdiction, limited to lending and repossessing activities, over
buy-here-pay-here automobile dealers pursuant to this chapter and the
California Finance Lenders Law.
18503. (a) Notwithstanding any other law, a buy-here-pay-here
automobile dealer shall be exempt from the provisions of Sections
22320, 22320.5, and 22330 of the Financial Code.
(b) Notwithstanding Section 22250 of the Financial Code, a
conditional sale contract or a lease contract entered into by a
buy-here-pay-here automobile dealer shall be subject to Sections
22154, 22155, 22201, 22202, 22300, 22305, 22306, 22307, 22309, 22313,
22314, 22315, 22320.5, 22322, 22323, 22325, 22326, 22327, 22334,
22400, 22751, and 22752 of the Financial Code.
(c) Notwithstanding any other law, the annual percentage rate
charged to a buyer-borrower pursuant to a conditional sale contract
or lease contract with a buy-here-pay-here automobile dealer shall
not exceed the federal funds rate in effect at the time the contract
was executed plus an additional 17 percent.
18504. (a) In lieu of the notice required by subdivision (h) of
Section 2982 of the Civil Code, a conditional sale contract or lease
contract entered into by a buy-here-pay-here automobile dealer shall
include the following notice, in at least eight-point boldface type:
"If you have a complaint concerning this buy-here-pay-here
automobile dealer or the contract, you should try to resolve it with
the dealer. Complaints concerning unfair or deceptive practices or
methods by the dealer may be referred to the city attorney, the
district attorney, an investigator for the Department of Motor
Vehicles, or an investigator for the Department of Corporations, or
any combination thereof.
After this contract is signed, the dealer may not change the
financing or payment terms unless you agree in writing to the change.
You do not have to agree to any change, and it is an unfair or
deceptive practice for the dealer to make a unilateral change.
I have read and understand the terms of this notice.
_____________________Borrower's Signature"
(b) The contract shall not be binding unless the buyer-borrower
has acknowledged in writing that he or she has read and understands
the notice required by subdivision (a).
18505. (a) A buy-here-pay-here automobile dealer shall be
prohibited from commencing repossession of a vehicle subject to a
conditional sale contract or lease contract due to the buyer-borrower'
s failure to make a scheduled payment prior to the 16th day following
the date on which that payment was due.
(b) Following commencement of repossession proceedings against a
buyer-borrower for delinquent payments under a conditional sale
contract or lease contract, if the buyer-borrower pays the delinquent
amount in full, the buyer-borrower shall be entitled for 45 days
thereafter to pay the buy-here-pay-here automobile dealer the amount
of any delinquency charges, penalty interest, and fees arising out of
the delinquency and commencement of repossession proceedings.
(c) A buy-here-pay-here automobile dealer shall not do either of
the following:
(1) Physically repossess a vehicle other than through engaging the
services of a licensed repossession agency.
(2) Charge a buyer-borrower an amount exceeding five hundred
dollars ($500) in fees or charges resulting from the commencement by
the buy-here-pay-here automobile dealer of any action to repossess a
vehicle.
(d) The provisions of subdivisions (a), (b), and (c) shall be
included in the terms and conditions of a conditional sale contract
pursuant to Section 2981.9 of, or lease contract pursuant to Section
2985.8 of, the Civil Code.
SEC. 3. Section 22054 of the Financial Code is amended to read:
22054. Except as otherwise provided in Chapter 1b (commencing
with Section 18500) of Division 8 of the Business and Professions
Code, this division does not apply to bona fide conditional contracts
of sale involving the disposition of personal property when these
forms of sales agreements are not used for the purpose of evading
this division.
SEC. 4. Section 241 is added to the Vehicle Code, to read:
241. A "buy-here-pay-here" dealer is a dealer, as defined in
Section 285, who is not otherwise expressly excluded by Section
241.1, and who does all of the following:
(a) Enters into conditional sale contracts, within the meaning of
subdivision (a) of Section 2981 of the Civil Code, and subject to the
provisions of Chapter 2b (commencing with Section 2981) of Title 14
of Part 4 of Division 3 of the Civil Code, or lease contracts, within
the meaning of Section 2985.7 of the Civil Code, and subject to the
provisions of Chapter 2d (commencing with Section 2985.7) of Title 14
of Part 4 of Division 3 of the Civil Code.
(b) Assigns less than 90 percent of all unrescinded conditional
sale contracts and lease contracts to unaffiliated third-party
finance or leasing sources within 45 days of the consummation of
those contracts.
(c) For purposes of this section, a conditional sale contract does
not include a contract for the sale of a motor vehicle if all
amounts owed under the contract are paid in full within 30 days.
(d) The department may promulgate regulations as necessary to
implement this section.
SEC. 5. Section 241.1 is added to the Vehicle Code, to read:
241.1. The term "buy-here-pay-here" dealer does not include any
of the following:
(a) A lessor who primarily leases vehicles that are two model
years old or newer.
(b) A dealer that does both of the following:
(1) Certifies 100 percent of used vehicle inventory offered for
sale at retail price pursuant to Section 11713.18.
(2) Maintains an onsite service and repair facility that is
licensed by the Bureau of Automotive Repair and employs a minimum of
five master automobile technicians that are certified by the National
Institute for Automotive Service Excellence.
SEC. 6. In enacting Section 2 of this act, it is not the intent of
the Legislature to affect or limit existing legal rights, remedies,
or claims available under current law.
SEC. 7. No reimbursement is required by this act pursuant to
Section 6 of Article XIII B 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 XIII B of the California
Constitution.
