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LOS ANGELES TIMES: 3 bills to rein in Buy Here dealers in state advance
April 25, 2012
Two consumer protection bills aimed at reining in Buy Here Pay Here used-car dealers won easy passage in an Assembly committee.
The bills would give buyers information about a vehicle's value and a 30-day or 1,000-mile warranty against breakdowns. The first, from Assemblyman Bob Wieckowski (D-Fremont), passed on a 6-2 vote Tuesday in the Assembly Judiciary Committee; the second, by Assemblyman Mike Feuer (D-Los Angeles), on an 8-2 vote.
The measures now move to the Assembly Appropriations Committee.
A few hours later, the state Senate Judiciary Committee voted 3 to 2 for a related bill by Sen. Ted Lieu (D-Torrance). Last week, the Senate Banking and Financial Institutions Committee endorsed the measure, which now goes to the Senate Appropriations Committee.
Lieu's bill would classify Buy Here Pay Here dealers, which finance most of their own sales, as state-regulated lenders requiring them to register with the California Department of Corporations. It also would apply an interest rate cap of 17% plus the federal funds rate, currently at 0.25%.
All three bills were introduced this legislative session after a series of stories in the Los Angeles Times last year described the rapid growth and profitability of the little-known Buy Here Pay Here business.
The Buy Here dealers contended that they provide a valuable service to low-income buyers who have poor or no credit but who need cars to get to jobs and take children to day care. They argued that more enforcement against bad dealers was preferable to boosting regulation on law-abiding ones.
Critics countered that Buy Here dealers charge buyers too much for high-mileage clunkers, saddling them with steep interest payments and repossessing the cars when a payment is missed.
"These dealers advertise that they have transportation for people who need to go to work and give people a way to improve their credit," said Rosemary Shahan, executive director of Consumers for Auto Reliability and Safety. "Instead, the exact opposite happens, and they are left with a car that breaks down right away and needs repairs that they can't afford."
A repossession stays on a buyer's credit record for seven years, making it difficult to get a job or rent an apartment, Shahan said.
In an attempt to break that potential cycle, Feuer recently amended his bill, AB 1447, to require dealers to offer what he called "a very nominal warranty of 30 days or 1,000 miles ... so the car won't break as soon as it gets off the lot."
Cars sold by Buy Here Pay Here dealers are in "as is" condition with no warranty.
Young military enlistees have been particularly vulnerable, said Barry White, director of the Navy-Marine Corps Relief Society office in San Diego.
White said a 20-year-old sailor with a young child spent $3,000 for a car that broke down within 30 days and couldn't afford to spend an additional $3,000 on repairs.
"Clearly, the financial readiness and mission readiness of the young sailor were impacted," he said.
Feuer's bill also prohibits Buy Here Pay Here dealers from making customers pay their loans in person at the car lots -- often a ploy to repossess cars from late payers.
Other provisions would allow dealers to track vehicles with GPS devices only with the permission of the buyers and require dealers to provide notice to buyers that their car is equipped with a remote-controlled ignition shut-off. Drivers would need to be given advance warning that their car would be immobilized.
Wieckowski's bill, AB 1534, would provide buyers with more information about the condition and value of used cars. The estimated average value of the car, as calculated by the Kelley Blue Book or similar guides, would need to be posted on the car's window. Dealers, however, could negotiate any sales price.
As currently written, the measure would apply to all used-car sellers, not just Buy Here Pay Here dealers. That provision brought strong opposition from the California New Car Dealers Assn., most of whose members also sell used cars.
"This is a logistical nightmare for dealers that were never identified as part of the problem," said Mike Belote, a lobbyist for the association. He said the bill should be amended to apply only to Buy Here Pay Here sales.