The bill by Sen. Ted Lieu (D-Torrance) would cap interest rates on loans provided by the sellers at just over 17%. Currently, unregulated interest rates can run as high as 30%, Lieu said.
On Monday the bill cleared the Assembly's Banking and Finance Committee on a 7-2 vote. It previously passed the state Senate on a 24-12 tally.
"Many of these dealers take advantage of our lack of laws to prey on desperate workers, low-income families and members of the military by pushing unregulated loans to sell cars far beyond market value," Lieu said.
Buy Here Pay Here dealers countered that increased regulation would hurt the very people that Lieu's bill purports to help: low-income buyers with bad credit, who desperately need cars to get to work and school.
"We help these people even though they are super risky," Lancaster dealer Jose Miguel Camacho said during Banking Committee testimony Monday. "We are a last-chance lender."
But consumer groups complained that dealers in this fast-growing automobile market segment reap large profits by repossessing the same car as many as eight times.
"Part of the industry's basic design is for these loans to fail," said Rosemary Shahan, executive director of Sacramento-based Consumers for Automobile Reliability and Safety, which supports the Lieu legislation.
The senator's proposal, which was inspired by a series of investigative stories published by The Times last year, also would require dealers that do their own financing to register with the state Department of Corporations, to provide borrowers with a written description of their rights and responsibilities, and to use independent repossession agencies when buyers don't make payments.
Lieu's bill is one of three related measures moving through the state Legislature. Another bill, now in the state Senate, would prohibit dealers from tracking cars with a global-positioning system and shutting down their ignitions without notice if the borrower defaults on a loan. The third bill would mandate that dealers put a sticker in the car's window that shows its reasonable market value.