industry expert / legal
State of California to Most BHPH Dealers: "Get Lost"
Thomas B. Hudson, Esq. is a partner in the firm Hudson Cook, LLP; the author of four CARLAW® books; the publisher of Spot Delivery®, a monthly legal newsletter for auto dealers; and the editor in chief of CARLAW®, a monthly report of legal developments in all states for the auto finance and leasing industry. For information, call 410.865.5411.
THudson@AutoDealerMonthly.com
alleging abuses by a few BHPH dealers and that were based on anecdotes, has passed three bills aimed at BHPH dealers. Two of the bills will do enormous damage to the BHPH industry in the Golden State (which probably seems a bit less golden to the dealers who will be driven out of busi- ness by the new measures).
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Let's start with the bill that is the least problematic.
Assembly Bill 1534 seems designed to call the buyer's attention to the fact that buy-here-pay-here dealers charge high prices for the vehicles they sell.
The bill defines the term buy-here-pay-here dealer as an automobile seller who enters into conditional sales contracts or lease contracts and assigns fewer than 90 percent of those obligations to unaffiliated third-party finance or leasing sources within 45 days of consummation of those contracts. You aren't a buy-here-pay-here dealer, however, if you primarily lease vehicles that are two model years old or newer, or if you
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he California legisla- ture, inspired by newspaper articles
"certify" 100 percent of your vehicles under a particular section of the California Code and have a licensed on-site service and repair facility employing at least five master technicians certified by the National Institute for Automotive Service Excel- lence. Got all that?
A buy-here-pay-here dealer must prominently and con- spicuously display a label on any used vehicle offered for retail sale that states the vehicle's reasonable market value. The label must contain specified information used to determine the reasonable market value and the date the
value was determined. The buy-here-pay-here dealer must provide to a prospective buyer of the used vehicle a copy of any information obtained from a nationally rec- ognized pricing guide that the buy-here pay-here dealer used to determine the reasonable market value.
So if you are subject to AB 1534, you post a required notice on your vehicles. Your customers have a very limited number of places that will sell them vehicles on credit, so even if they pay attention to the required disclosure, they will likely ignore it so that they can ride instead of walk. You'll have the added trouble and ex- pense of making a disclosure that your customers won't pay any attention to, and you go on about your business.
Senate Bill 956 would enact the Buy-Here-Pay-Here Automobile Dealers Act. The bill would define a
"buy-here-pay-here" dealer in the same way that AB 1534 does This bill requires those dealers to obtain a finance lender license and subjects them to specified other provi- sions of the California Finance Lenders Law. The bill defines a "buyer-borrower" as a person who enters into a conditional sale contract or lease contract with a buy-here-pay-here dealer. The bill provides that the Department of Corpora- tions would have regulatory jurisdiction over specified lending and repossessing activities of buy-here-pay- here dealers.
This bill governs the terms and conditions of contracts en- tered into by a buy-here-pay- here dealer and the rights of the parties, including, but not limited to, requiring a notice to the buyer of specified rights under the contract.
This bill imposes additional requirements on a
California BHPH bills signed into law
Sept. 29, California Gov. Jerry Brown signed Assembly Bills 1534 and 1447 which restrict BHPH operations. Each law will go into effect Jan. 1, 2013. However, the governor vetoed Senate Bill 956. On vetoing SB 956, Brown said, "I am not yet convinced the evidence merits the regulatory oversight of this bill. I signed two 'buy-here-pay-here' consumer protection bills this session. If consumers need added protection once those bills are implemented, my administration will work with the Legislature to find appropriate, measured solutions."