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California Governor Signs Two Auto Buy-Here-Pay-Here Dealer Bills, Vetoes A Third

Auto Finance

Consumer Finance

On September 29, California Governor Jerry Brown signed AB 1447 and AB 1534, imposing new requirements on Buy-Here-Pay-Here automobile dealers (BHPH Dealers), defined as those dealers who assign less than 90% of their sale and lease contracts to an unaffiliated third party within 45 days of entering the contract unless they meet certain other criteria.  At the same time, Governor Brown vetoed a third bill, SB 956, which could have had far reaching implications for BHPH Dealers, regulators and auto finance companies who purchase loan contracts from BHPH Dealers.

Among the new requirements affecting BHPH Dealers are:

  • BHPH Dealers will be required to provide buyers and lessees with a 30-day/1,000 mile warranty covering certain components of the vehicle;

  • When a covered warranty claim is made, the BHPH Dealer will be required to make the repairs at no cost to the consumer or refund the full amount of the purchase or lease, minus a reasonable amount for any damage to the vehicle after the lease or sale;

  • Electronic tracking of a vehicle after sale to identify the location of the vehicle, except with the consumer’s written consent and for limited purposes will be prohibited;

  • Use of starter interrupt technology must be disabled except in limited circumstances;

  • Disclosure of the reasonable market value of a used vehicle must be posted on the vehicle, including what information was used to determine that value, and a copy of any information obtained from a nationally recognized pricing guide must be provided to potential purchasers of the vehicle; and

  • Consumers can no longer be required to make required payments in person.

In what is likely to be considered positive news for indirect auto finance companies, whose business is limited to the purchase of retail installment sales contracts from auto dealers, Governor Brown’s veto of SB 956 will allow them to continue making those purchases without the added concerns they might have otherwise had.  Some of those concerns, which have become moot for the time being, included:

  • Confirming whether the dealer from whom the purchase was being made was in fact a BHPH dealer and, if so, whether they were appropriately licensed;

  • Ensuring that the finance company did not purchase contracts in which the interest rate charged to the borrower exceeded amount permitted under the proposed law; and

  • Providing an increased grace period than is otherwise applicable before repossession.

In vetoing SB 956, Governor Brown noted that the bill required BHPH Dealers “be regulated by the Department of Corporations under the California Finance Lender’s Law. I am not yet convinced the evidence merits the regulatory oversight of this bill.”  However, Governor Brown also made clear that if added protections are necessary after implementation of the two bills signed into law on September 29, his office would work with the legislature to “find appropriate, measured solutions.”