For independent auto dealers, 2012 was a legislative nightmare.  It began in late 2011 with the publication of a series of articles in the LA Times that depicted Buy Here Pay Here dealers as unscrupulous crooks who seek out financially challenged customers so that they may take advantage of them by selling high priced, worn out cars at high interest rates.  (Click here to view the articles)

Who reads the LA Times?  Your California legislators do, and they went to work to protect the consumer based solely on the allegations in the LA Times.  Senator Ted Lieu drafted SB 956 that would require BHPH dealers to be licensed with the Department of Corporations as a finance lender, exactly as Wells Fargo or Bank of America.  In addition, he sought to cap the interest rate at 17.25% and extend additional time for a customer to pay back repossession costs.  When Assemblyman Mike Feuer picked up his pen to draft AB 1447 regulating Buy Here Pay Here dealers, his concern was that a dealer should not be allowed to place a GPS tracking device in the car or contact a buyers references after the sale.  IADAC and others provided statistical information that proves GPS devices actually help the consumer and the dealer both, and the GPS prohibition was scrubbed from the bill.  In its place he added a mandatory 30 day, 1000 mile warranty. Assemblyman Bob Wieckowski took a different approach.  His approach to consumer protection was AB 1534, which required Buy Here Pay Here dealers to post a valuation in the window of the vehicle.

Because the allegations in the LA Times read as though the state was overrun with criminals operating Buy Here Pay Here dealerships, IADAC contacted the LA Times reporter who wrote the articles and asked for the names of all the bad dealers so they could be reported to the DMV.  The response was received in an email and had a total of four dealers noted.  Two were in other states, two in California.  One of those in California was already on probation with DMV, showing that enforcement was effective in rooting out dealers who misbehave.  The author offered this statement in that email “I think I should be clear in stating that the analysis I did was only for a limited set of dealers. It’s a time-consuming and in some cases, costly, process and thus what I’ve done does not presume to be exhaustive by any stretch.”  IADAC lobbyist Bill Dohring visited each legislator and asked each of them what problems they were addressing in their bills and each replied that the LA Times articles were the reason for their bills.  Providing the legislators with the statement from the author of the articles had no impact.  They pressed on without evidence of wrongdoing.  Senator Lieu’s sole witness claimed she had bad tires and oil leaks, problems that were not addressed in his bill.  As each bill passed through every committee hearing it began to look as though the best defense would be with the Governor.  The National Independent Auto Dealers Association provided a significant amount of help by financially supporting a coalition of those dealers and stakeholders in opposition to the bills.  Those in opposition were urged to add their names to the coalition website at www.ProtectFreedomToDrive.com. Is your name on the list?  Remember, we make our voices heard by being strong in numbers.
 
As dealers became aware of the Buy Here Pay Here legislation, they first thought that there was no way the bills would gain traction because they were absurd and written without an understanding of the industry.  As they gained momentum, more and more became involved and wrote letters to their representatives, often pointing out that there is an equal protection violation in the bills.  Because the bills target a Buy Here Pay Here dealer who is licensed equally as any other used vehicle retailer, equal protection as guaranteed in the Constitution is not provided.  Despite the efforts to point this out to the legislators, they simply disagreed and no further discussion was granted.  IADAC Lobbyist Bill Dohring requested a written legal opinion of the Legislative Counsel regarding the apparent equal protection violation and received the following report. (Click here to view report).  This legal opinion cites allegations from the LA Times as evidence, along with statements from the analysis’ that were provided in each committee in which the bills were heard (those analysis’ also used the LA Times articles as “evidence” by which they drew their conclusions).  It needs to be pointed out that in the “hearings” the bills are presented, there is no evidence that a committee member makes up his own mind as the bills passed through every hearing with voting strictly along party lines.

At the end of the legislative session, all three bills had passed and awaited a signature from the Governor.  He signed  AB 1447 and AB 1534, sending SB 956 back with a veto.  He stated in the veto message “I am not yet convinced the evidence merits the regulatory oversight of this bill”.

The two bills that were signed are in the hands of the Department of Motor Vehicles.  They will interpret and enact a policy that will allow enforcement of the bills as they have regulatory authority.  The bills will become law January 1, 2012 but will not be enforceable until DMV has completed their work.  As it stands now, a number of concerns need to be addressed before that can happen.  IADAC will continue to work to provide information to DMV that will allow them a full understanding of the obstacles.  Additionally, IADAC is considering the possibility of pursuing a legal alternative that would involve an injunction and suit for equal protection violations.
 
Keep an eye on the Legislative section of our website, www.iadac.org for updated information.
Click here to Download AB 1447
Click here to Download AB 1534

Disclaimer:  IADAC does not claim that the interpretation provided in this summary is absolute.  The new laws are vague and subject to interpretation.  What you read here is our interpretation based on discussion with the DMV. We suggest you read the bills so that you may draw your own conclusions.

Buy-Here, Pay-Here Legislation

Click here to view the online seminar
Click here to download the handout for the seminar
 
With the passing of AB 1447 (click to view bill) and AB 1534 (click to view bill), beginning January 1, 2013 California BHPH dealers will be required to comply with new laws.  AB 1447 will require BHPH dealers to provide a 30 day, 1000 mile warranty and have the customer acknowledge the presence of a GPS tracking device, if one exists.  AB 1534 requres BHPH dealers to post a retail valuation on every vehicle offered for sale.  Click here to view the DMV memo on these laws.  

The question is, "How do the laws define a Buy-Here, Pay-Here dealer?"
The definition reads:A Buy-Here Pay-Here Dealer is one who..."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."

To make it easier to understand, here is a simple formula that you can use to see if you are considered a BHPH dealer by the definition of the law.

First, use a given "block of time" such as January through March, a typical quarter (The language in the bill does not identify exactly what the period of time is that a dealer should use for an audit to determine if he is or is not a BHPH dealer).  Count the total number of unrescinded conditional sales contracts.  If your contracts carried in-house are 10% of the total or greater, you are by definition a Buy-Here Pay-Here dealer.

Click here for sample Buyer's Guide.
Click here for sample Vehicle Warranty.

You'll also need to display a vehicle valuation from a nationally published source, such as Kelley Blue Book, Black Book, NADA, etc.  The valuation must have this heading in 16 pt bold type "REASONABLE MARKET VALUE OF THIS VEHICLE".  Also indicate that the reasonable market value is being provided only for comparison shopping and is not the retail price or the advertised price of the vehicle. This disclosure may be placed anywhere on the label.  Using any valuation you like, you may print it over the template below, which has the proper heading in the required font.   

Click here for sample valuation template.

Are there options?

Yes, if you assign your contracts and stay below the 10% threshold of those your carry in-house, you do not have to comply with the new laws because you are not a BHPH dealer by definition.  Contact your IADAC representative to find out about compliance solutions.