Subject: SB 95 Senate Bill - Bill Analysis
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Date: Tue, 9 Jun 2009 11:21:44 -0700

BILL ANALYSIS

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|SENATE RULES COMMITTEE | SB 95|
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THIRD READING

Bill No: SB 95
Author: Corbett (D)
Amended: 5/28/09
Vote: 21

SENATE JUDICIARY COMMITTEE : 3-2, 3/31/09
AYES: Corbett, Florez, Leno
NOES: Harman, Walters

SENATE APPROPRIATIONS COMMITTEE : 7-5, 5/28/09
AYES: Kehoe, Corbett, DeSaulnier, Hancock, Leno, Oropeza,
Yee
NOES: Cox, Denham, Runner, Walters, Wyland
NO VOTE RECORDED: Wolk

SENATE FLOOR : 18-19, 6/2/09 (FAIL)
AYES: Alquist, Cedillo, Corbett, DeSaulnier, Ducheny,
Florez, Hancock, Kehoe, Leno, Liu, Lowenthal, Oropeza,
Pavley, Romero, Simitian, Steinberg, Wiggins, Yee
NOES: Aanestad, Ashburn, Benoit, Calderon, Cogdill,
Correa, Cox, Denham, Dutton, Harman, Hollingsworth, Huff,
Maldonado, Negrete McLeod, Runner, Strickland, Walters,
Wolk, Wyland
NO VOTE RECORDED: Padilla, Wright, Vacancy

SUBJECT : California Car Buyers Protection Act of 2009

SOURCE : Consumers for Auto Reliability and Safety

DIGEST : This bill (1) enacts the California Car Buyers
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Protection Act of 2009. This bill increases from $50,000
to $100,000 the bond required of a vehicle dealer for
issuance or renewal of a dealer's license by the Department
of Motor Vehicles (DMV); (2) provides that a person who
bought or leased a vehicle or motorcycle and who suffers
any loss or damage related to the purchase or lease by
reason of any fraud or contract or statutory violation in
connection with the purchase or lease will have a right of
action against the dealer and the dealer's bond for a
actual damages plus any incidental and consequential
damages; (3) prioritizes claims against a dealer's bond as
follows: (a) DMV claims (unpaid license and registration
fees and sales taxes); (b) claims of any person who
purchased or leased a vehicle or motorcycle; and claims by
the financing agency and any other persons or entities; (4)
provides that, if a dealer acquires a used vehicle with a
balance due to a secured party (financing agency or
lender), the dealer must tender payment in good faith
within four business days.

ANALYSIS :

Existing law provides that before any dealer's or
remanufacturer's license is issued or renewed by the DMV to
any applicant, the applicant must procure and file with the
DMV a bond executed by an admitted surety insurer, approved
as to form by the Attorney General, and with the condition
that the applicant is prohibited from practicing any fraud
or making any fraudulent representation that will cause a
monetary loss to a purchaser, seller, financing agency, or
governmental agency (Vehicle Code (VC) Section 11710(a).)

Existing law provides that a dealer's bond must be in the
amount of $50,000, except the bond of a dealer exclusively
in motorcycles or all-terrain vehicles must be in the
amount of $10,000. Before the license is renewed by the
DMV, the dealer, other than a dealer who deals exclusively
in motorcycles or all terrain vehicles, is required to
procure and file a bond in the amount of $50,000. A
remanufacturer bond must also be in the amount of $50,000.
(VC Section 11710(b).)

This bill increases the dealer bond from $50,000 to
$100,000. The motorcycle or all-terrain dealer bond will

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remain at $10,000 and the remanufacturer bond will remain
at $50,000.

Existing law provides that, if any person (1) suffers any
loss or damage by reason of any fraud practiced on him/her
by a licensed dealer or one of the dealer's salesperson
acting for the dealer, in his/her behalf, or within the
scope of employment of such salesperson and such person has
possession of a written instrument furnished by the
licensee, containing stipulated provisions and guarantees
which the person believes have been violated by the
licensee, or (2) suffers any loss or damage by reason of
the violation of any of the registration provisions of this
code, or (3) is not paid for a vehicle sold to and
purchased by a licensee, than any such person has a right
of action against such dealer, his/her salesperson, and the
surety upon the dealer's bond, in an amount not to exceed
the value of the vehicle purchased from or sold to the
dealer. (VC Section 11711.)

This bill provides that, if a person who bought or leased a
motor vehicle or a motorcycle at retail suffers any loss or
damage related to the purchase or lease of that vehicle by
reason of any fraud or contract or statutory violation
practiced on him/her by a licensed dealer or one of the
dealer's salespersons acting for the dealer, on his/her
behalf, or within the scope of the employment of his/
salesperson in connection with the purchase or lease of the
motor vehicle, or by reason of the violation by the dealer
or salesperson, then that person will have a right of
action against the dealer, his/her salesperson, and the
surety upon the dealer's bond for actual damages plus any
incidental and consequential damages.

Existing law provides that claims, against the surety upon
a dealer's bond, of a financing agency that has loaned
money to a licensee are allowed only to the extent that the
claims of any other person or entity with respect to the
bond have been satisfied first. Such claims are entitled
to preference over the claims of the financing agency.
However, as to any conditional sales contract, as defined,
acquired by way of purchase or pledge, a financing agency
is entitled to protection under the bond with the same
preference as other persons if the financing agency has

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been defrauded by a licensee. (VC Section 11722.)

This bill provides that claims, against the surety upon a
dealer's bond, of a financing agency that has loaned money
to a licensee, or claims based upon accepted assignments of
conditional sales agreements, or the purchase of
conditional sales agreements or of any other agreement
entered into with a licensee will be allowed only to the
extent that the claims of any persons who purchased or
leased a motor vehicle or a motorcycle at retail are
satisfied first. Such claims will be entitled to
preference over the claims of the financing agency and
other persons or entities, except the DMV (for unpaid
license and registration fees and sales taxes).

Existing law, the Consumer Legal Remedies Act (CLRA),
provides that 24 specified unfair methods of competition
and unfair or deceptive acts or practices undertaken by a
person in a transaction intended to result or that results
in the sale or lease of goods or services to a consumer are
unlawful. (Civil Code Section 1770.)

This bill provides that if a dealer purchases a vehicle for
purposes of resale with an outstanding lien due to a
secured party in connection with the cash sale of another
vehicle, the dealer shall in good faith tender full payment
on the outstanding lien or balance no later than the fourth
business day after the dealer take possession of the
vehicle.

This bill makes it unlawful for a dealer to sell or
transfer a used vehicle with a balance due to a secured
party prior to paying off the entire balance and submitting
the notarized receipt to the DMV.

This bill makes failure to comply with the above two
provisions regarding dealer pay offs unlawful under the
CLRA as an unfair or deceptive act or practice.

This bill provides that nothing in this act may be
construed to limit, in any way, the existing rights,
remedies, or recourses available to any person who
purchases or leases vehicles at retail.

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Existing law requires a dealer and a lessor-retailer, when
selling a vehicle, to use numbered report-of-sale forms
issued by the DMV and requires the forms to be used in
accordance with specified conditions. Existing law imposes
an administrative service fee of five dollars or $25,
depending on various criteria, if a dealer or
lessor-retailer odes not use the forms in accordance with
the specified conditions.

This bill increases these administrative service fees from
$5 to $25 and from $25 to $100, depending on various
criteria.

This bill makes certain legislative findings and
declarations.

Prior legislation

SB 729 (Padilla), Chapter 437, Statutes of 2007

Background

Senate Bill 729 (Padilla), Chapter 437, Statutes of 2007,
created the Consumer Motor Vehicle Recovery Corporation
(CMVRC), a nonprofit mutual benefit corporation, with a
board of directors with certain powers and duties, in order
to provide payments to consumers on eligible claims,
including a vehicle dealer or lessor-retailer's failure to
remit license or registration fees, failure to pay off a
trade-in's sale or lease balance owed, or failure to pay
proceeds of a consignment sale. A consumer may file an
application with the CMVRC for the payment of the
consumer's eligible claim if the dealer or lessor-retailer
against whom the claim is asserted has ceased selling and
leasing vehicles or is in bankruptcy.

The DMV is required to charge dealers and lessor-retailers
a fee of $1.00 for each vehicle sold by the dealers and
lessor-retailers, up to $2,500 per dealer per year. The
fees are continuously appropriated to the DMV for quarterly
payment to the CMVRC until the recovery fund has reached $5
million. To date the DMV has collected approximately
$720,000. Oversight and review of the CMVRC is done by the
Attorney General.

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Although the CMVRC was to be implemented by July 1, 2008,
information provided to Consumers for Auto Reliability and
Safety (CARS) indicates that the CMVRC is not yet fully
implemented. The information also indicates that all the
board members have been appointed; the board is in the
process of devising the claims forms and having them
translated; the CMVRC is close to the point where it may
start accepting claims; and it may be a matter of weeks
before it is ready to begin processing claims.

FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes

According to the Senate Appropriations Committee:

Fiscal Impact (in thousands)

Major Provisions 2009-10 2010-11
2011-12 Fund

DMV: bond requirements $50 $150 $150
Special*

DMV: lien payoff complaints $375 $750 $750
Special*

Fee revenue gain ($7,500)($15,000)
($15,000) Special*

* Motor Vehicle Account

SUPPORT : (Verified 5/29/09)

Consumers for Auto Reliability and Safety
American Federation of State, County and Municipal
Employees
California Public Interest Research Group
California Statewide Law Enforcement Association
Congress of California Seniors
Consumer Attorneys of California; Teamsters
Consumer Federation of California
Consumer Watchdog
Consumers Union

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OPPOSITION : (Verified 5/29/09)

California New Car Dealers Association; California
Motorcycle Dealers Association; Watt Automotive, Santa Rosa

ARGUMENTS IN SUPPORT : The sponsor, CARS, writes "When
dealerships go out of business they not only fail to pay
off liens, but also fail to honor warranties, service
contracts, and other services for which car buyers have
paid in advance, costing car buyers millions of dollars and
eroding consumer confidence. While SB 729 last year
created a fund to help consumers whose lives are destroyed
by these irresponsible car dealers, SB 729 did not address
the problem. Dealers still can sell vehicles without
paying off the title.

"In 2008, 120 new-car dealerships and over 416 used car
dealerships went out of business in California. Industry
analysts predict that even more dealerships will go out of
business in 2009. As dealerships close their doors, they
are leaving consumers with unpaid liens on vehicles they
traded-in, as well as a second loan on the newer vehicle
they purchased at the dealership. Too often the
consequence is destruction of consumer credit, repossession
of the vehicles, job losses due to the lack of
transportation to get to work, and bankruptcy."

The sponsor, CARS, states that, based on information
provided by the California District Attorneys Association
(CDAA) to the Judiciary Committee in support of SB 729
(Padilla), when dealerships go out of business they
sometimes leave many victims holding the bag, resulting in
more than $1 million in losses at a single dealership.
Examples provided by the CDAA include: (1) Solano County
dealership (Vacaville Ford); more than 100 victims, and
more than $1 million in losses (2) Alameda County
dealership, 50 victims and losses in excess of $1 million;
(3) Riverside County dealership, six victims; $50,000 in
losses; (4) Placer County dealership; 8 victims, $50,000 in
losses; (5) Marin County dealership, losses of
approximately $100,000; and (6) Monterey County dealership;
more than 80 victims; more than $1 million in losses.

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CARS writes, "Even if it were funded at the maximum level
allowed by law, based on prior history, the demise of five
large new car dealerships could deplete the entire fund.
Meanwhile, hundreds of new car dealerships are predicted to
close this year. The [CMVRC] also allows claims for only a
narrow subset of violations involving failures to pay off
liens, failures to provide clear title, or pocketing the
proceeds from consignment sales. In addition, due to
various delays, to date, the [fund] has not paid a single
claim.

ARGUMENTS IN OPPOSITION : Opponent California New Car
Dealers Association (CNCDA) makes a number of arguments in
opposition to the trade-in and bond provisions of the bill.

Trade-ins . CNCDA argues that the provision in the bill
that will make it unlawful to sell or transfer a used
vehicle with a balance due to a lender prior to paying off
the balance due is overly broad and vague and would lead to
"innumerable unintended consequences."

The proposed statute is triggered and takes control in
every possible situation when a dealer "acquires" a used
vehicle "with a balance due to a secured party." This goes
well beyond acceptance of a trade-in with a prior credit or
lease balance.

CNCDA lists a number of situations, which it argues the
provision will extend to, such as dealer acquisition of a
used vehicle with a clean title from another dealer, but
where the selling dealer's landlord claims its lease with
the dealer gives it a security interest in personal
property located on the premises.

CNCDA further argues that the provision requiring pay off
of the entire balance due before the earlier of either
transferring the vehicle or when payment is due is also
overly broad and would create harsh and unnecessary
consequences.

A dealer will be required to make payment by the time
payment is due, even though the dealer was never a party to
the payment obligation and most likely was never informed
of payment due dates, let alone being provided with a copy

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of the security agreement. It is unreasonable to impose
satisfaction of a contractual commitment upon a dealer who
never had an opportunity to negotiate or even read the
commitment. [T]he [provision] as drafted constitutes a
wholesale shift of risk to otherwise innocent purchasing
dealers and away from secured parties and vehicle sellers
businesses who are in much better positions to protect
against such risk. The [provision] is not reasonably
limited to protecting used vehicle purchasers or trade-in
customers.

CNCDA is also opposed to the notarized receipt provision in
the bill, the bill leaves to the imagination the form of
such a receipt, the time frame within which it will be
returned (keeping in mind that the secured party has the
right to payment in full of all charges up until the time
the receipt is returned to the dealer), the manner DMV will
want it submitted, and how the DMV will provide evidence of
submission back to the dealer.

CNCDA asserts that this will interfere with a dealer's
ability to gain working capital while the dealer waits for
the notarized receipt. "Used vehicle inventory is a
wasting asset that rapidly depreciates in value. Dealers
need to be able to sell trade-in vehicles as soon as they
tender the pay off to a lienholder."

RJG:do 6/3/09 Senate Floor Analyses

SUPPORT/OPPOSITION: SEE ABOVE

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