California Senate moves to regulate Buy Here Pay Here car dealers
April 19th, 2012
Legislation aimed at regulating controversial Buy Here Pay Here used-car dealers, which charge steep interest rates and are quick to repossess vehicles, was approved by the state Senate Banking and Financial Institutions Committee.
The bill, by Sen. Ted Lieu (D-Torrance), classifies the dealerships, which finance most of their own sales, as state-regulated lenders.
"This bill regulates an unregulated industry," Lieu said.
The bill cleared the committee on a party-line vote Wednesday, with five Democrats voting aye and two Republicans nay.
The proposal now heads to the Senate Appropriations Committee and then to the Senate floor. Lieu said he's optimistic about the bill's chances in the Legislature's upper house. But some supporters said they're worried about its prospects in the more conservative, business-friendly Assembly.
The legislation is strongly opposed by Buy Here Pay Here dealers — which focus on buyers who don't have good credit records — as well as the national and state independent automobile dealers associations that speak for the entire used-car industry.
Backers include consumer organizations — including the Center for Responsible Lending, Consumer Federation of California, Consumers for Auto Reliability and Safety, and Consumer Attorneys of California.
Lieu's measure would cap interest rates at 17% plus the variable federal funds rate, currently at 0.25%. That's far lower than rates currently charged by Buy Here Pay Here dealers, which can run as high as 30%.
The dealers would have to register with the California Department of Corporations as consumer lenders.
The bill would also prohibit dealers from directly repossessing cars. Instead, they would have to use state-licensed repo companies and also give a customer a grace period following repossession to pay off the balance and reinstate the car.
Larry Laskowski, executive director of the Independent Automobile Dealers Assn. of California based in Roseville, said that the new regulations could drive many Buy Here Pay Here dealers out of the market, lessening competition and making it harder for people with bad credit to buy cars.
"Buy Here Pay Here dealers are willing to do things other dealers won't," Laskowski said. "They take on a higher risk."
Rosemary Shahan, executive director of Consumers for Auto Reliability and Safety, said that the high interest rates charged by Buy Here Pay Here dealers put consumers at a high risk of losing the cars and the money they invested in them.
"Very often, consumers end up with ruined credit instead of getting their credit improved," Shahan said. "They wind up without a car and a way to get to work."
Active duty military personnel are often victimized by such sales and repossession practices, said Shahan, who presented the committee with letters of support from Pentagon officials in Washington.
The Lieu bill is one of three introduced this year in the Legislature in response to a series of stories in the Los Angeles Times about the little-known but fast-growing Buy Here Pay Here business.
A proposal by Assemblyman Mike Feuer (D-Los Angeles) would relieve buyers from having to make all payments to the dealer in person. It would further ban dealers from tracking the vehicle using GPS technology or remotely disabling the car.
A bill by Assemblyman Bob Wieckowski (D-Fremont) would require stickers to be placed on car windows indicating their market value as listed in the Kelley Blue Book or the NADA Guide.
The bill, however, would not place any limit on the vehicle's sales price.