Bill requires 3-day cooling-off period, caps loan markups.
Legislation that would make California the first state to give used-car buyers a three-day cooling-off period – and provide other car-buying protections – is mired in controversy as lawmakers enter the final weeks of their two-year session.
Senate President Pro Tem John Burton is participating in behind-the-scenes negotiations, hoping to strike a deal between consumer advocates and the state’s car dealers, who are fighting to weaken AB 1839.
Car dealers, led by the California Motor Car Dealers Association, submitted proposed amendments days ago that would, among other things, delete the three-day rescission period.
Peter Welch, the car association’s president, declined to comment Friday on negotiations. Documents submitted by the group for closed-door bargaining were obtained by The Bee from other sources.
AB 1839, which supporters dub the “Car Buyer’s Bill of Rights,” pits two influential groups against each other and was written by Assemblywoman Cindy Montañez, a San Fernando Democrat who chairs the Assembly Rules Committee.
“We feel confident we’ll get it out of the Senate and to the governor’s desk, but we want to work with the administration to make sure it’s something he could sign,” Montañez said.
Gov. Arnold Schwarzenegger has not told her whether he supports or opposes AB 1839, Montañez said.
But two state agencies already have turned thumbs down on the bill – the Finance and Motor Vehicle departments – prompting critics to claim that Schwarzenegger is trying to kill the measure before it reaches him.
The legislation could force Schwarzenegger to side either with car buyers who may be getting bilked or dealers who pump big bucks into his campaign coffers, some consumer advocates say.
The Foundation for Taxpayer and Consumer Rights, which tracks gubernatorial fund raising, said the car industry has contributed more than $1 million to Schwarzenegger.
Doug Heller, the foundation’s executive director, said opposition by the two departments clearly signals Schwarzenegger’s position.
“There’s no doubt that the campaign contributions from car dealers have led to Schwarzenegger’s opposition to this eminently reasonable consumer protection reform,” Heller said.
Vince Sollitto, a Schwarzenegger spokesman, called such comments ridiculous and said the governor typically does not take positions on bills until they pass the Legislature in final form.
“There are a few groups and individuals who make their living by making outlandish comments and baseless claims,” he said. “It’s not offensive as much as it is tiring.”
Steve Blackledge, legislative director of the California Public Interest Research Group, called AB 1839 “one of the biggest consumer protection bills before the Legislature this year.”
AB 1839 responds to complaints that car dealers pressure buyers into purchases they quickly regret, make excessive financing profits and advertise used cars as “certified” without defining what the term means.
The bill would require that:
— Used-car sales can be rescinded within three days, provided the vehicle has been driven fewer than 250 miles, is returned in substantially the same condition, was not sold “as is,” and the buyer pays a fee based on the value of the car and miles driven.
— Dealers must cap their finance rate markups at 2 percentage points for five-year loans and 1 percentage point for longer loans. The goal is to reduce financing profits that far exceed rates at which the contract can be sold to banks or other lenders.
— Used cars cannot be listed as certified unless they meet conditions, including inspection by a technician qualified to check for collision repair and mechanical status.
— Dealers shall disclose the credit scores of vehicle buyers.
— Vehicle buyers must be notified of the cash price and the financing cost of any extra items – such as fabric protection or extended service contracts – that are added to the sale price.
Rosemary Shahan, president of Consumers for Auto Reliability and Safety, which is sponsoring AB 1839, said it would make car buying safer for unsuspecting customers whose “only mistake was they didn’t outsmart a professional who had been trained and knew how to scam them.”
Studies have shown that minority groups have been disproportionately charged higher-than-necessary finance rates that can cost them hundreds or thousands of dollars, Shahan said.
Welch said the three-day waiting period could increase used-car prices and raises numerous concerns: What if the buyer spends three days joyriding? Who is liable if there’s an accident? What constitutes “substantial damage” under the bill? What if the sale involved a trade-in?
Welch said current law already allows cancellations under circumstances such as fraud or duress. If buyers want a broader exchange or return policy on used cars, they can patronize dealers – such as Carmax – that voluntarily offer them. Fewer than 1 percent of buyers at such dealerships seek rescissions, he said.
Cooling-off periods were designed for door-to-door sales, Welch said.
“It’s a very different scenario here, where a customer goes to a dealership on their own and enters into negotiations,” he said.
Another key area of disagreement involves the proposed limits on finance markups. The dealers association proposes a cap of 2.5 percentage points for five-year loans and 2 percentage points for longer loans.
To a car buyer, the difference between the competing proposals would total $370 on a five-year, $25,000 loan, Shahan said.
In opposing AB 1839, the Department of Finance said the bill could increase the state’s litigation costs, while the Department of Motor Vehicles said it would “have a significant impact on vehicle dealers” and raise the state’s costs for investigating complaints.
The Senate Appropriations Committee estimated the extra investigative costs at less than $100,000. But Bill Cather, of the DMV’s legislative unit, said the department anticipates far higher costs.
Cather said Schwarzenegger did not instruct the DMV to oppose AB 1839.
“I can tell you in no uncertain terms that we got no pressure from the administration to take this position,” Cather said.
Burton, who will play a major role in determining whether AB 1839 reaches the Senate floor before the legislative session ends Aug. 31, could not be reached for comment Friday.
— Among the key provisions of the bill is one requiring that used-car purchases could be rescinded within three days, as long as the vehicle has been driven less than 250 miles, is returned in substantially the same condition, was not sold “as is,” and the buyer pays a fee based on the value of the car and miles driven.
— Other provisions include: Dealers must cap their finance rate markups at 2 percentage points for five-year vehicle loans and 1 percengtage point for longer loans; and used cars could not be listed as certified unless they met certain conditions.
The Bee’s Jim Sanders can be reached at (916) 326-5538 or [email protected]