BILL ANALYSIS Ķ AB 964 Page 1 Date of Hearing: April 30, 2013 ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER PROTECTION Richard S. Gordon, Chair AB 964 (Bonta) - As Amended: April 25, 2013 SUBJECT : Vehicle dealers. SUMMARY : Prohibits a licensed car dealer from selling or advertising for sale as "certified" a used vehicle if the dealer knows or should have known that the vehicle is subject to a safety recall, and prohibits a dealer from selling a used car without providing a completed inspection report and certain written disclosures in specified languages. Specifically, this bill : 1)Prohibits a vehicle from being advertised or sold as certified if the dealer knows or should have known that the vehicle is subject to a manufacturer's safety recall. 2)Prohibits a car dealer from selling a used car without providing the buyer a written disclosure in Spanish, Chinese, Tagalog, Vietnamese, or Korean if that sale is conducted primarily in that language, of the present car conditions the dealer knows or should know of, including: a) The odometer has been rolled back or altered to show fewer miles than actually driven; b) The vehicle was reacquired by the vehicle's manufacturer or a dealer pursuant to state or federal warranty laws; c) The title to the vehicle has been inscribed with the notation "Lemon Law Buyback," "manufacturer repurchase," "salvage," "junk," "nonrepairable," "flood," or similar title designation required by this state or another state; d) The vehicle was damaged in an impact, fire, or flood, that after repair and prior to sale, substantially impairs the use or safety of the vehicle; e) The vehicle has sustained frame damage; f) The dealer disclaims any warranties of merchantability AB 964 Page 2 on the vehicle; g) The vehicle is sold "AS IS"; or, h) The vehicle is subject to a manufacturer's safety recall. 3)Prohibits the sale of a used vehicle without providing the buyer with a completed inspection report indicating all the components inspected prior to sale. 4)Provides that the rights, remedies, and procedures provided for in this bill and the provisions of law relating to the sale of certified and non-certified vehicles by car dealers, are in addition to, and independent of, any other rights, remedies, or procedures available under any other law. 5)Provides that nothing in this bill shall be construed to alter, limit, or negate any other rights, remedies, or procedures provided for by law. 6)Makes technical and clarifying changes. 7)States that no reimbursement is required by this bill pursuant to Section 6 of Article XIIIB of the California Constitution because the only costs that may be incurred by a local agency or a school district will be incurred because this bill creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIIIB of the California Constitution. EXISTING LAW : 1)Establishes the Car Buyer's Bill of Rights and prohibits a car dealer from selling or advertising for sale a used car as "certified" if the following applies: a) The dealer knows or should have known that the odometer has been rolled back or altered to show fewer miles than actually driven; b) The dealer knows or should have known that the vehicle was reacquired by the vehicle's manufacturer or a dealer AB 964 Page 3 pursuant to state or federal warranty laws; c) The title to the vehicle has been inscribed with the notation "Lemon Law Buyback," "manufacturer repurchase," "salvage," "junk," "nonrepairable," "flood," or similar title designation required by this state or another state; d) The vehicle has sustained damage in an impact, fire, or flood, that after repair and prior to sale substantially impairs the use or safety of the vehicle; e) The dealer knows or should have known that the vehicle has sustained frame damage; f) The dealer disclaims any warranties of merchantability on the vehicle; g) The vehicle is sold "AS IS"; or, h) The term "certified" or any similar descriptive term is used in any manner that is untrue or misleading or that would cause any advertisement to be in violation of the provisions prohibiting a car dealer from scheming not sell a vehicle or service at a price other than advertised in accordance with the Vehicle Code, or the unfair competition laws contained in the Business and Professions Code. (Civil Code Section 11713.18.) 2)Establishes the federal Moving Ahead for Progress in the 21st Century Act (MAP-21) and requires the Secretary of the United States Department of Transportation (U.S. DOT) to promulgate regulations by July 6, 2013, requiring motor vehicle safety recall information to be publicly available online and searchable by vehicle make, model, and vehicle identification number (VIN). (Public Law 112-141, 112th Cong., Section 31301) FISCAL EFFECT : Unknown COMMENTS : 1)Purpose of this bill . This bill would prohibit a licensed car dealer from selling a used vehicle as "certified" if it is subject to a manufacturer's safety recall and unresolved safety issues. This bill also requires dealers to disclose to AB 964 Page 4 consumers prior to sale certain facts about non-certified used cars in Spanish, Chinese, Tagalog, Vietnamese, or Korean, if the transaction was performed primarily in that language. This bill applies to both voluntary and mandatory recalls, but does not apply to used vehicles privately sold by an owner. This bill is sponsored by the Latin Business Association (LBA). 2)Author's statement . According to the author, "Current law does not require car dealers to disclose or fix an open recall on a vehicle before selling it. In 2011, nearly 100,000 used cars with open recalls were for sale online in California. Open recalls can be a serious safety issue and should be fixed by the manufacturer before a dealer sells it to California consumers. Car dealers do not incur the cost of having an open recall fixed as it is currently the responsibility of the manufacturer. "Current law also provides that a car dealer cannot sell a used car as 'certified' if [any of] a list of conditions, including flood or fire damage, have ?occurred to the vehicle. If the car does have any one of those conditions, it can still be sold, just not as a certified car and is not required to be disclosed to consumers. AB 964 updates the law and ensures that all consumers are informed about these conditions before purchasing the car. These disclosures will help protect consumers who cannot afford to purchase a certified used car." 3)Certification . Existing law does not precisely define what a "certified" vehicle is or who may perform the certification, but it does define what a "certified" vehicle is not. Vehicle manufacturers will use a "factory certified" designation that includes a vehicle inspection and extends a vehicle's warranty beyond the initial coverage. Carmax, a company that sells used cars but is unaffiliated with a vehicle manufacturer, also has a vehicle certification program base on its own inspection criteria. Not all certified vehicles include extended warranty coverage. 4)The Car Buyer's Bill of Rights . The Car Buyer's Bill of Rights, established pursuant to AB 68 (Montaņez), Chapter 128, Statutes of 2005, prohibits car dealers from advertising or selling a used vehicle as "certified" if certain conditions are present, including odometer rollbacks, salvage titles, and AB 964 Page 5 damage that substantially impairs the vehicle's use or safety. This bill would add another prohibited condition to that particular statute: that the dealer knows or should have known that the vehicle is subject to a manufacturer's safety recall. According to a March 2013 Today News article provided by the author's office, "Last year, more than 2 million used cars [listed for sale] had unfixed recalls according to a new survey by Carfax, including defects that could cause car fires and loss of control on the road - even rollovers." This bill also requires car dealers to disclose certain vehicle conditions to the buyer for non-certified used cars if the transaction is conducted primarily in Spanish, Chinese, Tagalog, Vietnamese, or Korean. The author's intent is to provide additional information to consumers outside of the certified vehicle market so they can make a more informed purchase. The sponsor contends that the average car buyer will not have sufficient mechanical knowledge to determine the condition of a used car and whether or not it needs costly repairs. Therefore, the consumer must currently rely on the car dealer to voluntarily disclose any problems with a non-certified used car. This bill would change that dynamic by requiring the disclosure of relevant information to consumers who negotiated in the specified languages. According to the author's office, the apparent exclusion of English from the eligible languages was an oversight that may be fixed by a technical amendment. 5)FTC's consumer guidance for buying a used car . The Federal Trade Commission (FTC) recommends that a consumer do thorough research before purchasing a used vehicle, and provides helpful consumer information on its Web site. For example, the FTC recommends consumers use an inspection checklist, test drive the vehicle, request maintenance records, determine the value of a vehicle, and hire a mechanic to inspect a car, so the consumer has a better sense of the true costs of acquiring a used vehicle. The consumer can then use that information to negotiate more equitable price with a car dealer or private owner. In addition, the FTC Web site also points out that there are several databases a consumer can use to gather information about a vehicle's history. It states, "The Department of Justice's National Motor Vehicle Title Information System (NMVTIS) offers information about a vehicle's title, odometer AB 964 Page 6 data, and certain damage history? The National Insurance Crime Bureau maintains a free database that includes flood damage and other information so you can investigate a car's history by its VIN. You can also search online for companies that sell vehicle history reports." 6)Federal law on vehicle safety recall information . In 2012, Congress enacted the MAP-21 Act, which required motor vehicle safety recall information to be posted online and searchable by vehicle make, model, and VIN. This includes information about each recall that has not been completed for each vehicle. U.S. DOT is required to promulgate regulations by July 6, 2013 requiring each vehicle manufacturer to provide specified vehicle recall information on a public Web site and to car dealers. Those regulations have not yet been promulgated, but the requirement may be helpful for the implementation of this bill if car dealers and consumers can easily access voluntary and mandatory vehicle recall information via a Web site instead of contacting vehicle manufacturers directly. 7)Mandatory vs. voluntary recalls . Recalls are issued for car parts only; a whole vehicle is never recalled. This bill applies to all vehicle manufacturer safety recalls, both voluntary and mandatory. The National Highway Traffic Safety Administration (NHSTA) collects national safety recall information from vehicle manufacturers subject to mandatory recalls because of problems found to be serious and potentially fatal. This information is posted on NHSTA's affiliate Web site, and is searchable by vehicle make and model. Currently, the Web site's database is not searchable by VIN. However, once the federal regulations are promulgated and vehicle manufacturers can share VIN information, a safety vehicle recall will be searchable by VIN online. This bill allows a car dealer or consumer to identify whether an individual vehicle has been subject to a safety recall and whether that repair was made. There is a significant difference in the level of safety concerns involved between a voluntary recall and a mandatory one. A vehicle manufacturer may issue a voluntary safety recall to address a defect in the performance, construction, or component of a vehicle. In such a case, the manufacturer will contact vehicle owners and cover the costs to correct the AB 964 Page 7 defect without involving the NHTSA. These voluntary recalls are not posted online on NHTSA's affiliate Web site, but may be posted on a vehicle manufacturer's Web site. Conversely, a mandatory recall is one in which NHTSA has received enough complaints and information about the operation of a vehicle that it finds there is a significant threat to public safety. NHTSA will perform an investigation with a review by engineers and experts and work with the vehicle manufacturer to recall vehicles. NHTSA may issue several mandatory recalls each month. Alerting consumers of safety recalls for used vehicles become more challenging as the vehicles may change hands several times. Currently, a car dealer must contact a manufacturer directly to find out if a vehicle has been subject to a manufacturer's voluntary safety recall. This bill would require a car dealer to contact a manufacturer to determine whether there are any voluntary safety recalls for each used vehicle make and model it sells, and then identify whether an individual vehicle has been repaired or not based on the car's VIN. In practice, AB 964 would transfer the responsibility of safety recall notification from the vehicle manufacturer to the used car dealer. This bill may inform consumers about outstanding safety recall issues when buying used cars and may encourage dealers to correct an issue prior to advertising the used car for sale. This bill may be helpful given that used cars may change hands multiple times and this makes it more difficult for a manufacturer to track down and notify the current owner of safety issues. At the same time, this bill would require car dealers to disclose a new type of information to buyers to highlight a safety issue that manufacturers are responsible for fixing. Currently, there is no law requiring car dealers to fix safety recalls. Car dealers would have to spend time continuously querying manufacturers of each make and model of a used car for sale to determine if a new voluntary safety recall has been issued. 8)Vehicle history reports . Current law prohibits a car dealer from deceptive business practices, including attempting to defraud or mislead consumers. Car dealers, to protect AB 964 Page 8 themselves against liability issues, will purchase vehicle history reports from companies such as Carfax, which compiles vehicle accident history information from various entities, including the Department of Motor Vehicles, insurance companies, and law enforcement. Consumers can also purchase vehicle history reports prior to buying a used car in order to find out if there hidden problems that are not obvious with a visual inspection of the vehicle. The vehicle history reports include data that is collected, although the reports do not list vehicle history information that must be provided in every report, and may or may not include the disclosure provisions required of car dealers for non-certified used vehicles contained within this bill. 9)Questions for the Committee . In order to take advantage of the expected regulations for a national recall database and to align California and federal recall disclosure provisions, the Committee may wish to consider inquire of the author as to whether or not this bill would be improved by adding a delayed implementation date of 180 days following the issuance of the MAP-21 regulations. This would allow car dealers and consumers to easily discover online if a safety recall exists for a vehicle, instead of individually contacting each manufacturer directly. Because the bill as written prohibits the sale of cars as "certified" if those cars are subject to a manufacturer's safety recall, but a car can be made safe if the problem is corrected, the author may wish to consider a clarifying amendment that states that a vehicle may be sold as certified if the problem raised by the recall has been properly repaired. 10)Suggested Committee Amendments . According to the Assembly Judiciary Committee, the 4/25 amendments mistakenly omitted to delete an obsolete subsection. The Committee recommends rectifying that error with a technical amendment to delete that section. On page 4, strike lines 10-13 The bill in its current form provides consumers with important written disclosures about non-certified vehicles, but only if the transaction was conducted in Spanish, Chinese, Tagalog, Vietnamese or Korean. According to the author's office, the AB 964 Page 9 apparent exclusion of English from the list of eligible languages was a drafting error requiring a technical amendment. On page 3, strike lines 25-26 and insert "providing the buyer written disclosure, in English or in one of the languages specified in subdivision (b) of Section 1632 of the Civil Code depending on the language primarily used to negotiate the transaction, identifying" 11)Arguments in support . According to the sponsor, the LBA, this bill "improves protections for consumers who cannot afford to purchase a new or certified used car. The current law, the Car Buyers Bill of Rights, has protected millions of car consumers. However, there is one area that it did not address - used cars that are not certified. "Specifically, the current law does not allow car dealers to 'certify' a used vehicle if they know it has [sustained] certain damage, such as previous flood and fire damage, frame damage, and an odometer rollback. However, a dealer does not have any obligations to inform consumers about a vehicle's history - beyond the basic information the NMVTIS provides - when they sell a used call that is not certified. "[The LBA] wants to ensure that when anyone buys a car - whether they can afford a certified used car or not - has as many facts about the car that is available." 12)Arguments in opposition . According to the California New Car Dealers Association, "AB 964 wrongly targets all car dealers for a problem that has been brought about by the rental car industry. The rental car industry has faced scrutiny in recent years for renting defective vehicles to consumer despite being informed of open safety recalls? Rather than focusing on rental car companies, AB 964 targets every dealer seeking to 'certify' a vehicle - regardless of how minor the recall is, or whether the dealer has access to information about the recall. "Changing the focus of regulation from rental car companies creates more, not less, compliance issues. While a rental car company is notified directly by the manufacturer when a vehicle it owns is recalled, car dealers receive no such notification (unless franchised to sell that make)? Nor does AB 964 Page 10 that dealer have access to information concerning whether the vehicle has been recalled, or, if so, whether the defect has been repaired? "Congress passed legislation last year requiring the creation of a free Internet database - searchable by make, model, and VIN - containing information about each recall and whether it has been completed for each individual vehicle? Until this database is operational, compliance with AB 984 would be impossible." According to the Consumers for Auto Reliability and Safety, "This is a fundamentally flawed bill that would actually weaken protections for vulnerable, low-income used car buyers who are already often preyed upon by unscrupulous auto dealers. It would be particularly harmful to consumers who are monolingual or may have literacy issues, and who cannot afford to purchase newer, more expensive vehicles, yet need a car in order to get to work, transport their families, and obtain the necessities of life? "[This bill] allows auto dealers to sell used cars with serious problems that may be life-threatening, if they merely give "written disclosure" to the buyers. However, those disclosures are not required to be clear or conspicuous, or in plain language, so they could easily be hidden in fine print or incomprehensible legalese." 13)Related legislation . SB 686 (Jackson) of 2013 would prohibit a car dealer from selling, leasing, displaying, renting, or loaning a new or used vehicle, as specified, if the car has a defect that is subject to a manufacturer's safety recall, unless the car has been repaired to correct the defect. SB 686 is pending in the Senate Judiciary Committee. 14)Previous legislation . AB 1215 (Blumenfield), Chapter 329, Statutes of 2001, requires new car dealers to participate in a program to electronically title and register vehicles that they sell and to post specified warning notices on some used cars. SB 990 (Vargas) of 2012 would have allowed a car dealer selling a used car to obtain data from a commercial entity, rather than the federal government, to provide required information to consumers on the vehicle's title history. AB AB 964 Page 11 990 was held in the Senate Transportation and Housing Committee. AB 68 (Montaņez), Chapter 128, Statutes of 2005, enacts the Car Buyer's Bill of Rights, provided that a car dealer may not advertise of sell as "certified" a used or pre-owned motor vehicle, as defined, unless specified conditions are satisfied, and further provided that vehicles sold as "certified" may not be sold "as is," or if the dealer has disclaimed any warranties. 15)Double-referred . This bill was heard by the Assembly Judiciary Committee on April 22, 2013 and approved by a 7-3 vote. REGISTERED SUPPORT / OPPOSITION : Support Latin Business Association (sponsor) California Hispanic Chambers of Commerce California Urban Partnership Opposition California Financial Services Association California Immigrant Policy Center California New Car Dealers Association Consumer Federation of California Consumer Watchdog Consumers for Auto Reliability and Safety Independent Automobile Dealers Association of California The Trauma Foundation Analysis Prepared by : Joanna Gin / B.,P. & C.P. / (916) 319-3301