BILL ANALYSIS                                                                                                                                                                                                    





                             SENATE JUDICIARY COMMITTEE
                         Senator Hannah-Beth Jackson, Chair
                             2015-2016  Regular Session


          AB 287 (Gordon)
          Version: June 13, 2016
          Hearing Date: June 28, 2016
          Fiscal: Yes
          Urgency: No
          TH   


                                        SUBJECT
                                           
                               Vehicle Safety: Recalls

                                      DESCRIPTION  

          This bill would restrict the rental, loaning, advertising, and  
          sale of vehicles subject to an automobile manufacturer's recall  
          as follows:
           vehicles may not be advertised or sold as "certified" if  
            subject to an unremediated manufacturer's recall; and
           vehicle dealers and rental car companies may not loan or rent  
            vehicles subject to an unremediated manufacturer's recall;

          This bill would also clarify that automobile manufacturers shall  
          be liable for costs associated with the disposal of hazardous  
          materials associated with a recall, and would require the  
          Department of Motor Vehicles to notify registered owners of an  
          unrepaired recall in a notice of registration renewal, as  
          specified.

                                      BACKGROUND  

          The National Highway Traffic Safety Administration (NHTSA) has  
          the authority under federal law to issue vehicle safety  
          standards and to require manufacturers to recall vehicles that  
          have safety defects or do not meet safety standards.  If a  
          safety defect is identified, manufacturers are required to  
          notify the NHTSA, owners, dealers and distributors, and, correct  
          the defect at no change (unless the vehicle is more than 10  
          years old).  Recently, concerns have been raised about the risks  
          of purchasing or renting a car subject to a safety recall and,  








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          as a result, steps that could be taken to reduce those risks.  

          As an example of the serious risks posed by safety recalls, a  
          2012 article published on Edmunds.com entitled "Recalled but  
          Unrepaired Cars Are a Safety Risk to Consumers," reported:

            In April 2009, General Motors [(GM)] began sending  
            registered letters to owners of more than 1.4 million of its  
            cars equipped with 3.8-liter V6 engines, notifying them of a  
            recall for 1997-2003 V6-equipped Chevrolets, Buicks,  
            Oldsmobiles and Pontiacs to address a potential engine fire  
            hazard. The previous year, the company had sent letters to  
            owners of 207,000 Buicks and Pontiacs with turbocharged  
            versions of the same engine for the same problem.

            By the time the 2009 recall was issued, there had been  
            reports filed with the [NHTSA] of almost 250 fires in such  
            cars.  The problem was thought to be caused by oil that had  
            spilled or leaked onto heated exhaust manifold surfaces.  In  
            some cases, the oil caught fire and the flames spread to  
            plastic parts, including the spark plug wiring channel and  
            the upper intake manifolds and engine covers.

            As almost all car-fire warnings do, the letters also urged  
            owners not to park the cars in their garages or near homes  
            or other flammable structures until the recall work had been  
            completed.  But not every owner of a fire-prone GM vehicle  
            has seen that letter.  Although the rate of incidents is  
            steadily declining, there have been at least 250 additional  
            engine fires since the recall was announced three years ago,  
            according to reports filed with NHTSA.

            In many cases, the owners of the burned-up cars said they  
            were not aware that there had been a recall.  Most had  
            purchased the vehicles used.  Many didn't know if the  
            required repair work had ever been done.  Some of the cars  
            that were parked in garages are believed in several cases to  
            have caused structural damage or damage to other vehicles as  
            flames spread.  (John O'Dell, Recalled But Unrepaired Cars  
            Are a Safety Risk to Consumers, Edmunds (August 20, 2014)  
             [as of June 25,  
            2016].)

          In response to concerns about unrepaired recalled vehicles,  







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          this bill would generally prohibit the renting and loaning of  
          vehicles subject to a manufacturer's recall, and would  
          prohibit a dealer from advertising or selling a used vehicle  
          as "certified" if it is subject to a manufacturer's safety  
          recall.  This bill would also direct the Department of Motor  
          Vehicles to inform registered owners of unrepaired recalls via  
          a statement on their annual vehicle registration renewal  
          notice.

                                CHANGES TO EXISTING LAW
           
           Existing federal law  , Part 577 of 49 C.F.R. 577.1, sets forth  
          the requirements for when manufacturers must notify vehicle  
          owners, dealers, and distributors about a defect that relates to  
          motor vehicle safety or noncompliance with a federal motor  
          vehicle safety standard.  (49 C.F.R. 577.1 et seq.)  

           Existing state law  prohibits any person from acting as a dealer,  
          remanufacturer, manufacturer, or transporter, as specified,  
          without having first been issued a license or temporary permit,  
          as specified. (Veh. Code Sec. 11700.)

           Existing law  prohibits a holder of a license from, among other  
          things, making or disseminating any statement which is untrue or  
          misleading and which is known, or which by the reasonable  
          exercise of case should be known to be untrue or misleading, as  
          specified.  (Veh. Code Sec. 11713(a).)

           Existing law  provides that it is a violation of the Vehicle Code  
          for a holder of any dealer's license to advertise or sell a used  
          vehicle as "certified" or use any similar descriptive term in  
          the advertisement or sale of a used vehicle that implies the  
          vehicle has been certified to meet the terms of a used vehicle  
          certification program if any of the following apply: (1) the  
          dealer knows or should have known that the odometer does not  
          indicate actual mileage; (2) the dealer knows or should have  
          known that the vehicle was reacquired by a dealer or  
          manufacturer pursuant to state or federal warranty laws; (3) the  
          title has been inscribed with "lemon law buyback," "manufacturer  
          repurchase," "salvage," " junk," "nonrepairable," "flood," or  
          similar title designation; (4) the vehicle has sustained damage,  
          as specified, that after repair substantially impairs the use or  
          safety of the vehicle; (5) the dealer knows or should have known  
          that the vehicle has sustained frame damage; (6) the dealer  
          fails to provide a completed inspection report; (7) the dealer  







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          disclaims any warranties of merchantability; (8) the vehicle is  
          sold "AS IS" or (9) the term "certified" or any similar term is  
          used in a manner that is untrue or misleading.  (Veh. Code Sec.  
          11713.18.)

           Existing law  prohibits a dealer or person holding a retail  
          seller's permit from selling a new or used vehicle that is not  
          in compliance with the Vehicle Code and departmental  
          regulations, unless the vehicle is sold to another dealer, sold  
          for the purpose of being legally wrecked or dismantled, or sold  
          exclusively for off-highway use, as specified.  (Veh. Code Sec.  
          24007 (a)(1).)

           Existing law  provides that when a federal motor vehicle standard  
          is established under federal law, as specified, no dealer shall  
          sell or offer for sale a vehicle to which the standard is  
          applicable, and no person shall sell or offer for an item of  
          equipment sale for use upon a vehicle to which the standard is  
          applicable unless:  (1) the vehicle conforms to the applicable  
          federal standard; or (2) the vehicle or equipment bears a  
          certification, as specified.  (Veh. Code  Sec. 24011.)

           Existing law  provides that every franchisor shall properly  
          fulfill every warranty agreement made by it and adequately and  
          fairly compensate each of its franchisees for labor and parts  
          used to fulfill that warranty when the franchisee has fulfilled  
          warranty obligations of diagnostics, repair, and servicing and  
          shall file a copy of its warranty reimbursement schedule or  
          formula with the board. The warranty reimbursement schedule or  
          formula shall be reasonable with respect to the time and  
          compensation allowed to the franchisee for the warranty  
          diagnostics, repair, and servicing, and all other conditions of  
          the obligation.  (Veh. Code  Sec. 3065.)

           This bill  provides that a warranty reimbursement schedule or  
          formula shall be reasonable with respect to the time and  
          compensation allowed to the franchisee for the warranty  
          diagnostics, repair, servicing, and all other conditions of the  
          obligation, including all costs associated with the disposal of  
          hazardous materials that are associated with a recall.

           This bill  prohibits the holder of any dealer's license to  
          advertise for sale or sell a used vehicle as "certified" or use  
          any similar descriptive term in the advertisement or the sale of  
          a used vehicle that implies the vehicle has been certified to  







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          meet the terms of a used vehicle certification program if the  
          vehicle is subject to an unremedied manufacturer's recall, as  
          specified.

           This bill  provides that no later than 48 hours after receiving a  
          notice of a manufacturer's recall, or sooner if practicable, a  
          dealer or rental car company shall not loan, rent, or offer for  
          loan or rent a vehicle subject to that recall until the recall  
          repair has been made.  If a recall notification indicates that  
          the remedy for the recall is not immediately available and  
          specifies actions to temporarily repair the vehicle in a manner  
          to eliminate the safety risk that prompted the recall, the  
          dealer or rental car company, after having the repairs  
          completed, may loan or rent the vehicle, however once the remedy  
          for the vehicle becomes available to the dealer or rental car  
          company, the dealer or rental car company shall not loan or rent  
          the vehicle until the vehicle has been repaired.

           This bill  states that for every used vehicle advertised for sale  
          as "certified" or any similar descriptive term that implies the  
          vehicle has been certified to meet the terms of a used vehicle  
          certification program, a dealer shall obtain a recall database  
          report before the display or offer and every 30 days thereafter  
          until the vehicle is no longer displayed or offered for sale.   
          If a recall database report obtained by a dealer indicates that  
          a used vehicle is subject to a manufacturer's recall, the dealer  
          shall not advertise for sale or sell that vehicle as "certified"  
          or use any similar descriptive term that implies the vehicle has  
          been certified to meet the terms of a used vehicle certification  
          program until the recall repair has been made.

           This bill  provides that before mailing a notice of registration  
          renewal to the registered owner of a vehicle, the Department of  
          Motor Vehicles shall obtain a recall database report for that  
          vehicle.  If the recall database report indicates that the  
          vehicle is subject to a manufacturer's recall, the department  
          shall notify the registered owner by checking the box next to  
          the recall disclosure statement, and shall include the following  
          recall disclosure statement on the notice of registration  
          renewal:

            "WARNING.  This vehicle has an unrepaired manufacturer's  
            recall.  You can get this recall repaired for free.  You can  
            check for any recalls and how to get the recall repaired at  
            the National Highway Traffic Safety Administration's Internet  







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            Web site."

           This bill  states that its provisions shall become operative on  
          July 1, 2017, except as specified.

           This bill  makes related findings and declarations.
          
                                        COMMENT
           
           1.Stated need for the bill
           
          According to the author:

            While vehicles have become safer, the number of vehicles  
            subject to a recall has grown dramatically.  Over the past  
            decade, the number of traffic-related deaths has dropped  
            significantly; however, 2014 saw a new record number of  
            recalls in the U.S. with more than 63.8 million recalls.  This  
            number of recalls is more than twice as many recalls as any  
            previous year and is equivalent to roughly 25 [percent] of the  
            vehicles on the road today.  While slightly lower, 2015 saw 51  
            million recalls and 2016 is on pace to compare to the past two  
            years, as manufacturers face potential fines from federal  
            regulators, threats of increased litigation, and as the issue  
            receives greater coverage in mainstream media. 
           
            Federal regulations now require most vehicle manufacturers to  
            provide recall information applicable to the vehicles they  
            manufacture on the Internet and available to the public.   
            Federal law prohibits the sale of a new vehicle with an  
            unrepaired recall.  However, neither federal nor California  
            law specifically requires the disclosure or repair of a used  
            vehicle subject to a recall.

            The CARS Act [AB 287] would help address problems related to  
            recalls in four important ways, and ensure that car dealers,  
            rental car companies, manufacturers, and the government all  
            have "skin in the game" to enhance consumer protection:
              
            1.   Truth in Advertising: Recalls
            AB 287 would expand consumer protection law to prohibit a new  
            or used car dealer from advertising for sale or selling a used  
            vehicle as "certified" if it has an unrepaired manufacturer's  
            recall.   








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            2.   Rental & Loaner Car Protections 
            In December 2015, Congress passed and the President signed a  
            five year transportation funding measure - the Fixing  
            America's Surface Transportation Act (FAST Act).  The measure  
            included a provision that prohibits a rental car company or  
            car dealer, with 35 or more vehicles available for rental or  
            loan, from renting or loaning a vehicle with an unrepaired  
            manufacturer recall.  

            AB 287 would close the fewer than 35 vehicle loophole and  
            prohibit a rental car company or car dealer from renting or  
            loaning any vehicle with an unrepaired manufacturer recall.  

            3.   Government Responsibility to Notify Owners
            [It] is estimated that 30 [percent] of all vehicles subject to  
            a manufacturer recall are never repaired.  Moreover, with the  
            increased frequency of notifications from manufacturers, as  
            well as notifications attempting to sell warranties that  
            appear official, vehicle owners may receive a lot of paper. .  
            . . AB 287 would direct the Department of Motor Vehicles to  
            establish a means to notify the owners of vehicles subject to  
            recall at the time of annual registration that there is a  
            recall and how to get it repaired.  This requirement would be  
            conditioned upon a determination that the department has  
            access to the necessary data and funds to implement.  

            4.        Manufacturer Responsibility for Proper Disposal of  
            Its Recalled Parts
            Currently, when there is a manufacturer recall, the repair can  
            be completed by a manufacturer-authorized facility, typically  
            a franchised new car dealer, at no cost to the consumer.  The  
            manufacturer will reimburse the repairing dealer for the  
            necessary new part(s) and for the cost of labor to make the  
            repair.  However, if the recall repair includes removal of a  
            part that is considered hazardous material and cannot be  
            disposed of through waste pick-up, the dealer is responsible  
            for that expense.  Federal regulations specify how  
            manufacturers shall reimburse the vehicle owner, who pays to  
            have service done on their vehicle and later the part that is  
            replaced is recalled.  The federal regulations include  
            reimbursing vehicle owners for "miscellaneous fees such as  
            disposal of waste."  

            AB 287 would require that the automobile manufacturer take  
            financial responsibility for this additional expense  







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            associated with repairing its recalled vehicles, thereby  
            conforming state law for reimbursing dealers to federal  
            regulations for reimbursing vehicle owners.

           2.Safety recalls
             
          Vehicle safety recalls are necessary when a motor vehicle or  
          item of motor vehicle equipment does not comply with a Federal  
          Motor Vehicle Safety Standard, or when there is a safety-related  
          defect in the vehicle or equipment.  The National Highway  
          Traffic Safety Administration (NHTSA) notes that "[g]enerally, a  
          safety defect is defined as a problem that exists in a motor  
          vehicle or item of motor vehicle equipment that:  (1) poses a  
          risk to motor vehicle safety; and (2) may exist in a group of  
          vehicles of the same design or manufacture, or items of  
          equipment of the same type and manufacture."  Sample defects  
          provided by the NHTSA include steering components that break and  
          cause a loss of control, problems with fuel system components  
          that may cause vehicle fires, accelerator controls that may  
          stick, and child safety seats that contain defective safety  
          belts that create a risk of injury.  (See Motor Vehicle Defects  
          and Safety Recalls:  What Every Vehicle Owner Should Know, U.S.  
          Department of Transportation  
           [as of  
          June 25, 2013].)

          This bill takes a multi-faceted approach toward limiting the  
          sale and use of vehicles with unrepaired safety recalls.  At the  
          point of sale, this bill would prohibit dealers from selling  
          used vehicles as "certified" if they have an unrepaired recall.   
          Outside the sale context, dealers and rental car companies would  
          be prohibited from renting or loaning vehicles subject to  
          recall.  Finally, at the point of registration, this bill would  
          require the Department of Motor Vehicles to inform owners of the  
          fact that their vehicle is part of a recall campaign and has not  
          been repaired.  While not a complete prohibition on the sale of  
          used vehicles subject to recall, this bill would arguably help  
          take some proportion of unrepaired recalled vehicles off the  
          road, thereby making the driving environment safer for all  
          drivers.

           3."Certified" vehicles
           
          As noted above, this bill would prohibit a dealer from  
          advertising or selling a used vehicle as "certified" if the  







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          vehicle is subject to a manufacturer's recall.  Considering that  
          "certified" vehicles are generally perceived as being superior  
          to other non-certified vehicles, applying this sale prohibition  
          to certified vehicles arguably aligns the law with the  
          expectation of consumers in the marketplace.  Under this bill, a  
          dealer would have the duty to obtain a specified report from a  
          vehicle recall database before the vehicle is displayed or  
          offered for sale, and again every 30 days thereafter, until the  
          vehicle is no longer displayed or offered for sale.  If the  
          report indicates that the vehicle is subject to an unrepaired  
          recall, this bill would prohibit its sale.

          While relying on the recall database makes compliance with this  
          provision easier for automobile dealers, there could be  
          instances where a dealer learns directly that a vehicle is  
          subject to a recall through other means, such as a recall  
          notification sent from NHTSA.  If the dealer learns of an  
          unrepaired recall after running the database report, but fails  
          to consider that separate firsthand knowledge as sufficient to  
          stop the sale of a vehicle as "certified," such conduct would  
          arguably border on fraud.  The Committee may, therefore, wish to  
          consider amending this bill to include actual knowledge of a  
          recall as sufficient to invoke this bill's "stop-sale" provision  
          to sell that vehicle as "certified."

          Additionally, while the recall database is a useful tool to  
          screen vehicles that can be marketed as "certified," there is a  
          risk that vehicles initially clear of unrepaired recalls could  
          become subject to a recall campaign before they are sold, but  
          before 30 day recall re-check provision in this bill kicks in.   
          This potential gap between a recall issuing and the re-check  
          provision could lead to vehicles being sold as "certified" even  
          though they have open safety recalls.  The Committee may,  
          therefore, wish to consider amending this bill to require more  
          frequent checks of the recall database, including at the point  
          of sale.

           4.Comments from rental car industry
           
          While not taking a position on this bill, the American Car  
          Rental Association (ACRA) has submitted suggested amendments to  
          this bill in order to harmonize certain aspects of it with  
          federal law pertaining to rental car companies.  ACRA states:
            ACRA is concerned that the current draft of AB 287  
            inadvertently conflicts with the language of the federal car  







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            rental recall statute.  Such conflicts will, if left  
            unaddressed, cause confusion among the car renting and buying  
            public, as well as among car rental companies charged with  
            compliance with both the federal and state statutes, and  
            perhaps among used car dealers as well.

          To address its concerns, ACRA suggests the following amendments:
           exclude car rental companies with 35 or more vehicles in their  
            fleets, which are already regulated by the federal statute,  
            from coverage by the provisions of AB 287;
           change the timetable for "grounding" rental vehicles after  
            receipt of a manufacturer's recall notice to 24 hours, which  
            is consistent with the federal statute's mandate; and
           clarify that the recall database report provisions which  
            respectively apply to dealers and the Department of Motor  
            Vehicles, do not apply to car rental companies.


           Support  :  California New Car Dealers Association; Independent  
          Automobile Dealers Association of California

           Opposition  :  None Known

                                        HISTORY
           
           Source  :  California New Car Dealers Association

           Related Pending Legislation  :  None Known

           Prior Legislation  :

          SB 686 (Jackson, 2013) would have prohibited a vehicle dealer  
          from selling, leasing, renting, loaning, or otherwise  
          transferring ownership of a used vehicle if the dealer knows or  
          should have known that the vehicle is subject to a  
          manufacturer's safety recall, unless the repairs required to  
          correct the defect have been performed.  This bill died in the  
          Assembly Business, Professions and Consumer Protection  
          Committee.

          AB 964 (Bonta, 2013) would have included manufacturer's safety  
          recalls on the list of prohibited conditions for certified  
               vehicles.  This bill also would have added a required pre-sale  
          disclosure for all used vehicles regarding manufacturer's  
          recalls and the other safety and warranty issues.  This bill  







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          died on the Assembly Floor inactive file.

           Prior Vote  :

          Senate Transportation and Housing Committee (Ayes 11, Noes 0)
          Assembly Floor (Ayes 76, Noes 0)
          Assembly Appropriations Committee (Ayes 16, Noes 0)
          Assembly Privacy and Consumer Protection Committee (Ayes 11,  
          Noes 0)
          Assembly Transportation Committee (Ayes 16, Noes 0)

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