BILL ANALYSIS                                                                                                                                                                                                    






                       SENATE JUDICIARY COMMITTEE              A   
                      Charles M. Calderon, Chairman            B
                         1995-96 Regular Session
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AB 1381 (Speier)
As amended on July 3, 1995
Hearing date:  July 11, 1995
Civil Code; Vehicle Code
GEH:cb



                              "LEMON LAW"
                          CONSUMER DISCLOSURE



                               HISTORY



Related Pending Legislation:  SB 1383 (Speier)

Assembly Floor Vote: Not relevant

Assembly Committee on Transportation Vote: Not relevant

        ANALYSIS REFLECTS AMENDMENTS TO BE OFFERED IN COMMITTEE


                              KEY ISSUES

1.   SHOULD THE AUTOMOTIVE CONSUMER NOTIFICATION ACT BE REPEALED,  AND  
    THEN RE-ENACTED IN A SUBSTANTIALLY DIFFERENT FORM, AS  DESCRIBED  
    IN THE BELOW-LISTED "KEY ISSUES"?

2.   SHOULD MANUFACTURERS HAVE THE FOLLOWING NEW AND MODIFIED  
     NOTIFICATION OBLIGATIONS WITH REGARD TO VEHICLES THEY  REPURCHASE  
    PURSUANT TO THE LEMON LAW?


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    A.       TO RETITLE A REACQUIRED VEHICLE IN THE MANUFACTURER'S  
        NAME?

    B.       TO REQUEST DMV TO BRAND THE OWNERSHIP CERTIFICATE OF A  
         REACQUIRED VEHICLE WITH THE TERM "FACTORY BUYBACK?"  

    C.       TO AFFIX A DECAL WITH THE TERM "FACTORY BUYBACK" TO A  
         REACQUIRED VEHICLE'S LEFT DOORFRAME?

3.   SHOULD THE CIRCUMSTANCES UNDER WHICH A WRITTEN NOTICE MUST BE 


































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 PROVIDED TO CONSUMERS PURCHASING A VEHICLE PREVIOUSLY  
     REACQUIRED DUE TO A DEFECT BE SUBSTANTIALLY CHANGED IN THE  
     FOLLOWING WAYS?

    A.       SHOULD THE REQUIREMENT ONLY APPLY TO A MORE NARROWLY  
         DEFINED SET OF "DEALERS" AND TO MANUFACTURERS INSTEAD OF  
         APPLYING TO ALL "PERSONS" SELLING A MOTOR VEHICLE?" 

    B.       SHOULD CONSUMERS BE REQUIRED TO BE NOTIFIED THAT THE  
         VEHICLE THEY ARE PURCHASING WAS REACQUIRED DUE TO A DEFECT  
         ONLY IF IT WAS REACQUIRED PURSUANT TO AN "EXPRESS WARRANTY  
         DISPUTE", INSTEAD OF TO ALL VEHICLES REQUIRED TO BE  
         REACQUIRED AS A RESULT OF A BREACH OF ANY WARRANTY? 

    C.       SHOULD DEALERS BE REQUIRED TO PROVIDE WRITTEN  
        NOTIFICATION  ONLY IF THEY HAVE ACTUAL KNOWLEDGE THAT THE  
        VEHICLE WAS  REACQUIRED, INSTEAD OF IF THEY SHOULD HAVE KNOWN  
        THAT IT  WAS REQUIRED BY LAW TO BE REACQUIRED?

    D.       SHOULD DEALERS ONLY BE REQUIRED TO PROVIDE WRITTEN  
         NOTIFICATION IF THEY KNEW THAT THE VEHICLE WAS REACQUIRED  AS  
        A RESULT OF A DISPUTE WITH THE LAST RETAIL OWNER OF THE  
         VEHICLE, INSTEAD OF IF THE VEHICLE HAD EVER BEEN  REACQUIRED?

4.   SHOULD THE REQUIRED CONTENTS OF THE CONSUMER NOTICE BE  
     SUBSTANTIALLY CHANGED IN THE FOLLOWING WAYS?

    A.       SHOULD THE NOTICE STATE THE VEHICLE IS A "FACTORY  
        BUYBACK"  DUE TO A "NONCONFORMITY" WHICH "HAS BEEN CORRECTED"  
        INSTEAD  OF STATING THAT IT "WAS RETURNED... DUE TO A DEFECT  
        IN THE  VEHICLE?"

    B.       SHOULD THE NOTICE HAVE TWO DIFFERENT BOXES TO CHECK --  
        ONE  FOR CARS BRANDED AS "FACTORY BUYBACKS", AND ONE FOR  
        OTHER  CARS RETURNED DUE TO A WARRANTY DISPUTE?



                               PURPOSE

The purpose of this bill is to make it easier for car dealers to  
comply with the requirements of the state's lemon disclosure laws.


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AB 1381 (Speier)
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 Under existing law, there are three different statutes which affect  
the obligations of car manufacturers and dealers regarding "lemons."  
 This bill directly affects only one of those statutes, the  
Automotive Consumer Notification Act (Section 1795.8 of the Civil  
Code), but to understand that Act, one must understand the other two  
statutes.

 The Song-Beverly Consumer Warranty Act (Section 1790  et.  seq. of the  
Civil Code governs a number of issues related to defective consumer  
products.  Section 1793.2(d)(2) in this Act requires a motor vehicle  
manufacturer to promptly replace a new motor vehicle or make  
equivalent restitution, if the manufacturer or its representative  
"is unable to service or repair ... [the vehicle] to conform to the  
applicable express warranties after a reasonable number of  
attempts." 

 The Tanner Consumer Protection Act (Section 1793.22) clarifies, and  
expands upon, the basic lemon buy-back requirement in the  
Song-Beverly Act.  it defines "nonconformity" as a nonconformity  
which "substantially impairs the use, value, or safety of the new  
motor vehicle to the buyer or lessee.  It also creates a rebuttable  
presumption that a reasonable number of attempts has been made to  
conform a new vehicle to express warranties if within 1 year or  
12,000 miles: 1) the same nonconformity has been subject to repair  
four or more times; or 2) the vehicle has been out of service for  
repair of nonconformities for 30 days or more.

In addition to addressing lemon buy-back requirements, the Tanner  
Act also imposes a lemon disclosure requirement for subsequent  
purchasers of lemons.  Section 1933.22(f) prohibits any person from  
selling, leasing or transferring a vehicle which has been  
transferred back to a manufacturer pursuant to the lemon buyback  
provisions of the Song-Beverly Act or a similar statute of any other  
state,  unless: "the nature of the nonconformity is clearly and  
conspicuously disclosed to the prospective ... [transferee], the  
nonconformity is corrected, and the manufacturer warrants to the new  
... [transferee] in writing for a period of one year that the motor  
vehicle is free of the nonconformity.

 The Automotive Consumer Notification Act (Section 1795.8) expands  
upon the lemon disclosure provisions of the Tanner Act, imposing  


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disclosure requirements which are "cumulative with all other  
consumer notice requirements", including the disclosure requirements  
in the Tanner Act.  

This Act places disclosure obligations on any person, including any  
dealer or manufacturer, selling a motor vehicle that is known or  
should be known to have been required by law to be replaced  or  
accepted for restitution pursuant to the Song-Beverly Act, or  
selling a motor vehicle that is known or should be known to have  
been required to be replaced or accepted for restitution due to the  
inability of the dealer or manufacturer to conform the vehicle to  
 warranties required by any other applicable law of this, any other  
 state, or federal law.       

Persons selling such vehicles must disclose the fact that the  
vehicle was required to be returned to the buyer in writing prior to  
the purchase.  A dealer or manufacturer is required "to include as  
part of the titling documents" of the vehicle the following  
disclosure statement set forth as a separate document and signed by  
the buyer:

"THIS MOTOR VEHICLE HAS BEEN RETURNED TO THE DEALER OR MANUFACTURER  
DUE TO A DEFECT IN THE VEHICLE PURSUANT TO CONSUMER WARRANTY LAWS."


 This bill repeals Section 1798,5, which contains the entirety of the  
present Automotive Consumer Notification Act.  The bill adds two new  
sections, to be placed in the Civil Code immediately after the  
Tanner Act, which together are to be called the Automotive Consumer  
Notification Act. 

This proposed new Act is substantially different from the one it  
would replace.  Each of the important differences is listed in the  
"key issues" section of this analysis (above); and each listed  
difference is described in more detail in bold type in each of the  
subsections of the "comment" section of this analysis (below). 

The bill also makes some conforming changes to other sections of the  
Civil Code and Vehicle Code.

 



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                               COMMENT

1.   Should the automotive consumer notification act be repealed,  and  
    then re-enacted in a substantially different form?

    According to the sponsors of this bill, the California Motor Car  
    Dealers Association, this bill is "intended to remove all of the  
    ambiguities contained in the current Automotive Consumer  
    Notification Act, provide clarity and predictability to present  
    title branding requirements; and broaden current buyback  
    disclosure requirements."

    This bill has recently been amended to remove the provisions  
    which were designed to clarify what car dealers and  
    manufacturers believe is the main ambiguity in the lemon laws --  
    the definition of "nonconformity" and the definition of a  
    "reasonable number of repair attempts."  Toyota Motor Sales has  
    written the committee to urge it to reinsert the bright line  
    tests which were deleted from the bill.

    A number of consumer groups, and individual consumers, oppose  
    this bill.  They take exception to the claim that it broadens or  
    clarifies current disclosure requirements, and argue that it  
    weakens and confuses what they believe are California's already  
    inadequate disclosure laws.  Motor Voter, the organization which  
    sponsored the original Tanner Act, writes:

    "Because any state with a lemon branding/disclosure statute in  
    effect invites auto manufacturers to dump lemons in its borders,  
    Motor Voters urges that California adopt language at least as  
    strong as that recommended in the National Association of  
    Attorneys' General (NAAG) model bill.  Some states ... have gone  
    beyond the NAAG bill to forbid lemons with a history of  
    life-threatening safety defects from being resold within their 










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state.  North Dakota forbids  any lemons from being resold within  
their state.  California should be moving in that direction, not  
backwards." 

    The specific issues of dispute between the proponents and  
    opponents are discussed in the comments which follow.             


2.   Should manufacturers have the following new and MODIFIED  
     notification obligations?

    The car dealers believe that, under present law, they do not  
    have enough information to know if a car they are selling was  
    REACQUIRED as lemon.  They therefore do no know if required  
    disclosures should be made or not.  The dealers believe that the  
    new requirements imposed upon manufacturers by this bill will  
    make it much easier for car dealers to fulfill their disclosure  
    obligations, and that, as a result, consumers will be better  
    informed.

    a.       Retitling vehicle in manufacturers' name

            Under this bill, manufacturers would have a new  
        obligation to retitle a reacquired vehicle in their name.

            This appears to a be a noncontroversial requirement  
        which will help track lemons as they get transferred back to  
        the manufacturer buy the buyer, and then get re-transferred  
        from the manufacturer to dealers.  

    b.       Branding title with "factory buyback"

            Under this bill, the present obligation to "brand" the  
        ownership certificate of a vehicle would clarified in two  
        ways: first, the obligation would be placed on manufacturers  
        to request DMV to place the brand; and second, the brand  
        must use the exact words "factory buyback." 

            The present statute does not specifically state that a  
        lemon's ownership certificate must be "branded" with a  
        label.  It merely states that the manufacturer or dealer  
        must include the required one-sentence disclosure statement  


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        "as part of the titling documents" on a separate sheet of  
        paper.  Evidently, in practice, this requirement has been  
        implemented through branding ownership certificates with the  
        term "warranty return."

            The main controversy about this provision is the term  
        "factory buyback."  Consumer groups believe that it is  
        "euphemistic."  Motor Voters believe it is "fraudulently  
        misleading" because it "could mean a vehicle was repurchased  
        merely because the original owner failed to make payments,  
        or because it had been a rental." They are concerned that  
        "even the most dangerously defective vehicle, with bad  
        brakes or faulty steering, would be deceptively  
        characterized as merely a 'factory buyback.'"  
            Consumer groups prefer either the term "defective  
        vehicle", which is recommended in the NAAG model bill, or  
        the term required by the previous version of this bill,  
        "lemon buyback."

            Toyota raises concerns with the language that a  
        manufacturer "request" DMV to brand the title.  This  
        language is not clear as to what happens if DMV does not  
        brand the title, or delays in branding the title.  Is there  
        no remedy?  Is the manufacturer prevented from transferring  
        the vehicle unless there is a brand?  Toyota is concerned  
        about the latter interpretation because DMV's "infamous  
        sophisticated' computer system ... is notoriously slow."  
            SHOULD A LESS EUPHEMISTIC BRANDING TERM BE REQUIRED?

            SHOULD THE CONSEQUENCES OF DMV FAILURE TO BRAND, OR  
        DELAY IN BRANDING, BE SPECIFIED? 
      
    c.       Affixing decal on doorframe

            Under this bill, manufacturers would have a new  
        obligation to affix a decal with the term "factory buyback"  
        to a reacquired vehicle's left doorframe.

            Although this provision imposes a new notification  
        requirement, consumer groups are unimpressed.  They believe  
        that a little sticker on the door jam is a meaningless  
        warning, and that it will only be used against consumers by  


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        claiming that they should have been on notice that their car  
        was a lemon because it was affixed with the decal.

            Toyota is concerned about manufacturers having  
        "vicarious liability for third party tampering with decals."  
         They argue that manufacturers have no control over the  
        removal of the decals in the chain of commerce.  

3.   Should the circumstances under which a written notice must be  
     provided to consumers be substantially changed?

    a.       Narrower set of sellers 

            Under this bill, the consumer notification requirement  
        would only apply to a more narrowly defined set of "dealers"  
        and to manufacturers, instead of applying to all "persons"  
        selling a motor vehicle.

            The Consumer Attorneys of California (CAOC) are  
        concerned that this bill removes disclosure responsibilities  
        from "persons" who are not manufacturer or dealers, arguing  
        that no justification has been provided for this narrowing  
        of existing law.  They are specifically worried that  
        lienholders who reacquire, and then resell vehicles would be  
        exempted from the bill.  The car dealers point out that,  
        under the bill, a manufacturer who assists a lienholder in  
        reacquiring a vehicle would be responsible for making the  
        required disclosures.

            Present law contains a definition of dealer which is  
        broader than the Vehicle Code definition of dealer (VC  
        Section 265) used in this bill.  The Vehicle Code definition  
        excludes "persons regularly employed as salespersons by  
        vehicle dealers... while acting in the scope of their  
        employment."  By contrast, the present Act's definition  
        expressly includes "officers, agents, and employees" of a  
        car sales business.    
     
            SHOULD THE DISCLOSURE REQUIREMENTS APPLY TO ALL PERSONS,  
        OR ALTERNATIVELY, SHOULD THE PRESENT DEFINITION OF "DEALER"  
        BE RETAINED?



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    b.       Limiting notification requirement to "express warranty  
         disputes"

            Under this bill, consumers would be required to be  
        notified that the vehicle they are purchasing was reacquired  
        due to a defect only if it was reacquired pursuant to an  
        "express warranty dispute", instead of to all vehicles  
        required to be reacquired as a result of a breach of any  
        warranty? 

            The car dealers argue that under present law, only cars  
        deemed to be lemons under the lemon buyback law, or similar  
        laws, are subject to the disclosure requirements.  They  
        contend that this bill represents an important expansion of  
        the notification requirement, because, in addition to  
        requiring title branding and notice for lemon buybacks, it  
        requires notice (but not title branding) for any vehicle  
        reacquired pursuant to an "express warranty dispute."

            Consumer groups disagree with the car dealers  
        characterization of both present law and this bill.  They  
        point out that existing law requires notice and title  
        branding for any car which is reacquired because of  
        nonconformity to warranties under  any law of the state. The  
        opponents argue that this requirement in existing law is  
        much broader than this bill's proposed requirement because  
        the warranties do not have to be "express", and because  
        there does not have to be a "dispute" about the warranties.
            
            Consumers Union (CU) is concerned that "auto companies  
        would claim that no 'dispute" existed if a consumer asks for  
        a repurchase because of an obvious, serious safety defect  
        and the auto company complied.  CU also believes that  
        vehicles reacquired pursuant to an implied warranty also  
        should be disclosed to buyers.  The applicable implied 









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    warranties under the Uniform Commercial Code would be the  
    implied warranty of merchantability and the implied warranty of  
    fitness for particular purpose. 
             
            The car dealers believe that these arguments are overly  
    picky, and they assert that any car reacquired because of an  
    allegation that it was defective would be covered by the term  
    "express warranty dispute."

    c.       Actual knowledge versus "should have known"

            Under this bill, dealers are required to provide written  
    notification only if they have "actual knowledge" that the  
    vehicle was reacquired, instead of if they "should have known"  
    that it was required by law to be reacquired.

            This is one of the most significant changes made by this  
    bill.  Car dealers argue that the "should have known" standard  
    in presently law is unworkable and unfair.  They argue that  
    lemons are reacquired by manufacturers, not dealers, and that  
    dealers have no way of knowing if a car they are selling was  
    previously reacquired as a lemon, unless the manufacturer tells  
    them.  That is why the dealers have imposed new obligations on  
    the manufacturer designed to retitle the car, request the brand,  
    affix a decal, and prepare and sign the original copy of the  
    consumer disclosure form.

            CAOC argues that requiring disclosure only when the  
    dealer has actual knowledge that the car was reacquired by the  
    manufacturer is inconsistent with the basic principles of  
    products liability law.  Under California case law, all  
    businesses, including retail sellers, in the chain of commerce  
    of a product are held strictly liable for defects in the  
    project, and for failures to warn about those defect, regardless  
    of whether the business knew, of the defect or the failure to  
    warn.  The theory is that retailers are in a much better  
    position than consumers to know about defects, and retailers  
    profit from selling defective products, so it is fair to impose  
    liability on them for damages caused by the defects.

            Car dealers respond to this argument by pointing out  
    that this bill does not relieve dealers of their strict  


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    liability for defects under common law, but the dealers miss the  
    central point of the argument:  If basic tort liability for  
    defects and failures to warn does not require actual knowledge,  
    why should the less onerous statutory disclosure law requires  
    actual knowledge?

            SHOULD THE BILL BE AMENDED TO REINSTATE LIABILITY FOR  
    DEALERS WHO SHOULD HAVE KNOWN A CAR WAS A LEMON? 




































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    d.       "Last retail owner"

            Under this bill, dealers are only required to provide  
    written notification to consumers if they knew that the vehicle  
    was reacquired as a result of a dispute with the last retail  
    owner of the vehicle, instead of if the vehicle has  ever been  
    reacquired.

            The car dealers have not provided any justification for  
    this seemingly inappropriate limitation -- if a dealer has  
    actual knowledge that a car was reacquired due to a warranty  
    dispute, should the dealer be allowed to conceal that fact, just  
    because the warranty dispute was with the original owner, not  
    with the last retail owner? 
            
            SHOULD THE "LAST RETAIL OWNER" BE LIMITATION BE REMOVED?  
      

4.   Should the required contents of the consumer notice be  
     substantially changed in the following ways?

    a.       Changes in wording                              

            Under this bill, the consumer notice would be  
        accomplished by filing out a statutory form.  That form  
        would state that the vehicle is a "factory buyback" due to a  
        "nonconformity" which "has been corrected", instead of  
        stating that the vehicle "was returned to the manufacturer  
        or dealer due to a defect in the vehicle."

            Consumer groups believe that the present warning clearly  
        informs consumers that they are being a vehicle which was  
        previously returned due to a defect. 

            Motor Voters argues that the legal term "nonconformity"  
        is "confusing and carried far less import than 'defect."   
        Consumers Union believes it is inappropriate to state on the  
        disclosure form nonconformity  has been corrected, because it  
        minimizes the import of the fact that the car was returned  
        because it was defective.



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    b.       Two different boxes

            Under this bill, instead of consumer notice being  
        accomplished by use of a single declarative sentence, the  
        required statutory form would have two different boxes to  
        check, with each box being described by a sentence.  One of  
        the boxes is for cars branded as "factory buybacks", and the  
        other box is for other cars returned due to a warranty  
        dispute.

            Car dealers believe it is important for consumers to be  
        aware of the distinction between cars that were required by  
        the lemon buyback law to be reacquired, and cars which were  
        reacquired voluntarily to resolve a warranty dispute -- so  
        called "warranty buybacks."

            Consumer groups believe this distinction further dilutes  
        the effectiveness of the warning, and that it is misleading  
        because dealers may voluntarily buyback the worst vehicles,  
        because the defects are so obvious, and the manufacturers'  
        liability is clear. 

            SHOULD THE REQUIRED DISCLOSURE IN PRESENT LAW BE  
        RETAINED, INSTEAD OF THIS BILL'S CONFUSING FORM?
                                   

Support:     California Motor Car Dealers Association


Opposition:  Center for Auto Safety; Motor Voters; Consumers Union;  
        Consumer Attorneys of California; Consumer Action; Consumer  
        Federation of America; 13 individuals (identifying themselves  
        as owners or previous owners of lemons)   
                                  

Prior Legislation:  SB 788  (1989) Chaptered
                    SB 2568 (1991) Vetoed
                    SB 1762 (1992) Chaptered            


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