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 SHOULD THE AUTOMOTIVE CONSUMER NOTIFICATION ACT BE REPEALED, AND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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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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