SB 956, AB 1447, AB 1534 – Preventing Potential Loan Abuses by Buy Here Pay Here Dealerships

Bill Updates:  All three Buy-Here-Pay-Here bills, SB 956 (Lieu), AB 1447 (Feuer), and AB 1534 (Weickowski) are were on the Governor’s desk. SB 956 was vetoed, AB 1447 and AB 1534 were both signed on September 29.

CFC Position: Supports SB 956, AB 1447, AB 1534

The Buy Here Pay Here (BHPH) industry consists of used car dealers that lend to people with damaged credit by offering direct, in-house financing rather than using outside lenders like banks or credit unions.  BHPH serves as both the seller and the loan holder.  Their business practices are characterized by inflated interest rates and frequent
repossessions from their cash-strapped customers.

Borrowers have complained about high prices, steep interest rates, onerous payments and quick repossessions that often ruin their credit and push them into bankruptcy.  And they have almost entirely escaped scrutiny from policymakers.

Last fall, the Los Angeles Times ran a three-part series about the unfair practices of the BHPH industry.  They took a thorough look at everything from how it works, to how Wall Street is investing in it, to people that have been affected by loan abuses.

Shortly thereafter, the California Legislature took action and three bills related to BHPH were introduced to protect consumers:  SB 956 (Lieu), AB 1447 (Feuer) and AB 1534 (Wieckowski).

Senator Ted Lieu introduced SB 956 on January 9th, 2012.  The bill is aimed at accomplishing two goals.  First, it would require BHPH dealerships to obtain a California Finance Lenders license from the Department of Corporations.  This would hold the dealerships to the requirements of the California Finance Lenders Law, such as permitting advanced payment on a loan at any time (currently, consumers cannot pay more than one payment at any time).  The second part of the bill caps BHPH interest rates at 17.25%.  Some BHPH dealerships charge higher than 20% interest, which is more than three times the national average for a used car sale.

AB 1447, authored by Assemblymember Mike Feuer and introduced on January 4th, would prohibit a dealer from forcing the buyer to pay in person and would require that BHPH dealerships issue warranties on each car they sell. Currently, each car bought at a BHPH dealership has no guarantee.  However, under AB 1447, the dealer will have to provide at least a 30-day, 1000 mile warranty covering all essential parts and repairs.

The final bill of the BHPH bills is AB 1534, introduced by Assemblymember Bob Wieckowski on January 24th.  Currently, consumers who buy from BHPH dealers could be paying much more than the car is worth without even knowing it.  AB 1534 would require the BHPH dealerships to display on the vehicle the fair market value of the vehicle.  While not changing the price of the vehicle, displaying the actual worth of the vehicles will help consumers decide whether purchasing the car is worth it or not.

Nationwide, an estimated 30,000 BHPH dealerships sell more than 2 million used cars each year.