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Assembly Passes Two “Buy Here Pay Here” Reform Bills

## Center for Responsible Lending## is not a fan of Buy Here Pay Here used-car dealerships.

There are few side-effects of America's Car Culture as ugly as the proliferation of Buy Here Pay Here car dealerships.  These businesses serve as both car dealership and lender, preying on people of lesser means or bad credit with a (real or perceived) need to have access to a car.  The dealerships make their profits by inflating the value of cars, charing high interest rates

The Los Angeles Times examined the industry in a three part series last year.  The Times revealed how the industry escapes government oversight given to many lending industries by having dealerships that are hybrids of the car dealership and financing industries.  The series attracted the attention of at least three legislators who introduced legislation to reform the industry.   Two of these bills passed the full Assembly yesterday.

Of the two bills passed yesterday, Assemblyman Mike Feuer's (D-LA) includes plans to protect buyers from harassment and encourages fair deals between dealership and buyer.  In particular, A.B. 1447 would:

    • Require Buy-Here-Pay-Here dealers to provide a limited warranty that covers most major components and lasts for at least 30 days or 1,000 miles.
    • Prohibit Buy-Here-Pay-Here dealers from requiring a buyer to make regular payments in person.
    • Require that Buy-Here-Pay-Here dealers receive written consent from the buyer prior to selling a vehicle with an electronic tracking device.
    • Require Buy-Here-Pay-Here dealers to provide notice to the buyer of the presence of ignition shutdown technology in the vehicle and that such technology be set to provide advance warnings to the driver, to help avoid stranding drivers.

Buy Here Pay Here dealers make a bulk of their profits by intimidating their customers into deals they can't hope to live up to and then after taking thousands of their dollars disabling, towing or shutting down the cars when they are late on a payment.  Then, the dealership can turnaround and charge another desperate consumer a hefty down payment and exorbitant interest rate for a car many would consider a lemon.  This model encourages Buy Here Pay Here dealers to close deals they know the other side cannot afford and not to work with their customers when they fall on harder times.

“Without the protections included in A.B. 1447, mostly low-income Buy-Here-Pay-Here customers can’t be sure they are buying dependable vehicles,” said Feuer.  “That’s why my bill requires a minimum warranty and other critical safeguards that help ensure buyers are paying for reliable transportation.”

A.B. 1534, introduced by Fremont Democrat Bob Wieckowski also passed the Assembly yesterday.  This legislation would require Buy here Pay Here dealerships to list the cost of a car by an independent third party source, such as Kelley Blue Book, next to their sale price.  The bill accomplishes two reforms.  First, it requires dealers to list the price of a car on the car itself so that salesmen can't change the price pending the perceived income of the buyer/lendee.  Second, it arms buyers with a better idea of how much the Buy Here Pay Here dealer is gouging them.

Both Assembly bills need approval by the full Senate before moving to the Governor's Desk for final approval.   The Senate sends Assembly passed bills through their policy committees before budget committees.

 Meanwhile, Senator Ted Lieu's S.B. 956 has passed a series of Senate committees, although a final vote has not yet been scheduled.  Lieu's legislation takes aim at the finance side of the Buy Here Pay Here business model by forcing dealerships to get a California Lender's License and capping automobile loan interest rates to a mere 17.25%.

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