Buy Here Pay Here dealers issue their own in-house loans to their customers,… (Gary Friedman, Los Angeles…)
Three bills that aim to reform and regulate Buy Here Pay Here used-car dealers moved forward this week in the California Legislature, winning floor votes that clear a significant hurdle to final passage.
On Thursday, the state Senate passed a bill that would cap interest rates charged by the dealers at 17.25%. It also would require them to register with the state as finance lenders and would limit the ways that cars from Buy Here Pay Here lots can be repossessed. The bill, by Sen. Ted Lieu (D-Torrance), passed with a 23-12 vote.
For The Record
Los Angeles Times Tuesday, June 05, 2012 Home Edition Main News Part A Page 4 News Desk 1 inches; 60 words Type of Material: Correction
Buy Here Pay Here dealers: An article in the June 1 Business section about legislation affecting Buy Here Pay Here used-car dealers said that a bill approved by the California Senate would cap interest rates charged by such dealers at 17.25%. In fact, the bill would cap the rate at 17% plus the federal funds rate, which is now 0.25%.
And on Tuesday, the Assembly approved bills requiring the dealers to provide limited warranties on the cars they sell, disclose more information about vehicle values and prevent the installation of electronic tracking or disabling devices without written consent from customers, among other measures.
Those bills were sponsored by Assemblymen Mike Feuer (D-Los Angeles) and Bob Wieckowski (D-Fremont) and passed on votes of 49 to 25 and 42 to 32, respectively.
Both of those bills will now be considered in the Senate, while the Lieu bill has been forwarded for review in the Assembly. No date has been set for votes, and they are likely to be reviewed by policy and fiscal committees before final consideration.
"As it now stands, used-car dealers offering these 'buy here, pay here' loans are exempt from many of the protections that apply to other areas of finance," Lieu said. "Without these protections, consumers are paying the price -- often an exorbitant price."
Last week, the National Independent Automobile Dealers Assn., which represents used-car dealers, issued a letter suggesting the Feuer bill would cost the state $374 million in lost sales tax revenue each year "by making vehicle transactions more expensive or most likely unavailable."
In particular, the group opposed a provision that would require Buy Here Pay Here dealers to offer a warranty covering major components for at least 30 days or 1,000 miles. Currently most cars on such lots are sold on an as-is basis.
In addition, Carmax Inc., the publicly traded higher-end used-car retailer, opposed the Wieckowski bill that would require dealers to post the "reasonable market value" on every car on sales lots.
The national chain argued that the value of used cars is constantly depreciating, which could confuse consumers.
Supporters of the bills include Consumer Action and Consumers for Auto Reliability and Safety.
Buy Here Pay Here dealers, unlike other auto retailers, issue their own in-house loans on the cars they sell. Their customers tend to have damaged credit and limited incomes but need vehicles to get to work, giving dealers considerable opportunity to place large markups on vehicles and charge interest rates that can top 30%.
The legislation follows a series of articles published in the Los Angeles Times last year that explored the costs and tactics of the highly profitable business, which is estimated to sell more than 2 million cars a year nationwide.