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New car dealers sit out fight on Buy Here Pay Here bills

Lobbyists lose what could be a key ally in Sacramento in their attempt to defeat regulation of dealers who use in-house financing, often at high interest rates.

June 09, 2012|By Ken Bensinger, Los Angeles Times
  • Buy Here Pay Here dealers sell autos to buyers with damaged credit using in-house financing. But consumers complain that the deals often are unfair.
Buy Here Pay Here dealers sell autos to buyers with damaged credit using… (Gary Friedman/Los Angeles…)

With legislation to impose new regulations on Buy Here Pay Here dealers marching through the statehouse, California's used car industry is redoubling efforts to block their passage.

But the insurgent opposition, which in recent weeks formed a new group to stop the three bills, will have to take its fight to Sacramento without the aid of one of the state's most powerful lobbies — new car dealers.

The Coalition to Protect Our Freedom to Drive argues that the bills, which last month passed floor votes in their originating houses, would cost the state hundreds of millions of dollars in lost sales tax revenue and keep working families from gaining access to vehicles.

The coalition recently launched a website, opened Twitter and Facebook accounts and on Thursday began sending out press releases.

The actions were bankrolled by a group of Buy Here Pay Here dealerships and industry groups and received endorsements from several local chambers of commerce and politicians, including a member of the State Board of Equalization.

The California New Car Dealers Assn., however, took a "neutral" position on all three bills — SB 956, AB 1447 and AB 1543. In fact, the group worked closely with the authors of each bill, helping to draft the language, according to Peter Welch, president of the new car dealers trade group.

"We've agreed that as long as we're excluded from the bills, we will stand down from the fight," said Welch, whose association counts 1,200 new car dealers — responsible for a huge chunk of the state's sales tax receipts — as members.

When they talk, legislators listen. Lacking their support, the coalition's chances may be limited.

All three bills sailed through committee and floor votes in their respective houses this spring. And one — written by Assemblyman Mike Feuer (D-Los Angeles) — was considerably toughened as it was revised in committee, gaining a provision mandating a 30-day or 1,000-mile limited warranty on all vehicles sold by Buy Here Pay Here dealers.

The bills could come up for final floor votes in time to be sent to Gov. Jerry Brown in late August. Supporters of the legislation include the Center for Responsible Lending, Consumers for Auto Reliability and Safety, and the Torrance Chamber of Commerce.

Larry Grooms, a Lancaster consultant who is working for the opposition coalition, said the group had already garnered powerful support, including from the National Independent Auto Dealers Assn.

"We don't want these bills to pass, but if somebody at least hits the pause button and does a thorough study of the impact, we'd probably be happy with that," Grooms said.

The legislation was introduced early this year to regulate the large Buy Here Pay Here industry that operated mostly out of the spotlight. Unlike other used car dealers, Buy Here Pay Here lots offer their own in-house financing, allowing them to sell to consumers with damaged or nonexistent credit.

Critics say that the dealers charge interest rates that can top 30%, mark up the cost of cars far beyond their value and sell vehicles in poor condition.

Among other provisions, the bills would cap interest rates on loans issued by the dealers at 17% plus the federal funds rate, currently at 0.25%; require dealers to register with the state Department of Corporations as finance lenders; put restrictions on how and when dealers can repossess cars; and require dealers to post fair market value prices on cars for sale.

A number of Buy Here Pay Here dealers, including Camacho Auto in Lancaster that helped found the coalition, say the regulations would put them out of business, Grooms said. That would prevent many working families with credit problems from purchasing cars, he said, and the state would lose out on as much as $337 million in sales tax revenue.

"These bills are going to have a negative effect on the economy," said George Runner, one of five board members of the State Board of Equalization, which collects sales tax in California. He said the board had not conducted its own study of the bills.

Assemblyman Tim Donnelly (R-San Bernardino), who is not a member of the coaltion but opposes the bills, posted a comment on Facebook after voting against the Feuer bill last month. "If a person wants to enter into a 'bad' contract with a dealer and buy a 'high risk' car, then that is between them," Donnelly wrote. "The state should have nothing to do with it."

Sen. Ted Lieu (D-Torrance), author of SB 956, took issue with the opposition's estimated tax implications or the idea that it would force dealers to close.

"They have provided no evidence that charging a 17.25% interest rate as opposed to 25% would put them out of business," Lieu said. "I think there would be more sales because cars will be less expensive."

To date, 12 dealers have joined the coalition, as has the National Alliance of Buy Here Pay Here Dealers, the Antelope Valley Chambers of Commerce and the Palmdale Chamber of Commerce.

ken.bensinger@latimes.com

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