A Buy Here Pay Here lot in Hawthorne. Two new laws will regulate the industry. (Gary Friedman / Los Angeles…)
Gov. Jerry Brown’s decision over the weekend to sign two bills -- AB 1447 and AB 1534 -- regulating Buy Here Pay Here used-car dealers is being hailed by consumer advocates as a huge and trailblazing victory over a controversial industry that some call predatory.
So why are the dealers celebrating?
Starting Jan. 1, Buy Here Pay Here lots, which provide their own in-house financing on cars rather than using third-party lenders, will be required to offer 30-day warranties on every vehicle they sell, place signs on autos indicating the fair-market value, increase disclosures about onboard tracking devices, and give customers more flexibility in making payments.
It’s a sweeping slate of new rules that dealers argued for months would increase their cost of sales and potentially push many out of business altogether.
But, critically, it does not include a number of regulations that industry groups feared would be far worse, including an interest rate cap, a grace period on repossessions and a requirement that dealers register with the Department of Corporations as lenders.
Those provisions were part of a third bill, SB 956, that Brown vetoed, saying in a statement: “I am not yet convinced the evidence merits the regulatory oversight of this bill.”
For hundreds of dealers in California, and thousands more watching around the country, it felt like dodging a bullet.
“It’s more than a small victory; it’s huge,” Larry Laskowski, executive director of the Independent Automobile Dealers Assn. of California crowed to an auto finance trade publication Sunday. “That was absolutely the worst one by far.”
Peter Salinas, editor of Dealer Business Journal, a monthly magazine owned by a Buy Here Pay Here consulting firm, also called the veto a "victory," noting that SB 956 was “onerous” and “detrimental” to dealers.
In online forums and on twitter, Buy Here Pay Here dealers congratulated one another on Sunday, and credited a lobbying effort that seemed to have little impact on lawmakers but apparently caught the governor’s ear. The 11th hour surprise was all the more important, they said, because California tends to set the path for consumer regulation in other states.
Advocates of controls on Buy Here Pay Here lots, meanwhile, pledged to keep up the fight. In particular, they noted that Gov. Brown left open the possibility of taking up the issue again next year in his veto message: “if consumers need added protection once these bills are implemented, my administration will work with the Legislature to find appropriate, measured solutions.”
Sen. Ted Lieu (D-Torrance), who authored SB 956, read that as a signal to keep pushing on the issue and potentially reintroduce the measure next year. As passed by the legislature, his bill would have capped interest rates Buy Here Pay Here dealers can charge at 17% plus the federal funds rate, given customers a 15-day grace period before repossession and forced dealers to register as finance lenders with the Department of Corporations.
“While I am disappointed … I will work with the administration to address the excessive interest rates being charged by Buy Here Pay Here dealers,” Lieu said.
Rosemary Shahan, president of Consumers for Auto Reliability and Safety in Sacramento, backed all three bills. And though the veto was a let-down, she scoffs at calling it a defeat. More important than an interest rate cap -- which some argue dealers can sidestep by simply raising prices on cars -- was the requirement that all cars be sold with 30-day, 1,000 mile warranties.
A large portion of loan defaults at Buy Here Pay Here lots come in the first weeks after sale. That’s often because the cars are in bad shape and stop running, the dealer refuses to fix it and the consumer stops paying. Now with a mandatory warranty, Shahan said, lots will be forced to sell cars in better mechanical condition.