SACRAMENTO, Calif. -

The same state that passed a pair of laws last year that intensified regulation of buy-here, pay-here dealers now is taking up a measure that would modify how a certified pre-owned vehicle can be sold.

A bill that currently is in the California Assembly would include manufacturer’s safety recalls on the list of prohibited conditions for certified vehicles. 

The measure, AB 964, would also add a required pre-sale disclosure for all used vehicles (including non-certified units) regarding manufacturer’s recalls and the other safety and warranty issues.

The bill’s author, Assemblyman Rob Bonta who represents Oakland, said these disclosures parallel the safety and warranty conditions applicable to certified used vehicles. 

California law already states used vehicles may be advertised and sold only if certain criteria apply regarding the condition of the vehicle. Examples of those criteria include that the odometer has not been altered or replaced to show fewer miles and that the vehicle has not been salvaged or have other specified safety problems. 

Measure supporters — including the Latin Business Association, the California Hispanic Chambers of Commerce and the California Urban Partnership — argue that the bill will improve consumer awareness and safety.

Opponents — including the California New Car Dealers Association, the Independent Automobile Dealers Association of California and the California Financial Services Association — contend that the bill is unnecessary, burdensome and difficult “if not impossible” for dealers to remain compliant.

The measure initially received support when it was discussed and voted to have additional readings and amendments made by the Assembly’s Appropriations Committee. However, Assemblywoman Toni Atkins asked that it be put in the chamber’s inactive file where it can still be resuscitated and eventually moved through the Assembly and on to the California Senate before the end of August.

The state’s legislature is currently on its summer recess until Aug. 5.

In analysis of the bill posted on the legislature’s website, Bonta made his case for why he authored AB 946.  

“Purchasing a car is a major investment for most hard-working Californians and we must have laws in place that will best protect consumers from potentially unsafe vehicles,” Bonta said.  “Currently, the 2006 Car Buyers Bill of Rights helped protect millions of Californians from purchasing a lemon or a potentially unsafe car. Unfortunately, the current protections do not apply to all used cars.  

“Essentially, the law right now does not allow car dealers to ‘certify’ a used vehicle if they know it has certain  damage, such as any open recalls, previous flood or fire  damage, frame damage or an odometer rollback,” he continued. “The problem is this: A car dealer does not have any obligation to inform consumers about a used car’s history that is not certified.

“Many working families cannot afford a certified used car and so they are placed at risk when purchasing a used car that may have costly and potentially life threatening such as an open recall, flood, fire or frame damage, or odometer fraud,” Bonta went on to say “Open recalls are something that dealers not only should disclose but also can easily have fixed by the manufacturer.”

Bonta pointed to a study that showed nearly 100,000 used vehicles with open recalls were for sale online in California. The study indicated open recalls could include problems with the brakes, steering wheels, airbags, or the electrical system that could cause a fire.

“In addition to open recalls, other issues that are not disclosed for used cars like flood or frame damage not only could be dangerous, but could cost hard-working Californians thousands of dollars that they may not have available to fix the car,” Bonta said. “This is all critical information that consumers should know prior to purchasing a used car — regardless if it is certified or not.

“I am authoring AB 964 to improve consumer protection,” he added. “All Californians — regardless of whether they can afford a certified car or not — have a right to know all of the information available on the used car they are purchasing, any reported damage or defects.  Without such safeguards, hundreds of thousands of California consumers are at risk every day.”

CNCDA Outlines Opposition to AB 964

In formulating its argument against the measure, the CNCDA stated that laws already in place “struck a balance” between setting minimum standards for which vehicles cannot be certified, and dictating the  precise terms of dealer certification programs.   

“AB 964 takes the certification statutory scheme, deletes the inspection report requirement and adds to the list of prohibitions whether a dealer ‘knows or should have known’ that the vehicle is subject to an ‘open and unaddressed recall,’” CNCDA officials said according to the bill analysis on the state’s website.

“While we appreciate the author's desire to ensure that ‘certified’ vehicles do not contain certain flaws, we fail to understand the meaning of ‘open and unaddressed recall’ and how dealers are expected to comply when there are serious notice and compliance issues with recalls,” they continued.

CNCDA emphasized that AB 964 wrongly targets all dealers for a problem that has been brought about by what the associated believes stemmed from issues facing rental companies.

“The rental car industry has faced scrutiny in recent years for renting defective to consumers despite being informed of open safety recalls,” CNCDA officials said. “Bills were introduced in Sacramento and then in Congress to require rental car companies to remove recalled vehicles from their rental fleets until repaired. These bills failed passage. 

“Rather than focusing on rental car companies, AB 964 targets every dealer seeking to ‘certify’ a vehicle — regardless of how minor the recall is, or whether the dealer has access to information about the recall,” they added.

CNCDA told the Assembly that changing the focus of regulation from rental car to dealers creates “more, not less,” compliance issues. 

The association explained to lawmakers that while a rental car company is notified directly by the manufacturer when a vehicle it owns is recalled, dealers don’t receive such notification unless they are a franchised dealer with a relationship with the OEM.

In recognition of these concerns, CNCDA reminded California lawmakers that Congress passed last year requiring the creation of a free Internet database — searchable by make, model and VIN — containing information about each recall and whether it has been completed for each individual vehicle.

“Unless and until this database is operational, compliance with AB 984 would be impossible,” association officials said. “CNCDA opposes AB 964 because it would require dealers to determine whether vehicles are subject to recall, and the federal database necessary to do so has not been created. California should not enact legislation that guarantees non-compliance and needless litigation.”

CNCDA also pointed out that it believes AB 964 goes further than adding to the list of “certification” standards by also requiring an “ill-defined disclosure” to consumers about what the dealer “knows or should know” about same list of items that would prevent a dealer from certifying the vehicle. 

“It is unclear whether purchasing a third party vehicle history report is ‘required’ to meet the ‘should have known’ standard that the bill seeks to impose,” the association said. “The problem with such reports is that their accuracy varies considerably by vendor, the level of information contained in any report can be vastly different and the information in such reports can be added after the dealer has run a report and sold the car to a consumer, creating a huge risk of liability for the unsuspecting and unprotected dealer.”

CNCDA went on to tell lawmakers that it contends AB 964 would curtail or prohibit the sale of a previously flood damaged vehicle-even if repaired. The association stressed the bill would also expand “as is” disclosure requirements, even though such information is available on the Used Car Buyers Guide.

The association pointed out the legislature just addressed the scope of “as is” just last year in restricting their use for BHPH dealers with AB 1447, one of two measures passed by both chambers and signed into law by Gov. Jerry Brown.

More Opposition to AB 964

CNCDA wasn’t the only Golden State organization to give several reasons for why this measure should not pass. The California Financial Services Association representing consumer finance lenders also opposes the bill.

CFSA officials said AB 964, “would establish multiple private rights of action against the of a vehicle if the vehicle has a defect that is subject to a manufacturer’s recall and the repairs required to correct the defect have not been performed.”

The association explained Federal Trade Commission Rule No. 433, related to Holder in Due Course, to California lawmakers. CFSA noted that the rule states consumers a right to seek redress against the holder of a contract, regardless of whether or not the contract was originated by another party.

“Therefore, your bill would effectively establish a private right of action against a financial institution that holds the note on said vehicle,” CFSA officials told the Assembly. “Financial institutions have no way to protect themselves from the strict liability called for in this measure and this could have a chilling effect on the auto lending industry.”

CFSA then asked lawmakers to consider, “How can financial institutions loan money, either directly or indirectly, knowing that they could be liable for recalls that weren't addressed by a previous owner?  

“This measure would essentially prohibit the sale of tens of thousands of used vehicles on the road that have been subject to recalls, or significantly devalue them as a result of the new liability,” the association concluded.

Nick Zulovich can be reached at nzulovich@autoremarketing.com. Continue the conversation with Auto Remarketing on both LinkedIn and Twitter.