Car Buyers Acquire New Rights

SACRAMENTO —  Gov. Arnold Schwarzenegger on Tuesday approved legislation giving California the nation’s strictest limits on the ways car dealers can market used vehicles, profit off loans and slip in extraneous charges.

Dubbed the “Car Buyer’s Bill of Rights,” the legislation, which takes effect July 1, 2006, is the most substantial protection measure for automobile purchasers since 1982, when California’s Lemon Law was signed and became a model for other states. Advocates and car dealers alike predicted components of the new law would be copied elsewhere.

“The motor vehicle industry in general produces superb products using medieval sales practices,” said Stephen Brobeck, executive director of the Consumer Federation of America, a Washington, D.C., nonprofit group.

“The California Car Buyer’s Bill of Rights will certainly provide protections for consumers that are taken for granted in almost any other product area.”

But the new law falls short of the version the Legislature passed last year and Schwarzenegger vetoed. In the interim, the state’s car dealers won a number of important concessions, including ones restricting the most highly touted provision of the law, a “cooling off period” that allows customers suffering buyer’s remorse to return their car for a refund.

The new law makes it illegal to label or advertise a car as “certified” if it was ever in a significant accident, had major damage that had been repaired, or returned under warranty. The “certified” designation has gained increased popularity to indicate that an automobile, though used, has been rigorously inspected and refurbished.

The law also places limits on the profits dealers can make when they arrange loans and requires them to disclose to the customer their credit scores, which are used as the foundation for determining the price of the loans.

Some used car dealers have provided customers with loan rates much more expensive than what drivers could have obtained through a bank or other channels. Only Louisiana has such a law, and California’s cap will be stricter.

“I know a lot of people like myself go get excited; it’s their first car getting out of school and you don’t think too much about interest rates,” said Suzanne Tejeda, a 21-year-old bank claims representative from the Bay Area town of Clayton.

She said that when she purchased a certified Honda Accord in 2003, the dealer gave her a 9.7% loan even though she qualified for a 5.3% one. She said she ultimately sued the dealer after learning that her car, which had transmission problems, had been in a prior accident that the dealer did not mention.

Dealers also will now be required to separate the costs of additional products and services such as fabric protection and extended service contracts, which are sometimes included in the monthly cost without customers’ knowledge.

“Unfortunately, there are these practices out there, and this bill will go a long way toward ending them,” said Brian Maas, lobbyist for the California Motor Car Dealers Assn., which represents new-vehicle dealers across the state.

In addition to those provisions, the law includes a refund opportunity. The period during which a car can be returned for a refund is only two days after purchase, instead of three days as last year’s bill would have required. Cars costing more than $40,000 or driven more than 250 miles after the purchase do not qualify for the refund. Dealers can offer more generous terms and some already do.

Instead of being available to all used car customers, as the previous bill would have required, the mandatory refund is an option available only to customers who pay a fee when they close the sale. The maximum cost of the option will range from $75 to $400, depending on the vehicle’s value. Dealers can also offer it for free.

The new law’s provisions do not apply to motorcycles, recreational vehicles or off-road vehicles.

Some consumer advocates objected that the law’s refund provision, in particular, has been watered down. “The dealers figured out a way to make the return option a money maker,” said Rosemary Shahan, president of Consumers for Auto Reliability and Safety, a Sacramento-based advocacy group that has lobbied for the law.

Shahan said she was still reluctantly supporting the law, but believes it is inferior to the measure that passed last year, as well as one that was being prepared earlier this year as a ballot initiative. The initiative was dropped after Democratic Assembly leaders and the car dealers association negotiated the compromise.

“This has been diluted,” she said. “It still has all the cylinders and all the wheels, but it’s not something we’re touting as a model” for other states.

Schwarzenegger, who has raised at least $855,000 from car dealers since his 2003 election, praised the measure as an improvement over last year’s version, saying that it struck the right balance to meet “consumer needs” and be “fair to car dealers.”

“The Car Buyer’s Bill of Rights is going to keep one of California’s leading retail industries booming and strengthen the consumer faith and trust that is so essential to our vibrant economy,” Schwarzenegger said in a statement after a private bill signing, which representatives of car dealers attended. Shahan was excluded from the event.

Another concession that dealers won would allow them to increase from $45 to $55 the fees they charge car buyers to cover the administrative cost of preparing sales documents. Dealers said the increase was needed because of the additional paperwork to be created by the bill, AB 68, which was sponsored by Assemblywoman Cindy Montanez (D-San Fernando). The fee increase is contained in a separate bill, AB 1001, sponsored by Assembly Speaker Fabian Nunez (D-Los Angeles), which is pending in the Senate.

David Conant, president of Conant Auto Retail Group, which has nine dealerships including five in Los Angeles County, said the law was a marked improvement over last year’s version, which placed onerous burdens on dealers.

Under last year’s bill, “someone could buy a car, drive it to Las Vegas, come back and want their money back, and we would have been legally obligated to undo the deal,” Conant said. “The bill as it was written last year just didn’t work. This year it’s crafted well. It’ll be good for dealers and the consumers for sure.”

More than 3 million used cars are sold in California each year, and new-car dealerships alone made more than $95 million last year. Many of the abusive practices are attributed to small dealerships and sellers--sometimes called “pot lots” -- that serve poor neighborhoods, but some big chains have been accused of gouging customers. There are more than 10,000 licensed dealers in California.

Ryan Coen, a 21-year-old from San Jose who purchased a “certified” BMW that turned out to have been damaged in an accident, praised the law.

Coen said the dealer who sold him the car refused to take it back even though steering problems developed the day after he bought it.

“I believe it will be a real good thing,” he said of the new law. “It takes a lot of the risk out of buying a car.”

“People aren’t asking for too much nowadays,” he added. “They’re just asking not to be lied to.”

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Times staff writer Dan Morain contributed to this report.

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(BEGIN TEXT OF INFOBOX)

New Rights for Car Buyers

The Car Buyer’s Bill of Rights, signed into law Tuesday by Gov. Arnold Schwarzenegger, creates new rules for car dealers. Starting July 1, 2006, dealers must:

* Allow used-car buyers to pay extra for the option of returning the car within two days for a refund minus restocking fees. This option applies only to cars purchased for less than $40,000 and driven no more than 250 miles after purchase.

* Tell customers what their credit score is.

* Itemize the cost of additional products and services included in the cost of the automobile.

* Limit the amount they earn from selling a car loan to 2.5% for a loan up to 60 months and 2% for longer loans.

* Never label a car as “certified” if the odometer has been altered or the car has been returned through a warranty or had major damage repairs.

Source: California Legislature

Los Angeles Times