State bill targets Buy Here Pay Here used-car lots
Saying California’s working families are being exploited, state lawmakers are moving to impose tough new rules on a little-known segment of the used-car business that sells high-mileage cars to people with bad credit.
The dealerships, known as Buy Here Pay Here lots, often sell their cars for far more than market value, impose interest rates as high as 30% on their loans and are known to aggressively repossess cars to boost profits by reselling them over and over.
Their customers are typically people in low-paying jobs who need a car to get to work but can’t qualify for conventional auto financing. Buy Here Pay Here lots issue and hold their own loans without using outside financing, which allow them to sell to people with few other options.
“I am very concerned about practices which target the most vulnerable consumers in their most desperate moments,” Assemblyman Mike Feuer (D-Los Angeles) said Thursday. “These dealers are exploiting people’s desperation, and we want to put a stop to that.”
This week Feuer introduced legislation, AB 1447, that would target several sales and collections practices common to Buy Here Pay Here dealers. Two other state lawmakers, Sen. Ted Lieu (D-Torrance) and Assemblyman Bob Wieckowski (D-Fremont), said they plan to introduce separate bills that also target Buy Here Pay Here dealers in the next few weeks.
The lawmakers’ actions come in the wake of a series of stories in the Los Angeles Times last fall that detailed the Buy Here Pay Here industry’s practices.
The series showed how some dealers mark up aging cars bought at auction more than 200%, mislead customers in order to repossess cars, and resell the same vehicle as many as eight times. Customers are typically required to make payments in person every two weeks, provide long lists of personal references and often are given no chance to negotiate the price or even select which car to buy.
Because there are few alternatives and a great demand for reliable vehicles, the industry has flourished in recent years.
Feuer’s bill would require dealers to display the price of a vehicle on the car itself and prohibit dealers from obliging customers to make payments in person. In addition, Buy Here Pay Here dealers would not be allowed to call personal references after the sale is completed and would be prohibited from installing GPS trackers or devices that remotely shut down vehicles.
Bill Dohring, a lobbyist for the Independent Automobile Dealers Assn. of California, whose membership of used car dealers includes Buy Here Pay Here lots, said that enforcement, rather than new regulation, would be a better way to handle problems with Buy Here Pay Here dealers.
“Rather than blanketing the whole industry with rules, we ought to investigate dealers that are causing problems,” Dohring said.
Additional regulation could increase the costs of cars at Buy Here Pay Here lots, or put them entirely out of business, he said.
“We don’t want to make it tough for people with bad credit to get a car,” Dohring said.
Peter Welch, president of the California New Car Dealers Assn., said he welcomed legislation that would help identify and regulate Buy Here Pay Here dealers. But he worried that the bill included provisions that would affect dealers that don’t use the Buy Here Pay Here model.
“As introduced, this bill applies to all vehicle sellers,” said Welch, who was concerned that some of the provisions would require dealers to change everyday, legitimate practices.
For example, he said, many new cars have onboard GPS systems, such as General Motors’ OnStar system, or the LoJack anti-theft device. “These conditions could be problematic,” Welch said.
Lieu’s bill, which may be introduced early next week, is likely to take a different approach, calling for Buy Here Pay Here lots to be regulated as finance companies rather than car dealerships.
That would be in line with provisions of the 2010 Dodd-Frank Act, which singled out Buy Here Pay Here dealers, placing them under the umbrella of the federal Consumer Financial Protection Bureau, which regulates consumer lending. All other car dealers, new and used, are regulated only by the Federal Trade Commission on the national level.
Some advocates for struggling workers argue that regulating dealers is only half the battle. Linda Brost, director of business development at Ways to Work, a nonprofit that helps low-income families get low-cost loans for used cars, believes that such programs may eliminate the demand for Buy Here Pay Here altogether.
At the end of 2011, there were only four low-income car ownership programs in the Golden State, one of them a Ways to Work office. Since the Times series ran in October and November, Brost has been charged with opening several more.
On Thursday, she said that an office in San Diego could be opened in about six months, and that one or more Los Angeles locations were also being developed.
“There is a significant need out there,” Brost said.
