California bill takes aim at Buy Here Pay Here used-car dealers
New legislation in Sacramento aims to protect car buyers from being overcharged at used-car lots by requiring the dealerships to post the fair market value on each vehicle they sell.
The goal, Assemblyman Bob Wieckowski (D-Fremont) said, is to help inform consumers who otherwise have no idea what a fair price for a vehicle is before agreeing to buy it.
Although the bill applies to all lots selling used cars, he said AB 1534 is aimed specifically at Buy Here Pay Here dealers, which sell to people with low income and bad credit.
Because they are often the lender of last resort, Buy Here Pay Here dealers are able to mark cars up far over fair market value because their customers are desperate for transportation and have little bargaining power. Combined with interest rates that can exceed 30%, customers of such lots often end up paying 10 times what a car is worth.
“This gives consumers who are most needy some information that they can use,” Wieckowski said. Dealers “can still charge $6,000 for a $3,000 car, but they have to disclose it.”
Wieckowski’s proposal would require dealers to use a third-party valuation source, such as Kelley Blue Book or the NADA Guide, to determine a market value for each car based on model year, condition and mileage. It would not place any limits on what such cars could be sold for.
Still, Ken Shilson, president of the National Alliance of Buy Here Pay Here Dealers, worries that such a regulation could restrict dealers’ ability to sell cars to people with challenged credit. Because customers of such lots often cannot get financing anywhere else and are high default risks, the price of the car has to be higher, he said.
“Nobody wants to finance these customers, so of course they’re going to have to pay a premium,” Shilson said. Wieckowski’s bill “ignores the fact that dealers are providing not only the transportation but the financing that goes with it.”
Peter Welch, president of the California New Car Dealers Assn., noted that the bill would apply to all dealers that sell used cars, including those that do no Buy Here Pay Here deals at all.
In addition, he was concerned that it would put an “nightmarish” burden on dealers to constantly check and update fair-market value pricing on their inventory because used-car prices can fluctuate on a weekly basis. That’s particularly true in the current market, where prices for secondhand cars are at record levels.
“As a practical matter, now we’re going to have to put stickers on all these cars all the time,” Welch said. “Arguably this will marginally increase the price of cars.”
Welch’s group, as well as organizations representing used-car dealers, are expected to weigh in heavily as the three bills work their way through Sacramento. Still, Wieckowski said, he is optimistic about getting laws regulating Buy Here Pay Here through to Gov. Jerry Brown.
“There’s a whole bunch of people who are concerned about Buy Here Pay Here” in Sacramento, Wieckowski said. “I think there’s a consensus building that something needs to be done.”
Wieckowski’s bill is the third addressing alleged abuses in the Buy Here Pay Here industry to be introduced in California this month.
The first, by Assemblyman Mike Feuer (D-Los Angeles), would limit numerous sales and collections practices, including provisions barring dealers from installing GPS devices, while also requiring them to post the selling price on the car.
A bill by state Sen. Ted Lieu (D-Torrance) deals with the fact that Buy Here Pay Here dealers offer in-house financing, yet are not regulated like other consumer lenders. It would require dealers to register with the Department of Corporations and would cap the interest rate they can charge.
All three come in response to a series of articles published in the Los Angeles Times late last year that explored the little-known industry.
It found that some Buy Here Pay Here dealers aggressively repossess cars in order to sell them again, often for the same price or higher the second time around. Sales records show that some cars are sold as many as eight times by the same dealership.
