Buy Here Pay Here (BHPH) car lots offer auto loans direct to their customers without the presence of a third party bank or lender. And is often hailed by advocates as a more easily approved loan agreement that provides car loans with bad credit or for consumers who have average to poor credit ratings.
Because of what many feel are shady dealings present at buy here pay here car lots, legislation is continually being evolved in order to safeguard the rights of consumers and in some cases, curb usurious or borderline usurious practices prevalent in BHPH agreements.
Below are 3 hotly discussed legislative proposals that are currently making their way through the CA legislature. The first two have already passed the California Assembly voting while the last one is a Senate Bill that requires the full vote of the same.
A.B. 1447 (California Assembly)
This bill is designed to curtail abuse of car dealers in providing terms and conditions of payment plus control over the consumer and the automobile. This is after the same has already changed hands from the dealer to the owner. Of particular importance are the following prohibitions and guidelines:
Prohibiting the practice of dealers from installing GPS tracking units on vehicles subject to a BHPH agreement without the consent of the purchaser.
Providing guidelines to the installation and use of starter interrupt devices (SID) that effectively curtails the operation of the automobile for failure to pay installments.
Prohibiting and/or providing guidelines on the requirements that installment payments must be made in person to the dealer/seller when other forms of payment is available (i.e. bank deposit, internet banking, phone banking, etc.)
Providing guidelines as to the type of warranties required (i.e. limited warranty covering all major car components for at least 1,000 miles and/or 30 days.
This bill is designed to provide transparency as to the market value of the automobile. This is in order to curtail the practice of dealers in overvaluing the automobile or in misleading a potential customer as to its actual worth. Of particular importance are the following prohibitions and guidelines:
Requiring the Buy Here Pay Here dealer to affix in a conspicuous location (adjacent to the window sticker), readable (bold text, heading is at least point 16 and text is at least point 12), intelligible, and accurate information relative to the market value of the automobile within the last 60 days. The date within which the values were taken must also be included or at least made known as available for inspection.
Inform the buyer that the pricing or valuation is based on nationally recognized pricing guides. And upon request provide more information about it. Indicate that the valuation is only for comparison purposes. Provide any other reasonable disclosures that are accurate and relevant to the subject matter.
This bill is designed to regulate the practice of in house financing by amending definitions, guidelines, licensing requirements, etc. Of particular importance are the following:
This bill will provide a standardized definition of BHPH or in house financing car dealerships for several purposes. The main purpose is to require licensing of dealers who fall within the definition.
This bill has a very detailed Definition of Terms section in order to regulate and maintain a standard for specific industry acts, practices and procedures.
This bill will require a modification and standardization of the grace period for making payments on default prior to repossession (i.e. eleventh day next to the day on which payment was due).
This bill will require stringent guidelines to be met before repossession is made as well as the manner by which the same is to be enforced (.i.e. $500 cap on penalty for repossession).
This bill will also put a cap on other relevant interest rates/penalties, etc. The proposal is to cap the interest rate charged to 17% plus the federal funds rate which currently stands at 0.25%.
This bill will make it easier for a buyer to request reinstatement of the loan and acquire possession of the repossessed vehicle.
The rationale behind the above mentioned legislation (and other legislation of similar or relevant content) is two-fold. The first is to safeguard the rights of purchasers. The second is to regulate Buy Here Pay Here (BHPH) providers. The latter is not only designed to highlight their shortcomings. Rather, it recognizes the same as a necessary industry that has to be monitored in order to maintain the dignity inherent in the practice, and increase the goodwill of the enterprise.