When you buy a car at an auto dealership, you should be able to get all the terms in writing BEFORE you sign anything — right? Right. But for California car buyers, that may change. Why? Because car dealers are aggressively lobbying to get rid of the consumer protection laws in California that currently prohibit them from using “e-contracting.”
The California New Car Dealers Association and Enterprise Holdings (one of the largest sellers of used cars) are pushing for passage of AB 380, authored by Assemblymember Matt Dababneh (D-Van Nuys), powerful chair of the California Assembly Committee on Banking.
But pro-consumer groups including Consumers for Auto Reliability and Safety, CALPIRG, the Consumer Federation of California, Consumer Action, Public Counsel, the California Reinvestment Coalition, the Center for Responsible Lending, and Public Good are fighting back, to preserve protections for California car buyers.
Who would benefit the most if AB 380 passes?
One of the biggest winners would be Credit Acceptance Corp. What’s their business model?
Here’s why groups that work on behalf of consumers and against powerful, crooked special interests are opposing AB 380:
What’s wrong with e-contracting in car transactions?
Unscrupulous car dealers and shady lenders LOVE “e-contracting.” A LOT. That’s because the combination of high-pressure sales tactics at the car dealership — aimed at consumers who are often tired and feeling rushed after hours of haggling and test-driving cars — and all-electronic transactions make it much easier for dealers and crooked lenders to get away with fraud, forgery, and other illicit (but oh-so profitable!) flim-flam.
Among crooked car dealers’ favorite e-contracting scams: selling cars in excess of the agreed-upon price, “packing” loans with thousands of dollars in unwanted, high-profit, worthless add-ons, overcharging for license fees and pocketing the difference, selling cars that fail to pass smog, charging bogus “government” fees, and engaging in other types of fraud.
Unlike with home purchases, where there are strict, built-in protections, auto sales transactions fail to require the seller to provide you with a written, good faith estimate of all the costs three days in advance, before you sign. Buying a car is much riskier. It’s also riskier than credit card transactions, where there are limits on your liability in the event of identity theft or fraud.
You have a lot to lose
Under the federal Truth in Lending Act, you are entitled to get all the disclosures about an auto loan in writing. BEFORE you sign anything. Like: What will the monthly payments be? How much will you have to pay in interest? How long will the loan last? Up front. In your own hands. Then if you wish, you can leave the dealership and take that document with you and shop around, to see if you can find another dealer or lender who will beat that offer. You have that important right, thanks to federal law.
California law also prohibits dealers from using e-contracts. That means when you buy a car in California, the dealer should hand you a paper document, with everything in writing, all nicely filled in. You can look at the entire document at one time, or zero in on any part of it. You get to review the whole contract before you decide whether you want to agree to anything. You can tell that “friendly” F & I manager to stop hovering over you, while you read it. You can take it with you while you sip a cup of coffee in a quiet spot. You can show it to your spouse, or friends, or an attorney, or anyone you wish, BEFORE you sign.
But if the dealers and lenders have their way, and gut California’s law against e-contracting in auto sales, dealers will be able to get away with concealing vital terms on a computer screen that you may not even be able to read. You certainly cannot take the computer or e-pad with you and shop around. It won’t be in your control. Instead, it will be in the dealership’s control.
If AB 380 passes, car dealers can lure consumers into signing in advance that they agreed to let the dealer use e-contracting, to buy a car. They can make it sound like it’s no big deal. Then they can use that against car buyers, if there are any disagreements over what they agreed upon. Making matters worse, “signing” can be done by anyone who has access to the computer — with the click of a mouse. It would become virtually impossible to prove your signature was forged. Your “signature” could be added with a click. By anyone.
And — you won’t get anything in writing, on paper, until AFTER the documents have already been “signed.” By then, it’s too late, and you may be held legally obligated to pay, even if you are the victim of a scam.
Consumers fight back
Some dealers in California have jumped the gun and are already acting as if it were legal for them to use e-contracts. With unfortunate but predictable results. Consumers are starting to complain they didn’t get to see the screen, and dealers are adding thousands of dollars extra, above the purchase price that was negotiated; giving the consumers thousands less than the agreed-upon value of their trade-ins; and adding in worthless, expensive service contracts — even when the consumers rejected them, during negotiations. One dealer added over $4000 in multiple unwanted, worthless extra service contracts onto the purchase of a new car, plus “surface protection” costing over $1200 and “Lo Jack” costing $695 — extremely high-profit items for car dealers.
In some cases, consumers have won the right take these dealers to court, because the judges agreed that the contracts were not binding, citing the existing law that prohibits e-contracting. Otherwise, the consumers could be forced into arbitration, basically being compelled to surrender their Constitutional right to fight back in a court of law.
If the predatory dealers and lenders win, and AB 380 passes, consumers would be likely to lose those court challenges they are winning now, and could be forced to give up their ability to hold unscrupulous dealers accountable.
Winners and Losers
If AB 380 passes, the biggest winners will be large auto dealership chains like AutoNation, which took in over $19 billion in gross revenue in 2014. They are publicly traded on Wall Street. Their biggest investor? Bill Gates.
The biggest losers will be California’s new and used car buyers who can ill-afford to give away thousands of their hard-earned dollars to mega-dealers and big banks for the privilege of being ripped off.
What can you do to help stop AB 380, the crooked car dealers and fraudulent lenders’ favorite bill?
Call your Assemblymember and tell them to vote NO on AB 380. Buying a car from a car dealer in California is already dangerous enough. Here’s where to find out who your Assemblymember in Sacramento is: Find Your Legislator
Thank you! Every call helps make a difference!
More pro-consumer organizations are also opposing AB 380:
Attorney David Valdez, who represents many victims of unscrupulous auto dealers and lenders