Below is the letter sent to Senator Juan Vargas.

Senator Juan Vargas, Chairman
Senate Committee on Banking & Financial Institutions
State Capitol, Room 3092
Sacramento, CA 95814

Dear Chairman Vargas,

After carefully reviewing Senate Bill 956 and its inevitable effects on California’s working class drivers, low wage earners and consumers with limited access to reliable transportation and un-bankable credit options for automotive financing, I am writing to you on behalf of the National Alliance of Buy Here, Pay Here Dealers (NABD) and our approximately 10,000 members to tell you that we oppose this bill. 

In consultation with our close industry allies at the National Independent Automobile Dealers Association, (NIADA), we feel that a cap on interest rate equal to the Fed Rate plus seventeen percent as contained in the bill would stifle the efforts of finance companies that offer credible, alternative financing programs to un-bankable consumers.  The losses sustained by traditional buy here pay here (BHPH) dealers are enormous due to the highly specialized financial services they offer to high risk credit consumers in our communities.  In our 2011 BHPH Industry Benchmarks & Trends Report, we report loss statistics for BHPH dealers where the average gross dollar loss rate as a percentage of the principal loan amount was 38.61%.  In other words, dealers operating near these benchmarks expect to lose nearly 40% of their principal amount.        

Generally accepted interest rates from around the country as regulated by each state average more than 20% and offer legitimate finance companies the flexibility to absorb these higher losses that traditional businesses will not tolerate.  Additionally, our 2011 Benchmarks show BHPH dealers write off non-performing auto contracts at an average rate of approximately 30%.  Simply stated, these dealers know that nearly 1 in 3 deals financed will end up as a charged-off account due to non-payment by the customer.  This occurs because such consumers lack adequate financial capacity to withstand adverse life events.  A cap on interest as contained in the bill would be a disincentive for auto dealers to continue in the BHPH business and limit the access to reasonable financing for consumers who need reliable vehicles to get to their jobs, schools, and doctors appointments.

New and used automotive dealerships are among the most highly regulated businesses and contribute significant revenues to state and federal treasuries through the collection of sales tax and additional fees.  An addition to the existing oversight provided by the Federal Trade Commission, the Internal Revenue Service, the newly minted Consumer Financial Protection Bureau, the Department of Transportation and a myriad of state and local agencies, subjecting California’s dealers who offer BHPH financing to register with the Department of Corporations would not only be onerous, but a financial burden to the State of California.  This too will create a disincentive for dealerships to continue in this business and would create additional barriers to entry for legitimate operators. 

Since 1999, the NABD has been a strong voice for BHPH auto dealers and we applaud your efforts to cull out the non-compliant businesses in the automotive finance industry that take advantage of consumers, cut corners and play by their own rules.  As the premier special interest group in the industry representing BHPH dealers, we share your concern and wish to work with you to eliminate the kinds of business practices that put consumers at risk.  However, the NABD opposes Senate Bill 956.

Lastly, if in fact SB 956 has been offered forth in direct response to the allegations raised in the series of articles written last fall by Ken Bensinger in the LA Times, we would strongly disagree that any new legislation like SB 956 would address the alleged practices or the inaccurate portrayal of dealers in the industry that he highlighted in these articles.  Instead, we maintain the solution is reasonable enforcement of existing laws and regulations, not new legislation.    

There are additional concerns with SB 956 as it is currently written that time and space does not allow me to articulate here.  I would be happy to address these or our other concerns about SB 956 with you at your convenience by phone or in person.    

In the meantime, I would encourage you to vote against SB 956 and join with NABD, NIADA and other industry groups that agree this legislation is inappropriate.     

Thank you for your consideration of our position. 

Sincerely, 

Kenneth Shilson
President
NABD

Senator Ted Lieu, Sponsor SB 956
Members of the Senate Committee on Banking & Financial Institutions
Steve Jordan, Chief Operating Officer, NIADA
Larry Laskowski, Executive Director, IADAC