“Bad Credit? No Credit? No Problem!” For many credit-challenged consumers, those words sound like a saving grace, right? However, it might be too good to be true. Buy-here-pay-here (“BHPH”) dealerships are said to “tailor their business to working families that need cars for work.” “They charge interest rates that can surpass 30% on vehicles with well over 100,000 miles on the odometer. Many repossess aggressively and put consumers into deals they cannot afford, increasing their chances of default.”
These dealerships often pray on the poor, the uneducated,and the indebted to “churn” their inventory–that is, sell a car at a price the buyer cannot afford, repossess the vehicle, and repeat. In response, the California Legislature placed additional regulations on BHPH dealers over-and-above other used car dealers to protect consumers from such “unapologetic” business practices.
A buy-here-pay-here (“BHPH”) dealer is a dealership that (1) sells or leases vehicles and (2) assigns less than 90 percent of such contracts to finance/leasing companies within 45 days of the execution of such contracts. (Cal. Veh. Code § 241.) In other words, a BHPH dealer is one that finances over 10 percent of its sales and leases in-house–with two caveats:
- “[a] lessor who primarily leases vehicles that are two model years old or newer” is not aBHPH dealer; and
- a dealer that certifies 100 percent of its used car inventory and that maintains a licensed onsite service and repair facility (which employs at least five certified master technicians) is not a BHPH dealer. (Cal. Veh. Code § 241.1.)
Dealerships financing over 10 percent of its transactions in house may attempt to escape the added BHPH regulations by meeting the second exception. In the process, they might fail to meet the requirements for “certifying” their inventory. Stay tuned for an upcoming post about California requirements for “certifying” used vehicles.
How to Spot a Buy-Here-Pay-Here Dealership
Because BHPH dealerships are defined by the extent of their in-house financing, it can be difficult for consumers to determine whether a dealership is a BHPH dealer. Some BHPH dealers advertise themselves as such in television and radio commercials and online. Others might only post BHPH signage on their sales lots or inside their offices. Still others might not announce their BHPH status at all. If in doubt, consumers may ask if their dealership offers in-house financing, as this may suggest it is a BHPH dealer.
Special Requirements for Buy-Here-Pay-Here Dealers
Among the additional statutory duties imposed by the State of California on BHPH dealers are the following:
- BHPH dealerships must offer an express written warranty with a minimum term of 30 days or 1,000 miles (whichever occurs first), and this warranty must extend to at least the following components:
- engine, including all internally lubricated parts;
- transmission and transaxle;
- front and rear wheel drive components;
- engine cooling system;
- alternator, generator, starter, and ignition system (excluding the battery);
- braking system;
- front and rear suspension systems;
- steering system and components;
- catalytic converter and other emissions components;
- seals and gaskets on the above components; and
- electrical, electronic, and computer components to the extent they substantially affect the functionality of the above components. (Cal. Civ. Code § 1795.51.)
- BHPH dealerships must post the reasonable market value on any vehicle being offered for sale. (Cal. Veh. Code § 11950.)
- BHPH dealers cannot require buyers to make their payments (including any deferred downpayment) in person. (Cal. Civ. Code § 2983.37(b).)
- BHPH dealers are prohibited from using electronic tracking technology without the buyer’s written consent and from using starter interrupt technology without written notice. (Cal. Civ. Code § 2983.37(a).)
If you believe you purchased or leased a vehicle from a buy-here-pay-here dealership and that dealership failed to satisfy the above statutory requirements, contact the Auto Fraud Legal Center for a FREE evaluation of your rights.