Sunday, March 7, 2010

HB 404: Protects Auto Dealer, Lender and Consumer

This year I am sponsoring House Bill 404, Motor Vehicle Amendments, to provide enhanced protections for financial institutions, automobile dealers and, most importantly, the consumer when completing a vehicle purchase.

An article I wrote about the bill appeared in today's Spectrum. The full text of the article appears below:
Kicking the tires, making the bargain and a lot of paper work. In short, that's what most vehicle transactions look like to the average consumer. This year I am sponsoring House Bill 404, Motor Vehicle Amendments, to provide enhanced protections for financial institutions, automobile dealers and, most importantly, the consumer when completing a vehicle purchase.

The vast majority of auto dealers in Utah operate fair and clear operations, however the impetus behind this bill can be found in a few isolated incidents across the state where unsuspecting consumers traded in cars they still owed money on only to find out later that the receiving car dealer never paid off the old loans in the trade. Consumers were often left owing money on a new car and the old car without enough funds to cover both payments. Not to mention, financial institutions were losing millions on unpaid liens and titles.

In drafting my bill, I have worked with new and used car dealerships to target the bad actors without interrupting the process of trade-ins, financing and car buying. The goal is protect the lien pay-off process so that financial institutions, consumers and dealers are all kept whole. Under the bill, when a consumer trades in a vehicle, the consumer will sign an authorization for pay-off, which gives the dealer the authorization to communicate with the lender and provides the lender notice that a trade-in is being made.

At the same time this notice will make the consumer aware that he or she is responsible for the old loan until the trade-in payoff is made. Dealers that fail to pay-off liens within 21 days could lose their motor vehicle license. In return, financial institutions will have nine days after pay-off has been received to release the vehicle title and deliver it to the dealer. Consumers retain a right of action against any dealer who fails to comply with the provisions in the law.

Current law provides no notification to the lien holder when their security interest, such as your car, is traded in. Notification only comes as payoff. Consumers, after all the paperwork and bargaining on the new car, often were unaware of their continuing obligation until ultimate pay-off of the loan by the dealer. Lenders also found themselves in an untenable spot due to the gap between the trade-in amount and the loan payoff amount. Factor in the fragile nature of our economy, and it seemed to create a prefect storm for fraud.

My legislation might not change the culture of used car salesmen jokes, but I think it will make the financial transactions between dealer, consumer and lender safer and more transparent for all involved.

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