California Assembly Bill 238 (AB 238), a new measure sponsored by the California New Car Dealers Association, would eliminate the existing remedy of contract rescission for specified violations of the Automobile Sales Finance Act (ASFA) regarding disclosure of certain government fees, such as the vehicle license fee, registration fee, and tire fee, and required subtotals. On September 9, AB 238 passed both houses of the Legislature and is awaiting Governor Brown's signature. The Governor has until October 9 to sign the measure.

AB 238 provides that a motor vehicle conditional sales contract shall not be made unenforceable solely because of a violation of requirements to disclose specified government fees and the total of those and other fees. Specifically, this bill:

  1. Provides that a conditional sales contract shall not be made unenforceable solely because of a violation by the seller regarding the disclosure of amounts paid to public officials regarding various fees and the subtotal of those fees with other amounts.
  2. Provides that a buyer shall not be excused from payment of any finance charge solely due to the above violation with respect to a holder of a conditional sales contract that was acquired without actual knowledge of the violation.
  3. Provides that, in addition to any other remedies that may be available, the buyer is entitled to any actual damages sustained as a result of a violation of the above provisions.
  4. States that nothing shall affect any legal rights, claims, or remedies otherwise available under the law, and would apply only to conditional sales contracts executed or entered into on or after January 1, 2012.
  5. Contains an urgency clause, allowing this bill to take effect immediately upon enactment.

Because this bill will be effective only for conditional sales contracts executed or entered into on or after January 1, 2012, this legislation will not affect ongoing litigation or subsequently filed class action lawsuits in which the class representative purchased his vehicle under a conditional sales contract before January 1, 2012.

Also pending in the state legislature is Senate Bill 287 which, if enacted, will limit the award of prevailing party attorney's fees on a successful claim brought under the ASFA. Specifically, only plaintiffs who have suffered injury in fact and loss of money or property as a result of the alleged violation of the ASFA will be entitled to prevailing party fees and costs. This bill is currently in the Senate Judiciary Committee. Because car buyers often suffer no damage as a result of inaccurate disclosure of governmental fees under the ASFA, this measure could effectively dissuade consumer attorneys from bringing mass government fee cases, such as class actions involving the alleged failure to separately itemize registration fees from license fees or failure to properly disclose tire fees.

Finally, the California Court of Appeal is poised to determine whether claims for improper disclosure of government fees under the ASFA are subject to a one year statute of limitations and whether they result in injury in fact and loss of money or property as a matter of law. Arent Fox attorneys Roy Silva, Christian Scali and Victor Danhi are asking the court of appeal to hold that claims over disclosure of government fees under the ASFA are governed by a one year statute of limitations and to hold that the aggregation of registration fees with license fees on conditional sales contracts (often referred to as "lumping") results in no harm to the car buyer. A favorable ruling by the court of appeal would severely limit a dealership's exposure in such class actions by truncating the size of any putative class.

While passage of either of these bills or a favorable published opinion by the court of appeal would be a victory for California new car dealers, if the perfect storm hits with all three becoming a reality, these potentially debilitating class actions will have a very short life