Jerry Kopel

SB 221: Car Dealers Board

July 24, 2007

By Jerry Kopel

Do you remember the "old neighborhood"? Well, the Colorado Motor Vehicle Dealers Board is somewhat like the "old neighborhood".

It was supposed to protect consumers from the bad guys, but in my opinion, it mostly protects car dealers from consumers. When the board comes up for Sunset review, the Dept. of Regulatory Agencies (DORA) often issues a scathing report and recommends policy changes.

The 2006 Sunset report was such a report even though it was issued under a Republican governor and a former Republican legislator as DORA director. It pulls no punches (but did it with diplomacy).

Along with recommending continued licensing and oversight of car dealers, DORA urged changes, some of which were essential to ensure protection of consumers.

The car dealers board is composed of three new car dealers, three used car dealers and three members of the public. DORA stated "The board is dominated by industry representatives and regulatory programs are often captured by the industry in such scenarios.

"When a regulatory program is captured by the industry it is supposed to regulate, the public suffers because the government offers little or no recourse when statutes and regulations are violated. In some cases, competition can be stifled as the industry driven regulatory authority uses the police power of the state to distort the market."

DORA wanted to remove one used car dealer and one new car dealer and replace them with a county clerk and an executive in the financial lending sector.

"The underlying function of the board is to protect the consumers and the public" according to DORA. When you examine the title to SB 221, you will find the bill was intended to "modify the composition of the board" but when you read the final version signed by Gov. Bill Ritter, you will find NOTHING about changing the board's composition.

Protecting the public? DORA was provided with FALSE information as to disciplinary actions taken between July 2003 through July 2006. DORA was told there were 168 punishments (revocation, suspension, probation) when there were only 96 punishments. There are approximately 19,000 car dealers and salespersons licensed.

When you average 32 suspensions, revocations and probations per year on that many licenses, it makes sense for DORA to state "previous Sunset reports were highly critical of the enforcement and discipline record of the board." In 2005-2006 there were actually NO revocations.

In my opinion, there is no reason to believe disciplinary numbers provided prior to 2003 were any more correct than the false numbers reviewed in the report.

DORA recommended "require the board to utilize administrative law judges to conduct motor vehicle dealer licensure and disciplinary hearings and Dept. of Revenue hearing officers to conduct salesperson licensure and disciplinary hearings."

SB 221 utilized an administrative law judge or a hearing officers in CRS 12-6-104 (3) (e), but in CRS 12-6-119 (2) "the board may, upon a unanimous vote of the members present when the vote is taken, conduct the hearing (on car dealers, wholesalers, buyer's agents and wholesaler auction dealers) in lieu of appointing an administrative law judge."

"If the board conducts greater than 40 percent of the hearings, the executive director shall analyze the hearing procedures and acts and issue a report to the general assembly which shall include any recommendations of the executive director."

What the board giveth, the board taketh away. The motion to hear a matter has nothing to do with a majority of the board, just whatever number is present when the motion is made. It could be one, two, or three members. If more than 40 percent of the hearings are held by the board, the executive director cannot say "enough". He or she can just notify the legislature, which doesn't have to do anything about it.

DORA recommended that the car dealers' bond be raised from $30,000 to $50,000 based on 70 actual cases where damages far exceeded $30,000. The cost to the dealers will be about $500. SB 221 did raise the bond to $50,000.

As to salespersons, DORA recommended the $5,000 bond, which cost the salesperson about $50 be eliminated. DORA states "No (available) record indicated a single salesperson's bond has been opened or accessed over the past five years."

Take 16,000 salespersons either original, renewed or reissued in a fiscal year, times $50 as the cost of the bond to the salesperson, with no payouts. That equals $800,000 mostly profit for bonding companies or company, and commissions for the sales agent, who can be the auto dealer.

Instead of eliminating the bond, SB 221 raised it to $15,000, possibly assuming the raise will draw more legal actions. If not, it means a yearly profit of about $2,400,000.

DORA suggests doing away with the open book "test" for dealers and salespersons as useless and (in my opinion ludicrous) since if all else fails, the test taker is told the correct answers. Instead of elimination, SB 221 requires a "psychometrically valid and reliable salesperson exam that measures the minimum level of competence necessary to practice."

So dealers continue to take an open book test, and salespersons are tested on their mental abilities. Will it be "open book"?

The past and present language regarding the scope of power of the motor vehicles dealers board is in CRS 12-6-104 and stated as "The board is authorized and empowered to..."

While some other agencies still use similar language, many of the boards under DORA, such as podiatrists, dentists, pharmacists, chiropractors, use the term "shall", making the activities listed "mandatory" instead of "possible". In CRS 12-6-105, the executive director of the motor vehicle division "shall" (do the following).

And SB 221 added a new subsection (4) to CRS 12-6-104 using the word "sha;ll" to provide for equitable assessment of penalties depending on the seriousness of the violation. This was a major consumer gain.

To me the one insertion of "shall" indicates the board wanted no mandate for the other powers it controls under CRS 12-6-104 such as providing, under SB 221 written notice to car buyers of the board's authority over car sales. That language could have stated "The board SHALL (emphasis added) require..."

That would have guaranteed the providing of written notice to the purchaser of the board's authority to get involved in a consumer complaint.

DORA recommended a short period of approval until the year 2012 "based on the quality (Kopel: meaning lack of quality) of data submitted by the Auto Industry Division and the thought that this will improve over the next few years, making the next Sunset review more meaningful."

In my opinion the last thing the car sale industry owners want is a fast turnaround (2011 review and what it would reveal) and so they had the original 2012 Sunset changed to 2017 in the bill signed by the governor.

What is stated here is not a criticism of the legislators involved in carrying SB 221. They did no better and no worse than their predecessors. I can personally attest to the inability to overcome car dealers' desires at the legislature.

SB 221 passed the Senate 34 to 0 and the House 64 to 1.

(Jerry Kopel served 22 years in the Colorado House.)

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