Barring last-minute action by the California governor, it looks like major reforms to the Buy-Here, Pay-Here industry are coming to that state by January 1, 2013, which could lead to major changes across the country for how this business performs.

The buy-here, pay-here industry is an important source of used cars for a fair percentage of the American auto buyers. Buy-here, pay-here dealers offer up older cars that cost less than $10,000 (usually a lot less) that require a significant down payment (maybe 20%).

The people using buy-here, pay-here dealers have bad credit scores. CreditScore.com says a bad score would be in the 500 to 600 range. Get down there and you're going to end up paying the higher interest rates associated with the BHPH industry.

Without getting too much into the politics, California is considered a fairly consumer friendly state. Its California Air Resources Bureau, known by its acronym CARB, actually sets the agenda for new vehicle emissions throughout the country. (Other states, like all six New England states, mandate that new vehicles sold there have the same emission standards as required in California.)

Based on that reading of the political tea leaves in California, it's unlikely that Governor Jerry Brown would veto the legislation. He's a liberal Democrat in a liberal state. So, the following buy-here, pay-here bills that passed both chambers of the California General Assembly are going to become law by Jan. 1, 2013.

Here's a breakdown of how the three bills would work, courtesy of SubPrime AutoFinancingNews.com.

(Subprime auto financing refers to customers with low credit scores.) Some of this material was covered in an earlier article on the proposed California BHPH legislation in case it seems familiar.

The three bills are Senate Bill 956 and Assembly Bill 1447 and 1534. SB 956 has three main goals:

• The buy-here, pay-here dealers are now required to get California Finance Lender licenses, which is keeping with the common belief that most of these dealers are not in the business of selling used cars. They are in the business of selling loans to consumers because they are a lot more profitable.
• Set a ceiling of 17% on the installment loans offered by the BHPH dealers, plus the variable Federal funds interest rate, which today is 0.25 percent. Right now that would make the financing less expensive than the credit card rate a lot of banks charge.
• The repossession of used cars would change, too. Dealers would now have to provide a grace period and allow buyers to get their used cars back to reinstate their loans.

According to SubPrimeAutoFinance.com, "AB 1534 would require a BHPH dealer to display a label on any used vehicle offered for retail sale that states the 'reasonable market value' of the unit." That, in effect, means the dealer has to show what the used car would cost if the consumer had good credit. Let's face it. People with good credit end up paying less for items of value because there is less risk the items won't be paid for. Buy-here, pay-here dealers have higher costs, which makes their products more expensive.

AB 1534 also says the BHPH dealer has to show a copy of where the information came from. That's just like your high school math teacher who required you to show your work when determining the value of an integer.

It's AB 1447 that might be the least business friendly of the legislation. It requires:

• Dealers provide a written warranty that covers most of the major working parts of the used car. It is good for 30 days or 1000 miles, whichever happens first.
• Customers don't have to make their car payments in person. BHPH dealers don't like this because customers typically drive to make their payments. That makes it easier to repossess a vehicle if say the customer comes in to make a payment but is behind.
• Dealers have to let buyers know the used cars they are buying have remote kill switches. They also need to give advance warning that the switch is going to be used so the owner doesn't get stranded in a dangerous situation.
• A buyer has to give written consent to allowing tracking technology to be placed in the car. Dealers want these homing devices so used cars can be located at all times - and repossessed if need be.

Expect to see these changes become law in other parts of the country that are more consumer friendly and less likely to be swayed by the Buy-Here, Pay-Here industry through its lobbyists.

Of course, come Jan. 2, 2013, the Buy-Here, Pay-Here industry will have figured out a new way to make money that complies with the law but adds some twists of its own.