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Analysis: New fee reflects dealer associations' input

April 29, 2011
Illinois senators are weighing legislation that would add $500 to the price of an annual dealer license, to endow a fund for people harmed when a dealership closes without settling liens on trade-ins.
It coulda been worse.
Directors of the Chicago Automobile Trade Association and the Illinois Automobile Dealers Association helped shape the bill and added a few pro-dealer components to House Bill 880 that the lower chamber passed 91-19 on April 15.
The attorney general’s office sought to create the Dealer Recovery Trust Fund after being contacted by a number of consumers in recent years who were harmed by the unpaid liens. Assistant Illinois Attorney General Greg Grzeskiewicz described consumers who subsequently saw their credit scores damaged while they were saddled with two vehicle loan payments. Grzeskiewicz added that Illinois is the only state without a recovery fund or a bonding mechanism to help those consumers.
Dealers from the CATA and the IADA involved in shaping the legislation were able to steer endowment of the recovery fund toward a hike in dealer licenses and away from more costly surety bonds. CATA Chairman Steve Foley Jr. also succeeded at widening the circle of those who could be compensated by the fund to include dealers, who similarly can be harmed by unpaid liens on dealer trades.
Also, dealers managed to steer the proceeds held in the fund away from the state treasury and to a separate account that will be administered by the IADA, thus preventing the General Assembly from using any interest money to shore up the state budget.
Grzeskiewicz said his office estimates unpaid liens of $5 million statewide and is suing seven closed dealers to recoup some of that. He counts 60 dealerships that closed in the last eight years without paying off traded-in vehicles. He said a “typical” dealership closes without settling 10 trade-ins totaling $250,000.
Under the legislation, annual dealer licenses would increase $500 for a dealer’s established place of business and $50 for each additional place of business. The secretary of state’s office currently counts 895 new-vehicle dealers, 2,831 used-car dealers, and 771 motorcycle dealers, meaning the fund would collect more than $2.2 million in its first year.
The legislation provides that when the fund balance reaches $3.5 million as of Aug. 31, collection of the fee would be suspended the following year for dealers who did not have a claim paid from the fund; or a suspended or revoked license; or have any civil penalties assessed against them during the previous three years.
Consumers and dealers would be eligible to file a claim against the fund if they purchase a vehicle on or after Oct. 1, 2011, from a dealer who goes out of business without satisfying a trade-in lien. A claim could not exceed $35,000.
Among recent changes to the House bill, the three-member board to oversee the recovery fund would consist of Secretary of State Jesse White and Attorney General Lisa Madigan, or their delegates; and someone selected by White and Madigan or their delegates to represent Illinois automobile dealers.
The Illinois General Assembly is scheduled to adjourn its spring session May 31. If the Senate makes changes to House Bill 880, it would have to be reconsidered and approved by the House by then.