Legislature(2001 - 2002)
02/27/2002 03:25 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 393-SALES OF BUSINESS OPPORTUNITIES Number 026 CHAIR MURKOWSKI announced that the first order of business would be HOUSE BILL NO. 393, "An Act relating to unfair and deceptive trade practices and to the sale of business opportunities; amending Rules 4 and 73, Alaska Rules of Civil Procedure; and providing for an effective date." CHAIR MURKOWSKI noted that public testimony was closed after the last hearing. She had indicated then that she had some concerns with regard to the definition of business opportunity; that concern stemmed from the letter in members' packets dated February 21, 2002, from Bryan Harrison at Alticor, relating to the Direct Selling Association's request for an amendment that would do two things: put a higher threshold in the exemption category, and include that higher threshold within the definition of business opportunity. She expressed concern about requiring a relatively substantial bond and the registration and regulation on smaller, legitimate enterprises such as Amway. CHAIR MURKOWSKI indicated she'd been informed by the Department of Law that these Direct Selling Association entities would be covered under the exemption, but said it wasn't clear what raising the threshold would do. She asked Representative Stevens to update the committee on this issue. Number 061 REPRESENTATIVE GARY STEVENS, Alaska State Legislature, sponsor of HB 393, responded, "You're absolutely right." He referred to exemption (5) on page 12, lines 28-30, which read: (5) sales demonstration equipment, materials, or samples for use in sales demonstrations and not for resale, or product inventory sold to the buyer at a bona fide wholesale price; REPRESENTATIVE STEVENS offered that this exemption covers all the legitimate organizations that Representative Murkowski was concerned about, such as Amway, Avon, or Mary Kay. He explained that [HB 393] would allow legitimate businesses to continue operating, and also tries to protect those people who might get caught up in some kind of consumer fraud. In regard to the dollar amount, he expressed a preference for keeping it where it is and not raising it too high. The goal is to protect people from being fraudulently treated and still allow legitimate businesses to continue operation. Number 088 CHAIR MURKOWSKI recalled that at the last hearing, she'd indicated she would try to contact some of these entities to find out if someone has to pay an upfront cost to get the product - not to get the product itself necessarily, but to become an Amway distributor, for example. She reported her understanding that those upfront costs are relatively minimal. She voiced that this goes back to exemption (5). Because they sell this product inventory, they will be covered under that. CHAIR MURKOWSKI referred to the threshold in exemption (1) [page 12] and suggested that entities or individuals offering this perhaps-questionable business opportunity - so long as they keep it under $200 - could continue to "slip through the cracks and conduct their scams." She said there is just no way to get to them. She recalled testimony that this is "kind of a de minimis level" and suggested it is above the $200 threshold that oversight should be ensured. Number 114 REPRESENTATIVE STEVENS agreed $200 is a fairly small amount, and said if that amount were lowered, it would be "enormously hard to police." The real problem for those people around the country who have lost thousands of dollars is trying to protect against such fraud. CHAIR MURKOWSKI noted that Representative Stevens had cleared up the problem she'd had with the definition and the threshold. Number 132 REPRESENTATIVE ROKEBERG commented that he is uncomfortable leaving the $200 threshold in there. He said he isn't concerned with dropping below that threshold, but would rather see it raised. He referred to a letter from Alticor that recommends a $500 threshold. He asked Representative Stevens why a threshold of $200 is better than $500. REPRESENTATIVE STEVENS replied that it is a policy call. He asked, "How far do we want to go in protecting the public?" He offered that he doesn't know the answer. He said, "It just seems that we can protect people at a certain level. It's a compromise, I think, to come to $200, but I think that was the figure we felt was correct." He offered that the question might be better answered by Cindy Drinkwater or Julia [Coster] who were online and had done some study on this issue. REPRESENTATIVE ROKEBERG referred to some software that was $459 to basically start a business. He asked, "They had to have that software?" Number 163 REPRESENTATIVE STEVENS responded in the affirmative, and said if one looks at these "horror stories" of various people getting caught up in these [fraudulent] systems, they truly spent a lot more than the "$200 level or even the $500 level." These [fraudulent business opportunities] have been very costly to people. REPRESENTATIVE ROKEBERG suggested this is the problem. He asked: If someone spent a lot more than $200 or $500, then what's wrong with the $500 threshold? REPRESENTATIVE STEVENS responded that this is "a question of how far do you want to go in protecting the public." He said he can't imagine a legitimate business being concerned about this [threshold]; rather, illegitimate businesses that are taking advantage of people need to be stopped. He added, "I don't think you'll find legitimate businesses that would say $200 is the wrong figure and $500 is the right figure." CHAIR MURKOWSKI offered that maybe "the hammer" with [HB 393] is that Alaska has something in place to keep track of the legitimate operators through the registration process. She said this might make illegitimate operators think twice about advertising their scams in Alaska because they are being watched closely. Currently, nobody is watching these operations other than reading the classifieds and trying to follow through. Number 193 REPRESENTATIVE STEVENS agreed with Representative Murkowski and said, "And we can't find them." After the fact, it's pretty hard for law enforcement to locate these [illegitimate] companies because they don't have a permanent address or any officers that one can find. He offered that he thinks the registration process will do the majority of the job to find out who these operators are and how to contact them. He added, "It'll allow us to follow through." He explained that this is an attempt to prevent [any dispute] before it goes to the final step of trying to enforce the law, a much more expensive step. Number 207 REPRESENTATIVE ROKEBERG asked if sellers of franchises are exempt. REPRESENTATIVE STEVENS responded in the affirmative and explained that they are covered under exemption (2) [page 12]. CHAIR MURKOWSKI mentioned that she had in her notes that the Federal Trade Commission (FTC) franchise rule has a $500 limit. She asked Ms. Coster to address this issue. Number 216 JULIA COSTER, Assistant Attorney General, Fair Business Practices Section, Civil Division (Anchorage), Department of Law, testified via teleconference. She explained that a franchise rule administered by the FTC is similar to [HB 393], but doesn't require registration. It requires the types of disclosures required under [HB 393], and the limit is $500. CHAIR MURKOWSKI asked why [HB 393] has a $200 threshold when the federal threshold is $500. MS. COSTER explained that many states that have registration laws similar to what [HB 393] is proposing have found that a large number of scams fall under the $500 level to avoid being affected by the $500 threshold. Having communicated with these states, Ms. Coster said they all urged [Alaska] to keep [the threshold] as low as possible, as a preventative measure for the scams under $500. She conveyed the hope of picking those scams up by having the lower level. Number 241 CHAIR MURKOWSKI asked if she is understanding exemption (2) correctly, that if [a business opportunity is] a franchise, then it will be governed under the FTC limit. So even if there is an Alaskan exemption that says the threshold is $200, the threshold is $500 for a franchise. MS. COSTER said that is correct. She offered that it may be a business opportunity and not a franchise, so it wouldn't necessarily fall under the FTC's rule. She explained, "The franchise rule has a slightly different definition because it does govern franchises as opposed to just business opportunities." Number 251 REPRESENTATIVE MEYER asked: Since [HB 393] is only meant to deal with illegitimate or fraudulent businesses, why couldn't the threshold be $100? He then recalled testimony from the state chamber that said it wanted the threshold at $500. He said it sounds as though other states that have had [the threshold] at $500 have been [lowering] that level. He asked, "Do you remember what the testimony was from the state chamber as to why they wanted it the higher level?" CHAIR MURKOWSKI recalled that Ms. LaBolle had explained that [the state chamber] didn't want to have a chilling effect on smaller, legitimate businesses. Representative Murkowski said she didn't want to speak for Ms. LaBolle, but it seems Ms. LaBolle "was confused in the same way that I was, ... that the Amways of the world would not be covered under ... exemption (5), and so therefore you needed to have a higher threshold to take care of them." REPRESENTATIVE STEVENS reported that he has learned that at least two of the states that have a higher limit are attempting to return to a $200 figure. He said he's not sure the Department of Law can give specifics on which two states those are, but that there is a tendency to move to that lower limit. Number 277 REPRESENTATIVE MEYER asked why the threshold shouldn't be at $50 or $100 because, [HB 393] is trying to prevent companies that [Alaska doesn't want around] anyway. REPRESENTATIVE STEVENS responded that it was just a compromise figure because the [state] chamber and others voiced that they wanted it higher. He stated, "I'm not certain there'd be any objection to lowering, if you should so choose." CHAIR MURKOWSKI offered that she was somewhat concerned about the threshold amount being as low as it is, and said she doesn't necessarily agree with Representative Meyer that it makes sense to go much lower. She stated, "I think there is a de minimis point where it just doesn't make sense anymore." On the other hand, to people getting scammed - for instance, the single mom who has a young baby and needs to stay at home and needs some income - a couple hundred dollars is a lot of money to lose. Number 299 REPRESENTATIVE CRAWFORD said he believes the exemptions are sufficient, and that he is "real comfortable" with leaving [the threshold] at $200. REPRESENTATIVE ROKEBERG voiced concern relating to criminal penalties, asking, "What is ... the crime for stealing $200 from somebody?" He offered that the House Judiciary Standing Committee [which he chairs] can look into that issue. Number 317 REPRESENTATIVE HAYES moved to report HB 393 out of committee with individual recommendations and the accompanying indeterminate fiscal note. There being no objection, HB 393 was moved from the House Labor and Commerce Standing Committee.
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