Legislature(1997 - 1998)
10/20/1997 01:09 PM House L&C
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
October 20, 1997
1:09 p.m.
Anchorage, Alaska
MEMBERS PRESENT
Representative Norman Rokeberg, Chairman
Representative John Cowdery, Vice Chairman
Representative Joe Ryan
MEMBERS ABSENT
Representative Bill Hudson
Representative Jerry Sanders
Representative Tom Brice
Representative Gene Kubina
COMMITTEE CALENDAR
HOUSE BILL NO. 178
"An Act relating to letters of credit under the Uniform Commercial
Code; and providing for an effective date."
- HEARD AND HELD
SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 142
"An Act relating to the sale or transfer of new or used motor
vehicles; relating to the confidentiality of certain information
related to attorney general investigations of unlawful trade
practices and antitrust activities; establishing additional
unlawful trade practices; relating to the exemptions from
telephonic solicitation regulation; regulating the sale of business
opportunities; amending Rules 4 and 73, Alaska Rules of Civil
Procedure; and providing for an effective date."
- HEARD AND HELD
(* First public hearing)
PREVIOUS ACTION
BILL: HB 178
SHORT TITLE: UNIFORM COMMERCIAL CODE:LETTERS OF CREDIT
SPONSOR(S): LABOR & COMMERCE BY REQUEST
JRN-DATE JRN-PG ACTION
03/06/97 561 (H) READ THE FIRST TIME - REFERRAL(S)
03/06/97 561 (H) LABOR & COMMERCE
03/14/97 (H) L&C AT 3:15 PM CAPITOL 17
03/14/97 (H) MINUTE(L&C)
04/25/97 (H) L&C AT 3:15 PM CAPITOL 17
04/25/97 (H) MINUTE(L&C)
05/02/97 (H) L&C AT 3:15 PM CAPITOL 17
05/02/97 (H) MINUTE(L&C)
05/05/97 (H) L&C AT 3:15 PM CAPITOL 17
05/05/97 (H) MINUTE(L&C)
10/15/97 (H) L&C AT 1:00 PM ANCHORAGE LIO
10/15/97 (H) MINUTE(L&C)
10/20/97 (H) L&C AT 1:00 PM ANCHORAGE LIO
BILL: HB 142
SHORT TITLE: BUSINESS PRACTICE REGULATIONS
SPONSOR(S): REPRESENTATIVE(S) DAVIS, Croft
JRN-DATE JRN-PG ACTION
02/17/97 374 (H) READ THE FIRST TIME - REFERRAL(S)
02/17/97 374 (H) L&C, JUDICIARY
02/19/97 408 (H) COSPONSOR(S): CROFT
04/08/97 1025 (H) SPONSOR SUBSTITUTE
INTRODUCED-REFERRALS
04/08/97 1025 (H) LABOR & COMMERCE, JUDICIARY
05/02/97 (H) L&C AT 3:15 PM CAPITOL 17
05/02/97 (H) MINUTE(L&C)
05/05/97 (H) L&C AT 3:15 PM CAPITOL 17
05/05/97 (H) MINUTE(L&C)
10/15/97 (H) L&C AT 1:00 PM ANCHORAGE LIO
10/15/97 (H) MINUTE(L&C)
10/20/97 (H) L&C AT 1:00 PM ANCHORAGE LIO
WITNESS REGISTER
JERRY K. WEAVER, Senior Vice President
and Commercial Loan Manager
National Bank of Alaska; Secretary/Treasurer
Alaska Bankers Association
300 West Northern Lights Boulevard
Anchorage, Alaska 99503
Telephone: (907) 265-2920
POSITION STATEMENT: Provided testimony on HB 178.
MELODY LITTLE, Officer
Letters of Credit
International Department
National Bank of Alaska
300 West Northern Lights Boulevard
Anchorage, Alaska 99503
Telephone: (907) 265-2920
POSITION STATEMENT: Provided testimony on HB 178.
L. S. "JERRY" KURTZ, JR., Member
Alaska Uniform Law Commission
1050 Beech Lane
Anchorage, Alaska 99501
Telephone: (907) 258-6051
POSITION STATEMENT: Provided testimony on HB 178.
ART PETERSON
Uniform Law Commissioner
Alaska Uniform Law Commission
350 North Franklin
Juneau, Alaska 99801
Telephone: (907) 586-4000
POSITION STATEMENT: Provided testimony on HB 178.
REPRESENTATIVE GARY DAVIS
Alaska State Legislature
145 Main Street Loop, Suite 223
Kenai, Alaska 99611
Telephone: (907) 283-7095
POSITION STATEMENT: Sponsor of SSHB 142.
RICHARD MORRISON, Owner
Eero Volkswagon/Saturn of Anchorage;
Former President/Current Member,
Alaska Auto Dealers Association
935 Gambell
Anchorage, Alaska 99511
Telephone: (907) 272-5522
POSITION STATEMENT: Testified on SSHB 142.
DAVEED SCHWARTZ, Assistant Attorney General
Commercial Section
Civil Division
Department of Law
1031 West Fourth Avenue, Suite 200
Anchorage, Alaska 99501-1994
Telephone: (907) 269-5100
POSITION STATEMENT: Answered questions regarding SSHB 142.
MICHAEL STEPP, President
Stepp Brothers Lincoln Mercury/BMW;
Board Member, Alaska Auto Dealers Association
730 East Fifth Avenue
Anchorage, Alaska 99501
Telephone: (907) 257-6600
POSITION STATEMENT: Testified on SSHB 142.
JUANITA HENSLEY, Chief
Driver Services
Division of Motor Vehicles
Department of Administration
P.O. Box 20020
Juneau, Alaska 99811-0020
Telephone: (907) 465-4361
POSITION STATEMENT: Answered questions on SSHB 142.
ACTION NARRATIVE
TAPE 97-63, SIDE A
Number 0119
CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce
Standing Committee to order at 1:09 p.m. Members present at the
call to order were Representatives Rokeberg, Ryan and Cowdery.
HB 178 - UNIFORM COMMERCIAL CODE:LETTERS OF CREDIT
Number 0133
CHAIRMAN ROKEBERG indicated the committee would hear HB 178, "An
Act relating to letters of credit under the Uniform Commercial
Code; and providing for an effective date."
Number 0228
JERRY K. WEAVER, Senior Vice President and Commercial Loan Manager
National Bank of Alaska; Secretary/Treasurer Alaska Bankers
Association, came before the committee to give testimony on HB 178.
He noted the Alaska Bankers Association represents all the banks in
Alaska. Mr. Weaver explained the banking industry, through the
Alaska Bankers Association and other banking associations,
nationwide, and the uniform code commissioners, have been working
for years in making small technical revisions to the Uniform
Commercial Code (UCC). He stated HB 178, which would revise
letters of credit, is one of the technical steps. Letters of
credit are a fairly sophisticated instrument used primarily in
foreign trade. He said there are some very technical steps in
which HB 178 makes some slight revisions. The Alaska Bankers
Association and the National Bank of Alaska highly endorses HB 178.
Mr. Weaver said the proposed amendments would deviate from the
UCC's common approach of trying to tie all 52 of the various UCC
districts together. He said because this would present some
problems and would have Alaska stand out as being different in its
code and how it approaches letters of credit, he would recommend
the proposed amendments be removed from HB 178, as it is currently
presented.
Number 0435
CHAIRMAN ROKEBERG asked Mr. Weaver to review how the letters of
credit work and the issue that revolves around the amendments as it
relates to the float period.
MR. WEAVER informed the committee members that letters of credit
are document issues. He said, "Basically what it said in very
essence terms, it's a guarantee of a credit grantor or someone you
know, a bank usually because you can verify their credit ratings
and financial statements fairly easy, worldwide, -- and that's why
banks typically end up as issuers of letters of credits. The
transactions are document issues. When a letter of credit is
issued, basically it has a number of other documents that will go
with it when it's presented for payment. An example we were using
earlier would consists let's say a load of forest products coming
out of here - a load of round logs. If they were to go, typically
what would be with them, of course, would be an invoice billing for
the amount of the logs. If one of our - let's assume a Native
corporation was shipping logs overseas to Japan, Taiwan, some place
like this. So a bill of lading, which is a negotiable instrument
you have to have to get the logs off the ship and take title to
them, usually some sort of scaling permit or so forth, that would
rate the quality and the quantity of material that's in there --
how many board feet and so forth. This would be done by an
independent agent who would have been verified by both the buyer
and seller. Usually these are rated much like an appraiser or
something of this nature. And probably then the insurance that
would say, `Okay, if something happens to the ship after it leaves,
and so forth, who gets paid on what terms, if for some reason the
logs never make the destination.' Those documents are put with the
letter of credit and the letter of credit outlines which documents
are required and so forth, and sent the beneficiaries bank on the
other side who takes a look at the documents, matches them to the
letter of credit. And when they totally match up, then they
authorize payment. The funds then are wired three (indisc.), once
all the documents all the documents are approved and the
transaction happens. Meantime, the ship is hopefully sailing
across the Pacific on its way to deliver the actual cargo." Mr.
Weaver informed the committee that this happens with many of the
natural resources that Alaska exports. He said the reason there is
a time period is because quite frequently, for whatever reason, the
documents may not exactly match up. This just allows a uniform
time period for the parties to try and make sure those documents
match and that the buyer and seller are actually getting the
transaction that they really wanted instead of just dealing with
the documents as they are. Mr. Weaver said and example is the log
scale may not quite match the shipment that was called for in the
letter of credit, and it probably allows for partial shipments, et
cetera. Mr. Weaver pointed out that the time period that is
allowed in the UCC revisions is basically just for that purpose and
it doesn't effect money because the money isn't going to be
transferred until the actual letter of credit is approved. After
approval, the funds are then wired. He noted the transactions are
usually large dollar transactions with a fairly small number of
players.
Number 0820
CHAIRMAN ROKEBERG referred to there being a wire transfer of funds
and said that would come under the regulations.
MR. WEAVER explained that wire fund transfers are absolute.
Basically, the wire is knowledge that says, "Hey, move the money
from account A to account D." He pointed out that the players of
transactions he is talking about aren't going to stand for much
float. Banks want immediate and prompt payment. Mr. Weaver
referred to the document period and said it has to do with
documents and letters of credit are all about documents.
Number 0922
CHAIRMAN ROKEBERG referred to the transfer of logs and said there
wouldn't be an actual transfer of funds until the receiving party
receives the logs and they are satisfied with the product.
MR. WEAVER said that is incorrect. He said in this case, it would
relate solely to the documents and not to the logs. The logs are
out in the middle of the Pacific. Mr. Weaver said, "The payment
would match -- hey, the scale report is in here, the insurance is
here, the bill of lading is here and an invoice for $1,231,000
which was the amount that's required. And there is usually a
draft, the equivalent demand check that says, `pay this.' Then
once they've checked those off to the letter of credit and the
letter of credit basically issued by let's say in this case, the
National or well I guess it's going to be the Bank of Tokyo in this
case. It says, `We will pay $1,231,000 when we receive each of
these documents.'" Mr. Weaver explained that if there was an error
on one of the documents that doesn't quite match the buyers needs
-- it isn't $1,231,000, it's only $1,014,000 and it wasn't quite
the quantity of spruce as they threw a little pine in. He said it
would simply be because probably the buyer and the seller had been
negotiating on the phone and that's what they agreed to do. The
documents would be a little different, so NBA would wire the Bank
of Tokyo and say, "The transaction is a little different, this is
what occurred. Does your buyer approve?" The bank would then call
the buyer and ask for approval. As soon as the buyer agrees, then
the funds are wired. It is a direct transfer of money.
Number 1122
CHAIRMAN ROKEBERG to the possibility of there being a problem where
the seller thinks everything is in order and the buyer still isn't
releasing the funds. He asked how that would be handled.
MR. WEAVER said Mr. Kurtz will discuss how they arbitrate the
distribution. He noted that is basically what the bill is about.
He said it is a very close-knit little club, worldwide, and you
won't be playing very long if you don't honor without some really
legitimate complaint as to why you shouldn't make the payment
because the merchandise is already gone.
Number 1207
CHAIRMAN ROKEBERG questioned what the level of commerce does the
state of Alaska have in terms of utilizing letters of credit.
MR. WEAVER said as trade gets established and the buyer and seller
get to know each other, they frequently go to open accounts. That
currently occurs with many of the big trading companies. Mr.
Weaver pointed out that currently, NBA has about $16 million
outstanding on letters of credit. Mr. Weaver said it is his guess
that trade in Alaska probably doesn't exceed $200 million a year in
using letters of credit. He said, "Now obviously, if you go to
peak time during - and that would be fishing season because a lot
of the fish orders go out this way, those are -- remember I
mentioned the log scaler -- and as you'll remember in many of the
fishing plants, the Japanese trading companies bring their own
employees over to grade the product right on the spot. And what
they're preparing are the documents that will go with that letter
of credit that says, `Yes, we got what we bought. There were so
many silvers, this fresh, this caught.' Your employee kind of say
that that's exactly what went on that ship in that container. And
then once those documents get there and they will far beat the ship
- the ship may take five days to make the trip, the documents are
going to do it in a day, then they will wire payment."
Number 1341
REPRESENTATIVE JOE RYAN said, "I talked to you and I've told the
chairman that if I feel that my concerns were perhaps can be
satisfied that I'd be happy to withdraw the amendment. Say, for
instance, that I broker a deal not to (indisc.) for fish, lumber,
petroleum products, refined or otherwise, and I want the letter of
credit assigned to another person because I'm going to use that
assign to settle a previous debt. Is there going to be a problem
under this?"
Number 1418
MR. WEAVER introduced Melody Little and explained she is a letter
of credit officer with NBA.
Number 1435
MELODY LITTLE, Officer, Letters of Credit, International
Department, National Bank of Alaska, came before the committee and
introduced herself.
REPRESENTATIVE RYAN said he wants to be assured that somebody isn't
sitting on somebody's money, either keeping the float and/or
offering a banker's acceptance in lieu of the actual cash that is
deliverable. When an opportunity arises for a person to make
money, from time to time they take advantage of those
opportunities. A lot of people who are dealing in these kinds of
transactions are hung out and time value of money is very
important. Representative Ryan said, "Sitting seven days --
someone's wire transfers already has already been made can be the
difference in the profit and the transaction that the person has
tied up. So in effect, if the bank does hold them up seven days
that particular amount of money would be what the profit would be
and all that work was done for nothing. I want to ensure that this
particular piece of legislation, the way I read it, it looked like
there was opportunity for that to happen. And if you can convince
me that I'm wrong, I'd be more than happy to say fine, (indisc.)."
Number 1552
MS. LITTLE asked Representative Ryan if he is asking about the
seven days or the assignment.
REPRESENTATIVE RYAN said, "Let's say for instance I want to assign
this letter of credit to another party to satisfy some business
arrangement I have. Is there going to be any problem on
assignment?"
Number 1608
MS. LITTLE said she believes he is talking about the assignment of
proceeds and not the assignment of the performance. In that
instance, they wouldn't consider it an assignment. It would be
considered a transfer. At that point, Representative Ryan would
transfer a portion of his letter of credit, whatever amount the
actual sale is between the broker and the actual supplier. Ms.
Little said the supplier would then prepare the documentation and
give it to the person who is brokering it. That person would then
give it to their bank to look at for negotiating. At that point,
the negotiating bank would compare the documentation. If
everything was in compliance, they would send them to the issuing
bank. The issuing bank then looks at the documentation and
determines whether they are going to pay and they're obligated to
pay. If there are any discrepancies in those documents, the
issuing bank would notify the broker's bank to inform them there is
a problem. At that point, they try to resolve the situation. Ms.
Little referred to a delay in payment and said it would only be do
to the dispute of the documents. It is not going to be the actual
payment of the sale.
Number 1724
REPRESENTATIVE RYAN said the (indisc.) will not take place before
the dispute is settled.
MS. LITTLE indicated that is correct.
Number 1733
REPRESENTATIVE RYAN said, "I want to ensure that flexibility is
going to be there and that there is not going to be a disruption on
the payment because otherwise it would be a very interesting
business to find a reason why we haven't received the money and
upheld to offer you a banker's acceptance that will take the risk
for a point and a half or whatever. There are times when these
things are -- people want to take advantage of that. They're
willing to pay the fee to get the money now so they can go on to
something else. I don't want this to be an opportunity where that
would happen because we're talking about a lot of money when we
start dealing in large commodities."
Number 1852
MS. LITTLE said she believes Representative Ryan is referring to
the seven-day period. She explained what the seven-day period
basically says is once the issuing bank has received the documents,
they have to set priority in their work flow. The seven days
allows the bank to prioritize it into their workload. If there are
problems, the bank usually tries to go to the actual person that
owes the money and tries to resolve the situation before they
decline payment. She said she thinks that why the seven-day period
is given rather than a three-day period as it allows resolution
before declining payment.
REPRESENTATIVE RYAN asked what happens when the buyer declines a
shipment or says that the shipment isn't as (indisc.). He asked
what period of time is on that end.
Number 1959
MS. LITTLE said the buyer doesn't have a chance to look at the
goods before they receive them. The reason is that usually in a
letter of credit, the bill of lading is consigned either to the
bank or to the order of shipper and then blank endorsed. What that
does is it makes the bill of lading negotiable and whoever holds it
is the only one that can pick up the goods.
REPRESENTATIVE RYAN said he wants to ensure that the bill won't
slow something down in facilitating commerce.
MS. LITTLE referred to the seven-day time period and said she
doesn't think every bank waits for seven days to look at the
document. They want to allow for the prioritizing of it and if
there are problems to resolve, they can be resolved before denying
payment.
REPRESENTATIVE RYAN referred to a letter from the Office of the
Attorney General the committee members had in their committee file
and said the letter talks about an institution finding a
discrepancy the first day, but waits until the seventh day to bring
it to the person's attention for it to be cured.
Number 2304
MR. WEAVER referred to a comment made by Representative Ryan
regarding the shipment and said a letter of credit is involved in
an issue of documents and not the actual shipment. The letter of
credit will be paid if the documents are correct, even if the
shipment is not. He said if there is a load of bananas and they
rotted during shipment, it would become an insurance claim and it
would have nothing to do with the documents and the letter of
credit. The letter of credit is an enforceable document. Mr.
Weaver stated that because you're dealing with two banks that have
very strong reputations on the line, they're going to be very
careful as to how they treat that transaction because in most
cases, banks also have loans to the various parties that are
involved.
Number 2406
REPRESENTATIVE JOHN COWDERY referred to the seven-day period and
asked how it compares with other places like Los Angeles, San
Francisco and Seattle.
MR. WEAVER said it is a uniform standard that is the same in all 52
districts. It is actually worldwide and the Europeans would do
exactly the same.
Number 2513
L. S. "JERRY" KURTZ, JR., Member, Alaska Uniform Law Commission,
came before the committee. He referred to the seven-day time
period and said the period really isn't seven days. He said code
5-108 says that an issuer has a reasonable time after presentation,
but not beyond the end of the seventh business day. It is drawn
that way with reasonable time first because there are a lot of
transactions where banks don't need seven days to process the
documents. One of the official comments that the drafters of the
code mentioned was that a mining transaction, where you're just
dealing with mining output, is a good a good example where seven
days usually isn't needed. Mr. Kurtz said "reasonable" can always
be stretched, but at least that section puts some additional
pressure on things. He noted it has been his experience that most
banks do respond faster than seven days. He said with a mine
(indisc.) standby letter of credit, technically your time would be
less than seven days. Most of the problems in this area come up
when the documents that are received don't fit the letters of
credit. He noted that litigation in this area has been very scarce
and he isn't aware of any in the state of Alaska over the 30 years
that he has been practicing law. He noted it is because the
issuing bank and the banks on the other end tend to push very hard
work these things out. They don't want to go to court.
Number 2852
ART PETERSON, Uniform Law Commissioner, Alaska Uniform Law
Commission, testified via teleconference from Juneau. He referred
to amendments proposed by Representative Ryan and said they would
really do some damage to the bill and to uniformity. One of the
main features of the UCC is that it has been adopted in all U.S.
jurisdictions with the partial exception of Louisiana which is
different, in a number of respects, from all of the other states.
In addition, the UCC has set an international standard and many of
its provisions coincide with the international standards of
practice. For Alaska to adopt some of the unique provisions in
Representative Ryan's set of amendments, it would really put Alaska
in a bad situation for doing letters of credit business. Mr.
Peterson said, "Mr. Weaver commented on the amount that his bank
does in a typical year in this field and estimated that maybe there
are a couple hundred million, statewide, involving the other banks
in Alaska. One figure that I've had is that in the United States,
as a whole, it's a two hundred billion dollar industry and Alaska
certainly doesn't want to be viewed as off on it's own little twig
- there is not even much of a limb to stand on, but I don't think
we want to do that. And certainly the uniform law commissioners
would oppose those amendments."
Number 3056
MR. PETERSON said it is his understanding that the Department of
Law also opposes Representative Ryan's amendments and noted there
was a letter submitted to Representative Rokeberg, in the spring,
written by Doug Lottridge, a former assistant general, regarding
the opposition of the amendments. Mr. Peterson said he believes
the Division of Banking, Department of Commerce and Economic
Development, also doesn't support the amendments. He noted he
cannot speak for them and hasn't been authorized to speak for them.
Mr. Peterson urged the committee members to move the bill, without
the amendments, with "do pass" recommendations.
REPRESENTATIVE RYAN asked Mr. Peterson a question which was
indiscernible on the tape.
Number 3419
MR. PETERSON indicated he didn't hear Representative Ryan's
question very clear, but said he believes Representative Ryan is
concerned about the time period that Mr. Weaver and Mr. Kurtz have
addressed. Mr. Peterson said he would emphasize that it is a
reasonable time or seven days. He said, "If a reasonable time is
one day, that is the amount of time that -- that is all that's
allowed and that's the international standard. If a reasonable
time is six days, it's six days. If a reasonable time is 82 days,
well they're still stuck with 7. So the bill looks like it's
written as tightly as can be while recognizing all of the
procedures involved and all of the international practice that
we're trying to address here." He indicated he wasn't sure if he
answered Representative Ryan's question.
Number 3547
REPRESENTATIVE RYAN stated that he thinks his concerns have been
addressed and would contact Mr. Peterson regarding another issue.
Number 3631
CHAIRMAN ROKEBERG closed the public hearing on HB 178. He said it
is his intention to bring the bill back before the committee when
the committee reconvenes during the legislative session.
SSHB 142 - BUSINESS PRACTICE REGULATIONS
TAPE 97-63, SIDE B
Number 0129
CHAIRMAN ROKEBERG indicated the committee would address SSHB 142,
"An Act relating to the sale or transfer of new or used motor
vehicles; relating to the confidentiality of certain information
related to attorney general investigations of unlawful trade
practices and antitrust activities; establishing additional
unlawful trade practices; relating to the exemptions from
telephonic solicitation regulation; regulating the sale of business
opportunities; amending Rules 4 and 73, Alaska Rules of Civil
Procedure; and providing for an effective date," sponsored by
Representative Gary Davis. Chairman Rokeberg noted the last Labor
and Commerce Committee hearing on the legislation was on May 5,
1997.
Number 0130
REPRESENTATIVE GARY DAVIS explained SSHB 142 via teleconference
from Soldotna. He stated that at the last hearing on SSHB 142,
most of the debate centered around the sections relating to the
selling of new and used motor vehicles, and some of the disclosures
required to minimize fraudulent sales if there has been damage to
a vehicle or if there are known problems with a vehicle.
Representative Davis noted those sections are in the first five
pages of the legislation. Representative Davis stated that the
rest of the bill, which is rather lengthy, has had little debate
and covers some loose ends that Daveed Schwartz from Office of the
Attorney General, brought up. Representative Davis noted Mr.
Schwartz deals specifically with consumer affairs issues.
REPRESENTATIVE DAVIS stated he introduced the legislation at the
request of Mr. Schwartz and Crystal Smith, Legal Administrator,
Office of the Attorney General. He explained that some of the
inclusions seemed quite practical as there is a need for
clarification in statute. He reiterated that the sections dealing
with new and used motor vehicles have had the most discussion,
input and the most objections as the Alaska Auto Dealers
Association has been vocal in objecting to anything that subjects
them to more requirements of disclosure.
CHAIRMAN ROKEBERG stated he hasn't had any direct dealings with
anybody from the industry other than at the previous meeting on
SSHB 142.
REPRESENTATIVE COWDERY informed the committee he didn't think he
was at the last hearing on the measure.
Number 0957
RICHARD MORRISON, Owner, Eero Volkswagon/Saturn of Anchorage;
Former President/Current Member, Alaska Auto Dealers Association,
came before the committee to testify. He explained the overall
difficulty he sees with the bill is that it combines some issues
that are very complex and with some issues that are very simple.
The automotive and disclosure issues are very complex and there are
a lot of considerations that need to be made. Mr. Morrison said
that because of the complexity of the automotive issues, he wrote
a letter to Representative Davis on March 19, 1997, that suggested
that they get together and try to deal with some specifics in
disclosure laws and other laws. He referred to Representative
Davis' comments about the Alaska Auto Dealers Association not being
interested in making any kind of compromise or change and said in
the letter it states that they do see some need for some laws and
things that need to be clarified. Mr. Morrison said automobile
dealers are very interested in trying to get a handle on what the
playing field is. He said several years ago when the Inspection
and Maintenance Program (I/M) law went into practice, there was
very little information that was provided to the auto dealers.
Most of the auto dealers found out that they were violating the
statutes on reselling vehicles before they even knew what was going
on. He noted that was when the Alaska Auto Dealers Association was
being formed. The association was formed, an educational process
was started and they were able to eliminate most of the complaints.
Mr. Morrison indicated that the Alaska Auto Dealers Association
represents almost 100 percent of the new auto dealers in the state
with exception of one or two dealers in outlying areas. He
referred to independent auto dealers and said the association
represents a major share of a larger group of them.
Number 1309
MR. MORRISON referred to the I/M problem and said he discussed it
with the Better Business Bureau. He informed the committee members
he asked the bureau how many issues they have had complaints about
regarding I/M difficulties or cars sold without the I/M being done.
The response was that they used to see a lot of complaints, but
they aren't seeing very many anymore. He asked the lady that he
spoke with to give him some kind of an idea. The lady responded
that she had been working there for about eight months and maybe
it's three, maybe it's five. He indicated there is a huge number
of autos being sold in the state, in excess of 78,000 cars a year.
If there has been five complaints, why would a law need to be
enacted that would effect a lot of people who are concerned about
their customers and are concerned about doing their business right.
He said, "Lets focus on the one or two that are not doing it and do
some legislation that goes after this and I believe that under the
current state law or current trade practice, that there is the
issues in order to be able to deal with that currently in the
books."
Number 1435
MR. MORRISON pointed out that about 45 percent of the vehicles that
are sold in the state are used and are sold by auto dealers. The
balance of used vehicles are sold by private individuals. Mr.
Morrison said he believes the bigger issue comes from the private
individuals. There are a lot of business people that have an
ongoing business, are interested in building their business, and
want to keep it growing. They aren't going to do that by taking
advantage of customers. He said if he is going to invest in his
business and he has a customer that goes away unhappy because he
didn't take care of an I/M certificate or a problem (indisc.), he
isn't going to be in business very long. Business is too
competitive and too difficult. Mr. Morrison said he works very
hard in his business to maintain a good reputation. He suggested
going after the few dealers that are causing the problem and to not
regulate the many businesses that are trying to do things right.
Number 1600
MR. MORRISON referred to used cars that may be added to his
inventory and said they try very hard to do an I/M test before
those cars are shown. He said many of the dealers in the
association try to do the same thing. The independent dealers in
the association have even gone as far as changing the style of the
vehicles that they're selling so that they are not selling the
older, higher mileage, tired vehicles.
Number 1717
REPRESENTATIVE COWDERY asked how the law would effect anything that
Mr. Morrison wholesales or sells at an auction.
MR. MORRISON explained that there are a lot of cars that come in
that are in such a condition that he wouldn't want to be associated
with them. So they'll have a wholesaler come in to bid on cars or
the wholesaler will go to an auction and bid on them. He stated he
doesn't know how the legislation will impact that kind of a
situation. Mr. Morrison said he doesn't believe that the bill
would impact the people who are buying the vehicles from dealers at
wholesale prices. He said he thinks it would impact the wholesaler
as they got ready to sell the cars on a retail basis.
MR. MORRISON referred to a difficulty with the I/M testing and
said, "You get somebody who lives in Wasilla, commuting back and
forth to town. There is over 3,000 people a day doing that
(indisc.) I/M test. So now they're going to sell their car or
they're going to trade their car in. Chances are the greatest
selection is in Anchorage, they're going to come into Anchorage to
do that. That car has not had an I/M test in several years. Now
what do you do with that customer with that car?" He noted Kenai
is the same way. Mr. Morrison referred I/M testing and said if the
auto dealers are already testing before they sell them, he would
suggest doing something to go after those people that are selling
those cars under existing laws, to make them do their I/M testing
or to stand up to (indisc.). He said he doesn't believe there is
a need for an additional law.
Number 1931
REPRESENTATIVE RYAN said many years ago he sold some automobiles
and it was a common practice at that time that most of the
productive salesmen would go back through records of people who had
previously purchased the vehicles from the dealership. They would
call the previous owners and ask them how the car was. He asked if
that is still a common practice.
Number 1957
MR. MORRISON indicated that is still a common practice.
REPRESENTATIVE RYAN asked if the telephone solicitation would have
adverse impact.
MR. MORRISON said he didn't know how to answer that question.
REPRESENTATIVE RYAN referred to consumer protection laws and asked
if it is not incumbent upon the buyer to show some due diligence.
He said, "For instance, I wanted to purchase a used car from you
and I came. Could I say that I would like to take this to another
place and pay for an inspection? Would that be acceptable in your
business practice?"
MR. MORRISON responded that it would not only be acceptable, but it
would be encouraged. He noted that his particular store offers, on
any used car that is bought from them, three days to return. That
means if somebody bought a car from him today, for any reason
within the next two and half days if they decided they didn't want
that car, they could return it back to his store. He noted there
are many dealers in the Anchorage area that are doing the same
thing. Mr. Morrison said the legislature can pass all kinds of
rules, regulations and legislation, but you can't regulate people
from being stupid. If people are going to buy something without
investigating and looking at it, no matter how many laws are on the
books, it won't change things. People need to be aware and have to
realize they have got to take care of themselves.
Number 2229
MR. MORRISON explained that this issue is so large, it really needs
to be separated. He referred to the issue of damage disclosure and
said, "We acknowledge and had conversation - I personally discussed
this with Mr. Schwartz several times on a new car issue. Right
now, under Alaska statute, there is no definition of how much
damage or how much repair is acceptable on a new car damage. Right
now, if you were to replace a bolt or put a license plate frame on
a car, technically by state law, you're supposed to disclose that
to the customer, because it says if there is any alterations from
the time it was new or delivered to you, those should be disclosed.
Well, in most states, a process has been adopted at percentage of
the price of the car or a flat dollar amount that if the car has
had $500 or $1,000 damage to it, then that should be disclosed to
the individual. But a simple example of a case that can happen is
you can have a car that comes in that has a broken front grill.
The grill is a plastic item to be unbolted. A (indisc.) taken out
of the box put it back on the car - bolt it back on. It's a
factory original part. Under state law, (indisc.) does not effect
the value of the car, it doesn't effect the resale value, it
doesn't effect the appearance of the car and it is all factory
parts. By state law today, you must disclose that, but the car was
repaired without any way of damage harming the car from what its
original shape or condition was and it doesn't make any difference.
Now if there is damage to the car that requires a substantial
amount of repair, we agree there needs to be some definition as to
what that value is and we're suggesting that there either be a
percentage of the price or a flat dollar amount much like most of
the other states have adopted."
Number 2429
CHAIRMAN ROKEBERG said it might be helpful for the committee if the
Alaska Auto Dealers Association would be more specific in its
recommendations and if they would provide the recommendations in
writing. He said maybe a dollar amount might work.
Number 2520
MR. MORRISON said the difficulty of a dollar amount is as things
change, what was serious damage ten years ago might have been $500,
but today that same damage would probably cost $2,000 to $3,000.
The difficulty with a flat dollar amount is there has to be some
way to up date it as time goes by and things change.
MR. MORRISON said he believes there needs to be something regarding
new cars and it should be defined for both the consumer and the
auto dealers.
MR. MORRISON referred to the subject of used cars and said it is a
very, very complex issue. He said, "If we're going to do a
disclosure on used cars and if 55 percent of all the used cars sold
are sold by private individuals, why would we section out just the
automotive dealers?" He said the National Automobile Dealers
Association (NADA) has been trying for years to lobby to get a
national title branding process set up. One of the issues on used
cars, which has gotten a few dealers in trouble, is an insurance
company will total a car. They'll sell that car to the best
bidder. Someone will buy the car and fix it poorly and then put it
back on the market to sell it to a consumer. The consumer drives
the car for a little while and then sells it. By the time the car
is sold to the fourth person, they take it into an auto dealer.
The dealer inspects the car and everything appears to be fine.
They then put it out for sale and it's sold. The person who buys
the car from the dealer then somehow finds out that the car had
been totaled and the title had never been marked totaled, branded
or reconstructed. He noted that there is a section on the DMV
registration or the title that put "Rec." which means that it was
reconstructed. Mr. Morrison said DMV has been working with the
auto dealers in an attempt to correct the problem. He said if the
registration could be branded so that it says in big bold letters
"RECONSTRUCTED," it would eliminate a lot of problems. He said he
believes there is currently a law where insurance companies are to
notify the state when a vehicle is totaled. The title is supposed
to be changed to state that it was a totaled vehicle; however, in
many cases that doesn't happen.
Number 3017
MR. MORRISON pointed out another problem is with damage disclosure.
He said their point on damaged and used cars is not a matter of
whether the car was damaged and repaired, it is a matter of whether
the car was repaired properly. If the car was repaired properly,
there is no reason for disclosure because the was set up (indisc.).
He noted that probably 90 percent of all the cars on the market
have had some kind of damage. Mr. Morrison said, "And then how are
you going to define the damage? Are you talking about just
automotive accident damage or are you talking about -- what if the
shocks wore out because he was driving on a rough road? Is that
damage also? At what point are you going to break the damage on
it? And then are we going to start requiring people to keep a log
like they do on aircrafts and pass on this log to the next person
that's come in here?"
Number 3136
MR. MORRISON referred to the issue of whether automobile dealers
are supposed to disclose things that they know are defects on the
car. There is already a law, under the Fair Trade Act, that says
if there are known defects, the dealer is supposed to disclose
them. Mr. Morrison said he would submit that the automobile
dealers in the association are very good about trying to get that
straightened out. He pointed out that there has been one case
against one automotive dealer in Anchorage and he believes 90
percent of the bill is built around that one case. Mr. Morrison
stated he doesn't think there is the need for an additional law and
additional regulations because of one case.
Number 3229
CHAIRMAN ROKEBERG pointed out he has a constituent that went
through the damage, reconstruction and failure to have the vehicle
properly registered and it wasn't through the dealer Mr. Morrison
was speaking of. He said, "To try and narrow it to say that this
problem is only an isolated incident -- I think it would be very
unusual, but not necessarily your one case, I'd put you on notice
there."
Number 3253
MR. MORRISON said the association agrees that there needs to be
something in regulation, but it shouldn't be focused just to the
auto dealers. It should be focused statewide.
CHAIRMAN ROKEBERG said in that particular instance, his constituent
recovered from the state of Alaska for failure to have the proper
registration in the case.
Number 3316
REPRESENTATIVE RYAN asked where this falls in under the agreement
to purchase an automobile as is, where is. He noted that is done
quite a bit. Representative Ryan referred to when a person goes to
a financial institution that has repossessed a car and wants to buy
it, the financial institution will say they can buy it where is and
as is. He asked how that issue is to be resolved.
MR. MORRISON explained that the association had Charlie Cole
conduct a study regarding the as is, where is. He studied the
Magnuson Loss Act, which is done nationally, and also local cases.
One of the difficulties with the as is, where is, is that you
remove a vehicle out of the as is, where is, if you sell a service
contract with that vehicle. Mr. Morrison said there was also a lot
of discussion and debate as to whether a service contract was an
insurance policy or a not an insurance policy and what it did and
didn't imply. He said through the interpretation the association
has is that they believe that if a service contract is sold, then
there are additional implied warranties to go with that. However,
if Chairman Rokeberg were to come in and buy a car from him today,
and he sold it to him as is, where is, he also must supply a
certificate of compliance or a certificate of noncompliance or the
I/M test. A certificate of compliance is the I/M certificate.
There isn't a certificate of noncompliance, but it has been
accepted that the certificate of noncompliance is the certificate
that says that it is a title only waiver. That means that you have
to pull the license plates off and you get a title only, but you
don't get a registration and you don't get licensed by (indisc.).
That is the other means for selling the vehicle without the I/M
test being covered. So selling a vehicle as is, where is, really
doesn't exist anymore as you still have to go through all the other
hoops. Mr. Morrison said he has gone as far as putting a notice on
his cars. If he has some cars that he is just going to wholesale,
he puts a notice that says, "This is sold as salvage." He said he
tries to get the point across that it is an old car.
Number 3600
REPRESENTATIVE RYAN asked Mr. Morrison if he would be comfortable
with an amendment to the statute that makes that a reasonable
business practice.
MR. MORRISON indicated he would be agreeable, but would like to see
it and understand it first.
Number 3613
CHAIRMAN ROKEBERG said he authored legislation, HB 222, which
became law that allows dealers to sell salvaged vehicles without
them having to have an I/M test. He noted it has to be for salvage
purposes.
Number 3719
REPRESENTATIVE RYAN said a dealer gets rid of a car to try to
reduce the liability as a salvage, but the person who buys it turns
around and wants to sell it as a used automobile. He said the
chain of liability is his concern. The dealer made an honest
effort to note that the vehicle was a salvaged vehicle, but the
person who buys it comes back and says, "Oh, this was
misrepresented and so forth, and I'm going to go to court." The
lawyer comes right back up the line and says, "Well, we've got the
most money so we're going to nail you." Representative Ryan said
there should be an end to this kind of thing. He said maybe the
legislation, with some changes, could establish that.
Number 3808
CHAIRMAN ROKEBERG said he thinks it is really necessary to maintain
the declaration on the registration and it should follow the
vehicle as it protects everybody in the chain of title.
Number 3824
MR. MORRISON said they had suggested at one time that rather than
doing the registration style I/M certificate, they do a sticker for
the (indisc.) which would do a whole bunch of things. One of the
problems in Anchorage is that there are 3,000 people who drive in
from the valley, a day, that are not driving I/M certified cars.
He said if there was a sticker on the car, those cars could be
identified.
Number 3910
MR. MORRISON explained that they have been working on some
recommendations for the committee that specifically addresses the
new and used car disclosures. He said they are close to having
them finalized. Mr. Morrison explained they have also invited Mr.
Schwartz of the Office of the Attorney General to work with them,
but they haven't been able to get together yet. He stated they are
looking for ways to make things easier for the businesses and fair
for the consumers. The issue is so complex that you just can't
come in say, "Okay, you're going to disclose everything you know
about that used car." It doesn't work and that is why no other
state in the nation has adopted a used car disclosure law. There
are a lot of ramifications to it. He indicated there is no simple
solution.
MR. MORRISON said one of the issues that was addressed in a
previous hearing is there are cars being sold off the corner that
appear they are being sold by private individuals, but they are
really people selling as dealers. Mr. Morrison said there is a
dealer licensing and bonding system in the state that really isn't
being efficiently used. He stated the association would be in
favor of having some kind of additional legislation or some kind of
restriction on the people that are doing that. Mr. Morrison stated
they want to work towards getting more reputable people that are in
the business. He said the corner guy who sells out of his back
yard doesn't help his business and by regulating the business in
the way HB 142 talks about, it won't correct that guy. He will
still continue to do what he is doing while appearing to be a
private individual.
Number 4136
CHAIRMAN ROKEBERG indicated the committee substitute addresses all
the occupational licensing issues. He said Mr. Morrison indicated
that there should be a dealer licensing law to act under.
MR. MORRISON stated they have to have a dealer license and bond in
order to be able to work with DMV.
CHAIRMAN ROKEBERG said, "You don't have a regulatory and
enforcement statutory capability within your organization, under
state law, to administer any policing - if you will."
Number 4225
MR. MORRISON indicated they don't. He said when there has been a
problem, they have sat down with different members of their
organization and said, "You're having a problem in this area,
here's what you can do to straighten it out."
Number 4242
REPRESENTATIVE RYAN questioned whether there is a minimum amount of
automobile transactions.
TAPE 97-64, SIDE A
Number 0013
REPRESENTATIVE RYAN asked Mr. Morrison if there is a minimum amount
of automobiles that he sells in a year that classifies him as a
dealer versus a private individual.
MR. MORRISON said he thinks it is five vehicles.
REPRESENTATIVE RYAN asked how much this adversely effects reputable
people who are established in the business. He noted the
legislature ran into a similar problem with contractors - people
who are licensed and bonded by the state versus people who are out
soliciting door to door and don't meet the requirements of a
contractor. He asked Mr. Morrison if it isn't a similar situation.
Number 0118
MR. MORRISON said that is a tough question for him to answer. He
said he would tell the committee members is they would find a lot
of support from the Alaska Auto Dealers Association to minimize
what he calls "street corner vendors." Mr. Morrison indicated the
Alaska Auto Dealers Association would like to continue to work with
the committee. He said they would like to have a separate bill
that focuses specifically on this item. It doesn't make sense to
regulate the many who are doing things right to try and catch the
few who aren't when there are already existing laws to catch those
few. He said, "I think there are also some national things that
can come in so that we're not trying to create the wheel."
Number 0314
CHAIRMAN ROKEBERG referred to Mr. Morrison saying that 55 percent
of the sales are private sales and about 45 percent are dealer
sales. He asked where those statistics are from.
MR. MORRISON responded those are national statistics.
CHAIRMAN ROKEBERG asked there are statistics for Alaska.
MR. MORRISON responded, "The last time we tried to get the
statistics through DMV, it was very difficult, but it appears to be
by taking the total number of transactions that they have and the
numbers that each of us dealers have combined together and saying,
`Here's what we're selling,' it appears to very consistent."
Number 0357
REPRESENTATIVE DAVIS said if his initial statements indicated there
hasn't been any cooperation or any indication that the association
acknowledges that there are some clarifications and interest in
solving some of the problems, he apologizes. Representative Davis
said, "My intent was to indicate that during some of the testimony,
there has been some indication that -- from some automobile
dealers, that there hasn't been a need that they're being
pinpointed on specifically." Representative Davis said as Mr.
Morrison indicated there definitely has been a lot of input by the
association and they have been willing to work with him and the
Office of the Attorney General on the legislation. After the bill
was rewritten, there still has been an indication of concern. He
said he is certain Mr. Schwartz is still willing to fine tune the
legislation.
Number 0613
DAVEED SCHWARTZ, Assistant Attorney General, Commercial Section,
Civil Division, Department of Law, came before the committee. He
said most of the discussion the committee has had deals with
Sections 1 and 2, which deal with the I/M disclosure and the
vehicle damage disclosure.
MR. SCHWARTZ referred to Section 1, which deals with I/M
disclosure, and said the current state of affairs (indisc.). He
said in 1992, the legislature passed AS 45.45.400 which deals with
the current obligation of persons engaged in the business of
selling used vehicles in an auto emissions inspection area. Mr.
Schwartz stated there are two auto emissions inspection areas in
Alaska, Anchorage and Fairbanks. The 1992 legislation says that
before a dealer can transfer title or ownership to a person who is
going to use a used vehicle in an I/M area, the vehicle has to have
a certificate of I/M compliance or noncompliance. The intent
reflected by the legislative committee tapes and comments the prime
sponsor at that time, Representative Loren Leman, was to ensure
that the buyer, prior to sale, had information on the status the
used vehicle concerning I/M, so that the buyer would know prior to
sale what the I/M status was. The buyer could factor that
information into their decision as to whether they want to buy the
vehicle.
Number 0825
MR. SCHWARTZ informed the committee that two problems developed
with respect to the existing legislation which are in the form of
complaints to the Office of the Attorney General or the Better
Business Bureau or just general consumer questions in general was:
1. There was no requirement that the dealer actually present the
information on the I/M status of the vehicle to the consumer prior
to sale; and 2. The information didn't have to exist until a
transfer of title which can occur up to 30 days after the actual
sale, under the current DMV law. Mr. Schwartz said there were two
problems with the current law. In 1996, the state attempted to
address the problems by drafting Section 1. He noted
Representative Davis was the chair of the House Transportation
Committee at that time. Mr. Schwartz said Representative Kay Brown
introduced HB 403 that contained Section 1 of HB 142, currently
before the committee. That bill didn't pass. It was re-proposed
and Representative Davis agreed to introduce it along with other
items in HB 142. The idea was to give consumers information up
front, prior to sale, about the I/M status of the vehicle.
Number 1007
MR. SCHWARTZ said one thing to consider in evaluating the need for
HB 142 is that the Consumer Protection Section of the Office of the
Attorney General was essentially eradicated about ten years ago,
except for one complaint mediator in Fairbanks, Jim Hayes, the
current mayor of Fairbanks. Mr. Schwartz explained his office
doesn't take individual complaints in consumer protection anymore.
In the 1991 budget, Governor Hickel restored a modest amount of
funding for litigation of the worst violations under the Consumer
Protection Act, but they weren't given adequate funding to take
individual complaints as they did before when they had a 16 person
section, statewide. Mr. Schwartz said it's important to not judge
the degree of a problem by the lack of complaints filed either at
the Office of the Attorney General or by the Better Business
Bureau. Mr. Schwartz said that do the confusion that the 1992
legislation currently presents, he doesn't think consumers often
know enough to realize that they might have something to complain
about concerning I/M. He said he has been told that the
Municipality of Anchorage I/M Office receives, on average over a
year's time, approximately ten complaints a month concerning
vehicles that people have purchased where they only find out after
sale that the vehicle doesn't pass I/M. Often times, the vehicles
are purchased from a dealer and not necessarily from an individual
in a private transaction. He stated that is the goal of Section 1.
Number 1211
CHAIRMAN ROKEBERG said it seems that Mr. Schwartz's intent on the
recommendation for language in Section 1 is to clarify what the
original intent of the law was, particularly in light of the idea
that there is a 30-day transfer rule on title in the state.
MR. SCHWARTZ indicated Chairman Rokeberg is correct.
CHAIRMAN ROKEBERG said the additional language in subsection (2),
page 2, line 7, is for clarification purposes.
Number 1252
MR. SCHWARTZ explained problem subsection 2 addresses is that a
vehicle purchase transaction is a paper intensive transaction
already. It has been noted by the Federal Trade Commission in
hearings concerning car transactions that the consumer is faced
with a stack of papers. They are signing and reading a lot in a
short period of time. The goal is to make sure that the consumer
actually gets to meaningfully read the piece of paper put in front
of them concerning I/M status and to sign an acknowledgment that
they're actually given the piece of paper prior to sale. Mr.
Schwartz explained it is also a matter of assisting the consumer in
proving what happened and when it happened. The goal of subsection
(2) is to ensure that the consumer does get the I/M status
information prior to sale and that there is some way to show the
consumer actually received it.
Number 1436
CHAIRMAN ROKEBERG asked if there is actually a certificate of
noncompliance.
MR. SCHWARTZ said Mr. Morrison correctly stated that there is no
official state certificate of noncompliance. In Anchorage, the way
that is handled is there is certificate of I/M inspection and it's
stamped with the language title only waiver. He said, "So if a
vehicle does not pass I/M, the municipal I/M Office is nevertheless
able to give permission to the owner of that vehicle to sell it,
but the owner can only transfer title and such a sale would not
allow the purchaser to register the vehicle with DMV unless and
until the vehicle is brought up to I/M standards."
Number 1545
REPRESENTATIVE COWDERY said if the legislature requires the dealers
to do all these things and to make information available, he
doesn't see where it could be done better. He indicated he has
problems in making people who are buying something to be required
to do anything. He said if a person goes to bank to borrow money,
they sign a lot more (indisc.).
Number 1809
MR. SCHWARTZ said the additional thinking is to make sure that the
dealer does give that I/M status disclose paper to the consumer
prior to sale by obtaining the consumer's signature. That would
ensure that the information is transmitted prior to sale. Mr.
Schwartz indicated that currently, that information doesn't have to
be given until the time of title transfer which is after sale and
can be up to 30 days after sale.
REPRESENTATIVE COWDERY pointed out that a signature doesn't
guarantee that the consumer has read anything.
Number 1841
MR. SCHWARTZ explained that it puts a burden on the dealer to
obtain the signature from the consumer prior to sale. Although
there may be many ways of accomplishing the goal of disclosure
prior to sale, this is one of them. He noted it may not be the
most perfect way to do it, but the original intent of the
legislation was to give the buyer information prior to sale. Often
times, a used car would require a fair amount of work in order to
bring it up to I/M standards. Mr. Schwartz pointed out that he has
heard from consumers who have said, "Gee, you know if I had only
known prior to sale that I was going to have to put another $1,000
- $1,500 or what have you, into the vehicle just so I could
register it, I would not have bought that particular vehicle. I
would have bought another one that I didn't have to spend money
on."
Number 1935
REPRESENTATIVE COWDERY asked if all the complaints were valid
complaints.
MR. SCHWARTZ indicated that the Office of the Attorney General
stopped taking individual complaints about ten years ago as they
didn't have the staff to do it. He said he is the only full-time
employee in consumer protection and he also does antitrust. Mr.
Schwartz said he can tell the committee members that the consumers
that he has actually spoke with have indicated that they found out
after they bought a vehicle.
Number 2116
REPRESENTATIVE RYAN said the dealer is required to due diligence in
a number of respects. He said, "This basically assumes that the
buyer is -- no liability for anything. They don't have to exercise
any judgement, they don't have to do anything. They just come in
there and say, `I want to buy the car,' and they don't have to take
any reasonable precautions to ensure that they're getting what it
is they think they're buying. To me, that's kind of an unfair
burden to put upon the guy who is selling it. You're holding the
buyer completely harmless and saying, `Well you can come back on
this right to cancel after notice.' You know there are an awful
lot of things that go into running a business and when you already
have a deal and you've gone through all the hoops and everything is
closed - the banking has been arranged and everything else and now
we've got to back and undo all this stuff because the buyer came up
and discovered something that they didn't take the time to discover
beforehand. Don't you think (indisc.--coughing) responsibility
here that there is some due diligence demanded on the part of the
person who is buying?"
Number 2239
MR. SCHWARTZ explained it is not always possible for a buyer to
discover damage to a vehicle, if you're now referring to section
(2) of the bill, prior to sale. He said often the defects to a
vehicle are hidden defects and only upon very close inspection,
beyond what would normally be considered as a buyer's due
diligence, would a person discover that a vehicle had been
previously wrecked and it might be a dangerous vehicle. Mr.
Schwartz explained that many buyers do no pay an inspector a large
sum of money to do a four way wheel alignment on a vehicle or to
fully inspect a vehicle prior to purchase. Instead, they may ask
an auto dealer if the car has ever been in a wreck and they may not
get a truthful or complete response. Mr. Schwartz informed the
committee that the state has actually sued a dealer concerning
these very issues and prevailed in the Alaska Supreme Court. Often
times, the consumer's due diligence might be asking the dealer
about the condition of a vehicle and the dealer may not provide
truthful or complete information which may only be discovered after
sale.
Number 2541
MR. SCHWARTZ referred the committee members to Section 2 of HB 142
and said it is actually an evolution from an earlier draft of the
bill. He referred to mentioning that during the last legislature,
there was a bill concerning I/M disclosure and that provision is
currently in HB 142. Also, during that legislative session there
was a request to amend Representative Brown's bill to add an
accident and damage disclosure provision. That provision was
drafted and then HB 403 died. Mr. Schwartz explained an accident
damage disclosure provision was included in the original version of
HB 142. It basically put into more specific language the case law
that had developed as a result of the state's litigation against
Johnson Nisson - Jeep/Eagle. That was the litigation that resulted
in the Alaska Supreme Court decision this year. Mr. Schwartz said,
"The dealers association looked at that, contacted the lieutenant
governor's office and there was discussion between myself, the head
of the dealers association, Steve Allwine, and the Lieutenant
Governor concerning the concerns that the dealers association had
with the original version of the accident disclosure provision.
The dealers association pointed to disclosure requirements in about
32 different states that were more specific than the provision that
was drafted in the original bill. So the attorney generals office
and myself, in particular, took a look at those statutes and came
up with a radically different approach than the one that was in the
original version of House bill 142. And that approach was then
modified even further and what you see now in the sponsor
substitute for House bill 142 is the latest - the most recent by
the attorney generals office to come up with a statute that is
similar to the type of scheme that you see in other states with
respect to damage disclosure."
Number 2838
MR. SCHWARTZ said the idea is to present the consumer with enough
information about material damage - that the consumer can make a
wise decision and correctly bargain with respect to their car
purchases. He said Mr. Morrison mentioned that as state law
currently exists, a dealer would have to disclose if a bolt were
replaced on a new car. Mr. Schwartz said, "With all due respect to
Rick Morrison, I don't think that would necessarily be the case.
Under state law, I think that if the repair that was need or
effectuated was material to the purchase, then disclosure would be
required. For example, if that bolt were somehow so important that
the way it was replaced created a danger to -- created a safety
problem in the vehicle, then that would be a material aspect of the
sales transaction - would have to be disclosed. But I think if it
were immaterial, if it was simply a factory bolt that had to be
replaced and the vehicle is otherwise in the same condition it
would have been and had it been brand new and the bolt never
replaced, I think you would have a hard time finding any court in
the state of Alaska to say that - not to disclose that bolt
replacement on a new vehicle would be a violation of a consumer
protection law." Mr. Schwartz explained the current version of the
bill is an effort to make more specific the damage disclosure
obligations of a dealer.
Number 3028
REPRESENTATIVE RYAN referred to Section 6, page 5, regarding
confidentiality, and said he can understand why if the attorney
generals office was carrying on an investigation they might not
want somebody to know the results of their investigation during the
time or before they bring a complaint. Representative Ryan
questioned that after it is all said and done, why does the
information have to stay confidential.
MR. SCHWARTZ explained that there are any number of instances in
which the state would close an investigative file. He said they
may close a case after litigation, and it may be successful
litigation. He said they may close a case where they feel it
shouldn't be pursued or they may close a case about a month after
it is started. For example, the state's investigation of the
alleged boycott by the Anchorage television stations of the state's
bid for television service to Girdwood and Homer two years ago.
Mr. Schwartz said he closed that case a month after he started it
because fortunately it was resolved. He said if a public records
request came in on a closed investigative file, it is not all that
clear how it should be treated. Mr. Schwartz said, "If you, as a
businessman, are the subject of a complaint and I look into it, as
a state attorney general office, and find that it's not meritorious
and close it and then the newspaper gets wind of it and wants to
find out that someone actually did file a complaint against you,
this particular bill would allow the attorney general's office to
keep that record confidential."
Number 3318
REPRESENTATIVE RYAN indicated concern that if a complaint were
made, you wouldn't know what somebody would have said about you and
you don't whether there is any substantiation to it. You couldn't
find out, but there is the fact that a complaint was made and it
doesn't do your reputation any good when you can't defend.
Number 3421
MR. MORRISON said his office hasn't had any complaints that he is
aware of since he has been doing consumer protection work. He said
usually businesses that haven't been contacted by his office won't
contact him to get their attention. He said they don't want to
hear from his office if they aren't contacting them. They aren't
that much interested in knowing what is in their files.
REPRESENTATIVE RYAN said he would like to know what the business
community thinks.
MR. MORRISON said they litigated this very issue in the Alaska
Superior Court and then filed a notice of appeal in the Alaska
Supreme Court on the seafood price-fixing case. The seafood
processors prevailed upon the Governor's office and the attorney
general to withhold the records that they had submitted to the
state and the state closed its investigation of alleged price-
fixing. He said the state wanted to withhold those records as they
didn't feel that they should be publicized. The business community
was behind the state's position of wanting to keep the records
confidential. It was the plaintiff's community who actually wanted
them released.
Number 3605
REPRESENTATIVE DAVIS indicated he had other business to take care
of. He said he would like to interject that as the discussion
takes place on the legislation, he thinks the committee will find
a majority of the concern addresses the motor vehicle sections of
the bill. Representative Davis said Chairman Rokeberg may wish to
wait until the Alaska Auto Dealers Association and Mr. Schwartz
meet to hash out concerns and see if the wording can be addressed
to the satisfaction of all parties. He said Chairman Rokeberg may
want to want to separate the motor vehicle sections and create
another bill. Representative Davis indicated that whatever the
chairman chooses, it would be fine with him.
Number 3742
CHAIRMAN ROKEBERG said he appreciates Representative Davis
comments. He said the committee members would await the outcome of
the meetings between Mr. Schwartz and the association. Perhaps
subsequent to the meetings, the committee can make a decision as to
how this should be pursued.
Number 3821
CHAIRMAN ROKEBERG asked Mr. Schwartz to comment on an October 9,
news article that was published about a court order against a local
dealer that stemmed from a supreme court case that was finally
resolved in July, 1997.
Number 3840
MR. SCHWARTZ stated the Alaska Supreme Court affirmed on July 18,
1997, the 1995 court ruling concerning Johnson's Nisson. The state
had taken Johnson's Nisson to court and had a 3-week jury trial and
the jury found Johnson's Nisson liable on 18 of 22 counts of civil
fraud with the respect to the sale of eight vehicles. Johnson's
Nisson appealed to the supreme court. There was a permanent
injunction and a money judgement. The supreme court unanimously
affirmed the jury and the court order of 1995. On August 15,
Johnson's Nisson paid the state $190,184 in restitution, civil
penalties, attorney fees and costs, and pre and post judgement
interest. On August 16, 1997, the state has alleged in a contempt
motion that there was yet another sale by Johnson Nisson, to a
consumer in Anchorage, of a vehicle that had been previously
wrecked and then repaired. The damage was not disclosed to the
consumer prior to sale and there were a variety of aspects of that
transaction which makes it violation, in the state's view, of the
court injunction and a safety hazard to the consumer. Mr. Schwartz
informed the committee that his telephone has been ringing off the
hook concerning this particular problem.
CHAIRMAN ROKEBERG asked, "Is it a reconstruction repair problem?"
MR. SCHWARTZ said, "That's correct - prior accident damage that has
been repaired to a certain extent, maybe just cosmetically repaired
and then not disclosed despite inquiries by the consumer during the
sales process and then the consumer finds out, after sale, that the
vehicle has been in a serious wreck."
CHAIRMAN ROKEBERG asked what the present state of the law is based
on the reconstruction provisions as far registration is concerned.
He asked to what extent and scope does the vehicle have to be
damaged to fall under that category.
Number 4124
MR. SCHWARTZ said when an insurance company totals a vehicle, they
have to report it to the DMV. The DMV then puts the letters "Rec."
on the registration.
CHAIRMAN ROKEBERG asked if that system is working.
MR. SCHWARTZ said it doesn't address the entire problem. He
suggested checking with DMV to see how well that system is working.
The Office of the Attorney General doesn't necessarily monitor that
particular process. He said there can be damage to a vehicle to
the extent that the vehicle is not totaled, but the damage can be
material. He referred to the 1995 Nisson Sentra, that is the
subject of this (indisc.) motion, and said it was sold for $11,000.
There was $6,200 worth of repaired damage to the Sentra. The
Sentra was booked at about $8,300 in terms of a trade-in value. It
wasn't a vehicle that was totaled, yet there was substantial damage
to that vehicle and it should have been disclosed to the consumer.
Number 4237
CHAIRMAN ROKEBERG asked if there is a state law requiring the
disclosure of damages.
MR. SCHWARTZ said, "Case law, interpreting the state Consumer
Protection Act, requires that material damage to a vehicle be
disclosed prior to sale. The goal of HB 142, Section 2, would be
to make those disclosure requirements more specific. But even
under existing consumer protection law, material damage to a
vehicle should be disclosed prior to sale otherwise the consumer
would have a cause of action."
Number 4313
CHAIRMAN ROKEBERG questioned whether the words "material damage" is
generally a term of art.
MR. SCHWARTZ responded that it is gray term which depends upon the
facts. It is all fact driven.
TAPE 97-64, SIDE B
Number 0300
CHAIRMAN ROKEBERG said Alaska doesn't have a statutory requirement
for disclosure, but does have a case law requirement for
disclosure.
MR. SCHWARTZ said there is case law interpreting the state Consumer
Protection Act that says it's an unfair or deceptive act or
practice to mislead or deceive a consumer in connection with a
consumer transaction.
Number 0328
CHAIRMAN ROKEBERG asked if that is in existing statute.
MR. SCHWARTZ stated that is correct. The words "mislead" or
"deceive" are in AS 45.50.471(b).
CHAIRMAN ROKEBERG said, "Unless you're fortunate enough to be a
member of the Alaska Auto Dealers Association or in this room right
now or had some other way of knowing that, you wouldn't really know
or have been on notice that you had that duty then would you?
Unless you hired an attorney to develop a SOP (standard operating
procedure) in procedures for your business operation that you had
to do that before, you would market any automobile unless you had
an attorney."
Number 0409
MR. SCHWARTZ informed the committee that most auto dealers know
that states have consumer protection acts of one type or another.
He said he believes just about every state in the nation has a
consumer protection act and the mislead or deceive language is
virtually uniform throughout the country and it's modeled after the
Federal Trade Commission (FTC) Act, which is a national act that
has been in existence for years. It is often said that, even by
the Alaska Supreme Court, that the state's Consumer Protection Act
is a baby FTC Act.
Number 0444
CHAIRMAN ROKEBERG said he believes there was some testimony where
it is the duty on the part the dealer to disclose because of the
FTC Act.
MR. SCHWARTZ said that is how it has been interpreted in Alaska.
He noted Alaska case law is based on federal case law interpreting
the FTC Act.
Number 0504
CHAIRMAN ROKEBERG asked if a person could bring a cause of action,
in federal court, if that person thought they had grounds for it if
they had been deceived.
MR. SCHWARTZ responded that he doesn't know if there is a private
right of action under the FTC Act for a consumer. He said he
thinks the consumer would have to sue under the state Consumer
Protection Act.
Number 0529
REPRESENTATIVE RYAN said the reality of the situation that makes it
difficult for the dealer is that it may be expedient for an
insurance company to total a vehicle rather than pay the cost of
repair. He said it doesn't mean that the vehicle can't be
repaired. It could still be in reasonable condition for extended
service, but once the insurance company takes this action to cut
their losses, they put the wording on the title which substantially
decreases the value of the automobile. He referred to Mr. Morrison
saying that he doesn't have a logbook similar to that of an
aircraft. He gets a vehicle in, it appears that there are no
ripples in the doors and you can't see where the paint doesn't
match. Mr. Morrison acts upon the assumption that what he has is
a whole automobile. He later finds out that there had been a
problem and it was repaired and, for some reason, it wasn't on the
title. A person would be set up for a lot of damages. He said
evidently the court has found that as a general practice of
business, these people are doing this and there has been a number
of incidences. Representative Ryan said there seems to be a lot of
responsibility on someone without their ability to have previous
knowledge. He asked, "Is there any intent in there -- deceives or
defraud with intent to act in a criminal manner or something? Or
is it just deceive or defraud which is a catchall for anything that
anybody wants to throw at them?"
MR. SCHWARTZ explained the Consumer Protection Act is a civil act,
it is not a criminal act. A dealer in Alaska, under case law, is
responsible for conducting a reasonable inspection of a vehicle
that they offer for sale to the public, and that was what came out
of the Johnson Nisson litigation. Mr. Schwartz referred to the
wording "a reasonable inspection," and said if a reasonable
inspection would not have disclosed prior damage to a particular
vehicle, then the dealer would not be responsible for that. He
said he doesn't know if a dealer could be necessarily set up. Mr.
Schwartz said, "Of course, we know that dealers take in a lot of
cars in trade and dealers employ people who are experts in the
acquisition and appraisal of used vehicles for resale on their lot.
Every dealer has experts, usually very experienced people, who go
to car auctions or look at every single car that's taken in on
trade." Mr. Schwartz said these experts are very good at
detecting, on a reasonable inspection, prior repaired accident
damage. If the expert can't detect it, then usually they've
conducted their reasonable inspection and he doesn't know that a
court would say that they're responsible for doing anything more
than that. He said that the ruling in the Johnson Nisson case was
that a dealer is not responsible, carte blanche, for disclosing any
prior accident damage whether a reasonable inspection would
determine it or not.
REPRESENTATIVE RYAN said he thinks there needs to be a more level
playing field.
Number 0910
REPRESENTATIVE COWDERY referred to page 3, lines 4 through 7,
Section 45.45.460, and said it basically assumes that the buyer is
going to obtain a refund of the full amount paid by the purchase
prices. Later on it says, "and charges that are related to the
transaction and incurred by the buyer." Representative Cowdery
said, "Say if we had two people, one of them paid cash at the
dealer and the other guy borrowed money from a pawn shop or
somebody at high interest rates, and he incurred that amount money
-- you know to him he incurred that amount of cost. How would the
-- is this an area that -- how would you distinguish? Would you
pay the first guy because he paid cash and didn't borrow the money?
Would you pay the second guy what he borrowed plus the cost of the
loan and all of this? I mean how would you define that area?"
MR. SCHWARTZ informed Representative Cowdery that any interest
charges would be totally disallowed under this legislation.
Charges are specifically defined to include license fees,
registration fees and similar governmental charges.
Number 1050
REPRESENTATIVE COWDERY referred to the wording in the bill, "In
this subsection, `charges' includes license fees, registration
fees..." He said he wasn't clear in that just because it includes
that wording, it doesn't include interest and other things too.
Number 1145
MR. SCHWARTZ referred to a question by Representative Ryan
regarding the telemarketing portions of the bill and if they would
impact on the auto dealer obligations. He said, "Absolutely not
because the telemarketing law, itself, has an exemption which says
that face-to-face -- deals that are consummated face-to-face even
if they start over the telephone would not be the subject of
telemarketing registration and legislation."
REPRESENTATIVE RYAN pointed out that telemarketing is a very viable
tool for a majority of businesses in the world and not just
American. He said he isn't interested in seeing it restricted to
the point where it makes it impossible or extremely difficult for
those people to do business. He stated that business needs to be
promoted in this state.
Number 1345
MICHAEL STEPP, President, Stepp Brothers Lincoln Mercury/BMW; Board
Member, Alaska Auto Dealers Association, came before the committee
members to testify on SSHB 142. He referred to figures presented
by Mr. Morrison regarding the percentage of sales in the state of
Alaska and said it is also his dealership's understanding that the
dealer's sales represents a minority of the total used vehicle
sales in the state. Therefore, any legislation that is passed that
would not cover a private transaction, would appear to not address
the problem in total. He said, "I don't know what we, as a state,
you as a governing body, would tend to achieve if in fact a problem
was not going to be able to identify but a minority portion of the
whole. So, we may keep mindful of the fact that if we don't make
the law universal to all transactions, that in fact it would not
have universal applicability, it would not be fair to all
concerned. Secondarily, the I/M bill that was passed in 1992, that
requires a motor vehicle dealer, upon the sale of a vehicle, to
furnish the DMV within both the Municipality of Anchorage and I
believe also that of the City of Fairbanks, a valid I/M inspection.
The new law, as it's proposed, would mandate us to show the buyer,
prior to sale, that in fact this is taking place. Well, it is
mandated under the 1992 law that we have to do it in order to pass
title and registration. What is the validity, for lack of a better
term, or the purpose of showing you, as a perspective buyer,
Representative Ryan, that I in fact have done that if in fact I
have to do it before I pass title? So it seems like another
mechanism within the sale transaction to just either impede or
duplicate a process that's already there. If I cannot furnish you
with a valid I/M, then I'm not going to be able to consummate that
transaction. You may have taken delivery of the vehicle today, but
if I cant' pass title in your name, then what in fact have I done?"
Number 1609
MR. STEPP referred to a comment by Mr. Schwartz in that buyers have
bought vehicles only to find that vehicles don't qualify for I/M
and then they are burdened with additional expense. He said, "I do
not know of a motor vehicle dealer that has the ability to go to a
buyer after they've already consummated a transaction -- and I'm
supposed to furnish you with a valid I/M to say listen, `You've got
to spend another $400 over and above what I sold you the car for to
get it to qualify for I/M.' That is our burden. We've sold you
the vehicle under the assumption that it does qualify. If it needs
$1 worth of repair or it needs $500, it's our responsibility to do
that - to upgrade it or reverse the transaction and give you a full
refund. In other words, if we can't deliver you what we said were
going to do, it's incumbent - just in good business practices. I
don't know any consumer that would buy into that without there
being some degree of, as you pointed out appropriately
Representative Cowdery, in many many occasions of your
conversation.... It just doesn't make good sense."
Number 1738
MR. STEPP referred to the classification of vehicles and said he is
extremely concerned about the possibility of someone driving a
vehicle and incurring some damage. He said, "It is very well
chronicled known in the state of Alaska that we live in a highly
volatile area with respect to the possibility of damage. I would
submit to you that if you checked with State Farm and also
Allstate, who are the two primary vehicle insurers for collision
damage, that they would tell you that within the state of Alaska
the likelihood, on a percentage basis of an owner receiving damage
to their vehicle versus other areas of the country, because of the
predominately cold weather and deteriorating road conditions that
we function under is much much greater. Therefore, when you make
an investment in an automobile and you buy this insurance, and you
subsequently encounter damage and you have that damage taken care
of in a commercially reasonable manner through trained and
professional technicians -- just to give you an example, our
dealership has invested in excess of a half a million in just
special tools and equipment to duplicate manufactured paint
processes and other types of things - for measuring frames and what
have you. If those expenses have in fact performed and those
damages have been corrected in a commercially acceptable manner
with original manufactured parts -- why then should you, sir, who
has a mortgage on you vehicle let's say now have to have what we
would call in the industry `a substandard vehicle?'" Mr. Stepp
said he thinks it would serve the public no meaningful improvement
in their status by trying to have repaired vehicles in one class
and non-repaired in another. There is really no reason, if a
vehicle has been repaired in a commercially acceptable manner, for
there to be two classes of vehicles. Mr. Stepp said the bill would
legislate good business sense. He said it tells the dealer that
they will be responsible for knowing everything that has ever
happened to a vehicle, and if the dealer doesn't, the consumer will
have a great window of opportunity to take advantage of the dealer.
MR. STEPP referred to material damage and said he would submit to
the committee that the word "material" versus the word "specific"
is much too undefined. Mr. Stepp continued to give testimony
regarding SSHB 142 in saying that the bill will impede reasonable
commerce transactions within the state.
Number 2508
REPRESENTATIVE RYAN referred to vehicles that the dealer accepts as
trade-ins and said in the course of their business some of the
vehicles they want to resell and some they wholesale. He asked Mr.
Stepp if he is required to I/M everything they are going to
wholesale.
MR. STEPP said they are required to I/M everything that they are
going to sell to a consumer. If they're are going to sell to
another dealer for a wholesale purpose, they don't I/M. It is a
requirement of that dealer to do so. He referred to the wording
"as is, where as," and said that is basically how they wholesale
vehicles.
REPRESENTATIVE RYAN said asked Mr. Stepp if he thinks there is a
way to lessen the load regarding "gypos" or people within the
industry that aren't playing by the rules and gives the industry a
bad name.
MR. STEPP said maybe there could be a greater requirement placed on
people who wish to obtain a dealer license.
Number 2910
CHAIRMAN ROKEBERG asked Mr. Stepp if the Johnson Nisson case has
effected his business practices in any way.
MR. STEPP said if a member of the legislative body goes out and
commits an illegal act, the committee members are a part of that
body, and will be painted with a broad brush. He said not every
legislator is bad, and the same goes for auto dealers. Mr. Stepp
stated that unfortunately, what happened with respect to the
Johnson situation is unfortunate for all the dealers.
Number 3110
CHAIRMAN ROKEBERG indicated there was earlier testimony that there
may be the necessity for legislation regarding damage to new cars.
He asked Mr. Stepp to tell the committee what a typical
relationship is between a manufacturer and a dealer relating to new
car damage.
MR. STEPP said he can respond regarding the relationship his
business has with the Ford Motor Company. If a vehicle sustains ex
amount damage, maybe in the neighborhood of $750 to $1,000, it is
called "disclosable damage." He said if his business receives a
vehicle with a bad wheel cover, that is something they don't have
to disclose to a consumer because they replace it. He said if a
vehicle sustains frame damage or something of that nature, the
vehicle will never reach his lot. It will go through a Ford Motor
Company sale, for instance, on the as is, where is situation, where
it is clearly denoted on the vehicle that the vehicle was damaged
during transit and can't be sold as a new vehicle.
Number 3404
CHAIRMAN ROKEBERG asked Mr. Stepp if he has had any difficulty with
the DMV as far as the title transfers and the timing of all those
transactions over the last couple of years.
MR. STEPP explained that two dealers are working on a pilot program
that would allow all the dealers to do the licensing and titling
within their own stores. If that comes to pass, they will all have
the opportunity to handle that and take some of the burden off the
state. He said he thinks the DMV has done a good job with respect
to the resources that they've been given. Mr. Stepp said he thinks
it would benefit everybody to remove the legislation from the
current bill and deal with it on a separate basis. When and if it
is dealt with on a separate basis, it should be kept in mind that
a "new car" piece of legislation should be different than that of
a used car. They shouldn't be tied together because the
expectations are not the same. He said he would also submit that
the I/M provision is a duplication and isn't necessary.
Number 3606
JUANITA HENSLEY, Chief, Driver Services, Division of Motor
Vehicles, Department of Administration, came before the committee
testify. She informed the committee members that from the
division's standpoint, they have a very good working relationship
with the Alaska Auto Dealers Association. She said there are two
dealers who are currently issuing titles and registration to new
vehicles and, hopefully, that will be expanded to the other dealers
that choose to do the same service. She said it seems to be
working quite well.
Number 3657
CHAIRMAN ROKEBERG said there has been testimony that the insurance
industry is to inform the DMV when there is a totaled or fully
damaged automobile and then there is a code added to the
registration. He asked Ms. Hensley to describe that process and
comment whether that process is working.
MS. HENSLEY explained that several years ago the DMV met with the
Department of Law and the insurance industry regarding a problem
that was brought to the division's attention in that the insurance
industry was totaling out vehicles based on an economic value. In
some cases, they were totaling out vehicles because they were in
disrepair. She said the division was issuing titles and
registration as if nothing had happened on vehicles. After that
meeting and after working out problems, the insurance industry now
reports to the division any vehicles they have totaled out, whether
it was for economic reasons, or whether the vehicle is determined
to be a wrecked vehicle. The division does make note on the title
and on the registration that the vehicle is a reconstructed vehicle
that's been repaired.
CHAIRMAN ROKEBERG asked if it is a statutory requirement.
MS. HENSLEY responded it is a regulatory requirement.
Number 3842
CHAIRMAN ROKEBERG asked if the DMV collects any fees to put the
wording on the title or registration.
MS. HENSLEY responded they charge for the regular transfer of title
or registration.
CHAIRMAN ROKEBERG said the insurance company is under a regulatory
requirement to inform the division of the information. He asked if
it is really working or if there has been any problems brought to
her attention.
MS. HENSLEY said no problems have been brought to her attention.
She said from her experience, those that are reported to the DMV
are changed on the title and registration.
Number 3950
REPRESENTATIVE COWDERY referred to the two dealers who are
participating in the new program in issuing title for new vehicles
and asked if there has been any thoughts on allowing a dealer who
sells a used vehicle to do the same thing.
MS. HENSLEY said that is next step that they'll be looking at. She
noted there is a scheduled meeting with car dealers, later in the
week, to talk about what they want. She said that is something
they're moving towards. Ms. Hensley noted they have expanded the
program to allow the I/M inspection stations not only to issue the
registration with the prebill of the registration, but also those
individuals who do not have prebills where the car (indisc.).
Number 4000
MR. MORRISON informed the committee he is one of the two dealers
who is participating in the program.
TAPE 97-65, SIDE A
Number 0013
MR. MORRISON said the relationship between the dealers and the DMV
is very good. He said his business is one of the businesses that
is participating in the pilot program to do titling in-house and it
has been very successful. Prior to doing that time, it could take
as long as 60 days to get the license plates. In some cases, if
there was one mistake anywhere along the way, it could take up to
90 days. He said the department set them up with a computer system
so they could communicate. If someone came in and bought a new
vehicle today, he could hand that person the license plates within
about ten minutes after signing the paperwork. It is very quick
and there are no lines to go through. He said he has been told
that in a very short time, they can add simple transactions for
used cars. He said it can get complex and at that point he would
let the DMV deal with it. It has been a good program.
CHAIRMAN ROKEBERG indicated SSHB 142 would be held for further
consideration.
ADJOURNMENT
Number 0201
CHAIRMAN ROKEBERG adjourned the House Labor and Commerce Standing
Committee meeting at 3:56 p.m.
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