Legislature(1997 - 1998)

10/20/1997 01:09 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
     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.                                                 

Document Name Date/Time Subjects