Legislature(2005 - 2006)CAPITOL 17
04/25/2006 01:30 PM House TRANSPORTATION
| Audio | Topic |
|---|---|
| Start | |
| SB300 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 300 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE TRANSPORTATION STANDING COMMITTEE
April 25, 2006
1:31 p.m.
MEMBERS PRESENT
Representative Jim Elkins, Co-Chair
Representative Carl Gatto, Co-Chair
Representative Mark Neuman
Representative Bill Thomas
Representative Woodie Salmon
MEMBERS ABSENT
Representative Vic Kohring
Representative Mary Kapsner
COMMITTEE CALENDAR
CS FOR SENATE BILL NO. 300(L&C)
"An Act relating to the handling of negative equity in motor
vehicle transactions; and relating to the contents of retail
installment contracts."
- MOVED CSSB 300(L&C) OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: SB 300
SHORT TITLE: MOTOR VEHICLE NEGATIVE EQUITY/CONTRACTS
SPONSOR(s): SENATOR(s) SEEKINS
02/14/06 (S) READ THE FIRST TIME - REFERRALS
02/14/06 (S) TRA, L&C
02/23/06 (H) TRA AT 1:30 PM CAPITOL 17
02/23/06 (H) -- Meeting Canceled --
03/09/06 (S) TRA AT 1:30 PM BUTROVICH 205
03/09/06 (S) Moved SB 300 Out of Committee
03/09/06 (S) MINUTE(TRA)
03/10/06 (S) TRA RPT 2DP 1NR
03/10/06 (S) DP: HUGGINS, KOOKESH
03/10/06 (S) NR: FRENCH
03/16/06 (S) L&C AT 1:30 PM BELTZ 211
03/16/06 (S) Heard & Held
03/16/06 (S) MINUTE(L&C)
03/28/06 (S) L&C AT 1:30 PM BELTZ 211
03/28/06 (S) Moved CSSB 300(L&C) Out of Committee
03/28/06 (S) MINUTE(L&C)
03/29/06 (S) L&C RPT CS 4DP NEW
TITLE
03/29/06 (S) DP: BUNDE, DAVIS, ELLIS, SEEKINS
04/05/06 (S) TRANSMITTED TO (H)
04/05/06 (S) VERSION: CSSB 300(L&C)
04/06/06 (H) READ THE FIRST TIME - REFERRALS
04/06/06 (H) TRA, L&C
04/25/06 (H) TRA AT 1:30 PM CAPITOL 17
WITNESS REGISTER
BRIAN HOVE, Staff
to Senator Ralph Seekins
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented SB 300 on behalf of Senator
Seekins, sponsor.
ED SNIFFEN, Assistant Attorney General
Commercial/Fair Business Section
Department of Law
Anchorage, Alaska
POSITION STATEMENT: Testified in support of SB 300.
ACTION NARRATIVE
CO-CHAIR CARL GATTO called the House Transportation Standing
Committee meeting to order at 1:31:38 PM. Representatives
Gatto, Elkins, Neuman, and Thomas were present at the call to
order. Representative Salmon arrived as the meeting was in
progress.
SB 300-MOTOR VEHICLE NEGATIVE EQUITY/CONTRACTS
CO-CHAIR GATTO announced that the only order of business would
be CS FOR SENATE BILL NO. 300(L&C), "An Act relating to the
handling of negative equity in motor vehicle transactions; and
relating to the contents of retail installment contracts."
BRIAN HOVE, Staff to Senator Ralph Seekins, presented SB 300 on
behalf of Senator Seekins, sponsor. He said SB 300 alters the
definition of principle balance to put one group of creditors on
a level playing field with "another group." Senator Seekins [a
car dealer] has banks and credit unions that offer his customers
financing as well as acceptance companies, like General Motors
Acceptance Corporation and Chrysler Credit. The lenders are
federally regulated, but the acceptance companies must also
adhere to state laws, "but not the banks and credit unions."
MR. HOVE said when a customer has a trade-in vehicle and owes,
for example, $9,000 on that vehicle, but the value of the
vehicle is only $8,000, the extra $1,000 can be "rolled into the
new deal if you're talking about a bank or credit union." Under
the state law it is difficult, if not impossible, for the
acceptance companies to "write a deal for that customer," he
explained. "The concept of negative equity aside, that cat's
out of the bag, what we have here is a disparity in how banks
are treated and how acceptance companies are treated." He said
customers are better off if they have more financing options.
He said dealerships will often send an application to several
lenders to find the best deal. It limits options by excluding
acceptance companies and provides an "unlevel playing field"
between acceptance companies and banks and credit union.
1:35:36 PM
CO-CHAIR GATTO said a car dealership that makes loans has
different rules than a bank or credit union even when lending
the same amount of money for the same car. Senate Bill 300
changes the rules for acceptance corporations, which are
nationwide. He asked if nationwide banks have the same option.
1:36:51 PM
MR. HOVE said, "They would be governed by the same regulations.
It's regulation Z. It's a federal regulation. So whether it's
the First National Bank of Alaska or Bank of America, they would
have to both abide by Regulation Z."
CO-CHAIR GATTO asked about the language in the bill that updates
the definition of "principle balance."
MR. HOVE said on page 2, line 14, "we've added an 11 here to the
10 that currently exists. These are items the contract must
indicate." He read to the committee:
If the retail and installment contract is for the sale
of a motor vehicle, the amount, if any, that the
seller agrees to pay to this charge and outstanding
obligation...
MR. HOVE stopped reading to explain that, "this would be, in my
earlier example of a $1,000 difference between the trade-in
value of the old vehicle versus its payoff balance." He
continued reading:
The discharge and outstanding obligation of the buyer
under an existing motor vehicle agreement, loan
installment, sales contract, or lease, this would be
the amount indicated on the contract.
MR. HOVE said, "So it amounts to a disclosure."
1:38:51 PM
CO-CHAIR GATTO asked, "Is there is a fee when someone has
negative equity to go ahead and essentially do what the bill
wants to allow them to do?"
MR. HOVE said, "No, there is not."
CO-CHAIR GATTO asked if the amount of the negative equity would
be added to the car price or if it is treated separately.
MR. HOVE said that in the "old days" that is how it worked, "but
that didn't mathematically describe the transaction, and so what
this is attempting to do is to properly describe the
transaction, not put it into [the price of the car]."
1:40:28 PM
REPRESENTATIVE THOMAS said he generally needs a down payment
when he buys a car, so how can a buyer have negative equity?
MR. HOVE said at one time a 25 percent down payment was required
with a 36-month maximum term. "But because of the robustness in
our economy, lenders are always looking for good deals, and so
for good customers they're willing." He noted that down
payments have declined over the years. "Now it is zero." He
said the terms have increased by several years as well.
1:41:56 PM
REPRESENTATIVE THOMAS said he bought two vehicles in the last
two years outside the state and needed a down payment. He noted
that trucks now cost from $50,000 to $60,000.
MR. HOVE said that is the way he purchases vehicles, but the
last vehicle had such a low interest, "I didn't bother putting a
down payment on it." He said the transaction depends on the
lenders and how flush the economy is with cash.
1:43:26 PM
REPRESENTATIVE THOMAS said loan rates are higher in Alaska.
ED SNIFFEN, Assistant Attorney General, Commercial/Fair Business
Section, Department of Law, said he supports the bill. When
trading in a vehicle and entering a lease, two things are
happening, especially if there is negative equity for the
vehicle being traded in. As soon as the vehicle is traded in
and the dealer agrees to assume that extra balance, the dealer
is doing two things, he said. The dealer is paying off the debt
on that other vehicle, so it is a loan subject to regulation Z.
The new vehicle is being leased under another transaction that
is regulated under "a whole different set of regulations called
Regulation M, which is the consumer leasing transaction." He
said current law has two sets of disclosure requirements that
acceptance companies have to comply with. He explained that SB
300 brings the two together, so a car dealer can streamline the
paperwork and provide one set of notices to the consumer to
clarify what the consumer is specifically doing. The feature
brings Alaska on line with the federal requirement, he noted.
1:47:06 PM
CO-CHAIR GATTO asked if the seller must disclose the terms
verbally, or if a signature is required.
MR. SNIFFEN said he is not aware of a requirement of a verbal
disclosure. Financial disclosures are required in writing.
CO-CHAIR GATTO said the sponsor told him about the difficulty of
selling a car because of the stack of papers he gives to buyers
of his vehicles that must be signed. Senator Seekins said
nobody reads them, and Co-Chair Gatto spoke of the consequences
of signing the documents. He asked if the legislature should
address verbal disclosures in the future.
1:49:42 PM
MR. SNIFFEN said he can't say how many times that a consumer
told him, "I didn't know what I was signing." The inherent
problem with a verbal requirement is the inability to enforce it
because of the he-said-she-said situation. The written
requirement gives a consumer a chance to "at least look at it."
He said he understands the amount of paperwork in purchasing a
car and the nonchalant attitude of consumers.
1:51:06 PM
CO-CHAIR GATTO said a 20-page bill has parts highlighted in bold
type, so he suggested requiring a seller to read certain
contract highlighted provisions. The seller may be dangling the
keys in front of eager buyers who just want to drive off with
the car.
REPRESENTATIVE THOMAS said, "That's why you have a wife. To
make sure you don't do that."
CO-CHAIR GATTO imagined the pressure of a dealer announcing a
discount that ends in 15 minutes and stated that a verbal
disclosure may help.
MR. SNIFFEN said he agrees and suggested a one-page summary of
what the stack of papers mean.
CO-CHAIR GATTO suggested a sectional for each page.
1:54:09 PM
MR. HOVE said regulation Z requires disclosures with pertinent
details in a box at the top of the contract, including the
principal amount and interest rate.
REPRESENTATIVE NEUMAN said he sees the bill as protection for
consumers by clarifying the transaction.
REPRESENTATIVE THOMAS said the letter from the Alaska Automobile
Dealers urges passage of the bill to help dealers and consumers.
REPRESENTATIVE THOMAS moved to report CSSB 300(L&C) out of
committee with individual recommendations and the accompanying
fiscal notes. Hearing no objections, CSSB 300(L&C) moved out of
the House Transportation Standing Committee.
1:58:15 PM
ADJOURNMENT
There being no further business before the committee, the House
Transportation Standing Committee meeting was adjourned at
1:58:35 PM.
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