Legislature(2003 - 2004)
03/16/2004 01:10 PM House JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 339 - TRADE PRACTICES Number 1947 CHAIR McGUIRE announced that the next order of business would be HOUSE BILL NO. 339, "An Act relating to negative option plans for sales, to charges for goods or services after a trial period, and to acts that are unlawful as unfair trade practices." [Before the committee was CSHB 339(L&C).] Number 1928 REPRESENTATIVE GRUENBERG moved to adopt the proposed committee substitute for HB 339, Version 23-LS1265\S, Bannister, 3/5/04, as the work draft. There being no objection, Version S was before the committee. Number 1893 ROBERT B. FLINT, Attorney at Law, Hartig Rhodes Hoge & Lekisch, relayed he has been retained by a firm in Virginia, DeHart & Darr, to represent Direct Marketing Association and Magazine Publishers of America, which combined constitute a large group of people who conduct business via mail, Internet, and telephone selling products. He said: The industry here is regulated in significant respects by the Federal Trade Commission [FTC], both on telemarketing and aspects of mail, and also at the state level in various ways. Particularly in Alaska, for example, there's an unsolicited merchandise Act governing things you might receive in the mail without soliciting them or without agreeing to them and it's considered a free gift. The industry is large and diverse and old; it's been around a long time, [and] I'm sure you're all familiar with it. Its basic advantage, obviously, ... to the business, is they have that way to sell to the public, to boost up their subscription rates, and for the consumer it's a discounted value because [they're] usually accompanied by promotions including the free-trial type, which is what I'm going to talk about right now. House Bill 339 ... arises, as I understand it, out of certain circumstances from last year and also complaints [received by] ... the attorney general's office ... through the [Commercial/Fair Business Section]. We've been working with ... Representative Meyer's office and the attorney general's office ... diligently ... to try to come to a draft bill which will work to protect [consumers from] ... the problems [that are] perceived and allow the vast majority of the honest and legitimate business folks to go about doing this type of promotion. ... In fact, legitimate [business] people always want to go after the problems, after all, because they're the ones that get splashed with the mud even though they're maybe doing the correct thing. Number 1767 MR. FLINT continued: Let me just go to ... one of the sections we're hung up with now .... What I'm speaking to ... [are] some suggested amendments [that] have come from my clients, in large part, and have been changed a little bit by the attorney general's office which creates a problem. ... We're dealing largely with ... the question of free trial offers via the telephone. The sections in the bill regulate both inbound and outbound calls. Outbound calls are the ones that we all love to hate; those are the telemarketers that call you up at dinnertime and offer to sell you something. These calls are regulated by [FTC] rules and also ... by the "do not call" list at the federal level which now has 57 million names on it. MR. FLINT said: I suspect that "cold called" sales - telephonic marketing - is probably going to decline rapidly because that list is now upgradeable every 90 days and at Congress's insistence is going to upgraded every 30 days, and I assume that 57 million will ... rise dramatically. ... But we're also dealing [with] the inbound calls; [this] is where ... the customer ... originates the call in response to an ad, or [they are] calls to existing customers - people who are already on the business's list and have purchased products or dealt with them before. Number 1592 [The amendment Mr. Flint then discusses, with original punctuation provided but containing some formatting changes, is as follows:] Page 2, line 3 Delete: "(3) a description of the seller's refund, cancellation, exchange, and repurchase policies; and" Insert: "(3) the right to cancel; and" Page 2, line 8: After: "express" Delete: "written" Insert: "verifiable" Page 2, line 9-12 Delete: "The seller shall obtain the written consent on a form prepared by the seller. The form prepared by the seller must include the information required by (b) of this section and the consumer's acknowledgement that the consumer has received and understands the information in the consent." Insert: A seller who provides goods or services to a consumer for a free trial period has the burden of proving that the seller provided the information required by (b) of this section and that the consumer gave express verifiable consent to the free trial period. Page 2, line 16 Insert new subsection (e) (e) If the consumer agrees to a free trial period by telephone, the seller shall comply with the following: (1) the seller shall send the consumer an invoice which the consumer may pay or write "cancel" on the invoice and return to the seller; (2) the seller shall disclose by telephone the consumer's right to cancel and how to cancel; (3) the seller shall record the disclosures required in subsection (b) of this section as well as the consumer's express verifiable consent required by subsection (c) of this section; and (4) the seller shall send the consumer written confirmation at least 10 days before charging the consumer's account which will include a telephone number the consumer may use to cancel. The telephone number provided to the consumer to use to cancel must be operative during the consumer's normal business hours. Page 2 Insert new subsection (f) (f) In a free trial period, when a consumer cancels goods or services to be provided after the end of a free trial period, the seller must cancel the billing or credit the consumer's account within 30 days for unused goods or services. Page 2 Re-letter the remaining subsections accordingly MR. FLINT went on to say: We have in the amendment a [new] subsection (e) .... There are two stages involved in the telemarketing for free trial offers. Stage 1 I believe ... we have come to acceptable language on, and that is the call and the promotion itself. And in that the requirements there are that the seller disclose certain items including the charges, cancellation policy, and so forth; that the customer agrees - express consent - to the promotion; and that in all cases, both on the disclosure and in the agreement, the burden of proof is on the seller to show that those ... disclosures have been complied with and that the agreement is there. That does not appear to be a problem. But then in stage 2, what ... follows on ... in the mail, the clients proposed the list of four items you see here as alternatives, [but] the attorney general would prefer that you do all of them. The problem is that the business doesn't do all of them. For example, if you look on this list of four items, if the customer chooses to be billed by credit card ... they would obviously not receive an invoice because they have already paid. So the fact of the matter is ... that flexibility [via] the alternatives is what the business needs at this stage 2, where we feel we've complied the disclosures, certainly, and also that the customer always has the right to ... cancel it. And ... the great majority of free trial promotions are canceled. It is not an unusual situations; most of them end up being canceled after the free trial period or during the free trial period. So that's just a regular cost of doing business. So it's trying to fit the legitimate concerns, which we totally agree with, into business practices that occur nationwide. It's a complicated problem, it's a diverse industry, there are various methods used to use it, there are regulations at the [FTC] level, so I'm not saying this is easy to do. We are working diligently; we'll continue to work diligently to help get this bill through ... and I think we can, but we're still trying to fit a few things together. Number 1508 REPRESENTATIVE GARA remarked that with a lot of free offers there are two problems: one is that consumers forget the rules for cancellation, and the other is that sometimes cancellation involves dialing a phone number that only works during the same hours that consumers are at work. He opined that to be perfectly fair, it would be best if consumers receive a paper billing, before the billing is actually due, that contains a box that clearly tells consumers how to cancel and that could then be used to cancel before actually owing money. He mentioned that he has a proposed [handwritten] amendment to this effect, which read [original punctuation provided]: Insert at P.2 line 24 (g) within 30 days of the first billing, the consumer must be provided a form that clearly states how the consumer can discontinue service without payment. The form shall provide a box or other space allowing the consumer to indicate they wish to discontinue service, and must be accompanied by a return envelope. MR. FLINT said, however, that it does not appear, from the volume of people who cancel "these things," that there's a persistent problem out there. He remarked that the attorney general's office has statistical information regarding the complaints received, and suggested that such information could help quantify the perceived problem. The problem with putting on extra obligations is that although such may be alright for the bigger companies, it is not going to be alright for the smaller companies and will ultimately result in increase costs to consumers, he remarked, and noted that one of the advantages of "this type of system" is that products are discounted. Number 1283 REPRESENTATIVE KEVIN MEYER, Alaska State Legislature, sponsor, characterized HB 339 as a consumer protection bill that pertains to two business practices: one practice pertains to the free trial period, and the other practice pertains to the opt-out marketing plan. The bill requires businesses to fully disclose to consumers what is involved in their offers, for example, what the consumer's obligations are and what any forthcoming charges will be. He relayed that the concept of HB 339 was brought forth by a constituent, and stemmed from the fact that last year one of the telephone companies offered a new feature on cell phones that was automatically provided unless people opted out of receiving it, and so folks wound up getting billed for something they didn't ask for. REPRESENTATIVE MEYER offered a personal example of a company that was billing his credit card for a service that he had not asked for but that was part of a free-trial program with an opt- out provision that he'd not been aware of. He noted that it was very hard to cancel this unsolicited service and that he was unable to get reimbursed for the months he was charged for a service he didn't know he had and that he'd unknowingly paid for. He said that HB 339 will prohibit opt-out marketing plans unless all of its provisions are fully disclosed to the consumer, and will place more responsibility on businesses to disclose such provisions before engaging in opt-out marketing plans. He suggested that the Department of Law has received numerous complaints about "these type of business practices," and relayed that he is willing to be flexible in working with the industry to come up with compromise legislation as long as it fully protects consumers. REPRESENTATIVE HOLM said that a simple fix could be for companies to just include on the billing a box that could be checked if the consumer wants to opt out. REPRESENTATIVE MEYER surmised that Representative Gara's suggested amendment followed a similar line of thought, but remarked that there could be certain limitations on such a concept because of federal law dealing with interstate commerce. Number 0895 CLYDE (ED) SNIFFEN, JR., Assistant Attorney General, Commercial/Fair Business Section, Civil Division (Anchorage), Department of Law (DOL), said that the DOL supports Representative Meyer's efforts to deal with the issues related to free trial periods and opt-out marketing situations. He went on to say: There are a number of reasons why this kind of legislation ... would help consumers understand obligations that they undertake when they respond to these kinds of offers. And these are the kinds of offers that are the most enticing to consumers, and you'll note the legislation is really only directed at the free trial offer or the opt-out plan. ... Direct sales aren't a problem ...: I call you up, I have this product, do you want to buy it, yes or no - no, okay, see you later. ... This legislation is directed at ... the kind of offer that people just simply don't refuse or don't want to refuse. This creates fertile ground for all [kinds] of potential deception because it easy to say, on the phone, to someone, "Oh sure, I'm going to get it for free and no obligation for me; yeah, I'll take this thing, and then ... if I don't want it later I can cancel," and everyone thinks it's easy to cancel. MR. SNIFFEN continued: Well, as Representative Gara pointed out, a lot of telemarketers have phone lines that really only go one way; they make outgoing calls but ... they can't take incoming calls, so the ability to cancel these services in the same manner in which they are sold is unavailable in a lot of circumstances. So the singular intent of the bill, I believe, from our perspective, was to require some kind of a written confirmation from the consumer that they in fact agree to this deal, whatever the deal is. And ... we had suggested that that written confirmation be obtained from the consumer before the product or service was provided or at least billed for. And the response we got from the Direct Marketing Association essentially was that [that] would create an economic burden that would really be unfair and that there might be other ways to address this problem [for example] by requiring some disclosures over the phone or [sending] out a written confirmation of the sale that the consumer can review and then send back in the event it didn't comport with their understanding .... Number 0761 I couldn't agree more ... [that] people tend to forget what they say on the phone, and these phone transactions are very interesting to say the least, but they're targeted at elderly folks who a lot of times don't remember what they said, or even not so elderly folks, like myself, who don't remember sometimes what we say. And to get something in writing to at least confirm what you've agreed to, and if it's not what you've agreed to, give you the ability to say, "No, I don't want this deal anymore," is ... what we'd like to see in this legislation. ... The way the bill was originally drafted, which I played a significant role in drafting ..., contained some fairly strict requirements for obtaining that kind of consent up front. And we have worked with Mr. Flint and his clients ... to come up with some compromise language that would still achieve the goal of making sure that the telemarketers or direct marketers -- and it's not just limited to telephone sales, it's ads on late-night TV and mail that you get, and it's ... a barrage of consumer media that you might respond to. MR. SNIFFEN relayed: We had a consumer file a complaint this year who responded to a Focus Factor (ph) ad on TV ... for these vitamins - and it was free for 30 days, just pay $4.95 shipping [and] handling - and she called ... this number up ... and they said, "Oh, sure, give us your credit card for the $4.95," and she does and they say, "Okay, we're going to put you on auto-shipment for this product." And she didn't know what that meant, and they said, "You're under no obligation and [if] you don't want anything we send you, you can just send it back or you don't have to pay for it." Well, cut to the chase, ... they kept sending her this product month after month after month at $60 a bottle and she didn't want it. She tried to call the number to cancel and she couldn't cancel, and she tried ... sending them letters and ... they wouldn't get them or she got no response. Number 0623 And finally she reached someone and they said, "Well, we're not going to charge you for future shipments, but ... since you've already gotten this past product and you've used it, we can't give you the refund; we're going to bill you $120 and then we're going to cancel the rest of your order." So the consumer is out $120, not something she's going to fight about, she just kind of soaks it up and goes on. But it's that kind of thing that happens, and we were involved in a multistate case involving a try-and- discount (ph) buying club out of Florida that up-sold a lot of products to consumers, and ... that's a national case that received some attention that all the states participated in where telemarketers [were] doing very similar things. So ... we do see these abuses and we're hoping this legislation will target that at a minimum - at least require these marketers ... to make consumers aware of what they're obligations are in some fashion that we can easily verify. And if it's not written consent from the consumer, at least have it be in some form of verifiable consent, either over the telephone or through a confirmation mailing or something of that sort. And we're certainly happy to work with [the sponsor] and Mr. Flint and his clients to come up with language that works for everyone. Number 0549 MR. SNIFFEN concluded: And I would like to respond just briefly to a [suggestion] earlier about why you couldn't send an invoice [and] have box on there that you just check that says, "No, I don't want this, thank you very much," and send it back. Those kinds of things actually look deceptively like bills; sometimes you don't know that it's not an invoice ... that you have to pay, and some consumers will get those things, not see that little box, not see the fine print, [and think], "Now I've got an invoice; I've got to pay it." Heck, there's a huge scam going on now involving yellow pages ... - you've probably all received these things - they come in the mail, they look like invoices ..., [but] it's really an advertisement and they're asking you if you want that service but it looks like an invoice, and a lot of businesses don't rally read it - they send a check (indisc. - coughing). And we're concerned that just ... putting a box on an invoice that lets the consumer out of this transaction ... might not alert consumers sufficiently that that's the way that you need to cancel these things. So, I hope that answers that question. REPRESENTATIVE GARA said Mr. Sniffen's examples were useful, and relayed that he would like to keep the protections currently proposed in the bill as they are and on top of those also add language to the effect that a form will be required to remind consumers, 30 days before being billed, of how to cancel the transaction. This proposed form would be one that the consumer could fill out and send back. He referred to his aforementioned amendment, and asked Mr. Sniffen to comment. MR. SNIFFEN responded: I think that's a terrific idea and I didn't mean to suggest in my testimony that wouldn't work. ... I think if it's a separate confirmation that is separate from an invoice, that works very well because then consumers [are] getting a form [that] doesn't look like an invoice, it doesn't tell them to pay any money, [it] just says, "You've agreed to this, ... and we're going to send you an invoice for this product and this is how much it's going to cost you, and if you don't want this, or if you don't remember doing this deal, you need to call this number or you need to check this box and send it back to us." Something that doesn't confuse the consumer with the fact that this may be an invoice they have to pay, I think would be preferable; ... 30 days is good, 15 days would be good. I know in the amendment proposed by Mr. Flint's client, the Direct Marketing Association, they had an alternative requiring the seller to send the consumer a written confirmation at least 10 days before charging the consumer that included a telephone number that the consumer could use to cancel. I think it is also a way that you could do it in writing for the reasons you suggest Representative Gara, and that would be good as well. Number 0288 REPRESENTATIVE GARA remarked that he didn't want to put the companies through an undue burden of cost. He surmised that the two options are to have a separate form and either having that as part of an invoice or not part of an invoice. He said that he didn't mind [the separate form] being part of the invoice so long as it clearly states how the consumer can opt out. MR. SNIFFEN agreed that would be okay, but noted that it would need to be carefully reviewed. He indicated the need for the [cancellation language] to be done clearly and conspicuously. REPRESENTATIVE GARA said he might go that route. REPRESENTATIVE GRUENBERG turned attention to page 3, lines 24- 25, where "seller" is defined. He pointed out that under the Uniform Commercial Code (UCC), AS 45.02.103, it says: "(4) 'seller' means a person who sells or contracts to sell goods." The UCC defines "goods" in AS 45.02.105, and the term "contracts" is also defined in the UCC in AS 45.02.106. Representative Gruenberg explained that the UCC generally governs the laws of the sale of goods. The Act is well drafted because things are defined somewhere in the Act, and therefore one doesn't have to look so much to common law. Representative Gruenberg noted that he liked the definition of "seller" in AS 45.02.103(4) because one could enter into a contract before the sale is actually made and the individual would still be covered. However, he acknowledged that the definition of "seller" in AS 45.02.103(4) only covers goods while this legislation covers goods and services. CHAIR McGUIRE informed the committee that the legislation will be set aside shortly. She suggested that Representatives Gara and Gruenberg work with the sponsor between now and the end of the week in order to come to an agreement on the aforementioned issues. TAPE 04-37, SIDE A Number 0001 REPRESENTATIVE GRUENBERG inquired as to why this legislation pertains to AS 45.45 rather than the UCC. He asked if the reason was that the legislation covers services [as well as the sale of goods]. MR. SNIFFEN replied yes, pointing out that the legislation begins with the following language: "Notwithstanding a provision in AS 45.02 to the contrary ...." He explained that the desire was to use these definitions to ensure that not only the sale of goods was included but also services. However, Mr. Sniffen noted that he liked the idea of including "selling or contracting" as well. REPRESENTATIVE GRUENBERG mentioned that Mr. Sniffen may want to review the definition of "contracting" and "goods" in the UCC. He indicated the need to define the term "services." Representative Gruenberg questioned whether there would be any benefit to placing these statutes in the UCC while indicating that the two statutes [specified in the legislation] apply to the sale of services. He asked if Mr. Sniffen could comment. MR. SNIFFEN noted his willingness to review that, but he wasn't sure about complicating the legislation any more than necessary. Mr. Sniffen said: "I think the intent defining "seller" in this bill was ... just to include the types of direct marketers who would be engaging in the kind of conduct that we're trying to regulate and we didn't mean any more ... than that, but we'll certainly take a look at that." REPRESENTATIVE GRUENBERG pointed out that under the UCC, there are provisions that might provide the consumer with some protections. At the very least, he suggested reviewing the definitions [found in the UCC]. CHAIR McGUIRE announced that HB 339 would set aside.
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