Legislature(1997 - 1998)
03/09/1998 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
SSHB 49 - CONSUMER PROTECT.: DIVISION & PENALTIES Number 0487 CHAIRMAN GREEN announced the committee would address SSHB 49, "An Act establishing and relating to a consumer protection section in the Department of Law; increasing penalties for violation of laws relating to consumer protection; requiring special accounting for money from certain actions related to consumer protection; and providing for an effective date," sponsored by Representative Croft. REPRESENTATIVE CROFT explained he has called the Better Business Bureau (BBB) who is a getting a number of calls on a $49 scam. He explained the legislation is a consumer protection bill. It adds a little bit more money into the consumer protection system and it also creates a pool of money that is received from fines so that we can start doing a better job of helping our citizens with consumer protection. The BBB has recently received calls from people, mostly elderly people, who have received a telephone call where they were offered a $49 deal that included an eye exam and glasses. Most of the people found that their particular vision requirements didn't meet the $49 deal. They could get their glasses for $179. They either had to do that and if they refused, they were presented a bill for around $79 which was higher than the $49 amount. Representative Croft said it seems that it not only hurts the consumer, but it hurts the legitimate businesses in the area as people are less likely to respond to anything including legitimate offers. He said he would answer any questions the committee may have. Number 0623 REPRESENTATIVE ROKEBERG indicated there is a fiscal note for $145,000 and asked Representative Croft if he has had discussions with the BBB in that they may try and get additional funding, in leu of the bill, to help them with their operations. REPRESENTATIVE CROFT explained that there are only two pieces of the consumer protection puzzle. One is a screening function and the other is an enforcement function. He said his bill deals mainly with the enforcement function. Representative Croft referred to the screening function and said there have been a lot of good ideas about how we might set up, either through the for- profit, nonprofit or some combination with government, to screen out those calls. He noted that not every complaint is a true consumer protection violation. The screening function problems need to be solved and there are some innovative ideas to do that. The bill relates to the enforcement provision. The BBB currently filters those complaints out and refers the ones where there have been multiple complaints on to the Department of Law. He noted that currently the Department of Law doesn't have sufficient resources to respond to all the complaints that should be responded to. Number 0743 REPRESENTATIVE BERKOWITZ said there is a provision in the bill that would allow the state to collect fines. He said it would seem to him that the general fund expenditures could be recouped based on revenue brought in by the Consumer Protection Section. REPRESENTATIVE CROFT informed the committee members that currently any fines brought in for consumer protection violations go into the general fund as they constitutionally have to. He said intent language has been added to the bill to keep that so that they would have a pool of money to work from. REPRESENTATIVE JAMES questioned what the anticipated fines would be. The fiscal note could show program receipts as opposed to general funds. She noted there is a provision for designated program receipts in the law. REPRESENTATIVE CROFT said it would move the line from the money coming under general funds to come in under designated general funds. REPRESENTATIVE JAMES noted that the fiscal note doesn't show anything coming in. REPRESENTATIVE CROFT said he would talk to Daveed Schwartz, Department of Law, regarding an estimate of what another attorney might bring in. Number 0829 REPRESENTATIVE BUNDE said he doesn't have a fondness for con men. He said Representative Croft has indicated that we cannot have dedicated funds. He said he doesn't want the public to think that somehow we're now establishing a direct line of funding for consumer protection if the bill were to become law. Representative Bunde pointed out that it is currently against the law to commit fraud. He asked if we couldn't, without establishing more bureaucracy, simply prosecute and collect the fines and produce the same level of income. REPRESENTATIVE CROFT asked he means doing that as private citizens. REPRESENTATIVE BUNDE clarified that if there was more aggressive prosecution of fraud, there would be more fines and perhaps more money available for more attorneys to do more prosecuting. REPRESENTATIVE CROFT pointed out that there is currently 1 1/2 people in the Department of Law doing the entire state's consumer protection. He said the bill raises the level of public awareness, the level of awareness within the Department of Law and adds one more position. Number 0927 REPRESENTATIVE BUNDE said he appreciates raising the level of public awareness. He said if the Department of Law should choose to hire another attorney to aggressively prosecute fraud, would they not then generate approximately the same amount of income that the bill would speak to. REPRESENTATIVE CROFT said the Department of Law chose to take, within their current resources, somebody who is prosecuting murder trials and move them over to the.... REPRESENTATIVE BUNDE explained that he said if they hired another person they'd accomplish things that.... REPRESENTATIVE CROFT said if they hired another person they would accomplish the same thing with the same fiscal note he would assume. REPRESENTATIVE BUNDE said they can do that now, the bill mandates that they do that. REPRESENTATIVE CROFT said, "True and doing another couple of different things, breaking it off as a section that increases public awareness, establishing this intent that the funds be used. So yes, we're mandating they do it setting apart another section and (indisc.). Doubling fines as well, quite right." Number 0987 CHAIRMAN GREEN referred to prosecuting somebody for telephone fraud, for example, coming in from out-of-state and each person who had been defrauded could be a separate action he would presume. He said you could actually go pretty heavy on company aid. You could actually get as much as the entire cost of the program from a single defendant. If they're going to set up a telephone scam, they're going to try and target a lot of people. He asked if the prosecution would list 150 or 200 people that might have been defrauded. In that case, each one would be a separate action and would really show an increase in income. REPRESENTATIVE CROFT said it is certainly possible under the new language. Under the old language, it was $5,000 per violation and not per defendant. CHAIRMAN GREEN said if that's the case under existing law, the Attorney General has not seen fit to do that. He said he wonders if that is because there are too few to be worthwhile. REPRESENTATIVE CROFT explained that he doesn't know. He said he could ask Mr. Schwartz. He said, "It does seem to me that you find not in the hundreds of violations but ... a single person you get a number of different calls and you can isolate three or four with somebody who is willing to step forward in a complaint. It narrows itself down. I'm sure they make hundreds of tries, but it comes down to usually three or four violations. I think that this $5,000 has been in our books for some time and so the $10,000 is, to some extent, an inflationary increase." CHAIRMAN GREEN said he understands that. He said, "My concern is that if it's been there and hasn't been used, is there anything that leads you to believe that by doubling the fine and establishing a new attorney certainly at $5,000, if there is a significant number of defrauders out there, they could pay his salary. They could hire another one. So $10,000 doubles the amount, but is there going to be very few people that this new person would be going after." Number 1128 REPRESENTATIVE CROFT stated that he believes the Department of Law collects a substantial amount of fines under the $5,000 amount. He said the money goes into the general fund and doesn't stay with the department and has been eroded somewhat by inflation. REPRESENTATIVE JAMES referred to the sieving of eliminating the calls and said she would suggest looking at what process the Ombudsman's Office is currently doing on that process. She noted it's working very well. Number 1215 REPRESENTATIVE PORTER said, "I can't remember if it was in this life or a past life, but there was a proposition, either in front of the municipal assembly or the state legislature, that said if we spent this much money we will be collecting these many outstanding fines and forfeitures, or that would be forfeitures. And consequently, if we pay for one person, that person will, with little doubt, bring in more money than what he has cost he or she, and consequently, that's a pretty good deal. And it was done and that was the truth. If we could get a fiscal note that seemed to indicate this possibility with this bill, I would feel a lot more comfortable on passing it along than raising expectations and having them fall with we don't have the ability to look at any new programs which is what it will get in finance. I mean I just hate to be blunt, but I don't see any new programs being passed this year if they have a fiscal impact. But if they could be revenue neutral, that could be another thing." REPRESENTATIVE BUNDE said he sees it to be difficult to create a revenue neutral programs because there will be expectations in the public and if the fines go away, there will be a trip to the general fund for that. He stated he certainly supports raising the amount of the fine. He pointed out that most of the telephone soliciting fraudulent operations are out-of-state boiler room operations. Representative Bunde said, "They have little or no resources, as I'm sure the people in the legal profession know this, it's a huge step between getting a judgement or levying a fine and collecting. And so I guess I need to see show me the money too. And I just have to question why, if this was on-tap source of revenue that indeed would then also be very positive public policy why the Department of Law or attorney general's office hasn't simply funded another attorney." CHAIRMAN GREEN said there are three committee members who have raised the same question. Number 1347 REPRESENTATIVE CROFT said he doesn't think it's going to be revenue neutral. He said he thinks we're going to be spending money to protection people out in the public and that will cost. It will bring in some money. Representative Croft noted he has a letter from the Office of the Attorney General, written last year, summarizing some of the cases they settled and how much money they recovered in each case. One was an award to the state of over $70,000 in attorney fees and costs. He noted the letter lists local companies that had defrauded people, either existing businesses who lost their moral way somewhat or local scam artists. There is the potential money for significant money to come in, but it is going to cost money. It is an important public service and there are other important things that the Department of Law has been doing. Representative Croft said Representative James' idea is an excellent idea to put a line in the fiscal note showing what is expected to come in. He noted he doesn't expect it to equal the cost. Number 1411 REPRESENTATIVE BERKOWITZ said he disagrees with Representative Croft. He stated when he was a prosecuting attorney he brought in far more to the state than he costed, and that was in a criminal realm. Number 1428 REPRESENTATIVE JAMES said, "One quick thing, serving on the Department of Law subcommittee, testimony from the Department of Law as to why they're not doing this know is they're given a certain amount of budget and there are other issues that are more important, and part of it is children's issues that are more important. And so to meet that demand, they took away the spending on consumer protection. If I were to prioritize, I would prioritize it that and let the consumer beware and they can take care of their own problems, I mean, if it came to that. So I believe that -- I agree with Representative Berkowitz that I think there would be more than enough to pay for this person if they did actually aggressively look at these cases. And Representative Bunde said that in telephone scams, you're absolutely right, it's very difficult to get your finger on who they are. But there other scams besides telephone scams and by working with attorney generals in other states, we can recoup those issues - have in the past. I was scammed once, or on a group of scams, and they aggressively got after them and I got my money back. So that's been 20 years ago." Number 1495 STEVE CONN, Executive Director, Alaska Public Interest Research Group (AKPRIG), testified via teleconference from Anchorage. He informed the committee that a week ago he was able to provide Representative Porter with a report that AKPRIG produced where they examined the budget review units (BRUs) of the previous Consumer Protection Section for fiscal years 78 through 90. The amount that they were able to recover was in the hundreds of thousands of dollars. He noted it was not exclusively to the filing of law suits. Mr. Conn said, "The law suits, at most, throughout the entire period numbered 28 and 25 and those were rare. The average was more like 15 law suits. The way they were able to handle most of these complaints was through mediation and what we have called alternative dispute resolutions. So in other words, to the question of whether this would be pay as you go, the answer is very probably so long as the individual who is bringing law suits is backed up by volunteers, paralegals, other people who using that version in the background as an alternate deterrent is able to -- these other people are able to sit down and work out compromises. And so (indisc.) argues and I hope the Representative Porter could share that with you that it's really mediation that is at the heart of this back stop by an attorney freed up ready willing and able to deal in the courts with those people who are totally recalcitrant and refuse to work out some sort of a compromise." Number 1603 REPRESENTATIVE PORTER referred to the settlement results from mediation and asked Mr. Conn if they ever resulted in a settlement of a fine amount that would actually go to the state or were they settlements that resulted in the victim being compensated. MR. CONN said they were a combination of both, but loads of money went to the state. He said, "The problem is for a consumer advocate or for a lawmaker is once we've lost that section and the BRUs associated with that section, the statistics are drifted out of existence, but during that period - that long period for fiscal year 78 to fiscal year 90 the dollars recovered and reported to the legislature were -- I'll just throw a few of these figures out - $210,000 in 78, $192,000 in 79. I'm going to skip because I know you're busy, $379,000 in fiscal year 82, $344,000 in fiscal year 85, all the way down to the last one that we have records for, $100,000 recouped by the state in fiscal year 90. In other words, this is quite serious money that a process that is backed-stopped by the deterrent of lawsuits and very, very, very slow number of lawsuits indeed, but it involves mostly settlements. This is serious money that the state can bring into (indisc.). And as to the discussions by the ladies and gentlemen there, that was very interesting. I myself have wondered for more than nine years, since I've been with Alaska Public Interest Research Group, why the state does not see the fiscal opportunity here of not only protecting honest business people and the economic climate in the state, but also bringing in some much needed resources to ... in many other areas such as child protection." Number 1714 REPRESENTATIVE PORTER indicated he has the report that Mr. Conn spoke of and said he would be glad to share it with the sponsor and the committee. CHAIRMAN GREEN said he can see how the prosecutor might feel there are higher and better things to do. He said it seems to him that this might be an area where they could contract it out. REPRESENTATIVE BERKOWITZ said he thinks that there may be problems with contracting out these services under current law. Number 1746 REPRESENTATIVE CROFT said if the committee was able to get a fiscal note that says it costs $145,000 and raises $145,000, it would still run into a budgetary problem. Even fiscally neutral measures can be stopped by budget cutting itself. He said $145,000 is not increasing the fiscal gap, but it is increasing the budget. CHAIRMAN CROFT agreed with Representative Croft. REPRESENTATIVE JAMES stated, "I argued that vehemently last year when they passed the designated program receipts where they are going to add them up separately. And they said that's not going to make a difference, but why bother to have designated programs receipts in a column by themselves if they're not going to consider program receipts when they make the budget?" REPRESENTATIVE BERKOWITZ said it seems to him that is a battle that shouldn't be raised in the Judiciary Committee. CHAIRMAN GREEN said that is correct as it is a finance issue. Number 1802 REPRESENTATIVE BERKOWITZ made a motion to move CSSSHB 49(L&C) out of committee with the attached fiscal notes. REPRESENTATIVE JAMES said she would object for the purpose of amending the fiscal note or to get another one. REPRESENTATIVE CROFT said he would ask for another fiscal note. REPRESENTATIVE JAMES said, "I would (indisc.) that I would prefer not that fiscal note but another fiscal note to send it on, otherwise I would remove my objection." CHAIRMAN GREEN said, "So you have removed your objection and you would request a revised fiscal note?" REPRESENTATIVE CROFT said he would make the request for a revised fiscal note. CHAIRMAN GREEN said there has been a recommendation to move the bill from committee. He asked if there was an objection. Hearing none, CSSSHB 49(L&C) moved out the House Judiciary Committee.
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