Legislature(2005 - 2006)

04/24/2006 02:13 PM JUD

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* first hearing in first committee of referral
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SB 273 - MOTOR VEHICLE SALES                                                                                                  
[Contains brief discussion of HB 383.]                                                                                          
2:25:06 PM                                                                                                                    
CHAIR McGUIRE announced that the  next order of business would be                                                               
SENATE  BILL  NO.  273,  "An  Act relating  to  a  motor  vehicle                                                               
dealer's selling  or offering  to sell motor  vehicles as  new or                                                               
current models or  as new or current model  motor vehicles having                                                               
manufacturer's warranties."                                                                                                     
2:25:13 PM                                                                                                                    
RYAN  MAKINSTER,  Staff to  Senator  John  Cowdery, Alaska  State                                                               
Legislature,  sponsor, explained  on  behalf  of Senator  Cowdery                                                               
that  SB  273 removes  the  words,  "or  current model"  from  AS                                                               
08.66.015(a); [adds  a new paragraph  (2) that stipulates  that a                                                               
dealer must also have a  current sales and service agreement with                                                               
the manufacturer in order to sell  a vehicle as new;] and repeals                                                               
AS  08.66.015(b).   He  indicated that  the  change proposed  via                                                               
SB 273 merely reflects current practice,  since the Department of                                                               
Law is not actually enforcing  the current statute that prohibits                                                               
a   dealer   from  selling   a   used   current  model   vehicle.                                                               
Characterizing  SB 273  as a  consumer protection  bill that  all                                                               
parties are  comfortable with,  he suggested  that it  will allow                                                               
anyone to sell a used  current model vehicle without first having                                                               
to wait until the next year's model comes out.                                                                                  
2:28:02 PM                                                                                                                    
REPRESENTATIVE GARA  relayed that he is  considering offering the                                                               
following proposed  amendment, labeled  24-LS1607\G.2, Bannister,                                                               
     Page 1, line 3, following "warranties":                                                                                  
          Insert "; relating to the disclosures required                                                                      
      for certain motor vehicle transactions; and relating                                                                    
     to the financing of motor vehicle purchases"                                                                             
     Page 1, following line 11:                                                                                                 
          Insert new bill sections to read:                                                                                     
        "* Sec. 2. AS 45.25.610(c) is amended to read:                                                                      
          (c)  If a motor vehicle dealer arranges financing                                                                     
     for a buyer,  the motor vehicle dealer  may deliver the                                                                    
     motor  vehicle to  the buyer  before final  approval by                                                                    
     the financing entity if                                                                                                    
               (1)  the buyer and seller sign an agreement                                                                      
     separate  from the  motor vehicle  installment contract                                                                    
     on an 8  1/2 x 11 inch sheet of  paper that clearly and                                                                    
     conspicuously  informs the  buyer that  final financing                                                                    
     arrangements  have  not  yet  been  approved  and  that                                                                    
     clearly sets out the amount  that will be financed, the                                                                    
     annual  percentage  rate  of the  finance  charge,  the                                                                    
     amount of the finance  charge, the number and frequency                                                                    
     of payments, and the amount of each payment;                                                                               
               (2)  the separate agreement in (1) of this                                                                   
     subsection clearly and  conspicuously informs the buyer                                                                
     that  accepting delivery  of the  vehicle before  final                                                                    
     financing approval obligates the  buyer to terms of the                                                                    
     motor  vehicle  sales  contract if  the  terms  on  the                                                                    
     separate agreement  are identical to the  terms finally                                                                    
     approved by the financing entity; [AND]                                                                                    
               (3)  the motor vehicle dealer complies with                                                                  
     the  disclosure requirements  of (f)  of this  section;                                                                
               (4)  the separate agreement in (1) of this                                                               
     subsection  provides that  the separate  agreement, the                                                                
     motor  vehicle sales  contract, and  any and  all other                                                                    
     conditions of the  purchase will be void if  any of the                                                                    
     terms contained  in the separate agreement  are changed                                                                    
     by  either the  motor vehicle  dealer or  the financing                                                                    
     institution as  a condition of sale  or final financing                                                                    
        * Sec.  3. AS 45.25.610 is  amended by adding  a new                                                                  
     subsection to read:                                                                                                        
          (f)  In addition to the other requirements of                                                                         
     this  section,  if  a  motor  vehicle  dealer  arranges                                                                    
     financing for  a proposed buyer or  offers financing to                                                                    
     a proposed buyer, the dealer  shall disclose in writing                                                                    
     and before the sale is finalized                                                                                           
               (1)  whether the interest rate quoted to the                                                                     
     proposed  buyer is  different  than  the interest  rate                                                                    
     charged to the dealer; and                                                                                                 
               (2)  that the interest rate quoted to the                                                                        
     buyer may not be the lowest interest rate available."                                                                      
     Renumber the following bill section accordingly.                                                                           
REPRESENTATIVE  GARA indicated  that this  proposed amendment  is                                                               
intended to address  a practice among some car  dealers and banks                                                               
wherein the  bank charges the  dealer a lower interest  rate than                                                               
the dealer in  turn charges the consumer  for arranging financing                                                               
and the  difference between  the two rates  is split  between the                                                               
bank and dealer  and is called a "dealer reserve."   The proposed                                                               
amendment  would  require the  consumer  to  be notified  if  the                                                               
dealer will be  keeping a portion of the  interest being charged,                                                               
thus  providing  the consumer  with  the  opportunity to  perhaps                                                               
consider alternative financing.                                                                                                 
MR. MAKINSTER relayed  that the sponsor would not be  in favor of                                                               
such a change.                                                                                                                  
2:32:34 PM                                                                                                                    
REPRESENTATIVE GRUENBERG indicated that  he is concerned with the                                                               
provision that  would delete AS  08.66.015(b) - even  though some                                                               
of its language is being  retained in proposed AS 08.66.015(a)(2)                                                               
- because  presumably it  offers protection  to the  consumer; AS                                                               
08.66.015(b) currently reads:                                                                                                   
          (b) A person who does business as a dealer in the                                                                     
     state may not offer to sell  or sell a motor vehicle as                                                                    
     a  new   or  current  model  motor   vehicle  having  a                                                                    
     manufacturer's warranty unless                                                                                             
          (1) the dealer has a current sales and service                                                                        
     agreement  with  the  manufacturer  and  the  agreement                                                                    
     requires the  dealer, upon demand of  the motor vehicle                                                                    
     buyer, to  perform or arrange for,  within a reasonable                                                                    
     distance  of  the dealer's  place  of  business in  the                                                                    
     state, the repair and replacement  work required of the                                                                    
     manufacturer under the warranty; or                                                                                        
          (2) the dealer offers to give the buyer a rebate                                                                      
     to  cover  the repair  and  replacement  work that  the                                                                    
     dealer  cannot   perform  or   arrange  for   within  a                                                                    
     reasonable distance of the dealer's place of business.                                                                     
REPRESENTATIVE  GRUENBERG surmised  that  if the  bill passes  as                                                               
currently written so that that  language is deleted from statute,                                                               
any sales and service agreement  might no longer require that any                                                               
repair  and replacement  work be  performed  within a  reasonable                                                               
distance from  the dealer's  place of  business, nor  would there                                                               
any longer be a requirement that  the dealer give a rebate to the                                                               
buyer to  cover the cost  of the  repair and replacement  work if                                                               
such work cannot  work be performed within  a reasonable distance                                                               
from the dealer's place of business.   He suggested that the lack                                                               
of these  requirements could  prove costly  to the  consumer, and                                                               
hence, as  a practical  matter, they should  be considered  to be                                                               
important consumer protection provisions.                                                                                       
REPRESENTATIVE GRUENBERG,  in response  to comments,  pointed out                                                               
that  aside from  AS 08.66.015(b),  no  other statute  stipulates                                                               
that a  sales and  service agreement  between a  manufacturer and                                                               
dealer must  contain the aforementioned  requirements; therefore,                                                               
even   if  all   such   current  agreements   do  contain   those                                                               
requirements,  future   agreements  could   be  different.     He                                                               
mentioned  that he  has  seen many  instances  in which  consumer                                                               
protections  are   watered  down,   adding  that  in   his  view,                                                               
therefore, simply deleting AS 08.66.015(b)  would not provide for                                                               
adequate consumer protection.                                                                                                   
2:40:52 PM                                                                                                                    
CLYDE   (ED)   SNIFFEN,    JR.,   Assistant   Attorney   General,                                                               
Commercial/Fair  Business  Section, Civil  Division  (Anchorage),                                                               
Department of Law  (DOL), in response to  questions and comments,                                                               
attempted to  clarify that once a  new vehicle is sold,  it loses                                                               
the  [manufacturer's  certificate  of  origin],  thus  making  it                                                               
impossible, under  the current statutory  language, for  a dealer                                                               
to sell  a used current  model vehicle.   Deletion of  the words,                                                               
"or  current  model" from  AS  08.66.015(a)  should rectify  this                                                               
situation.  In  response to further questions,  he indicated that                                                               
simply   removing  the   words,  "or   current  model"   from  AS                                                               
08.66.015(b) as well would then  prohibit a dealer from selling a                                                               
new vehicle unless he/she were able to perform service work.                                                                    
MR. SNIFFEN went on to say:                                                                                                     
     Every  modern sales  and  service  agreement between  a                                                                    
     dealer and  a manufacturer  requires that  the [dealer]                                                                    
     perform that  work already, so  it didn't seem  to make                                                                    
     sense to  remove the phrase,  ["or current  model"] and                                                                    
     then leave the rest of  [subsection (b)] in, because it                                                                    
     just didn't have any application.                                                                                          
MR. SNIFFEN explained  that simply altering subsection  (b) in an                                                               
attempt to provide the  aforementioned consumer protections would                                                               
essentially require used car dealers  to offer repair services to                                                               
consumers who  buy current  model used vehicles  - a  very narrow                                                               
and specific  type of used car.   It made more  sense, therefore,                                                               
to simply make changes as proposed by SB 273.                                                                                   
REPRESENTATIVE GRUENBERG offered his  belief that simply removing                                                               
the phrase, "or  current model" from both AS  08.66.015(a) and AS                                                               
08.66.015(b) would solve the problem  as stated by Mr. Makinster.                                                               
He then posed a question regarding the agreements and contracts.                                                                
MR. SNIFFEN  said that the  contracts he's viewed don't  have any                                                               
provisions for  rebate because they  instead have  the provisions                                                               
regarding   the  sales   and  service   agreements  between   the                                                               
manufacturer and  the dealer, agreements that  require the dealer                                                               
to have a facility to make repairs.                                                                                             
2:47:54 PM                                                                                                                    
REPRESENTATIVE GRUENBERG  opined that  AS 08.66.015  as currently                                                               
written gives  Alaska consumers more  protection than  they would                                                               
have  under  the bill,  because  under  current law,  the  rebate                                                               
provision would give  consumers in remote areas of  the state the                                                               
option of possibly  receiving a rebate for the  purpose of having                                                               
repairs  done locally.    He  is therefore  reluctant  to see  AS                                                               
08.66.015(b) deleted  because although  the dealer  will benefit,                                                               
the consumer will pay more.                                                                                                     
MR.  SNIFFEN pointed  out, though,  that under  current law,  any                                                               
repair  or replacement  work  must be  done  within a  reasonable                                                               
distance  of the  dealer's place  of business  - not  the buyer's                                                               
residence;  deleting   subsection  (b)  will  not   result  in  a                                                               
reduction   in  consumer   protection   because  even   currently                                                               
consumers who live in remote areas are not entitled to a rebate.                                                                
REPRESENTATIVE GRUENBERG  suggested having  something in  the law                                                               
that prohibits franchise agreements from being changed.                                                                         
MR. SNIFFEN acknowledged  that there is always the  risk - though                                                               
minimal - that a manufacture and  a dealer might change the terms                                                               
of  their franchise  agreement so  that the  dealer would  not be                                                               
required to perform  specific warranty repairs, but  he has never                                                               
seen  that happen  and he  does not  know that  as a  consumer he                                                               
would be willing to do business with such a dealer.                                                                             
REPRESENTATIVE  GRUENBERG said  it  seems that  although, in  the                                                               
legal sense, the consumer is a  third party beneficiary of such a                                                               
contract   -  the   franchise  agreement   -  there   is  nothing                                                               
prohibiting the  dealer and manufacturer  from changing  it, even                                                               
for  an existing  vehicle, and  thus the  consumer would  have no                                                               
cause of action.                                                                                                                
MR. SNIFFEN  explained that  the consumer  would always  have the                                                               
ability  to  bring  a  private  cause of  action  for  breach  of                                                               
contract or perhaps  product liability claim and  tort, but under                                                               
AS 08.66.015,  if the dealer sold  the vehicle as a  new vehicle,                                                               
the dealer would be required  to have that franchise agreement in                                                               
place that included  a sales and service agreement  which in turn                                                               
would require the dealer to repair the vehicle.                                                                                 
REPRESENTATIVE  GRUENBERG  reiterated  that he  is  uncomfortable                                                               
with  repealing  AS 08.66.015(b),  and  indicated  that he  would                                                               
instead prefer  to simply  remove the  phrase, "or  current model                                                               
motor vehicle" from  both AS 08.66.015(a) and  AS 08.66.015(b) as                                                               
a way of curing the problem.                                                                                                    
REPRESENTATIVE  WILSON   pointed  out  that  the   words,  "motor                                                               
vehicle" should be left in.                                                                                                     
REPRESENTATIVE GRUENBERG concurred.                                                                                             
MR. MAKINSTER relayed  that when [a similar  change] was proposed                                                               
in the House  Labor and Commerce Standing  Committee, the sponsor                                                               
was not comfortable with it.                                                                                                    
REPRESENTATIVE  ANDERSON concurred,  and recommended  keeping the                                                               
bill as is.                                                                                                                     
2:55:36 PM                                                                                                                    
JON COOK,  Legislative Director, Alaska Auto  Dealers Association                                                               
(AADA), relayed that  the AADA supports the passage of  SB 273 as                                                               
it is  currently written, and  opined that the bill  will benefit                                                               
both new  and used car  dealers as well  as consumers.   The AADA                                                               
has been working  on this issue for two years,  and has submitted                                                               
a letter  of support to the  committee.  Under current  law, as a                                                               
dealer,  he  is  prohibited  from   selling  current  model  used                                                               
vehicles  until August  of the  following year;  fortunately, the                                                               
DOL has  chosen not to enforce  that law, but dealers  don't like                                                               
being in  technical violation of  the law regardless and  so have                                                               
sought to have AS 08.66.015 changed.                                                                                            
MR. COOK mentioned that SB 273  will still require those who sell                                                               
new vehicles to  have a current sales and  service agreement with                                                               
the manufacturer,  and that he  has four such agreements,  all of                                                               
which  require  him to  provide  service  to  the customer.    He                                                               
summarized by saying that used  car dealers, new car dealers, and                                                               
the DOL  are all fairly  happy with  the current language  of the                                                               
bill,  and  he  therefore  urges the  committee  to  support  the                                                               
passage of SB 273.                                                                                                              
REPRESENTATIVE GARA  asked Mr.  Cook to  comment on  his proposed                                                               
amendment regarding the issue of "dealer reserve".                                                                              
MR. COOK  indicated that he'd  testified on that issue  on behalf                                                               
of  the AADA  during  discussion of  HB 383  in  the House  State                                                               
Affairs  Standing Committee,  outlined  some of  the problems  he                                                               
sees with HB  383, and expressed a preference for  keeping SB 273                                                               
simple and focused on the one issue it is designed to address.                                                                  
[Following was further brief discussion on HB 383.]                                                                             
MR.  COOK,  in response  to  a  question regarding  the  proposed                                                               
deletion of  subsection (b), suggested that  subsection (b) could                                                               
prove  problematic   if  its  language  became   the  subject  of                                                               
litigation,  and  pointed  out  that  current  dealer  agreements                                                               
already  stipulate   the  same  requirements  as   listed  in  AS                                                               
08.66.015(b)(1).   Furthermore,  even if  a manufacturer  were to                                                               
change the  sales and service  agreement it has with  the dealer,                                                               
the  manufacturer would  still have  to honor  the warranties  of                                                               
vehicles  purchased   while  the   previous  sales   and  service                                                               
agreement was in effect.                                                                                                        
3:08:15 PM                                                                                                                    
REPRESENTATIVE GRUENBERG pondered whether  they should simply put                                                               
the language of the franchise agreement in statute.                                                                             
MR. COOK  noted that all of  the sales and service  agreements he                                                               
currently   has  with   manufacturers  have   slightly  different                                                               
MR. SNIFFEN, in response to a  question, verified that the DOL is                                                               
responsible for enforcing AS 08.66.015(b).                                                                                      
REPRESENTATIVE  GRUENBERG opined  that  AS 08.66.015(b)  provides                                                               
important practical protection for the consumer.                                                                                
CHAIR  McGUIRE, after  ascertaining that  no one  else wished  to                                                               
testify, closed public testimony on SB 273.                                                                                     
REPRESENTATIVE GARA  relayed that  he would  not be  offering his                                                               
proposed amendment at this time.                                                                                                
3:10:54 PM                                                                                                                    
REPRESENTATIVE  GRUENBERG  made  a  motion  to  adopt  Conceptual                                                               
Amendment 1,  to rewrite the bill  such that it only  deleted the                                                               
phrase,  "or current  model"  from both  AS  08.66.015(a) and  AS                                                               
08.66.015(b).    This change,  he  suggested,  would address  the                                                               
sponsor's concern while retaining existing consumer protections.                                                                
REPRESENTATIVE ANDERSON objected.                                                                                               
REPRESENTATIVE GARA  opined that it  would be alright to  get rid                                                               
of subsection (b)  because all the cars that would  be sold under                                                               
AS 08.66.015 would come with the manufacturer's warranty.                                                                       
REPRESENTATIVE  GRUENBERG suggested  that it's  up to  the dealer                                                               
whether to follow AS 08.66.015(b)(1) or AS 08.66.015(b)(2).                                                                     
REPRESENTATIVE  GARA said  he is  not convinced  of the  need for                                                               
Conceptual Amendment 1.                                                                                                         
3:15:12 PM                                                                                                                    
A roll call  vote was taken.  Representatives  Gruenberg voted in                                                               
favor of Conceptual Amendment 1.   Representatives Gara, McGuire,                                                               
Coghill,   Wilson,  Anderson,   and   Kott   voted  against   it.                                                               
Therefore, Conceptual Amendment 1 failed by a vote of 1-6.                                                                      
3:15:41 PM                                                                                                                    
REPRESENTATIVE ANDERSON moved  to report SB 273  out of committee                                                               
with individual recommendations and  the accompanying zero fiscal                                                               
note.   There being no  objection, SB  273 was reported  from the                                                               
House Judiciary Standing Committee.                                                                                             

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