Legislature(1997 - 1998)
02/04/1998 03:28 PM House L&C
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
SSHB 142 - BUSINESS PRACTICE REGULATIONS Number 0085 CHAIRMAN ROKEBERG announced 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." He noted the bill's last public hearing had been held during the interim. Number 0115 REPRESENTATIVE GARY DAVIS presented the sponsor statement for SSHB 142. He stated there had been a great deal of discussion on Section 2 at a hearing last year. Section 2, he said, deals with additional automobile dealer requirements certifying the condition of a vehicle, including information regarding whether a vehicle had been wrecked, and had any mechanical or body damage. Representative Davis mentioned the interim meeting, stating there had been discussion on the same issue. He said there did not appear to have been satisfactory negotiations between the automobile dealers and the Department of Law (DOL). Representative Davis stated he feels the other inclusions in SSHB 142 are valuable and does not want to jeopardize them, so he is offering an amendment to the committee deleting Section 2 and all related provisions. Number 0255 REPRESENTATIVE DAVIS noted there is also concern from the Alaska Auto Dealers Association and individual automobile dealers about Section 1, which, he said, clarifies a loophole in legislation relating to the emissions (I/M) certification automobiles in Fairbanks and Anchorage need to have before a sale can take place. Representative Davis stated, "It [SSHB 142] would require that a used car dealer provide the prospective buyer with a copy of an auto emissions certificate of inspection or noncompliance before a sales contract is signed. Current law requires only that a used vehicle have a certificate of compliance or noncompliance before the dealer can transfer title to the buyer, yet sales contracts are commonly signed days before title transfer." Representative Davis said the buyer might not be aware of the outcome of a vehicle's I/M test before making a purchase commitment. Representative Davis stated this would require the automobile dealers to process another piece of paper, a not completely baseless argument, but he feels it is a valuable section and should be left in the bill. Number 0444 REPRESENTATIVE DAVIS stated another section of SSHB 142 clarifies that the state's consumer protection and anti-trust investigative files are not available for inspection under the Alaska Public Records Act. He said the extent to which the state's investigative records are shielded from public scrutiny was called into question by a recent Alaska Superior Court case, and he noted important confidentiality issues remain unresolved. Representative Davis stated Assistant Attorney General Daveed Schwartz would be testifying via teleconference on this issue. Number 0498 REPRESENTATIVE DAVIS added SSHB 142 also clarifies the existing mail-order catalog exemption in the Alaska telemarketing law. He commented most telemarketers are required to register with the state under current law so they can be located if they defraud consumers. He stated there is an overlooked "technicality" in the telemarketing legislation brought up through complaints to the DOL. As his final point, Representative Davis stated SSHB 142 creates a statute regulating the sale of business opportunities. He noted high pressure salespeople often take advantage of Alaskans' entrepreneurial spirit by resorting to fraudulent, deceptive and unfair sales practices. He stated he would defer to the DOL to explain the details of that provision. Representative Davis said he felt the key objections to SSHB 142 were addressed through the deletion of Section 2, although he expected the committee to hear concerns about Section 1. Number 0629 REPRESENTATIVE JOHN COWDERY mentioned lienholders, noting the situation of receiving title and discovering problems at that later date. He asked Representative Davis the best way a same-day transaction with an out-of-state or nonlocal lienholder could be facilitated. Number 0667 REPRESENTATIVE DAVIS stated he believed, with a same-day transaction, the only way would be to have the vehicle I/M tested that day. Number 0700 REPRESENTATIVE COWDERY mentioned a vehicle with current I/M certification near expiration. REPRESENTATIVE DAVIS responded the question had previously come up and he thought it might be debated during teleconference testimony. Number 0727 CHAIRMAN ROKEBERG briefly discussed meeting agenda and noted one of the two witnesses standing by on teleconference, Assistant Attorney General Daveed Schwartz, had not had an opportunity to testify on the full bill at the previous Anchorage hearing. Number 0839 MICHAEL STEPP, President, Alaska Finance and Insurance Company, Incorporated, d.b.a. Stepp Brothers Lincoln Mercury BMW and Land Rover Anchorage; President, Alaska Auto Dealers Association, testified via teleconference from Anchorage on behalf the Alaska Auto Dealers Association. He referred to the October 1997 legislative hearing and stated, "Our main concern, with respect to Section 1 of HB 142, is first of all the fact that it -- as one of the communities in Anchorage that (indisc.) business deals with ..." Mr. Stepp diverged from his point to inform the committee the I/M issue only affects the Anchorage and Fairbanks members of the Alaska Auto Dealers Association. He then continued, "Fairbanks and ourself, then, are the ones that are required to perform these inspections, and with that being said, there's certain difficulties that come into play in the normal course of doing business and - and I don't know of anyone in your capacity who's certainly trying to serve the public interest that would want to impede (indisc.) commerce from taking place." Number 0913 MR. STEPP described a scenario in which an individual trades in a vehicle at Mr. Stepp's place of business on Friday night, noting the business does not operate a mechanical shop after-hours on Friday evening, Saturday or Sunday. Subsequently another prospective buyer comes in later Friday evening and attempts to buy that vehicle. However, under the current structure of HB 142, Mr. Stepp said, his dealership would be preempted from either showing or selling that vehicle "without having the client being given, or obtaining a disclosure that essentially says, 'Yes, we will provide you with a valid I/M compliance or noncompliance.'" Mr. Stepp continued, "We aren't in the position to make that representation because we have not had the opportunity -- we certainly don't want to put ourself in a position where we are acting in - in conflict with the law, so therefore we're faced with a dilemma: Do we lose the potential sale? Do we have the buyer who may have been waiting for that specific deal not be able have the opportunity to enter into the transaction? Or do we go ahead and know that we run the risk, then, of not complying, which certainly doesn't appear to me to be a valid set of circumstances?" Number 0994 MR. STEPP commented he had spoken earlier with Mr. Schwartz about the "addendum" to Section 1 proposed by the Alaska Auto Dealers Association which reads: "Page 2, line 12, add the following 'OR (3) obtain from the prospective buyer, transferee, assignee, or agent of the prospective buyer, transferee, or assignee, a signed, written statement that the prospective buyer, transferee, or assignee, or the agent of prospective buyer, transferee, or assignee waives the requirements of (1) and (2) of this subsection.'" Mr. Stepp said Mr. Schwartz indicated this proposed amendment would be in direct conflict with the existing consumer protection Act. Number 1028 MR. STEPP continued, "That being said, I feel as though our position relative to the Alaska automobile dealer association [Alaska Auto Dealers Association] is that, we believe there's already sufficient legislation in place, or at least a law within the two municipalities, that being Fairbanks as well as Anchorage, that requires, if we have to I/M a vehicle in order to transfer title, or we have to give a consumer a noncompliance document. Having to do so prior to entering into the contract appears, to me, to be an additional burden that is undue. And I would state this for the record, that ... probably in 90 plus percentage of the cases, our vehicles are already setting on the lot, as are most dealers, with the I/M inspection already performed. We'd only be talking about those isolated instances where you could not have the opportunity in most cases to have it checked prior to the client looking at it." Mr. Stepp noted HB 142, in his opinion, appeared to be a piece of legislation that probably would not affect many transactions. He said, "The benefit that would be derived versus the exposure to the selling dealer seems to me to not be a situation where there's going to be a lot of appreciable gain." Number 1114 MR. STEPP stated he did not think maintaining and trying to more closely monitor the dealer body with respect to I/M certification would have a positive effect on Anchorage's or Fairbanks' air quality, indicating he felt this was the purpose of the I/M requirements. Mr. Stepp noted testimony on behalf of the Alaska Auto Dealers Association in October 1997 which, he said, clearly pointed out, according to R. L. Polk and Company, Incorporated, statistics, the dealer body probably accounts for less than 50 percent of vehicle transactions in the state. MR. STEPP said, "The real goal, here again, is to try and get vehicles that are operating cleaner and having more compliance, rather than trying to police the dealer body and make sure that they, in fact, have not circumvented a particular law or requirement. And I'm the first to tell you that it - it is our desire, in each and every case, to want to be in compliance. If there's some way we can do this without preempting our ability to derive a living by having the vehicles readily available for sale -- and if you know anything at all about our industry, when a consumer comes to us today and wants to buy something, if we tell them, 'Sorry you're unable to look at that today because we haven't had a chance to check it out,' a good many of them will just go on down the street and check with somebody else." MR. STEPP stated he felt Section 1 would be "severely negative in its overall set of circumstance" because of the quantity of vehicles traded in on weekends and the number of I/M certified technicians. He commented, "So I would just submit to you that I don't believe that there's going to be appreciable benefit derived, based on what's currently being complied with, within the two municipalities and - and it doesn't appear to me to be based on information that was either given in prior testimony or, possibly, available yet today, 'cause I have seen nothing to - to substantiate that there are substantial abuses of this industry- wide." Number 1251 REPRESENTATIVE GENE KUBINA asked, when a vehicle was taken in trade, didn't Mr. Stepp's dealership have a mechanic who examined the vehicle and estimated a value, who could be trained to do an I/M test as well. Number 1269 MR. STEPP stated his dealership does not have a technician who looks at vehicles when they are traded in, and many of his dealership's transactions take place when no technicians are around. The sales manager appraises vehicles as part of his duties. Mr. Stepp said, "In all fairness, most of the transactions that are involved for our store - and again I would just say this is probably the case for most within the Municipality of Anchorage and probably within the city limits of Fairbanks as well - are taking in trade vehicles that have previously passed the I/M, or presently have an I/M certificate with them. So, it really is not something that - that we concern ourself with an awful lot on the broad picture, but there are those isolated circumstances where you do get a vehicle that has ... been tampered with, modified, that you have no way of knowing until the particular inspection does take place -- and if, in fact, you can't do that inspection prior to showing the vehicle, you run the risk, under your proposed legislation here , of having significant liability because you've, in fact, reported something to the client that doesn't exist." Number 1334 REPRESENTATIVE KUBINA asked what happens when a consumer buys that vehicle and takes it in for an I/M inspection the vehicle doesn't pass. Does Mr. Stepp's business stand by that vehicle and fix it, or is the person stuck with a vehicle that cannot be certified? Number 1344 MR. STEPP responded his business does not send vehicles to a third party for I/M inspection; his business has personnel certified by the Municipality of Anchorage to perform these inspections. Number 1378 REPRESENTATIVE KUBINA noted he was concerned about instances Mr. Stepp had previously described when a technician was not available. He asked what happened when a person drives a car away on Saturday that was taken in trade on Friday night, and was, therefore, uninspected. MR. STEPP replied the person would bring the vehicle back to Mr. Stepp's business on Monday. REPRESENTATIVE KUBINA asked if Mr. Stepp's business then guaranteed the vehicle would pass inspection since it had been purchased there. Number 1401 MR. STEPP responded his business has never sold a vehicle to a retail owner that either did not already comply or his business did not make comply. He said, "The vehicle would come back to us, we would perform the inspection, and, if in fact, there were upgrades necessary to it - depending on those circumstances, we would have the opportunity with the customer -- and - and what we do, just let me preface this by saying, if you came in and bought a car from us on Friday night ... and we had not inspected it the car, we would tell you we didn't inspect the car and we would reserve the right to allow you to rescind your purchase and not have to buy it, if we couldn't conform it. But that's not what I'm seeing here in the legislation." Number 1455 REPRESENTATIVE DAVIS questioned Mr. Stepp about the Municipality of Anchorage's requirements concerning I/M certification compliance in private sales. Number 1465 MR. STEPP answered it was his understanding before the title could be transferred to the next owner, he or she must have an I/M certificate or certificate of noncompliance. He noted did not handle private transactions and was not familiar with the procedure. Number 1495 CHAIRMAN ROKEBERG referred to a bill (HB 222) passed the previous year, "That was my 'junk car bill' that allowed cars to not have a test the way they were previously, before they could be either -- the title could be transferred without it ...." Number 1508 REPRESENTATIVE DAVIS noted he did not think anything, anywhere, restricted a dealer from showing a vehicle at anytime. Number 1525 MR. STEPP responded prior that day's rewrite of HB 142, there was a restriction relative to showing the vehicle without proof of I/M certification. He said he was told the term, "before entering into a contract," applies to oral contracts "and things of that particular nature," as well as written contracts. "If my understanding of your proposed law is correct, that if we show you a vehicle, you and I enter into a contract on the vehicle this evening. I have not got the vehicle I/M, I cannot furnish you with a valid copy of a certificate of inspection. The only thing I can give you today is a noncompliance one, because I wouldn't know." Number 1594 CHAIRMAN ROKEBERG stated the committee would be in contact with Mr. Stepp. He called Mr. Schwartz to testify on the non-automobile portions of SSHB 142. Number 1661 DAVEED SCHWARTZ, Assistant Attorney General, Commercial Section, Civil Division, Department of Law, testified via teleconference from Anchorage. He noted he had many comments on Section 1, but would defer those comments to another time at the Chairman's request. MR. SCHWARTZ addressed Sections 4, 5 and 6, concerning the confidentiality of the state Unfair Trade Practices and Consumer Protection Act and (indisc.) investigative work. This portion of the bill clarifies that the DOL's records are not available under the Act after the investigative file is closed. Presently, he noted, the confidentiality section in the Unfair Trade Practices and Consumer Protection Act says, "The consumer protection Act records are confidential to the extent that they're not available under the Public Records Act." The DOL's interpretation has always been that the records cannot be accessed under the Public Records Act either during an investigation or after that investigation has been completed. However, in a recent Anchorage Superior Court case involving the seafood processing industry, Mr. Schwartz noted the plaintiffs attempted to obtain the state's closed investigative file to support their suit. Both the industry and the state objected. He said the state's feeling was that although the court could order the release of records under the anti-trust Act and subject them to a protective order making them unavailable to the public, the records were not available under the Public Records Act. He stated the DOL feels it would receive less cooperation from witnesses reporting violations and from companies submitting records in response to subpoenas during investigations if the investigation records could be accessed under the Public Records Act when the case was closed, and law enforcement efforts would be hampered significantly. Number 1783 MR. SCHWARTZ stated Section 7 clarified the mail-order catalog exemption in the existing telemarketing registration Act (AS Title 45, Chapter 63, Telephonic Solicitations). He related that a high- pressure sales telemarketer from San Diego had tried to say it was exempt from registering as a telemarketer because it had a mail- order catalog. However, the company telephoned people regularly, engaging in obnoxious sales pitches and harassing people to the point that there were many complaints to the Better Business Bureau and the DOL. Mr. Schwartz stated the DOL had taken this company all the way to Alaska Supreme Court and won; Section 7 would ensure the law explicitly set forth the state supreme court's view "that the mail-order catalog exemption ... is not such a broad exemption that it allow a telemarketer ... to telemarket to people over the phone and yet qualify as a mail-order catalog company." Number 1840 CHAIRMAN ROKEBERG questioned if the company mentioned was Distributel, Incorporated [Distributel, Inc. v. State of Alaska 933 P.2d 1137 (Alaska 1997)]. Number 1851 REPRESENTATIVE JOE RYAN asked how the people of Alaska are harmed by telemarketing, other than annoyance, to cause this particular action. Number 1880 MR. SCHWARTZ stated Congress has recognized nationally that Americans suffer $40 billion in losses annually from fraudulent telemarketing and Alaska is not an exception. Mr. Schwartz called Alaska a "victim state" and noted most telemarketing companies are located in a few areas: Las Vegas, Nevada; Atlanta, Georgia; Florida and Southern California. He said, historically, telemarketing has been an area in which the consumer has been very vulnerable to fraudulent and high-pressure sales pitches. Money can change hands almost instantly, Mr. Schwartz stated, when a telemarketer fraudulently obtains a consumer's credit card or bank account number. He noted the practice of recording the conversation and illegally convincing the consumer a binding sales contract has been made. Mr. Schwartz commented that Alaskans, particularly the elderly, are impacted by telemarketing fraud and in 1993, the legislature enacted a telemarketer registration law. More that 40 states have some sort of telemarketer registration law and Alaska was one of the last ones to adopt one. Mr. Schwartz said telemarketing is a very common consumer protection complaint category in Alaska and nationally. Number 1976 REPRESENTATIVE RYAN noted the consumer's responsibility when making a deal. Number 1992 MR. SCHWARTZ stated that Section 8 concerned the sale of business opportunities. It was, he commented, another area where consumers were "out-and-out defrauded," both in Alaska and nationally, and noted consumers were unable to effectively check out the validity of a business opportunity before paying money or signing a sales contract. Mr. Schwartz mentioned "late-night infomercials" and sales pitches to large groups of consumers, noting high-pressure sales were involved. Many states, he said, have business opportunity registration Acts. Mr. Schwartz stated the one contained in this bill is modeled after the telemarketing registration Act and requires the opportunity to seller to disclose, up-front, key information about the business opportunity so the consumer might be adequately informed before making a decision. Number 2071 CHAIRMAN ROKEBERG brought up the $75,000 surety bond requirement. Number 2078 MR. SCHWARTZ responded that the bond was a typical requirement in a business opportunity statute. Alaska has some surety bond requirements in other sections of the Unfair Trade Practices and Consumer Protection Act. He said paid solicitors for charitable solicitations require a $10,000 surety bond. In the sale of business opportunities, he stated, a $75,000 bond affords a minimal amount of protection to consumers. Mr. Schwartz mentioned the long list of exemptions similar those in the telemarketer registration Act. Number 2119 CHAIRMAN ROKEBERG clarified that the bond protected the person who made the investment, who could then sue against the bond. He asked if bonds were available and what premiums would cost for $75,000 in coverage. Number 2132 MR. SCHWARTZ responded it was his understanding the premiums would be a fraction of the face of the bond, but he was not sure of the rate. Number 2150 CHAIRMAN ROKEBERG noted the cost could be several hundred dollars, which, he said, could be an impediment to business sales activities in the state. He asked if that was the bill's intention. Number 2156 MR. SCHWARTZ stated, the intention is not to prohibit the sale of business opportunities. The goal, he said, is to give the consumer recourse if the business opportunity turns out to be deceptive or fraudulent, noting often sellers will not give refunds. He stated the business opportunity seller should easily be able to recoup the bond's cost through the high volume of sales at any given sales pitch. Mr. Schwartz said he did not think the bond requirement would discourage a business opportunity seller from coming to the state. Number 2197 CHAIRMAN ROKEBERG asked if it was possible to have a "blanket" fidelity bond across state lines or if the bond had to be written within an insurance jurisdiction. Number 2207 MR. SCHWARTZ stated the bond would certainly have to be valid in favor of the state of Alaska so that the consumer or the state could go after the bond. Whether that meant it had to be purchased in the state of Alaska or not, he said, he was not sure but thought it wouldn't. Number 2221 MR. SCHWARTZ stated Section 9 would repeal a confusing telemarketing exemption relating to the sale of securities. There are already some exemptions in the telemarketing law relating to the sale of securities, and he said this particular exemption is redundant and confusing; this change would be a "housecleaning" measure. He stated the rest of the bill concerns the effective dates, regulations and changes in the (indisc.) procedures to accommodate the business opportunity section. Number 2274 CHAIRMAN ROKEBERG asked if investment bankers or stockbrokers would be exempt would be exempt from the business opportunity section. Number 2287 MR. SCHWARTZ answered in the affirmative. He referred to exemption (6), page 17, which exempts a security regulated under the Alaska Statutes, and (7) which exempts a sale or offer where the person is registered by the United States Securities and Exchange Commission. Between those two exemptions, Mr. Schwartz said, investment bankers would be clearly exempted from this kind of legislation. Number 2315 REPRESENTATIVE RYAN asked what provisions have been made on the bond for a person to receive restitution who loses money in a fraudulent transaction. He asked if current statutes allowed that or was there something he was missing in the bill. Number 2335 MR. SCHWARTZ referred to the existing consumer's private right of action under the consumer protection Act. He said if the business opportunities bill is enacted, a consumer could use that existing right with regards to business opportunities. Number 2347 REPRESENTATIVE RYAN clarified his question, asking whether the following procedure would be correct: In an instance of wrongdoing, the bond would pay the state, and the individual who suffered the loss would have to go to court in a civil action to access that money collected by the state. Number 2366 MR. SCHWARTZ responded that was a possible procedure, but he said he did not know if money payable to the state would be available to the consumer, or whether the consumer would have to go directly to the company for restitution. Mr. Schwartz stated the consumer clearly does have a private right of action under the consumer protection Act but a court might have to decide whether or not the consumer could directly access the bond. He said the state can clearly go after the bond Number 2394 CHAIRMAN ROKEBERG noted there was a difference between surety and fidelity bonds. Number 2404 MR. SCHWARTZ stated the law clearly is designed to be a bond for the benefit of the buyer. He said this leads him to say the consumer could go after the bond in a private right of action. Number 2414 REPRESENTATIVE RYAN stated he assumed the bond's purpose would be to protect the buyer, and he asked how the buyer would go about "being made whole from the proceeds of that bond," if the state collected on the bond. Number 2429 MR. SCHWARTZ responded the state would certainly be able to collect the bond and specify, as part of the condition of collection, that the proceeds go to certain identified buyers who were victimized by the business opportunity seller in question. Number 2441 REPRESENTATIVE RYAN asked if there was any provision to ensure that in this bill. Number 2449 MR. SCHWARTZ stated he did not believe the DOL would be seeking that money for the state, because the DOL can already pursue civil penalties under the existing consumer protection Act and does not need to go after a bond to extract penalties from a fraudulent business. REPRESENTATIVE RYAN said, "(Indisc.) language that says the buyer will be made whole ..." MR. SCHWARTZ said, "Would go after the bond ..." [TESTIMONY INTERRUPTED BY TAPE CHANGE] TAPE 98-9, SIDE B Number 0001 REPRESENTATIVE RYAN stated, "... transaction and otherwise why do we want to collect this bond if there's not a mechanism to completely make the person, who suffered the loss, whole." Number 0018 CHAIRMAN ROKEBERG stated he thought the surety bond would be held in favor of the state because a fidelity bond could not apply, since both parties involved could not be known when the bond is made. He recalled that was the difference between a surety and fidelity bond. There is a cause of action on the part of the buyer, who, as he noted Mr. Schwartz had pointed out, could probably make a direct claim, or make a claim through the state. Or, Chairman Rokeberg said, the state could file a cause of action and recover from the bond, turning the proceeds over to the person who was defrauded. Number 0036 MR. SCHWARTZ noted that, since the bill does require that the bond be for the benefit of the buyer, that language, in and of itself, would prohibit the state from taking and retaining the bond rather than distributing it to an injured buyer. Number 0050 REPRESENTATIVE RYAN stated his concern that all money coming to the state goes into the general fund, with the exception of the permanent fund, school construction fund and dedicated funds. Noting the possibility incoming funds appropriated back to the DOL for damages might get "lost in the shuffle," Representative Ryan stated he was trying to find out how the injured person was going to made whole, and why the committee would want to pass this legislation if there wasn't a mechanism to ensure that the person could be made whole. Number 0067 MR. SCHWARTZ responded that there would be a distinct possibility a buyer would be able to made whole from the proceeds obtained from the bond, depending on the number of buyers defrauded. He said he did not think the money "would even see the state treasury" if the state obtained the bond proceeds. The proceeds would be ordered by a court, he said, to be paid directly to a buyer as a result of a victorious action under the consumer protection Act. Number 0090 CHAIRMAN ROKEBERG noted the "business opportunity circumstance" and asked how many complaints the attorney general's office had received on this type of activity in the last two years. Number 0119 MR. SCHWARTZ commented that complaints to the attorney general's office were more common in the past, attributing this to the activity level of the Better Business Bureau, which he said has fallen in recent years. He described two situations where Alaskans had been defrauded and he had taken successful action on behalf of these people for the state. He noted the attorney general's office has not taken individual complaints for the last 10 or 12 years so he was unable to provide statistics. Mr. Schwartz noted this was a national and Alaskan concern, and there were potentially many complaints. Number 0200 CHAIRMAN ROKEBERG stated SSHB 142 would be held over for further consideration and possible amendment.
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