Legislature(2005 - 2006)CAPITOL 106
03/07/2006 08:00 AM House STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| Personnel Board | |
| HB448 | |
| HB475 | |
| HB383 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 475 | TELECONFERENCED | |
| *+ | HB 448 | TELECONFERENCED | |
| + | HB 383 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 383-MOTOR VEHICLE TRANSACTIONS 9:46:16 AM CHAIR SEATON announced that the last order of business was HOUSE BILL NO. 383, "An Act limiting motor vehicle dealer charges for fees and costs; relating to the disclosures required for certain motor vehicle transactions; and requiring consumers to be informed of finance charges paid to a motor vehicle dealer by a financing institution on the sale of a used motor vehicle." [Before the committee was the CSHB 383(TRA).] 9:46:21 AM REPRESENTATIVE LES GARA, Alaska State Legislature, testified as sponsor of HB 383. He said the bill would provide for full information to be disclosed to consumers buying cars. He explained that presently there are two fees that many car dealers charge that are "somewhat hidden." The first fee is a document ("doc") fee. He said the legislature thought it had banned doc fees in 2002, but had not written the language in the legislation tight enough. The second issue is what's known as a dealer reserve. REPRESENTATIVE GARA, regarding the definition of a dealer reserve, explained that a car dealer will often offer a loan through a bank. The percentage listed appears to be the bank's rate; however, the dealer is often taking a cut from that percentage. The consumer thinks that is the rate that the bank is offering, so he/she doesn't bother shopping around. The bill would require any dealer who charges a higher loan rate than what the bank is charging to provide that information to the customer. He noted that a case in Anchorage that brought the bill to light cost the consumer approximately $900. 9:49:24 AM REPRESENTATIVE GARA, regarding the doc fee, said that a consumer and dealer will negotiate a price for a vehicle, but often when the consumer sits down to sign the deal, he/she will find an additional fee has been added. The consumer is often told that the doc fee is nonnegotiable. Many consumers think that the doc fee is a government fee and some car dealers don't dissuade their customers from believing that. The bill would require any nongovernmental fees to be included in the advertised and the negotiate price. REPRESENTATIVE GARA stated that both provisions are issues of full disclosure; they don't change what a car dealer can charge. The adoption of the proposed honest policy, he said, can save constituents up to $1,500. 9:51:51 AM CLYDE (ED) SNIFFEN, JR., Assistant Attorney General, Commercial/Fair Business Section, Civil Division (Anchorage), Department of Law, echoed Representative Gara's remark that the original statute drafted in 2002 was intended to allow car dealers to charge a doc fee, but that that doc fee be included in the advertised price. What is happening now, he explained is that dealers who included the doc fee in the advertised price are negotiating a lower price with the customer and then adding the doc fee back in. The distinction is being made between "advertised" and "negotiated" price. He said he thinks that HB 383 would resolve that issue. 9:53:20 AM REPRESENTATIVE LYNN asked how common a practice it is for the bank rate listed to include a cut for the dealer. 9:53:43 AM REPRESENTATIVE GARA responded that he doesn't know how common the practice is, but he said he knows that a couple of the major dealers in Anchorage do it. 9:54:09 AM MR. SNIFFEN offered his understanding that the majority of dealers use a dealer reserve; however, he noted that some don't and use that fact in advertising. 9:54:45 AM REPRESENTATIVE LYNN asked what the difference is "between this practice ... and misrepresentation." 9:55:02 AM REPRESENTATIVE GARA said there are lawyers who say "both the doc practice and the dealer reserve practice is illegal" because they are fraudulent practices. He said there is no Alaska Supreme Court decision on that issue. He added, "Rather than just wait for the courts to rule on it, ... what we want to do is ban it outright in the statute so there's no question." He noted that there is a press article in the committee packet. 9:55:38 AM REPRESENTATIVE LYNN indicated that he is a proponent of full disclosure, not only for elected officials, but also for those who do business with the public. 9:55:54 AM REPRESENTATIVE GATTO asked what is so wrong with letting the consumer end negotiations if he/she doesn't agree with the doc fee being charged. 9:56:43 AM MR. SNIFFEN responded that the problem with the doc fee is that the car dealerships present them to the customer as "some kind of additional fee that the dealer is paying to a third party." For example it may be disguised as a governmental fee. He said more sophisticated consumers may offer a firm price and tell the dealer that it has to include all fees, but less sophisticated consumers don't take that approach and are led to believe that the doc fee is one over which they have no control. Mr. Sniffen said [that misrepresentation] is really the issue at hand. 9:58:09 AM REPRESENTATIVE GATTO said he has experienced having a dealer tell him that there is nothing that can be done about doc fees. He asked Mr. Sniffen if that dealer committed some violation by making that statement. 9:59:07 AM MR. SNIFFEN answered yes. He said the scenario that Representative Gatto just described is fraud, and Representative Gatto could sue that dealer for three times the amount of the actual damages, plus full reasonable attorney fees if he could prove the dealership actually said the aforementioned. 9:59:19 AM JIM ARPINO stated that he was testifying on behalf of both Affordable Used Cars, Fairbanks/Anchorage, and the Alaska Auto Dealers Association (AADA). He said the doc fee is 100 percent profit, which is nice because of all the costs of running a business. Regarding financing, he said car dealers arrange loans all day long and make money on it. Regarding consumers, he emphasized that they are educated. Mr. Arpino said there are 625 books available through Amazon.com on buying a used vehicle. Furthermore, there are 160 million sights on the Internet on how to buy a used car. 10:02:47 AM MR. ARPINO, in response to a question from Chair Seaton, said what presents a problem in the bill is the definition of a negotiated price. He said if someone asks what the doc fee is, "we tell them it's profit - it goes in our pocket." He said, "There's never any misunderstandings about whether it's a fee that goes to a government agency; Mr. Sniffen's made it very clear that's not the way he wants it portrayed." Mr. Arpino said there are other businesses that have "doc-related" fees. He offered an example. 10:03:55 AM CHAIR SEATON asked Mr. Arpino to specify whether or not he is opposing disclosure. 10:04:22 AM MR. ARPINO said "we" want to continue to be able to add the doc fee back in after negotiations. He stated, "That's the beauty of free society." He said he thinks the legislature is sticking its nose in a little too far. He added, "If you're going to pick on this industry, you better start going after all the other ones - and there's multiples of them." MR. ARPINO, in response to a series of questions from Representative Lynn, confirmed that the dealer markup price is pure profit above the suggested retail price (SRP) and is not a hidden amount. To Representative Lynn's suggestion that it would be more honest to treat the doc fee in the same way, he said the doc fee is not hidden at all. He said in his 13 years at his job he has not had any complaints about the doc fee. He stated, "I do oppose [the bill's proposal to mandate exposure of the doc fee]; we would want to continue to add that in ... on the negotiated price." He added, "And it's not a matter of honesty; it's in the contract. It's right there, everybody reads it, it's explained properly, and it's never really been an issue until recently." He said most consumers, including him, don't read the fine print in contracts, but he said he knew during a recent purchase of a snowmobile that he was paying a document fee. 10:06:56 AM CHAIR SEATON asked Mr. Arpino if he also opposes the bill's proposed requirement to disclose the percentage of interest [that the car dealers may charge above the bank's fee]. 10:07:20 AM MR. ARPINO said he does oppose that proposal, because the interest added to the bank fee is "another facet of our business that we make money on." He said there are a lot of rates available, some through the Internet, and it can be confusing for the consumer. 10:08:01 AM CHAIR SEATON said he recognizes that most people finance through the car dealership because they appreciate the service that is offered at that dealership. 10:08:30 AM MR. ARPINO added that when the consumer makes the commitment to buy, he/she is happy with the deal, including the doc fee and interest rate. If the consumer finds out later that a better deal could have been made by financing elsewhere, he/she has the option at that point to finance elsewhere. 10:08:46 AM REPRESENTATIVE GARDNER disputed Mr. Arpino's statement that when asked, dealers will disclose that the doc fee is profit. She said, "We had several dealers on the phone in this committee on another bill not too long ago, and we asked them many times about the doc fees and were told that it was for this, that, and the other. And I specifically asked one woman to send us a description of the kinds of things it covered, and at that time, nobody was willing to say it was pure profit. 10:09:23 AM MR. ARPINO responded that it's a matter of what is done with that profit. For example, he said it could be used to pay clerical fees. Each dealership will use it for a different purpose, he said. 10:09:35 AM REPRESENTATIVE GARDNER responded, "That's fine, but the dealers who were on the phone at that time didn't acknowledge that it was pure profit; they were saying that it covered specific costs." CHAIR SEATON said that issue could be part of committee discussion. 10:09:45 AM JOHN COOK, Legislative Director, Alaska Automobile Association, said he was testifying on behalf of the association, and also on behalf of Aurora Motors. He stated that he fully supports the concept of the bill but doesn't support the bill as presently worded, because it is discriminatory towards the automobile industry. He said the bill is loosely worded and there are already statutes in existence that address fraudulent activities, deceptive practices, and truth in lending disclosures. Mr. Cook said he has been charged doc fees by snowmobile dealers, rental car agencies, and by an hotel. Any business that arranges financing for any consumer participates in some sort of dealer reserve, yet only car dealers are being targeted by HB 383. He said the market will prevent a dealer from charging too high a doc fee or from trying to retain too much dealer reserve; consumers will walk away. MR. COOK stated his concern that there is no legal definition of "negotiated price." He said he has asked Mr. Sniffen for a definition, but has not yet received it. He revealed that he is a certified public accountant (CPA) and classifies a doc fee as "revenue or other income." Regarding interest rate disclosures, he stated his concern that the bill puts the dealer in a fiduciary position with regard to the customer; it would take the dealer a step towards having to go out and seek the lowest possible financing for consumers. 10:14:04 AM CHAIR SEATON asked Mr. Cook if he sees the bill as limiting the interest that can be charged or just requiring that the dealers disclose the additional interest that is added. 10:14:26 AM MR. COOK replied that he doesn't see the bill as limiting the interest. In response to a question from Representative Ramras, he said the discount rate that the banks charge is "three points less than prime." 10:14:41 AM REPRESENTATIVE RAMRAS said any business that borrows from a bank has the same relationship that a car dealer has with it's customer; it can "enjoy funds at one rate and then ... mark up those funds to a customer." The rate turns out to be subjective, he said. He stated, "I've never gotten that much disclosure from my banker." 10:15:53 AM MR. COOK responded that he has not either. He said the banks are regulated federally, and "their reasoning for anything is that they're not subject to state regulation regarding any of these matters." He noted that when he bought a house he wasn't told what the cost of funds were, and when he bought many other things on credit he never had it disclosed to him "that there were lower loans available or what the cost of funds were." 10:16:08 AM REPRESENTATIVE RAMRAS responded that that is his point. He stated that although his concern is in regard to usurious interest rates and having consumers taken advantage of, he has been manipulated by his "series of banking relationships over the last 20 years." He clarified his point is that the same relationship occurs between banks and other proprietors as exists between a car dealership and its customer. 10:17:17 AM MR. COOK responded that that's correct. 10:17:29 AM REPRESENTATIVE LYNN said he agrees that similar fees are charged in other industries. He asked Mr. Cook if he thinks the legislature should not fix one problem without first fixing all the rest. 10:18:15 AM MR. COOK answered no, but said he knows many other industries that "have the exact same practices." He said he believes there are statutes in existence that already govern doc fees. He stated that over 14 years in business and with an excess of 1,500 transactions per year, he has never received a customer complaint relating to doc fees. 10:19:00 AM CHAIR SEATON closed public testimony. 10:19:22 AM REPRESENTATIVE LYNN rephrased his previous statement about having to fix all problems at once. 10:19:57 AM REPRESENTATIVE GARDNER said she wants to underline that HB 383 does not prohibit practices; it just asks for disclosure. 10:20:36 AM REPRESENTATIVE GATTO said he makes a distinction between a consumer and a business. The latter has a business plan, negotiates a loan form the bank, and the amount of the loan payment is clearly identified. If there is a doc fee there, it's part of the loan amount. Conversely, the individual who goes to a car dealer goes rarely. That individual is used to going to a doctor and paying a high fee, but is not asked for a doc fee added on by that doctor. There are also no doc fees added at the grocery store. He offered his understanding that the issue of the bill is that it is all right to charge a doc fee, as long as it is disclosed. 10:21:56 AM REPRESENTATIVE RAMRAS revealed that he just bought a car in Juneau for $3,000. He paid a 5 percent sales tax fee to the City of Juneau, a $200 doc fee, and a $15 title fee. He said when he asked the dealer what a doc fee is, he was told that it is profit. He said restaurants do not disclose their costs, versus their profits. He offered other examples. Representative Ramras stated that he hates to see the car industry demonized. 10:24:10 AM CHAIR SEATON said the bill definitely has two components: the doc fee and financing. He stated his hope that between the present time and the next time the committee hears the bill, feedback from consumers will come be forthcoming. He said he thinks the testimony heard from the car dealers so far has been legitimate. The proposed legislation would require that the dealership tell the person being financed "what your cost of money is and not what you're giving to the consumer." He said it seems that in regard to the finance rate, full disclosure exists. 10:26:13 AM CHAIR SEATON, in response to a question from Representative Gardner, said although he closed public testimony, he would encourage people to send e-mails to his staff and would even consider opening public testimony again if the need arises. 10:26:26 AM REPRESENTATIVE GARA said the bill would not require car dealers to disclose how much money they are making, but just to disclose that there is a difference between what they are charging the consumer and what the bank offered them. The reason behind that proposed requirement is that the car dealer scenario is much different than the bank scenario that was previously mentioned. He continued as follows: When you go to a bank, the bank is not representing to you that the Federal Reserve Bank is charging this amount, that's why I'm charging you this amount. When you go to a bank, the bank says this is what the bank is charging you. It would be fraudulent if they said this is what the Federal Reserve Bank is charging. What's going on in the car dealer situation is very similar to as if a bank told you this is what the Federal Reserve Bank is charging us, when that's not true. The car dealer is charging you 5.5 percent, let's say - and that's fine - but what it says in there is 5.5 percent by ... First National Bank ... [for example]. The consumer reasonably believes that that's the amount that those banks are charging. In fact, it's not. So, that's the big difference. There's an implication to the consumer that the bank is charging those rates when they're not. And so, that's why the disclosure is required here. ... There's a benefit to a consumer to have the dealer arrange the financing through the bank so they don't have to run back and forth. That's up to the consumer whether they want to pay the extra money to save that time .... All we want to do is let them know: If you want to run back to the bank, you might get a better deal; it's up to you. 10:28:24 AM REPRESENTATIVE GARDNER said, "I think ... just the fact that the doc charge is listed with the sales and registration fee - both of which go to other entities - ... is misleading to the consumer. And there's an assumption, 'Oh yeah, these are all the other fees that are not [related to] the dealer.'" 10:28:58 AM CHAIR SEATON announced that HB 383 was heard and held.
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