Legislature(2005 - 2006)CAPITOL 106

03/07/2006 08:00 AM STATE AFFAIRS

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Confirmation Hearing for Personnel Board TELECONFERENCED
Heard & Held
Heard & Held
Heard & Held
+ Bills Previously Heard/Scheduled 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                                                               
CHAIR  SEATON  said  that  issue   could  be  part  of  committee                                                               
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                                                               
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                                                                    
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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