Legislature(2003 - 2004)
03/25/2004 01:43 PM Senate L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 15-SOLICITATIONS/CONSUMER PROTECTION
CHAIR CON BUNDE announced CSHB 15(FIN)am to be up for
consideration.
MR. JIM POUND, staff to Representative Hugh Fate, sponsor, said
HB 15 was introduced to put a stop to annoying telemarketing
telephone calls that people get during the dinner hour. He
related that Congress passed HR 385 establishing the national
th
do-not-call list and the 10 Circuit Court recently affirmed
that it does not violate the U.S. Constitution. CSHB 15(FIN)am
puts language in statute that acknowledges there is a national
do-not-call list, establishes registration for telemarketers and
enhances the federal restrictions they must follow while
conducting business in the State of Alaska. It gives the Alaska
Department of Law authority to enforce and go after those people
who do not comply. The language is a combined effort of
Representative Fate and the Department of Law and is aimed at
filling in the gaps left by the federal law, which was very
broad.
CHAIR BUNDE asked for information on the fee that was
established and if the state was going to make money on this.
MR. POUND replied that the fiscal note indicates that the state
should bring in $76,000 per year from telemarketing registration
fees.
CHAIR BUNDE asked, "Is this a break-even proposition or an
actual net gain?"
MR. POUND replied:
There will be a net gain. The original bill...requires
us to set up our own do-not-call list and of course,
there's a negative fiscal note on that because of the
amount of labor-intensive aspects of it. Tying in with
the federal legislation basically makes it a lot
easier as far as us not having to maintain a do-not-
call list specifically for Alaska.
CHAIR BUNDE asked him to expand on the exemptions in section 21.
MR. POUND explained that language was in existing statute and
essentially exempts people from paying the registration fees.
SENATOR HOLLIS FRENCH asked if an embalmer or funeral director
has to abide by the national do-not-call list.
MR. POUND replied, "Yes, he does."
SENATOR FRENCH asked if they would have to pay a fee.
MR. POUND replied that they don't.
SENATOR FRENCH said they would have to register, though.
MR. POUND indicated that was correct.
CHAIR BUNDE asked how an entity goes through the process of
registering with the department and if there is criteria for
approval or disapproval.
MR. POUND deferred that answer to Ms. Drinkwater, Department of
Law, who helped draft the legislation.
MS. CINDY DRINKWATER, Assistant Attorney General, Consumer
Protection Unit, answered:
If a telemarketer wants to solicit in the state, they
can either request from the Department of Law a copy
of the registration form or they can simply down-load
it off our website. It's a fairly straight forward
form that requests that they attach copies of their
articles of incorporation, that they provide a
description of any affiliated companies or parent
companies, that they provide a list of the actual
solicitors who would be making the calls and the
managers of those solicitors. They are asked to attach
a copy of the scripts or the sales presentation that
they use over the phone to customers and they are
asked to attach a copy of a written contract. Our
registration statute requires that telemarketers who
are going to be selling over the phone in terms of
accepting a credit card number, that before that
transaction happens, they need to have a signed
purchase agreement from the consumer. So, as part of
the registration process, they would need to show us
an example of the contract form they intend to use.
CHAIR BUNDE asked how a national firm would know about
registering and how would the department enforce it.
MS. DRINKWATER replied that it's not unusual for states to have
registration statutes like Alaska's. Any national company would
know it has to make the inquiry about registration statutes. Her
office gets quite a few phone calls and hits on its website on
that question.
Regarding enforcement, she said the department relies on
consumers to file complaints of telemarketers who are breaking
the law. Because of the large number of exemptions to the
registration statute, many telemarketers can conduct business in
the state without having to register.
CHAIR BUNDE said that might take quite a few teeth out of this
bill.
MS. DRINKWATER agreed and explained that is existing statute.
The amendments in HB 15 include requiring businesses that are
registering to pay a fee and tightens up other aspects of the
current law such as for paid solicitors, who in addition to
paying fees, would have to submit financial reports after their
solicitation campaign ends.
CHAIR BUNDE said that the trend is for user fees to equal the
cost of providing the service, but HB 15 has a positive fiscal
note and asked Representative Fate to explain his thoughts on
that.
REPRESENTATIVE FATE replied that it was felt that this service
should pay for its own way under today's fiscal regime.
SENATOR FRENCH asked if this act applied to charities.
MS. DRINKWATER replied:
Basically, HB 15 amends not only the Consumer
Protection Act and, in particular, the state do-not-
call bill, which is in existence now, but it also
amends the Charitable Solicitations Act and Telephone
Solicitations Act, as I mentioned before, as well as a
separate statutory scheme called the Business
Opportunities Act, although the amendments to that are
fairly minor.
As to your question, does this affect charities - it
does affect charities and their paid solicitors in
terms of the registration requirements. Perhaps your
question is more directed to the do-not-call aspect of
the bill and the answer to that would be that under
the federal do-not-call registry, charities do not
have to purchase the registry. They do not have to
scrub their lists of people who do wish to be called.
However, there is also another means by which people
can express their desire not to receive telephone
calls. Not only can they sign up for the do-not-call
list, but they can also tell companies on a case-by-
case basis that they do not want to be called and that
is referred to as the internal do-not-call list. In
other words, the paid telemarketers for charities
would have to abide by that internal do-not-call list,
although they would not have to purchase the federal
registry.
SENATOR FRENCH asked if he puts himself on the federal do-not-
call list, would the local television station that he
contributes to be free to call him once a year to remind him
that he is a contributor.
MS. DRINKWATER replied, "Yes, they would be able to do that,
because they do not have to scrub their lists from the federal
do-not-call registry."
SENATOR FRENCH asked if that would apply to any other charities
that he has not contributed to. "It sounds like you're saying
these charities sort of fall out of the blocked category."
MS. DRINKWATER replied:
That is correct.... The best thing that a consumer can
do in terms of if they are receiving charitable
solicitations that they do not wish to receive,
chances are that the calls are being placed by a paid
solicitor and they can request on an individual basis
that they do not wish to receive any calls in the
future.
MR. PAT LUBY, AARP Alaska, said:
Thousands of Alaskans are signed up for the national
do-not-call list. AARP's interest is in maintaining
the privacy of our citizens who have signed up for the
national do-not-call list. Older persons are home most
of the day. They get many more calls than those of us
who are in the workplace - in particular, magazine
sales are the most notorious ones. We get complaints
from our members. These are folks who bother people;
they have what they call goose lists that they sell to
each other and anything we can do to control some of
those calls is going to be helpful to those
constituents.
If an Alaskan citizen is signed up for the national
do-not-call list, they should not be subjected to
telemarketing calls that originate in Fairbanks or
Anchorage or anywhere else in the state. Federal
courts have reaffirmed that citizens have the right to
privacy in their homes. They should not be subject to
home invasion over the telephone if they indicate that
they do not want to be bothered. We hope that you'll
give us back our dinner hour and respect the wishes of
Alaskans who have signed up for the national do-not-
call list. AARP requests your support of
Representative Fate's HB 15. Thank you.
SENATOR STEVENS asked for an explanation of violation on page 2,
in section 4.
MR. POUND replied that section refers to someone who did not
mean to make the call, for instance, a solicitor who got a wrong
number.
SENATOR STEVENS asked who decides what the violations are and
whether the punishments fit the crimes.
MS. DRINKWATER replied that the penalty for a violation of this
provision is in the state's Consumer Protection Act. That means
that if the state were to seek a lawsuit, it could ask up to
$5,000 per violation, restitution for damages, injunctive relief
and any other remedy that might be appropriate. The other key
feature is that it gives the private right of action to
consumers, because the Consumer Protection Act has a provision
awarding triple damages.
If we're left with just trying to enforce the federal
law, which state attorneys general have the authority
to do, we would be limited to bringing cases in
federal court, although the amount of the possible
fine or civil penalty is higher - it's up to $11,000
per violation. There is more flexibility in terms of
other relief under our Consumer Protection Act in
state court.
SENATOR STEVENS asked if penalties are just a fine of money.
MS. DRINKWATER replied that injunctive relief is a possibility.
That means shutting a business down or ceasing the illegal
conduct at the very least.
TAPE 04-26, SIDE B
MR. ROBERT FLINT, Hartig Rhodes Hoge and Lekisch, said he
represents Direct Marketing Association (DMA) and Magazine
Publishers of America (MPA).
These are trade associations of businesses that market
products directly to consumers by mail, advertising
and telephone. Products include periodicals, sound
recordings, books, CDs videos and similar items.
Promotions often include free gifts or trial periods
with a cancellation option if the customer is not
satisfied or has a change of mind. In all cases, the
customer specifically accepts the offer before it goes
into effect.
HB 15 contains a Section 21 on page 8, line 14, that
would remove the exemption for magazines and other
periodicals and similar items from the Alaska
Telemarketing Act, AS 45.63.80(10). I want to hasten
to add I'm talking about this particular section and
not the direct call provision. The concern that my
clients have is with this exemption, which is an
exemption from the Telemarketing Act. We have no
testimony or complaint about the do-not-call list
either state or federal.
For reasons I will discuss, the direct marketing
publishers oppose the removal of this exemption. I was
saying also that from the beginning the summary of the
bill says that the changes to the exemption statues
are technical. This is not a technical amendment. It
takes a large segment of the industry, removes it from
exemption of the act and subjects it to severe
criminal penalties for violation of that act.
The origin of the Alaska Telemarketing Act...is an
anti-fraud statute that was originally aimed at fly-
by-night telemarketers. It requires registration,
which is easier to charge as a violation than proving
fraud. So, the charge and the penalties are for
failure to register rather than the fraud, itself. But
here, to underline the non-technical aspect of the
change of section 21, are the criminal penalties,
which you will find in the Telemarketing Act, [AS]
43.63.060. That hasn't been changed, so it's not in
the CS bill.... This is in AS 43.63.060, the
Telemarketing Act. A person who sells or attempts to
sell property or services by telephonic means by
making substantially the same offer and substantially
the same terms to two or more persons without
complying with the registration - that's one - or who
solicits or receives payment for a purchase before
receiving the written contract required, is guilty of
a class C felony. The people who are after the fly-by-
nighters were serious about this and that is why this
is a [indisc.] statute. We're not talking about a fine
or an injunction or even a misdemeanor for heaven's
sakes. It's a class C felony. So, for example - let me
back up just a second - to sell property or services
by telephonic means is defined in the act - '
Telephonic means includes a letter, postcard, notice
or other written communication advising, requesting,
motivating or otherwise encouraging a person to
contact a seller by telephonic means.' So a small
publication, for example Archeology Today.... It has
an ad in its publication...on the newsstand in Alaska,
which says you can subscribe to this magazine by
calling this number. If they are not registered, that
is a violation of the act and subject to felony
penalties.
The other circumstance is the written contract, which
simply does not conform with what national business
does. First of all, I'd like to put it in context
here. The calls we all love to hate are the solicitors
that call us at dinnertime. We all have that; we all
hate them. That's why there is a do-not-call list. But
the Telemarketing Act is not determined by the origin
of the call. An incoming call from a customer to a
seller is covered by the act. So, someone sees the ad.
It may be the ad in a magazine, which is already a
class C felony, or it may be someplace else. A
magazine may have placed an ad in the newspaper. It
could even be on the Internet, I suppose, these days -
definitely these days. So, the customer originates the
call to the operator at Rapid City, South Dakota, or
India, wherever these people are these days, and says
I'd like to subscribe to your magazine. And she says
fine, thank you, you can pay by credit card. What is
your credit card number? The customer gives the credit
card number; she books the sale and she's guilty of a
class C felony because there's no written contract.
Now, how do you cure that? Well, the way you cure it
is you either, first, conform to the act and you have
a written contract or you redline Alaska. The
practical fact is that this national business, which
does transactions in the hundreds of thousands,
doesn't do business that way.
A written contract in advance has the effect of
selling twice, I guess. It just isn't the way national
business is done. So, the seller of Archeology Today
magazine or Time magazine or anything else isn't going
to conform the national market to Alaska. After all,
the national market is - well let's see - my figures
were Alaska is one quarter of one percent of the
American market. So, they would have to create a
special procedure for Alaska that would be costly and
raise the cost for them, at least, for the Alaska
consumer. They'll absorb it, if they could do it.
Generally, these people have uniform prices across the
country. This, after all, is a national marketing
business to the entire country.
Now, we are an association. The Direct Marketers and
the Magazine Publishers Association is a trade group.
So, they don't actually do it. And there are hundreds
and literally thousands of marketers and they all had
to make their own decisions. But the fact of the
matter is to do that for a small market would be
extraordinarily costly and, I think, the only
conclusion that they would come to basically with one
quarter of one percent of the market is, as I say, to
take Alaska out of the market. So, that the ads would
have, in small print I guess, offer not valid in
Alaska. And the operators would have to be instructed
to basically not take the call over the telephone. I
think that's a pretty drastic solution, particularly
because when this law was enacted in Alaska in 1993 -
it was originally enacted in California in 1985 - that
actually, I gather, happens to be where a lot of this
back room stuff goes on - where people do this
telemarketing, get credit cards and then move and
basically have no fixed address. So, California would
start that and Alaska followed along with a lot of
other states.
In 1993, the Direct Marketing Association was involved
with the Attorney General's Office. Attached to my
testimony I've given you a letter from the assistant
attorney general at the time who worked with, in fact,
the principal that I work with now [indisc.].... At
that time, the Attorney General's Office seemed to be
in sync as to who the target of the Telemarketing Act
really was and who was not a target and the legitimate
businesses represented by the association were not the
target. This law changes that substantially to bring
them under basically the same as the fly-by-nighters.
The [indisc.] of my testimony here is that what we
have substantial businesses nationwide who have long
done this legitimately. They are subject to Federal
Trade Commission regulations that are extensive and
govern these items; they were not involved in the
rash, as I've noted here, in the 80s and early 90s
where there was prosecution by the state and federal
governments for this type of fraud....
As I say, it's deliberately onerous. The registration
itself is 20 questions including the name and address
and principal address of each seller. So, I assume the
telephone operator in India would have to be listed.
We are not sure what the impetus for this removal of
the exemption is. In my discussions with the
Department of Law, magazines were supposed to be a
problem. Now, whether that's an inbound problem or an
outbound problem, I don't know and can't tell. I've
asked for statistical information from the Department
of Law. I've filed a freedom of information request to
try to see what the scope of the problem is, but have
heard nothing back from that. So, basically, for this
amendment, there is actually no empirical data that
supports the removal, much less the imposition of
criminal penalties. Again, I would note that the
association, as you see from my correspondence, makes
every effort to work with states and work with
attorney generals to deal with these problems. It is
as much in their interest as it is in the consumer's
to have honest business conducted so they don't get
mud splashed on them.... Nothing of the kind happened
here. I must say that I do not believe an effort has
been made by the Department of Law to educate itself
on how this business works and the impact.
CHAIR BUNDE asked him to summarize.
MR. FLINT summarized:
The people I represent aren't the crooks and we don't
think we should be made the crooks. There are
significant regulations and we believe those are
adequate. We do not believe the exemption should be
removed.
CHAIR BUNDE asked Ms. Drinkwater if he went to a magazine stand
and bought a magazine with a printed solicitation for him to
call in and order a magazine, would that company be in violation
of HB 15 as currently written.
MS. DRINKWATER replied that was a possible interpretation. An
amendment could exclude that kind of situation, because the
purpose of that definition, which is found in AS 45.63.100, that
is not part of the bill, was to include letters, postcards,
notices or other written communications to a consumer
encouraging them to call.
What the problem that we see is that people sometimes
get postcards that have very little information on
them and it will say we've been trying to reach you.
Please call us at our 800 number. The consumer doesn't
know what the nature of the postcard is or why someone
has been trying to contact them. They call and find
that it's a magazine offer that's being presented to
them.... So, I think that's something that can be
fixed.
MS. DRINKWATER explained that magazine scams have a lot of
effect on consumers in Alaska, often senior citizens. She
outlined four consumer complaints from 2003. One gentleman
complained that for a year he had received magazines and had
been billed for them, but he had never ordered them. He spent
considerable efforts over 18 months trying to resolve the
problem. When he left the country to be a missionary in South
Africa, his subscriptions were forwarded to his sister in
California and the bills continued to arrive.
Another example is a woman received a phone call offering a
subscription to some magazines for a year. She told them she was
on disability and could only afford payments of $29.90 per
month. That amount was debited electronically from her bank
account. Suddenly the company started taking out twice that
amount. When she called about it, they told her it was because
she had two separate accounts and they were going to continue
billing her in that same fashion.
A third example is of magazine renewal scams. Another gentleman
complained about receiving a subscription renewal, but the
information did not come from the company that had sold him the
magazine, rather from a fraudulent business that somehow learned
subscribers' information.
A fourth complaint is from an 86-year old gentleman who did not
order any magazines, but was suddenly billed for them. When the
department wrote to the company with his complaint attached, the
company responded that he did, in fact, make the order on tape.
It appeared that he had consented over the phone to receive the
magazines, but he didn't recall that phone conversation. A
written contract would have provided him with the paperwork
necessary to review the information.
CHAIR BUNDE asked the bill's sponsor, Ms. Drinkwater and Mr.
Flint to work together to address the concerns that were raised.
REPRESENTATIVE FATE pointed out that language on page 3, line
18, exempts a customer who initiates a phone call from being in
violation of this act.
CHAIR BUNDE related a solution he used once for a long-play
record club. He was sent to Germany by the military and tried to
discontinue his subscription, but the company never got any of
his cancellation notices. It sent "tons" of records to Germany
that arrived in multiple pieces. He wrote to the company many
times saying he never received the records and asked to be left
alone, but they threatened to sue him. When he got married, his
wife took the situation seriously and tore a piece of paper out
of a spiral notebook and wrote in pencil, "My husband, he ain't
workin'. We ain't got no money." They never bothered him again.
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