Legislature(2005 - 2006)CAPITOL 17

04/25/2006 01:30 PM TRANSPORTATION

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01:31:38 PM Start
01:35:36 PM SB300
01:58:35 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
            HOUSE TRANSPORTATION STANDING COMMITTEE                                                                           
                         April 25, 2006                                                                                         
                           1:31 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Jim Elkins, Co-Chair                                                                                             
Representative Carl Gatto, Co-Chair                                                                                             
Representative Mark Neuman                                                                                                      
Representative Bill Thomas                                                                                                      
Representative Woodie Salmon                                                                                                    
MEMBERS ABSENT                                                                                                                
Representative Vic Kohring                                                                                                      
Representative Mary Kapsner                                                                                                     
COMMITTEE CALENDAR                                                                                                            
CS FOR SENATE BILL NO. 300(L&C)                                                                                                 
"An Act relating to the handling of negative equity in motor                                                                    
vehicle transactions; and relating to the contents of retail                                                                    
installment contracts."                                                                                                         
     - MOVED CSSB 300(L&C) OUT OF COMMITTEE                                                                                     
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: SB 300                                                                                                                  
SHORT TITLE: MOTOR VEHICLE NEGATIVE EQUITY/CONTRACTS                                                                            
SPONSOR(s): SENATOR(s) SEEKINS                                                                                                  
02/14/06       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/14/06       (S)       TRA, L&C                                                                                               
02/23/06       (H)       TRA AT 1:30 PM CAPITOL 17                                                                              
02/23/06       (H)       -- Meeting Canceled --                                                                                 
03/09/06       (S)       TRA AT 1:30 PM BUTROVICH 205                                                                           
03/09/06       (S)       Moved  SB 300 Out of Committee                                                                         
03/09/06       (S)       MINUTE(TRA)                                                                                            
03/10/06       (S)       TRA RPT  2DP 1NR                                                                                       
03/10/06       (S)       DP: HUGGINS, KOOKESH                                                                                   
03/10/06       (S)       NR: FRENCH                                                                                             
03/16/06       (S)       L&C AT 1:30 PM BELTZ 211                                                                               
03/16/06       (S)       Heard & Held                                                                                           
03/16/06       (S)       MINUTE(L&C)                                                                                            
03/28/06       (S)       L&C AT 1:30 PM BELTZ 211                                                                               
03/28/06       (S)       Moved CSSB 300(L&C) Out of Committee                                                                   
03/28/06       (S)       MINUTE(L&C)                                                                                            
03/29/06       (S)       L&C RPT CS  4DP                   NEW                                                                  
03/29/06       (S)       DP: BUNDE, DAVIS, ELLIS, SEEKINS                                                                       
04/05/06       (S)       TRANSMITTED TO (H)                                                                                     
04/05/06       (S)       VERSION: CSSB 300(L&C)                                                                                 
04/06/06       (H)       READ THE FIRST TIME - REFERRALS                                                                        
04/06/06       (H)       TRA, L&C                                                                                               
04/25/06       (H)       TRA AT 1:30 PM CAPITOL 17                                                                              
WITNESS REGISTER                                                                                                              
BRIAN HOVE, Staff                                                                                                               
to Senator Ralph Seekins                                                                                                        
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:  Presented  SB  300  on  behalf  of  Senator                                                               
Seekins, sponsor.                                                                                                               
ED SNIFFEN, Assistant Attorney General                                                                                          
Commercial/Fair Business Section                                                                                                
Department of Law                                                                                                               
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Testified in support of SB 300.                                                                             
ACTION NARRATIVE                                                                                                              
CO-CHAIR  CARL GATTO  called  the  House Transportation  Standing                                                             
Committee  meeting  to  order at  1:31:38  PM.    Representatives                                                             
Gatto, Elkins,  Neuman, and  Thomas were present  at the  call to                                                               
order.   Representative  Salmon  arrived as  the  meeting was  in                                                               
SB 300-MOTOR VEHICLE NEGATIVE EQUITY/CONTRACTS                                                                                
CO-CHAIR GATTO  announced that the  only order of  business would                                                               
be  CS FOR  SENATE BILL  NO. 300(L&C),  "An Act  relating to  the                                                               
handling of  negative equity in  motor vehicle  transactions; and                                                               
relating to the contents of retail installment contracts."                                                                      
BRIAN HOVE, Staff  to Senator Ralph Seekins, presented  SB 300 on                                                               
behalf of  Senator Seekins, sponsor.   He said SB 300  alters the                                                               
definition of principle balance to  put one group of creditors on                                                               
a level playing  field with "another group."   Senator Seekins [a                                                               
car dealer] has banks and  credit unions that offer his customers                                                               
financing as  well as acceptance  companies, like  General Motors                                                               
Acceptance  Corporation and  Chrysler  Credit.   The lenders  are                                                               
federally  regulated,  but  the acceptance  companies  must  also                                                               
adhere to state laws, "but not the banks and credit unions."                                                                    
MR. HOVE  said when a customer  has a trade-in vehicle  and owes,                                                               
for  example,  $9,000 on  that  vehicle,  but  the value  of  the                                                               
vehicle is only $8,000, the extra  $1,000 can be "rolled into the                                                               
new deal if you're talking about  a bank or credit union."  Under                                                               
the  state  law it  is  difficult,  if  not impossible,  for  the                                                               
acceptance  companies to  "write a  deal for  that customer,"  he                                                               
explained.   "The concept  of negative  equity aside,  that cat's                                                               
out of  the bag, what  we have here is  a disparity in  how banks                                                               
are treated and  how acceptance companies are treated."   He said                                                               
customers are  better off  if they  have more  financing options.                                                               
He said  dealerships will  often send  an application  to several                                                               
lenders to  find the best deal.   It limits options  by excluding                                                               
acceptance  companies and  provides  an  "unlevel playing  field"                                                               
between acceptance companies and banks and credit union.                                                                        
1:35:36 PM                                                                                                                    
CO-CHAIR  GATTO  said  a  car dealership  that  makes  loans  has                                                               
different rules  than a  bank or credit  union even  when lending                                                               
the  same amount  of money  for the  same car.   Senate  Bill 300                                                               
changes  the   rules  for  acceptance  corporations,   which  are                                                               
nationwide.  He asked if nationwide banks have the same option.                                                                 
1:36:51 PM                                                                                                                    
MR. HOVE said,  "They would be governed by  the same regulations.                                                               
It's regulation Z.   It's a federal regulation.   So whether it's                                                               
the First National Bank of Alaska  or Bank of America, they would                                                               
have to both abide by Regulation Z."                                                                                            
CO-CHAIR GATTO asked about the  language in the bill that updates                                                               
the definition of "principle balance."                                                                                          
MR. HOVE said on page 2, line 14,  "we've added an 11 here to the                                                               
10  that currently  exists.   These are  items the  contract must                                                               
indicate."  He read to the committee:                                                                                           
     If the retail and installment  contract is for the sale                                                                    
     of  a  motor vehicle,  the  amount,  if any,  that  the                                                                    
     seller  agrees to  pay to  this charge  and outstanding                                                                    
MR. HOVE stopped  reading to explain that, "this would  be, in my                                                               
earlier  example  of a  $1,000  difference  between the  trade-in                                                               
value  of  the  old  vehicle  versus its  payoff  balance."    He                                                               
continued reading:                                                                                                              
     The discharge  and outstanding obligation of  the buyer                                                                    
     under  an   existing  motor  vehicle   agreement,  loan                                                                    
     installment, sales  contract, or  lease, this  would be                                                                    
     the amount indicated on the contract.                                                                                      
MR. HOVE said, "So it amounts to a disclosure."                                                                                 
1:38:51 PM                                                                                                                    
CO-CHAIR  GATTO  asked, "Is  there  is  a  fee when  someone  has                                                               
negative  equity to  go ahead  and essentially  do what  the bill                                                               
wants to allow them to do?"                                                                                                     
MR. HOVE said, "No, there is not."                                                                                              
CO-CHAIR GATTO asked  if the amount of the  negative equity would                                                               
be added to the car price or if it is treated separately.                                                                       
MR. HOVE said that in the "old  days" that is how it worked, "but                                                               
that didn't mathematically describe  the transaction, and so what                                                               
this  is   attempting  to   do  is   to  properly   describe  the                                                               
transaction, not put it into [the price of the car]."                                                                           
1:40:28 PM                                                                                                                    
REPRESENTATIVE  THOMAS said  he  generally needs  a down  payment                                                               
when he buys a car, so how can a buyer have negative equity?                                                                    
MR. HOVE said at one time  a 25 percent down payment was required                                                               
with a 36-month maximum term.   "But because of the robustness in                                                               
our economy,  lenders are always  looking for good deals,  and so                                                               
for  good  customers  they're  willing."    He  noted  that  down                                                               
payments have  declined over the  years.  "Now  it is zero."   He                                                               
said the terms have increased by several years as well.                                                                         
1:41:56 PM                                                                                                                    
REPRESENTATIVE THOMAS  said he  bought two  vehicles in  the last                                                               
two years outside the state and  needed a down payment.  He noted                                                               
that trucks now cost from $50,000 to $60,000.                                                                                   
MR. HOVE  said that  is the  way he  purchases vehicles,  but the                                                               
last vehicle had such a low  interest, "I didn't bother putting a                                                               
down payment  on it."   He  said the  transaction depends  on the                                                               
lenders and how flush the economy is with cash.                                                                                 
1:43:26 PM                                                                                                                    
REPRESENTATIVE THOMAS said loan rates are higher in Alaska.                                                                     
ED SNIFFEN, Assistant  Attorney General, Commercial/Fair Business                                                               
Section,  Department of  Law, said  he supports  the bill.   When                                                               
trading  in  a vehicle  and  entering  a  lease, two  things  are                                                               
happening,  especially  if  there  is  negative  equity  for  the                                                               
vehicle being  traded in.   As soon as  the vehicle is  traded in                                                               
and the  dealer agrees to  assume that extra balance,  the dealer                                                               
is doing two things, he said.   The dealer is paying off the debt                                                               
on that other  vehicle, so it is a loan  subject to regulation Z.                                                               
The new  vehicle is being  leased under another  transaction that                                                               
is regulated under  "a whole different set  of regulations called                                                               
Regulation M,  which is  the consumer  leasing transaction."   He                                                               
said current  law has  two sets  of disclosure  requirements that                                                               
acceptance companies have  to comply with.  He  explained that SB
300 brings the  two together, so a car dealer  can streamline the                                                               
paperwork  and provide  one set  of  notices to  the consumer  to                                                               
clarify what  the consumer  is specifically  doing.   The feature                                                               
brings Alaska on line with the federal requirement, he noted.                                                                   
1:47:06 PM                                                                                                                    
CO-CHAIR  GATTO  asked if  the  seller  must disclose  the  terms                                                               
verbally, or if a signature is required.                                                                                        
MR. SNIFFEN  said he is  not aware of  a requirement of  a verbal                                                               
disclosure.  Financial disclosures are required in writing.                                                                     
CO-CHAIR GATTO said the sponsor  told him about the difficulty of                                                               
selling a car  because of the stack of papers  he gives to buyers                                                               
of  his vehicles  that  must  be signed.    Senator Seekins  said                                                               
nobody reads them,  and Co-Chair Gatto spoke  of the consequences                                                               
of signing  the documents.   He asked  if the  legislature should                                                               
address verbal disclosures in the future.                                                                                       
1:49:42 PM                                                                                                                    
MR. SNIFFEN  said he  can't say  how many  times that  a consumer                                                               
told  him, "I  didn't know  what I  was signing."   The  inherent                                                               
problem with a verbal requirement  is the inability to enforce it                                                               
because  of   the  he-said-she-said   situation.     The  written                                                               
requirement gives a  consumer a chance to "at least  look at it."                                                               
He said  he understands the  amount of paperwork in  purchasing a                                                               
car and the nonchalant attitude of consumers.                                                                                   
1:51:06 PM                                                                                                                    
CO-CHAIR GATTO said a 20-page  bill has parts highlighted in bold                                                               
type,  so  he  suggested  requiring  a  seller  to  read  certain                                                               
contract highlighted provisions.  The  seller may be dangling the                                                               
keys in  front of eager  buyers who just  want to drive  off with                                                               
the car.                                                                                                                        
REPRESENTATIVE  THOMAS said,  "That's why  you have  a wife.   To                                                               
make sure you don't do that."                                                                                                   
CO-CHAIR GATTO  imagined the  pressure of  a dealer  announcing a                                                               
discount  that  ends in  15  minutes  and  stated that  a  verbal                                                               
disclosure may help.                                                                                                            
MR. SNIFFEN  said he agrees  and suggested a one-page  summary of                                                               
what the stack of papers mean.                                                                                                  
CO-CHAIR GATTO suggested a sectional for each page.                                                                             
1:54:09 PM                                                                                                                    
MR. HOVE  said regulation Z  requires disclosures  with pertinent                                                               
details  in a  box  at the  top of  the  contract, including  the                                                               
principal amount and interest rate.                                                                                             
REPRESENTATIVE NEUMAN  said he  sees the  bill as  protection for                                                               
consumers by clarifying the transaction.                                                                                        
REPRESENTATIVE THOMAS said the letter  from the Alaska Automobile                                                               
Dealers urges passage of the bill to help dealers and consumers.                                                                
REPRESENTATIVE  THOMAS  moved  to  report CSSB  300(L&C)  out  of                                                               
committee  with individual  recommendations and  the accompanying                                                               
fiscal notes.  Hearing no  objections, CSSB 300(L&C) moved out of                                                               
the House Transportation Standing Committee.                                                                                    
1:58:15 PM                                                                                                                    
There being no further business before the committee, the House                                                                 
Transportation Standing Committee meeting was adjourned at                                                                      
1:58:35 PM.                                                                                                                   

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