HB 393-SALES OF BUSINESS OPPORTUNITIES  CHAIRMAN STEVENS announced HB 393 to be up for consideration. REPRESENTATIVE GARY STEVENS, sponsor of HB 393, said this is a consumer bill introduced at the request of the Department of Law. He said the idea is to protect Alaskans from lots of consumer scams that are out there (called "busops" - short for business opportunities). He just received about 25 examples from Edna March, a Juneau lady, of "business opportunities." He said they are targeted toward people who are over 50, those who have to stay at home, etc. This bill is not intended to harm any legitimate businessman, but it does place requirements on those that may not be quite on the up and up. The busops are very high pressure as you'll see from reading through some of these…They promise huge earnings; they scam the vulnerable among us… HB 393 requires that the busops register with the state so they can find them. Right now they can't locate them. It also requires them to disclose information to the buyers, they would have to use an escrow account to make sure that things people buy actually arrive and gives the customer the 30 day right of cancellation. He said that about half the states have similar regulations and his bill exempts the legitimate businesses they are familiar with, like Avon and Amway and Mary Kay. If they don't pass this bill, these scams will continue and it will take a great deal of time and money to track them down. It will protect Alaska businessmen and women and will let the Department of Law take preventative action before people are scammed. SENATOR LEMAN said they had talked privately about this and his opinion is that the change made on the House floor on page 13, lines 5 - 8, are unnecessary and probably damage this legislation. He intended to offer an amendment at the appropriate time to delete it. Another item is that he thought they should raise the exemption from $250 to $500, as it is in other states. Finally, after reviewing some letters that he received, he said a lot of these are legitimate businesses and the exemptions in line 15 - 17 don't cover them adequately. "You say they do; they say they don't. I want to make sure that gets clarified." Someone pointed out that product inventory may be sold to the buyer at something other than a wholesale price and that may then cause that exemption not to activate. TAPE 02-27, SIDE A    REPRESENTATIVE STEVENS said the amendment on page 13, line 5, begins with "except" and that establishes an aggregate up to $10,000. He has a hard time defending that and wouldn't be concerned if they deleted it. The $250 - $500 is more interesting. Some people have told him that there shouldn't be any level and, if people are scammed, they should be protected whatever the amount is over. But he thought that you have to draw a line somewhere and he thought $250 was a reasonable line to draw. If you draw it at $500, you would have a lot of companies who are targeting people at $495 and still do quite well financially, but be taking advantage of lots of people. They have found states that have gone to the higher figure of $500, but now wish they were at $250. On Senator Leman's third point regarding the exemption on lines 15 - 17 he explained that those were legitimate businesses like Mary Kay and Avon. He understands this does indeed protect those people and takes them out of this section entirely saying he talked extensively with the Direct Sellers Association and they agreed that this section does exempt the direct sellers. SENATOR TORGERSON asked if the Attorney General was the one who brings the complaint in relation to the court rule amendments copies section (page 17). He asked if they are assuming someone else brings the complaint. MS. CYNTHIA DRINKWATER, Assistant Attorney General, said the indirect court amendments they are referring to specifically address AS 45.6.120. When you look at that section of the bill, you'll see that that is a reference to claims against the escrow account. These complaints most likely would be brought by a purchaser of busop who had been defrauded and the department wants copies of those complaints. Similarly, in the preceding section there is also a requirement that sellers who do escrow accounts provide notice of where those escrow accounts are to the Department of Law. This section is just for an additional tracking mechanism. CHAIRMAN STEVENS asked her to address the concern about the $500 threshold. MS. DRINKWATER said that originally they had requested a $200 threshold because they wanted to provide as much protection for consumers as they could while at the same time recognizing that there has to be a diminimous level where it wouldn't be cost effective for the department to monitor all these kinds of business opportunities. This is a line that is based on what other states have done, although $200 is at the lower end. However, nine states have thresholds of $200 - $300. Thirteen states have a $500 threshold amount. A model Business Opportunity Act has a $250 amount. Several states have started with either $500 or $300 thresholds and have found that it is advantageous to consumers to lower it to $250. SENATOR AUSTERMAN asked if they pass this law, could he call the Department of Law to see if the stack he was just handed were licensed to do whatever in the state. MS. DRINKWATER said yes. The registration requirement would work similar to the telemarketing statute that's in effect now, as well as our charitable organization statutes. In both of those cases there is a requirement that solicitors register with the department. That information is available on their website, so consumer can look it up and see which telemarketers, charities or solicitors are registered. SENATOR AUSTERMAN asked what happens if they are not registered. MS. DRINKWATER replied then it would be reasonable to think that activity wouldn't be a good idea to be involved in. SENATOR AUSTERMAN said his point is what does the department do when someone isn't registered. MS. DRINKWATER responded that they would probably first of all send out a cease and desist letter, which informs the business entity that they are in violation of a law and that they have to be registered in the state. Sometimes they get immediate response and sometimes they don't. Depending on the complaint that's filed, they would take additional action. "One of the advantages of this legislation is that it would give us an ability to take action prior to consumers loosing money…" REPRESENTATIVE STEVENS said that someone asked about page 13, number 5, which gives an exemption for the legitimate Mary Kay type of business and asked her to comment. MS. DRINKWATER said: Almost all the other states that have a business opportunity registration statute like this one have an exemption that is designed to exempt out direct sellers such as we've been discussing. The language in our proposed statute is very similar to every other state. It's also language that the direct sellers requested be included in a federal trade commission rule on business opportunities and franchises. Certainly our intent is to provide an exemption that would allow Mary Kay folks and Tupperware folks to carry on their business… SENATOR LEMAN moved on page 13, line 5, to delete everything from the comma following the $250 up to the semicolon and asked for unanimous consent. There were no objections and it was adopted. CHAIRMAN STEVENS explained that the amendment returned the bill to its original state as it came to the House Judiciary Committee. He said they would set the bill aside until Thursday and adjourned the meeting at 3:30 pm.