HB 36-MOTOR VEHICLE DEALERS: APPLIC.; INSURANCE  6:04:12 PM CO-CHAIR SPOHNHOLZ announced that the first order of business would be HOUSE BILL NO. 36, "An Act relating to an application for a license to operate as a dealer in motor vehicles; and requiring a dealer in motor vehicles to maintain liability and property insurance." 6:05:03 PM REPRESENTATIVE MATT CLAMAN, Alaska State Legislature, as prime sponsor, presented HB 36. He paraphrased from the Sponsor Statement[hard copy included in the committee packet], which read as follows [original punctuation provided]: The purpose of House Bill 36 is to improve consumer protections for those purchasing motor vehicles by strengthening the requirements for motor vehicle dealers. Under current law, a motor vehicle dealer in Alaska must register biennially by filling out an application that requires an address, but not a valid telephone number. The application must be accompanied by a $50 registration fee and a surety bond of $50,000. There is no current requirement that dealers carry liability insurance even though Alaska requires drivers to have liability insurance for their vehiclesand dealers may allow uninsured drivers to take dealer-owned cards for a test drive. Alaska's current statutory requirements for motor vehicle dealers are some of the least stringent in the country. By way of comparison, here are the requirements for an automobile dealership application to be valid in other states: Oregon Chapter 822 of Oregon State Statutes provides for civil penalties for acting as a vehicle dealer without a certificate (.005-.009), the processes of applying for, and maintaining, an automobile dealer license and related exemptions, requirements, and privileges (.025-.042), grounds for revocation, suspension, or cancellation of the dealership certificate (.050), and further definition of illegal practices and associated penalties (.055- .080). ? Delaware Title 21, Chapter 63 of the Delaware State Statutes provides for proof-of location requirements and recordkeeping (? 6303), license expiration and renewal procedures (? 6304), retainment of bill of sale records for a period of at least five years (?6305), in addition to grounds for revocation of dealer licenses (? 6313); ? Texas Title 14, Subtitle A, Chapter 2301 of the state's Occupations Code provides for public interest information and complaint procedures (Subchapter E), licensing requirements (Subchapter F), license expiration and renewal (Subchapter G), dealer operations (Subchapter H), grounds for license revocation (Subchapter N), as well as procedures for complaint hearings, judicial review, and penalties (Subchapters O, P, and Q). Comparatively speaking, Alaska Statutes Title 8, Chapter 66 addresses the application form (.040) and registration renewal (.050); sets the minimum bond amount (.060), defines allowable action on bonds and defines failure to file a bond as a class A misdemeanor (.070, .080); and holds the dealer responsible for maintaining a record of each motor vehicle transaction (.320). Unlike Texas, Oregon, and Delaware, there are no statutes explicitly providing for a grievance process nor grounds for revocation of the license in question. HB 36 aims to strengthen consumer protection by addressing two scenarios that may create problems for both consumers and dealers: HB 36 seeks to provide better protection when one selling dealer sells multiple vehicles to a buying dealer and receives payment without providing titles (the titles are being held by the bank that provides a credit line for purchasing vehicles). The selling dealer plans to pay for the vehicles and get the titles, but runs into financial difficulties and is unable to continue making payments. When this happens, the bank repossesses the vehicles from the buying dealer. The buying dealer has now lost the money and decides to seek recompense from the selling dealer's bond. At present, the bond requirement under state law is $50,000, which, depending on the type and quantity of vehicles, may be only a fraction of what is owed. Raising the bond amount will help protect the buying dealer in the event that the bank repossesses their new stock. Another scenario that this bill addresses is "curbstoning," which is the act of selling used vehicles under the false pretense of being the car's owner in order to evade regulations that are imposed on state-licensed automobile dealers. When a dealer obtains a license, they are qualified to purchase cars at "dealer only" auctions at steep discounts. In these scenarios, the dealer is not required to disclose the fact that they are a licensed car dealer or that the vehicle has a reconstructed title or has known defects. If deemed a personal vehicle, the vehicle is not subject to a routine safety inspection. Often, the title is not placed in the dealer's name, the contact information provided is not the dealer's information, or the transaction takes place in cash, leaving little paper trail for the consumer to follow if issues arise. Requiring a verified working telephone number increases the consumer's ability to locate the dealer. HB 36 would help protect against these two scenarios by requiring that those registering as motor vehicle dealers include more detailed information about their business in the application, register a bond for $100,000 instead of $50,000, and maintain liability insurance that covers collisions with dealer-owned cars. 6:08:37 PM SOPHIE JONAS, Staff, Representative Matt Claman, Alaska State Legislature, offered the Sectional Analysis to HB 36 [hard copy included in the committee packet] on behalf of Representative Claman, prime sponsor. The Sectional Analysis read as follows [original punctuation provided]: Section 1 AS 08.66.030. Form of application. Adds the following requirements to dealer registration applications: ? a valid telephone number for the business; ? a statement that no person holding a five percent or greater interest in the business has been convicted of a felony involving fraud, embezzlement, or misappropriation of property within five years preceding the date of application; ? a statement acknowledging that the applicant has reviewed the requirements for workers' compensation insurance and will maintain workers' compensation insurance under AS 23.30, if applicable; and a copy of the liability insurance policy in compliance with section 3 of this bill. Section 2 AS 08.66.060. Bond. Raises the amount of the bond required for dealer registration applicants from $50,000 to $100,000. Section 3 AS 08.66.085. Insurance requirements. Adds a new section to AS 08.66 that requires dealers maintain public liability and property damage insurance of not less than $50,000 for property damage, $100,000 for injury to a single person, and $200,000 for injury, including death, to more than one person. MS. JONAS concluded by inviting questions from the committee. 6:10:24 PM REPRESENTATIVE MCCARTY posed a question to Representative Claman about how the bill would impact private individuals who are selling their personal cars or have several cars that they are selling over a period of time. He asked for clarification on the bill's purpose. REPRESENTATIVE CLAMAN responded that the bill would have no impact on individuals making private sales. REPRESENTATIVE MCCARTY directed attention to language on page 2, line 7 of the bill, which read as follows: (8) a statement that the applicant has reviewed the workers' compensation insurance requirements of AS 23.31 and will maintain applicable workers' compensation insurance as required under AS 23.30; REPRESENTATIVE MCCARTY asked for clarification. REPRESENTATIVE CLAMAN explained that since some people are not aware of the requirement to provide workers' compensation, this language would protect employees and ensure that smaller car dealers are aware of that law [by requiring a statement signed to that effect].  6:12:31 PM REPRESENTATIVE SNYDER asked Representative Claman if he could speak about the motivation behind one of the new requirements for dealer applications [in Section 1, paragraph (7) of HB 36, on page 2, lines 3-6], which read as follows: (7) a statement that no person holding a five percent  or greater interest in the business has, during the  five-year period immediately preceding the date of the  application, been convicted of a felony involving  fraud, embezzlement, or misappropriation of property;  REPRESENTATIVE CLAMAN responded that the interest in this bill came from motor vehicle dealers. The Motor Dealer Association came to his office and expressed concerns about people that may be in the motor dealer business who had recent convictions, and asked how to best protect consumers. He stated that the goal in paragraph (7) was to make that limitation as narrow as possible and to ensure that the convictions were specifically related to crimes relevant to the auto business, such as fraud and financial crimes, that took place in the past five years. He and his staff thought that five years would be a reasonable amount of time to allow someone to get back into the business. 6:14:11 PM REPRESENTATIVE NELSON asked about the prevalence of curb- stoning. REPRESENTATIVE CLAMAN shared that two of the invited testifiers are car dealers and that these testifiers will be able to address that question better, but that he knows that it goes on. Some consumers buy vehicles online and do not realize that they are purchasing from a dealer, he added. REPRESENTATIVE NELSON asked what the current recourse is to those people injured by curb-stoning. REPRESENTATIVE CLAMAN said that there is no recourse if the consumer doesn't know they are purchasing from a dealer. REPRESENTATIVE NELSON asked if this would be addressed in the bill. REPRESENTATIVE CLAMAN responded that there is a larger statutory structure that involves requirements for motor vehicle dealers and requirements for their business, such as inspection requirements. The bill increases transparency of dealers and the statute applies to the dealers as well. He added that he would be happy to meet with Representative Nelson outside of the meeting to discuss the details of the statutes if Representative Nelson would like more information. 6:16:43 PM REPRESENTATIVE MCCARTY asked about felonies and whether background checks would be mandated for all car business owners. REPRESENTATIVE CLAMAN answered no, the bill doesn't mandate a background check. There are a limited group of felonies that fit the description, he said. If individuals misrepresent themselves, there are criminal penalties that would apply. 6:17:46 PM REPRESENTATIVE KAUFMAN mentioned the requirement for dealerships to provide the name and make of all vehicles handled. He commented that it might be beneficial to hear from the testifiers on that topic. REPRESENTATIVE CLAMAN explained that Representative Kaufman is referring to line 13, paragraph (4) of Section 1 and deferred his question to a testifier on the phone, Jeffrey Schmitz. REPRESENTATIVE KAUFMAN questioned how that information is provided in common practice and whether complying with it has ever been a problem. 6:19:53 PM JEFFERY SCHMITZ, Director, Division of Motor Vehicles, Department of Administration, responded that the Division of Motor Vehicles (DMV) does not monitor this issue. CO-CHAIR SPOHNHOLZ asked what the practice is for listing the name and make of all vehicles handled, and whether used vehicles are handled. She asked how that is done specifically and whether there is a standard practice. MR. SCHMITZ responded that this is a required document that is filled out at the time of application by a person applying for a dealership license. 6:21:07 PM REPRESENTATIVE CLAMAN shared his understanding that the application in question is a short form that is one to two pages long, and that it strikes him that if he were a used car salesperson and sold every make and model of car, filling out that application would require pages and pages of possible cars that one might sell. He asked how it is filled in today and how much information is required. CO-CHAIR SPOHNHOLZ interjected and asked if Mr. Schmitz could provide a sample of the application form, which might help inform a future conversation. MR. SCHMITZ responded yes. 6:22:44 PM CO-CHAIR SPOHNHOLZ opened invited testimony. 6:22:53 PM MARCUS WAEHLER, Alaska Automotive Dealer Association, gave some history of his experience in the automotive industry, which involved 12 years of purchasing vehicles through auctions, managing inventories, seeing vehicles through inspections, and 12 subsequent years of working at the helm of a small dealership in Anchorage, Alaska called Red White & Blue Auto Sales. He shared that he began to notice some negative changes in the industry about seven years ago, and brought his concerns to the Alaska Automotive Dealer Association. He shared his opinion that Alaska's dealer licensing requirements are the most deficient in the country. In Alaska, he explained, an individual can obtain a dealer's license and begin purchasing through dealer-only auctions by paying a $50 dollar registration fee and a $500 dollar bond. He added that some unscrupulous dealers will sell cars in various states of disrepair from these auctions discreetly on Craigslist without having done any inspections or disclosure, and there is no recourse for this activity. The unwitting consumer doesn't know they purchased from a dealer, and the fraud is complete, he said. He shared that he goes to these auctions frequently and sees cars that were at an auction posted on Craigslist "before the sun sets" that same day as private party sales. He estimated that this happens thousands of times a year. MR. WAEHLER concluded with a personal story about a woman who had visited his dealership recently with a car that she wanted to trade in. He performed an inspection and looked up the information about the vehicle using an application ("app") on his phone by using the vehicle identification number (VIN) and found that the woman had purchased the vehicle on Craigslist from a private seller for $6,500 dollars. He continued that she had only had the vehicle for a few weeks and it had a value of about $2,000 by the time she brought it to him. A further inspection illuminated him to the fact that the oil pressure light in the engine had been removed, and according to the information he retrieved using the app on his phone, this light had been on when the car went through auction. He shared that this woman was 86 years old, and that this is a regular occurrence. 6:27:29 PM REPRESENTATIVE KAUFMAN directed attention to the statement provided to the committee from the Alaska Automobile Dealer Association, which mentions "no disclosure of reconstructed title, no disclosure of known defects," and he asked about the process of a vehicle getting a reconstructed title. If a vehicle is wrecked, totaled, and sold, he asked if that process puts a "salvage" indication on the title. MR. WAEHLER responded that yes, an indication is added to the title, however there is often a delay in the processing time. He explained that one of the ways that this can happen is that the status of the title hasn't been changed from clean to reconstructed, or that the title is not readily available and the unwitting consumer doesn't even know to check for that information. He gave an example of a couple who came to him with a vehicle they bought at full retail price with a clean title, which had been financed by a bank. When the couple got the title back, he continued, they discovered that the title and the vehicle were both reconstructed. The couple purchased the vehicle from a dealer and they had no contact information and no recourse. 6:29:39 PM CO-CHAIR SPOHNHOLZ asked what the process is for changing the title to reflect that it is reconstructed. She asked who bears the responsibility for ensuring that that happens. MR. WAEHLER answered that he thinks the DMV is responsible for that, but he is not sure of the exact process. 6:30:37 PM CO-CHAIR SPOHNHOLZ posed the same question to Mr. Schmitz. MR. SCHMITZ responded that the DMV is informed through a number of means about the status of the vehicle, for example, the insurance company could inform the DMV after an accident has occurred, or a consumer could inform the DMV. He shared that once a vehicle and a title are branded as "reconstructed," that brand will remain for the remainder of the life of the vehicle. CO-CHAIR SPOHNHOLZ asked if someone were to reconstruct a vehicle and not make the appropriate change in the title, what the penalty would be for that indiscretion. MR. SCHMITZ answered that he thinks that falls into the category of a court case. He said that the seller of the vehicle is responsible for providing a current title that reflects the current state of the vehicle. He does not know the legal implications of failing to disclose that information. 6:32:45 PM CO-CHAIR SPOHNHOLZ posed the question again to Representative Claman. REPRESENTATIVE CLAMAN responded that he doesn't know what the penalty is for falsifying information. He said he thinks that there are requirements in the statutes. He shared his understanding that it is the dealer's responsibility to ensure that the information on the title is accurate, but that small dealers are not required to check the title for inaccuracies, only large ones. CO-CHAIR SPOHNHOLZ asked if Representative Claman could bring an answer to that question back to the committee meeting the next time it hears HB 36. 6:33:56 PM MR. WAEHLER added that what usually happens when an individual has a vehicle that has been wrecked but still has a clean title because a new title has not been processed yet, is the individual sells the vehicle with the old clean title and there is no disclosure of the wreckage. When that title gets transferred into the new owner's name, that is often when the reconstructed status gets discovered, he said. When this happens, there is no paper trail that shows that the vehicle has been reconstructed. 6:35:03 PM MARTIN MARTINSEN, Owner, Continental Auto Group, said that his business is in Anchorage, Alaska and he noted that he is a board member of the Alaska Auto dealer Association. He began by answering the earlier question about the requirement to provide the make and model of all cars sold on the dealer application, and shared that that pertains only to new car franchise dealers.; it does not pertain to used car dealers. He continued by talking about how often curbstoning happens, and he agreed that it happens quite frequently. He said that in fact, former Alaska Attorney General Ed Sniffen said that curbstoning was one of the largest complaints that Mr. Sniffen got. MR. MARTINSEN gave an example of curbstoning in his personal life in which a friend of his who was interested in buying a Mazda-3 went to Mr. Martinsen for his opinion on that make and model. He said that he shared with his friend that Mazda-3 cars have a great consumer report and are "typically a very good car." He offered to look up the VIN for his friend in order to tell him if there were any problems with the car. When he looked up the car, he discovered that his dealership had just sold that exact car three day earlier at a dealer's auto auction. Mr. Martinsen contacted his manager about the car, and was told by the manager that the car had a bad transmission. The dealership chose to sell the car at auction instead of replacing the transmission because it would've been too expensive, and he continued that both the dealership and the auction was aware that the car would be sold "as is" and that there was no warranty for it. An individual purchased this car from the auction, and it was on Craigslist the next day, he said. He reiterated that the Office of the Attorney General receives this complaint repeatedly, and he shared his opinion that the proposed legislation would help add more requirements to the process to get rid of these "shady characters" getting dealer licenses. 6:40:21 PM REPRESENTATIVE MCCARTY asked how this bill would remedy the situation that Mr. Martinsen described. MR. MARTINSEN replied that it would not. He stated that there was a lot of discussion about the extent of the requirements, and the restrictiveness that was determined to be appropriate is what is in the legislation. He shared that there were members on the board that wanted the requirements to be more stringent and there were others who felt differently, and the compromise is what can be seen in the bill. REPRESENTATIVE MCCARTY asked if car dealers currently have liability insurance. MR. MARTINSEN responded that no, they do not have to have liability insurance. He commented that Continental Auto Group has insurance in order to be a franchise dealer, but that would be one of the additional requirements. REPRESENTATIVE MCCARTY asked for clarity as to whether mandating liability insurance would be the remedy. MR. MARTINSEN responded yes, absolutely. He added that curbstoning is fraud but it's very difficult to prove it has occurred. The individuals committing this fraud are able to buy a car from Craigslist and sign it over to a new unsuspecting buyer without leaving a paper trail. 6:43:13 PM STEVE ALLWINE, Owner, Mendenhall Auto, Member of Alaska Automobile Association, Board member of the Alaska Auto Dealer Association, commented that the object of the legislation is not to preclude people from the auto dealer industry, it is to make the requirements more stringent to discourage the individuals committing fraud from being able to enter the industry. He opined that HB 36 is a positive step in the right direction, but it would not fix everything. [HB 36 was held over.]