CSHB 182(JUD)-OFFERING PROMOTIONAL CHECKS    2:18:42 PM CHAIR FRENCH announced the consideration of HB 182. Before the committee was CSHB 182(JUD). MIKE SICA, Aide to Representative Lynn read the following into the record on behalf of the sponsor. [Original punctuation provided.] HB 182 is a small, one-page bill, about small dollar checks that cause big headaches for Alaska consumers. The checks are maybe for only three or four dollars and, according to the Department of Law, the checks are sent to thousands of businesses and individuals throughout our state. The good news? The checks are legitimate. The bad news? The checks are "legitimate." In actuality, cashing one of these checks can amount to an unintended contract. Hundreds of Alaskans cash these little checks, only to find themselves obligated by contract for products and services they don't want and never needed. Let me give you one example. In 2006, the Alaska Department of Law announced a settlement with a California-based company that sent Alaskans what appeared to be rebates from local yellow page companies. Not so. Endorsement of a check for $3.49 was actually a contract for $179 in advertising services - which they didn't want and didn't need. Consumers, who thought they were getting a very small windfall, got a much larger downfall. That's because they didn't see the tiny, fine print, disclosure on the back of the check. Or, if they did see it, they didn't have a magnifying glass. And when the checks are endorsed, consumers end up getting billed - and sometimes hounded - by collection agencies, which can damage their credit rating. The Consumer Protection Unit of the Alaska Department of Law considers these promotional checks to be a classic example of deceptive acts or practices - and believe that prohibiting these kinds of checks is the only effective method of preventing these unintended contracts, and subsequent charges, from occurring. HB 182 makes these kinds of promotional checks an unfair or deceptive act or practice, and makes it an automatic violation of Consumer Protection laws. Under this bill, companies that violate the law are subject to a civil penalty of a minimum of $1,000 per violation, and a maximum of $25,000 per violation. Representative Lynn said he is honored that the Alaska Department of Law let him know about these deceptive checks, and he agrees with the department that HB182 is high priority consumer protection legislation. 2:21:55 PM MR. SICA relayed that the sponsor and his chief of staff received promotional checks but they didn't cash them. During testimony in the other body a state lawmaker admitted to having been fooled. 2:22:50 PM SENATOR McGUIRE admitted that two years ago she endorsed and deposited a $9.95 check from Citibank under the assumption that she was redeeming points. She learned that she had enrolled herself in a driver protection program that carried an ongoing monthly fee of $29.95. It took a full two months and a lot of headache to get out of the program. This could be devastating to seniors in particular. She questioned why this doesn't violate the interstate commerce clause. MR. SICA replied the companies operate in Alaska so goods don't cross the boarder. He deferred to the Department of Law for further explanation. Small businesses, churches and schools receive these checks and often they're just endorsed and deposited so this protects more than just consumers. It also sends a good message to the business community that it doesn't have to compete with these people that cross that boundary. 2:25:06 PM MARIE DARLIN, Coordinator, AARP Capital City Task Force expressed support for HB 182 and noted that a letter from AARP is in the packet. Older people are often the target of practices such as this. This would be one more tool for the offices of the attorney general and consumer protection to battle these scams. 2:27:01 PM DALE LEHMAN, representing himself said he doesn't generally believe it's government's role to protect people from making stupid decisions, but he does urge the committee to pass HB 182. He relayed that he is usually diligent about disregarding free offers of any kind. Despite that and the fact that he's a retired economics professor who lectures about consumer scams, he deposited what appeared to be a free $10 check from a credit card company that he'd done business with for years. Last year all his credit cards were stolen so he canceled the cards and subsequently began to examine his bills. The first one he looked at had a line item for $39.99 from TLGHMPRT. After some research he learned that the state attorney general's office and 16 other states had reached a settlement with his credit card company for these allegedly deceptive practices. He's embarrassed to admit that he paid $39.99 for 18 months. He was fooled but this company had to go far out of the way to do this. "This is not an accidental thing that occurred." He never received any material about what the National Home Protection Alliance is. "To this day I really have no idea what services they provide." The ultimate irony was that the only automatic payment that was passed on to his new credit card was TLGHMPRT. 2:30:30 PM MR. LEHMAN said HB 182 would do two constructive things. First, it would make the attorney general's job easier in prosecuting these sorts of cases because it would be an illegal practice. Second, it would encourage businesses to compete by offering better services rather than spending resources to fool consumers in ever more subtle ways. 2:32:56 PM JULIA COSTER, Assistant Attorney General, Civil Division, Commercial/Fair Business Section, Department of Law (DOL) testified in support of SB 182. She agreed with Mr. Sica that these promotional checks have been a problem for individual and business consumers in the state. SB 182 is an attempt to fix that problem. Her office has received numerous complaints and has interviewed numerous consumers that have received and cashed these checks reasonably believing them to be a rebate or reward. They have no idea that by cashing the check they have entered into a contract to purchase goods or services. Oftentimes endorsing the check unknowingly authorizes monthly charges to the consumer's checking account, credit card, or telephone bill to pay for the goods or services. Many consumers unwittingly pay the charges for months until something brings it to their attention or until they are contacted by the consumer protection office. MS. COSTER said her office has initiated a number of investigations several of which have resulted in prosecutions and settlement under the Alaska Consumer Protection Act. A recent case was a coordinated multi-state investigation that resulted in a settlement agreement that prohibited the use of promotional checks in 34 states. Another case resulted in a settlement for less than a total prohibition. Rather than dealing with this issue on a piecemeal basis through litigation, HB 182 deals with the problem on a more universal level. It makes the use of promotional checks from Alaska an unfair or deceptive practice under the Alaska Consumer Protection Act. "This means that the use of the check is an automatic violation of the Act." Making the promotional checks an unfair, deceptive act or practice puts the check marketers on notice. Hopefully this will stop the use of these checks in the state and it will make enforcement easier in the future. 2:37:39 PM CHAIR FRENCH asked her to respond to the interstate commerce question. MS. COSTER explained that the interstate commerce clause uses a balancing test that looks at whether or not the burden on commerce outweighs the benefit to the state or its interest. It wouldn't be difficult to make a strong argument that the conduct - the use of these promotional checks - is deceptive and that outweighs any interest a person would have in continuing to use such checks. SENATOR WIELECHOWSKI asked if there are any preemption issues. MS. COSTER replied she isn't aware of any federal law that addresses the use of these checks. CHAIR FRENCH referred to a question and answer interview between some member of the DOL and the bill sponsor. He highlighted the final question and answer, which asks why DOL considers this bill a high priority. The DOL answer is that many hundreds of Alaskan consumers have been harmed by the use of these promotional checks. He asked if it can be verified that it's up in the hundreds. MS. COSTER replied, Absolutely. Many hundreds of Alaska consumers have cashed these checks and unknowingly or unwillingly paid because they were subject to coercive collection tactics. SENATOR WIELECHOWSKI asked if Alaska has been involved in any class action lawsuits to stop this activity. MS. COSTER replied she's unaware of private class action suits but the State of Alaska has been involved in three multi-state cases that were brought by state attorneys general offices. They may be considered class action in that they involve more than one state. 2:41:03 PM CHAIR FRENCH referred to the bill packet and noted that in April 2006 the DOL Civil Division announced a $500,000 settlement with Yellow Pages Inc. for having offered these checks in the state. MS. COSTER added that that's the most recent settlement. 2:41:47 PM SENATOR McGUIRE suggested the DOL look into the situation at Citibank as well. She surmised that consumers are accustomed to getting rebates and rewards as part of the incentive package with their credit cards. She relayed that she was enrolled in the Driver Edge Protection program that supposedly added $29.95 extra coverage on her vehicle. She never new exactly what it was and didn't receive any information about it. "So add that to your list," she said. MS. COSTER agreed to do so. 2:42:46 PM MR. SICA told the committee that he appreciates that getting a bill passed is a long process and he believes that checks and balances are important. Although the bill moved along very well last year, he has to admit that during the Interim he worried about all the people who would be getting and signing these checks. CHAIR FRENCH said HB 182 seems to be a very good bill and he intends to bring it back soon and take action on it.