HB 36-MOTOR VEHICLE DEALERS: APPLIC.; INSURANCE  2:06:06 PM CHAIR COSTELLO reconvened the meeting and announced the consideration of 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." [SCS HB 36(TRA) was before the committee.] 2:06:19 PM REPRESENTATIVE MATT CLAMAN, Alaska State Legislature, Juneau, Alaska, sponsor of HB 36, introduced HB 36 speaking to the sponsor statement that read as follows: House Bill 36 strengthens Alaska's motor vehicle dealer license requirements by modernizing the statute and incorporating reasonable standards for obtaining a motor vehicle dealer's license without creating barriers to entry into the field or restricting competition. 2:06:41 PM REPRESENTATIVE CLAMAN continued: Alaska's current requirements for obtaining a motor vehicle dealer's license are some of the least stringent in the nation. Under current law, a motor vehicle dealer in Alaska must register biennially by filling out an application, pay a $50 registration fee, and maintain a surety bond of $50,000. By way of comparison, the requirements for a motor vehicle dealer's license in other states are more stringent: • Oregon Chapter 822 of Oregon State Statutes provides for civil penalties for acting as a vehicle dealer without a certificate, the processes of applying for and maintaining an automobile dealer license and related exemptions, requirements and privileges, grounds for revocation, suspension, or cancellation of the dealership certificate, and further defines illegal practices and associated penalties. • Delaware Title 21, Chapter 63 of the Delaware State Statutes provides for proof-of location requirements and recordkeeping, license expiration and renewal procedures, retainment of bill of sale records for a period of at least five years, and grounds for revocation of dealer licenses. • Texas Title 14, Subtitle A, Chapter 2301 of the Occupations Code provides for public interest information and complaint procedures, licensing requirements, license expiration and renewal, dealer operations, grounds for license revocation as well as procedures for complaint hearings, judicial review, and penalties. Purchasing a car may be one of the largest investments a consumer makes in their lifetime, so we need to ensure that reasonable standards for becoming a dealer are in place as well as financial protections should the sale not work out. House Bill 36 updates the surety bond requirement which hasn't been changed in 20 years to $100,000 to stay in line with the current economics of the automobile industry. Furthermore, it requires that dealers obtain liability insurance. There is currently no 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 cars for test drives. It also limits ownership of persons who have been convicted of felonies for fraud or embezzlement within five years of the application date. Finally, it requires dealers with employees to confirm that they are aware of associated workers comp coverage requirements. 2:09:01 PM REPRESENTATIVE CLAMAN noted that his office also had questions about the cost of the proposed changes for dealers. Currently, a $50,000 performance bond costs from $500 to $1,000. A $100,000 auto dealer's bond costs from $1,000 to $2,500 for a year's coverage. The estimated cost of insurance for a small dealer's policy is approximately $2,500. This is comparable to the cost for a new business owner to purchase general premises liability for a restaurant, print shop, or retail store. REPRESENTATIVE CLAMAN summarized that the purpose of HB 36 is to establish reasonable standards for car dealer licensing and to reduce the potential for harm through increased bond amounts, mandatory insurance, and additional disclosures that hold auto dealers more accountable under current statutes. 2:10:00 PM SOPHIE JONAS, Staff, Representative Matt Claman, Alaska State Legislature, Juneau, Alaska, presented the sectional analysis for HB 36: 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 to maintain liability insurance for bodily injury and property damage. 2:11:37 PM SENATOR STEVENS asked for assurance that this would not make it more difficult for small dealers to do business. He also asked for the cost of a $50,000 to $100,000 bond. REPRESENTATIVE CLAMAN answered that the current estimate for a $50,000 bond is from $500 to $1,000 per year and the estimated cost of a $100,000 bond is $1,000 to $2,500 per year. He noted that the Division of Insurance regulates those bonds and Ms. Wing-Heier was available online to answer further questions about the bonding. Responding to the first question about the effect on small dealers, he said he believes the proposed bond is a reasonable cost of entry to this business. The bond provides protection if there is some unforeseen problem with the vehicle and it provides protection in the event that something goes wrong after the sale. CHAIR COSTELLO turned to invited testimony. 2:14:06 PM MARCUS WAEHLER, Board Member, Alaska Automotive Dealers Association; Owner, Red White & Blue Auto Sales, Anchorage, Alaska, testified by invitation on HB 36. He advised that he brought this concern to the board's attention six or seven years ago when he noticed that many of the buyers attending used car auctions did not have used car businesses. Rather, the autos were being sold on Craigslist and were represented as being sold by private parties, not dealers. Now when he goes to these auctions the preponderance of buyers are private parties. He recounted that he testified last week that he sold four cars "as is" at auction that had not passed his safety inspections. That afternoon he saw those same vehicles for sale online under the guise of a private party. MR. WAEHLER said his goal in bringing his concern forward was to bring minimal standards to the used car sales industry. He noted that his research of other states found many rules for becoming a dealer. Alaska has none of those requirements. Somebody can pay $500 for a bond and $75 for registration and be in business. He emphasized that the bill is not intended to make it a financial hardship to become a dealer, but rather to bring minimal standards to the industry. HB 36 does that, he said. 2:17:06 PM SENATOR STEVENS offered his understanding that the only used car auction in Alaska is in Anchorage and said his concern is that the bill may make it less likely that anybody that is not connected to the road system would enter the used car business. He asked if he knows of any other auctions in Alaska. MR. WAEHLER said there are small auctions that pop up sporadically in Fairbanks, Kenai, and Wasilla, but the main auction is in Anchorage. Auctions have also moved online. 2:18:26 PM STEVE ALLWINE, President and General Manager, Mendenhall Auto Center; Director, National Automotive Dealers Association, Board Member, Alaska Automotive Dealers Association, Juneau, Alaska, testified in support of HB 36. Addressing Senator Steven's concern, he said the board and membership in Alaska is a little different in that it is comprised of large and small new and used car dealers. When Mr. Waehler brought his concern forward, the board wanted to make sure that adding standards would not be burdensome. He said the board determined that the changes reflected in HB 36 would not create a barrier to competition. MR. ALLWINE confirmed that the issue is people who are licensed as a dealer then hold themselves out as a consumer and sell to other consumers. He said a consumer who works with a dealer who properly represents himself as a dealer has built in protections when they purchase a vehicle. However, those protections go away on a consumer-to-consumer sale. The intent of the legislation is to ensure those consumer protections. He added that everyone is aware the bill will not eliminate the issue, but it may slow it down. We're saying, "Do things right, take the necessary steps, make a reasonable investment, and then come into our business." SENATOR STEVENS said he was relying on his word that HB 36 will not be a barrier to competition. 2:21:10 PM CHAIR COSTELLO opened public testimony on HB 36; finding none, she closed public testimony. She asked if there were questions for Ms. Wing-Heier. SENATOR STEVENS asked for an explanation of the change in bonding and the cost to purchase the bond. He restated his concern about not imposing a financial barrier on small businesses in small communities. 2:22:08 PM LORI WING-HEIER, Director, Division of Insurance, Department of Commerce, Community and Economic Development (DCCED), Anchorage, Alaska, said she does not see the bill as a barrier. It is an increase in cost, but it provides more protections for consumers who purchase these used cars. She explained that a bond guarantees that the entity selling or repairing the car will have the wherewithal to follow through and do the work. She explained that insurance looks at three parts of a bond: the character, the capacity, and the capital. A person in good standing enjoys the lesser premium, and a new business will see the premium decrease as it builds reputation and business. 2:23:47 PM SENATOR STEVENS asked how much more a bond would cost a small dealer if HB 36 were to pass. MS. WING-HEIER answered that a $50,000 bond for a person in good standing costs about $500 per year. That bond would cost closer to $1,000 for a new person or business. The cost of a $100,000 bond ranges from $1,000 to $2,500 per year. The reason the bill increases the bond is because of increases in the cost of the car and parts and the capital a person should have to operate a business. SENATOR STEVENS asked if she believes HB 36 would present a barrier to someone in a smaller community. MS. WING-HEIER replied she didn't think so because the startup costs for any new business will be in line with the numbers the division gave to the sponsor for this bill. CHAIR COSTELLO informed the members that the director of the Division of Motor Vehicles was available to answer questions. She asked Mr. Schmitz if he was aware of the administration's position on HB 36. 2:26:13 PM JEFFREY SCHMITZ, Director, Division of Motor (DMV), Department of Administration (DOA), Anchorage, Alaska, stated that the division does not have a position on HB 36. SENATOR MICCICHE offered his perspective that the legislation levels the playing field, sets expectations, and protects the public. 2:27:28 PM SENATOR GRAY-JACKSON echoed the previous comments and thanked the sponsor for introducing the bill. 2:28:10 PM CHAIR COSTELLO stated that she would hold HB 36 for further consideration.