The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 8:10 a.m., on Wednesday, May 5, 1999, in Room 2135 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Senator Randolph J. Townsend, Chairman

Senator Ann O’Connell, Vice Chairman

Senator Mark Amodei

Senator Dean A. Rhoads

Senator Raymond C. Shaffer

Senator Michael A. (Mike) Schneider

Senator Maggie Carlton

GUEST LEGISLATORS PRESENT:

Assemblyman David E. Humke, Washoe County Assembly District No. 26

Assemblyman John C. Carpenter, Elko County Assembly District No. 33

Assemblywoman Dawn Gibbons, Washoe County Assembly District No. 25

Assemblywoman Barbara E. Buckley, Clark County Assembly District No. 8

STAFF MEMBERS PRESENT:

Scott Young, Committee Policy Analyst

John L. Meder, Committee Policy Analyst

Crystal M. Lesbo, Committee Policy Analyst

Ardyss Johns, Committee Secretary

OTHERS PRESENT:

Frederick Schmidt, Chief Deputy Attorney General, Consumer’s Advocate, Bureau of Consumer Protection, Office of the Attorney General, testified A.B. 109 is a bill drafted by the attorney general’s office, which amends chapter 598 of Nevada Revised Statutes (NRS). He advised that chapter is the state Deceptive Trade Practices Act. Mr. Schmidt stated the act affects the jurisdiction of the attorney general’s office in prosecuting violations of the Deceptive Trade Practices Act and the jurisdiction of the Commissioner, Patricia Jarman-Manning, Consumer Affairs Division, in matters in which she communicates with the public. Mr. Schmidt remarked the bill first deletes the confidentiality provision from the statute information regarding an agreement that a business has conducted an activity in violation of the state’s Deceptive Trade Practices Act. He indicated the bureau is of the opinion that the confidentiality provision should be removed from the bill, making it a public document so that anyone planning to conduct business with the violating company will know the company is required not to conduct business in that manner again.

Mr. Schmidt stated the second part of the bill addresses, in the definition section of chapter 598 of NRS, the issue of credit-service organizations or credit-repair activities. He said currently the statute allows several exemptions on credit-repair activities. The first involves nonprofit organizations, and according to Mr. Schmidt, the bureau is of the opinion that exemption is no longer appropriate. He explained the bureau has encountered a number of credit-repair organizations that are currently aggressively marketing, particularly in southern Nevada. Mr. Schmidt advised the companies are going to the Internal Revenue Service and attempting to obtain an Internal Revenue Service (IRS) section 501(c)(3) exemption rather than going to the Consumer Affairs Division and filing for a bond and a license to conduct the activity. Mr. Schmidt maintained, because of the current exemption, consumers are left with no protection if the business does not perform its services as promised. He remarked Michele Johnson, President, Consumer Credit Counseling Service, has indicated her support for passage of A.B. 109. Chairman Townsend requested clarification of which parts of the bill Mr. Schmidt was addressing. Mr. Schmidt reported the first part he discussed was the stricken language in section 1, subsection 2, paragraph (c). He said the change in definitions occurs in section 2, subsection 3, paragraph (c). Mr. Schmidt explained the reason for this amendment is that originally the bureau asked that the commissioner of consumer affairs be allowed to disclose the complaints against businesses that are filed with the commissioner, but they have since removed that provision. He advised it is only where a business has actually acknowledged it violated the state’s Deceptive Trade Practice Act that the information would be allowed to be made public. Mr. Schmidt advised that if there is just an allegation against a business, that allegation would not be allowed to be disclosed by the commissioner, consistent with the current statute.

Mr. Schmidt indicated section 3 is the definition section, and the changes in definitions occur in section 3, subsection 5, "organization," paragraph (b), subparagraph (3), which eliminates the exemption for nonprofit organizations, if they perform credit-repair activities. He said the part he had not discussed yet was subparagraph (4), which would become subparagraph (3), and deals with real estate brokers. Mr. Schmidt explained the reason for that change in the law is that it puts a restriction on real estate brokers similar to the one that currently exists on lawyers who do credit-repair work and are subject to this chapter. He commented if a person conducts credit repair within the scope of their real estate license, currently they are exempted from having to register with the Consumer Affairs Division. Mr. Schmidt stated this bill attempts to limit that exemption in the same manner it is limited for lawyers, so that if a real estate broker performs credit repair on behalf of a credit-repair organization, he or she must register and post a bond. It does not otherwise restrict them from performing the activity. Mr. Schmidt reported this provides additional protection for a consumer in case the credit repair that is performed is not consistent with state statute or the promises made. He urged the committee’s support of the proposed changes to A.B. 109.

Chairman Townsend requested clarification of the proposed change to section 3, subsection 5, paragraph (b), subparagraph (4) regarding real estate brokers. He said oftentimes when a person applies for a home mortgage, before making application to the lending institution, the broker tries to find out how the applicant’s credit report looks prior to submission. He asked if the broker would need a license to review the applicant’s credit report and advise that there was something on it that could prevent loan approval. Mr. Schmidt replied the broker would not need a license to do that much. However, if he took it a step further and told the person, without going through a credit-repair agency, that he could help the applicant correct the problem as a real estate agent, then he would have to be licensed.

Senator Carlton inquired why the stricken language in section 1, subsection 2, paragraph (c) was there to begin with and why Mr. Schmidt was now proposing to remove it. Mr. Schmidt replied he was uncertain as to why the language was currently in statute. He informed the senator it has caused problems in terms of dealing with people who call, particularly the commissioner of consumer affairs, and ask about a certain business and whether it could operate or do a business in a certain way. Mr. Schmidt explained currently the bureau cannot say the business in question agreed that operating in that manner would violate state law. He said in many "Assurances of Discontinuance" the bureau does not necessarily fine or penalize the company; they convince the company to agree that conducting business in a certain manner is not consistent with state law. Mr. Schmidt advised the problem this bill addresses is that the bureau is unable to hold the company to that agreement publicly when the company deals with other customers.

Senator Carlton asked if this happens after a hearing or trial. Mr. Schmidt replied it could be based on a sit-down meeting with the business and its legal representative. Many times it would be after a complaint is filed in court against the company, and the company wants to settle the complaint. Mr. Schmidt remarked in some instances, it is in a situation where the bureau had pursued a case and won a judgment, and the judgment that is filed is part of a court record, but according to the statute, must be made confidential. Senator Carlton inquired whether the bill would cause more litigation due to the companies taking the cases to court rather than having the information become public knowledge. Mr. Schmidt answered he hoped not. He assured Senator Carlton the bureau only goes after companies they are certain are violating the law in such an egregious fashion that it requires action. He maintained that for every 200 complaints, the bureau pursues only one or two in court.

Michele Johnson, President, Consumer Credit Counseling Service, testified she is in full support of the changes proposed with A.B. 109, both with the way it affects her agency, and for the changes affecting credit-repair companies. She remarked she is familiar with some of the specifics involved in settlements made through the attorney general’s office, but the companies involved continue to conduct business. Ms. Johnson also stated many of the companies have names similar to hers, and her company receives seven to ten telephone calls per week regarding some of those organizations.

There being no further testimony on the bill, Chairman Townsend closed the hearing on A.B. 109. He then opened the hearing on A.B. 215.

Assemblyman David E. Humke, Washoe County Assembly District No. 26, testified A.B. 215 addresses the duties that an escrow holder might have to perform with regard to ascertaining who is involved in a real estate deal. He introduced Pat Coward, saying Mr. Coward would take the committee through the bill.

Pat Coward, Lobbyist, Association of Realtors, remarked the purpose of the bill is laid out in section 1, lines 3 through 5, asking that when an escrow is opened on a real estate transaction, the realtor provide his or her license number and date of expiration. He said his association has received many complaints from across the state about realtors executing transactions without a Nevada license. Mr. Coward advised there is a vehicle for an out-of-state broker to transact business in Nevada; he or she may obtain a certificate of cooperation from another broker. Chairman Townsend mentioned a U.S. Supreme Court decision with regard to verbal contracts in real estate that came down over the last 3 or 4 years. He inquired whether Mr. Coward knew if Nevada had attempted to address that issue. Mr. Coward deferred to Melody Luetkehans.

Melody L. Luetkehans, Lobbyist, Nevada Association of Realtors, recalled the case dealt with the broker-protection period in regard to commissions being applied for after a listing had expired. She said this particular bill would not address the problems that were raised in that case.

Senator O’Connell stated for the record that her husband is a real estate broker. There being no further testimony on the bill, Vice Chairman O’Connell closed the hearing on A.B. 215. She then opened the hearing on A.B. 447.

Assemblyman John C. Carpenter, Elko County Assembly District No. 33, testified the first changes to A.B. 447 were submitted by Kimberly A. Morgan, Chief Deputy Legislative Counsel, Legal Division, Legislative Counsel Bureau, to clarify that the statute is talking about the owner of the property. Vice Chairman O’Connell requested Assemblyman Carpenter provide background information regarding why the bill is necessary. Assemblyman Carpenter stated the reason he brought the bill forward was due to concerns expressed by people from Elko regarding a change in the law last session requiring property managers to have a real estate license. He remarked that created a hardship for people in certain areas, due to the fact they were not dealing in real estate matters. Assemblyman Carpenter explained that property managers of property used for residential housing that is subsidized, either by the state or a federal agency, have a comprehensive training program that covers such things as trust accounts, and it is more extensive than that required to obtain a real estate license. He indicated that is the reason for the bill, and Ms. Morgan rewrote the first part of the bill to clarify that owners of property did not need to be licensed real estate agents. Assemblyman Carpenter mentioned he had people with him who could explain the bill.

Shirley Petro, Acting Deputy Administrator, Real Estate Division, Department of Business and Industry, stated she was speaking on behalf of Joan Buchanan, Administrator, Real Estate Division, Department of Business and Industry. She remarked, as Assemblyman Carpenter stated, the division reviewed the records of property managers to see what their job entails. Ms. Petro confirmed the requirements are more extensive than that required of a property manager who manages someone else’s property. She offered her division’s support of A.B. 447 insofar as it relates to subsidized housing or state funds that would be available for low-income housing. Ms. Petro remarked any other parts of real estate that property managers are involved in would still come under chapter 645 of Nevada Revised Statutes (NRS).

James L. Gregory, Broker, Weststates Property Management Company, testified he was from Elko, Nevada, and he had met with the Real Estate Commission approximately 1 year ago. He reported that he explained to the commission that Senate Bill (S.B.) 248 of the Sixty-ninth Legislative Session was difficult for those in his position to comply with because they have properties in small, rural areas in which it is difficult to find licensed real estate brokers willing to manage small, rural properties.

Mr. Gregory referred to his handout (Exhibit C) which illustrates the services his company provides. He said in addition to what is required by, for example, the Farmers Home Administration, his company performs low-income housing task-write compliance and home-funds compliance. Additionally, Mr. Gregory mentioned that the 1930-C manager handbook from the Farmers Home Administration is a comprehensive program requiring a lot of oversight. He also stated most of the agencies his company deals with require monthly reporting, and some require quarterly reporting. Mr. Gregory mentioned the additional duties listed in Exhibit C. He indicated Weststates Property Management Company has developed its own internal management manual and in-house training that is completed by each manager.

Michael S. Lynch, Lobbyist, Builders Association of Northern Nevada, testified his association strongly supports passage of A.B. 447. He introduced Robert Nielsen, saying he was employed by one of the five or six companies affected by this bill.

Robert F. Nielsen, Shelter Properties Inc., concurred with everything that Assemblyman Carpenter and Mr. Gregory said. He remarked this bill would help companies such as his to comply with the law, whereas with a strict reading of the law as it is currently, property managers may be in violation of the law. Mr. Nielsen noted his industry is one of the most controlled industries, not only by local, state, and federal government agencies, but by investors involved in low-cost housing projects, as well as the IRS. He stated his business is statewide, and it is his understanding that quite a few more than five companies are managing these types of properties. Mr. Nielsen concluded by offering his association’s support of A.B. 447.

Chairman Townsend asked if the types of property in which Mr. Nielsen is involved are referred to as "section 8" housing. Mr. Nielsen replied there are a number of different sections of different laws in which these particular projects are either subsidized or helped. He said one is section 8 of the housing law, and has to do with heavily subsidized projects that are run not only by the Housing Authority but some private entities. Mr. Nielsen reported section 42 is of the IRS regulations, and is the regulation that sets up federal tax credits. There are also farmers home programs, the federal home program, a state trust fund, and state home fund. He reiterated section 8 is only one of a number of different entities that play a role in helping these housing projects.

Joseph L. Johnson, Lobbyist, Nevada Housing Coalition, submitted a copy of his statement (Exhibit D), which indicates the Nevada Housing Coalition urges the committee to adopt A.B. 447.

Senator O’Connell noted for the record that her husband is a real estate broker.

John F. Wiles, Division Counsel, Division of Industrial Relations, Department of Business and Industry, remarked Assemblywoman Gibbons could be at the hearing if the committee so desired. He said he was prepared to answer any questions and describe the bill for the committee at its pleasure. Mr. Wiles testified A.B. 489, although simple in form, accomplishes a significant purpose. He stated it provides for a focus on small businesses in a couple of ways. First, and foremost, Mr. Wiles advised, under section 1, subsection 2, it provides for the section for enforcement to develop a program for small employers to eliminate or abate safety and health hazards. He indicated it also provides, if a small employer complies with the program, that the section for enforcement may reduce any penalty, fine, or interest imposed, pursuant to this chapter. Mr. Wiles pointed out that would have to be approved by the U.S. Secretary of Labor, because Nevada has a state plan. He indicated in section 1, subsection 3, the section for safety, health, and consultation, would do two things under this statute. First, a toll-free telephone number would be established to assist small employers in complying with the requirements of the chapter. Second, Mr. Wiles noted section 1, subsection 3, paragraph (b), would develop a special program to assist small employers in meeting the requirements of the chapter. In Mr. Wiles opinion, the emphasis on small employers is well placed, because small employers do not have the resources available to them, as large employers do, for safety issues.

Finally, Mr. Wiles remarked the bill, in section 1, subsection 1, simply states the administrator shall establish a section for enforcement and for safety and heath consultations. He advised the division already has that set up, but it is significant in this bill because it speaks to an important public policy purpose. Senator O’Connell inquired why this bill is needed when its provisions are already being done. Mr. Wiles replied if Senator O’Connell was referring to section 1, subsection 1, that part is in effect as a part of the executive process. He explained the Executive Branch has established a division for industrial relations, and under the division, not statutorily, there are two applicable sections within the division with enforcement responsibilities. Mr. Wiles asserted that alone is being done and could continue to be done, or it could stop tomorrow because there is no statutory mandate that there be separate sections. Senator O’Connell said she understood there is not presently a way for the division to reduce any penalty, fine, or interest. She stated, however, this is the whole idea of what the Legislature created in 1991 by requiring every employer to establish a safety program, and she could see no reason for the bill.

Ray E. Bacon, Lobbyist, Nevada Manufacturers Association, stated the primary reason for the bill is the average employer does not know there is a consulting section, and the average employer cannot find their telephone number. Senator O’Connell asked if it needs to be put into law since it already does exist. She further inquired why the trade associations are unable to disseminate that information to employers. Mr. Bacon answered the "800" number alone would make a substantial difference in facilitating finding the section. Mr. Wiles responded to a question by Senator O’Connell by saying they could establish an "800" number without passing a law. He conceded they could do the other things in the bill without passing the bill as well. However, Mr. Wiles stated the important aspects in terms of the bill are it makes a significant public policy statement about their emphasis on small employers and provides a requirement that the division comply with that policy. In response to another question by Senator O’Connell, Mr. Wiles replied the features of this bill would not cost anything; the division would establish the toll-free number out of its advertising campaign resources for training employers. He continued the resulting reduction in penalties would have an impact in terms of saving collection costs. Mr. Wiles informed Senator O’Connell that her questions were also raised on the Assembly side, and they are recurring due to the perception that this bill is not really necessary and does not do much. In Mr. Wiles’ opinion, this is a bill with a significant impact, and will help the division establish its priorities as a clear policy. Further, he stated the policy is designed to focus on a particular constituent base. Senator O’Connell informed Mr. Wiles the committee had not received the pamphlets requested from his division 6 weeks ago to see if they have been updated and if they are what the injured worker needs. Mr. Wiles apologized and indicated he would see that the pamphlets were provided to the committee promptly.

Assemblywoman Dawn Gibbons, Washoe County Assembly District No. 25, testified she had brought forth this measure to address a problem that small businesspeople have had. She remarked Mr. Wiles has been quite helpful, and as long as Mr. Wiles is with the department, she is certain he will be there to help small business people. However, if Mr. Wiles leaves the department, it is Assemblywoman Gibbons’ opinion that A.B. 489 will be needed to educate employers about the requirements of the law.

Robert A. Ostrovsky, Lobbyist, Concerned Citizen, stated he was not representing anyone, but wanted to tell a story representing the need for this bill. He told of representing Thompkin Industries during the interim, a multi-billion dollar conglomerate out of London, England, which owns a manufacturing plant in Clark County. Mr. Ostrovsky recalled when Thompkin Industries contacted him, they had a problem with the U.S. Environmental Protection Agency (EPA) and needed assistance from the Occupational Safety and Health Association (OSHA). He said when he explained to the company there was a consulting division, they were fearful that would mean inspections, compliance, and potential fines. Mr. Ostrovsky told them, administratively, this state has developed a department under the direction of the Legislature that was meant to help employers. He commented the reason he relayed his story was to illustrate that most employers associate OSHA with inspections and trouble. Mr. Ostrovsky mentioned the consulting section did help resolve a difficult situation with the U.S. Department of Justice, the EPA, and Thompkin Industries. In Mr. Ostrovsky’s opinion, this section in the law would be helpful in pointing out to employers that there is a difference between enforcement and consultation. He said if the inspectors saw a certain level of hazard, they would be required to report it. However, there are many other less hazardous situations for which the inspectors could consult employers to help them avoid fines.

Senator O’Connell inquired of Mr. Wiles how he planned to inform employers of the difference between the fact this policy has been in place, and it would now be part of Nevada law. Mr. Wiles informed Senator O’Connell they would be engaged in a more rigorous outreach effort through the trade groups, the chambers of commerce, and development of pamphlets within certain industries identified by the trade groups and chambers of commerce. Additionally, he stated the division would be focusing its energies in terms of its advertising budget to increase workplace safety and increase public awareness of the consultation section of the division.

There being no further testimony on the bill, Chairman Townsend closed the hearing on A.B. 489. He then opened the hearing on A.B. 431.

Assemblywoman Barbara E. Buckley, Clark County Assembly District No. 8, stated she was pleased to present A.B. 431. She introduced Gail Burks, Executive Director, Nevada Fair Housing Center Inc., and advised that Ms. Burks’ organization has received a federal grant. Assemblywoman Buckley further advised that Ms. Burks’ organization works on banking and housing issues in the state, particularly in Clark County. Additionally, she said Ms. Burks is the newly elected president of the National Community Reinvestment Corporation, a national organization that advocates for small businesses and low-income individuals to gain better access to banking. Assemblywoman Buckley also introduced Michele Johnson, Director, Consumer Credit Counseling Service. She mentioned that Ms. Johnson works with individuals in restructuring debt and has a good understanding of the problems faced by those who are struggling with too much debt.

Assemblywoman Buckley testified A.B. 431 covers two completely different areas. She remarked one seems a little less controversial than the other, and she would start with the less controversial area. Assemblywoman Buckley stated these sections have to do with updating chapter 598 of NRS, Nevada’s Deceptive Trade Practices Act. She advised the Legislature has not reviewed this statute in quite a while, and those on the other side of the law find loopholes when the statutes are not reviewed on an ongoing basis. Assemblywoman Buckley pointed out section 2 adds an additional definition to a deceptive trade practice. It provides that a businessperson engages in a deceptive trade practice when he fails to return the amount of down payment that was given on the condition that a potential buyer would receive financing, and then is unable to obtain the financing. Assemblywoman Buckley mentioned that is not spelled out in chapter 598 of NRS. Chairman Townsend advised one of the reasons the committee intentionally kept deceptive trade practices fairly broad was to avoid leaving somebody off the list, and having a lawyer use the defense that that particular crime was not spelled out. Chairman Townsend asserted at some point the Legislature will need to make a policy statement to the court that common sense deceptive trade practices should be included.

Assemblywoman Buckley agreed with Chairman Townsend. She maintained, as a lawyer who tries consumer fraud cases, the crime list is too narrow. Assemblywoman Buckley referred to section 6 of A.B. 431 and said it is pretty narrowly drawn. As an example, she read subsection 2 of section 6, "Knowingly makes a false representation as to the source, sponsorship, approval or certification of goods or services for sale or lease." Assemblywoman Buckley commented there is nothing in chapter 598 of NRS on leases, so to avoid the laws covering deceptive trade practices in sales, a dishonest sales person often turns to leases. She noted the bill contains an addition in section 6, subsection 14, "Knowingly makes any other false representation in a transaction" to provide a general, catchall category. Assemblywoman Buckley pointed out this was for knowingly committing violations, not negligence, because negligence, by definition, is not a deceptive trade. Senator O’Connell inquired how the law defines "knowingly." Assemblywoman Buckley replied generally the courts, through case law, require there be evidence that it was not negligence, and the offender had actual or constructive knowledge. She said the burden of the person claiming it was deceptive is to show through direct testimony of, for example, a coworker, that a person leasing faulty stereo equipment, for example, had a work order showing the equipment to be defective. Assemblywoman Buckley explained the elements of a tort of misrepresentation are that the person knew a fact, made a false representation as to it, with knowledge of its falsity, with the intent to deceive. She pointed out that is quite different from negligence, which is a failure to exercise reasonable care.

Assemblywoman Buckley continued to explain provisions of A.B. 431, stating section 2 talks about failure to return payments. Section 3 deals with the issue of conducting and marketing a sale of goods in a language other than English, and then failing to provide to the customer an unexecuted copy of the contract in that language. She advised, generally, the law states if a consumer does not speak English and is signing an English contract, the consumer is responsible for getting a translation before signing it. However, Assemblywoman Buckley remarked some businesses are actually marketing and conducting transactions, mostly in southern Nevada, in Hispanic. She indicated they advertise on Hispanic-speaking television stations and in Hispanic-language newspapers. They have Hispanic-speaking salespeople, and conduct the transaction entirely in Hispanic. Assemblywoman Buckley advised the seller then gives the customer a contract written in English, says it is fine, and requests the customer sign the contract without a translation. She said the Federal Trade Commission has looked at this issue and found a difference between someone failing to get a friend or colleague to translate the contract for him, and the situation in which a business conducts business in Hispanic and then fails to provide a copy of the contract in Hispanic. Assemblywoman Buckley stated A.B. 431 incorporates that model. She further remarked this would not require every contract to be in every language, only that it is provided in the language spoken by salespeople hired by the business.

Continuing, Assemblywoman Buckley stated sections 5 and 6 merely add "lease." Section 6, as well, adds the false representation language she discussed earlier. Assemblywoman Buckley noted there is an addition to the "bait and switch" statute that clarifies a business cannot bait and switch in leases, just as they cannot in sales goods. She mentioned section 9 adds that it is a deceptive trade practice to use coercion, duress or intimidation in a transaction, and to violate federal and state laws that may not be incorporated within this particular section. Assemblywoman Buckley pointed out chapter 597 of NRS is applicable as well as chapter 598 of NRS. She said if chapter 598 of NRS does not incorporate, it does not apply to chapter 597 of NRS.

Assemblywoman Buckley pointed out the next section is completely different and the one that has stirred the most controversy. She stated it has to do with deferred deposits or payday lending. Assemblywoman Buckley gave a brief background, saying last session Assemblyman Wendell Williams sponsored a check-cashing bill, and it was the first time the subject came to Assemblywoman Buckley’s attention. She explained that Assemblyman Williams’ bill would limit the amount that could be charged to cash checks. Assemblywoman Buckley recalled testimony from the check-cashing industry to the effect the bill would hurt their loan business. She remarked the committee was unaware of the deferred-deposit business. Assemblywoman Buckley commented during the last 2 years she has become aware of cases involving deferred deposits. She told of the case of a maid who borrowed $300, had paid back $1,300, was sued for $2,600, came with a judgment for $2,600, and a quarter of her wages were being garnished. Assemblywoman Buckley noted the maid was being charged 1,500 percent interest. She indicated that Ms. Johnson could talk more about people paying exorbitant interest rates when all they want to do is pay off their debt and get back on their feet. Assemblywoman Buckley added they do not want to declare bankruptcy, but to do everything they can to work with their creditors.

Assemblywoman Buckley testified that she became more interested in this issue and did some research. She referred to an article from the Consumer Federation of America titled "The Growth of Legal Loan Sharking: A Report on the Payday Loan Industry" by Jean Ann Fox, Director of Consumer Protection, Consumer Federation of America, dated November 1998 (Exhibit E. Original is on file in the Research Library.). Assemblywoman Buckley reported that different states have taken different approaches. She said some states have usury laws, and others have small loan acts and do not allow payday lending or deferred-deposit businesses at all. Assemblywoman Buckley remarked the Assembly Committee on Commerce and Labor chose to regulate rather than ban deferred-deposit businesses. She commented her two main concerns about this industry are the inability of people to get out of debt when they want to and the criminal prosecution side of it. Assemblywoman Buckley explained the way the bill works is it limits the number of rollovers and puts into statute what happens when a borrower defaults. For example, she stated, the market sets how much the lender will charge for a 2-week period; it can be 10 percent, 50 percent, or 2000 percent, but the bill limits the rollovers. Assemblywoman Buckley further explained once the person defaults, the bill states the lender must agree to enter into a repayment agreement if the borrower is willing. She remarked if the borrower completely defaults, he would pay the prime rate plus 10 percent so that the loan is not escalating for 2 years at the rate of 2000 percent, for example, and like the maid, end up costing the borrower $3,900 for a $300 loan.

The second abuse of this industry that concerns Assemblywoman Buckley is the use of the check. She remarked when a person makes a loan and defaults, he can be sued civilly, but not by the criminal justice system. Assemblywoman Buckley explained this transaction is a little different because the person is writing a check. She said some in the industry are using that check to threaten criminal prosecution for writing a bad check. Assemblywoman Buckley pointed out those lenders are using checks in the loan context, not in the negotiable instruments or the merchant transaction sense. She walked the committee through the applicable section of the bill, saying it starts in section 12 with disclosure to inform individuals that they could be getting onto a "debt treadmill." Section 12 goes on to provide that the business, before deferring a deposit, shall deliver a pamphlet approved by the commissioner of financial institutions that explains borrowers’ rights, includes a toll-free number to communicate with the commissioner regarding complaints, and so forth. Additionally, the pamphlet would contain a statement that says, "You may be held liable in a civil action for collection. You cannot be prosecuted in a criminal court."

Senator O’Connell inquired whether there was anything that requires the person who is writing the check to make a statement that they fully understand the consequences of nonpayment. Assemblywoman Buckley replied they did not include that. She explained the committee members were of the opinion it was a big enough step forward to get the written agreement and disclosures from the lender. Assemblywoman Buckley conceded that such a statement might help. She mentioned the problem with this industry that is not as true in the banking industry. The problem is that a large segment of individuals making deferred-deposit loans cannot afford to make them, and therefore, perhaps ensuring that the borrower understands the consequences of nonpayment would deter a potential borrower from assuming debt he cannot possibly pay back.

Assemblywoman Buckley indicated section 13 of A.B. 431 requires there be a posting at the loan location informing borrowers they may be held liable in a civil action but cannot be criminally prosecuted. Additionally it requires posting of a fee schedule and an example of a typical $300 loan. She advised it would also outline what the loan would equal in terms of percentage rates, the total amount of fees, and other potential charges. Assemblywoman Buckley said section 14 goes into another area unique to this industry. She explained the borrower is obtaining a loan guaranteed on a check, and when the lender accepts the check, he knows there is no money in the account. The lender accepts the extra $40 charged for the benefit of the transaction, and in 2 weeks, if the borrower does not have the loan balance, the lender is able to put the check through and additionally charge the lender $25 each time the check is put through plus the additional bank fees. Assemblywoman Buckley stated to prevent that "treadmill effect," this section provides that a lender may collect a fee of not more than $25, and that only one fee can be charged to limit the number of fees charged. In response to a question by Senator O’Connell, Assemblywoman Buckley explained that in most of the situations involving default, the lender knows there is no money in the account, but keeps putting the check through the bank to keep racking up the charges, and not because they know they will receive the money. Senator O’Connell inquired whether the lender could call the bank and see if there was money in the account prior to sending the check through again. Assemblywoman Buckley answered it is her understanding that some of the banks will do that, but she was uncertain whether all banks provide that service.

The next section addressed by Assemblywoman Buckley, section 14.5, deals with the repayment. She remarked it requires that the lender agree to a repayment plan for a defaulting borrower that would be in effect for 60 days. If the borrower refuses to enter into an agreement or defaults on the agreement, the lender would not be required to stay in a repayment agreement with someone who is not able or willing to honor the agreement. Assemblywoman Buckley advised that the lender could convert the debt to a loan for an indefinite term, and it must not exceed the amount currently due including charges and interest. She asserted, at that point, the interest may be charged at a rate equal to or less than the prime rate charged by the largest bank plus 10 percent. Senator O’Connell asked if most of the loan customers understand what interest is and what the amount is really equating to in dollars. She mentioned she was thinking of non-English speaking individuals in particular, who may not understand the system of economics used in the United States.

Ms. Johnson was of the opinion that some of the disclosures included in the bill address that situation, especially with the Latino community. She said many Latinos are unable to transact business if it is done in English. Ms. Johnson added the majority of her company’s clients are not as sophisticated as would be desirable due to a lack of education. She referred to her handout (Exhibit F) and remarked, again, it goes to the disclosures, and the handout shows the differences within them. Ms. Johnson stated she did not know how to address the issue for those who are unsophisticated other than to say the Legislature has an obligation to include disclosures to help them make a more careful financial decision. Senator Carlton remarked she has coworkers in her profession that bring documents to her that they do not understand, and she has helped them understand that they would be getting into a situation such as that described by Assemblywoman Buckley. Senator Carlton advised that she has helped coworkers avoid getting into a bad situation by explaining the contract terms to them. Ms. Burks informed Senator O’Connell the Federal Reserve and other regulators are working on programs to educate mainstream America to enable Americans to be more financially literate.

Assemblywoman Buckley explained that section 15 of A.B. 431 is the last major portion of the bill, and it sets forth some prohibited practices. She advised it provides that it is unlawful to use or threaten to use the criminal process or any other process not available to general creditors. Additionally, it is unlawful to make an unconscionable loan in the form of a deferred deposit that exceeds one-third of the borrower’s expected net income. Assemblywoman Buckley pointed out generally, in her understanding, the lenders do a loose form of underwriting. For example, they may only request the borrower show them a check stub to show that the borrower is working. She said this provision of the bill provides a protection against the customer borrowing more money than he is able to repay. Assemblywoman Buckley stated section 15 of the bill also prohibits lenders from charging a check-cashing fee on top of the loan. Another prohibition provided for in section 15 of A.B. 431 is to make more than one loan at a time or to make a loan to someone who has two or more previous loans outstanding. Assemblywoman Buckley commented the next prohibition is the rollover prohibition. It provides that the lender cannot extend the loan beyond 6 weeks of the initial loan period. She advised most of these loans are 2 weeks in duration; thus 6 weeks equals 3 rollovers. Again, Assemblywoman Buckley mentioned the lenders can charge anything they want during the 6 weeks, but at some point when the borrower cannot pay it back, that is when the limitation on the default period kicks in.

The next prohibition mentioned by Assemblywoman Buckley was to the lender accepting collateral for these types of loans beyond the check. The final prohibition is to include things in the written agreement such as confessions of judgments, assignment of wages, and so forth, that are not usually included in most contracts. Assemblywoman Buckley stated those are the highlights of the bill. She said section 19 just carries out some bait and switch follow-up to the earlier portion of the bill. Assemblywoman Buckley commented regarding section 22, in drafting the amendment in the Legal Division, they added chapter 675 of NRS to the bill. She mentioned the issue is that most of these lenders are licensed under chapter 604 of NRS, under "deferred deposit." Assemblywoman Buckley continued the bill drafters wanted to apply these provisions regarding check loans to any lender who provides check loans. She stated some might be licensed under chapter 604 of NRS, some under chapter 675 of NRS, and some may try to "chapter jump" to escape these substantive provisions. She advised that James Wadhams suggested it might be better not to use chapter 675 of NRS and instead to put it under chapter 598 of NRS. Assemblywoman Buckley explained chapter 598 of NRS covers deceptive trade practices and might catch every lender instead of tracking noncomplying lenders through every lending chapter. She remarked she would like to discuss that further with Mr. Wadhams and leave it up to the committee’s pleasure, but that is something to which she is open.

Chairman Townsend asked Assemblywoman Buckley where in the bill it addresses workers’ compensation as noted in the bill summary. Assemblywoman Buckley replied she does not know how the reference to workers’ compensation got into the summary. It is her understanding that the first draft contained consumer protection for workers’ compensation, saying a lender could not garnish a workers’ compensation fund in a bank. Assemblywoman Buckley stated she would follow up on that. Chairman Townsend noted that Crystal M. Lesbo, Committee Policy Analyst, Research Division, Legislative Counsel Bureau, said it was in section 21 of A.B. 431. Assemblywoman Buckley remarked that was where it came from then, and that is why it appears in the summary. Chairman Townsend pointed out the bill summary is different from the explanation, and perhaps the summary should be revised.

Gail A. Burks, Executive Director, Nevada Fair Housing Center Inc., distributed a copy of her testimony (Exhibit G) and stated she wished to highlight four issues regarding A.B. 431. She asserted her organization supports the bill and the changes in the bill. Ms. Burks remarked the bill really addresses the cost of credit, and the main concern is that the cost of credit and the amount of credit are not disguised. She referred to the attachment to Exhibit G saying it was a schedule showing the difference between being charged simple interest versus an annual percentage rate (APR), how big that difference is, and what can happen when a person is unaware of that distinction. The second point made by Ms. Burks is that the type of client who uses payday loans and check-cashing facilities are mainstream Americans; people whose debt to income ratio is a little bit off. They are often service industry workers, people who are starting out or on the back end of their life, receiving social security benefits, and do not quite have enough income to cover their debt. Ms. Burks mentioned many of the banks and institutions are currently looking at ways to use education, technical assistance, and consumer assistance to enable people to obtain bank loans and not have to rely on payday loans.

The third point addressed by Ms. Burks is that currently there are over 46 licensed deferred-deposit facilities and over 30 applications pending for new facilities pending in Nevada. She emphasized if the state does something on the preventative end, it can avoid litigation on the back end. The fourth point made by Ms. Burks was that she had heard that any regulation might drive the industry out of business. She denied the validity of that point, and offered a couple of statistics. Ms. Burks remarked currently non-banks make 40 percent of all loans in this country, so there are alternative systems of banking which provide a needed service. Small institutions or small banks make 60 percent of all loans. She advised they must comply to federal regulations and disclosures, and check-cashing facilities are no different, because they engage in extensions of credit. Ms. Burks concluded by stating her organization will continue to support the capitalist system and capital markets, but not at the expense of the consumer.

Michele Johnson, President, Consumer Credit Counseling Service, referred to a copy of her testimony before the Assembly Committee on Commerce and Labor referenced earlier (Exhibit F). She highlighted several parts of Exhibit F. Ms. Johnson noted she provided several different deferred-deposit company disclosures that show a huge difference in both what is disclosed and in the cost of credit. She mentioned the APRs range from 486.7 percent to 1,216.66 percent. Ms. Johnson remarked the 1,216.66 percent rate does not take into consideration the $30 service charge for a returned check, the $30 late fee if there should be a returned check, a $75 collection fee, and a $10 fee for a certified letter. She asserted the $150 cost of borrowing in this example is unconscionable. Ms. Johnson indicated consumers use her company’s services because they deem there is a need. She maintained creditors cooperate with her organization because they also acknowledge that need exists, and they do not make it more difficult for the consumer to meet his obligations, even though a change may be needed. Ms. Johnson testified for all financial transactions there must be regulations. She stated she hoped she had shown that earlier in the meeting with A.B. 109, which directly regulates her industry. Ms. Johnson commented so far, as a nonprofit organization, they have had no regulation at all.

Chairman Townsend referred to page 4 of Exhibit F, a "Payroll Advance Agreement," and asked if this is what the consumer would sign. Ms. Johnson answered that is correct with that particular company. Chairman Townsend pointed out to Assemblywoman Buckley the box titled "Annual Percentage Rate" with the rate of 486.67 percent typed into it, the "Advance Charge" of $60, the "Amount Advanced" of $300, and "Total of Payments" of $360. He also noted the disclosure at the bottom of the form that a fee of $15 would be charged for any returned checks. Chairman Townsend mentioned the 486.67 percentage rate is clearly indicated on the form that the consumer signs. He asked Assemblywoman Buckley if there were better disclosure forms she is looking for out of this bill or if this is the type of form she wants to see. Assemblywoman Buckley answered this is the type of form she would like to see. She continued basically the federal Truth-in-Lending Act requires these boxes. However, Assemblywoman Buckley pointed out that alone does not get to the debt treadmill, the other portions of the bill; but in terms of interest rate disclosure, the sample form was in a desirable format. Assemblywoman Buckley directed the chairman’s attention to the loan form on page 6 of Exhibit F, noting the difference. She indicated on that form there were no boxes, no interest rate, and what the consumer was paying for the loan was much less clear. Assemblywoman Buckley suggested perhaps Ms. Johnson’s association could create a standard form for use by the entire industry. Assemblywoman Buckley mentioned another handout she had distributed (Exhibit H). She remarked one of the interested parties had an economics professor critique A.B 431, and the professor said it would be contrary to the market system and capitalism as we know it today. Assemblywoman Buckley said her handout is a competing opinion from another economics professor that she distributed for the committee’s information.

John M. Vergiels, Lobbyist, Nevada Independent Check Cashing Association, stated he is also a co-owner of three check-cashing stores in Las Vegas, Nevada. He said he was at the meeting at the request of James Wadhams, who was attending another meeting. Mr. Vergiels remarked he would answer any questions that might be directed to Mr. Wadhams.

Robert Frimet, President, Nevada Independent Check Cashing Association, testified he also owns three check-cashing/deferred-deposit companies in Las Vegas. Mr. Frimet distributed his written testimony and a packet of petitions and letters from those opposed to A.B. 431 (Exhibit I. Original is on file in the Research Library.). He indicated he was at the hearing to share his concerns pertaining to sections 11 through 17 of A.B. 431. In Mr. Frimet’s opinion, A.B. 431 is unnecessary to protect the consumer. He mentioned that in October 1998, chapter 604 of NRS took effect, and that chapter, according to Mr. Frimet, protects the sanctity of the consumer as well as that of the business owner. He continued it requires deferred-deposit companies to show viability by posting a $50,000 bond, posting their fees, issuing receipts, and issuing agreements to the consumer, which must be signed by the consumer, prior to receiving any deferred-deposit services. Additionally, Mr. Frimet asserted recently enacted state Regulation Z requires his industry to disclose the applicable APR. He maintained industry representatives have met with their regulatory agency and spent many hours working together to ensure industry compliance with chapter 604 of NRS. Mr. Frimet pointed out there are some entities who wish not to adhere to the regulations, and those companies should be put out of business. He commented his association has worked closely with the commissioner of financial institutions to ensure the noncomplying entities receive a clear message that they are not welcome in the State of Nevada.

Mr. Frimet testified, regarding his operation, it makes no sense to himself or any responsible company to issue a consumer cash without a high certainty that the cash issued can be repaid. He conceded if a borrower cannot pay the debt on time, it may need to be extended but maintained his organization does everything in its power to work with the consumer, such as offer pay-down services, where the consumer can pay down on the principal with no penalty to the consumer. Mr. Frimet expressed opposition to posting a notice that the consumer cannot be prosecuted criminally. He inquired, if a customer writes him a check for $200 and then goes to his bank and stops payment on the check or closes the account, should that person not be referred for criminal prosecution? Mr. Frimet alleged many consumers intentionally defraud those in his industry to obtain cash with no intention of ever paying it back. He maintained posting their inability to take action could further add to increased fraud.

Mr. Frimet testified his main concern with A.B. 431 is the limit of times in which he can offer his services to the consumer, and the limitations on the amount he can offer. He claimed these choices should be left to the consumer and the company. Mr. Frimet disagreed with earlier testimony which indicated the consumer is not educated well enough to be able to make a reasonable decision as to what he or she needs to get through a crisis and how much time will be needed to pay it back. Mr. Frimet is also opposed to the stipulation that companies offering deferred deposits offer their services for free for 60 days to a consumer if he or she defaults on the terms of the agreement. He said he is unaware of any company that would provide their services for free to a customer who failed to meet the terms without taking punitive action. In conclusion, Mr. Frimet indicated that since July 1998, the Division of Financial Institutions has received six complaints. Additionally, he stated the association, with 28 members at that time, served over 33,000 consumers, not counting unlicensed entities. Mr. Frimet asserted that equates to tens of thousands of customers being served yearly with only six complaints being filed. He maintained chapter 604 of NRS is working and urged the committee to continue to let it work. Mr. Frimet mentioned he left a list of proposed amendments to A.B. 431 for the committee (Exhibit J), and that he would be glad to answer any questions regarding his testimony.

Chairman Townsend requested Mr. Frimet address his proposed amendments (Exhibit J). Mr. Frimet stated the first amendment is to section 12, subsection 1, and changes "deliver" to "make available." He explained his company already provides a pamphlet outlining its services, although he conceded it does not contain as much detailed information as proposed by Assemblywoman Buckley. Mr. Frimet said rather than the word "deliver" which indicates they would have to hand-deliver a pamphlet to each client, he would prefer it say "make available," and leave it up to each client to pick one up in the lobby, if they wanted one. Mr. Frimet proposed removing "and Hispanic" from section 12, subsection 1, paragraph (a). He explained his company’s fees are posted in English and Hispanic, and all of his employees speak Hispanic. Mr. Frimet acknowledged all of his company’s agreements are in English, but the employees of his company explain each part of the agreement to each customer. He also pointed out many potential customers speak English only, and in his opinion, everything should not be in Hispanic. Mr. Frimet proposed deleting in section 12, subsection 2, lines 1 and 2, the words "and, if different, in the language in which the loan was negotiated." He said he would like to stick to the primary language, which is English. Mr. Frimet proposed to delete paragraph (d) of subsection 2 of section 12 because it is vague. He also proposed deletion of paragraph (f) of subsection 2 of section 12 regarding disclosure of his company’s inability to prosecute criminally, which he discussed earlier. The next proposed amendment was deletion of section 13, which addresses the English and Hispanic language requirement, and the posting of the notice that criminal prosecution may not be used to collect a defaulted loan. Mr. Frimet conceded he would not be able to file criminal charges against a customer for a "not sufficient funds (NSF)" check, but stated if it is "stop-payment, account-closed" check, that is fraud.

Chairman Townsend requested Assemblywoman Buckley address the issue of the NSF check versus the stop-payment, account-closed check, or the issue of fraud as opposed to just not having the money. Assemblywoman Buckley remarked if a person does not have money in his account, and creditors continue to put checks through, the bank sometimes closes the account for that person. She said then they would be able to criminally prosecute someone for taking out a loan that they cannot repay when the bank closed the account. Assemblywoman Buckley also mentioned the situation in which a creditor keeps putting a check through the bank and accumulating $25 NSF fees. The consumer may close his account in that situation also to keep from incurring higher and higher debt. Mr. Frimet was uncertain if it is a banking regulation or federal law, but advised a creditor can only put a check through a bank twice. He indicated it is not to his benefit to prosecute or take anyone to court. Mr. Frimet maintained it is merely a tool.

Continuing with his proposed amendments, Mr. Frimet noted, regarding section 13, subsection 2, space in his stores is scarce, and he wishes to be able to advertise his company’s services, and post its fees. He stated he does not want to be required to post examples of what different sized loans would cost the consumer. Mr. Frimet proposed deleting section 14, regarding limiting the amount charged for NSF checks. He reiterated they can only put a check through the bank twice, and he will not put a check through the second time if there is no money in the bank. Mr. Frimet remarked section 14.5 is the big problem, offering his company’s services for free for 60 days, and he requested deletion of that section. Regarding section 15, subsection 2, which he proposed to delete, he asked what is "unconscionable?" He advised he loans 15 percent of a consumer’s net income, some loan 20 percent, some 25 percent. Mr. Frimet commented, on rare occasions, if a payday lender has a good customer who was eligible for $300 and only got $100, and they want $200 more, this section tells the lender he cannot loan more than a certain amount of the customer’s income. He maintained most of his customers earn $30,000 and above, gross, per year. Mr. Frimet stated, regarding section 15, subsection 3, line 15, he would like "with the exception of a check originated from another merchant," added because he charges 2.5 percent to cash checks. He proposed deletion of subsections 4 and 5 of section 15, because a person may need multiple loans. Regarding extensions, Mr. Frimet maintained a loan rarely goes as long as 6 weeks, the average is 2 weeks, but some go 3 or 4 weeks. He stated the consumer knows what he is getting into. Mr. Frimet proposed amending section 15, subsection 6, line 24 by adding after "deposit," "with the exception of a check or checks being presented by a payee" to conduct the deferred deposit. He stated his industry should have the right to get a confession, and should have a right to the means of collecting in any legal way that they can.

Continuing, Mr. Frimet proposed deleting section 22, and said that was covered earlier. He requested amending section 23, page 11, line 1, by deleting "or section 22 of this act." Finally, Mr. Frimet proposed deleting section 24 of A.B. 431. Chairman Townsend advised this is under Title 52 of NRS. He said Senator Amodei chairs the subcommittee on Title 52 with Senator Rhoads and Senator Schneider as subcommittee members. Chairman Townsend requested the subcommittee meet that afternoon (May 5, 1999) after completion of their hearings. Chairman Townsend scheduled the subcommittee meeting for 3 p.m. or the adjournment of the Senate Committee on Human Resources and Facilities, whichever was later.

Chairman Townsend closed the hearing on A.B. 431. He requested a motion on A.B. 109.

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Chairman Townsend next revisited A.B. 215.

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Chairman Townsend mentioned a bill from Assemblywoman Chowning heard on a previous day regarding automobile repairs. Senator O’Connell advised it was A.B. 258. Chairman Townsend inquired whether there were any proposed amendments to the bill. Scott Young, Committee Policy Analyst, Research Division, Legislative Counsel Bureau, stated Assemblywoman Chowning did offer an amendment which was delivered to his office that morning. Mr. Young noted the amendment was to delete some duplicative language.

Chairman Townsend disclosed that he is in the industry but is allowed to participate in this bill because it treats everyone in the industry equally.

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There being no further business to come before the committee, Chairman Townsend adjourned the meeting at 10:45 a.m.

RESPECTFULLY SUBMITTED:

Jo Greenslate,

Committee Secretary

APPROVED BY:

Senator Randolph J. Townsend, Chairman

DATE: