The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 9:20 a.m. on Wednesday, May 19, 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. Goldwater, Clark County Assembly District No. 10

STAFF MEMBERS PRESENT:

Scott Young, Committee Policy Analyst

John L. Meder, Committee Policy Analyst

Kevin C. Powers, Committee Policy Analyst

Ardyss Johns, Committee Secretary

OTHERS PRESENT:

Chairman Townsend opened the meeting by referring to Senate Bill (S.B.) 32 which was returned from the Assembly with a request that the Senate concur with Amendment No. 791.

James L. Wadhams, Lobbyist, Southern Nevada Homebuilders Association, stated the amendment was consistent with what this committee had processed and the only changes were of an editorial nature. He said the Southern Nevada Homebuilders Association supported this form of the bill.

Chairman Townsend stated he wanted the committee to have some insight into Assembly Bill (A.B.) 272 since it was an issue dealt with by this committee for the past 20 years. He said an amendment to the bill had been brought to the

Senate Floor the day before and members of this committee had not had a chance to read and think about the implications. He claimed he wanted to give the committee the opportunity to hear from everybody on the proposed change. When something is brought to the floor that affects policy, he asserted, he needed to know the details.

ASSEMBLY BILL 272: Revises penalty for driving without required insurance in effect. (BDR 43-572)

Robert Crowell, Lobbyist, Nevada Judges Association, told the committee it was the Nevada Judges Association who had requested A.B. 272. What this bill does, he explained, is to make it a misdemeanor to fail to comply with Nevada’s financial responsibility law. In other words, he noted, if a person does not have insurance in place, currently it is a fine of $100 for a first offense, and up to $1000. He claimed the number of repeat offenders was an indication that the fine mechanism was not a sufficient incentive to make people comply with Nevada’s financial responsibility. So, he summarized, A.B. 272 would make driving without insurance, a misdemeanor. He referred the committee to a copy of A.B. 272, Amendment No. 994 (Exhibit C) and noted the Nevada Judges Association took no position on this amendment since they had not proposed it.

Pat Cashill, Lobbyist, Nevada Trial Lawyers’ Association, told the committee the proposed amendment was intended to prevent operator-only policies from being used to register vehicles. In that sense, he continued, the amendment is intended to bolster the existing law regarding driver responsibility and financial responsibility. He claimed operator-only policies were being sold by a limited number of companies to largely economically disadvantaged citizens of Nevada who use those policies for purposes of demonstrating financial responsibility in registering a vehicle. Then, he maintained, other drivers who use the vehicle with the operator-only insured’s permission, and then are involved in an accident, turn out to be uninsured. He said there ends up being four groups of victims. One, he explained, the group in the car that is impacted by the vehicle operated by someone other than the operator who is insured. Two, he continued, the driver of what turns out to be an uninsured motor vehicle. Three, the owner of the car who is not operating the vehicle when the crash occurs; and four, which he claimed was the largest class, were those Nevada citizens who end up bearing the medical expenses or other costs incident to the injury caused by the crash. He stated the amendment does not seek to alter or expand the existing financial responsibility laws, but only to prevent the registration of a vehicle using only the operator-only type of policy. He noted the legislative history as to the operator-only legislation was that that type of insurance was intended to benefits those who, for example, have car collections and who do not operate the car on a day-to-day basis or a commercial basis. The amendment had been tailored, he explained, to protect those such as cab drivers, who may not own the vehicle and who have to have some group of insurance in order to operate the vehicle. He stressed the only concern was that at the time of registration, the operator-only policy ought not to be the only evidence that one has to demonstrate financial responsibility.

Senator Shaffer stated he had been asked by some of his constituents who were concerned about the senior citizen who lives alone and wanted to know if there was any sort of exemption in such a case. Mr. Cashill replied he knew of no such exemption. As an example, he said, if he were to visit his aged mother who had an operator-only policy, and he drove her vehicle, he had better have some kind of insurance or she better have some other kind of insurance that would insure him while driving that vehicle. Mr. Cashill testified that consumers tend to listen to only one thing, and that is the cost of their insurance and tend to buy insurance on a cost-only basis. Unfortunately, he claimed, when people simply focus on price, a lot of times it leaves them underinsured.

Mr. Wadhams told the committee that operator-only policies were used for more than one purpose. One example, he acknowledged, was the taxi driver. He claimed there were other individuals who might not own a car but would none the less have a need for automobile insurance. The other point that was clearly raised by the proponents of the amendment was the need for proper disclosure. If proper disclosure is not being made so the consumer understands what they are purchasing, he stressed, that is an issue that needs to be handled.

Clark (Danny) Lee, Lobbyist, Nevada General Insurance Company, said while he had absolutely no problem with the original bill, he did have a problem with the amendment. He told the committee that Amendment No. 994 was originally A.B. 453, which was defeated on a floor vote in the Assembly on April 19. He said he did not agree with Mr. Cashill’s idea that operator-only insurance was designed for collector cars, because there are specific policies designed for antiques and collectibles. He claimed this insurance provides no physical damage coverage, which would be required of an expensive collectible or antique car. He noted there was a declaration statement attached to the application for operator-only policies, which spells out very vividly the limitations of the coverage under the policy. As a result of this amendment, Mr. Lee asserted, Nevada might end up with even more uninsured cars because people will not get rid of cars but will buy one policy and then switch license plates from one car to another. The only way they would get caught, he stated, is if they were ticketed or involved in an accident. He claimed the rationale is that the fine is less than the insurance would have cost on the additional vehicles and they take that chance. When 10,000 to 15,000 policies may be cancelled on July 1, 1999, he concluded, there will end up being more uninsured vehicles on the highway than under the operator-only policy.

Chairman Townsend wanted to know what the penalty would be to an insurance agent for not disclosing all of the pertinent and appropriate information to a purchaser of insurance, whether under the current statute or with the proposed changes.

Alice A. Molasky-Arman, Commissioner, Division of Insurance, Department of Business and Industry, stated the failure to disclose or to mislead a member of the public imposes a fine of not more than $500 per violation if perpetrated by an agent or a broker. If there is a violation by an insurance company, she explained, the fine is not to exceed $5000 for each act or violation.

Chairman Townsend opened the work session on A.B. 64, and told the committee he would like to spend some time going through two portions of the bill he considered important.

Chairman Townsend referred to page 19, section 41, subsection 2 of the bill. He said he was dealing now, only with increases or new fees. He stated the bond requirement had been discussed by the committee and it had been suggested that in order not to bankrupt small companies, the bond be increased in $50,000 increments depending on how much money was run through the business. He claimed this would still provide the public with a certain amount of assurances with regard to these bonds. He asked the commissioner of the Division of Financial Institutions if he would be the one who would establish these levels. In other words, he questioned, would the commissioner be the one to identify that, or if a company knew that they did $150,000 or $2,000,000 of business last year, would they then know that they would fall into a certain category and have to pay that bond.

L. Scott Walshaw, Commissioner, Division of Financial Institutions, Department of Business and Industry, stated both was true. He explained, using the collection agency as an example, that the Division of Financial Institutions was required by statute, to evaluate where they are on a semiannual basis. He said obviously, if the licensee is aware of what monies are flowing through their trust account, they are supposed to make the adjustment in their bond without having to be told. But, he added, the Division of Financial Institutions is doing the evaluation just to make sure that was being done.

Chairman Townsend referred then to the top of page 21 having to do with surety bonds under Nevada Revised Statutes (NRS) chapter 645A for escrow agencies, which would be based on a sliding scale. He asked Mr. Walshaw if all these sliding scales would be based on what was being proposed in this section. Mr. Walshaw said the only place in which the Division of Financial Institutions proposed a sliding scale was in NRS chapter 645A in section 42 as shown in his proposed amendment (Exhibit D).

Chairman Townsend stated he was concerned that the $250,000 bond requirement might cause some damage to some smaller people who do not deserve it if they are not running a number of dollars through a business. He said perhaps it would be consistent to take everyone to $250,000, but it might be a better public policy to scale it up.

Kevin C. Powers, Committee Policy Analyst, Research Division, Legislative Counsel Bureau, told the committee NRS chapter 627 was overseen by the State Contractors’ Board. He said it would be necessary to get some information on the level of business done by the construction controls in order to create the graduated scale. He mentioned that the commissioner and attorney general’s office provided information for the escrow agencies, which the Division of Financial Institutions oversees.

Chairman Townsend referred the committee to page 44 and stated that entire section had to do with new fees. He said page 75 had to do with a new bond of $250,000 for title agencies and title insurance people. He asked Mr. Walshaw if it would be possible, since those people have no bond currently, to look at the scale-in approach. Mr. Walshaw replied stating he could not comment on that but he added, someone from the insurance division might know the answer.

James Jeppson, Chief Insurance Assistant, Division of Insurance, Department of Business and Industry, told the committee the bill had been amended earlier to allow title agents or title insurers to offset the amount of the bond by providing other types of securities. He said this could be found on page 76 beginning on line 40 and running through line 8 on page 77. He stated he did not believe the bond would be a problem for those people with the opportunity they have to provide fidelity bonds, errors and omissions policies, and also to use unearned premium reserves as well as expense and loss reserves.

Pat Coward, Lobbyist, Nevada Land Title Association, said he was not opposed to this section of the bill since the title people do have alternatives to the $250,000 bond.

Chairman Townsend referred the committee to page 6, section 14. Mr. Powers pointed out that section 14 was a reenactment of the existing NRS 645B.050. Chairman Townsend stated, "Let me understand this. You have got current people that are going to pay the same fee that they were before, only they are going to be in a different chapter?"

Mr. Powers said that was correct, and said those fees were the same exact ones that those companies were paying now under NRS 645B.050. Chairman Townsend said, "So these are [NRS chapter] 645B people under section 14 and they are now going to be [NRS chapter] 645 something else." Mr. Powers stated that was correct.

Mr. Walshaw said yesterday there had been a discussion on the possibility of amending the bill to create a provision for so-called commercial loan brokers. All that would accomplish, he continued, would be to re-categorize existing licensees into a new chapter in which the same fees would be paid.

Chairman Townsend referred to page 24, section 56 where it talks about mortgage agents. He said, "That is an employee or independent contractor authorized by the mortgage broker to engage in, on behalf of the broker, an activity that would require a person, if not an employee to be licensed…" He said this is talking about 1500-plus new people with a $500 application for investigation, a $250 application for a license and then an annual $150 fee. That is a whole new group of 1500 people, he asserted, with new fees.

John Royce, Legislative Chairperson, Nevada Association of Mortgage Brokers, said the mortgage brokers association was who had suggested that loan agents be licensed and had taken that position for a number of years. He stated all originators of mortgages should be supervised in some capacity and that all people who deal with the public, the loan agents themselves, should be licensed just like real estate agents are. He claimed there were a group of people who did not want to be supervised and are presently exempt which, he added, probably would not change this session. He asserted his people were facing a severe negative position if they are the only ones in the industry who are licensed. His people, he stressed, are generally small business people whereas the exempt lenders are traditionally people with the $250,000-plus of net worth who operate all over the country.

Mr. Royce said he did not want to interfere with the fiscal neutrality of A.B. 64, but wanted to assist the committee in getting a bill through with which his people could live. In regard to the 1500 new people to whom Senator Townsend had referred, he stated, he would like to see limited registrations. He claimed it would be good for the industry and good for the consumer but added, the cost cannot be $750. He suggested coming up with a very limited registration procedure which could involve credit reports and criminal background checks. He said he thought the out-of-pocket cost for the Division of Financial Institutions to do that would be around $50.

Chairman Townsend asked Mr. Walshaw if he thought the Governor would accept a registration with a background check approach to this. Mr. Walshaw stated he had spoken with John P. Comeaux, Director, Budget Division, Department of Administration, who said the Governor’s position was to veto new fees unless there was clear support from the group affected.

Russell Best, Lobbyist, Home Financial Mortgage, and R B Real Estate, said he was opposed to this concept since it did not include the bankers, thereby creating an unfair playing field. Chairman Townsend asserted the bankers were not the people who had created the problem. He said this bill would not even be here if it were a banker’s issue. Mr. Best pointed out that in a lot of other states, the bankers are on the same playing ground as the mortgage brokers. Chairman Townsend reminded Mr. Best that this was Nevada.

Martin LeVasseur, State President, Nevada Association of Mortgage Brokers, said, in regards to the registration and $50 background check, he was in full support.

Mr. Walshaw told the committee there had been a long discussion the day before with members of his staff as well as the representative of the mortgage brokers association. He said those involved in that discussion had come up with an approach similar to what was being discussed here. Mr. Walshaw stated:

Mr. Best suggested instead of the $50 for a background check, sending individuals to the police department where their fingerprints could be put on file. Similar to what the gaming boards do now, he stated, and that way, there would be no cost at all.

Chairman Townsend asked what benefit Mr. Best’s proposal would have over what had just been discussed.

Douglas E. Walther, Senior Deputy Attorney General, Office of the Attorney General, said as he understood, it would be a requirement that you submit fingerprints but you do not run the background check. Mr. Best replied, "No sir. You would have to take it to the police station. They would run it, and you would bring the fingerprint card and the background check to us and we would turn it in to the state. There would be no cost."

Mr. Walther asked, "So the applicant is incurring the cost of that background check?" Mr. Best replied, "Yes sir." Senator Townsend said the applicant would incur that cost one way or the other.

Senator Shaffer stated he thought an FBI check was more thorough than the state if you were really looking to check someone’s background.

Senator O’Connell stated, for the record, "My son is a mortgage banker, and I have not entered into the discussion, nor will I be voting on this issue. But I can tell you that a work card does cost you more than $50."

Chairman Townsend addressed Assemblyman David E. Goldwater, Clark County Assembly District No. 10, who had just entered the room and who was not only the sponsor of A.B. 64, but also the chairman of the interim committee. Chairman Townsend summarized what had been discussed prior to Assemblyman Goldwater’s arrival, and asked if that was acceptable. Assemblyman Goldwater replied by stating that was completely acceptable since it had never been his intent to require full registration or licensing. He said he just did not want people who had been convicted of a felony handling other people’s most sensitive financial information.

Chairman Townsend said the committee would check on two issues. One was the new issue regarding the new $250,000 surety bond on NRS chapter 692A, the title agents and title insurers. Since it was entirely new, he stated, it would be necessary to get Mr. Coward, in his industry, to send the appropriate letter stating that they did indeed think this was appropriate. He added that Mr. LeVasseur would need to appropriately tell the Governor this is the right thing and not going overboard, but agreeing these people need to be checked. He claimed if that kind of consensus could be built, the bill could move forward.

Mr. Coward thought the idea of the sliding scale had some merit. He noted it should not be the industry who develops the sliding scale, but instead should be the regulators who look at the business. That would be more equitable, he stated, so you would have something that is not going to harm the small business but is still reasonable. He said the large businesses have some other alternatives but from a public policy point of view, the sliding scale might have some benefit.

Assemblyman Goldwater said the concept Mr. Coward suggested did not violate the intent of the bill and thought it sounded fair.

Chairman Townsend stated:

Chairman Townsend asked if that was okay. Assemblyman Goldwater said it was outstanding and added it would go a long way towards consumer protection. The goal is simply to have the equity piece of this, he stated, significant enough so a value money judgement cannot be made as to whether you want to commit fraud or not. He said you never want to make committing fraud, cheap. He asserted fraud could not be prevented from happening, but it should cost dearly if a person is going to cheat somebody.

John M. Vergiels, Lobbyist, Nevada Mortgage Brokers Association, stated that everyone in the industry might not necessarily agree to a sliding scale. He said it would mean an increase for some small operations and there might end up being several letters written to the Governor objecting to this measure.

Chairman Townsend agreed but said he was not asking any association, or member of a group, or a registered lobbyist to guarantee that every member is going to agree with everything this committee does. He stated the committee just wanted to know the general concept of each group’s understanding of the issues.

Mr. Walshaw referring to the title insurers, said it was not clear to him from the testimony whether or not the committee was leaning towards the sliding scale concept or the amendment that substitutes other forms of bonding requirements for the increase. Mr. Jeppson replied that in the second reprint there was already an amendment that allowed a substitution of other securities in place of the bond. He said Mr. Coward, on behalf of Nevada Land Title Association, had asked for a sliding scale in addition to the substitution.

A copy of a letter dated May 19, 1999 from the Office of the Attorney General proposing some changes to A.B. 64 which the attorney general believed would reduce or eliminate some fiscal impact (Exhibit E).

Chairman Townsend told the committee the proposed amendments to A.B. 64 would be further discussed in tomorrow’s meeting beginning at 9:00 a.m.

There being no further business, the meeting was adjourned at 11:00 a.m.

RESPECTFULLY SUBMITTED:

Ardyss Johns,

Committee Secretary

APPROVED BY:

Senator Randolph J. Townsend, Chairman

DATE: