The Senate Committee on Judiciary was called to order by Chairman Mark A. James, at 9:19 a.m. on Monday, March 1, 1999, in Room 2149 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 Mark A. James, Chairman

Senator Jon C. Porter, Vice Chairman

Senator Mike McGinness

Senator Maurice Washington

Senator Dina Titus

Senator Valerie Wiener

Senator Terry Care

GUEST LEGISLATORS PRESENT:

Senator Joseph M. Neal, Jr., Clark County Senatorial District No. 4

STAFF MEMBERS PRESENT:

Janice McClure, Committee Secretary

OTHERS PRESENT:

Rod Barbash, Chairman, Legislative Committee, Nevada Collectors Association, stated S.B. 233 in its original form allows interest to be added to an account with or without the express written knowledge of the debtor. In the new language of section 1, subsection 1, paragraph (b) the word "borrower" should be replaced with the word "debtor."

Chairman James inquired if Mr. Barbash supports this bill. Mr. Barbash replied yes. Chairman James inquired why this bill is needed. Mr. Barbash replied there is an opinion by the attorney general’s office that the Nevada Collection Association does not agree with and neither do over a dozen attorneys the Nevada Collection Association has spoken to about the attorney general’s opinion. Mr. Barbash furthered he has a letter from the Division of Financial Institutions in Las Vegas that does not agree with the attorney general’s opinion. Mr. Barbash stated the Nevada Collection Association was going to wait until someone in the collection industry was cited and then would appeal it to the court. He added changing the law now would eliminate the process of going to court later.

Senator Care inquired if Mr. Barbash could provide a copy of the attorney general’s opinion to which he is referring. Mr. Barbash indicated Douglas E. Walther, Senior Deputy Attorney General, Commerce Section, Office of the Attorney General, was present and could provide copies of the opinion (Exhibit C).

Chairman James suggested Mr. Barbash explain further as he had not given enough information as to why the bill is being proposed. Mr. Barbash explained when an account is assigned to a collection agency, the majority of collection agencies collect interest on the account, if the client allows it, from the date the account was incurred. The attorney general’s opinion is stating the collection agencies cannot put interest on the account unless the client is aware of it, because a lot of clients are not aware the agencies can charge interest on an account. Mr. Barbash furthered the assignment statute that allows a third party to assign an account to a third party states the account is assigned with all the privileges and rights that the original assignor has. He stated the attorney general’s opinion has ignored this.

L. Scott Walshaw, Commissioner, Division of Financial Institutions, Department of Business and Industry, stated he had no objection to the bill, except he would like an amendment (Exhibit D) which would provide a disclosure statement of what the interest would be on the date the balance is ascertained.

Senator Care’s understanding was that Mr. Walshaw had no objection to the collection agency collecting interest, but is seeking the notice provision. Mr. Walshaw confirmed Senator Care’s understanding.

Douglas E. Walther, Senior Deputy Attorney General, Commerce Section, Office of the Attorney General, stated the attorney general’s opinion addressed two main areas. First, the authority of a collection agency to impose interest when it either had no signals or mixed signals from the creditor on whether to impose interest; and second, the definition of an open account. He furthered the cases interpreting Nevada Revised Statutes (NRS) 99.040 cite interest cannot be imposed on an open account until the account is settled. Mr. Walther concluded with the opinion that an open account is not really settled until a judge in a lawsuit over the account rules it is settled. Mr. Walther said he believes S.B. 233 will clarify the issue of when an account is really settled so interest can be imposed prior to there being an actual lawsuit on the account.

Senator Wiener stated she was unfamiliar with the fees and how the monies are separated out with a collection agency. She asked what the traditional fee structure is and how the percentage would be split between the creditor and the collection agency.

Mr. Walther replied the fees are not regulated by statute, but typically a percentage of the amount collected goes to the collection agency. He added the Division of Financial Institutions has seen instances where the interest collected on an account can be the collection agency’s fee. Mr. Walther said there was some abuse where collection agencies appeared to be imposing interest in a nonuniform manner or imposing and collecting the interest in cases where they were not clearly authorized to impose any interest at all.

Senator Care inquired if giving notice means a mailing to the last known address. Mr. Walther said the amendment indicates the notice is effective when it is given and it would be implied the notice would be sent to the last known address. He furthered if a notice came back as undeliverable, the collection agency’s duty had been met under the statute.

Senator Wiener expressed concern with the proposed language of Exhibit D wherein the prime rate currently in effect under the statute may change each July 1 and January 1 until the amount is paid in full. She said she was concerned about the debtors being able to understand the flexibility of the interest for which they will be held accountable.

Mr. Walther responded the reason the amendment is being offered is because in the absence of the amendment a notice could be received stating an account has been settled and the implication of that statement would not be understood. By nature of the statute the debtor has not already agreed to pay interest. He added the purpose of the notice is to trigger interest, but it is not a fixed percentage. He is not asking that the statute have an actual percentage rate, but wants the creditor or the collection agency to fill in the blank according to the current rate.

Mr. Walshaw added what is being proposed would go into NRS 99.040 and apply to any creditor. He said this disclosure statement could be adopted through regulation, but it would only apply to the licensed collection agencies. If a requirement of notice is put in the statute, Mr. Walshaw said he believed the Division of Financial Institutions had the administrative authority to adopt a regulation to spell out what the notification would consist of, at least for the licensees for which it has jurisdiction.

Senator Care questioned if the creditor could still kick in statutory interest under S.B. 233 if there is an interest-free contractual provision.

Mr. Walther replied he believes the premise of this statute is that interest can be imposed in the absence of an agreement, unless there is an agreement for a particular interest in the contract or the contract states interest-free.

Chairman James said although the notice is a good idea, he questions if the notice should not indicate the interest rate is actually 2 percent over the stated rate. Mr. Walther agreed that information should be included in the notice.

Senator McGinness asked if S.B. 233 is about credit applications or whether it just applies to debts incurred wherein credit applications are not signed, but rather fees are owed to a hospital or the like.

Mr. Walther replied that typically it is a loose arrangement where there might not be anything in writing, but credit is just extended where goods are bought or services are provided. He stated this statute is to fill the gap where there is an ongoing debtor/creditor relationship and nothing is said at all about interest.

Senator McGinness asked if, for example, the bill is $1,000 that has gone unpaid for 12 months and is then turned over to a collection agency, when the interest would start. Mr. Walther stated it was his opinion, if it is an open account, interest could not be imposed unless the account is litigated and the court imposes interest. He added the interest would start at the time the notice is given and notice can be given by the creditor or by the collection agency.

Senator McGinness asked Mr. Walther if it was his opinion that if a notice came back as undeliverable, that notice would be considered made. Mr. Walther said he believes if a good faith attempt is made to give the notice, then the notice obligation has been met under S.B. 233. Senator McGinness said that did not sound right to him.

Pat Coward, Lobbyist, Nevada Collectors Association, pointed out Mr. Barbash had indicated on page 1, lines 12 through 14 "borrower" should be changed to "debtor" and the Nevada Collectors Association supports the notification aspect.

Chairman James raised Senator McGinness’ concern about receipt of the notice and asked if interest should run from the date of receipt of the notice. Mr. Barbash stated he believes the notice is going to cause a multitude of legal problems in that if the collection agency files suit on an account, the debtor will say he never received notice. He furthered if the mail was returned undeliverable, the debtor certainly did not get notice. The majority of creditors are not aware of this particular statute, and are not going to know that they have to notify the debtor they are going to charge interest on the account. Mr. Barbash reiterated the notice is complicating the issue.

Chairman James said he understood Mr. Barbash’s position. Chairman James said he thinks the notice provision is a good idea, but it is a question of how the notice is given, whether it is by certified mail. He asked Mr. Walther what his thought was on the notice issue.

Mr. Walther pointed out there is presumption in the law that a letter is received 3 days after it is mailed; however, if a letter gets returned undeliverable or it is refused, the notice is still good. He further said he believes problems arise when receipt has to be proved because it is more difficult to prove receipt of an item than whether the proper steps were taken in the mailing process.

Chairman James asked if "certified mail – return receipt requested" would be sufficient. Mr. Walther replied he thought that would be sufficient.

There being no further testimony on the bill, Chairman James closed the hearing on S.B. 233 and opened the hearing on Senate Bill (S.B.) 242.

Lance Van Lydegraf, Attorney, Nevada Trial Lawyers’ Association, stated S.B. 242 is intended to correct a defect in laws enacted by the 1997 Legislature and made effective October 1, 1998. He said the purpose of this bill is to maintain the confidentiality of information which the Welfare Division and district courts are required to collect in order to comply with a federal mandate under 42 United States Code (U.S.C.) 654a. He furthered this U.S.C. provision requires states collecting child support to collect social security numbers, dates of birth and driver’s license numbers of the obligor/obligee and children. Nevada State law currently provides this information is to be maintained as confidential.

Mr. Van Lydegraf continued federal law carries a second mandate requiring that a state take all steps to ensure the information they gather be maintained in a confidential fashion so citizens do not become easy targets for identity theft. He said that federal mandate was enacted by Nevada’s Legislature in NRS 425.405, section 1, paragraph (a) in the welfare act, also requiring disclosure of this information; but the collection of the information by the district courts is collected in a public record. The federal law conflicts with NRS 425.405 providing that this information when collected shall be maintained in a confidential fashion. Once the information is transmitted to the Nevada State Welfare Division, their records are confidential, but the source of the information is public, rendering the fact that it is maintained at a confidential point later ineffective. Mr. Van Lydegraf stressed this bill would give Nevadans the expectation that the information they provide in order to assist in child support collection and enforcement will be maintained confidential and will not subject them to easy identity theft.

Mr. Van Lydegraf advised he had recently spoken with the Honorable Scott Jordan, District Court Judge, Family Division, Second Judicial District, who had addressed his Washoe County Court Administrator on this issue. They both have no objection to this bill as proposed and see no impact upon their administration.

Mr. Van Lydegraf added there is a Legislative Counsel opinion issued to Senator Raggio, who assisted in obtaining the drafting of S.B. 242, stating the federal law did not mandate the information currently required to be disclosed in public records had to be in the public record. The federal law mandates the information be gathered and then maintained confidentially, so Mr. Van Lydegraf continued S.B. 242 would help accomplish both of those goals, whereas the law as it currently exists makes sensitive and confidential information public. He stressed citizens would be less exposed to the risk of identity theft if this bill is approved. This law will also conform with the drivers’ license provisions in NRS 481.063 and NRS 482.170 and will conform to the federal laws.

Mr. Van Lydegraf said he supports the amendment proposed by the Welfare Division which slightly changes the language of the bill as proposed, in that whatever information is required to be collected by the states under the provisions of 42 U.S.C. 654a is the information that will be contained in the confidential memoranda submitted to district courts and then transmitted to the Welfare Division.

Senator Care inquired if the records in a divorce or custody action can be sealed at the request of one or the other party. Mr. Van Lydegraf replied those proceedings are open, but there is confidentiality if the parties have never been married and have a child. He continued because of the perceived stigma to a child born out of wedlock, those records are specifically and automatically confidential. He furthered there is an NRS provision allowing a person to seek application of the district court that the decrees be maintained as confidential, but the criteria to accomplish that are subjective and it is up to each district court judge to decide whether the criteria has been met.

Senator Care asked how the court gathers the confidential information. Mr. Van Lydegraf replied in a divorce proceeding the mandatory information the court needs is the fact that a person is a resident of Nevada and has the intent to remain in Nevada indefinitely, so that the court has jurisdiction over the parties. He said following that, issues of child support, property rights, and obligations are testified to but a person does not need to testify on the record their social security number, date of birth, and driver’s license number. This information is currently collected in Washoe County by a confidential memorandum which the parties are asked to submit at the time of filing a motion, divorce complaint, or modification petition. Chapter 125B of NRS says that every divorce decree shall contain this confidential information.

Myla C. Florence, Welfare Administrator, Welfare Division, Department of Human Resources, stated concurrence with the effort to make social security numbers a confidential record; however, she noted S.B. 242 does not address the other data requirements the child support program needs for locating and enforcing support obligations. She submitted the Welfare Division’s proposed amendments along with copies of the citations of the federal law (Exhibit E). She proposed that the required information deleted in section 3 of the bill be referenced as part of 42 U.S.C. 654, rather than enumerating all of those items. She said reference is made to requirements for information by the secretary of health and human services that the information be provided to the Welfare Division on an approved form, and that it be filed and maintained in a confidential manner.

Donald W. Winne Jr., Deputy Attorney General, Child and Family Services, Office of the Attorney General, stated District Judge Scott Jordan had recently indicated to him that there was a family-court revision bill in the Assembly. The bill required a form be filled out as part of the family-court revamp, so if anybody came in with a domestic-violence restraining order, the court would be able to flag any prior cases. Mr. Winne furthered the proposed form will be all-encompassing for family court purposes as well as child support purposes. He added Judge Jordan agrees with the intent of S.B. 242, but it has yet to be determined how this particular form will be handled for confidential purposes.

Chairman James said he does not like to cite federal statutes in Nevada’s statutes, because as the federal statutes change there is some ambiguity as to whether the Legislature really wanted to have Nevada act as the federal statute implies. Chairman James furthered he prefers to determine the intent of federal statutes and then re-articulate that into Nevada statutes.

Jeannine Coward, Office of the State Controller, said the controller’s office supports S.B. 242. Ms. Coward explained from time to time the controller’s office has had a problem identifying people in order to garnish their wages because the court has not submitted a social security number to the controller’s office. The attorney general’s office has directed the controller’s office to notify the court that the controller has insufficient information to garnish a person’s account as the court has requested.

There being no further testimony, Chairman James closed the hearing on S.B. 242 and opened the hearing on S.B. 247.

Senator Joseph M. Neal Jr., Clark County Senatorial District No. 4, stated S.B. 247 was requested by one of his constituents who was in the chimney-sweeping business. This constituent was in a dispute with a homeowner who did not want to pay for his services. Senator Neal said in looking at the situation as it was presented to him, he does not see any means by which a lien is to be established against a homeowner for services rendered. Senator Neal said he believes the bill is directed towards a means for redress by someone who feels he has legally been done wrong. Senator Neal pointed out he did not understand the full ramifications of the bill. That is one of the reasons why he asked that the bill be drafted and brought before the Legislature, in hopes of discussing if this is the law, whether it needs to be changed.

Chairman James indicated Nevada already has lien laws for initial construction of property and capital improvements, but not for property maintenance. He surmised if S.B. 247 was adopted, the same provisions would apply to the proposed liens as apply to the liens for property improvements under Nevada Revised Statutes (NRS) chapter 108. Chairman James said the policy question for the Senate Committee on Judiciary is whether a maintenance lien is appropriate.

Senator Neal reiterated he had not done extensive research on this bill and was not sure what the full public policy debate would be, but was asked by a constituent to introduce the bill.

Senator Care suggested that maintenance fee disputes are ideal candidates for small claims court. Senator Neal said he thought his constituent’s maintenance fee dispute was in the area of $200 to $300.

Ivan R. Ashleman II, Lobbyist, Southern Nevada Home Builders Association, stated he and Senator Neal have discussed this matter. They are both concerned in that liens are very powerful weapons because they can block financing, transfer of title, and can cause a property owner quite a bit of trouble. Mr. Ashleman urged the Senate Committee on Judiciary to give this issue careful consideration.

Chairman James suggested the Senate Committee on Judiciary staff look at other states and see whether others have adopted a maintenance lien and, if so, drafted it in some way that is not overly burdensome to property owners.

There being no further testimony, Chairman James closed the hearing on S.B. 247 and adjourned the meeting at 10:15 a.m.

RESPECTFULLY SUBMITTED:

Janice McClure,

Committee Secretary

APPROVED BY:

Senator Mark A. James, Chairman

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