MINUTES OF THE meeting
of the
ASSEMBLY Committee on Commerce and Labor
Seventy-First Session
March 30, 2001
The Committee on Commerce and Labor was called to order at 11:30 a.m., on Friday, March 30, 2001. Chairman Joe Dini, Jr. presided in Room 4100 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
COMMITTEE MEMBERS PRESENT:
Mr. Joseph Dini, Jr., Chairman
Ms. Barbara Buckley, Vice Chairman
Mr. Morse Arberry Jr.
Mr. Bob Beers
Ms. Dawn Gibbons
Ms. Chris Giunchigliani
Mr. David Goldwater
Mr. Lynn Hettrick
Mr. David Humke
Ms. Sheila Leslie
Mr. John Oceguera
Mr. David Parks
Mr. Richard D. Perkins
COMMITTEE MEMBERS ABSENT:
Mr. Dennis Nolan
GUEST LEGISLATORS PRESENT:
Assemblywoman Bonnie Parnell, Assembly District No. 40
STAFF MEMBERS PRESENT:
Vance Hughey, Committee Policy Analyst
Ann M. VanNostrand, Committee Secretary
OTHERS PRESENT:
William Hausman, M.D., AARP
Kimberly Everett, Division of Insurance
Larry Matheis, Nevada State Medical Association
John Tatro, Justice of the Peace, Carson City Justice/Municipal Court
Robey Willis, Justice of the Peace, Carson City Justice/Municipal Court
Alexis Miller, Planned Parenthood and Nevada Women’s Lobby
T. C., Investigator, Wal-Mart National Task Force
Bobbie Gang, Nevada Women’s Lobby
Ruth Mills, President, Nevada Health Care Reform
Bob Bryant, Attorney General’s Office
Sam McMullen, Retail Association of Nevada
Jim Nadeau, Washoe County Sheriff’s Office
Ben Graham, Clark County District Attorney’s Office
Misty Grimmer, Nevadan’s for Affordable Health Care
Fred Hillerby, Nevada Association of Health Plans
Scott Craigie, All American Title Loan
John Berkich, Carson City Manager
Michael Pennington, Executive Assistant, Attorney General’s Office
Robert Barengo, Nevada Consumer Finance Association
Matt Sharp, Nevada Trial Lawyers Association
Chairman Dini opened the meeting with a subcommittee report from Assemblyman Parks on A.B. 157.
Assembly Bill 157: Prohibits reporting agencies from imposing charge to provide consumer reports and related information under certain circumstances. (BDR 52-612)
The recommendation from the subcommittee was the bill be indefinitely postponed. Assemblyman Parks stated the reason for indefinite postponement was the bill contained areas that were difficult to accommodate without creating a tremendous amount of confusion amongst the public, plus the bill did not address other issues as had been hoped. Exhibit C reviewed the subcommittee’s findings.
SPEAKER PERKINS MOVED A.B. 157 BE INDEFINITELY POSTPONED.
ASSEMBLYWOMAN GIUNCHIGLIANI SECONDED THE MOTION.
MOTION CARRIED BY ALL PRESENT WITH ASSEMBLYMAN NOLAN ABSENT FOR THE VOTE.
Assembly Bill 134: Makes various changes concerning assessment imposed by commissioner of insurance upon insurers to pay for program to investigate certain violations and fraudulent acts. (BDR 57-331)
Chairman Dini addressed A.B. 134, stressing the bill needed to be amended and passed to Ways and Means. He then asked for comments from Assemblyman Parks, who stated there were three different copies of amendments proposed for the bill. He requested all amendments be included in the do pass motion. Exhibit D reviewed the subcommittee’s findings.
Chairman Dini referenced the statement at the bottom of page one concerning the summary of the bill where it suggested changing the wording. In speaking to LCB staff, if the summary was changed it should read on line three, “and fraudulent acts.” He stated the same change be made in the summary and suggested LCB handle the amendment. He asked for a motion to do pass as amended and rerefer to Ways and Means.
ASSEMBLYWOMAN LESLIE MOVED FOR DO PASS WITH AMENDMENTS AND REFERRAL TO WAYS AND MEANS ON A.B. 134.
ASSEMBLYWOMAN GIUNCHIGLIANI SECONDED THE MOTION.
MOTION CARRIED BY ALL PRESENT WITH ASSEMBLYMAN NOLAN ABSENT FOR THE VOTE.
Chairman Dini thanked the subcommittees for their diligence with A.B. 157 and A.B. 134 and hoped there would be agreement by Monday morning on A.B. 135. He then opened the hearing on A.B. 375.
Assembly Bill 375: Enacts provisions governing possession, use, manufacture and distribution of certain items employed to commit theft. (BDR 52‑1462)
Samuel P. McMullen, representative for the Retail Association of Nevada, who, along with other business interests, requested the bill due to concerns relating to fraudulent criminal use of Universal Price Codes for sales receipts. He introduced Mr. T. C. Smith, coordinator of a multi-regional task force working for Wal-Mart and other task forces focused on fraudulent practices by consumers.
Mr. McMullen stated the bill was drafted to protect defrauding of retailers through the creation of fraudulent sales receipts or Universal Price Code (UPC) labels. Subsection 1, beginning on line three, basically indicated the base requirement would be, “the intent to cheat or defraud a retailer would have to be a predicate to either a or b,” which addressed Assemblyman Beers’ concerns. It was clear under “a” the inference was possession, use, utterance, transfer, making, altering, counterfeiting, or reproducing a retail sales receipt or UPC label was a crime. All areas addressed were used to defraud retailers. “B” covered possession of a device that manufactured the fraudulent sales receipt or UPC label, inclusive of any computer with very easily obtained software. The point was having the computer and software was not enough to arrest unless probable cause was attached, showing intent to cheat or defraud a retailer. They wanted to keep the bill in line with federal statutes, which included provisions covering a device crime as well as a counterfeiting or forging claim.
Line 9 addressed the penalty attached to the above violations, and line 13 upped the penalty if there were 15 or more fraudulent sales receipts or UPC labels possessed by the individual(s). In essence, an indication of a larger criminal enterprise than just a single sales receipt.
Section 2 related to the purpose of making sure the use of lead bags or other detection shielding devices for removal of items from a store without paying for them be clarified as illegal conduct and a crime. They felt the definition of those devices in the bill were adequate. The statute would also cover sale or distribution of said devices.
Chairman Dini asked if the above information was that left out of the bill during the 1999 Legislative Session. Mr. McMullen answered in the affirmative, stating the bill then started on the Senate side, having been amended into an Assembly bill to make it more easily and quickly processed. Also, through conversations with law enforcement and District Attorneys, there was no problem with the way the bill read as amended.
Vice Chairwoman Buckley’s concern revolved around the possession or altering of a sales receipt and the seriousness of the crime, whether a misdemeanor or felony, was dependent on the amount, i.e., over $250 being considered larceny. She stated there was already a statutory scheme that allowed for more serious punishment for more serious crimes, and lesser punishment for less serious crimes. The bill, to her, seemed to alter that statutory scheme so that if an individual possessed one altered receipt, or UPC, to get $10 more back from Wal-Mart was considered a felony. She asked if there was a problem amending that portion of the bill to make it consistent with the present statutes. Mr. McMullen had no problem with her suggested amendment.
T. C. Smith, member, national task force with retailers and law enforcement agencies throughout the United States, testified that within the past two years in Nevada a suspect was apprehended working out of Arizona, California, and Las Vegas manufacturing counterfeit receipts and UPC stickers. His practice was placing a UPC sticker on a $100 item to reduce the price to $10. Once out of the store he would peal off the $10 sticker, return the item and claim the $100 the original UPC sticker showed was the actual price. A group of individuals were arrested who worked several stores stealing up to $2,000 in cash per day. The remainder of Mr. Smith’s testimony could be reviewed in Exhibit E.
Assemblyman Beers asked if the law, if in effect, would work toward a quicker apprehension or impact the criminal’s punishment. The individual first mentioned was stopped in San Bernardino County, California, by the California Highway Patrol, and arrested for possession of a small amount of methamphetamine. In his car he had several counterfeit receipts, rolls of UPC stickers he had counterfeited, a printer and a laptop computer on which he made the receipts and UPC labels. The materials were confiscated, but because there was no crime involved, all were returned to the suspect. Eventually, the suspect turned in the materials as part of a plea agreement. If the law had been in effect at that time in California, he would have been stopped that much earlier with fewer losses to merchants. He felt it was also a deterrent to carrying bogus receipts and UPC labels on the person. Mr. Beers felt having a laptop computer in his briefcase was made illegal by the law as written. He stated even the thought of defrauding a store because of incompetent service made him a felon, according to A.B. 375, though he had not done anything illegal. He did not feel computers should be listed, and possession of the fraudulent document should be the basis of the bill.
Mr. Smith indicated the mere possession of a computer did not provide probable cause but the overt actions that caused intent would, though intent would have to be proven. With prosecution, the property could be confiscated.
Mr. McMullen shared with Mr. Beers the suspect was not guilty until the act was proven, the issue being whether there was enough probable cause for arrest with objective evidence of the same. The guilt factor had to be proven beyond a reasonable doubt as well.
The Chairman called upon Speaker Perkins to obtain a law enforcement officer’s view. Speaker Perkins stated if the bill was passed using specific wording, such as UPC labels, that title might become outdated within a few short months by newer technology. Also, individuals used UPC labels for legal operations, providing a difficult decision for the officer in the street trying to figure out whether or not the person was using the UPC label to inventory their personal garage, or because they were going to defraud a store. He felt also there were statutes on the books relating to fraud that would capture these areas as long as the prosecuting attorneys and law enforcement officers were educated to that end. There was also the issue of a conspiracy charge for those working together to defraud one or several businesses. With regard to the penalties, he questioned why Section 2 held a steeper penalty than someone carrying 15 receipts. He also was concerned about the felony rating resting at $10 and felt that level of crime should remain above the $250 threshold as already addressed in statute. Speaker Perkins did not disagree with the bill but felt the net cast was extremely far reaching and had unintended consequences, as well as putting it upon the officers in the field trying to make a decision if they should or should not take such property away from someone.
Assemblywoman Giunchigliani asked what states were affected by the crimes in question and if the bill was modeled after a statute followed in another state. Mr. Smith answered Arizona, Arkansas, Illinois, California, New Hampshire, Oklahoma, and Washington had enacted similar legislation. Assemblywoman Giunchigliani understood the same standards were being used. She questioned the number 15 versus the total amount of the receipts. Mr. McMullen responded stating it was a criminal enterprise concept of being produced in bulk as opposed to single instances. He did not know where the 15 figure developed but that federal law spoke to the number 15 in some of the factors. Mr. Smith stated some states had made the number of receipts lower, beginning with five and upwards to ten. To them, that indicated if there were a large number of counterfeit receipts in someone’s possession, the individual was in the business of using them falsely. He pointed out a Xerox copy of a receipt was a counterfeit receipt. With just one in possession, more than likely there was a legitimate reason. If the person carried 15 copies of that same receipt, there was indication, through possession alone, they were involved in criminal activity. Mr. McMullen interjected that if the computer language continued to provide discomfort for Assemblyman Beers, it could be moved out and/or defined more explicitly. He also felt additional language was needed to address Speaker Perkins’ issues as well.
Assemblyman Humke reacted to Vice Chairwoman Buckley’s concern about the mere possession of one receipt for $10, impressing that would definitely fall under the larceny statute. He was not sure if Nevada had counterfeiting statutes or if it was just under federal law, but he felt there were possible analogies. He suggested discussing the bill with the Attorney General and their technology crime committee. Mr. McMullen stated he had not discussed the concerns raised today, though he processed the idea through one of the staff on a chance meeting in the hall.
Assemblyman Humke emphasized Mr. Smith’s testimony. Congress made the penalties for drug crimes so severe most of the action had gravitated toward federal court. While incarcerated, the criminal then diversified into crimes of lesser penalties. The crime addressed by the bill was one they had apparently discovered. He did not feel the bill would in any way affect those who found it necessary to travel with a laptop and the printing equipment that could be attached.
Mr. McMullen stated the penalties should be in some sort of relationship to one another, and also in relationship to other similar crimes. He tried to make sure the bill drafters did not feel retailers were out of line. His specific question to Speaker Perkins addressed line six and the UPC label, agreeing there needed to be a more generic definition, such as calling them a pricing or stocking label. Speaker Perkins agreed to the verbiage change and then referred to the forgery statutes where it said, “making, uttering, or possessing with intent to utter fictitious bill, note, or check” and then, “uttering the forged instrument” a forgery. The piece of legislation would be much cleaner if a receipt was defined as a negotiable instrument when used in conjunction with a pricing label. That alleviated dealing with penalties or punishments. He suggested removing descriptions of the implements from the bill. They were already known as implements of a crime and confiscated when the crime was discovered.
Mr. McMullen did not know if a UPC label or a generic definition of it would be able to be categorized as a negotiable instrument. He felt that suggestion was very adequate for a sales receipt. He asked Speaker Perkins if it would make sense in the uttering statute to add a reference to terminology defined under a generic definition of merchandise coding, or other sticker. He wanted to remain with the UPC label style, as the problem being faced by retailers was the switching of UPC tags. Also, if a stolen item, often a UPC label was attached and returned to a store for refund.
Assemblyman Beers suggested, “A price tag or other tag designed to extract the price data from a merchant’s computer system.” Mr. McMullen stated there were a number of ideas that needed to be researched and returned to the committee. He wanted to make sure all concerns were addressed.
Chairman Dini offered to set up a subcommittee or forward the bill to the Committee on Judiciary. He requested Speaker Perkins’ help in amending the bill. Speaker Perkins said he would be more than happy to help develop language that would be acceptable to the committee.
Captain Jim Nadeau, Washoe County Sheriff’s Office, offered assistance working with the committee to help push the law forward. He stated fraud was one of the largest growing and immense crimes being investigated, where only a couple of individuals could create a huge loss to merchants.
Ben Graham, Clark County District Attorney’s Office and Nevada District Attorney’s Association, stated most crimes required specific evil intent. There were a few crimes called strict liability crimes. If it was done, the person was guilty. Those crimes were described as statutory sexual seduction, selling liquor to a minor, etc. Most crimes required specific evil intent, which was the way the bill read. The bill did not make it illegal simply to possess the labels or a device. It was illegal if done so knowingly with intent to cheat or defraud, an element to be charged and proven before any case could come forward relative to the items contained in subsections 1(a) and 1(b).
Assemblyman Beers asked if it was illegal to own a baseball bat with the intent to hit your 11-year-old sister. Mr. Graham answered he did not believe so. Assemblyman Beers remained uncomfortable with the fact the bill made it illegal for him to have a laptop in his possession and having it be up to law enforcement or someone else to determine if his intent was to someday produce a UPC label. Mr. Graham stated there would obviously have to be an indication of evil intent. Simply possessing the potential to create such an item was not illegal. He shared also that those who had computers enjoyed experimenting to see what they could make. If it stopped at that point, there was no harm. But, if going beyond to cheat or defraud, then the individual fell under the prohibition. He stated such a crime would not be easy to prove, and while talking with Mr. McMullen earlier, advised him few of the cases would be prosecuted, but in an obvious and good case, there would be prosecution.
Assemblyman Beers referenced Mr. Graham’s comment regarding experimenting on the computer and coming up with a barcode. It struck him the only way to reach the intent of the suspect was by the provisions of subsection 1(a) having been met, having in possession several of the tags. How did they determine intent without finding the individual doing the counterfeiting? Mr. Graham said the evidence was all-cumulative and fact-specific. For example, the suspect arrested was sent out of the door with the items contained in subsection 1(a) and at home where the tags were made had items described in subsection 1(b). It was then fact-specific.
Chairman Dini interjected further discussion would be left with the subcommittee and closed the hearing on A.B. 375 and advised the hearing on A.B. 392 would be deferred until Monday, April 2, 2001. He offered to hear testimony on A.B. 392, but explained the principal sponsors were unable to be present. Chairman Dini then opened the hearing on A.B. 421.
Assembly Bill 392: Revises certain fees for licensing contractor. (BDR 54-373)
Not heard. Hearing continued until Monday, April 2, 2001.
Assembly Bill 421: Limits permissible rate of interest on installment loans. (BDR 56-1282)
Assemblywoman Parnell, Assembly District 40, Carson City, presented A.B. 421, drafted to impose limits upon the rates of interest charged on installment loans regulated pursuant to NRS 675. Prior to 1981, the maximum rate of interest allowed in Nevada was 18 percent. The provision was later amended and Nevadans may now lend and borrow at any interest rate agreed upon by both parties. Other states continued to set maximum interest rates. The intent of the bill was to recognize that some lending companies in Nevada were charging interest rates up to 250 percent through high-risk loans made available to some of the state’s most vulnerable citizens. The bill was not intended to close the doors of financial institutions, but to bring to the table a problem she and judges in Carson City felt worth discussing. She requested the legislation on behalf of local judges who were greatly concerned about stories heard in the courtrooms concerning the outrageous interest rates being charged. Assemblywoman Parnell introduced Judge Robey Willis and Judge John Tatro.
Judge Robey Willis stated, as Assemblywoman Parnell had pointed out, in 1981 the usury law was repealed in Nevada. Twenty years later, things were totally out of control. Interest rates in 1981 were astronomical on any type of loans. Since that time, while the judges watched, some of the out-of-mainstream and fringe-type loan organizations had raised interest rates to the levels mentioned by Assemblywoman Parnell. In the 1980s, while still presiding in Juvenile Court, Judge John Ray called him into Justice Court and pointed out someone stealing within the law by imposing a 42 percent interest rate. The judges felt the rates being quoted today were unconscionable, and not legal, but one-sided contracts.
Over the first quarter of 2001, with said types of loans, there were over 100 filed with the court for default judgments. Across the state, that numbered into the thousands. Those being charged did not appear and received default judgments with attachment of wages, which involved process serving through the county Sheriff’s office, and least of all the employer’s involvement. The employer was required to share with the employee the garnishing of wages and a member of the board of supervisors was the individual who introduced the problem, thus the further focus on high interest rates. Patricia Jarman, Nevada State Director of Consumer Affairs, was shocked by the information, having received a complaint from a citizen being charged 62 percent. Attorney General Frankie Sue Del Papa stated her office was very interested in looking into the problem.
Judge Willis felt the legislation provided fair interest rates according to the Uniform Commercial Credit Code that some of the states followed, (Exhibit F), adding there were very few states who had no usury law.
Judge John Tatro described the process where a loan took place; the individual defaulted on the loan, having made no payments or only a few. A small claims action was filed and the borrower was served notice. The borrower failed to show in court and a default judgment was entered to attach wages. He referenced Exhibit G, short-term loan agreements that ran for two to three months, the annual percentage rates noted at 242 percent, 179.38 percent, and 151.32 percent. He did not see any less than 150 percent on short-term loans. There were also title loans involved. A citizen owned a truck valued at $20,000. Being desperate, he gave his title as collateral against a $1,000 loan. He made payments of $2,000 to $3,000 on the loan, and learned he still owed the original loan amount of $1,000. The truck was about to be repossessed. Judge Tatro ruled the loan agency had earned enough money and to award them anything else would be unconscionable. The client kept his truck and the agency kept the earned interest. With those types of cases being seen in Carson City, one could only imagine what was happening in Clark and Washoe Counties. In small claims court each week there were 10 to 15 default judgments entered. He professed no expertise on lending or interest rates, but knew in Chicago the amounts described were called “juice,” and it was highly illegal.
Chairman Dini stated the usury law was removed because capital was disappearing from Nevada and ending up in Utah and Arizona. Once the usury rate was removed, capitalist began moving into the state at the same time the population explosion began. During the struggle in 1981, Chairman Dini said he had a loan with First Interstate Bank at an interest rate of 17 percent. The bank called, stating the interest rate was to be raised to 21 percent. He went to the branch manager, handed him the keys to his business and told him to run it.
Assemblywoman Giunchigliani thanked Assemblywoman Parnell and the judges for bringing the legislation forth. She had raised the issue in 1991 without support. Today, when kids received credit cards, and colleges had provided studies showing dropouts were because of a financial well that only became deeper, the problem of credit rating had gone beyond the issue of trying to generate revenue for the state.
Vice Chairwoman Buckley thanked Assemblywoman Parnell and the judges for the legislation. She referenced A. B. 430 of the Seventieth Session, introduced and passed, that imposed restrictions on organizations that took checks as collateral. Under the terms of that legislation, upon default, the company could not charge more than prime plus 10 percent. If the company fell under that chapter, there was a ruler by which to measure. As the drafter of the bill, she received a great deal of information from Consumer Credit Counselors, a nonprofit organization, that revealed citizens in a debt treadmill, i.e., they wanted to pay but interest was so high, they could never get themselves out of debt. A $200 debt resulted in an individual having paid $1,200 and having wages garnished for $1,400. If licensed under NRS 675, the protection would be available that they, as judges, could use during their hearings.
Judge Willis stated the legislation fell under NRS 604. Vice Chairwoman Buckley asked if the abuses they saw were outside of that chapter. Judge Willis answered the legislation they referenced was NRS 675.
Assemblywoman Parnell stated the legislation was not meant to circumvent Assemblywoman Buckley’s legislation from 1999, or in any way show disrespect to anything decided at that point in time. When the judges called and she saw the evidence of the 242 percent interest rates in black and white, she knew she had to process some type of legislation to protect Nevada’s citizens. She had assured the major financial institutions the bill was not meant to interrupt their business, but being responsible, felt it necessary to present a solution to the problem.
Assemblyman Hettrick asked if the rate of 242 percent was the agreed-to rate, or was it the extrapolated rate based on a flat fee charged on a short-term loan. Judge Tatro answered he did not know, though the annual percentage rate quoted was 242 percent, and the debtor signed the document and said they had agreed to pay that on the two to three month loan. Assemblyman Hettrick’s concern was a minimum fee was often charged for writing a loan. If included in the interest on a short-term loan and multiplied by annual rate to annualize, it made a very high percentage rate for one year, but in terms of the cost of actually generating the loan, there were people more than willing to pay the fee because they could not get a loan otherwise. If the fee was included in the interest rate, that generated very high annual interest rate amounts. He emphasized the committee needed to be very careful. He understood the point and did not disagree.
Judge Willis pointed out that at the top of page one of the loan applications (Exhibit G) recorded a loan fee of $75. Judge Tatro stated the loan fee could well be integrated into the interest rate.
Assemblywoman Parnell asked Assemblyman Hettrick to look at the bill in its current form. Percentages given were calculated from a compilation of other state interest rates and the drafters were not particularly tied to the interest rates quoted in the bill. More than the interest rates being identified, there were possibly other ways to prevent these situations. They did not want to dictate what businesses could charge, but wanted some say in avoiding the problems presented.
John Berkich, Carson City Manager, was asked by two judges and a board member to appear as a proponent to the bill. The negative impact, the cost on businesses and our community impacted by the before-described practices needed some limitation. He asked for careful consideration.
Michael Pennington, Executive Assistant, Attorney General’s Office, offered Frankie Sue Del Papa’s support for the bill, and had asked her office to provide the committee with any support necessary. He then introduced Bob Bryant, Deputy Attorney General, Financial Institutions Division, who offered any technical assistance needed.
Chairman Dini asked if there was available from other states data regarding their actions under these circumstances. Mr. Bryant said he would check with the Commissioner of Financial Institutions for information in that respect.
Robert Barengo, Nevada Consumer Finance Association, posed opposition to the bill. Just this week he had discussed his views with Judge Willis and Judge Tatro due to his familiarity of the types of things being brought before the committee. He prefaced his remarks by stating the interest was APRs for short-term loans. Though there were a number of people in the audience wishing to speak, he and Scott Craigie, representing All American Title Loan, decided to try and deal with the issue on their behalf.
Mr. Barengo stated he was involved with the Legislature in the late 1970s when the usury rates were removed from all statutes to afford open competition. NRS 675 was a general chapter entitled the Installment Loan Act, governing loans paid off on an installment basis over a period of time. Vice Chairwoman Buckley and he had talked about the issue in other context, and it was very difficult to devise who was processing loans at such a high rate of interest. The judges were aware the companies in his association were not those in front of the judges, though they would suffer the burden of the statute in question. He read NRS 675.030:
1. There exists in this state a widespread demand for loans repayable in installments, which loans may or may not be made on substantial security . . .
2. The expense of making and collecting installment loans are necessarily high in relation to the amount lent.
Those were the first two legislative declarations found at the beginning of Chapter 675. It touched on what used to be and was still called “in the interest of a necessitous borrower.” The people wanted loans for a short period of time and were willing to pay the interest rates. They were unbanked and had no credit cards mostly because they did not want to deal with those types of things. Many times they did not have the resources or the knowledge of how to deal with those types of institutions. They understood going out and borrowing money simply, and if that industry was removed, they would be in a more necessitous shape than they were. He looked through the contracts in question and learned they were for television sets and stereos for people who had a high demand for a product and were willing to pay the weekly fees to have them. They made the decision with all information disclosed, the businesses operated on disclosure and the consumer was aware of what they needed to do to obtain the funds. It was a very difficult industry with a variety of different kinds of companies under the chapter, some of whom did not charge the outrageous rates but probably rates in excess of what the bill would allow. He stated credit cards charged more than 18 percent, with a 25 percent annualized interest rate. He felt the bill was not in line with the kinds of fees in the marketplace.
Vice Chairwoman Buckley stated the issue was not unique to Nevada, as all other states had seen an increase in payday lending. When the issue was addressed in the 1999 Legislative Session, there was a suggestion made after the session from a lender that fell into the description just provided. That person felt a separate chapter was needed for loans under a year’s period of time to try to address the abuses without trying to attach industries that loaned with higher interest to new clients. Mr. Barengo felt that interesting and stated he had not thought of that concept, though it left other types of abuses open. Vice Chairwoman Buckley stated major banks suggested if the loan was for under one year, a license would need to be obtained under that chapter to avoid chapter jumping.
Assemblyman Hettrick addressed the issue of obtaining a credit card for which the individual paid a $50 fee, charged an item and paid it off within 30 days at the 21 to 25 percent interest rate. When adding the $50 fee, the interest rate for the credit card for the year ended up being thousands of percent interest on that purchase. Construction loans were normally six months or less in duration, and when annualized at 10 percent, the interest rate (APR) climbed to 20 percent. The bill would limit that type of loan and the way written; a construction loan could not be processed. Whenever approaching the annualized rate arena there were problems. It cost the same to write up a $200 loan as it did a $20,000 loan.
Mr. Craigie reflected the position of individuals and other clients in the loan business. There was a public policy issue, that being those who were the most vulnerable should not be subjected to usurious rates. At the same time, the position those in the business wanted to make clear was the citizens loaned to had no other place to go due to poor credit ratings and being very high-risk clients. Some lenders had pointed out that those requesting a loan were not there to purchase luxuries but to have their vehicles repaired, make rent payments, pay medical bills, and/or utility bills. In many cases when a person’s vehicle was unworkable their livelihood was at risk. At the same time, there was a high default rate, which became a high-risk problem for the lenders. He did not want to understate the importance of looking out for that population and making sure they were not taken advantage of. At the same time, the industry that served them needed to be reasonably successful and protected, because for many of them that was their lifeline.
Vice Chairman Buckley asked if they had not capped the amount charged by pawnshops, confirming it at 10 percent. Mr. Barengo answered it was 10 percent per month. Mr. Craigie stated also that many of the companies made loans for only one month and if extended for a second month, the client had to sign a separate note. Mr. Barengo stated a pawnshop was different because they had the security in hand. Under Chapter 675, the loans could only be approved on personal property. Thus, they probably borrowed against their television set, knowing full well it would not be repossessed because if it was, there was nothing to sell. In essence, they were making a personal signature loan with no collateral.
Chairman Dini asked if anyone was available in Las Vegas to testify for or against the bill. Having no one come forward, he closed the hearing on A.B. 421 and opened the hearing on A.B. 422.
Assembly Bill 422: Provides for external review of certain determinations made by managed-care organizations and health maintenance organizations. (BDR 57-1092)
Assemblywoman Barbara Buckley, Assembly District 8, brought forward A.B. 422, which dealt with the subject of external review. In lay terms, external review was having someone who was independent be able to review a decision by a health care insurance company, such as an HMO or managed-care organization, to independently review denials of medical services. Most of the time the disputes were based on what was medically necessary. The bill was an extension of patient rights given to constituents in 1997 through the Patient Bill of Rights. The extension during the 1999 Legislative Session by many on the committee led to increasing those rights, such as denials by rural hospitals offered by Assemblywoman de Braga, rights to contraceptive equity by Assemblywoman Giunchigliani, and many others, including setting up the office of an ombudsman to help consumers with health care complaints. Assemblywoman Freeman worked hard on external review though it did not pass, and Assemblywoman Buckley was pleased to carry many of her ideas forward this session.
The details remained, such as who performed the review, who paid for it, what did it cover, and with that she referenced Exhibit H, a revised edition of the bill. There was another bill on external review sponsored by Senator Ann O’Connell [S.B. 320], her bill addressing almost the same provisions but were a bit more consumer-friendly than the bill in question. They incorporated the best of Senator O’Connell’s bill along with this bill. Her bill was heard earlier in the day and, in negotiation with many over the past three weeks, they had the differences down to a very few. With that, Assemblywoman Buckley referenced changes within the bill, as was seen in the exhibit referenced above.
Larry Matheis, Nevada State Medical Association representative and member of the board of Nevada Health Care Reform Project, introduced Ruth Mills, President, Nevada Health Care Reform Project, after which he offered to field technical questions. Mrs. Mills provided testimony (Exhibit I).
Mr. Matheis pointed out that during 1977, when the Nevada Patient Protection Act was created, it was really to try and restore balance to the health care system. It had gone into a radical imbalance due to the restructuring of the insurance and delivery systems over the past one and one-half decades. It was sensed that the trust relationship needed was breeched and revised without the participation of those affected by the decisions. The various proposals incorporated into the act addressed the most obvious issues where people who had a previous understanding of when to use the emergency room, who could tell the doctor a certain service was unavailable was worked through. Two years ago, it created additional protection as the next logical step via the Governor’s Office of Consumer Health Assistance, a committee very active in development of the program. Once a law was put into place, it was not self-implementing. The patient knew there were laws to protect but it was when the patient needed care and it was denied that the problem arose. They were not sure of the contents of the law, but they knew someone was making a decision that affected them and they needed to be knowledgeable concerning their rights. Within the Nevada Patient Protection Act, requirements for internal complaint mechanisms were covered, not the external. The creation of the Office of Consumer Health Assistance was a big step in that direction, allowing people with specific complaints or concerns not a part of the plan or within the doctor’s office to request assistance.
During the past one and one-half years, the office had, since January 1, 2001, 81 cases of patient denials after going through plan processes. When the Office of Consumer Health Assistance interceded, the plans’ determinations were changed. There were 23 additional cases where they did not follow all the way through.
Chairman Dini asked if all health insurance was covered. Mr. Matheis answered it covered the same plans and insurers that were covered by the Nevada Protection Patient Act. Medicare was already covered, with the Arista and Taft Hartley plans remaining exempt. If Congress acted this year, as Vice Chairwoman Buckley had hoped, that would bring them in under the same rule. Mr. Matheis did not feel Congress would step in and do anything in this area, and it was a very big gap that no state could correct. A functioning program could be put into play, since many of the same plans worked via the areas of Arista and Taft Hartley. He felt that when Congress finally saw the wisdom of acting as the Nevada Legislature did during the 1997 Legislative Session, everyone would be assured of the same basic rights.
Chairman Dini said he received a call from a constituent that very morning representing an association of professionals who fell into the exempt category. Assemblywoman Buckley said she found she referred those complaints to both the offices of the Insurance Commissioner and Consumer Health Assistance. She felt once one of those offices received a call, they were prodded into following through. She then addressed the question that referenced the managed-care organizations, stating the bill affected managed-care and HMO. The Patient Bill of Rights made all of the provisions in questions applicable to only those two entities. However, the complaint procedures were changed for all health care, including fees for service, so that there was an internal complaint resolution mechanism. It was suggested that this bill should apply to those insurance companies as well, although another managed-care organization wanted it to be clear that it did not apply to long- and short-term disability policies. The last area of policy for the committee and the Legislature to decide was whether it should apply to the state employees’ health care system. S.B. 320 made it applicable to the state health care insurance program. Assemblywoman Buckley was willing to follow the suggestions of the committee, indicating there were many problems with the state health insurance program that needed fixing, such as decent benefits, but she was willing to entertain the best route to take. If it caused a fiscal impact she did not want to slow the entire bill down.
Assemblyman Hettrick asked if the external review organizations already existed, and if so, how many there were. Mr. Matheis stated there were a number of external review organizations around the nation, many developed when Medicare choice plans were created federally, the federal laws requiring the use the external review organizations. He thought there were ten prominently known organizations of that nature with large numbers of academic-based specialists on staff due to the in-depth medical research involved. Also, they would not be routine types of denials. The agreement was where there were nationally accredited independent review organizations, they were given deemed status and were able to meet the review requirements automatically.
Assemblyman Hettrick’s concern was conferring with the Consumer Health Commissioner’s office and the desire to have an independent group direct claims to external review companies. He wondered if that might create some desire for personnel within that office, ending up with a budget item that had to be addressed by Ways and Means only to discover there was no funding to cover the costs. His thought was to handle the procedure by using the ten or more consultant agencies on a rotating basis. That would, he felt, do away with the appearance of choosing those that provided a favorable decision.
Assemblywoman Buckley’s reasons for not following the procedure described were they did not want to lose the Office of Consumer Health Assistance and their ability to resolve the complaints quickly and internally without having to contract out with someone nationally. They were able to resolve many complaints on a voluntary basis through direct contact with the managed-care organization. The office indicated that nationally and through other states, those opted out were a handful of cases where there was no fiscal impact on the organization. While agencies sometimes later changed their minds, the indication was they put no fiscal note on the bill. If managed-care organizations were allowed to contact every external review organization in the state, or those certified nationally, the patient did not know it was an independent reviewer but that they were being denied by the same person and telling that patient who would be handling their care. The other thing lost was when the managed-care organization wanted to refer to a certain type of specialist, i.e., hand reconstruction; they would rather send to an office more experienced in exotic hand injuries. She felt it less preferable, though if the will of the Legislature, she would strongly advocate for the listing of every organization with the authority assigned to assure assignments were selected in a random, routine order. The worst thing that could happen was two organizations with the managed-care staff finding the two that would provide the decisions the insurance company preferred, thus a sad disservice to patients was provided. In that case, she would rather not have a bill at all.
Assemblyman Hettrick appreciated Assemblywoman Buckley’s comments, the points being well addressed. He stated if only one organization handled the exotic cases as described, they would receive the review no matter what. He felt also that the Consumer Health Assistance Organization would choose fairly the next external advocate on the list. Also, there was nothing prohibiting the consumer from asking which company to use on the list.
Assemblywoman Buckley was happy to work with choices and reasons for all items left unresolved.
Assemblyman Goldwater stated there was guidance within the bill as related to Workers’ Compensation in regard to final adverse determination. Other than that, he asked if Workers’ Compensation Health System would be involved in an external review. Assemblywoman Buckley answered no because during the 2003 Legislative Session there would be no bill to extend to the Workers’ Compensation system. Assemblyman Goldwater noted exemptions from liability. He stated he had learned once from a wonderful Assemblyperson from Assembly District 9, and also 8, that we should be very careful when offering any sort of immunity. Assemblywoman Buckley stated those were very good lessons to learn. She had received contact from the Nevada Trial Lawyer’s Association (NTLA) offering a suggestion of insuring the decision was binding only upon the insured, the intent of the bill from the onset. At that point, the consumer had the right to go forward if they felt the decision was wrong and did not offer any conclusive impact should that person choose to go to court. They also expressed concern about the gross negligence standard for external review organizations, when she felt it was less of a concern by clarifying the impact of who was bound by the decision. NTLA suggested “gross negligence” be removed, but she had not been afforded the opportunity to discuss that with the managed-care organizations in which she had been involved. Though not stating their position, they thought that if other changes in the bill worked well, they would not oppose solely on that.
Assemblyman Goldwater addressed the privacy issues and the patient’s right to access of their review, plus the right that the reviews remained private. Assemblywoman Buckley answered those areas would remain private. Assemblyman Goldwater shared his father was involved in litigation regarding an external peer review, which showed negligence on behalf of the doctors. A nurse who saw the review and could not believe what had happened, as the review outcome resulted in someone’s death, offered the information, in confidence. The final outcome of the entire process after weeks of litigation and many trials was the patient did not have a right to that peer review, and even so, the acquisition of the information from the nurse was not allowed to be considered. Assemblywoman Buckley stated she would speak with all the parties concerned and make sure that type of situation was addressed when reporting back to the committee. She knew peer reviews were a double-edged sword, sometimes kept confidential and not used. The public policy behind that was to encourage people to heal by having peers honestly assess the performance. On the other hand, the downside, as pointed out by Assemblyman Goldwater, was to keep peer reviews confidential.
Fred Hillerby, representative, Nevada Association of Health Plans, voiced support for external review. Shortly after the 1999 Legislative Session they began discussing the merits of external review, and as stated in the record, a couple of the managed-care companies had, in fact, voluntarily extended external review privileges to their members on the commercial side. There were three companies within the state who had held Medicare contracts for the past several years.
Mr. Hillerby stated that from their standpoint it was an extension of the Patient Bill of Rights passed during the 1997 Legislative Session, and felt it very valuable to the patient, as well as to the health plans. Both the Assembly and Senate bills provided the opportunity to approach the external review organizations early on to get expert medical advice to help make decisions.
He then responded to a couple of questions heard during testimony. In response to Assemblyman Goldwater, without providing some identification for the plans, the concern was there would not be many volunteering to be involved. The provision was addressed in both bills because good companies were needed for the process. Within the Senate bill it stated the decision was binding only on the health plan. If told they had to provide the service, it would be done. If denied, the patient was able to seek other legal remedies they chose.
When speaking about the confidence of the groups, the experience uniformly across the country showed a 50-50 response in decisions. They were unbiased in the process and one of the reasons the consumer/patient was comfortable with the groups was they were made up of staff from Harvard Medical School, John Hopkins University, Stanford, and other university staff experts in their individual fields. The reports were written in fine detail as related to the decision made and engendered great confidence on both parties involved. There was certification of the agencies by the Insurance Division that included strict conflict of interest requirements and forcing independence. There were concerns about impeding access through other agencies. He thanked Assemblywoman Buckley for all of her work on the bill and voiced a willingness to work on the changes required before moving the bill forward.
Bobby Gang, Nevada Women’s Lobby (NWL) representative, offered support of A.B. 422 and the concept of external review. Exhibit J is verbatim testimony regarding the NWL’s position.
Dr. William Hausman, state volunteer coordinator for health and long term care for the AARP in Nevada, presented Exhibit K, his verbatim testimony.
Nevadan’s for Affordable Health Care representative Misty Grimmer voiced support of the bill. She presented to the committee Bob Ostrovsky’s testimony (Exhibit L), with his apologies for not being able to attend the hearing.
Planned Parenthood Mar Monte, Planned Parenthood of Southern Nevada, and the Nevada Health Care Reform Project representative Alexis Miller voiced support for A.B. 442.
Matt Sharp from the Nevada Trial Lawyers Association (NTLA), voiced support of the bill. Their primary concerns were:
1. To ensure the user of an independent review;
2. The review was evaluated fairly by the insurance company; and
3. The insurance companies had processes in place to ensure independent reviews.
The NTLA request included by Assemblywoman Buckley in the bill was found in Section 11, verifying that decisions in favor of the insured were binding but decisions against the insured were neither binding upon the insured or the insurance company. There were changes with regard to an immunity to provide an external review company, but requested gross negligence be eliminated due to the limitation on good faith, the gross negligence only confusing that process. Also, the external review agency would then be provided sufficient immunity through the good faith rule as long as they acted reasonably. In some instances review companies had reports completed and purported to be signed by doctors when in reality they were written by employees and stamped with a doctor’s signature stamp, with no medical practitioner review of the report. Those kinds of incidents were not protected under this statute, a practice that truly needed to be stopped.
An amendment suggested for Section 19 was to verify that insurers using external review processes had procedures in place to verify the companies performing the reviews were doing so in a fair and reasonable manner.
Chairman Dini closed the hearing on A.B. 422. Assemblywoman Buckley agreed to perform the duties of a one-person subcommittee to work on the amendments. He announced the bills yet to be heard were scheduled through April 13, 2001, which meant at times taking a recess and having night meetings. He asked the committee to reserve the evening of April 12, 2001, for a night work session, with April 16, 2001 open to process late reports before the midnight deadline. Work sessions would also be held each meeting day for the clean-up process.
The meeting was adjourned at 1:46 p.m.
RESPECTFULLY SUBMITTED:
Ann M. VanNostrand
Committee Secretary
APPROVED BY:
Assemblyman Joe Dini, Jr., Chairman
DATE: