MINUTES OF THE meeting

of the

ASSEMBLY Committee on Commerce and Labor

 

Seventy-Second Session

April 2, 2003

 

The Committee on Commerce and Laborwas called to order at 2:11 p.m., on Wednesday, April 2, 2003.  Chairman David Goldwater presided in Room 4100 of the Legislative Building, Carson City, Nevada, and, via simultaneous videoconference, in Room 4401 of the Grant Sawyer State Office Building, Las Vegas, 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.

 

Note:  These minutes are compiled in the modified verbatim style.  Bracketed material indicates language used to clarify and further describe testimony.  Actions of the Committee are presented in the traditional legislative style.

 

COMMITTEE MEMBERS PRESENT:

 

Mr. David Goldwater, Chairman

Ms. Barbara Buckley, Vice Chairwoman

Mr. Morse Arberry Jr.

Mr. Bob Beers

Mr. David Brown

Mrs. Dawn Gibbons

Ms. Chris Giunchigliani

Mr. Josh Griffin

Mr. Lynn Hettrick

Mr. Ron Knecht

Ms. Sheila Leslie

Mr. John Oceguera

Mr. David Parks

Mr. Richard Perkins

 

COMMITTEE MEMBERS ABSENT:

 

None

 

GUEST LEGISLATORS PRESENT:

 

Assemblywoman Valerie Weber, Clark County, District No. 5:

Assemblyman Tom Grady, Lyon and Storey Counties and portions of Carson City and Churchill County, District No. 38

Assemblyman John Carpenter, Elko County and portions of Humboldt County, District No. 33

 

STAFF MEMBERS PRESENT:

 

Vance Hughey, Principal Policy Analyst

Wil Keane, Committee Counsel

Diane Thornton, Senior Research Analyst

Corey Fox, Committee Secretary

 

OTHERS PRESENT:

 

Alfredo Alonso, representing Superpawn

Mary Lau, Executive Director, Retail Association of Nevada

Steve Kost, Executive Director, Far West Equipment Dealers Association

Don Renner, John Deere and New Holland Dealer, Yerington, Fallon, and Smith Valley

Hugh Montrose, Equipment Dealer, Lovelock

Gail Burks, Nevada Fair Housing

Ken Scruggs, Household Financial Group

Melody Luetkehans, General Counsel, Nevada Association of Realtors

Cheryl Blomstrom, Nevada Consumer Finance Association, Coalition for Responsible Mortgage Lenders, Mortgage Bankers Association

Susan Furlong Reil, Legislative Counsel Bureau, Private Citizen

Mickey Johnson, Nevada Land Title Association

Larry Spitler, Associate State Director, Advocacy and AARP

George Ross, representing Assurant Group

Leo Davenport, State President, Nevada Mortgage Brokers

Michael Radde, Nevada Association of Mortgage Brokers

John Royce, Nevada Association for Mortgage Brokers

Brock Davis, Owner, US Express Mortgage, Board of Directors, Southern Chapter, Mortgage Bankers Association

Cheryl Salemme, Nevada Association of Mortgage Bankers

Patricia Jarman-Manning, Commissioner, Nevada Consumer Affairs Division

Kathleen Delaney, Deputy Attorney General, Consumer Affairs Division

Phil Rejholec, Above All Travel

Jan Marie Brown, Uniglobe Happy Travel

George Weeks, Un’s Travel

Bonnie McDaniel, Quick Trip Travel

Rosemary Hughey, American Society of Travel Agents

Lisa Foster, American Automotive Association

Rob Jordan, America’s Travel, Southern Nevada Chapter of ASTA

 

Chairman Goldwater:

We will call the Commerce Committee hearing to order.  Everyone is here; no one is absent.  Additionally, a quorum is present at this time.  Ms. Weber, your bill is the fastest, so I think we will hear that first.  Welcome to Commerce and Labor. 

 

 

Assembly Bill 420:  Revises provisions relating to secondhand dealers. (BDR 54‑866)

 

Assemblywoman Valerie Weber, Clark County, District No. 5:

I hope you all have copies of my testimony.  It should be in a manila file folder.  [Assemblywoman Weber read from prepared testimony (Exhibit C).]  I bring before you today A.B. 420, which is designed to strengthen NRS (Nevada Revised Statutes) Chapter 647, regarding dealers in secondhand material.  Secondhand dealers typically buy and sell in the areas of secondhand personal property, antiques and collectibles.  As a quick review for all of you, this market differs from that of pawnbrokers, which is located in NRS Chapter 646, in that pawnbrokers lend money on the security of pledges, deposits, and other secured transactions in personal property.

 

The three goals of this bill are simple.  First, secondhand dealers would now be expanded to include coin dealers and trade show or flea market vendors in the secondhand dealer definition.  The threshold for licensure is also set.  Second, the bill requires background checks and prohibits the licensing of a felon.  It details provisions of fines for violations of established ordinances.  Finally, the bill allows for other methods of reporting purchased goods and allows for peace officers to place a hold on property they believe to be stolen.

 

There are several sections of the bill to walk through, and I have provided the text for you in this testimony.  Section 2 defines the term “informal market.”  That includes flea markets and swap meets that are not currently defined in the chapter.  Section 3 allows for a peace officer to place a written hold on property he or she may believe is stolen.  The logic here is simple.  As with pawnbrokers, this allows law enforcement to follow up on reporting the secondhand dealer has provided the department.  Currently, a dealer can obtain and sell any property immediately, including stolen merchandise.  This differs from the pawnbroker who must hold merchandise for 30 days prior to sale.  In working with Las Vegas Metropolitan Police, we have discussed an amendment for an amount of time for the secondhand dealer to hold merchandise prior to sale of such.  The time established is about 10-15 days.  The goal is to capture and retrieve stolen merchandise and not to impede the progress of legitimate business. 

 

[Ms. Weber, continued]  Section 5 on page 2 of the testimony includes coin shops as secondhand dealers.  Problems have been encountered with coin dealers purchasing and selling used jewelry.  This section also excludes individuals who attend a flea market or four or fewer occasions a year.  Section 6 expands secondhand dealer reporting mechanisms to the sheriff from written to other forms of communication, including fax, electronic means, et cetera.  The Board of County Commissioners or the local governing body can capture this under the appropriate ordinance. 

 

Section 7 requires each county to conduct a background check for all secondhand dealers and prohibits the licensing of an individual who has been convicted of a felony.  In addition, this section allows the governmental entity to establish fees to carry out these provisions.  Finally, the section provides for fines for violations of the chapter.  Section 8 repeats the county language for cities.  In summary, A.B. 420 amends the definition of secondhand dealer practices.  This legislation allows enhanced cooperation between law enforcement and business in the detection and recovery of stolen merchandise in the secondhand market.  This benefits local business, law enforcement, and, most importantly, the consumer. 

 

Assemblyman Knecht:

In your view, would this bill, with the amendments, include sports card dealers as secondhand dealers?

 

Assemblywoman Weber:

It possibly could.  We had not considered that option at the time it was written, but if that is the pleasure of the Committee, we can include that, if it is appropriate. 

 

Assemblyman Knecht:

I am not sure, but I wondered whether it… Those people, for example, tend to deal in a mix of new retail goods and vintage antique goods, so I did not know whether it would reach them or not.

 

Assemblywoman Weber:

I would have to go back into the current language of NRS Chapter 647 to determine if collectibles includes trading cards, those kinds of collectibles.  I, off-hand, do not know. 

 

Assemblyman Brown:

I note the outline you provided us indicates that background checks are necessary and there is the licensure process.  Then I look up above and I see flea market vendors and I think, in the state of California, the large Orange County thing a couple of years ago and, you know, folks that do wood carving and things like that are, I would imagine, flea market vendors.  Somebody would have to go through a licensure process, and that would require a background check for that purpose?

 

Assemblywoman Weber:

That would be currently the way that it is written.  Any particular flea market vendor that would be trading more than four times in a calendar year.  So, if you are referring to the Orange County situation, some of those people… Well, that main vendor is there every weekend and I am not sure about the individual people who sell at that location, as far as your illustration.

 

Assemblyman Brown:

But, in Nevada, that would be required?  You would have to, one, get a license, and, two, which would include a background check?  [Assemblywoman Weber indicated that was correct.] 

 

Alfredo Alonso, representing Super pawn:

We strongly support this bill.  I think that what you will find is that most of the provisions are already ordinance in Clark County.  We are bringing in some of the other secondhand dealers.  To answer Mr. Knecht’s question, I believe that collectibles would be included in there.  There is a huge market for sports memorabilia and I think that Metro can probably attest to the fact that is a problem right now with respect to stolen goods.  I think that all they are trying to do is get their arms around a problem that exists both at the flea market level and a lot of fly-by-nights that simply put up a fence for a short time and then disappear.  It is the pawn industry and the good people within this industry that are blamed for it afterwards.  So I think overall what you are doing is codifying a lot of what Clark County already does with respect to the background checks, if that helps the Committee. 

 

Mary Lau, Executive Director, Retail Association of Nevada:

We are testifying in support of A.B. 420.  In doing our testimony, I will bring some of the Committee members back several years when the Retail Association of Nevada brought forward a bill where we were having a problem with back-door marketing, if we like to use that term, of stolen goods through flea markets.  One of the problems that we were having was medications, drugs, baby formulas, et cetera.  We have a large loss prevention department in our retail outlets.  Our loss prevention department, in a cooperative measure with Metropolitan Police Department, quite often monitors these set-up sting operations, as such, and there was link back to methamphetamine and everything.  Amy Halley Hill was our lobbyist at the time and she was going through the halls saying, “Free the flea,” for those of you who remember it.  We consider this an extension of that.  There is a problem with flea markets.  This will help and it is just another cog in the wheel.  It does not harm legitimate flea market operations, but for loss prevention purposes and what this bill deems to accomplish, we are in full support of it. 

 

Assemblywoman Weber:

I did receive and I believe it should be in your packet… I do not know if [Lt.] Stan Olsen is here this afternoon.  We had talked about an amendment.  He had a couple of items that should also be in your packet (Exhibit D), but I do not know if he is here to speak of that. 

 

Chairman Goldwater:

Adding “or investigator” and “at the discretion of law enforcement agencies?”  [Ms. Weber agreed.]  Those do not look problematic.  Would you concur Mr. Alonso and Ms. Lau?

 

Mary Lau:

Yes, Mr. Chairman we do concur and we did talk to Lt. Olsen earlier regarding that. 

 

ASSEMBLYMAN HETTRICK MOVED TO AMEND AND DO PASS A.B. 420.

 

ASSEMBLYMAN KNECHT SECONDED THE MOTION.

 

THE MOTION CARRIED UNANIMOUSLY.

 

Assembly Bill 369:  Revises provisions governing trade practices between suppliers and dealers of certain equipment and machinery. (BDR 52-1059)

 

Assemblyman Tom Grady, Lyon and Storey Counties and portions of Carson City and Churchill County, District No. 38:

Today, I have with me two of the farm machinery dealers in Northern Nevada, Mr. Hugh Montrose from Lovelock; Don Renner, who has business in Yerington, Fallon, and Smith Valley; and Steve Kost, from the Far West Farm Equipment Dealers.  We are bringing to you today a bill that revises the provisions governing trade practices between suppliers and dealers of certain equipment and machinery.  We are talking, mainly, with farm machinery now. 

 

[Mr. Grady, continued]  This bill, which they will get into very shortly, has passed in most of the states.  Unfortunately, this was one of the bills that we got through on the deadline, so we must bring you some amendments, which I would like to speak to first, with the Chair’s permission (Exhibit E).  If you look on page 1 of the bill, Section 3, line 9, where it says, “including a dealer,” that should say a “single line dealer.”  On page 2, line 3, we would change the amount from $20 million to $10 million and, Mr. Chairman, I will tell you this has been cooperation between the major suppliers of farm equipment, Caterpillar, and all of the dealers in farm machinery in Nevada. 

 

Page 2, Section 4, line 6, “dealer agreement means an oral or written agreement.”  Page 3, line 8, a “dealer agreement concerning market penetration the dealer has.”  Page 3, line 11, “transact the desired market share,” is striking out the “required amount of business.”  At the bottom of page 3, a new sentence, which would follow line 38, “The notice and cure is not required if the reason for termination, cancellation or nonrenewal is a violation under the provisions of (b-1) above.” 

 

Page 4, after line 42, a new sentence would be “This section only applies if a supplier has not implemented a surplus parts return program for its dealers,” and if you would add on there, “for credit of not less than 85 percent of net.”  Then, we go to page 6, line 1.  It would read, “Repurchase inventory listed in Section 5, including inventory that has been on company sponsored demonstration, lease, or rental, where the supplier receives an allowance for usage.  Demonstration equipment under 50 hours usage, that is equipped with an hour meter and has not been previously sold, shall be considered as new equipment.” 

 

Chairman Goldwater:

Who drafted this bill for you, Assemblyman Grady?

 

Assemblyman Grady:

It was originally drafted using language from another state and then we had to change it to fit our state.  [Chairman Goldwater wondered why the bill was not changed in the drafting department.]  There were some problems in LCB (Legislative Counsel Bureau).  Legal has been doing a yeoman’s work with us on trying to change this and then get it back out to all of the dealers in a very short time to get their agreement.  That is why on page 8, we are eliminating Section 19 and a new Section 19 will be added, starting on the amendment that we gave you on page 10.  That will all be new language through page 13.  Again, Mr. Chairman, we apologize for bringing the bill to you in this form, but it has been a job trying to get this put together with all of the dealers approving.

 

Steve Kost, Executive Director, Far West Equipment Dealers Association:

I am here to speak in favor of this bill before you today.  Again, what Tom says about the timing of it and trying to get the information here in a manner, with all of these amendments, is not something that I like to do either.  We did work.  Specifically, I spent a lot of time with the major manufacturers, the people that this legislation affects, and tried to determine language that would be agreeable to them and our members.  I believe you have a copy of a letter from the Legislative Affairs Director, Jerry Parkin, from John Deere (Exhibit F).  We spoke with John Deere, Case New Holland, and Caterpillar to make sure that everybody is in agreement. 

 

This type of legislation was originally pretty much done on a national basis back in the 1980s, when a lot of farm equipment manufacturers were going through major consolidations, which today is common.  Back then, when the first would happen, they did not do things so well.  They would come into a town or an organization.  They might have two dealers in that town, one would get the contract, and the other one would not.  That dealer is out of business the next day.  His investment, his life, his building, the employees were out of jobs and because of that, and you know, a lot of the legislation was done starting probably in the Midwest in the rural communities, where agriculture dealers are traditionally the major employers in those communities.  It became a big burden to the community when we lost these businesses overnight. 

 

Because of that, legislation has been passed now in every state except Nevada, Hawaii, and Alaska.  Alaska and Hawaii do not do a lot in the agriculture industries, as far as equipment dealers.  That is probably why they have not done that, but in Nevada, for some reason, it has not been addressed.  We would like to do that at this time.  I do have a handout (Exhibit F) if you would like to see who has the laws and who does not, just for your information. 

 

Chairman Goldwater:

I actually would like to get into a little bit more of what problem we are trying to solve, and what some of these terms of art here are.  For example, “desired market share.”

 

Steve Kost:

Dealers traditionally, by manufacturers, are measured on one of the few things they can measure not subjectively, market share, which means they do have cause.  Determining a dealership, if they feel you are not getting an adequate market share in the area that you represent, the terms are primarily irresponsibility, but there are different terms that manufacturers use for specific areas.  These are not franchise dealers, where they do have trade areas that are expected to have certain market shares.  That is basically how they try to measure that.

 

Chairman Goldwater:

What is the problem that we are solving again?

 

Steve Kost:

Primarily what it is trying to address is, if a major manufacturer determines that you have, for good cause, or the dealer terminates, the dealer does have a way to exit the business without losing everything.  That basically means they are buying back new parts that they can resell that are still current in the book, that are new, and equipment basically that is new in stock, on the floor plan.  Those are bought back by the manufacturer where they can distribute, and that it does not remain on the books or have to be paid off by a dealer when he is going out of business.  It is just trying for a more orderly exit strategies, so to speak, during the determination process.  Most of this legislation is, to address the determination process.  Either be it starting with the manufacturer or starting with the dealer himself. 

 

Don Renner, John Deere and New Holland Dealer, Yerington, Fallon, and Smith Valley:

There are only about eight of us dealers in the state of Nevada that this represents.  We are not a big agriculture state, like some states.  It is brought to our attention that this is a necessary thing.  We are all solid, strong dealers and this is probably not an issue, but it could be an issue.  So, we are just trying clean up the records here. 

 

Chairman Goldwater:

I think I understand a little bit better now. 

 

Hugh Montrose, Equipment Dealer, Lovelock:

We feel we are entitled to the same consideration that dealers have in larger agricultural states like California, the Northwest, and Midwest.  We feel we are entitled to the same treatment they get.  That is why we want this legislation.  We would certainly appreciate your support on it. 

 

Assemblyman Grady:

Thank you, Mr. Chairman, and again, I am sorry that it did not come in a finished form to you. 

 

Chairman Goldwater:

We will close the hearing then.  We will open the hearing on Assembly Bill 284. 

 

Assembly Bill 284:  Prohibits unfair lending practices for home loans and revises provisions governing sale of real property by trustee. (BDR 52-20)

 

Assemblywoman Barbara Buckley, Clark County, District No. 8:

I am pleased to be surrounded by the “dream team” of predatory lending.  On my left is Gail Burks.  Gail is the CEO Executive Director of the Nevada Fair Housing Center, which is the fair housing-fair lending organization in Las Vegas that specializes in housing discrimination, and fair lending violation.  Gail has served as the President of the National Community Reinvestment Coalition that works on predatory lending issues nationwide, with Fannie Mae, Freddie Mac.  She meets with Allen Greenspan and talks about the economy. 

 

On my right is Ken Scruggs, with Household, who has worked in numerous other states on the issue of predatory lending and has a great sense of the industry, this issue, where all the bills have gone and come.  He has given me some really good advice on the industry and on good consumer protections. 

 

With that, I would note that April is Fair Housing Month; the 35^th anniversary of the Fair Housing Act, so I thought it was appropriate timing for this bill.  A little bit of background on predatory lending:  I would like to credit my intern, Heather [Branagan], who I think is here.  She did the research and the background on all of the statistics that you will hear.  Every year, U.S. borrowers lose an estimated $9.5 billion to predatory lending practices.  Nevadans lose about $100 million.  You will be getting some exhibits and this is the first (Exhibit G). 

 

Under existing federal and state law, many unfair or predatory practices are entirely legal.  As a result of such predatory practices, many American homeowners face the loss of their homes and their economic security.  Predatory lending is a financial epidemic that is attacking the core of Nevada by putting our families at risk of losing their homes.  Predatory lending is a fast‑growing practice concentrated in the subprime mortgage market, in which financial institutions use an array of lending practices to strip the equity from the homes of targeted populations.  Such unfair practices include:

 

• Lending without regard to the borrowers ability to repay; in other words, lending just on the value of the equity and not on the income; incomplete loan disclosure
• Excessive fees
• Unnecessary insurance
• Frequent refinancing
• Deceptive marketing
• Outright fraud and abuse 

 

[Assemblywoman Buckley, continued]  The explosive growth of the subprime market predatory lending and the lack of industry regulations has lead a director of the Federal Trade Commission to call this a serious national problem.  I have attached some charts that show the prevalence and the increase and subprime lending, for your edification.  The unprecedented growth of the subprime market has opened doors to many underserved populations.  At the same time, it has opened this practice called predatory lending. 

 

Subprime lending affords some people access to credit that they have been denied in the past because they did not meet the credit requirements of the prime lending market.  This subprime market typically serves those with blemished credit histories, insufficient credit histories, and non-traditional credit sources.  It also disproportionately serves consumers from lower income in minority neighborhoods where more traditional banking services are in short supply.

 

A.B. 284 addresses some of the most offensive and harmful practices.  It first seeks to prohibit the requirement that a borrower provide property insurance on improvements to home property in an amount that exceeds the reasonable replacement value of the improvements.  It prohibits asset-based lending, which is lending money to a borrower based solely on the equity of the home, with complete disregard to the ability to repay.  Seniors are the most susceptible to this practice because many have lived in their homes for over 20 years, either own them outright, or have over $100,000 in equity.  They are asset rich but cash poor.  Seniors are prime targets because they often seek loans to pay for unexpected expenses, such as home repairs and medical expenses, but have very limited incomes. 

 

I first became aware of predatory lending when I had someone come into the lobby of Legal Services and would not leave until she saw someone, which is very effective.  I was the only one who was available, so I saw her.  She was 80 years old, Hispanic, owned her home, made $700 dollars social security, and was told this is a great way to get some money, consolidate all of her debts.  She ends up refinancing her loan and had $100 dollars left over for utilities and all of the other payments.  Anybody looking at this loan would have said, “Don’t sign it.  The interest rate was worse.”  So, you think, why would anybody lend her the money?  Well, if your goal is to get the house, then that is what they did.  It was such a clear example and that is when I became interested in the topic and learned that it was not an isolated incident. 

 

The third predatory practice this bill seeks to prevent is what is known as “flipping.”  I think Ken and Gail can probably explain it better than I can, but basically, it is when a lender persuades a borrower to refinance with a new larger loan to pay off both the previous loan and finance the fees and costs of the new loan.  It is done over and over again, so that the lender can churn out the high fees and costs on the loan.  Ultimately, like the woman that was in my lobby, she thought it sounded pretty attractive, because she could consolidate.  She did not look closely at what the terms are.  She believed the person and thought her payment would be lower.  She never read the disclosure and ended up almost losing her house. 

 

[Assemblywoman Buckley, continued]  A.B. 284 prohibits the financing of a prepayment fee or penalty.  Flipping is particularly devastating because it traps you into a circle of debt from which you cannot get out.  One of predatory lending’s most profitable practices is to sell unnecessary inexpensive insurance coverage, which is single premium credit insurance, life insurance, disability insurance, health insurance, involuntary unemployment insurance.  This is called “packing.”  Such coverage is extremely profitable for predators, who retain 40-70 percent of the premiums.  It costs consumers 4-5 times as much as monthly paid credit insurance, and over 10 times as much as term life insurance policies, because it is financed into the loan.  Though coverage typically only lasts five years, borrowers pay for it for the 30-year term of the loan.  Predators get consumers to accept this insurance by automatically including it in the loan, without the borrowers knowledge and threatening to delay closing if they decline it.  Fannie Mae and Freddie Mac now refuse to purchase loans that include financed insurance.  A.B. 284 allows this, if disclosure is given, but I would suggest it to you, because that is what we did last time.  Since that time, most lenders, including Citigroup and Household Financial, do not finance these anymore.  I would suggest that we just do an outright ban on financing of these insurances. 

 

Another aspect of A.B. 284 is that it requires judicial foreclosure when the debt-to-income ratio is greater than 50 percent.  This has caused some heartburn out there.  What we are trying to get at is right now, on these really high cost predatory loans, if you have a deed of trust foreclosure, a consumer gets a notice of sale, and has a very short amount of time if it is a predatory loan and there is fraud involved.  You have to try to figure out how to get an attorney, or a legal aid, or a fair housing center to intervene.  You have to prepare a complaint, motion for a TRO (temporary restraining order), deliver it to a judge, and try to get a signature.  I told some of the industry people that I would try to work with them to see if there is a way to try to get some sort of help here, because otherwise, the consumer really has no effective remedy and so there is no judicial oversight.  People just lose their homes and never have a judge look at the papers.  So, that is what we are trying to get at in this last section of the loan.  

 

[Assemblywoman Buckley, continued]  A.B. 284 provides numerous consumer protections and disclosures, thereby protecting family home equity value.  Predators are targeting some of our states most valuable citizens.  Through A.B. 284 we can protect our citizens while making responsible loans possible.  Included in your printout are some materials from NCSL (National Conference of State Legislatures), showing which states have enacted some reform. 

 

About 20 states since 1999 have addressed predatory lending.  New Jersey and Arizona passed legislation last week that is waiting approval from the Governor.  All states are moving in this direction and I believe this bill is a common sense approach.  It has been said that some states think they are just going to shut down lending.  This is not such a bill.  It strikes a good balance, and I would urge your support.  If possible, I would like Ms. Burks and Mr. Scruggs to continue with the overview and then open it up for questions. 

 

Gail Burks:

I have a handout of a comparison chart in my testimony (Exhibit H).  I would just like to highlight some pieces of my testimony.  Both advocates in the industry have come a long way in our state, as well as nationally, in addressing the issue of predatory lending since we were last before you.  The mere fact that I am sitting at the table with Household speaks for itself. 

 

A couple of points, in terms of why we need this bill:  First of all, the laws we currently have, both federal and our state UDAP laws, Unfair and Deceptive Acts and Practices, are not effective in addressing the issues.  It is especially not effective in addressing the issue when we have such circumstances as foreclosures, or loans that are sold after the original loan is made.  Section 6 of the bill seeks to get at this, so that if you have a mortgage loan that is sold, and later you have problems with the servicer, then as a consumer you have some particular recourse. 

 

I would like to give you some statistics in Nevada about the cases that we have seen that sort of fall into this category.  During our 2001 fiscal year, which runs from October to September, we served over 417 clients with just predatory lending issues.  In 2002, we served 585.  Of those, approximately 47 percent occurred in the sales or marketing, or the origination phase, while 42 percent of those cases occurred in the servicing phase.  So, if we get the holder of a loan, we would be able, under A.B. 284, to address some of those issues we have worked on.

 

I think there are a lot of ways where we can compromise to make sure that we do not have a particular problem with lenders that want to sell their loans.  That will not be a problem for the prime market or the subprime market.  In addition to that, in Nevada judicial foreclosure is the next area that affects consumers the most in the predatory issues that we serve.  As Assemblywoman Buckley stated, the hardest part is trying to run a legal services mass unit to defend these clients and help them when they come in to you.  Section 10 would allow us to get at that.  Currently, many lenders, even when we use federal statutes, such as RESPA (Real Estate Settlement Procedure Act), will let the clock tick.  We are allowed by federal law to make an inquiry and do what is called a qualified written request for verification of mortgage.  A lender has 20 days to acknowledge that and 60 days to respond.  If a consumer is already in the 60‑day or 30-day phase, that particular federal protection does not help.  I think that disclosure and credit counseling is a good thing and those things are already done, but they are not adequate, absent legislation, in order to help the consumers for a couple of reasons.  In terms of disclosure, a lot of clients do not understand the complicated mortgage maze, and in the initial origination phase many consumers do not receive what is called the final HUD 1 that gives them a list of the charges that are included in their loan.  It takes approximately 42.3 hours to help a first-time homebuyer, assuming that they are able to get to your agency prior to signing the paperwork. 

 

[Ms. Burks, continued]  The last area that we want to address is the economic impact on the industry in our state when we have high foreclosures due to predatory lending.  I have passed out to you a chart (Exhibit I).  We have taken off the names of the clients, as well as the lenders, to protect the innocent, but what I would like to direct your attention to is the cost, which does not include funds [borrowed] by a consumer [to pay] refinancing.  These are clients that receive some form of government assistance, or what we call down payment assistance, that is actually paid for with your tax dollars.  The difference in the cost of refinancing ranges anywhere from about $7,800, with the lowest being about $1,900.  We need to [address] this issue and A.B. 284 does that.  I would be glad to take any questions about the information that we have given that the Committee might have.  Thank you.

 

Assemblywoman Gibbons:

I have heard of this at Incline Village through some of the seniors who have been living there for years.  If someone was just a businessperson, even an attorney, or a little old nice lady that cannot afford to pay for the taxes every year, and they loaned the money for taxes in a sense to get the property.  Would this bill apply to someone like that? 

 

Gail Burks:

If it is a situation where they are loaning money, then it would fall under what we would consider to be a predatory practice.  There are situations where money is loaned to a client on the front end or the back end, to get them in a particular situation; it could apply if it were a deceptive practice by either a lender or some other company.  Yes. 

 

Assemblyman Arberry:

Gail, how would this affect the mortgage companies that are really the good folks?  The ones that really are not doing any predatory lending, because now they are going to fall into this category if it becomes a law.  They provide a good faith estimate, which is required by HUD, within the three-day mark, and then keeping them updated, with all fairness to the buyer, or whoever is purchasing.  It is still the same HUD good faith estimate, and then in the end, that person goes and talks to someone and they say that he is being gouged because they are trying to steal that client, and they are not gouging him, they really are treating him fairly.  You take a look at it and then that person wants to pursue this, then where does that put the mortgage company? 

 

Gail Burks:

That is a very good question.  From an advocate’s perspective, the goal of this bill is not to get at legitimate subprime lending.  We need prime lending and we need subprime lending.  By subprime, I mean borrowers who have had difficulty and now need to start over.  Anybody getting out of college who has school loans needs a subprime loan.  This bill would not affect that, in the sense that it is only going for those practices that would be considered to be deceptive or fraudulent, or would make a loan to the borrower where there is no benefit.  In other words, where it is overappraised.  It does not get at legitimate subprime lending, nor is it meant to stop that. 

 

Assemblywoman Buckley:

If you go to Section 7 of the bill, which is the guts, it is prohibiting first, the “good guys” do not even do these home improvements, just on the origination loans.  Next, it is asset-based lending only.  So, they do not have the ability to repay.  It is a $700-a-month loan, they make $600 a month, they cannot make it, but the lender is doing it so that they can get the house.  So, good lenders do not do asset-based lending.  The next one, “financing pre-payment penalties,” flipping the loans to try to get more and more of the penalties and fees, good [lenders] do not do. 

 

The last one, “financing the credit insurance,” to try to pack it as high as possible, good [lenders] do not do.  In my opinion, anybody in the industry, and that is why people like Household, which loans a lot of money, will support it, because it is not getting at the good [lenders].  It [confronts] the people who are really doing predatory loans. 

 

Assemblyman Arberry:

Who will make that determination once this is passed? 

 

Assemblywoman Buckley:

Section 7 of the law, right there, those practices, because that is all that it covers. 

 

Assemblyman Arberry:

I know, but what if someone tells that individual that you have a good case here and because of their lack of knowledge, they do not know to come to Gail or come to you, and they go to some attorney, and then here we are in a lawsuit, because they think that we are gouging them.

 

Assemblywoman Buckley:

Well, anybody can sue for any reason they want, but if they are going to someone who… First off, they are either going to have to pay the lawyer up front; most of the time, people do not have the money.  So, the only way a lawyer is going to take the case is if it is a good case, where they would take it on a contingency.  Unless you have some proof, i.e. it fails to meet traditional underwriting criteria, whether on the prime or subprime market you all have the criteria.  You know what makes that paper and what does not.  If you have it, then there is no asset-based lending.  But, where you have nothing, where you do not have guidelines, criteria, then it would fall into that.  Maybe Ken could address this issue as well. 

 

Assemblyman Brown:

First of all, on the debt-to-income ratio portion:  Do other states have that provision, and is it set at 50 percent, or is that unique to this particular legislation? 

 

Ken Scruggs, Household Financial Group:

A number of states have adopted a debt to income ratio ranging from 50 to 55 percent.  Most states prohibit the making of a loan to a person whose debt‑to‑income ratio exceeds that, which is something of a problem for people that need to borrow money and have a lot of debt.  Nevada is the first state we are aware of that has taken this approach, and we are working to see what we can come up with that will give a customer a review of his circumstances before he loses his property.  I am not sure that this is exactly the language that is going to end up, but it is a good approach.  It is a good start. 

 

Assemblyman Brown:

Is the debt just the loan value, or is that established from the loan documents where they are indicating all of their outstanding debts?

 

Ken Scruggs:

HOPA (Homeowners Protection Act) requires that you verify the debt and income information that the customer gives you.  It is not enough that the customer says, “This is how much I have, and this is how much I need.”  You have to be able to verify it independently.  There are a variety of ways to do that.  It is talking about the overall income that the customer has against his overall debt.  It is not just the real estate debt of the loan that he is being considered for. 

 

Assemblyman Brown:

On page 4, this is the defense; the borrower has a defense the unpaid obligation of the home loan.  At the end of that provision on line 6, it states “or other sale to enforce the home loan.”  In other words, I believe the court can cancel the pending foreclosure sale or trustee sale to enforce the home loan.  I am just trying to understand the mechanics of that.  Are you saying that, if there is an award, that can be used to pay down the loan or is this kind of an offset there, or, I am particularly interested in “enforce the home loan.”  Is there any modification of the loan by the court, or does the loan stay in tact? 

 

Assemblywoman Buckley:

This is a remedy paragraph and what this language is intended to say is that some of the things the courts can do, in addition to their legal and equitable powers, is to cure the default and to stop the foreclosure trustee sale.  So, someone is foreclosing, it is a predatory loan, they offer a defense, i.e., they did asset-based lending; no traditional underwriting criteria court; stop the sale; find that I have a defense, and most of the time the stopping of the sale is done in the beginning to allow the merits of the action to be debated. 

 

Assemblyman Brown:

The enforcement goes to the foreclosing entity, relative to the sale?  [Ms. Buckley indicated that this was correct.] 

 

Assemblywoman Buckley:

And maybe if Mr. Scruggs could present his testimony, it might answer some additional questions. 

 

Assemblyman Hettrick:

I am dying to hear Mr. Scruggs’ testimony, as well.  My only question is, and I cannot think of the right terminology, so Mr. Scruggs or Ms. Buckley, help me out.  There are people who do a reverse finance on their homes with no intention of ever paying it back.  I do not want that prohibited by this bill, because they would not have the money to pay it back.  Indeed, they use the money to live on, purposely, and allow somebody to take over their homes.  So, I just want to verify that the language does not prohibit that.

 

Chairman Goldwater:

I would get Mr. Keane to answer that, but I do not even see how that would even prohibit a reverse mortgage.  I would count the money you received from a reverse mortgages income.  That automatically helps it.

 

Assemblywoman Gibbons:

I think Assemblywoman Buckley wrote this language.  In Section 8, number 2, the punitive measure, how did you happen to come up with that language, where it is three times the amount of any actual damages sustained by the borrower and if the borrower brings an action?  I just wondered how you came up with that.  Is that punitive enough, along with what normally happens in court? 

 

Assemblywoman Buckley:

Yes, line 37 limits this to willful behavior and it is a treble damages section, which is similar to the one that we heard in Assemblyman Oceguera’s bill just the other day, for intellectual property violation.  It is an alternative to punitive damages.  It is fairly common with more willful violations of the law.  Just getting the persons money back is not enough.  We want to really stop these practices.  It is similar, in a way, to our caps on punitive damages under Nevada law, because we also in those sections have a three times capped, when we cap them in the 90s.

 

Ken Scruggs:

Subprime lending is the subject we are talking about.  A subprime borrower, by definition, is somebody who is not a prime borrower.  That means that they have had some credit problems in the past, they do not have a job history that would make them prime, or they have an irregular or difficult-to-verify income stream.  That makes them subprime.  Legislatures around the country have been looking at these people because they do not have the wide variety of lenders to choose from that the prime borrowers do have.  It is felt that it is proper public policy to place special regulations on subprime lenders to ensure that their borrowers are given a fair shake, that they understand what is going on in the transaction, and that they are fully and properly disclosed to. 

 

This is not an easy area to regulate because, if you think about it, prime borrowers are those who exceed a certain standard.  Everybody is pretty much alike, although some have a lot more money than others.  Everybody is pretty good.  Subprime is everybody else.  We have subprime borrowers who are near prime, who are going to be prime next year, and are back on the way up.  We have borrowers who are never going to see prime through the course of their lives. 

 

[Mr. Scruggs, continued]  Trying to regulate so that we protect the borrower who really does not understand the process very well and is struggling, yet not inhibit the borrower who is near prime or is on his way up, that is the challenge for you.  To add to the problem, subprime lending has kind of blossomed over the last few years.  Many of the lenders that offer subprime loans are not depository institutions, and as non-depositories, they have not, until very recently, been required to provide data on their customers to the federal government through HMDA (Home Mortgage Disclosure Act). 

 

To further complicate the issue, since we are dealing with civil rights issues here in many cases [because of] the information that needs to be divulged, subprime lenders have been prohibited from collecting the kind of data that is needed to give a full picture of who the market is and how they are being served.  That has changed in the last year or so, and I am sure we are going to get much better data in the next year or two.  For right now, we are kind of “flying by the seat of our pants,” and I think that you as legislators need to use common sense and decide whether the issues that we are discussing are good issues or bad issues. 

 

Household, just so you know, and to greatly oversimplify, we think that any adult in America ought to be able to get credit if he can find somebody to lend him the money, but at the same time, we recognize that we as lenders have a responsibility to be sure that our borrowers completely understand what it is that they are doing and that they completely understand the transaction.  In some cases, we also accept a responsibility to make decisions about whether or not the loan is good for the customer and it is in his best interest. 

 

I say that all as a lead-in.  I am pleased to be able to support A.B. 284 because I think it makes a real effort to strike a good balance between common sense, what is good for the customer, and not eliminating very many people from the marketplace, or companies from being able to operate, if they operate in a legitimate manner.  I am here primarily as a resource witness.  I would be happy to answer any questions about any of the issues in this bill or what is going on around the country.

 

Chairman Goldwater:

Only one small editorial comment and probably more of a sale for my own piece of legislation.  On Section 6, where you define lender, I think that where we define it, and who is actually going to be served as having committed this, is going to be a difficult task.  Nevada has a regulatory structure to make sure that point of contact, compared with the underwriter, compared with the mortgage brokerage company, and the mortgage agent, all need to be understood as part of this process.  When we say that we are going to fix it, depending on where along the line we fix it, we are going to have to rely on a certain regulatory structure to make sure it does not pop up some place else, and that we have some place to make sure these things do not happen.  So, under that definition in Section 6, along Nevada’s line of regulatory framework, where do you see that happening?  At the company level, at the underwriting level? 

 

Ken Scruggs:

I believe that the bill takes the approach that the person that actually makes the loan is responsible to see that the customer is given everything that he needs to have before the loan is closed.  As it is currently written, it would also apply to whoever ultimately holds the note if the loan is sold out. 

 

Chairman Goldwater:

So, it does eventually get down to the underwriters, so all the way along the line.  Do you agree, Gail?

 

Gail Burks:

Yes.

 

Assemblywoman Buckley:

There are some amendments coming.  Even though we spent hours and hours last session working on the consensus bill, there were some change in lobbyists since then, so we had to do it again.  Gail did a good bit of that.  Some of the amendments we view as friendly, some of them we view as not so friendly, but we are going to get the whole group back together again and see if we can hammer them out.  Gail, Mr. Scruggs, and those in the audience have pledged to do that.  So that when you have a work session, you have one good document to work from.

 

Chairman Goldwater:

I know that everyone on this Committee is a veteran member, or most of us are veteran members.  We know that your consensus bills are usually long-drawn-out, hard-fought, consensus bills, and we will be mindful of that as we consider last-minute amendments.  Is there anybody who would like to give their “me, too”?

 

Melody Luetkehans, General Counsel, Nevada Association of Realtors:

We are here in support of this bill.  Our members get affected when we get calls from people who want to list their properties that are trying to sell these homes, and they have no equity.  Many times they are upside down.  It is heartbreaking to these people to lose their homes to these foreclosure processes.  We think that it is a well-thought-out bill.  In regards to Assemblyman Hettrick’s question, in respect to reverse mortgages, I believe the bill does address that in Section 5, subsection 2.  The references to the federal laws, both the United States Code and Code of Federal Regulations, define the mortgage loan as “not including the reverse mortgages,” and also many times the equity mortgages that occur from more reasonable and upstanding lenders.  Hopefully that has already been taken care of.  To echo concern that Assemblyman Goldwater had in regards to lenders, we would like to ensure that the seller who does a carry back on a property is not affected by this when a seller sells a property, and maybe the buyer gets in and the seller is giving up some of his equity and his property to turn over the property.  We believe that it is a good bill and the realtors are in support of it. 

 

Chairman Goldwater:

We really appreciate your clarification of the reverse mortgage as well. 

 

Cheryl Blomstrom, Nevada Consumer Finance Association, Coalition for Responsible Mortgage Lenders, Mortgage Bankers Association:

We support the bill and we want to talk to you today a little bit about why we do.  We believe that we can offer some clarification and the commitment of our industry not only to implement, but also to enforce the new language.  [Submitted a proposed amendment (Exhibit J).] 

 

At page 2, line 20, we believe that inserting the word “originates” in place of “holds,” more closely captures that relationship between the lender and the borrower, at the decision-making point where the origination of the loan occurs.  We have had conversations with Ms. Buckley, we understand her wording in “holds,” and we think that we could live with that, but we wanted to point that out to you. 

 

On page 2, line 36, on prepayment penalties, we believe there are cases where it might be in the borrowers best interest to be able to refinance a loan where there is an existing prepayment penalty.  We do not want to see those borrowers kicked out of that market, so what we propose adding is “unless the lender offers the borrower similar loan not containing a prepayment fee or penalty” so they would be able to refinance the one with the prepayment penalty, as long as they were offered a loan that did not have a prepayment penalty.  We think that this protects the borrower in the case where it is in their best interest to refinance with us or one of our affiliates, but not have another loan that has a prepayment penalty. 

 

[Ms. Blomstrom, continued]  On page 2, line 38, credit insurance, Ms. Buckley talked about banning credit insurance.  The majority of our members do not use it; we are fine with that.  I had an amendment if she was going to leave that amendment in; otherwise we are fine with that and support it. 

 

Page 3, line 32, the word “lender” is defined in the bill.  In my conversation with Ms. Burks, I suggested that she might want to define “person,” and it sounds like, Mr. Chairman, that you would like to see that word a little bit better defined in order to capture the people that are doing this.  We are okay with that. 

 

Section 9 addresses the oversight for the new provisions.  We would like to see the language, inserting as a new subsection 1, say “the state maintains exclusive jurisdiction over these actions.”  We believe that it is clear that the Attorney General (A.G.) would be the enforcement agency.  Additionally, we might suggest, and this is a late amendment… [Chairman Goldwater interjected and asked for clarification.]  It does say that, we understand that, we want exclusive.  We believe that it is best enforced at the state level at a single point.  Yes. 

 

Chairman Goldwater:

But, that would not preempt an ordinance?  Just prosecution?

 

Cheryl Blomstrom:

Yes, sir.  Under Nevada’s statutory construction, as I understand, cities are not allowed to make ordinances regulating, not things related to zoning, but things relating to lending practices, because those are reserved for the state.  We want to make that clear. 

 

Assemblyman Arberry:

If they want to change that language to put it in the A.G.’s house, then it might be an unfunded mandate for the A.G. and then the A.G. is going to come to the money committee and say he needs money to facilitate this.  It is not that easy to do.

 

Chairman Goldwater:

We will be anxious to hear from the A.G. on that matter.  A.G. primary jurisdiction, exclusive jurisdiction?

 

Cheryl Blomstrom:

That is not what I am recommending and if I may continue, it might be a little clearer.  What I am recommending, that is what the bill says, that the A.G. has exclusive jurisdiction, thank you very much, end, period, done.  I would like to say, as is currently the case, financial institutions take the first cut, the Attorney General represents them in cases like this, and the Attorney General is the prosecutorial authority, which they are now.  There is current language in NRS 598C.180 that talks about consumer credit reporting that would be very useful language.  It talks about the Commissioner of Consumer Affairs.  We would insert the Division of Financial Institutions.  It creates a very clear path and I think that language works very well.  It talks about the provisions that the chapter, being administered by the Division of Financial Institutions, the Attorney General, providing opinions to them, and that the Attorney General represents them in any action brought by them or against them.  So, I think it makes sense. 

 

[Ms. Blomstrom, continued]  It is my understanding, as well, that the bill is already fiscal-noted from the Attorney General’s office, unless that has been changed.  [Chairman Goldwater indicated this was true.]  We talked a little bit about judicial foreclosures and we have agreed to work with Ms. Buckley.  We completely understand where she is trying to go.  Our fear is, if you require only judicial foreclosures in Nevada, the attorney that would be representing the lender would bring a single cause of action.  They would ask for, and probably receive, a deficiency judgment at the same time that they get their judicial foreclosure, which would effectively ruin that borrower’s credit for a long time, so we are not sure it provides the protection that the bill would seek.  We understand what Ms. Buckley wants to do and we have agreed to try to develop some language to do that.  We think it is a good idea.  We think there needs to be some period of review.  It is a very common-sense approach.  We like the approach, we are just not sure that this gets it. 

 

Chairman Goldwater:

That is an awful lot of criticism for a bill you support. 

 

Cheryl Blomstrom:

We do stand ready to implement the new language.  What we wanted to do is just say thank you for the opportunity to work.  We think this bill offers a good balance between a lenders ability to write a good loan and a consumer’s ability to get credit.  We thank you.

 

Chairman Goldwater:

Cheryl, will you continue to work with Ms. Buckley and Ms. Burks.  [Ms. Blomstrom indicated that she would.] 

 

Susan Furlong Reil, Private Citizen:

I am not here to support or oppose Assembly Bill 284.  I have received permission from Lorne Malkiewich, the director of LCB and my boss, Bob Erickson, the Research director, to provide you with information concerning the circumstances in my mother’s home mortgage. 

 

[Ms. Furlong Reil, continued]  I would like to start by giving you brief background information on my mother’s health and how she came to refinance her home eight months before her death.  My mother was initially diagnosed with cancer in January of 1999.  She was 63 at the time.  My father had passed away in 1994.  He was a retired state employee, so my mother had coverage under the self-funded insurance plan.  Because she was not 65, she still did have substantial responsibility for medical bills, her portion.  After undergoing chemotherapy and radiation, about six months later her doctor said there were no detectable signs of the cancer.  The next year, in April, according to her notes, on April 10, 2000, a mortgage representative solicited her by telephone. 

 

At the time, my mother had a $56,000 equity line of credit with her bank on her home.  The interest rate was 10.75 percent.  She also had life insurance coverage on that line of credit.  She had applied for it before she was diagnosed with cancer and that was something that was really important to her.  If something happened to her, the home loan was paid off.  According to my mother, she gave this information to the mortgage representative, explained to her that that was important, and asked if she refinanced her loan, would she be able to get life insurance?  I still have her hand-written notes here and it says insurance company “does not care.”  That was their response. 

 

Given this assurance, she went ahead and she refinanced her house, or she filled out the application.  She did not tell anyone in the family or anyone that she was doing this, so none of us knew what was going on.  In later conversations, when I talked with her about why she did this, she, at that particular time, when she was solicited on the phone, thought that the rate offered to her by the mortgage rep, which was 10.74 percent, would save her a lot of money, as opposed to the 10.75 percent that she was already paying.  Also, she apparently had charged a lot of her medical bills to credit cards.  She thought she would be saving money by consolidating that.  So, one week after she received the mortgage solicitation, she went in for her check-up with her doctor, and he said that he still saw no signs of cancer. 

 

Eight days later, she signed the loan application.  Four days after she signed the loan application, I received a call from her hairdresser, saying, “Your mom was in today and she just does not seem quite right.”  I had dinner with her that night and knew that there was a problem.  So, that Monday, I started setting up appointments to find out what was happening with her.  That same day, the loan funded and the checks were sent out to pay off Mom’s creditors. 

 

[Ms. Furlong Reil, continued]  Three days later we learned that my mother had a brain tumor and it was most likely malignant.  The next day she received notice from the mortgage company that her life insurance had been declined.  So, everything was all done but she had no life insurance.  This was very upsetting to her.  It was after she had the tumor removed that she confided that she had refinanced the house and she asked, “What can I do?”  I suggested that she speak with her attorney and that she contact the Division of Insurance.  She did both.  The Division of Insurance indicated to her that they frequently received complaints of this type, but there was nothing they could do to help her.  It was her word against that of the mortgage rep, and her attorney agreed.  This really continued to bother her over the next couple of months. 

 

Finally, my sister asked to look at her loan file.  She had an attorney friend of hers in the Bay Area take a look at it.  We reviewed the settlement charges on the loan.  The mortgage loan was for $130,853.  It included the following charges:  There was an application fee of $300; a loan origination fee of 5 percent, just over $6,500; a loan discount fee to lock in the rate at 10.74 percent of 5 percent, so she paid another $6,500 to lock in the rate; and a credit insurance premium for the life insurance of $6,300, approximately.  That was about $20,000; about 16 percent of the loan went to those settlement charges.  She ultimately got the life insurance premium back because she was declined, but still the fees were right around $13,000 for that loan.  Her house payments were $1,220 a month, not including her insurance or taxes, for twenty years.  Then, in 20 years, she had a balloon payment of $91,000.  Also, I learned later that the insurance company was a subsidiary of the mortgage company. 

 

Chairman Goldwater:

Susan, that is a terrible story and I am sorry to hear of your mother’s troubles and of your troubles, as well.  Do you want to mention the company?

 

Susan Furlong Reil:

Do you want to know?  [Chairman Goldwater replied in the affirmative.]  Conseco.

 

Mickey Johnson, Nevada Land Title Association: 

We are a trade organization representing the title insurance industry.  The title companies do a great deal of foreclosures on behalf of the lenders.  I guess the question I have is, if it passes in this form, how would the trustee know that the grantor, at the time the loan was made, had a debt-to-income ratio of greater than 50 percent?  I somehow cannot imagine them sending me a deed of trust that says this is a predatory loan across the top of it to record.  So, we would have no way of knowing, as a trustee, that at the time the loan was made, the debt to income ratio was 50 percent or higher.

 

Chairman Goldwater:

Mickey, don’t the lenders keep a loan file?  [She indicated they did.]  Then they would have the income and the debt information in the file? 

 

Mickey Johnson:

Yes, they do.  But when they request us to do a foreclosure, all they send is a letter requesting us to institute foreclosure proceeding.  Along with that letter usually they send us the original note and deed of trust, but there is no way of looking at those documents to determine the 50 percent issue.  So, if they would not disclose that to us, and we would go ahead and foreclose, what would be the remedy?  What I could see happening here is that title companies as trustees, as well as other companies that act as trustees on behalf of any lender, would be very reluctant to do any foreclosures on any loan, because we have had no way of knowing of this 50 percent rule. 

 

Assemblywoman Buckley:

The only way the trustee could know is by requiring that information from the lender, and they would get it from their loan file. 

 

Mickey Johnson:

What if they do not tell us and we go ahead and foreclose?  That is the issue.  I think the title companies would look at this as we do not want to be in the foreclosure business anymore, if we could potentially be foreclosing on a loan that would meet your criteria of the 50 percent loan to value.  Or, taking it one step further, would we want to insure any property in the future that has gone through a foreclosure proceeding? 

 

Assemblywoman Buckley:

Well, this really is not the time for questions and answers.  You certainly could call my office and we could have that on the phone.  I assume what you would do is ask that of the lender.  You know, tell us if it falls within this category or not. 

 

Mickey Johnson:

I certainly see your point.  I would be glad to call your office or have a representative discuss this with you.  It just was a concern of our industry, regarding the foreclosure issues.  I certainly commend you for what you are trying to do with this bill.  We just want to protect the integrity of the foreclosure proceedings on a normal deed of trust. 

 

Larry Spitler, Associate State Director, Advocacy and AARP:

We will definitely make this a “me too,” Mr. Chairman.  We have filed written comments for the Committee and I would like to just highlight a few of the segments of that testimony (Exhibit K).  I would really begin by thanking Susan for coming forward and explaining a very heartfelt situation that occurred with her mother.  I do not think that is unique.  I think that happens to a lot of people, so it was awfully good to hear from her.  Since 2002, the number of AARP state issues campaigns on predatory mortgage lending has nearly tripled.  This has been brought about by the phenomenal growth in the subprime lending market. 

 

Not surprisingly, marketing of subprime loans often targets the elderly.  A 2000 study found that borrowers 65 years of age or older were three times more likely to hold a subprime mortgage than borrowers 35 years of age.  Marketing of subprime loans also routinely target both young and older borrower in low and moderate-income communities and in minority neighborhoods.  Overall, AARP supports laws that restrict lenders from:

 

• Providing unaffordable loans based on the borrower’s assets rather than on the ability to pay
• Inducing a borrower to repeatedly refinance in order to strip the equity for the home, which is often called “flipping”
• “Packaging” credit and non-credit insurance products and excessive costs and fees in the amount of the loan 

 

We are very pleased to support this bill and hope that it finds favorable passage with your Committee. 

 

George Ross, representing Assurant Group:

Assurant offers insurance.  Assurant would like to go on record as supporting this bill.  In particular, I know there are some changes being mooted about concerning the current bill, and Assurant would like to go on record as in favor of the current wording of Section 7(d), which they worked out in negotiations with the bill’s sponsors last year.  If there are any future efforts to work through this, we would be pleased to work with the sponsor.  But, we do like to be on record as being very much in support of 7(d) as it is currently written.

 

Chairman Goldwater:

That appears to be all the testimony in support of this bill.  We will take opposition.

Leo Davenport, State President, Nevada Mortgage Brokers:

Nevada Mortgage Brokers is the largest mortgage association in the state.  I would like to make a few comments on some of the things.  My one concern, where the broker would provide the income-to-debt ratio, I think the Graham Privacy Act would exclude that.  Are you going to supercede that federal law, so we can do that? 

 

Chairman Goldwater:

We will ask Wil Keane whether or not that would apply. 

 

Leo Davenport:

I am talking about the income and the debts information on the borrower to the title company.

 

Chairman Goldwater:

We will have Wil answer that question. 

 

Leo Davenport:

In essence, we are sitting here as against the bill.  In reality, we are only against the one clause.  The judicial foreclosure is where we have the problems.  I do not see where that is going to protect and do the items that Assemblywoman Buckley is looking for.  One, we have attempted to, and would be happy to show you copies of files of eight paper lenders with the names and information blacked out that are well above 50 percent debt ratios.  They are with companies like Providence, IndyMac, InterFirst, those companies are all no question, “A” paper borrowers, “A” paper lenders, and, even under DU, which is Desktop Underwriter, and Loan Prospect, we can go as high as 75 percent debt ratios.  And those are government programs that we are inputting these machines to.  So, to use as your trigger a 50 percent debt ratio to determine a judicial foreclosure is going to do nothing but put the borrower at a risk where, undoubtedly, as was stated earlier, the mortgage company will proceed ahead and go for judgments and costs.  As you pointed out, it is a small percentage, but it is not going to be a small percentage when you figure in all of the loans that will be involved in this.  I also question Section 36.  It is under your Section 10, subparagraph 3; it refers to Section 36 in the VA chapter [38 Code of Federal Regulation 36.4337].  I think that if you look at that, and really look through it, it extremely limits what is going to be considered as income.  A lot of Nevada employees may not fall into that as being able to qualify on income loans.  I think the definition that is in that federal chapter is very exclusive.  I will give it to Michael Radde.

Chairman Goldwater:

Leo, would you lend your money to somebody without an asset-backed guarantee and a debt to income ratio worse than 50 percent?

 

Leo Davenport:

I have, yes. 

 

Chairman Goldwater:

I certainly would be very cautious of lending my money to somebody with the ability to pay with more debt than they already have. 

 

Leo Davenport:

I would too, but, another comment is that the initial site seems to be good.  But, what I am saying is you are not talking high-cost loans here.  This bill is aimed at high-cost loans.  We are going after “A” paper loans, which are not high cost.

 

Chairman Goldwater:

We are not qualifying.  We are just defining predatory lending.

 

Michael Radde, Nevada Association of Mortgage Brokers:

I only had two comments:  One was on “A” paper lenders that are doing no doc loans.  Where would they fall under there?  Because with the no docs, you do not disclose anything, it is strictly score credit driven.  So, there are no ratios whatsoever on those type loans and those are low interest loans.  Also, on the judiciary foreclosures, if the people cannot afford to make their mortgage payment and it does go to foreclosure, and with it judiciary, it does drag on longer.  The lenders are going to get their attorneys involved in that case and they are going to go after them.  This whole bill is just going to keep getting bigger and bigger and bigger.  That is my only concern as far as the judiciary because it is going to actually, in a sense, I think, hurt the consumer in the long run. 

 

Chairman Goldwater:

I would like the opponents to sort of specify where, in the bill, some of things you are talking about are prohibited.  We are not talking about qualifying loans.  We are not talking about making the loans.  We are talking about, in Section 7, what an unfair lending practice is.  Then, when it comes to the foreclosure, and the judicial foreclosure, then we are applying all of these other things.  So, these are in foreclosures, not in qualification alone.

Leo Davenport:

Yes, but how would we make a loan, knowing that it will fall into this 50 percent foreclosure cost?

 

Chairman Goldwater:

You do not know the income-to-debt ratio of the people you are making loans for?

 

Leo Davenport:

I am saying that we do, but that is what you say it is.

 

Chairman Goldwater:

Good, then you are not doing unfair lending. 

 

Leo Davenport:

No, but you are telling me that… This deals only with high cost loans.  Providence is not a high-cost lender and they will go 65 percent LTB, or debt ratio.  We will provide you with numerous packages, if you want to see them.  We can show “A” paper borrowers, today at five and a half percent interest that are above 50 percent debt ratio.

 

Chairman Goldwater:

Leo, this does not deal with only high-cost loans.  This deals with predatory lending, as defined in Section 7. 

 

Leo Davenport:

But, we are saying that it deals with more than predatory bills. 

 

Chairman Goldwater:

No, predatory lending is defined in Section 7.  That is what this bill deals with.  The foreclosure part of it is different.  It is not targeting anybody. 

 

John Royce, Nevada Association for Mortgage Brokers:

I was one of the founders of Nevada Association for Mortgage Brokers and I have been in the business for 30 years.  I loan my own money as well as my corporation’s money, and I also brokered to companies, like Household Finance.  I used to broker to them; I do not anymore.  I have heard a lot of stories today about the things that can go wrong in the lending business.  There was a comment earlier given that I think needs to be kept in mind.  Assemblyman Arberry, I believe, was concerned about what is going to happen to the “good guys.”  Well, quite frankly, a lot of the good lenders, and I consider myself one of them, just will not do these kinds of loans that do not fit in the box anymore. 

 

Section 32, when it came into effect in 1993, was very complex law.  Here is the law and the opinions on it that I collected at that time.  If properly enforced, that will protect the consumers against many of the things that you all are concerned about.  The “flipping,” the insurance requirements, refinancing, prepayment penalties, I have no objection to any of those situation.  But, I very much object to measuring these criteria by something like a debt to income ratio.  You have not considered the other side of the equation.  The way that the testimony has gone today, people can have a high income and a high debt to income ration, with very sufficient disposable income to meet their personal needs and they would be prohibited from getting a loan, under this bill.  I think that would have a negative effect.

 

Chairman Goldwater:

No, it would not, Mr. Royce.  Tell me where they are prohibited from getting a loan under this bill?

 

John Royce:

I will not do a loan where there is the potential for an argument to be made that I made a loan that could be subject to this bill, if I have to face a judicial foreclosure on the other end.

 

Chairman Goldwater:

So, you will not?  But, this bill does not prohibit it, so we cannot say that, because that just is not true.

 

John Royce:

The practical effect of this bill, is that many private investor lenders, which I frequently work with, will be afraid to death of this kind of loan and they will not touch them, which means that the lender of last resort, who has traditionally always been the private capital lender, will be afraid of these loans.

 

Chairman Goldwater:

So Mr. Scruggs, who represents one of the largest underwriters of mortgage loans and subprime loans in the world, will do it, but you will not?

 

John Royce:

That is right.  He can absorb legal fees and costs.  I have a zero loss tolerance.  My private investors do not lose money and they will not do a loan like this anymore.  They [Mr. Scruggs company] are making so much money on the majority of their loans, that they can afford to take the risk of occasional litigation, and things like that.  I believe the debt ratio thing needs to be looked at because there are people with high income that could fall under this loan in a defense situation.  I appreciate the motives of the sponsors of this bill, but I think in the long run, it will have a negative affect on the availability of credit to people that need the money the most.  That is something that I think should be looked at very carefully.  You cannot legislate against unethical practices.  You cannot legislate against unwise decisions on the part of unsophisticated borrowers.  The existing laws requiring disclosure and rights of recision, and those sorts of things, in my opinion, protect the consumer adequately. 

 

Brock Davis, Owner, US Express Mortgage, Board of Directors, Southern Chapter, Mortgage Bankers Association:

I am a mortgage broker by practice with 28 years in the business.  If I can reiterate, the debt-to-income ratio qualification of making a loan possible to have to do a judicial foreclosure would affect normal conventional loans, with as little as 3 to 5 percent down payments.  Right now, the automated underwriting systems, when people go to purchase a home, or refinance a home, regularly approve them as high as 55-65 percent debt to income ratios, approved by a computer model.  If those type of loans needed to have the potential of a judicial foreclosure, at best, it would probably involve a major rehash of the secondary market on loans over 50 percent debt to income ratio that might be done for normal conforming, conventional, cheap, inexpensive mortgages.

 

Chairman Goldwater:

Mr. Davis, can I interrupt you?  I apologize for doing that and we will get back to your testimony.  The sponsor of the bill has some clarification for us.

 

Assemblywoman Buckley:

Because you are in Las Vegas, I thought I would just make sure that you are aware of this.  Just to clarify, the bill does not prohibit lending at this ratio, it just requires that a judge look at it before someone loses their home.  What I said to Mr. Davenport, and I would like to reiterate to you or anyone in Las Vegas if there is a better trigger than 50 percent to better define a predatory loan, I would be happy to use that instead.  What I suggested at the meeting was perhaps the HOPA trigger, which gets at the fees and costs, such as Susan’s mom had to pay, and I would be happy to entertain any reasonable predatory loan trigger, rather than strict debt to income ratio.  Some have said to me that they do not care what it is, they will never agree to it.  But, anyone who wants to be reasonable, to get at predatory loans, I would be happy to offer that amendment myself.  So, if you or anyone else in Las Vegas would like to call me, e-mail me, fax me any suggestions, I would be happy to substitute that. 

 

Chairman Goldwater:

That said, Mr. Davis, I apologize, and continue with your testimony.

 

Brock Davis:

I will call you with a trigger that was presented by the Board of Realtors, and that would be loan-to-value ratio.  On that one, I regularly tell customers not to do a specific type of loan.  The second item was on prepayment penalties.  If I could just offer a clarification, in that I see prepayment penalties with many prime and most subprime loan programs.  If you think of prepayment penalties as an earned, uncollected discount point situation, most loans that have prepayment penalties in them, when they are originated, can be done without any prepayment penalties, but at a higher rate.  So, prepayment penalties are kind of a choice for a lower interest rate if a consumer is pretty certain that they are going to take the loan to the full term, or three to five years, whatever their prepayment penalty is. 

 

Lastly, on the equity only loan approvals, you had mentioned good guys and bad guys.  If I could, in my experience, because I sell them the loans, a lot of the institutions that are taking no documentation, no job loans, with as little as 5 percent down, based purely on credit score, at good rates, are, if I can name them, Washington Mutual, First Bank of Arizona, Bank of Nevada, World Savings, and more that are willing to take no income verifier or stated income, or pure no doc, no job loans, based purely on credit.  The customer, obviously, has to make the decision of whether he feels he can make the payment or not, but there are some major exempt institutions that are offering them. 

 

Chairman Goldwater:

Give Ms. Buckley a call.  I have done a little work in mortgage, simply from a legislative and policy standpoint, but I do not want to leave anybody with the impression that you cannot make those loans.  If you have the confidence that you can lend and do it on a credit score, then fine.  It is when you foreclose that you better be sure that you made the right loan, or else it was a predatory loan and you cannot foreclose, or you cannot take the house away.  That is how I read the bill.  If you are reading it different, I would like to know why.

 

Brock Davis:

No, that is what I said in the very beginning, too.  It just kicks in the judicial foreclosure type of a situation in the event of a default.  What it would do is change that portion of the market, probably just making it more expensive, so that the institutions that buy those loans price them high enough to handle the expensive foreclosures on the few that they have to foreclose on. 

 

Cheryl Salemme, Nevada Association of Mortgage Bankers:

I have been in the mortgage business for about 19 years.  Within the last year, I am in licensed mortgage in the state of Nevada.  Previously, I was in the state of Massachusetts and ran a mortgage company that was licensed in 14 states.  And being in New England, I just want to mention this because I am also concerned about how the lenders will react to the judicial foreclosure with the 50 percent debt-to-income ratio.  When I tried to license in the state of Vermont, I first investigated with the lenders.  Vermont has a very different rule:  If a property is foreclosed on, the individual that was foreclosed upon has the first right of refusal, for the first year, to buy that property back.  As a result, national lenders will not lend in the state of Vermont.  They just do not want to deal with the issues that go along with that.  That was my concern with this bill on the 50 percent.  I appreciate the opportunity to suggest another idea to trigger the predatory lending. 

 

Chairman Goldwater:

I will close the hearing on Assembly Bill 284.  I think all parties know to whom to communicate and we will try and get that finished.  Assemblyman Carpenter, thank you very much for your patience.  We will open the hearing on Assembly Bill 343, and you, too, Ms. Jarman-Manning, come on up.

 

Assembly Bill 343:  Makes various changes related to sellers of travel. (BDR 52-881)

 

Assemblyman John Carpenter, Elko County and portions of Humboldt County, District No. 33:

Today I bring you Assembly Bill 343.  It will probably be well to explain how a cowboy got into sellers of travel, but what happened is that a constituent of mine in Elko, right after the last session, came to me and was very concerned about a bill that had just been passed, which regulated sellers of travel.  What she was most upset about was the $50,000 financial requirement.  They had to get a bond or a letter of credit.  She thought that there was no way that she could be able to do that.  Consequently, she got out of the business because she felt that it was too onerous at that time for her to continue and she probably could not have gotten that financial requirement right at that time, although she had been a travel agent for many years.  Well, first I told her that I would be willing to get a bill draft on this subject.  Through her contact with other people in the south and then in the north, they started talking to me about some of the problems they were having with the present law.  I then contacted some of these people and began talking to them about some of the amendments they would want to the present statute.  I had tried to call, and I did talk to Ms. Manning at one time, but I think it was a very inopportune time because I think she was facing tough times and she actually went into the hospital with pneumonia. 

 

I did contact a number of these people and they came to Carson City and we sat down and went over what they felt were the problems with the sellers of travel law, as it was written.  My secretary did attempt to contact Ms. Manning and also the director.  They were not able to attend this meeting, so we did go over all of the ways that the statute is presently written.  Those people are here today to lend some credence to their testimony of what they felt the problems were.  A.B. 343 is a product of conferring with these people and coming up with something that they felt would work.  I think that Ms. Manning has problems with certain areas of A.B. 343, and certain areas that she probably agrees with.  I would just like to walk you through the bill and give you the reasons that the people told me and the changes that need to be made.  I felt that they were reasonable. 

 

[Assemblyman Carpenter, continued]  They all came to me with a story that regulating the sellers of travel does not prevent the “bad apples” because they are still out there selling and acting as travel agents, and really not registering or paying their fees or anything.  So, I do not know, maybe there is something else other than in this bill that would, hopefully, give some protection to the consumers.  But the first thing that they all felt would help, and I think that what Ms. Manning feels, is whenever they advertise as a seller of travel that they need to put their registration number from their certificate on any advertising.  This way, those people that are in the business can look at the ads and say that there is no number there and we need to get to the Division and let them know that they are not registered and maybe we can do something about it.  I also put in here that these sellers of travel should maintain a trust account.  As a real estate person, we must have a trust account and I think that it does help.  There is a whole body of law of how a trust account has to be set up.  So, I think that would help.  I think there is an amendment that would say if you had a trust account, you would not have to have the financial aspects of it.  I do not believe that.  I think that the trust account is just another safe guard.  The second page talks more about the trust account and it says that within three days, you have to put that money into the trust account.  Maybe that should possibly be shortened up.  Maybe when you get the money, you should put it in right away. 

 

Then, there was a slight change in the definition of what a seller of travel was.  Page 3, Section 6, it says, “including without limitation a business entity.”  Hopefully, that strengthened it.  Then, in the bill, as written, it says that it does not include persons.  What I thought we needed, and I see an amendment that might help this, is not to make everybody that is an employer of the sellers of travel register.  I imagine a lot of these people are just working in the agency and are probably not getting a great deal in compensation or wages, so it seemed to me that the owners of the business, or the top managers, are the ones that should actually be the ones that are being registered.  I kept the fee at $25 because that is what the people felt was reasonable.  I know that Ms. Manning’s bill raises it to $100. 

 

[Assemblyman Carpenter, continued]  One of the things that I heard a lot of comment about was that they felt the Division should send them a renewal application so that they would know when their application needed to be renewed.  I know that Ms. Manning has some concerns about the cost of doing that, but I know a lot of state agencies that do that.  They send the notices of when we have to re-register.  I put in some more fiscal situations.  I put in that they could have errors and omissions insurance, which some people say is a good way to show financial responsibility.  So, that was one more financial situation that was put into this legislation.  I reduced the financial situation from $50,000 to $10,000, and that seemed to be a number that the sellers of travel feel is reasonable.  I know that in Ms. Manning’s bill, it is on a graduated scale. 

 

I should mention here that it was very difficult to find out what was actually going to be in the bill coming from the division because Kim Morgan could not find it until about the last day that they had to be introduced.  So, it was difficult to know what was going to actually be in their legislation.  So, anyway, it is reduced from $50,000 down to $10,000.  Then, if you will notice, in Ms. Manning’s legislation, she took out what these people refer to as ARC (Airline Reporting Corporation), which is something to do with the airlines that say they have to have a large bond if they want to sell airline tickets.  I think that Ms. Manning can explain why she has taken it out, but the sellers of travel, I believe, want it left in because they feel that all of the hoops that they have to jump through and the policy of the bonding that they have to get proves that they are worthy to be travel agents. 

 

I also put in here that if a person has sold travel service in this service for three continuous years and has not had any problems, they would not have to have the fiscal requirements.  I know that a lot of state agencies do that because I used to sell gasoline and diesel, and after a number of years I was not required to have a bond.  There is a friendly amendment that takes them out of this loop and I do not have any problem with that exemption.  With that, Mr. Chairman, which is an explanation that I found out to be a very complicated procedure and I did find out a few things about travel agents that I did not know before. 

 

Assemblyman Carpenter:

There are people here that want to testify to the situations they see at present time. 

Patricia Jarman-Manning, Commissioner, Nevada Consumer Affairs Division:

In an effort to make this a little more brief than what I anticipate it will be, Assemblyman Carpenter and I met yesterday and we have agreed to sit down and try to work out our differences and come back with a united front, if that is at all possible.  If the Committee can agree upon that, then we would go into a work session and try to work it out.  I do have some very grave concerns about some aspects of A.B. 343.  A.B. 496 is in response directly to the concerns that industry presented to the Division.  In 2001, we had the small business impact hearing.  We directly related and tailored this bill to what they said were their concerns.  Let me just say, for the record, number 1, the Consumer Affairs Division generally does not go out and look for agencies, or industries, to regulate.  We begin regulating an industry when we find that there is a problem.  There are grievous problems and very egregious problems that have taken place in the airline industry. 

 

Due to the volatility and the fragility of this industry, and particularly now, because of [September 11, 2001], because we are in a war, even the most experienced long-term business owners are susceptible to possibly being closed down or having to close their doors.  That leaves any and all consumers, who have put up money upfront, which has been the problem from the beginning, to possibly lose their money.  That is what this is about.  It is not because we are picking on the travel agency industry.  We regulate a number of industries.  We have over $11 million in securities that we hold for consumers throughout Nevada for businesses that we regulate.  We do not look at any particular industry until it poses a problem, or until an issue is brought to the forefront.  I neglected to say that in Las Vegas I have Deputy Attorney General Kathleen Delaney, who is standing by, and I just want to thank her so much for sitting by and waiting.  Ms. Delaney has worked with us since 2001 on this legislation.  We have done a number of things together with their agency to try to correct some of the problems in this industry. 

 

Let me just give you a few figures that we have.  In 2001, we identified 647 travel agency businesses in Nevada.  Since that time, we have 252 of them registered.  We know of 179 that went out of business.  We have 46 that are exempt because of ARC exemptions.  We have 744 travel agents that are registered and there are 170 businesses that are floating around out there that we are trying to find, to see if they are in business.  Every single day, one of these businesses closes its doors.  Many times they close their doors with consumers’ money in their pockets and they disappear from the face of the earth.  I want to give you one example that is very quick, and again, I am not trying to hold you, but I could go on and on.  We would be glad to sit down together, work together on this, to see if we can come back with a concise, agreed upon bill that we both could live with. 

 

Chairman Goldwater:

That is what we trust you will do.  If you can communicate with Vance, that would be good.  I do not want to limit any of your supporters, Mr. Carpenter.  Is there any order that you would like to bring them up in?

 

Assemblyman Carpenter:

I believe that they have probably signed in.  I told them that it is best that they chose a couple of witnesses to tell their story, but I think it is important that the Committee listen to them because they have come a long way. 

 

Patricia Jarman-Manning:

I just want to ask if Deputy Attorney General Kathleen Delaney has any comments to add in Las Vegas.

 

Chairman Goldwater:

Ms. Delaney, do you want to build on Ms. Jarman-Manning’s testimony?

 

Kathleen Delaney, Deputy Attorney General, Consumer Affairs Division:

I would just like to add something to what the Commissioner raised to give some better orientation of what we are looking at with the legislation from 2001, and our attempts to amend it this session.  This bill, the bill that came forward in 2001 that was passed by the Legislature, only brought this particular industry within an existing regulatory framework that the Consumer Affairs Division had successfully enforced for years against other industries that had known particular problems with consumers.  It is not about simply weaning out “bad apples.”  What it is about is, when you have a volatile industry, or when you have an industry that generates a lot of consumer complaints, the regulatory scheme is a very simple one.  It is to seek the industry to place some funds upfront, prior to doing business, by way of a posting of a security, so that, should the businesses primarily either go out of business, close doors, declare bankruptcy, there is some source of funds for consumers to find restitution.  Secondarily, should a business engage in some sort of deceptive trade practice, it is also a source of immediate relief for those consumers, of course, within the administrative process.  We want to [clarify] that this is a very simple regulatory process.  It has been in existence for years.  We are coming back to the Legislature this session to fine tune at the request of the industry, and we believe that the changes to the security requirement take care of the majority of the concerns.  What we do not want to see happen are certain revisions in A.B. 343 that would basically dilute the effectiveness of this relatively simple regulatory process that provides a basic protection for consumers by asking that the money be placed upfront before doing business.  So, we look forward to the opportunity to work with Assemblyman Carpenter to fashion a bill that will meet the needs of the individuals.  Thank you.

 

Phil Rejholec, Above All Travel:

I am speaking on behalf of a collaborative effort, representing some of the Nevada travel agencies owners, some of which are in the gallery this afternoon.  We are in a unique situation here, where we are hearing two opposing bills at the same hearing.  We are here in support of A.B. 343, which is a well-written bill, with a clear and defined goal.  A.B. 496 is filled with contradictions and punitive terms that are nearly impossible for the industry to comply with.  If I could, I would like to highlight just a few passages that support that statement.  In Assembly Bill 496, Section 2, gives the Commissioner… [Assemblywoman Buckley interjected and asked that Mr. Rejholec speak only to A.B. 343.]  I am the spokesman for A.B. 496, so I will come back up for that bill.

 

Jan Marie Brown, Uniglobe Happy Travel:

I am speaking on behalf of my own agency and the Organization of Professional Travel Agents, otherwise known as OPTA.  I am strongly opposed to most parts of A.B. 496.  I would like to put a little bit of history on how I have been involved with the prior bill, the deceptive practices bill of NRS Chapter 598, from two years ago.  I think the history is important, as I know it.

 

Vice Chairwoman Buckley:

I need to interrupt again.  We are not going to hear any testimony right now on any bill except for A.B. 343.  Then, I will call you up when we start on A.B. 496.  They are two separate bills.

 

Jan Marie Brown:

Okay.  This is actually about A.B. 343, I am sorry.  [Ms. Brown spoke from prepared testimony (Exhibit L).]  In Mr. Carpenter’s bill, I wanted to just say that I believe that the seller of travel registration offers a simple self-policing provision for agents to keep an eye on our industry and would offer a mode of enforcement to the Nevada Consumer Affairs Division.  In the past two years, we have not had access to a registered sellers of travel list, but would ask for access to this in order to be more active in discovering those who are not in compliance with the laws.  Mr. Carpenter’s bill includes our employees, under the agency seller of travel registration.  This is, again, a sensible approach to compliance and enforcement. 

 

As business owners, we have always been responsible for the actions of our employees and I feel that Mr. Carpenter’s bill defines that responsibility.  Right now, as the law is written today, we have to register each individual employee.  I do not know, but maybe we have to bond for each individual employee.  A trust account is actually somewhat of a standard in the industry today.  A lot of tour companies and travel agencies use trust accounts on a regular basis.  Making it a requirement is a simple and sensible approach and it does not have a devastating financial impact on business owners.  I would like to note that in A.B. 343, Section 8, I believe that there should be an “or” between lines a and b, as I understand that the bill is supposed to read. 

 

[Ms. Brown, continued]  I also would like to say that I am strongly in favor of receiving renewal notices.  A year is a long time to try to remember something, and, of course, some people are more organized than others.  I believe that this is a requirement that is put upon us, the Consumer Affairs Division should have the responsibility of, at least, sending out renewal notices, and then not hold agents in default if they have not renewed in a timely fashion. 

 

Mr. Carpenter’s bill would retain the ARC exemption.  I think this is probably the most important part of this.  I understand that there have been some travel agents in the state of Nevada who have lobbied with Ms. Manning against this particular thing.  My personal feeling is that this is because the ARC exemption did not include them.  I think you can get my drift there.  The ARC bond exemption should not be removed.  This exemption was never offered as being protective to the public.  It was offered as a benchmark for an agency’s stability.  Airline tickets are monitored much like a form of currency.  In order to distribute them, one must go through an extremely rigorous and expensive process to be appointed.  The application itself is in two parts, at more than 100 pages.  Then you have to file a 24-page application for other people in your family and business.  You must post a bond, or letter of credit, to be appointed, and the process takes several months and includes an extremely thorough investigation.  They actually have somebody come to your agency and spend time there to investigate you, along with many other things. 

 

Basically, in support of A.B. 343, I think those were the most important issues that I have.  I would just like to say that our industry has been through a lot of obstacles in the last two years.  I feel that A.B. 343 works with those obstacles.  Those who cannot weather the type of adversity that we faced are probably close to being, or already, out of business.  Those who remain in business are dedicated to our craft and have learned to survive in what we know today, to be a changed world.  It is not what it was two years ago.  I do not think that closing one’s doors, due to circumstances that are beyond our control, would preclude somebody being a “rip-off” of the public.  I actually have a very large problem with that particular line of thinking.  That is all that I have. 

 

Vice Chairwoman Buckley:

I just want to say that I think all of the members on the Committee know what your industry has gone through in the last couple of years, especially since September 11.  We are not interested in putting any unnecessary regulatory barriers in front of you.  We want to make sure that consumers are protected, but not just to regulate for the sake of regulating.  So, between Mr. Carpenter and our Committee, we will work with you to make sure all of these bills work for your industry.  I think I speak for the entire Committee in saying that.

 

George Weeks, Un’s Travel:

[Mr. Weeks spoke from prepared testimony, (Exhibit M).]  I represent Un Weeks, sitting back there.  She owns a full service travel agency, which is licensed in Carson City and known as Un’s Travel.  She holds a current Nevada Sellers of Travel Certificate, has been a travel agent for 17 years, and has owned her Nevada agency since 1999.  We are in support of Assembly Bill 343 and against A.B. 496.  First, let me categorically state that we are committed to protecting the travel consumer. 

 

However, the travel seller’s law, passed by the 2001 Legislature, has not served the consumer.  Here is why:  We could not find an insurance company or bonding agency that will sell a $50,000 bond, at any cost, that covers bankruptcy.  Second, a small to medium-size travel agency, independent contractor, or individual travel agent cannot afford to post a $50,000 line of credit.  There is no provision for background and/or criminal records checks for either the travel agency or travel applicant.  There is little compliance with the law.  The travel seller licensing process does not prohibit fraud. 

 

Two years ago, hearings on regulations proposed to implement the new law were not held until after passage of the law.  Current regulations promulgated after these hearings are not followed by the Consumer Affairs Division and are not enforced.  Since last October, we have contacted several senior officials in the Consumer Affairs Division numerous times by letter, fax, and phone in an effort to get an assessment of the status of implementation of the law, as well as information on proposed corrective legislation.  Not a single communication was answered.  A clerk told me that all sellers of travel information was privileged and not releasable.  We need to know how many travel agencies and individual agents are in compliance and how many are not.  We also need to know what has been the experience with this bill.  How many cases have been identified, who has been prosecuted, et cetera.  For two years, the Consumer Affairs Division has been well aware of the onerous and egregious nature of the Nevada travel sellers law and has done nothing.  Assembly Bill 343, proposed by Assemblyman Carpenter, is a sensible, rational approach to amending the Nevada sellers of travel law.  A.B. 343 recognizes that a travel agency, independent contractor, or travel agent, carrying insurance covering liability for errors and omissions, suffices for waiver of the egregious bond requirement.  A.B. 343 properly exempts individual travel agent employees, independent contractors, and travel agency owners who have met the rigorous financial responsibility requirements for appointment as an ARC agency from the absurd necessity to obtain a bond, which is not available. 

 

Chairman Goldwater:

We have to stop you, Mr. Weeks.  I am so sorry.  We have a question from Ms. Buckley, please.

 

Assemblywoman Buckley:

I will just throw this out loud and then I will maybe follow up with either some of you, because we are pretty short on time, or Assemblyman Carpenter, or Ms. Manning.  But, with all of the problems getting bonds and the cost of the bonds, [I] wonder if it would just be better to say how many claims we have a year and verify that.  If it is none then what are we doing?  If over the last five years there are $3,000 worth of lost tickets, then we assess every travel agency, whatever that would be, $10 a year to a restitution fund.  We have the Contractors Recovery Fund, we have a Manufactured Housing Recovery Fund, a Worker’s Comp, [so we could] try to find a more workable common sense solution.  I am going to follow up with Assemblyman Carpenter and Ms. Manning and maybe, if you have a spokesperson, maybe we could get something that would make more sense.

 

George Weeks:

I agree with that 100 percent and I think practically all of the travel agencies here do too.

 

Chairman Goldwater:

I think we have heard a lot and we sympathize with you.  The 120-day session is bearing some fruit here.  I think we may have hastily passed a law last time that we did not fully know about because we thought it would work each other out.  This is one of the sour fruits that it bears once in a while.  But, you have our word that we are going to try and figure this out with Mr. Carpenter’s help.

 

George Weeks:

In summary, we believe Assemblyman Carpenter’s approach to A.B. 343 is sound and viable.  We offer these comments with the hopes that Un’s Travel and many other dedicated and honorable legitimate travel agencies will not have to close their doors and, most importantly, that the consumer is actually protected from fraud.

 

Bonnie McDaniel, Quick Trip Travel:

I am in support of A.B. 343.  I do have, and some of us have sat down and done some work and put together, and if you look in your white envelopes, I have a copy of the speech I was going to make (Exhibit N), as well as some other things (Exhibit O).  We have put together bylaws of the Nevada Association of Independent Travel Agencies (Exhibit P).  You each have a copy of it.  This is a rough draft only.  It basically is quite similar to the Board of Realtors Association Bylaws.  The attorney that has been working on this and doing this for free for us has also put together a constitution of rules and regulations and a 123-page policy manual that are in rough draft right now, whereby we can regulate ourselves.  Every agency will have to be a member; just as the realtors all have to be members.  Every agent would have to be a member [of their Board].  Right now, the registration forms certificates that we receive from Ms. Manning’s office are numbered “hither or yon,” whatever.  On February 22 of this year, I was the 57^th person to register in the state of Nevada.  Now, I know there are more than 57 people selling travel.  We have contacted her office, faxes, phones, you name it, [with names] of people who are selling out of their grocery stores, out of their restaurants, out of their homes, and not registered and not doing anything, and her office has continuously refused to go after these people.  And, we need…

 

Chairman Goldwater:

It is possible to over-testify an issue.  You can testify us into opposition.

 

Bonnie McDaniel:

Okay, but I have sat in her office and she has played attorney, judge, jury, and...

 

Chairman Goldwater:

I will stop you right there.  This is not a personal issue. 

 

Bonnie McDaniel:

I know that.

 

Chairman Goldwater:

Ms. Jarman does the best that she can.  We are going to try and solve this problem legislatively. 

 

Bonnie McDaniel:

I understand.  And we need… We just need to go about… [Chairman Goldwater verbally expressed for Ms. McDaniel to “stop” on numerous accounts.]

Rosemary Hughey, American Society of Travel Agents:

[Ms. Hughey spoke from prepared testimony, (Exhibit Q).]  Number one, I would like to thank you, not only that I am able to speak to you, but also to give me the opportunity to leave Las Vegas for the first time in six years.  Believe it or not, I am a travel agent and I have not been traveling anywhere.  I have been the owner of a home-based travel agency since 1996.  I used to be a little higher upscale employee, but now I have my own agency.  What I would like to add, and I think this is very important:  Today, with the credit cards being utilized in the travel business, a consumer has more protection than a travel agent.  Because if 99.9 percent of my consumers pay with a credit card, which particular payment goes directly to the supplier, no cash changes hand.  In other words, I am not taking in any cash.  Therefore, if the consumer feels that he or she wishes to cancel, the only thing he has to do is call his credit card and say, “I am not going to pay for this.”  So, it is up to me to prove to the credit card company that the consumer, either yes or no, should pay for the trip.  So, on the other hand, I am the one who has to prove that these costs, being reimbursed to me or not.  Therefore, the consumer has the upper hand and I am on the lower end.  All money goes directly to the supplier, cruise line, airline, hotel, otherwise I get no deposit.  So, if it is to be believed that we are able as a legitimate travel agent, to defraud a consumer, we have a hard time doing it.  Error and omission insurance today, I have been informed for my AIG, are now only in conjunction with homeowners insurance.  Otherwise, we are unable to get the error and emission insurance.  The bank advised me to not take out a bond.  This is not realistic.  You are paying money for nothing.  These are just small points that I would like to make to this and as a member of the CLIA (Cruise Line International Association), ASTA (American Society of Travel Agents), and AIG (Nevada Better Business Bureau), I feel we are giving the consumer a lot of protection.  When we are in the business, we are honest, otherwise we would not last. 

 

Chairman Goldwater:

Thank you for your testimony.  We appreciate that.  I am sorry if I was short with you before.  I did not mean to, but we are trying to keep this as a forum for debate.  We have been at this for three hours now, as you have been sitting here and well know.  It is certainly not a forum for personal attacks. 

 

Lisa Foster, American Automotive Association:

I am here because travel agency is one of the things that we do.  I have submitted an amendment (Exhibit R) that I will work through in subcommittee, trying to not only make our requests, but tighten up some of the bill drafters’ language.  Our particular request is that, as a motor club, we are already regulated.  The insurance commissioner, under the Motor Club Act, already regulates our travel agency in the Nevada law, and we already post a $100,000 bond.  Our concern here is not so much the money, or really any of those things; it is more just the possible duplication of regulations and the conflicting regulations.  As an example, when we talk about a trust fund, I do not think that is going to work with the way that our motor club is already regulated by the insurance commissioner.  Thank you, and that is all that I have to say.

 

Rob Jordan, America’s Travel, Southern Nevada Chapter of ASTA:

I simply wanted to state that number one, we would like to express our sincere thanks to Assemblyman Carpenter for his time in assisting us in a matter that is not even in his jurisdiction.  He has been a tremendous person to work with, as well as Lisa Foster, who has assisted us.  Also, to say that Southern Nevada ASTA executive Committee fully supports A.B. 343 and the amendment pertaining to AAA. 

 

[A letter from Bill Liedtke was submitted for the record (Exhibit S); a letter from Julie Harpigny was submitted (Exhibit T); and a letter from Michael Schoenberger was submitted (Exhibit U)].

 

Chairman Goldwater:

We will close the hearing on A.B. 343.  We will open the hearing on A.B. 496.

 

Assembly Bill 496:  Revises provisions governing registration and security requirements applicable to sellers of travel, tour brokers and tour operators. (BDR 52-1250)

 

Phil Rejholec, Above All Travel:

I do appreciate your comments, Chairman Goldwater.  I do understand that you have already shown that you have an open mind and will listen to us, Ms. Buckley as well.  I just want to state that I have been in the travel business for 21 years, 20 of them in southern Nevada.  If I can add anything to this Committee, any expertise, I would just like to let you know that I am amenable to that.  I would like to be a part of this process to make sure. 

 

As Chairman Goldwater said, in 2001 there was a possibility that this law was pushed through without really taking a good look at it.  Unfortunately, in September 2001 we had the terrorism attacks, so we are kind of fighting an uphill battle against two things here.  I do think that this law needs to be revisited.  All of us here are willing to add any degree of expertise to help out.  [Submitted proposed amendments (Exhibit V).]

 

Chairman Goldwater:

We really do appreciate that and we look forward to working with you. 

 

Kathleen Delaney:

I was not sure if you wanted me to highlight any key components of Assembly Bill 496, since the hearing was opened on it.  I was under the assumption that that had been addressed together with A.B. 343.  I think that it is worth pointing out that the key component to A.B. 496 is that the security requirement is being reduced from $50,000 to $25,000 and then further reduced, on a sliding scale, down to $10,000 depending on the volume that the business does.  That is patterned after the Florida statute, and it was a direct result of industry’s efforts by the regulatory session two years ago.  We just want to make sure that is understood because A.B. 343 effectively makes the current regulatory scheme not apply to a vast majority of industry and we really do not think that is the resolution.  If we do not like this regulatory scheme, then perhaps it is Assemblywoman Buckley’s suggestion that should be considered.  If we are going to stay with this regulatory scheme, it needs to be fine-tuned in a way that is still effective for consumers and A.B. 343 is not going to accomplish that. 

 

Chairman Goldwater:

Will you or Ms. Jarman-Manning provide the Committee with a list of losses by passengers from airline cancellations or travel agents losses regarding deposits taken or tickets taken down for airline travel?

 

Kathleen Delaney:

I will pass that request on to the commissioner.  I am not sure what statistics she had available with her that she had there today.  We do not keep the statistics, obviously, in our office.  But, I will tell her that the question has been asked of the losses again, keeping in mind this regulatory scheme is complaint driven, not necessarily that we would be aware of every loss that everybody suffered.  It would be based on who came in our door to say that they suffered a loss and needed to avail them of this regulatory scheme.  I am not sure what statistics we have that would paint a clear picture of the entire problems with the industry to begin with. 

 

Assemblyman Griffin:

I have to disclose for the record that my father is a partial owner of a travel agency in Nevada.  That travel agency is actually represented here today in the audience.  I believe that both of these bills will affect the all travel agencies in the industry equally.  I can vote on these issues.  Obviously, we are talking about some of the threats to the travel industries since September 11, but what are not being discussed are the threats to the industry since the Internet has come on board with airlines now providing travel agencies.  I guess my question may be for Ms. Delaney in Las Vegas.  Will the Expedia.com and the Orbitz travels have to hold this bond?  I am trying to look through it, and it may be in here.  Is that all part of this bill as well? 

 

Chairman Goldwater:

Ms. Delaney, do you see this bill passing through to online and do we have jurisdiction over them?

 

Kathleen Delaney:

At this time, I do not believe that we do.  I think that is something that, if the Commissioner and the Assembly members wanted us to research, we could research further.  I think it is important to keep in mind that our bill is a proposed amendment to the existing bill, and the existing bill, as it defines a seller of travel, would be what controls who it applies to.  At this point in time, let me amend my answer to say, it would depend in terms of jurisdictional grounds, of what the contacts are that any of these Internet companies have with the state and whether or not they fall within the statutory scheme as it is already set up.  Nothing is going to change with this amendment.  It would be what the original law from 2001 says.  Again, that would depend on those companies’ contacts with the state of Nevada as to whether we had jurisdiction.

 

Assemblyman Griffin:

I appreciate that.  My concern is that there are so many competitive disadvantages that already exist within the industry comparative to airlines no longer paying commissions, many of which serve Nevada.  I think the two largest, or at least the largest carrier in Nevada, does not pay commissions now, or least does not pay them on every transaction.  I have a concern for creating a further competitive disadvantage to some of those bigger companies.  I just want you to be aware of that.

 

Chairman Goldwater:

I think, regarding A.B 496 and A.B. 343, the Committee, Ms. Buckley, and Mr. Carpenter have shown a willingness to address the concerns of the industry, as well as provide a responsible regulatory scheme.  We will probably address that in one bill or the other. 

 

George Weeks:

First, with respect to what Ms. Delaney is talking about, the sliding scale, I suggest to you that it is a very complicated process and it needs to be looked at.  The other thing is that Section 2 of A.B. 496, where “which grants blanket authorization to promulgate regulations as seen fit by the Commissioner,” does not provide for any review of a higher authority or anything for due process for the travel agencies.  I suggest that needs to be looked at very closely.

Chairman Goldwater:

[A letter from Jose Brito (Exhibit W) was submitted; a letter from Sylvia Sparks (Exhibit X) was submitted; and a letter from Bill Liedtke (Exhibit Y) was submitted.]  I will close the hearing on A.B. 496 and rely on Mr. Carpenter’s able efforts to put something together for us.  I will open the hearing on A.B. 494. 

 

Assembly Bill 494:  Requires person who wishes to be qualified to bid on contracts for public works to have employee benefit plan in effect for his employees. (BDR 28-1165)

 

Thomas Morley, Laborers Local #872:

I am the drafter of A.B. 494 and the intent of the bill is to give definition of the term “responsible contractor.”  Responsible contractor is not just a contractor who has not been cheating on public works or completes the job in a timely fashion; he is a contractor that regenerates the tax dollar through the community.  Currently in Las Vegas, 70 percent of the construction industry has no employee benefits for their employees or their families.  In those that do, the rates are so high that employees cannot afford them.  I would think with the current debt problem that our public hospital UMC (University Medical Center) has, this bill would ensure that some debt might be taken care of.  Currently, UMC runs $30 million a month in the red.  The intent of this bill is to make contractors responsible, with the public tax dollars, responsible to the community, and responsible to working families in Nevada.

 

Chairman Goldwater:

What does it do, Mr. Morley?

 

Thomas Morley:

It supplies health care on public works for all employees, whether they be working for a general or subcontractor. 

 

Assemblyman Oceguera:

You define a benefit plan under 29 USC (United States Code), Section 1023, I have no idea what that is.  Could you explain it?

 

Thomas Morley:

I believe that it relates to the ERISA (Employee Retirement Income Security Act) plans that the unions have in place, which would go with either an 8020 plan or a 9010 plan. 

 

Assemblyman Brown:

Was that 70 percent?

Thomas Morley:

Yes, sir.  Those numbers come from UMC.

 

Assemblyman Brown:

Seventy percent of what?

 

Thomas Morley:

Of the construction industry as a whole, not just on public works. 

 

Assemblyman Brown:

How did that come through UMC?

 

Thomas Morley:

Those come from the figures that tally where you work and what field of employment you are in when you fill out the applications for care. 

 

Assemblyman Brown:

I think that assumes that all construction persons injured or utilizing services at a hospital are going through UMC.  I do not know if that is necessarily valid.  There are numerous hospitals.  Has there been any survey taken on the industry itself, just a random survey?

 

Thomas Morley:

No sir, I have not.  That was just the number that was thrown at me from the UMC. 

 

Larry O’Leary, Secretary-Treasurer, International Union of Brick Layers, Nevada:

Everybody knows the escalating problem in health care.  Considering it is the Nevada tax dollars that do public works, I feel it is only right that this would be a start to resolve a major problem.  If we do not start doing something about health care, the problem is going to escalate out of hand, which it already has.  I would just like to say that I am very much in favor of this bill and I would like to see Nevada set an example and start some way of rectifying this problem. 

 

Chairman Goldwater:

Wil, do you want to tell us what 29 USC is?  That is the ERISA qualified health plan?

 

Wil Keane:

Actually, that particular provision, Section 1002 sub 3, refers back to 1002 subsection 1, which provides for an employee welfare benefit plan, which means any plan, fund, or program established by an employer for an employee to provide medical, surgical, hospital care, or benefits in the event of sickness, accidents, disability, and it goes on, et cetera.  Also, any benefit described for pensions and those things.  It can be pensions and medical benefits, either, or both.

 

Randy Robison, Associated Builders and Contractors:

We are in general support of the bill.  We have a concern about the mechanics.  We understand that within the prevailing wage part of that, “wage rate” includes a benefit portion is included.  I am not sure how that works with the provisions said that the A.B. 494 lines out.  So, we would be happy to continue to work with the sponsor or, if they can answer that question, that would be fine.

 

Chairman Goldwater:

Tom, do you have an answer to that?

 

Thomas Morley:

The intent is to make it mandatory that anybody who participates in public works carries insurance on the employees that work on that project. 

 

Chairman Goldwater:

We will take that intent and an interpretation of our own legal counsel on whether or not that satisfies the intent and how it addresses Mr. Robison’s concerns. 

 

Assemblyman Hettrick:

It is just bringing questions to my mind, if prevailing wage supposes that health care is within the cost of the prevailing wage, then are we saying that the contractor would deduct for the health insurance and go and buy whatever they wanted?  I think this is a bit more complex than what the intent is specifying, because if it is presumed that is covered within the wage and it is not, what are they going to do?  Are they going to give the money to the employee so that they can go buy it, but if they do not, are they going to go buy it themselves and deduct, and the language in the bill also says it has to be available?  I do not see a mandatory, although his intent is clear, I think he has made that very clear, I think, I am not sure that the word available covers mandatory, so I just have concerns with the way this is worded and what it is doing.  We need some good clarification.

 

Chairman Goldwater:

I tell you what we will do, Tom.  We are going to work with our staff.  You can work through me to see if we cannot get something to present to the Committee that meets your intent, then we can vote it up and down.  I think you will need to communicate with members of the Committee on how prevailing wage is affected and how it might affect prevailing wage.  Any other questions from the Committee?  We have a work session on Friday plus an agenda of some rather lengthy bills.  I would say that Friday is going to be a tough, long day.  Meeting adjourned.  Thank you for your patience today.  [The meeting adjourned at 5:06 p.m.]

 

 

 

 

 

 

RESPECTFULLY SUBMITTED:

 

 

 

                                                           

Corey Fox

Committee Secretary

 

 

APPROVED BY:

 

 

 

                                                                                         

Assemblyman David Goldwater, Chairman

 

 

DATE: