MINUTES OF THE

SENATE Committee on Commerce and Labor

 

Seventy-second Session

February 12, 2003

 

 

The Senate Committee on Commerce and Laborwas called to order by Chairman Randolph J. Townsend, at 8:32 a.m., on Wednesday, February 12, 2003, in Room 2135 of the Legislative Building, Carson City, Nevada. The meeting was videoconferenced to the Grant Sawyer State Office Building, Room 4401, 555 East Washington Street, Las Vegas, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

 

COMMITTEE MEMBERS PRESENT:

 

Senator Randolph J. Townsend, Chairman

Senator Warren B. Hardy II, Vice Chairman

Senator Raymond C. Shaffer

Senator Joseph Neal

Senator Ann O'Connell

Senator Michael Schneider

Senator Maggie Carlton

 

GUEST LEGISLATORS PRESENT:

 

Senator Valerie Wiener, Clark County Senatorial District No. 3

Senator Barbara K. Cegavske, Clark County Senatorial District No. 8

Assemblywoman Christina R. Giunchigliani, Assembly District No. 9

 

STAFF MEMBERS PRESENT:

 

Scott Young, Committee Policy Analyst

Courtney Wise, Committee Policy Analyst

Kevin Powers, Committee Counsel

Laura Adler, Committee Secretary

 

OTHERS PRESENT:

 

John R. McGlamery, Deputy Attorney General, Bureau of Consumer Protection, Office of the Attorney General

Marilyn Skibinski, Deputy Attorney General, Bureau of Consumer Protection, Office of the Attorney General

Mary Lau, Lobbyist, Retail Association of Nevada

Christina Dugan, Lobbyist, Las Vegas Chamber of Commerce

Cheryl Blomstrom, Lobbyist, Nevada Consumer Finance Association

Ted L. Wehking, Lobbyist, Nevada Bankers Association

Harry Pappas, Concerned Citizen

 

SENATE BILL 47:  Makes certain opt-out provisions in contracts with consumers unenforceable under certain circumstances. (BDR 52-24)

 

Senator Valerie Wiener, Clark County Senatorial District No. 3, explained from prepared notes (Exhibit C), that opt-out as defined in section 5 of the bill means, unless the consumer takes an affirmative step to cancel the purchase, the contract, or return the goods, the contract continues. She said unknowing consumers find unauthorized purchases on their credit card statements and she considers that a form of identity theft.

 

Senator Wiener said to ensure consumer protection section 7 of the bill would require the seller to have a contract that is easily readable and understandable for the consumer to sign. She said there is a 20-day period in which the seller must notify the consumer of charges to be made to the consumer’s credit card. The seller must also provide adequate contact information for the consumer to opt-out should he or she choose to do so.

 

This bill is intended to address deceptive business practices of placing unsuspected charges of tens, hundreds, or even thousands of credit card holders. Senator Wiener urged the support of S.B. 47.

 

Senator Carlton asked for an example of the type of charges. Senator Wiener answered that 2 years ago she noticed an unauthorized charge on her credit card. Because she travels, Senator Wiener stated she did not catch a charge of $19.95 each month for 2 months from a discount travel club she never uses. She was able to remove only the most recent charge. A larger charge appeared recently on her credit card of $99.95. She called the 800 number, and again, it was a discount travel club. When she told them she did not register with them and asked them to remove the charges and her name, they willingly agreed.

 

Senator Carlton asked if the bill would also cover unsolicited merchandise charged and sent to a person’s home. Senator Wiener deferred to legal counsel.

 

Kevin Powers, Committee Counsel, responded:

 

In that circumstance when the goods are received, that is an offer to enter into a contract. The mere fact that you have received goods, and have not formally rejected it, a contract is not created at that point. You are not under a duty to formally reject it, unless you asked for them to send the goods to you. If you did not ask for them to send the goods to you, they are making an offer. By you never accepting, the contract never occurs. However, if for some reason, under the circumstances Senator Wiener is talking about, they have obtained your credit card information, and they send you a product, and you do not at that point formally reject the product, they will try to charge your credit card, as in the experience Senator Wiener had. That is what this bill is directed at, is that they cannot make that first charge to the credit card unless they have a written contract with you, and unless you are given notice before that first credit card charge is made.

 

Senator Neal said on line 26 of the bill the consumer takes affirmative action in accordance with the terms of the opt-out provision. He asked for an explanation of affirmative action, and if the opt-out provision would be signed by the consumer in the first place.

 

Senator Wiener responded there are provisions in section 7 of the bill regarding the opt-out provision requirements. She said an example of affirmative action by the consumer would be to respond to the 20-day notice that they do not want to be a participant in this contract. Further, the seller would be required to provide clear, understandable information on how to contact the seller. That is covered in section 7, subsection 1, paragraph (d), subparagraph (2).

 

Mr. Powers stated:

 

The reference to affirmative action in the bill refers to the affirmative action that is required by the contract. The terms of the contract would control that affirmative action. It may be actually returning the goods. It may be sending written notification that you reject the contract and you are canceling it. It may be calling a toll‑free number to let them know you are rejecting the contract and canceling it. It depends on the contract. If the contract provides that you can reject the goods or cancel the contract based on a registered letter, then you can reject the contract pursuant to that means of rejection. What it provides is that before the company can make the charge to your credit card, they have to provide you with notice that they are going to make that charge, a copy of the opt-out provision, which will explain to you how to cancel the purchase or reject the contract, and with all contact information you need to comply with that contracted provision.

 

Senator Neal suggested if there is no immediate evidence for the consumer indicating these contacts, they might still be charged for the items. He asked how the consumer gets the idea back to the seller that the items have been rejected. It has been indicated the consumer should call a telephone number or write to an address. If there is no response to a registered letter, yet there is a returned receipt, would that be sufficient? He said it seems that it all rests on the opt-out provision. It appears there would have to be a contract first stipulating how items would be accepted, returned, and charged to the consumer.

 

Mr. Powers clarified:

 

In drafting the measure, I did not look at any other state’s legislation. There is the possibility other states have legislation on this subject. In drafting this measure I wanted to focus on the problem Senator Wiener was addressing without, again, prohibiting all opt-out contracts. The idea being drawing a balance between those transactions when the consumer is not provided notice, and making sure the consumer has a right of redress through civil action versus those transactions where the consumer validly enters into a contract, and wants to carry on this contractual relationship.

 

Senator O’Connell asked how difficult it would be for the person who is charged on their credit card to take their issue to civil court if the shipper is out of state.

 

Senator Wiener commented it could happen in multiple states. Her concern is for the consumers who feel they have no redress and do not pursue. She emphasized that by doing nothing it is allowing an act to continue that can be significant when multiplied by 10 or 100,000. She said Nevada is ripe for its citizens to be victims of certain practices, especially in these economic times.

 

John R. McGlamery, Deputy Attorney General, Bureau of Consumer Protection, Office of the Attorney General, stated Nevada has few tools, mostly vague or catch-all phrases. Recently the Federal Trade Commission Telemarketing Sales Rules, Part 310 Telemarketing Trade Practices, 15 U.S.C. 6101-6108, were passed, and they provide a new set of tools. However, there are gaps limited to telemarketing transactions, not transactions where there is no face-to-face such as the Internet. In Senator Wiener’s case, it was what is called an up-sell where it was attached to the credit card without any other interaction. Because of the gaps, a bill is being proposed to strip out the telemarketing part and fill in the gaps.

 

Chairman Townsend introduced Bill Draft Request (BDR 54-429).

 

BILL DRAFT REQUEST 52-429: Make various changes to close loopholes in provisions regarding deceptive and unfair trade practices.

 

Marilyn Skibinski, Deputy Attorney General, Bureau of Consumer Protection, Office of the Attorney General, stated there was an early release of the bill. Changes were made, and it was resubmitted for drafting.

 

Mr. McGlamery said he handles all complaints north of the Clark County line. He said the first thing is to send an inquiry that allows the company to present their information. Based on the response, the problem may be resolved at that time. Even if unresolved, there is now information for a pattern of conduct. Mr. McGlamery said it is expensive for the State to start an enforcement process. We would want to make sure the case is legitimate and not an isolated error. He said there is no particular dollar amount when considering a case. The consumer protection unit would file an inquiry if it looked suspicious. After the inquiry, consumer protection may start an investigation.

 

Responding to a question from Senator O’Connell regarding responses from other states, Mr. McGlamery said the responses have been good. He noted if it looks like a clear sham, and there is enough evidence from the Federal Trade Commission or the Federal Communications Commission that this is a pattern of conduct, Nevada will do whatever it takes to stop the perpetrators. Mr. McGlamery emphasized it was not the dollar value, but how the deceptive practice fits into the matrix, and whether it is a pattern of conduct that justifies the cost to pursue and stop the action. He stated if the action is not stopped, more people could become victims and that is what we want to prevent.

 

Mr. McGlamery said the inquiry process does not always involve asking another state since most inquiries can be done within Nevada. He said many times there are multi-state actions involving attorney general offices of other states. If it is an isolated incident, it usually resolves itself.

 

Senator Hardy stated he understood the bill requires there be an opt-out provision. It requires the provision be written in clear language the average person can understand, and requires the consumer acknowledge receipt of the opt-out provision. He asked what prevents the business from providing an opt‑out provision requiring the consumer to personally appear at the business’ physical location in another state.

 

Mr. McGlamery responded that, as an agency, they would rather see an opt-in provision, which is better. This law would fit with other provisions already in statute. If there were no provisions, consumer protection could step in through the inquiry process to fill in the gaps as well as work with other agencies and divisions. We would like the opt-in, but could also live with the opt-out, because we have other ways of handling those matters to assist consumers. He stated consumer protection’s focus is to weed out deceptive trade practices. With evidence, that can be done.

 

Mr. McGlamery said if it is a false or misleading statement, its very nature gives consumer protection the authority to intervene. These are simply additional tools to show whether it was or was not misleading.

 

Senator Hardy said the opt-out provision for a consumer to appear personally at the company’s corporate headquarters is not false or misleading, but it is something with which the consumer cannot comply.

 

Mr. McGlamery acknowledged he was not an expert on that particular provision, as he needed to study it further. He said they would interpret anything affirmative to be to the benefit of the consumer in any reasonable steps the consumer has taken. This is verification, the same kind of verification as with slamming/cramming that are now in the telemarketing sales rule. If there is no verification, then the burden shifts to the company to justify their action.

 

Senator Neal referred to section 5, page 2 of the bill that said if there is no agreement, there is no opt-out provision. If there is agreement, it is merely an application of contract law to determine whether it was a proper purchase.

 

Mr. McGlamery said he disagreed. He said chapter 598 of NRS is not a contract, it is deceptive trade and operates under a different set of rules. He explained he does not have to prove whether there was or was not a contract. What he would have to show is if there was a false statement made. He looks at opt-out provisions as verification, not whether there was or was not a contract. If there is no verification, we go forward.

 

Senator Neal said the opt-out provision means a contract by which the consumer agrees. That means an action on the part of the consumer to make a purchase. If a charge is made that a consumer did not purchase, then the deceptive trade practice law would kick in. If there is an agreement to purchase, then that takes us to the opt-out within 20 days provision where it is determined whether or not to keep the items. If there is an initial agreement, this does not enter into the picture.

 

Mr. McGlamery agreed. He stated consumer protection deals with the comments made at the time of the sale of goods or services. What we concern ourselves with are up-sells.

 

Senator Neal stated his concern is for the consumer to have enough law in terms of an explanation to protect them. The consumer can understand the rights available in law should something go wrong.

 

Mr. McGlamery acknowledged Senator Neal’s concerns. He said it is important to answer the question of how to enforce it. Obviously, if there is an opt-out, then there is no concern. He said the problem area is with services where there is no tangible product. Mr. McGlamery stated he wanted to impress on everyone there is a huge market in the sale of customer information, and that includes social security and credit card numbers. Once sales people have that information, they have everything they need to start charging credit cards without calling the credit card holder or contacting them in another way. He noted some of the laws are vague in these areas where there is no face-to-face. He said there needs to be a verification process. The burden should be on the business that is charging, not on the consumer to prove there was no purchase. Senator Neal asked Mr. McGlamery if the bill’s language was sufficient for consumer protection. Mr. McGlamery responded he prefers opt-in, but he can make opt-out work.

 

Senator Wiener said she had absolutely no connection to the people who put charges on her credit card. She said travel clubs are not in the scheme of how she functions.

 

Chairman Townsend asked if it was fraud under federal statute to put an unauthorized charge on someone’s credit card. Mr. McGlamery replied that it was not as presently set up. He said the question is whether it was false. The way it is now set up, the people charging do not have to have proof of contact. They have the credit card number, the merchandise record, and they sent out the service. It becomes a he said, she said situation, and that is why this bill is so important. There is no burden on the supplier to show verification as there is on the telemarketers’ cramming/slamming under the verification rules.

 

Chairman Townsend commented the committee has to give Nevada better tools with which to work. His concern was not with one person’s loss, but with the fact that no contact was made to Senator Wiener. That is fraud, that is identity theft. This bill goes after the seller, and there is a long-arm statute on which there is a need to update everyone dealing with some of these issues. He noted since a credit card was involved, it becomes a third-party contract. Senator Wiener stated she contacted the seller the first time her credit card was charged. The second time she said she also contacted the credit card company.

 

Chairman Townsend wanted to know if consumer protection was doing anything in the form of press releases, public service announcements, et cetera, to inform the public to review their credit card statements faithfully. Consumers should take their copy of the credit card transaction, and check to see whether their credit card number is fully printed out on the transaction document left with the seller. If the number is fully visible, the customer needs to ask the retailer to get the appropriate equipment that blocks all or most of the credit card number.

 

Ms. Skibinski confirmed that press releases and public service announcements have been done. This public awareness information has also emphasized that the consumer check all bills, and be aware of identity theft. She said nothing has been done as yet to specifically address verifying credit card numbers are blocked out, and to remind consumers to pick up their copy of the credit card charge slip.

 

Senator Wiener said her other legislation includes the components of blocked out credit card numbers and not showing the expiration date.

 

Chairman Townsend requested consumer protection make known to consumers information on charge slips, blocked numbers, fraud and identity theft. He noted on line 4, page 2, his understanding of the language is not asking retailers to change contracts, it is saying, “if there is an opt-out.” Ms. Skibinski said that was her understanding as well.

 

Mary Lau, Lobbyist, Retail Association of Nevada (RAN), stated RAN is in opposition to the bill. To preserve the manner in which RAN members currently market insurance products, various clubs, and services, RAN cannot support the bill. There are already protections with the Federal Trade Commission. Additionally, there is concern this bill would cast an extremely wide net, especially for small vendors. She said from the RAN members’ perspective, the opt-out provision is essentially a written confirmation. Referring to contract law, anytime something is in writing, it is considered a contract. The opt-out provision is in writing.

 

Christina R. Dugan, Lobbyist, Las Vegas Chamber of Commerce, stated the retailers think it may be burdensome to comply with the written part of the contract issue, and oppose the bill.

 

Cheryl Blomstrom, Lobbyist, Nevada Consumer Finance Association (NCFA), stated the NCFA is on record as having concerns that the bill is overly broad.

 

Ted L. Wehking, Lobbyist, Nevada Bankers Association, said there might be a bigger issue to consider for the future. He pointed out if Nevada changes its rules on credit cards, it may be impeding interstate commerce. Recently, he said, a California bill on credit cards requiring a specific term of pay off if the credit card holder used the minimum payment was overturned in federal court based on federal regulations.

 

Senate Neal wanted to know, since the California law was overturned, if Mr. Wehking was suggesting Nevada could not make legislation regarding fraud and interstate transactions.

 

Mr. Wehking replied he was addressing the difficulty of enforcing the opt-out requirements in other states. He pointed out in the California case the bill required compliance by those in other states, and that is what did not hold up. He stated he was not addressing fraud, only the way the bill is written.

 

Chairman Townsend closed the hearing on S.B. 47 and opened the hearing on S.B. 60.

 

SENATE BILL 60:  Provides for damages under certain circumstances against retail seller who fails to deliver merchandise reserved for purchase by retail buyer pursuant to agreement for layaway. (BDR 52-589)

 

Senator Barbara K. Cegavske, Clark County Senatorial District No. 8, said the bill provides protection to consumers who purchase goods on layaway. She explained layaway plans are agreements between a retail buyer and seller, whereby the buyer agrees to pay for the item through a payment plan in exchange for picking up the goods at a later date. She stated eight states, California, Idaho, Illinois, Massachusetts, Maryland, New York, Ohio, and Rhode Island, have layaway statutes. She noted this bill has triple damages, as does Maryland. Some states have gone further in providing criminal penalties for breach of a layaway agreement.

 

Assemblywoman Chris Giunchigliani, Clark County Assembly District No. 9, stated the bill is a worthy piece of consumer legislation. It contains protections for both the buyer and the seller.

 

Harry Pappas, Concerned Citizen, stated this was a progressive step in enacting consumer protection statutes benefiting Nevadans. He said his only concern is the bill only addresses retail sellers. He strongly urged consideration of protection in private party transactions where a deposit has been accepted for merchandise or service. Mr. Pappas recited a personal experience (Exhibit D) with a private party transaction.

 

Chairman Townsend requested clarification of page 1, line 3 in the bill regarding retail seller and retail buyer, and asked if Mr. Pappas’ example of a private transaction fits.

 

Mr. Powers replied, “I would agree with the statement of Mr. Pappas that in his circumstance the seller would not be a retail seller. This bill would not deal with Mr. Pappas’ problem.”

 

Senator Hardy said if there was a bill addressing private party transactions such as his, the possibility arises that anybody considering selling property of any kind would no longer accept a deposit. There would be consequences.

 

Mr. Pappas said it could be an issue, but without deposits or layaways there would be a return to the starting position. He said just because some people may become concerned about accepting a deposit, it does not mean a law should not be enacted. He said it would be like not establishing speeding laws because some drivers would be concerned about being caught.

 

Senator Neal said he wanted to know if there was anything in common law regarding private transactions where a deposit was given in good faith.

 

Mr. Powers commented:

 

Mr. Pappas was not without remedies in this circumstance, if a court was to find he had a binding contract or a binding option to purchase goods. An option contract is just another form of contract. If there is a meeting of the minds in exchange of consideration, then he has an enforceable remedy under the common law for breach of contract. Additionally, there is nothing wrong with putting it into statute.

 

Mr. Pappas responded that he had consulted an attorney about the matter. He said he was told if he took it to court, the most he would receive is an order for the offending party to return his deposit, which was already done.

 

Chairman Townsend said Mr. Pappas was talking about a private party transaction, while the bill addresses retail transactions. He said all the committee can do at this time is address what the bill covers.

 

Senator Cegavske noted she was unable to discuss Mr. Pappas’ private party transaction, and therefore, would leave it up to the committee. She agreed with the direction that addressing the concern could hurt the retail industry.

 

Senator Carlton stated she has extensive experience with layaways. She illustrated there is the parent who puts a particular bicycle in layaway for Christmas because it is the only way they can afford to do it. When the parent goes to retrieve the bicycle, it is gone. There are no bicycles left in the city because that was the Barbie bicycle every little girl wanted for Christmas that year. There stands the parent at layaway with cash in hand, no bicycle, no present for Christmas Day, and the parent is wondering what they are going to do now. Senator Carlton said most retailers would not do that, but sometimes there is miscommunication. The retailer may have put too many on layaway and the shipment did not come in or was short. She said someone should be held accountable for the parent not having that present for his or her child on Christmas Day. She concluded that kind of situation is what came to her mind when she read the bill.

 

Senator Hardy said his point is if sanctions are to be attached to businesses for offering the service of layaway, the businesses will stop offering it. Then there might be a mandate that businesses have to offer layaway and then it becomes onerous all the way around.

 

Chairman Townsend noted that both sides of the issue would be dealt with in work session. He emphasized that a consumer-driven market is always a better market.

 

Senator Schneider said garage and yard sales are a common weekend activity, and it is possible to get carried away by making criminals of the average person trying to make a few dollars by cleaning out their garage.

 

Chairman Townsend acknowledged the multiple issues. He indicated there are many related issues that could be brought under Title 52 of NRS.

 

Ms. Lau stated opposition to S.B. 60. She explained there could be a chilling effect on layaway, which has happened in other states, and can also expose the retailer to consumer fraud. For example, there are people who put a large ticket item on layaway, make a few payments, then cancel the check. Now the retailer has bank fees, collection fees, and if the consumer can get the record confused enough, they can apply for and possibly collect triple damages.

 

Chairman Townsend closed the hearing on S.B. 60, and adjourned the meeting at 10:05 a.m.

 

RESPECTFULLY SUBMITTED:

 

 

 

                                                           

Laura Adler,

Committee Secretary

 

 

APPROVED BY:

 

 

 

                                                                                         

Senator Randolph J. Townsend, Chairman

 

 

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