MINUTES OF THE
SENATE Committee on Commerce and Labor
Seventy-second Session
May 5, 2003
The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 7:04 a.m., on Monday, May 5, 2003, in Room 2135 of the Legislative Building, Carson City, Nevada. The meeting was videoconferenced to the Grant Sawyer State Office Building, Room 4412, 555 East Washington Avenue, 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 Ann O'Connell
Senator Raymond C. Shaffer
Senator Michael Schneider
Senator Maggie Carlton
COMMITTEE MEMBERS ABSENT:
Senator Joseph Neal (Excused)
GUEST LEGISLATORS PRESENT:
Assemblyman John C. Carpenter, Assembly District No. 33
Assemblyman Thomas (Tom) J. Grady, Assembly District No. 38
Assemblyman Jerry D. Claborn, Assembly District No. 19
Assemblywoman Valerie E. Weber, Assembly District No. 5
STAFF MEMBERS PRESENT:
Scott Young, Committee Policy Analyst
Kevin Powers, Committee Counsel
Johanna Downey, Committee Secretary
Makita Schichtel, Committee Secretary
OTHERS PRESENT:
Terry Johnson, Labor Commissioner, Office of Labor Commissioner, Department of Business and Industry
Gail Kosach
Jan-Marie Brown
Patricia Jarman-Manning, Commissioner, Consumer Affairs Division, Department of Business and Industry
Kathleen Delaney, Deputy Attorney General, Bureau of Consumer Protection, Office of the Attorney General
Bonnie McDaniel
Tony F. Sanchez, Lobbyist, Las Vegas Monorail Corporation
Rosemarie Hughey
Steven Kost
Craig Hudson
Denyette A. DePierro, Lobbyist, Independent Community Bankers of America
Danny Thompson, Lobbyist, Nevada State American Federation of Labor‑Congress of Industrial Organizations
Barry Smith
Dennis Flannigan
Scott J. Watts, Lobbyist, Nevada Alliance for Retired Americans
Donal Hummer Jr., Lobbyist, Harley-Davidson Financial Services
Richard Cullen, Lobbyist, John Deere Capital Corporation
Chet Curtis
Robert R. Barengo, Lobbyist, Western Thrift and Loan
Philip LaChapelle
Bernard Nebenzahl
Larry Hickman, Deputy Commissioner, Division of Financial Institutions, Department of Business and Industry
Ray Masayko, Nevada Commission on Aging, Aging Services Division, Department of Human Resources
Terry Sheridan
Stan Olsen, Lobbyist, Las Vegas Metropolitan Police, and Nevada Sheriff’s & Chief’s Association / South
Alfredo Alonso, Lobbyist, Superpawn
Mary Lau, Lobbyist, Retail Association of Nevada
Chairman Townsend:
We will open the hearing on Assembly Bill (A.B.) 143.
ASSEMBLY BILL 143 (1st Reprint): Makes various changes to labor laws and powers and duties of the Labor Commissioner. (BDR 52-881)
Terry Johnson, Labor Commissioner, Office of Labor Commissioner, Department of Business and Industry:
You have before you my proposed amendments (Exhibit C). This bill, along with A.B. 141 comprises the legislative package of the Office of the Labor Commissioner.
ASSEMBLY BILL 141: Makes various changes concerning enforcement of provisions requiring payment of prevailing rate of wages on public works. (BDR 28-464)
Assembly Bill 141 had language, which could not be agreed upon, so I incorporated only the approved language into this bill. This is an effort to streamline the operations of the Office of the Labor Commissioner. It gives the labor commissioner statutory authority to impose administrative penalties. Most laws enforced by the labor commissioner are misdemeanor violations prosecuted by the attorney general, the district attorney, or my deputy. I would like to move these matters to an administrative process. This would save litigation costs and would expedite the system.
According to this bill, prior to proposing an administrative penalty, the labor commissioner must give the person accused of violating the law the opportunity of a hearing. Any administrative penalties collected are to be deposited into the General Fund.
On page 4, line 41 of the bill provides an employer give an employee written notice before they change their paydays. Currently, the law requires an employer to post regularly scheduled paydays. We propose that before employers change the payday, they give written notice beforehand. On page 5, lines 26 and 27 direct the employer to give employees written notice before any adjustments to wages, salaries, or compensation.
This bill covers many chapters of the Nevada Revised Statutes (NRS) subject to the enforcement jurisdiction of the labor commissioner. We want the statutes to be consistent from one chapter to the next.
The amendment does three things. It gives the person accused of a violation the opportunity for a hearing. It changes the words in section 19 to say a person who is found in violation may either have a hearing, or have an opportunity for a hearing. Lastly, it amends NRS 338.515, so a labor commissioner can withhold money against a contractor on a public works project if the commissioner feels an employee has not been properly compensated, until the matter is resolved. It has to be a valid, enforceable claim, and there must be some preliminary determination on the amount of money to be held. Also, without waiting for a person to file a claim, a labor commissioner can take action if the commissioner feels an employee is not being compensated or an employer is not following the law. Some argue there is no jurisdiction without a claim. I am seeking clarification of this issue in the bill.
Senator O’Connell:
Does this language help clarify any conflict between State and federal law, with an employee not giving an employer proper information?
Mr. Johnson:
No. We are talking about A.B. 48 in that situation, on which I am still working.
ASSEMBLY BILL 48 (1st Reprint): Provides expressly that certain provisions related to labor include persons unlawfully employed. (BDR 53-601)
Senator Hardy:
On page 5, line 19 prohibits employers from paying a lower wage than the amount earned when the work was performed. I find it hard to believe this happens often. How big is this problem?
Mr. Johnson:
You would be amazed at issues we deal with on a daily basis. This is a prevalent problem. Employers decrease employee wages without informing the employee until after the work has been performed.
Senator Hardy:
I would like to publicly thank the commissioner. I feel, Mr. Johnson, you have done an outstanding job in that office.
Senator Carlton:
Why do you wish to delete the language on page 3?
Mr. Johnson:
It is outdated language. Also, the list of items is too limiting to our office. It is standard wording from the wage claim form used in our office. We want to clean up the statutes and get rid of unneeded language.
Senator Carlton:
What is the difference between an employee and a workman?
Mr. Johnson:
There is a definition of a workman in the public works statutes in NRS 338.010. Chapter 608 of NRS deals with private employment practices and provides for a definition of an employee. There is a distinction. We spend too much time litigating these types of distinctions, so we are trying to make them clear in the bill.
Senator Carlton:
An employee with a collective bargaining agreement who consistently has the same problems with payroll must follow a grievance procedure. At what point can they bring the complaint to the labor commissioner beyond the grievance procedure?
Mr. Johnson:
If there is a collective bargaining agreement in place, and there is a provision in the agreement for seeking relief, they should fully exhaust those remedies before coming to the labor commissioner. From a regulatory standpoint, the bargaining agreements keep our workload manageable. If an employee can prove they have exhausted the remedies available within their agreement, then they may come to the labor commissioner.
Senator Carlton:
If an employee exhausts those remedies repeatedly for a persistent problem, then when should they come to your office?
Mr. Johnson:
I cannot give you a specific time. We deal with 4000 to 5000 complaints a year. In each, we make judgment calls on whether we have the jurisdiction to hear their case. This is done on a case-by-case basis.
Senator Carlton:
When you address those regulations, I would like to be involved.
Chairman Townsend:
We will close the hearing on A.B. 143, and open the hearing on A.B. 343.
ASSEMBLY BILL 343 (1st Reprint): Makes various changes related to sellers of travel. (BDR 52-881)
Assemblyman John C. Carpenter, Assembly District No. 33:
Shortly after the last Legislative Session ended, I heard from a seller of travel who shared his concerns with me. He said a seller-of-travel bill passed within the last day or so of session. There had not been enough time for testimony. His concern was the large $50,000 bond required of sellers of travel. Since then, this man has gone out of business due to that law. This is a complicated industry. We know what the industry has endured since September 11, 2001. The law does not catch the problem violators.
In the interim, I have met with various travel agents, and have held a videoconferenced hearing. From these discussions I have come up with an amendment (Exhibit D). I have replaced the bonding and letter-of-credit security requirements with a recovery fund. This is based on the recovery fund the contractors’ board uses.
Section 4 requires sellers of travel to include the registration number in any advertisement, in at least 14-point bold type so it can be easily read. Some say this is too large. However, without a standard, some may include type so small no one can read it. We could reduce the print a little. If a travel agent or people in the division see an ad lacking a registration number, they can contact the seller and get them registered.
The amendment requires a seller of travel to have a trust account, into which must be deposited money received by the purchaser of travel services within 1 business day after receiving the money.
On page 3, we would like to change the amendment on line 32 to ask for 60 days, rather than 6 months, for the division to act upon a complaint. This would occur at the end of a scheduled completion of the travel services. Travel agents feel 6 months is too much time, when the tickets are sometimes purchased a year in advance.
On page 4, line 10, we wish to delete the word “or.”
On page 4, line 13, we ask to again amend the amendment by adding a paragraph (d) (Exhibit D).
Chairman Townsend:
Mr. Powers, does this change accomplish what we want?
Kevin Powers, Committee Counsel:
Mr. Chairman, I am not sure the addition of … “not” is appropriate … I think the goal of the amendment is that if there is a cancellation penalty specifically disclosed and agreed to in the contract between the seller of travel and the purchaser of travel, then the seller of travel would not be able to recover if the cancellation fell within the terms of the cancellation clause in that contract between the parties.
Assemblyman Carpenter:
We want to delete lines 23 through 25 on page 4 regarding judicial review. Because we are doing away with bonds, we need to take away this language. We wish to delete line 31 on page 4 and add the words, “To the extent of payments made from the account, the Division is subrogated to the rights of the injured person. The Division and the Attorney General shall promptly enforce all subrogation claims.”
On page 4, we wish to delete lines 41 through 44 regarding attorney fees. The industry feels it would not be appropriate to collect attorney fees out of the recovery fund.
We hope this bill increases the number of sellers registered.
Chairman Townsend:
Mr. Powers, the wording on page 4, lines 23 through 25 about judicial review states the decision of the division regarding eligibility for recovery and all related issues is final and not subject to judicial review. Can we say this? If we do not remove this language, then what happens?
Mr. Powers:
I believe this language was modeled after a similar recovery fund that is found in the State Contractors’ Board in chapter 624 [of NRS]. What this provision does, as it states on its face is prohibits judicial review of the decision on whether or not to award compensation to the injured person, and how much compensation is awarded. Because the type of issue involved in this determination … would be considered a constitutionally protected right, then judicial review would not be a constitutionally required component of this statutory provision. So, it is really a policy matter for the Legislature. What the Legislature is providing is an opportunity for an injured person to recover money from this recovery fund. However, unlike the revocation of a license where someone’s professional reputation is at stake, or their privilege to practice employment, which is a constitutionally protected right, the ability to recover from a state administrative recovery fund is not a constitutionally protected right. Instead, it is a State-created privilege, and because it is a State-created privilege, there is no need for judicial review if the Legislature determines that judicial review would be unnecessary. It is a statutorily created privilege.
Gail Kosach:
I am an owner of Destinations Travel in Reno. I have a concern with section 9, subsection 1, regarding the notification that we are requested to give the purchaser. The bill does not state which seller of travel is required to post this notice. By state definition, a seller of travel includes travel agents, suppliers, companies that sell direct to the public, and airline carriers. Technically, according to this bill, all of these would need to be registered to do business. If I, as the agent, accept payment from a client who has purchased a package from a travel agency, am I to give the notice, or should the agency making the money? Is this notice to be included with every airline ticket? Once we issue a ticket, the contract is then between the passenger and the carrier. Will the airlines, when they sell directly to the public, also be required to give this notice? We need some guidelines.
Jan-Marie Brown:
I am owner of Uniglobe Happy Travel, and president of Travel Goddess, Incorporated. I was the only person to show up last session to testify against the bill. I would like to thank Assemblyman Carpenter; he is very devoted and hard working. On behalf of many of my colleagues, we are in support of the amendments he has proposed. We worked closely with him. We feel the bill protects the consumer but does not injure our industry. Our only concern is found in the words “satisfactorily,” found in section 7, subsection 1, paragraph (a), and “adequately, ” found in section 3, subsection 2. It is written that if we have not performed satisfactorily or adequately, the purchaser can file a complaint with the Consumer Affairs Division for the restitution fund. This could cause some severe misunderstandings in confusing a valid complaint with a customer-service issue. We ask to delete these words. The bill was intended to protect the consumer from those sellers of travel who would file bankruptcy or commit fraud, and not deliver the product the consumer purchased. We would agree to changing the wording to “if the services are not provided” rather than “if they are not provided satisfactorily and adequately.” As a consumer myself, I think if I received notification with every purchase I made telling me I could get a refund if I did not like the product, I might take them up on it. A consumer might take this action rather than going to the source of the problem for a solution. If the consumer can confuse customer-service issues with injury, we are concerned this confusion might open the Consumer Affairs Division to frivolous complaints. If the Consumer Affairs Division receives a complaint, they must follow through with the complaint until jurisdiction is decided. This might cause a backlog of work for the division, with no additional compensation.
Senator Carlton:
If the words “adequately” and “satisfactorily” do not work, what wording do you suggest to protect the purchaser from faulty expectations?
Ms. Brown:
If a consumer were sold something that does not exist, these words would not apply.
Senator Carlton:
What if the consumer is sold a misrepresentation? What terminology should we use so they have the option to file a complaint?
Chairman Townsend:
The purpose of A.B. 627 of the 71st Session was to stop the sale of travel packages by certain sellers who would keep the money and not provide the services purchased. The bonding issue was created to help legitimate sellers of travel do business. There was not a concern over satisfactory or adequately provided services. Do we want to change the intent to also address the area of customer service? Do we want to open this up to include common complaints such as bad airline food or small seats?
Assemblyman Carpenter:
The words “adequately” and “satisfactorily” were created by bill drafters. We are willing to change the wording to more suitable language, if we can identify what it might be.
Chairman Townsend:
The Consumer Affairs Division would be flooded with complaints if we suggest a customer can complain to them if he is has a common customer-service complaint.
Senator O’Connell:
Could we specify the service had to meet the terms of the contract? If a meal was served, but the customer was not satisfied, would the contract be met? Although the expectations might not be met, the terms of the contract would be met.
Mr. Powers:
I think what everyone is getting at, and your reference to the contract is, those typical types of wrongful actions that would rise to the level of a breach of contract, such as fraud, misrepresentation, deceit, … Typically misrepresentation has to be a material misrepresentation before it would be actionable for damages. The language could be adjusted in a way so that the injured person is an injured person who is damaged by the failure of the seller of travel to provide those services, or by a material misrepresentation, fraud, or deceit … That may provide a more legally grounded contour to the type of damages that the bill is trying to provide a remedy for, to those who are actually damaged by sellers of travel.
Ms. Brown:
I agree. We want language that will make a distinction between customer‑service issues and the failure to provide a service.
Mr. Powers:
To follow up on that, that is why the term “material misrepresentation” should be satisfactory to cover the situation. If you entered into a contract with the seller of travel for a certain type of accommodations on a cruise, and you were provided an accommodation that would be considered a lower accommodation … you paid for a first-class cabin and you actually received a third‑class cabin, (if such a thing exists), that could be considered material misrepresentation. That is the type of damage I think that the bill is directed to. I certainly will discuss this with the Legislative Counsel Bureau, but I think the idea in putting “adequately” and “satisfactorily,” is to have some standard by which the division could judge a claim for damages. We could always adjust that standard to something more akin to material misrepresentation, fraud, or deceit.
Senator Hardy:
My concern is, as drafted, this recovery fund would be broadened. That might set a precedent for expanding other recovery funds such as the contractors’ board.
Ms. Kosach:
The 14-point print requested has been a point of contention. I have a University of Nevada Alumni-sponsored trip advertisement. These people are not registered in the state. On the back of the brochure, in very small print, are the terms and conditions of the trip. The brochure is printed in 14-point print. How do we regulate the size of advertising? Also, there should be a listing of the seven states where this company is registered at the bottom of the brochure. If Nevada is enforcing a 14-point print, I am not sure how these companies will fit it all onto the advertisement. Nor am I sure how we would enforce this regulation. We do need language regulating how we post our state seller‑of‑travel registration numbers in advertisements. It should be uniform with the print of the advertisement. It might cause problems to regulate a 14-point print.
Costco Travel, another agency that is not licensed in our state, does list all states in which they are registered.
Senator Shaffer:
Who polices these advertisements?
Ms. Kosach:
I believe the Consumer Affairs Division oversees this process.
Assemblyman Carpenter:
The absence of a registration number was the complaint I heard most often when meeting with people in the industry. We need more sellers of travel registered. If a business wants to sell travel in Nevada, they need to make the registration and information legible.
Ms. Kosach:
In section 9, subsection 1, could we clarify who has to make the declaration? Can we also specify if this could be posted on a Web site or in our offices, rather than with each transaction?
Senator Hardy:
As an expert in the industry, which seller do you recommend make the declaration?
Ms. Kosach:
I am not sure it is necessary with each transaction, which could range from an inexpensive airline ticket to an expensive cruise. It is difficult to differentiate which transaction would need a declaration. Once a customer purchases an airline ticket with our agency, the contract is then between the customer and the carrier. If an airline bumps you from a flight, the problem is then between you and the carrier. What if a person purchases a ticket on line?
Senator Hardy:
If we decide to make the declaration required with each transaction, is there a way to identify the final seller?
Ms. Kosach:
It could be the business that takes the payment. As an agent, I receive the customer payment, and then I give it to the airlines or cruise lines.
Senator Hardy:
You are the business the customer is dealing with directly. You should make the notification.
Ms. Kosach:
Some companies, such as Pleasant Holidays, sell packages through travel agencies as well as directly to the public. Technically, they are a seller of travel and should be registered by Nevada.
Ms. Brown:
We feel sellers of travel giving a declaration with every transaction may confuse the issue of injury with customer service. We could post this declaration in a visible area within our agencies. I would like the law to state a requirement for travel sellers to provide anyone who says they have been injured with information to contact the Consumer Affairs Division. We should also be required to give this information if another seller of travel has injured a customer. This will clarify who would make the declaration.
Senator Shaffer:
On page 5, line 12, the recovery fund is replacing the bond requirement. The bill says payment “may” be available. Why does it say, “may?”
Mr. Powers:
I could probably elaborate on that. Senator, the reason that “may” is used in the disclosure form as provided in section 9 is that there are several condition precedents before an injured person can recover from the recovery fund. First, they have to be determined eligible to recover from the recovery fund. In section 8, subsection 2, there is a list of situations where the injured person is not entitled to recovery. One of them in the proposed amendment was if there is a specific cancellation clause in the contract, and the person who purchased it exercised the cancellation clause; they would not be entitled to recover. In addition, if the person is eligible to recover from the recovery fund, there is a limit on the recovery per person of $10,000. They could have been injured greater than that amount, and they are only entitled to recover from the recovery fund an amount of $10,000. So, they may be entitled to recover from the recovery fund if they meet all the condition precedents, and even if they do, they may not be able to recover all of the money that they have lost, but up to an amount of $10,000. That is why the term “may” is used in the disclosure.
Senator Shaffer:
Are there any requirements for the size of the advertising print in those statements?
Mr. Powers:
“As the bill is currently written, in section 9, it just requires providing a written statement explaining the rights. From my quick reread of the section, I do not see any requirement for a font size or print size. “
Patricia Jarman-Manning, Commissioner, Consumer Affairs Division, Department of Business and Industry:
We provided the committee some critical issues we think need to be addressed in A.B. 343 (Exhibit E). For those of you absent for the 71st Legislative Session, late in the session this agency came before your committee and voiced a concern about the travel industry. We passed a piece of legislation. Since then, we have not received any customer-service complaints, but we have received valid complaints where the customer’s money was stolen. These are situations where a prepaid trip was not delivered by businesses that take the money and then go out of business. We get involved when the public comes to us with an unresolved problem.
We are gravely concerned about the recovery fund. As of May 2, 2003, we have 308 businesses registered. We have 744 agents registered. This bill would require that only the businesses would have to contribute $100 towards the recovery fund. If they did, it would add up to $30,080. We estimate there are 400 to 450 existing businesses, including independent contractors, homebound contractors, visiting contractors, and many more. There are even contractors who sell to specific ethnic groups, specifically the Asian market, who would never come to us with a complaint. With the existing participating businesses contributing $100 each, we would never reach a $200,000 minimum threshold. We believe each seller of travel, including telemarketers, should be registered and pay the $25-minimum registration fee as an agent. We feel businesses should pay much more like a $750 to $1000 registration fee. This amount is less than if they had to post a $50,000 bond.
Those who cannot obtain a $50,000 surety bond cannot do so because of bad credit. Those businesses are the ones who have gone out of business, which never obtained a business license, registration, or followed any standards. We need a recovery fund, but one with realistic registration fees.
In section 7, subsection 2, we would like to change the amount of time an injured person has to file a complaint to 2 years, rather than 4 years. This is a fair amount of time for a consumer to file.
In section 7, subsection 4, paragraph (b), we request a change in the notice of a hearing from 30 days to 10 days, in keeping with other hearings within the division.
In section 13, subsection 3, paragraph (e), we ask to strike this language addressing motor clubs. Some businesses masquerade as motor clubs when they are travel agencies. An example would be the American Automobile Association (AAA), who advertise as a travel agency and book all types of travel.
In section 17, we ask to change the effective date for this act to become effective on January 1, 2004. We took on this endeavor in 2001, without a fiscal note or help from any sources. We need until this date to ensure the effectiveness of the program. Finally, in 2001, tour brokers and tour operators were included in our sellers of travel. We did not assess them the $25 registration fee, so they have had a free ride the past 2 years. We want them to pay the fees along with everyone else.
Kathleen Delaney, Deputy Attorney General, Bureau of Consumer Protection, Office of the Attorney General:
I represent the Consumer Affairs Division for the enforcement of the seller‑of‑travel law. Regarding the language “adequately” or “satisfactorily,” we agree it was not the intent to enter the area of customer satisfaction. There is existing language in NRS 598.385 that would help us amend this bill to address only issues of fraud, misrepresentation, and breach of contract.
In section 7, subsection 7, the amendment proposes the division act within 60 days rather than 6 months. Sixty days is not enough for us to perform an investigation. We ask to either keep it at 6 months, or not place any time limit to this act.
Mathematically, the assessment would require a minimum of 2000 registered sellers of travel. We are nowhere near this number. As drafted, it would be impossible to meet the minimum $200,000 threshold. We could lower the threshold or raise the registration fee. The bill is fundamentally flawed in its calculation.
Bonnie McDaniel:
I am the owner of Quick Trip Travel in Las Vegas. I have been in the industry since 1969. We support Assemblyman Carpenter’s bill. We have a few recommended changes to propose. In section 8, subsection 2, paragraph (c), the bill reads, “An injured person is not eligible … if … the seller of travel was not registered.” The two uses of “not” could cause a double negative in the language.
We ask that Internet and travel-club businesses licensed and doing business in our state be registered here. They directly solicit to the public through telephone calls. Travel agents do not directly solicit business.
We ask that each agency, as well as each individual travel agent, receive a permanent registration number. This would allow our registration numbers to be printed permanently on our printed correspondence, which would save us money.
Section 4 addresses the font type. We feel a 10-point bold type is sufficient for most people to read.
In section 7, we agree with the suggestion of an injured person filing a complaint within 6 months, rather than 4 years.
In section 7, subsection 4, paragraph (b), we feel 30 days is much more logical than 10 days for us to notify an injured party of a hearing. As travel agents, we are often traveling with groups and do not always get sufficient notice ourselves to meet the 10-day deadline. When this happens, we have to find a substitute to appear at the hearing for us, or to take our tours for us. These tours are contracted. This could cause a customer to complain they did not get the services for which they contracted.
We would also like to see the tour brokers and tour operators assessed the same fees we pay.
Lastly, for those of us in compliance, we ask to see an annual report. It would help us police our own industry, and would decrease fraud and misrepresentation. Please vote yes on this bill with the appropriate changes.
Chairman Townsend:
This bill will be discussed further in the subcommittee held on Thursday morning.
Tony F. Sanchez, Lobbyist, Las Vegas Monorail Corporation:
We proposed a list of seven amendments (Exhibit F). In addition, we agree the words “adequately” and “satisfactorily” are too subjective.
Rosemarie Hughey:
I am the owner of Go Vegas First Class. Since September 11, 2001, many businesses in our industry have closed. Travel insurance, which covers cancellations, baggage, medical needs, emergencies, evacuations, and more, has increased. I suggest every travel package exceeding $1000 should require a small insurance policy, normally a $35 fee. Once the policy is purchased, the consumer has recourse should something go wrong.
I also suggest we change the 4-year recovery period to 12 months. The contracts we enter into with the airlines state the travel is only good for 1 year from the date of purchase. We must comply with those contracts, and we cannot be responsible for products used past the viable dates. Nor can we be held responsible for 3 additional years of services, which we are unable to deliver.
Chairman Townsend:
We will close the hearing on A.B. 343, and open the hearing on A.B. 369.
ASSEMBLY BILL 369 (1st Reprint): Revises provisions governing trade practices between suppliers and dealers of certain equipment and machinery. (BDR 52-1059)
Assemblyman Thomas (Tom) J. Grady, Assembly District No. 38:
We have a bill with no opposition and no amendments. You could say this bill is the farm equipment dealer’s and supplier’s bill of rights. It is a joint effort by these two parties. We wish to thank the Legislative Counsel Bureau for their efforts on this bill. I will go through the bill briefly. Sections 1 and 2 are introduction sections. Section 3 defines a dealer. Section 4 addresses dealer agreements. Section 5 defines inventory. Section 6 addresses the net price. Section 7 addresses superseded parts and repair. Section 8 defines supplier. Section 9 discusses the dealer agreement. Section 10 addresses surplus parts. Section 11 deals with dealer responsibilities. Section 12 covers repurchase agreements. Section 13 deals with dealer reserves. Section 14 addresses the dealer’s rights. Section 15 talks about the repurchase of inventory. Section 16 covers the death of a dealer and transfer of business. Section 17 addresses supplier, dealer, and security investments. Section 18 covers the dealer’s rights for civil action. Section 19 covers warranty work. Section 20 covers liabilities, and section 21 covers the dealer agreement.
Nevada, Hawaii, and Alaska are the last states to enact this legislation.
Senator Carlton:
What is the purpose of this bill?
Steven Kost:
I am the executive director of the Far West Equipment Dealers Association. Back in the 1970s when there were mergers and acquisitions in the agriculture industry, there were multiple distributors in the same rural communities. Often, the surviving manufacturer would choose a certain dealer to give his business, and the rest would go out of business. This bill is in response to provide protection that was lacking then. Manufacturers want to treat Nevada dealers differently than other states.
Senator Hardy:
Are our dealers at a competitive disadvantage because other states have adopted this bill?
Ms. Kost:
No. The major-line manufacturers are not making an exception for Nevada, but they could.
Senator Hardy:
It seems to me we are trying to regulate what should be done contractually. What is the public-policy reason for us to get involved in this level of micromanagement?
Mr. Kost:
History shows us there is an existing confusion with the dealers regarding interpretation of manufacturer’s contracts and legal protections. We do not want our state to be treated differently because we lack this law.
Senator Carlton:
You have distributed a letter from John Deere (Exhibit G), stating A.B. 369 is supported with the proposed amendments. Are those amendments already in the first reprint of the bill?
Mr. Kost:
Yes. John Deere, Caterpillar, and Case New Holland are all involved in this language. We are not creating something new; we are merely trying to get fair treatment.
Senator Carlton:
How many people under the definition of dealer in section 3 would be exempt?
Mr. Kost:
There would be very few.
Assemblyman Grady:
Probably only Cashman Equipment Company would be exempt. They have been involved in this process, and it was their request to add the language, “Whose average annual sales are more than $10 million of inventory purchased from the supplier for the immediately preceding 3 years.”
Senator Carlton:
Why would they want to be exempted?
Assemblyman Grady:
I cannot speak for Cashman Equipment Company, but I think they had a concern being a single-line dealer with Caterpillar. They would rather deal directly with Caterpillar.
Chairman Townsend:
Are we being consistent with other dealer agreements? I have to compare these to automobile-dealer agreements, as it is my only frame of reference.
Assemblyman Grady:
Mr. Chairman, there is a big difference in the industries. There are numerous automobile dealers in just about every area. There may be ten farm-equipment dealers in our state. The farm equipment dealer’s biggest competition is not the other nine dealerships, but out-of-state dealers who sell equipment and do not pay sales tax.
Chairman Townsend:
I believe we have heard these same issues concerning boats and off-road vehicles. We will now close the hearing on A.B. 369, and open the hearing on A.B. 389.
ASSEMBLY BILL 389 (1st Reprint): Prohibits control of thrift companies by certain persons. (BDR 56-1099)
Assemblyman Jerry D. Claborn, Assembly District No. 19:
This bill closes a loophole in our state law allowing banks and commerce to mix. It puts us in compliance with federal law. It prohibits a person from acquiring control of a thrift company unless the person is engaged only in activities permitted for a financial holding company pursuant to federal law. Under certain circumstances, this may be a credit union.
There are only four thrift companies left in Nevada, all of which have been grandfathered into an amendment to this bill.
Craig Hudson:
I am the executive director of the Independent Community Bankers Association of America. I have a handout for the committee (Exhibit H). Our trade association represents 5800 community banks across the country. We represent 20 out of 28 state banks. This bill addresses a national issue. The federal government in Washington, D.C., is waiting for the outcome of this bill. They are asking if you, the Legislature, are going to allow a commercial firm, like Wal‑Mart, to slip through a legal loophole to buy industrial-loan banks or thrifts. This is a state separation between banking and commerce. This separation has been in place since the Great Depression to protect depositors’ money. Please vote for A.B. 389 and close this loophole to continue to protect the depositors’ money.
Allow me to read from a recent letter from Dr. Alan Greenspan, Chairman of the Board of Governors of the Federal Reserve System.
The Federal Reserve Board opposes mixing banking and commerce. This is not a simple matter of fairness that affects only a small number of grandfathered companies. Rather, mixing banking and commerce would alter the structure of banking in the United States, and be contrary to two important national policies that Congress reaffirmed recently in the Graham-Leach Bliley Act. One, prohibiting the mixing of banking and commerce, and the other, a federal prudential framework to assure that companies that own insured banks operate in a safe and sound manner.
I will also read from a recent letter from Paul Sarbanes, ranking member of the U.S. Senate Committee on Banking in Washington, D.C.
I have long supported the separation of banking and commerce as one of the foundations of the U.S. financial system. As Alan Greenspan, Robert Ruben, and Paul Volcker have pointed out, affiliations between federally insured banks and commercial companies pose great risks to the safety and soundness of our financial system. They distort credit decisions, and lead to concentrations of economic power that should not be permitted.
Mr. Hudson:
You may wish to consider the views of these respected financial leaders. When we mix banking and commerce, we bring two major entities together under a single holding company. The bank will continue to have the same regulations, but the commercial firm will not. What would have happened if Enron had owned a bank? As their assets weakened, they would have taken depositors’ money to strengthen those assets, until the entire institution fell. The depositors’ money would be lost. Taxpayers would end up paying the depositors back. This is the danger of mixing banking and commerce.
If we do not close this loophole, you will open a floodgate for large institutions such as Wal-Mart and Target to come here and buy thrifts, and then do business anywhere in the United States. This bill will stop commercial firms from purchasing industrial-loan companies.
Chairman Townsend:
What about someone who currently owns a thrift license and has a property‑right interest? Would you compensate these people if the bill passes?
Mr. Hudson:
Those people would be grandfathered.
Chairman Townsend:
That would help if they want to continue operating. What if they wish to sell their company?
Mr. Hudson:
They could sell to any financial institution, except for commercial firms.
Chairman Townsend:
How would you measure the loss in value of selling?
Mr. Hudson:
There are many who do not agree there would be a loss in value to these businesses.
Chairman Townsend:
The person selling a business may disagree. This is not addressed in the bill. You referenced the federal government in Washington, D.C., watching us. If so, it is probably regarding Yucca Mountain, or to stop sports books. That is their concern for Nevada. Why would this be important in Washington?
Mr. Hudson:
I spoke with a person at the Federal Reserve this morning. They want to see how you vote on this pivotal matter. Dr. Alan Greenspan is watching Nevada. At the national level, this issue has been debated, but the national policy is to prevent the mixing of banking and commerce.
Chairman Townsend:
Are we the first state to address this issue?
Mr. Hudson:
No. The state of California passed this legislation last year. The state of Colorado has passed legislation, but is waiting for the Governor’s signature. The states of Minnesota and Utah are currently considering this legislation. There are only four states that have thrifts.
Chairman Townsend:
How are those states dealing with a taking situation?
Mr. Hudson:
It has not been an issue in those states.
Chairman Townsend:
Has there been any litigation on this issue?
Mr. Hudson:
Not to my knowledge. The next testifier will address what has happened to the Asian and Japanese economy due to mixing of banking and commerce.
Denyette A. DePierro, Lobbyist, Independent Community Bankers of America:
Concerning the takings issue, when a property is valued, the valuation is considered speculative. To say value is lost or gained because one buyer may be precluded is not generally looked at as takings.
Dr. Alan Greenspan testified in front of the U.S. Senate Committee on Banking on June 17, 1998 regarding this issue. He stated:
The Asian crises has highlighted some of the risks that can arise if relationships between banks and commercial firms are too close. This demonstrates that interactions of complex structures can make it extremely difficult to monitor, analyze, and manage financial exposures.
He also states at the federal level, the regulation of mixing banking and commerce is extremely difficult.
Danny Thompson, Lobbyist, Nevada State American Federation of Labor‑Congress of Industrial Organizations:
We support this bill for the reasons just heard. In the Assembly, I listened to testimony from those opposing this bill. They said the State will regulate these arrangements and the public will be protected. The State was regulating the Harley Harmon Mortgage Company, and look what happened. There are only four states allowing this type of arrangement. When we look at Enron, WorldCom, and Harley Harmon Mortgage Company, we see a danger. While most companies in Nevada have done well so far, what will happen as other states do away with industrial banks? We will see a flock of companies, such as Wal-Mart come to Nevada and enter into this type of arrangement. This bill was amended in the Assembly to grandfather in those who currently own a thrift company, and those who have begun the application process. I do not think anyone will lose from this bill being passed. I think a huge potential for loss exists if this bill fails. We urge you to support this bill.
Barry Smith:
I am the president and chief executive officer of Nevada Bank and Trust. We have seven branches, and assets of about $80 million. A big banking concern is regulating the thrift unit, which does not fall under banking regulation. Standards must be rigid when dealing with the public’s money. As ours is a small bank, we are not a prime target. But once someone like Wal-Mart, the world’s largest retailer, takes over the big banks, these retailers will then begin taking over smaller banks. No competition would remain in the banking industry, except for other large retailers. We would lose control of these entities that do not fall under regulation. Thrifts would fall under Federal Deposit Insurance Corporation (FDIC) regulation, but its agency has a shortage of manpower. Let us remember the savings and loan issue, where the FDIC was expanded to save the industry. There were not enough regulators or money to accomplish this goal. If the federal government does not regulate thrifts, what power will the State have over them?
We have a fiduciary relationship with our clients. We are bankers, we live in the communities, and we know our customers. These thrifts do not belong in our state. Please vote yes for this bill.
Senator Carlton:
Since you are a banker, let me ask you a question. If Wal-Mart came into Nevada and bought a thrift, would you be concerned about information now available to that entity? What type of safeguards could I have as a customer to keep my banking information private? My mother passed away, and I have been working with several small banks. If these banks had been purchased by someone like Wal-Mart, how much access to my personal information would they have?
Mr. Smith:
The larger the corporation, the lower the odds are of keeping private information hidden. When Merrill Lynch wanted to enter the banking industry, this was a concern. I think we have to look at the motivation for a commercial company to want to enter banking.
Dennis Flannigan:
I am the executive vice president of the Great Basin Federal Credit Union. I think Senator Carlton’s question is valid. On the federal level, privacy issues designate that wholly-owned subsidiaries of a bank or a bank-holding company may be able to access information. This issue may need to be interpreted by law for the states that have thrifts.
Scott J. Watts, Lobbyist, Nevada Alliance for Retired Americans:
We strongly support this bill. I have a handout for the committee (Exhibit I). We represent over 5000 seniors and retirees in the state who are targeted by commercial corporations. In the past, these thrifts have used access to personal, medical, and financial records to build customer profiles, which then became their target market. Seniors with health problems, advanced age, and high-credit debt have been sold unneeded debt insurance. We need protection from thrifts that victimize the elderly.
Chairman Townsend:
What if Sears comes to Nevada, creates a holding company, and acquires a bank? This happens today. Why is a thrift any different?
Mr. Hudson:
The difference is the commercial corporation’s ownership of a bank, rather than just having a bank within a store. If Sears owned a bank, and I went into that bank to take out a large loan as a contractor, they could then agree to the loan only if I use Kenmore appliances from their store. This should not be a bank’s call. A bank should fairly allocate credit. Their only criteria should be whether a borrower can repay a loan.
Chairman Townsend:
When a bank gets a new customer, they want to know everything about the customer’s finances. They asked about any existing accounts, Certificates of Deposit (CDs), lines of credit, and business ventures of the customer. This is because they want all of the customer’s business, not just a part of it. How is a thrift any different?
Mr. Flannigan:
You used Sears as an example. They owned Allstate Savings in California. Toyota owns Toyota Motor Credit and General Motors has a banking company. These retailers have built-in loan centers. Our concern is not about loans. The concern is about access to the payment system.
There is a clarifying distinction between banks and financial institutions. Banks are subject to federal laws. They are owned by stockholders, and driven by a board of directors.
Chairman Townsend:
The difference between a thrift and a bank, then, is the State regulates the thrifts, while the bank is regulated federally?
Mr. Flannigan:
Yes. Do you agree with the distinction, Mr. Watts?
Mr. Watts:
Yes.
Chairman Townsend:
I sit on the board of a bank. I am a shareholder and a consumer. I am trying to understand the issue. Mr. Thompson brought up a concern, based on past experience, of the State not regulating a business well. Is this the underlying concern?
Mr. Hudson:
A thrift is a hybrid organization. It can perform all banking duties and also has full retail powers. It is not, however, subject to the Bank Holding Company Act, nor is it defined as a bank.
Chairman Townsend:
Do you think our consumers cannot understand the difference between a thrift and a bank?
Mr. Hudson:
It is difficult. A consumer would understand the difference in a higher interest rate, but they might not know one institution is defined as a bank and carries a different standard of regulation than a thrift.
Chairman Townsend:
How many community banks were in our state 10 years ago?
Mr. Hudson:
I would say there were 15 community banks.
Chairman Townsend:
I would say there were fewer then. Today, there are probably 30. Why? They exist because the public demands the service. They do not want to do business with big banks. Only multimillion-dollar customers seem important to the big banks. Big banks are highly lacking in customer satisfaction. Why do we want to preclude a service the public wants?
Mr. Hudson:
The issue is not consumer preference. The issue is the danger of mixing banking and commerce.
Chairman Townsend:
Where is the danger? I can get a Sears credit card. Is this any different than banking with Sears?
Mr. Hudson:
Yes, it is very different. Sears does not use depositors’ money because it is not a bank.
Chairman Townsend:
You used the example of having to buy Kenmore appliances to get a loan from a Sears thrift. Have you ever tried to buy something at Sears without using a Discover Card? They hound you until you apply for a card. Where is the difference?
Mr. Hudson:
I do not think that is a fair practice.
Chairman Townsend:
Fair or not, this happens. I have to look at the issue from the consumer’s point of view. They want service, convenience, and low prices.
Mr. Hudson:
This is why the bank is regulated, to protect the consumer, as well as to protect the depositors’ money. Thrifts do not have this protection.
Chairman Townsend:
If this is your point, do you wish to get rid of thrifts altogether?
Mr. Hudson:
I would like to see industrial-loan companies, or thrifts, become banks and be regulated under the same regulations. Under the Bank Holding Company Act, a commercial firm cannot purchase them.
Chairman Townsend:
I see your point. However, there are ways around that rule. The U.S. Department of Justice and its antitrust actions did not shut down Bill Gates of Microsoft. I just do not see the problem, or why Washington would be watching this bill.
Mr. Hudson:
This is a national policy, and we would hope it would become state policy.
Senator Shaffer:
If I had $100,000 in a thrift account, and $100,000 in a bank account, would the FDIC protect both accounts?
Mr. Hudson:
Yes it would. The FDIC protects thrifts as well.
Mr. Flannigan:
Serious problems with commercial firms owning banks include preferential and biased treatment in granting credit. For example, corporate executives receive preferential loans from the commercially-owned bank, and refuse credit to competitors of the commercial enterprise owning the bank. The temptation to commingle commercial and bank assets is great. We should not create a situation that tempts corporate officers to tap the resources of their banking units to save their business unit. The riskier operations of a commercial unit create a greater threat to safety and soundness of the banking unit, subjecting depositors’ money to greater risk. Thrifts are not subject to special capital requirements, reserve requirements, limitations on investment of funds, auditing procedures, or automatic safety triggers, allowing a series of increasingly intrusive measures by the financial regulators.
We should be worried about the consumer. The federal government and most states do not allow thrifts. It was never intended for Nevada to become the mecca for thrifts. If we do allow thrifts, then we should also allow banks to get involved in commercial business. However, we cannot, due to federal or state law. It is unfair and damaging to the existing financial institutions, whether credit unions or banks.
Senator Hardy:
If the issue is regulation, why do we not address regulation? We should first look at regulation before we look at shutting down thrifts.
Mr. Hudson:
We do not want to close existing thrifts. We do want to stop commercial firms from purchasing banks in the future. There are many financial institutions that can buy an industrial-loan company.
Senator Hardy:
You have testified thrifts are not appropriately regulated, so you would like them to close.
Mr. Hudson:
We are not saying the industrial-loan company is inappropriately regulated, because they come under FDIC regulation. Our concern is the impossible task of regulating a mixed commercial firm and a bank, such as the $291 billion Wal‑Mart Corporation. Whether a state or a federal regulator, the task of regulating such a big mixed industry would be impossible.
Senator Hardy:
We regulate Ford Motor Credit. Although it is a separate business from Ford Motor Company, we regulate it with some success.
Mr. Hudson:
The depositors’ money is not at risk with General Motors or Ford Motor Credit.
Chairman Townsend:
Why do we keep referring to Wal-Mart? Is it because they are the biggest retailer?
Mr. Hudson:
Wal-Mart was the primary opponent of this legislation in California.
Mr. Flannigan:
Mr. Chairman, Wal-Mart is addressed because they were trying to get a charter in California to allow thrifts. They indicated they were coming to Nevada next to fight this legislation. Wal-Mart is the largest retailer because they pay the lowest fees and they do not pay employee benefits. Their employee benefits sometimes come from state services. There are good business partners, and there are bad ones.
Chairman Townsend:
If you do not like Wal-Mart because they do not provide health benefits, you should fight against them doing any business in our state. Your position, however, is not to shut down Wal-Mart, but to keep them from purchasing financial institutions. Is Toyota exempt under this bill?
Mr. Hudson:
Yes, they are exempt. In an amendment to the bill, it provides a carve-out for Toyota.
Chairman Townsend:
Why is Toyota acceptable, but Wal-Mart is not? As a disclosure, I worked for Lexus for 6 years.
Mr. Hudson:
Toyota submitted a business plan to apply for a business license. They are not applying for full retail banking, but more for providing a finance company. The big issue is protecting depositors’ money.
Chairman Townsend:
The consumer may trust in the bigger names of Wal-Mart and Toyota for their banking needs, rather than an unknown who wants to start a thrift company. Consumers choose retailers by name every day.
Mr. Hudson:
If consumers have this type of selection, the companies they choose between should have the same regulations. Wal-Mart does not have the same regulations that banks have, because banks take greater risks. When a widow deposits money into the bank, she wants it to be insured. She does not want the institution to take risks with her money. She uses a bank account at a lower interest rate to protect her money from risk. Commercial enterprises must, by nature, take additional risks because of greater competition. Therefore, their regulations are decreased.
How can a regulator monitor, control, and supervise the commercial entity to protect the depositors’ money?
Chairman Townsend:
It seems you are here to argue against thrifts in general, and the regulation of thrifts.
Mr. Hudson:
We are not trying to eliminate thrifts. We are just trying to keep thrifts from being purchased by commercial entities in the future.
Chairman Townsend:
I think customers are highly sophisticated. Look what happened in the U.S. District Court’s Judge Henry Green case with MCI. Customers make decisions with their wallets, and they walk if they do not like what one company has to offer. Government has a role to protect customers when they cannot protect themselves. However, I feel in this case the customer has a right to have a choice in their banking needs.
Senator O’Connell:
I would like to state for the record my husband is an officer of a bank.
Donal Hummer Jr., Lobbyist, Harley-Davidson Financial Services:
Besides my position at Harley-Davidson Financial Services, I am also a director of Eagle Mark Savings Bank and Nevada Thrift. Harley-Davidson’s national operation is here in Carson City, with over 500 employees. We are the second largest employer in Carson City, after the State. I am here to testify against A.B. 389. If it passes with the proposed amendments, it would become unlawful for Harley-Davidson to operate its thrift in Nevada. Any future changes in our corporate structure, merger, acquisition, or any other change would require us to turn in our charter. We are part of a multinational corporation. We cannot live with these limitations, and would be forced to move our charter out of Nevada. Not only would this bill eventually cause all existing thrifts to close, it would also keep other finance companies from coming to the state.
I have listed and detailed several misconceptions of the bill in my handout (Exhibit J. Original is on file in the Research Library.). Allow me to name a few. Our thrift is not in competition with community banks. We finance motorcycles. We actually help community banks through our $20 million payroll to Nevada residents, who open community-bank accounts. We provide above-market jobs. We are heavily involved in the community. Our company is good for the Nevada economy. Thrifts bring diversity to our economy.
Thrifts are regulated exactly as a bank is regulated. In a letter from Donald E. Powell, chairman of the FDIC, to Senator William Bennett, he states, “It is the FDIC’s view that ILC Charters pose no greater safety and soundness risk than any other charter types.”
Lastly, the Graham-Leach Bliley Act did not establish a national policy to prohibit mixing of banking and commerce, nor did it establish a federal framework for holding-company regulations of companies that own FDIC-insured banks.
This bill is really intended to keep Wal-Mart out of a thrift. If you pass this bill, you might accomplish that, but you cannot keep them from obtaining a charter in another state. Constitutionally, you cannot draft a bill specifically targeting an individual entity. Please vote no on this bill.
Richard Cullen, Lobbyist, John Deere Capital Corporation:
I am the assistant vice president of operations for an affiliate of John Deere Capital Corporation. I have a handout for the committee (Exhibit K). We are a reputable company, serving our state for the past 33 years. Our parent company, John Deere, has been in business since 1837. We recently filed an application for a thrift company in order to enable John Deere to provide a broader offering of financial services, which includes the taking of retail deposits from its existing customers. We also plan to offer loans primarily to large rural farmers. John Deere has provided this service for years from a thrift in the Midwest. We expect our assets will exceed $100 million. If you pass this bill, it will hurt our economy. The amendment to this bill to grandfather in those companies that applied prior to December 31, 2002, puts us in a bad position, as we did not apply within this time frame. We do not support this bill.
Chet Curtis:
I am representing Economic Development Authority of Western Nevada. We are not in favor of A.B. 389, as we feel it will deter economic development and diversification of industry. Please note our handout (Exhibit L). We have worked aggressively to recruit high-quality companies to our state. We have successfully recruited financial departments of major Fortune 100 companies, such as Cisco, Microsoft, Intuit, Oracle, eTray, as well as the financial departments of John Deere, Harley-Davidson, and U-Haul. We are in the final stages of discussion with a major Fortune 500 company, which is projected at a $60 million initial impact on our economy. Their chief executive officer stated if this bill passes, they would not relocate to Nevada. We may lose existing companies. Thrifts are an integral part of key-consumer, financial-service operations that bring gold‑collared jobs to Nevada. The amendment to grandfather in existing thrifts does not provide enough motivation to keep these companies here, nor does it impact those companies considering relocation to our state.
Robert Barengo, Lobbyist, Western Thrift and Loan:
I am here today representing myself. I am a shareholder, director, chairman of the board, and secretary of Western Thrift of Nevada. We oppose this bill. I agree with Mr. Hummer’s comments. We should look at how Utah, previously a cash-poor state like Nevada, brought in thrift companies and made billions of dollars from deposits. Sears Roebuck and Company is a Utah thrift company. We lost that company, but we can learn from their example.
In reference to Washington, D.C., watching how we handle this bill, this issue was recently heard on the floor of the U.S. House of Representatives. It was stated there the thrifts have authority under existing laws to own limited‑purpose banks. This loophole is not a loophole, but a studied intent of Congress to allow thrifts to exist because they want states to allow the industry.
The amendment allowing the grandfather clause is a very limited one, allowing a thrift to stay in business, but not to expand or change. I have a handout for the committee (Exhibit M). The amendment has a preamble to a provision allowing the Federal Reserve Board to add to the list of companies who are doing financial business, any company they wish in concurrence with the treasury. If this bill with the amendment is passed, our state is delegating to the Federal Reserve Board who can be in the thrift industry.
The statute regarding credit unions owning a thrift company would be a major deviation from current state policy.
The filing date of December 31, 2002, seems insignificant. There has been no testimony to justify this date. This bill allows my company to stay in business, but not to acquire or change my business in any way. It states a natural person can only own 20 percent of a thrift. What is the purpose? This bill is badly written, both structurally, and from a policy standpoint. Please do not vote for this bill.
Philip LaChapelle:
I am the founding president and chief executive officer of Security State Savings Bank in Las Vegas. We are a FDIC-insured, city-chartered thrift. We have been in operation for 3 years. We have about $50 million in assets. We chose Nevada because it welcomed strong, well-run institutions. The proposed bill would change Nevada law that has worked well for almost 30 years. The strength of the banking industry, including thrifts, is the diversity of its charters, and strong regulatory oversight. We oppose the bill for the reasons listed in my handout (Exhibit N). I think the industry is regulated much more today than in the past. The previous testimonies discussing Enron and the effects of thrifts on Japan are scare tactics, and they oversimplify the issues.
In my handout under Tab A, I provided a comparison of our deposit rates for certificates of deposit and money market accounts, contrasting large banks, small banks, and credit unions. We are very competitive in our rates. About 80 percent of our deposit base is comprised of senior citizens. They reap the benefits of higher-interest rates and great service. They choose to do business with us for these reasons. About 10 percent of our retail deposit base comes from CDs, credit unions, and national banks. If we were such a threat to these entities, we would not have this deposit base.
For the record, credit unions do not comply with the Community Reinvestment Act (CRA). On the FDIC Web site for Nevada, two out of five listed under the category of outstanding CRA rating are thrifts. We are one of those. We are good corporate citizens. Thrifts can be good for the economy. An article in this week’s edition of Baron Magazine says Toyota is a global giant aiming for number one in the automotive industry. They are about to build an $800 million manufacturing plant in San Antonio, Texas. The economic impact to that community is large. Large companies like Toyota, Harley-Davidson, and John Deere can bring our state this growth.
Bernard Nebenzahl:
I am here on behalf of Security State Savings Bank. I am a California lawyer. I represent the trade association of California. This bill was not analyzed in the same manner in California. I see this Legislature more fully considering all of the issues. I commend you on the process I have observed.
I was in Washington, D.C., this weekend, and from my conversations with various members of Congress, I believe some of today’s testimony is misleading. Congress is considering amending provisions dealing with business interest on checking accounts and interstate branching. Those issues caused discussion over whether thrifts licensed here and in other states should be permitted the same authority. Senator Bennett, who was quoted earlier, is deeply devoted to diversity of banking on a level playing field. Donald E. Powell also said,
We do not believe that the potential for conflicts of interest is any greater for our ILCs [thrifts], than for the other FDIC-insured institutions operating in a holding‑company structure. For example, an ILC and its parent company are subject to the time restrictions of section 106 of the Bank Holding Company Act amendments of 1970. To the same extent as if the ILC were a ‘bank,’ and the parent company was a ‘bank-holding company.’
A bank is a defined term, under the Federal Deposit Insurance Act, and under the Bank Holding Company Bank.
For the purpose of deposit insurance and federal law under the Federal Deposit Insurance Act, thrifts are covered in the same manner as banks. This act incorporates restrictions on affiliate transactions and the capacity to examine parent companies and require reports, just as it does for commercial banks. The parent companies are subject to the same limitations. When these laws are violated, the bank personnel are subject to prosecution. With regard to the Bank Holding Company Act, the definition for a bank does not include thrifts. They were an exception. This was an intentional distinction to provide for diversity of a charter. The Graham-Leach Bliley Act reaffirmed this distinction, as Mr. Barengo testified.
I urge you, for public policy reasons, to vote no on this bill. This is an anti‑Wal‑Mart scare, and would destroy opportunities for responsible parties to own a thrift.
Larry G. Hickman, Deputy Commissioner, Division of Financial Institutions, Department of Business and Industry:
The financial institution is opposed to this bill. We have chartered 24 new whole-service commercial banks, all of which are profitable except the 3 newest ones. We have 15 new community banks with 24 new branches. There is no evidence to support thrifts adversely affect community banks.
Ray Masayko, Board Member, Nevada Commission on Aging, Aging Services Division, Department of Human Resources:
I am here to support the Harley-Davidson credit group. They represent $20 million to our local economy through high-paying jobs. We recruit these types of companies to our state. I would be unhappy to see Harley-Davidson leave our state in response to the passage of this bill. We need diversification.
Terry Sheridan:
I am the vice president of the Economic Development Authority of Western Nevada. I am here in behalf of Somer Hollingsworth, who is the President and CEO of the Nevada Development Authority. I have a handout for the committee (Exhibit O). We oppose the bill.
Chairman Townsend:
We will close the hearing on A.B. 389 and open the hearing on A.B. 420. We have a handout from the American Resort Development Association (Exhibit P). I was a long-time holder of a buy-and-sell license in Reno. I understand the problem of how some merchandise is inappropriately acquired. There are software programs to trace stolen items. In order for a businessperson to succeed in the industry, they would need to have a good relationship with the law enforcement agency.
ASSEMBLY BILL 420 (2nd Reprint): Revises provisions relating to secondhand dealers. (BDR 54-866)
Assemblywoman Valerie E. Weber, Assembly District No. 5:
I would like to introduce the bill, which will strengthen NRS 647 regarding dealers in secondhand materials (Exhibit Q).
Stan Olsen, Lobbyist, Las Vegas Metropolitan Police, and Nevada Sheriff’s & Chief’s Association / South:
We support A.B. 420. Recently a member of the Legislature was burglarized. Their property was taken to a secondhand dealer where it was immediately placed for sale. We were only able to recover 3 out of 40 pieces. Currently there is little regulation to control the immediate sale of items. The company was not a part of the antitheft ring; they simply bought and sold antique jewelry.
Alfredo Alonso, Lobbyist, Superpawn:
We support the bill. The fingerprinting and licensing requirements already exist in Clark County. We are now taking these requirements statewide.
Mary Lau, Lobbyist, Retail Association of Nevada:
We support the bill. Several of our members are pawnshops. We feel this bill will help in the recovery of stolen merchandise.
Senator Schneider:
I understand there are 187,000 people make a living on eBay in our country. If I were a thief, I would sell merchandise on eBay. Are there any security measures in the future for eBay?
Mr. Olsen:
You have mentioned a bigger problem which will take federal legislation and increased technology to solve.
Mr. Alonso:
Superpawn has an extensive database and they continue to update it. In the future we are looking at a database of stolen property, so customers can look up the item of interest before purchasing it, to make sure it was not stolen.
Chairman Townsend:
Do I have a motion on A.B. 420?
SENATOR O’CONNELL MOVED TO PASS A.B. 420.
SENATOR SCHNEIDER SECONDED THE MOTION.
THE MOTION CARRIED. (SENATOR NEAL WAS ABSENT FOR THE VOTE.)
*****
Chairman Townsend:
We will close the hearing on A.B. 420 and reopen the hearing on A.B. 143.
SENATOR O’CONNELL MOVED TO AMEND AND DO PASS A.B. 143.
SENATOR CARLTON SECONDED THE MOTION.
THE MOTION CARRIED (SENATOR NEAL WAS ABSENT FOR THE VOTE.)
*****
Chairman Townsend:
I adjourn this meeting at 10:45 a.m.
RESPECTFULLY SUBMITTED:
Makita Schichtel,
Committee Secretary
APPROVED BY:
Senator Randolph J. Townsend, Chairman
DATE: