SENATE Committee on Commerce and Labor
MINUTES OF THE
Seventy-second Session
May 28, 2003
The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 8:00 a.m., on Wednesday, May 28, 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 David E. Goldwater, Assembly District No. 10
Assemblywoman Sheila Leslie, Assembly District No. 27
STAFF MEMBERS PRESENT:
Scott Young, Committee Policy Analyst
Kevin Powers, Committee Counsel
Lynn Hendricks, Committee Secretary
Maryann Elorreaga, Committee Secretary
OTHERS PRESENT:
Doug Walther, Chief, Office of Business Finance and Planning, Department of Business and Industry
Leo Davenport, President, Nevada Mortgage Brokers
James L. Wadhams, Lobbyist, Mortgage Bankers Association of Nevada, and Nevada Independent Insurance Agents
Alice A. Molasky-Arman, Commissioner, Division of Insurance, Department of Business and Industry
Samuel Sorich, Lobbyist, National Association of Independent Insurers
Joseph Guild, Lobbyist, State Farm Insurance Companies
Raymond Badger, Jr., Lobbyist, Nevada Trial Lawyers Association
Ann W. Nelson, Lobbyist, Employers Insurance Company of Nevada
Nancyann Leeder, Nevada Attorney for Injured Workers, Department of Business and Industry
Chairman Townsend opened the work session on Assembly Bill (A.B.) 490.
ASSEMBLY BILL 490 (2nd Reprint):Makes various changes relating to escrow agencies, mortgage brokers, mortgage agents and mortgage bankers. (BDR 54-998)
Senator O'Connell said, for the record, her son was a mortgage broker and her husband was affiliated with a bank.
Chairman Townsend said he was a shareholder and a member of the board of a bank.
Assemblyman David E. Goldwater, Assembly District No. 10, presented the bill. He said the proposed amendment revised provisions regarding the regulation of mortgage brokers and agents. It removed provisions related to registration of mortgage agents, but retained provisions, which required licensure of agents. It required mortgage agents to be affiliated with only one mortgage broker at a time, provided for the creation of the Division of Mortgage Lending and a Commissioner of Mortgage Lending. The bill amended Nevada Revised Statutes (NRS) 645E.090 to define licensees as "mortgage bankers." He said the amendment provided for licensing and regulation of companies which were previously exempt. Assemblyman Goldwater said he was confident the bill would pass and the new agency would be established.
Senator Carlton asked why the terminology had been changed.
Assemblyman Goldwater said the changes occurred because regulatory powers would be taken away from the Division of Financial Institutions and given to the newly created agency.
Senator Carlton said she understood the amendment to mean what used to be a mortgage company would become a mortgage banker, which would be the more traditional banking style and a broker would be someone who used their own money on a speculative basis.
Assemblyman Goldwater said the regulations would be directed toward individuals who solicited investments or did not use their own money for loans.
Chairman Townsend asked for clarification regarding the liability of spokespersons as noted in section 25, subsection 1, and asked if the liability would apply to all spokespersons or just to someone with celebrity in another arena.
Assemblyman Goldwater said the amendment imposed joint and several liability for anyone who acted as a spokesperson for a mortgage company; if that person knew or should have known of fraud, embezzlement, and so forth perpetrated by the mortgage company. He said the "knew or should have known" standard would apply to any spokesperson.
Doug Walther, Chief, Office of Business Finance and Planning, Department of Business and Industry, referred to a document that listed information provided for Assemblyman Goldwater's consideration in amending A.B. 490 and A.B. 492 (Exhibit C).
ASSEMBLY BILL 492: Provides for regulation of mortgage bankers. (BDR 54‑470)
Chairman Townsend asked if the budget necessary to establish a new agency had been worked out. Assemblyman Goldwater said the budget had been thoroughly examined and all details had been worked out.
Leo Davenport, President, Nevada Mortgage Brokers, said he was confused by the definitions of a "mortgage banker" and "exempt company" contained in the bill. He said a mortgage banker was an organization that funded with its own money and had its own employees. Mr. Davenport said there were only five such companies in the United States and none of them operated in Nevada. He said mortgage bankers and mortgage brokers conducted business in the exact same way. The only difference was mortgage bankers could hire convicted felons but mortgage brokers could not. He said that is why the exemptions should be eliminated.
Chairman Townsend asked if the exemption language was in the bill.
Kevin Powers, Committee Counsel, said:
It's actually in the bill in two places. Section 36 amends NRS 645B.015 and the actual exemption is in subsection 6. Chapter 645B of the NRS applies to mortgage brokers. Those who broker money between lenders and borrowers. The exemption applies to those mortgage brokers, thereby exempting companies that fit into subsection 6 from having to be regulated pursuant to the chapter. The other page is page 29. That's section 54, which amends NRS 645E.150. On page 29, line 31, you'll find the same exemption with the same amendment.
Chairman Townsend asked what the difference was between an individual who brokered a loan and a mortgage banker who would lend their own money but then sell the loan on the open market.
Mr. Walther said from a practical standpoint it was riskier to deal with solicitations of unsophisticated investors. If one was dealing solely with their own capital and just selling the note, there were built-in protections.
Chairman Townsend said Assemblyman Goldwater's efforts were commendable and asked him what his thoughts were on the exemption. Assemblyman Goldwater said he thought the exemptions should be repealed but felt it was too late in the session to address that issue. He said to do so would hold up the processing of the bill.
Chairman Townsend asked that Mr. Powers draft an amendment, which would remove the exemption.
Mr. Davenport said people who do not deal with the public could remain exempt.
James L. Wadhams, Lobbyist, Mortgage Bankers Association of Nevada, and Nevada Independent Insurance Agents, said section 54 dealt with the so-called exemption. He said the entities listed in subsection 1 were subject to other financial and audit requirements. He said there were three levels of activity involved. Those who solicit funds from citizens; brokers who specifically solicited applications but did not lend money; and direct lenders, which were subject to the stringent financial and audit requirements he had mentioned earlier. He said if equality of regulation was the goal, mortgage brokers should be subject to the same requirements as mortgage bankers. Mr. Wadhams said mortgage bankers loaned their own capital and then placed those loans into the secondary market. They were an important source of capital. He said he thought the problem stemmed from the net branches, which should not have been allowed an exemption under the NRS. Suggested language, submitted to the Assembly, would deal with the problem without unnecessary redundant regulation of mortgage bankers.
Senator Hardy asked if there were actual redundancies in the regulations.
Mr. Wadhams said if the exemption were left as it was, redundant regulations would not occur. He noted section 56, subsection 3, required each officer and director of national corporations had to file as part of an application. Section 60 required fees for the application for or renewal of a license. For entities, which were already required to have a $2 million net worth, the fee seemed to be more of a tax. Mr. Wadhams said section 63 required all complete records of all mortgage transactions at the location where the mortgage banker conducts business. He said that requirement would impede access to the secondary market, which could be a critical problem in a capital-poor state such as Nevada. He said regulating those who would solicit citizens' funds and those who would assemble applications and broker them to lenders was appropriate. To take from the exempt category just one type of lender would not be consistent with the committee's policy. He said addressing net branches would take care of the problem.
Senator Carlton asked for an explanation of Mr. Wadhams' statement that the application fee was really a tax.
Mr. Wadhams said a fee was to offset costs. If it raised revenue beyond that, it was a tax. He said the $1500 application fee may be more than was necessary to cover the clerical costs of registration.
Senator Carlton said the Board of Medical Examiners had issued refunds when it was determined they had more funds than were needed for court cases and attorney generals' fees, and so forth. She said that would not be viewed as the board imposing taxes on doctors.
Mr. Wadhams said when that occurred, the board reduced fees because too much money had been collected.
Chairman Townsend closed the work session on A.B. 490 and opened the work session on Senate Bill (S.B.) 319.
SENATE BILL 319 (4th Reprint): Makes various changes to provisions regulating insurance. (BDR 57-599)
Alice A. Molasky-Arman, Commissioner, Division of Insurance, Department of Business and Industry, said section 1, subsection 7, had been changed from, "A policy that is not subject to taxation pursuant to NRS 680B.025." to, "A policy issued to a person who is not a resident of this state." She said the language would exclude from counter-signature a policy issued to a person not a resident of Nevada. A counter-signature was a consumer-protection tool, which ensured policies complied with Nevada law. She said the language needed to be changed back.
Assemblywoman Sheila Leslie, Assembly District No. 27, said insurance companies were using credit reports for setting insurance rates. She said there had been a lot of testimony given, on both sides, regarding the validity of using credit reports for the purposes of establishing insurance rates. She said the intent of A.B. 319 was to recommend adoption of the National Conference of Insurance Legislators (NCOIL) model act regarding use of credit information in personal insurance language. She said section 10, subsection 8, paragraph (f), went beyond the NCOIL language and there had been some objection to the provision because it would be difficult to determine if there were "extraordinary circumstances" involved just by reading a credit report. Assemblywoman Leslie said she would be willing to have that section taken out because it was not NCOIL language. She said consumers were allowed to annotate their credit reports, although many people were unaware they could and the process could be difficult and time consuming. She said it would be unfair for someone to have to pay higher insurance premiums because of a financial problem beyond their control.
Chairman Townsend asked for a copy of the NCOIL document to be distributed to the committee.
Senator O'Connell said she thought the provision in paragraph (f) was an important part of the bill. Since Nevada was a community property state, parties to a divorce could have their credit rating affected by the debt of their spouse. Assemblywoman Leslie said she would like to have the provision remain in the bill if it could be made acceptable.
Chairman Townsend suggested section 10, subsection 8, paragraph (f), include language, which addressed a consumer-annotated report. He also suggested the attorney general's office should develop a public information campaign on credit reports.
Assemblywoman Leslie said that was an excellent suggestion and she would follow up with the attorney general's office. She said the average consumer did not know how the insurance industry used credit reports.
Samuel Sorich, Lobbyist, National Association of Independent Insurers, said the NCOIL model had been adopted by nine states. He said NCOIL is good, tough regulation. Mr. Sorich said section 10, subsection 8, paragraph (f), was not in the NCOIL model and would prevent insurance companies from using credit reports. An insurance company would have no way of knowing if an item on a credit report reflected extraordinary circumstances. He said the provision would lead to inconsistencies and lawsuits because the insurance companies would be accused of considering items that reflected extraordinary circumstances.
Joseph Guild, Lobbyist, State Farm Insurance Companies, said he would support the bill if the NCOIL language were used.
Mr. Wadhams said he would like to either see the second reprint language used in section 1 or the entire section deleted.
Raymond Badger, Jr., Lobbyist, Nevada Trial Lawyers Association, said there was an error in the bill. He referred to sections 18 and 19 and said, "as determined by" should read "at the discretion of the hearing officer." He said the correct language was in the work document but was not in the fourth reprint of the bill.
Chairman Townsend asked how the error occurred. Kevin Powers said, "I don't have any insight to exactly what occurred."
Ann W. Nelson, Lobbyist, Employers Insurance Company of Nevada, said she had discussed the matter of the error with Mr. Badger. She said he was correct the agreed-to language was, "at the discretion of the hearing officer."
Nancyann Leeder, Nevada Attorney for Injured Workers, Department of Business and Industry, said she agreed with the language.
Chairman Townsend said the issues to be considered were section 1, subsection 7; section 10, subsection 8, paragraph (f); and the wording "at the discretion of the hearing officer." He said the committee needed to vote to not concur so the bill could be processed.
SENATOR HARDY MOVED TO NOT CONCUR WITH AMENDMENT NOS. 884 AND 904 TO S.B. 319.
SENATOR O'CONNELL SECONDED THE MOTION.
THE MOTION CARRIED. (SENATOR NEAL WAS ABSENT FOR THE VOTE.)
*****
There being no further business before the committee, Chairman Townsend adjourned the meeting at 9:53 a.m.
RESPECTFULLY SUBMITTED:
Maryann Elorreaga,
Committee Secretary
APPROVED BY:
Senator Randolph J. Townsend, Chairman
DATE: