Legislature(2003 - 2004)
02/02/2004 03:25 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 339-TRADE PRACTICES CHAIR ANDERSON announced that the next order of business would be HOUSE BILL NO. 339, "An Act relating to negative option plans for sales, to charges for goods or services after a trial period, and to acts that are unlawful as unfair trade practices." Number 0985 REPRESENTATIVE KEVIN MEYER, Alaska State Legislature, sponsor, explained that HB 339 does two things. He said: First of all, it's going to make it clear and concise when a business uses either free trial practices or negative option marketing practices. It's going to require that the seller make it clear and disclose all the material items and conditions of a free trial period. ... Any consumer obligations that are required will be clear and will be known by the consumer. The seller is going to have to describe, in detail, all the charges that are going to be made after the ... free trial period, and how these charges are calculated, and how they are going to be paid. Bottom line: the seller may not charge a consumer for a good or service that was provided under a free trial period unless the requirements ... have been made [and] satisfactorily are met by the business. And there's a list of all those requirements ... in the bill itself for this free-trial-period plan. Number 1200 REPRESENTATIVE MEYER continued: The second part ... of this bill has to do with negative option plans. And they're defined as a type of arrangement where a seller provides goods or services to someone who doesn't necessarily want them or order them, but you just receive them. And then it requires you to take a proactive position to ... say, "I don't want these," or to stop the payment. Some businesses have used this; they see this as a successful method to get their product out there to various consumers because, frankly, we're all busy. A lot of us have two, three jobs, kids, and we get something in the mail, we go, "OK, I don't really want this, but it's only 24 bucks; I'm going to keep it." And that's what they're ... hoping for, is that you don't send it back. REPRESENTATIVE MEYER highlighted the unfairness of putting the burden on consumers to take action to get rid of something that they don't necessarily want or order. And it can be very costly, he noted, citing an example when he was charged $8 a month and was unable to recover the money from a travel agency. He continued: This bill prohibits the use of a negative option plan unless certain disclosures, again, are made to the consumer, ... and those disclosures are listed in this bill too. And what this bill does is, it aligns Alaska Statutes more closely to the federal statutes and the federal rules dealing with negative-option marketing. And it removes any uncertainty in our statute of what role and responsibility business has in protecting a consumer, so when people are doing business up here, it will be clear as to what they can and can't do. Number 1217 REPRESENTATIVE MEYER indicated the Department of Law had worked closely with him on this, and noted that Mr. Sniffen would testify via teleconference. Referring to the proposed committee substitute (CS), he said the changes are fairly minor. Number 1239 REPRESENTATIVE GATTO moved to adopt the proposed CS, Version 23- LS1265\I, Bannister, 1/29/04, for discussion purposes. CHAIR ANDERSON announced that [Version I] was before the committee for discussion purposes. In response to members' requests, he said [the committee aide] would distribute copies. [Chair Anderson called on Mr. Sniffen, but there was no response.] Number 1319 REPRESENTATIVE DAHLSTROM said she thinks this is important, especially for people who don't understand the system or vulnerable, older Alaskans. She noted that when she'd had to deal with this kind of a situation personally, the burden of proof was always on her to make phone calls, write letters, and so forth. REPRESENTATIVE MEYER agreed that the elderly are probably the most vulnerable to these marketing techniques. He said he believes this bill will clarify what is required for the State of Alaska. He added that [the Department of Law] can go after in-state offenders, and for out-of-state ones, federal statute could be used as well. REPRESENTATIVE ROKEBERG referred to Section 1 of the original bill and said there seems to be a significant change in Version I with regard to prohibiting free trial periods. He expressed concern as a small-business owner, and asked whether reaching into one's pocket and giving someone a free pass to a gymnasium would be subject to this, for example. Number 1429 SUZANNE CUNNINGHAM, Staff to Representative Kevin Meyer, Alaska State Legislature, responded, "No." She paraphrased [Version I] subsection (e), page 2, beginning at line 13, which read: This section does not apply to a seller who offers, promotes, advertises, or otherwise gives a consumer goods or services for free if the seller does not impose any obligations on a consumer who accepts the free goods or services. MS. CUNNINGHAM remarked, "So, if you were to give myself a free pass to your gym, and if there's no obligation that I join the gym or pay $15 when I walk in the door, then this does not apply to it." Number 1500 CHAIR ANDERSON asked about AOL [America Online, Inc., an Internet service provider], which costs perhaps $30 a month and yet stores give away [compact disks that provide] the first 500 hours free. He said he doesn't use 500 hours a month, and noted that AOL didn't give him free hours when he signed up. He asked whether this bill would affect that, or whether it's more of a federal issue, since [AOL] transcends all states. MS. CUNNINGHAM said she believes it would be more of a federal issue, but deferred to Mr. Sniffen to answer that. REPRESENTATIVE GATTO expressed a negative opinion of businesses that say they're giving a free month of a good or service, but not until the third month, after the consumer has paid for the first two months. REPRESENTATIVE MEYER noted that he'd been relying on Mr. Sniffen [who wasn't available on teleconference yet] to answer some of these questions. He added that as long as it's disclosed and in writing, and the consumer is fully aware of what he or she is signing up for, the foregoing situation would be fine. Number 1638 REPRESENTATIVE GATTO asked whether this will absolutely prevent having a company provide something like a phone service without the consumer's positive assent. REPRESENTATIVE MEYER said yes. REPRESENTATIVE DAHLSTROM noted with regard to communications, there was a specific ruling related to that. She added that the Regulatory Commission of Alaska (RCA) determines those issues with that industry. REPRESENTATIVE GUTTENBERG asked if undisclosed balloon payments are covered under HB 339, such as when a person buys a television and the interest is deferred. REPRESENTATIVE MEYER responded that the consumer would have to sign a written consent and clearly accept terms; the onus would then be on the business to prove it had disclosed the terms to the customer, and have this proof in writing. Number 1728 CHAIR ANDERSON, in the absence of testimony from Mr. Sniffen, directed the committee to pages 1-2 to discuss whether there was discomfort with the [disclosures]. He said he was comfortable with paragraphs (1) through (4), which read: (1) any obligation by the consumer to purchase a minimum quantity of goods or services after the free trial period ends; (2) a description of all charges that will be made after the free trial period ends and how those charges will be calculated; (3) whether any charges for goods or services will include postage; (4) any other obligations the consumer assumes by accepting or using the goods or services within the free trial period. Number 1756 REPRESENTATIVE ROKEBERG asked for verification that Section 1 relates only to consumer goods or services, rather than, for example, free rent for an apartment rental. REPRESENTATIVE MEYER said that was his understanding. [Representative Rokeberg deferred an additional question until after Mr. Sniffen testified.] Number 1785 CLYDE (ED) SNIFFEN, JR., Assistant Attorney General, Commercial/Fair Business Section, Civil Division (Anchorage), Department of Law, informed members that in spite of technical problems, he'd listened to the previous discussion. He said the department has been working closely with Representative Meyer's office to come up with the language in the bill, and it's intended to address a lot of the issues being discussed by the committee. He continued: We did have some problems last year with one of the utility companies trying to get consumers to agree to pay for services that they had no idea they were paying for, through a negative option plan. And it was our position that, essentially, consumers should never have to pay for anything that they don't ask for. You shouldn't just have luggage show up on your doorstep and you get to keep it, if you want it; if you don't want it, send it back. And that's what this bill does: it prevents that exact kind of thing. Some of these other issues I heard the committee discuss relating to ... "buy three months, get one month free," other types of offers, might be a little outside the scope ... of this bill. This bill really targets two specific types of conduct: the free trial period, which is, ... "Have this merchandise for 30 days and if you like it, keep it and we'll bill you." Or another sort of twist on that is, "Try our cable for 30 days, and if you decide to watch a movie on this premium channel, then you're automatically signed up for that unless you call us and tell us you don't want it." That's sort of a mix of a free trial period along with a negative option plan. ... The target of this kind of legislation is really ... the bigger utility companies and national chain stores who might already have your business. You already have cable, you already have phone service, and they want to get you to sign up for additional services that they offer that you may or may not actually want. And a lot of these are small-dollar things that consumers just won't blink an eye about. ... It's $2 a month; it's $4 a month. ... You get a notice with your billing: "Oh, by the way, we've decided to sign you up for this extra ... voice calling plan, and if you don't want it, you have to tell us." And we think federal legislation prohibits that. Number 1877 MR. SNIFFEN continued: We have some consumer protection language in our current consumer protection Act that probably prohibits that, but it's not nearly as clear ... as this bill. So we certainly support this, and see a need for it in Anchorage. And I don't think it imposes an incredible burden on businesses at the same time. MR. SNIFFEN concluded by saying it's simply a disclosure type of legislation, with the need to get the consumer's consent beforehand. Number 1908 REPRESENTATIVE GUTTENBERG referred to page 1 [lines 10-11], "shall clearly and conspicuously disclose all material". He also referred to page 2 [lines 7-8], "The form for the written consent must be prepared by the seller". He asked if there is any standard for the form in terms of format and clarity. MR. SNIFFEN said that's an excellent question. The language in the bill just requires it to be "clear and conspicuous", which he surmised would be on a case-by-case basis. He noted that there aren't any definitive standards as to the size of the type, for example, but said "clear and conspicuous" gives a little more room to look at the circumstances. He cited auto dealers as an example, and suggested that most people know what "clear and conspicuous" is. Number 2010 REPRESENTATIVE ROKEBERG paraphrased the first sentence of Section 1, subsection (c), which read: Before offering, promoting, advertising, or otherwise giving a consumer goods or services for a free trial period, a seller shall obtain express written consent from the consumer to the free trial period. REPRESENTATIVE ROKEBERG asked how that would be done in a general advertising campaign. He inquired, "Are you making the assumption that the consumer would send for, or consent to, the free trial period concurrent with the offers to accept the free trial period?" MR. SNIFFEN said it's an excellent question. Noting that he was reading it as Representative Rokeberg was, he suggested rewording would be possible. He added: I think what you're suggesting is a business should be able to run an advertisement that said, "Come on into our store and sign up for a free 30-day trial period." And you shouldn't have to get written permission from a consumer to run that ad. I understand that concern, and there may be a way we can rework that language a little bit to clarify that. MR. SNIFFEN suggested a possible solution for subsection (c) purposes only, to say "before offering or giving a consumer" and then delete the "promoting or advertising" language. REPRESENTATIVE ROKEBERG referred to advertising, subsection (b), and the "for disclosure" language. He asked about fine print. MR. SNIFFEN responded, "It would just need to be clear and conspicuous, and if we saw something in ultrafine print that required a magnifying glass to read or understand, we would consider that to be a violation." Number 2130 REPRESENTATIVE ROKEBERG said he thought it important that this be clear. He said the committee doesn't want to remove legitimate, free opportunities for the consumer. Number 2150 MR. SNIFFEN, in response to Chair Anderson, offered conceptual language to be substituted in subsection (c), page 2, line 5, along with an explanation: Remove the terms "promoting and advertising" from that line, so the ... section would read "before offering or otherwise giving a consumer goods or services", and then continue with that paragraph. That would at least allow advertising for a free trial period, in a certain manner, before the consumer would have to enter into a written agreement. Number 2183 REPRESENTATIVE ROKEBERG moved that the foregoing be adopted as Amendment 1. Number 2185 REPRESENTATIVE DAHLSTROM objected for purposes of discussion and asked the sponsor to comment. REPRESENTATIVE MEYER agreed with Amendment 1, but noted that it might also apply to page 1, line 9. MR. SNIFFEN said he didn't believe it would harm the legislation to make that change as well. REPRESENTATIVE ROKEBERG said he wasn't certain about doing the same amendment there, however, because of the desire to make sure that the promotion and advertisements still have some sideboards. He suggested a need to look at it. Number 2223 REPRESENTATIVE CRAWFORD began discussion of what later became Amendment 2. He proposed that changing "before" to "when" would make more sense. He asked how those things would be provided before advertising. MR. SNIFFEN responded: I don't know that there's really a semantic difference between "before" and "when" offering. The intent, I think, of the legislation here is to say, "Before you engage in this kind of activity, we want to give these kinds of disclosures to the consumer." ... If you say, "Before you advertise, for example, you have to do these things," I think Representative Crawford is correct: it would happen at the same time as the advertisement, or the advertising would include these kinds of disclosures. And I read this to mean that, but I can see how a different reading could mean something different. REPRESENTATIVE MEYER said he thought that if the recommendations that Representative Rokeberg had proposed were made, Representative Crawford's concerns would be rectified. He asked whether Amendment 1 needed to be made in both subsection (b), page l, and subsection (c), page 2. MR. SNIFFEN referred to the proposed changes in subsection (b), page 1, line 9, and remarked that removing "promoting and advertising" would allow a seller to advertise or offer, even though [the consumer] would be required to go into the store to find out more details. He added: But when you actually went into the store and actually signed up for the deal, before you signed on the dotted line, [the business] would have to make the disclosures, as required, under this statute. It really is a policy call on whether you want the advertisements to include the conditions of the offer, or are you going to let the advertisement bait the consumers into the store, and then - when they actually sign on the dotted line - have that document disclose the terms of the offer. MR. SNIFFEN recommended that the advertisement at least contain some elements of the offer so people aren't being lured into the store when they wouldn't have gone if they'd known the details. He said that's the main difference he sees in having that language in subsection (b), as opposed to having the "promoting and advertising" language on page 2, line 5, subsection (c). Number 2370 CHAIR ANDERSON asked if there was any objection to adopting Amendment 1, deleting "promoting and advertising" from page 2, line 5. There being no objection, it was so ordered. REPRESENTATIVE ROKEBERG agreed with Representative Crawford on the use of "before" in subsections (b) and (c). TAPE 04-7, SIDE B Number 2385 REPRESENTATIVE ROKEBERG commented, "You couldn't have 'before' and 'concurrent' or 'concurrently'. ... Maybe 'when' would be better." CHAIR ANDERSON asked Mr. Sniffen whether that makes sense to have "when offering" on page 1, line 9, and on page 2, line 5. MR. SNIFFEN said he didn't see any problems with it. Number 2357 REPRESENTATIVE GATTO proposed perhaps substituting "after offering". MR. SNIFFEN countered that it might allow too much leeway to the prospective sellers to make a pitch and trap the consumer. He restated the bill's purpose: to bring disclosures out before a consumer is obligated to do anything. REPRESENTATIVE GATTO asked about "upon offering". MR. SNIFFEN agreed this would work, or "when offering" would also work. Number 2311 CHAIR ANDERSON interpreted Amendment 2 from Representative Crawford's previous suggestion: On page 1, line 9, and on page 2, line 5, delete "before" and insert "when". CHAIR ANDERSON asked whether there was any objection to adopting Amendment 2. There being no objection, it was so ordered. Number 2291 REPRESENTATIVE ROKEBERG referred to [Section 1] subsection (b), paragraphs (1) to (4). He asked whether it's correct that when [a business] is advertising, these terms must be in the advertisement. MR. SNIFFEN emphasized the need to address the four [paragraphs] of subsection (b). Although there are no specific terms, he said the material terms need to be included in some clear and conspicuous way in the offer. In further response, he said, for example, that if the charges for the goods or services required paying for postage to receive them, there could be some disclosure that the offer doesn't include free postage, or that the consumer is responsible for those charges. REPRESENTATIVE ROKEBERG noted that [paragraph (3)] says "whether any charges will be included", not "if". MR. SNIFFEN agreed, suggesting either could be used. In further response, he said this language comes straight from the federal statute that is very similar to HB 339. He added: However the seller wants to address that postage - if there isn't any, sometimes silence can be confusing. But to say that the offer includes all postage and handling charges, for example, here in Alaska, that could be important because that could consume a large part of the cost of the goods or service. ... Of course, it's up to the committee if you want to only have to disclose that if there is an obligation on the consumer, or ... you can let it be silent if there is not an obligation on the consumer. That would be the effect of changing ... the word "whether" to "if". Number 2202 REPRESENTATIVE GATTO began discussion of Conceptual Amendment 3. He asked Mr. Sniffen whether "postage" is too focused, since there are different ways of transporting goods. MR. SNIFFEN said that's an excellent point and that he'd not object to amending that to just say "includes shipping charges". REPRESENTATIVE ROKEBERG suggested "shipping and handling". Number 2165 REPRESENTATIVE GATTO moved to adopt Conceptual Amendment 3: On page 2, line 2 [paragraph (3], delete "postage" and insert "shipping" or "shipping and handling". CHAIR ANDERSON announced that it would be "shipping and handling". He asked whether Representative Meyer objected. REPRESENTATIVE MEYER said he had no objection. CHAIR ANDERSON asked whether there was any objection to adopting Conceptual Amendment 3. There being no objection, it was so ordered. Number 2146 REPRESENTATIVE ROKEBERG reiterated Representative Guttenberg's issue with small print, and asked Mr. Sniffen if there are regulations on this issue. MR. SNIFFEN said there are no regulations on the size of print, although the [department] could certainly adopt some. The requirement under this language is simply that it must be clear and conspicuous, which could be dealt with on a case-by-case basis. He added that "clear" and "conspicuous" have been judicially defined in a variety of circumstances, and suggested the department could probably "make a run" at violations dealing with small print. Number 2111 REPRESENTATIVE GUTTENBERG asked if there were any issues concerning interstate commerce. MR. SNIFFEN responded that he didn't believe so and remarked, "We don't have a problem here with a lot of outside companies engaged in this practice." As an example, he cited Borders Bookstore in Anchorage and explained: Well, Borders is a national chain, and they're subject to a lot of federal regulation. And to the extent ... they are complying with the federal regulation, nothing in our statute here ... would change that. So I don't think there's a burden on interstate commerce through this language, that doesn't already exist through other federal statutes. CHAIR ANDERSON asked whether anyone else wished to testify. He then closed public testimony. Number 2049 REPRESENTATIVE DAHLSTROM recalled stating an objection [to adopting Version I] and removed it. Number 2038 REPRESENTATIVE ROKEBERG moved to report CSHB 339, Version 23- LS1265\I, Bannister, 1/29/04, as amended, out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, CSHB 339(L&C) was reported from the House Labor and Commerce Standing Committee.