Legislature(2003 - 2004)
03/25/2004 01:43 PM Senate L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 15-SOLICITATIONS/CONSUMER PROTECTION CHAIR CON BUNDE announced CSHB 15(FIN)am to be up for consideration. MR. JIM POUND, staff to Representative Hugh Fate, sponsor, said HB 15 was introduced to put a stop to annoying telemarketing telephone calls that people get during the dinner hour. He related that Congress passed HR 385 establishing the national th do-not-call list and the 10 Circuit Court recently affirmed that it does not violate the U.S. Constitution. CSHB 15(FIN)am puts language in statute that acknowledges there is a national do-not-call list, establishes registration for telemarketers and enhances the federal restrictions they must follow while conducting business in the State of Alaska. It gives the Alaska Department of Law authority to enforce and go after those people who do not comply. The language is a combined effort of Representative Fate and the Department of Law and is aimed at filling in the gaps left by the federal law, which was very broad. CHAIR BUNDE asked for information on the fee that was established and if the state was going to make money on this. MR. POUND replied that the fiscal note indicates that the state should bring in $76,000 per year from telemarketing registration fees. CHAIR BUNDE asked, "Is this a break-even proposition or an actual net gain?" MR. POUND replied: There will be a net gain. The original bill...requires us to set up our own do-not-call list and of course, there's a negative fiscal note on that because of the amount of labor-intensive aspects of it. Tying in with the federal legislation basically makes it a lot easier as far as us not having to maintain a do-not- call list specifically for Alaska. CHAIR BUNDE asked him to expand on the exemptions in section 21. MR. POUND explained that language was in existing statute and essentially exempts people from paying the registration fees. SENATOR HOLLIS FRENCH asked if an embalmer or funeral director has to abide by the national do-not-call list. MR. POUND replied, "Yes, he does." SENATOR FRENCH asked if they would have to pay a fee. MR. POUND replied that they don't. SENATOR FRENCH said they would have to register, though. MR. POUND indicated that was correct. CHAIR BUNDE asked how an entity goes through the process of registering with the department and if there is criteria for approval or disapproval. MR. POUND deferred that answer to Ms. Drinkwater, Department of Law, who helped draft the legislation. MS. CINDY DRINKWATER, Assistant Attorney General, Consumer Protection Unit, answered: If a telemarketer wants to solicit in the state, they can either request from the Department of Law a copy of the registration form or they can simply down-load it off our website. It's a fairly straight forward form that requests that they attach copies of their articles of incorporation, that they provide a description of any affiliated companies or parent companies, that they provide a list of the actual solicitors who would be making the calls and the managers of those solicitors. They are asked to attach a copy of the scripts or the sales presentation that they use over the phone to customers and they are asked to attach a copy of a written contract. Our registration statute requires that telemarketers who are going to be selling over the phone in terms of accepting a credit card number, that before that transaction happens, they need to have a signed purchase agreement from the consumer. So, as part of the registration process, they would need to show us an example of the contract form they intend to use. CHAIR BUNDE asked how a national firm would know about registering and how would the department enforce it. MS. DRINKWATER replied that it's not unusual for states to have registration statutes like Alaska's. Any national company would know it has to make the inquiry about registration statutes. Her office gets quite a few phone calls and hits on its website on that question. Regarding enforcement, she said the department relies on consumers to file complaints of telemarketers who are breaking the law. Because of the large number of exemptions to the registration statute, many telemarketers can conduct business in the state without having to register. CHAIR BUNDE said that might take quite a few teeth out of this bill. MS. DRINKWATER agreed and explained that is existing statute. The amendments in HB 15 include requiring businesses that are registering to pay a fee and tightens up other aspects of the current law such as for paid solicitors, who in addition to paying fees, would have to submit financial reports after their solicitation campaign ends. CHAIR BUNDE said that the trend is for user fees to equal the cost of providing the service, but HB 15 has a positive fiscal note and asked Representative Fate to explain his thoughts on that. REPRESENTATIVE FATE replied that it was felt that this service should pay for its own way under today's fiscal regime. SENATOR FRENCH asked if this act applied to charities. MS. DRINKWATER replied: Basically, HB 15 amends not only the Consumer Protection Act and, in particular, the state do-not- call bill, which is in existence now, but it also amends the Charitable Solicitations Act and Telephone Solicitations Act, as I mentioned before, as well as a separate statutory scheme called the Business Opportunities Act, although the amendments to that are fairly minor. As to your question, does this affect charities - it does affect charities and their paid solicitors in terms of the registration requirements. Perhaps your question is more directed to the do-not-call aspect of the bill and the answer to that would be that under the federal do-not-call registry, charities do not have to purchase the registry. They do not have to scrub their lists of people who do wish to be called. However, there is also another means by which people can express their desire not to receive telephone calls. Not only can they sign up for the do-not-call list, but they can also tell companies on a case-by- case basis that they do not want to be called and that is referred to as the internal do-not-call list. In other words, the paid telemarketers for charities would have to abide by that internal do-not-call list, although they would not have to purchase the federal registry. SENATOR FRENCH asked if he puts himself on the federal do-not- call list, would the local television station that he contributes to be free to call him once a year to remind him that he is a contributor. MS. DRINKWATER replied, "Yes, they would be able to do that, because they do not have to scrub their lists from the federal do-not-call registry." SENATOR FRENCH asked if that would apply to any other charities that he has not contributed to. "It sounds like you're saying these charities sort of fall out of the blocked category." MS. DRINKWATER replied: That is correct.... The best thing that a consumer can do in terms of if they are receiving charitable solicitations that they do not wish to receive, chances are that the calls are being placed by a paid solicitor and they can request on an individual basis that they do not wish to receive any calls in the future. MR. PAT LUBY, AARP Alaska, said: Thousands of Alaskans are signed up for the national do-not-call list. AARP's interest is in maintaining the privacy of our citizens who have signed up for the national do-not-call list. Older persons are home most of the day. They get many more calls than those of us who are in the workplace - in particular, magazine sales are the most notorious ones. We get complaints from our members. These are folks who bother people; they have what they call goose lists that they sell to each other and anything we can do to control some of those calls is going to be helpful to those constituents. If an Alaskan citizen is signed up for the national do-not-call list, they should not be subjected to telemarketing calls that originate in Fairbanks or Anchorage or anywhere else in the state. Federal courts have reaffirmed that citizens have the right to privacy in their homes. They should not be subject to home invasion over the telephone if they indicate that they do not want to be bothered. We hope that you'll give us back our dinner hour and respect the wishes of Alaskans who have signed up for the national do-not- call list. AARP requests your support of Representative Fate's HB 15. Thank you. SENATOR STEVENS asked for an explanation of violation on page 2, in section 4. MR. POUND replied that section refers to someone who did not mean to make the call, for instance, a solicitor who got a wrong number. SENATOR STEVENS asked who decides what the violations are and whether the punishments fit the crimes. MS. DRINKWATER replied that the penalty for a violation of this provision is in the state's Consumer Protection Act. That means that if the state were to seek a lawsuit, it could ask up to $5,000 per violation, restitution for damages, injunctive relief and any other remedy that might be appropriate. The other key feature is that it gives the private right of action to consumers, because the Consumer Protection Act has a provision awarding triple damages. If we're left with just trying to enforce the federal law, which state attorneys general have the authority to do, we would be limited to bringing cases in federal court, although the amount of the possible fine or civil penalty is higher - it's up to $11,000 per violation. There is more flexibility in terms of other relief under our Consumer Protection Act in state court. SENATOR STEVENS asked if penalties are just a fine of money. MS. DRINKWATER replied that injunctive relief is a possibility. That means shutting a business down or ceasing the illegal conduct at the very least. TAPE 04-26, SIDE B MR. ROBERT FLINT, Hartig Rhodes Hoge and Lekisch, said he represents Direct Marketing Association (DMA) and Magazine Publishers of America (MPA). These are trade associations of businesses that market products directly to consumers by mail, advertising and telephone. Products include periodicals, sound recordings, books, CDs videos and similar items. Promotions often include free gifts or trial periods with a cancellation option if the customer is not satisfied or has a change of mind. In all cases, the customer specifically accepts the offer before it goes into effect. HB 15 contains a Section 21 on page 8, line 14, that would remove the exemption for magazines and other periodicals and similar items from the Alaska Telemarketing Act, AS 45.63.80(10). I want to hasten to add I'm talking about this particular section and not the direct call provision. The concern that my clients have is with this exemption, which is an exemption from the Telemarketing Act. We have no testimony or complaint about the do-not-call list either state or federal. For reasons I will discuss, the direct marketing publishers oppose the removal of this exemption. I was saying also that from the beginning the summary of the bill says that the changes to the exemption statues are technical. This is not a technical amendment. It takes a large segment of the industry, removes it from exemption of the act and subjects it to severe criminal penalties for violation of that act. The origin of the Alaska Telemarketing Act...is an anti-fraud statute that was originally aimed at fly- by-night telemarketers. It requires registration, which is easier to charge as a violation than proving fraud. So, the charge and the penalties are for failure to register rather than the fraud, itself. But here, to underline the non-technical aspect of the change of section 21, are the criminal penalties, which you will find in the Telemarketing Act, [AS] 43.63.060. That hasn't been changed, so it's not in the CS bill.... This is in AS 43.63.060, the Telemarketing Act. A person who sells or attempts to sell property or services by telephonic means by making substantially the same offer and substantially the same terms to two or more persons without complying with the registration - that's one - or who solicits or receives payment for a purchase before receiving the written contract required, is guilty of a class C felony. The people who are after the fly-by- nighters were serious about this and that is why this is a [indisc.] statute. We're not talking about a fine or an injunction or even a misdemeanor for heaven's sakes. It's a class C felony. So, for example - let me back up just a second - to sell property or services by telephonic means is defined in the act - ' Telephonic means includes a letter, postcard, notice or other written communication advising, requesting, motivating or otherwise encouraging a person to contact a seller by telephonic means.' So a small publication, for example Archeology Today.... It has an ad in its publication...on the newsstand in Alaska, which says you can subscribe to this magazine by calling this number. If they are not registered, that is a violation of the act and subject to felony penalties. The other circumstance is the written contract, which simply does not conform with what national business does. First of all, I'd like to put it in context here. The calls we all love to hate are the solicitors that call us at dinnertime. We all have that; we all hate them. That's why there is a do-not-call list. But the Telemarketing Act is not determined by the origin of the call. An incoming call from a customer to a seller is covered by the act. So, someone sees the ad. It may be the ad in a magazine, which is already a class C felony, or it may be someplace else. A magazine may have placed an ad in the newspaper. It could even be on the Internet, I suppose, these days - definitely these days. So, the customer originates the call to the operator at Rapid City, South Dakota, or India, wherever these people are these days, and says I'd like to subscribe to your magazine. And she says fine, thank you, you can pay by credit card. What is your credit card number? The customer gives the credit card number; she books the sale and she's guilty of a class C felony because there's no written contract. Now, how do you cure that? Well, the way you cure it is you either, first, conform to the act and you have a written contract or you redline Alaska. The practical fact is that this national business, which does transactions in the hundreds of thousands, doesn't do business that way. A written contract in advance has the effect of selling twice, I guess. It just isn't the way national business is done. So, the seller of Archeology Today magazine or Time magazine or anything else isn't going to conform the national market to Alaska. After all, the national market is - well let's see - my figures were Alaska is one quarter of one percent of the American market. So, they would have to create a special procedure for Alaska that would be costly and raise the cost for them, at least, for the Alaska consumer. They'll absorb it, if they could do it. Generally, these people have uniform prices across the country. This, after all, is a national marketing business to the entire country. Now, we are an association. The Direct Marketers and the Magazine Publishers Association is a trade group. So, they don't actually do it. And there are hundreds and literally thousands of marketers and they all had to make their own decisions. But the fact of the matter is to do that for a small market would be extraordinarily costly and, I think, the only conclusion that they would come to basically with one quarter of one percent of the market is, as I say, to take Alaska out of the market. So, that the ads would have, in small print I guess, offer not valid in Alaska. And the operators would have to be instructed to basically not take the call over the telephone. I think that's a pretty drastic solution, particularly because when this law was enacted in Alaska in 1993 - it was originally enacted in California in 1985 - that actually, I gather, happens to be where a lot of this back room stuff goes on - where people do this telemarketing, get credit cards and then move and basically have no fixed address. So, California would start that and Alaska followed along with a lot of other states. In 1993, the Direct Marketing Association was involved with the Attorney General's Office. Attached to my testimony I've given you a letter from the assistant attorney general at the time who worked with, in fact, the principal that I work with now [indisc.].... At that time, the Attorney General's Office seemed to be in sync as to who the target of the Telemarketing Act really was and who was not a target and the legitimate businesses represented by the association were not the target. This law changes that substantially to bring them under basically the same as the fly-by-nighters. The [indisc.] of my testimony here is that what we have substantial businesses nationwide who have long done this legitimately. They are subject to Federal Trade Commission regulations that are extensive and govern these items; they were not involved in the rash, as I've noted here, in the 80s and early 90s where there was prosecution by the state and federal governments for this type of fraud.... As I say, it's deliberately onerous. The registration itself is 20 questions including the name and address and principal address of each seller. So, I assume the telephone operator in India would have to be listed. We are not sure what the impetus for this removal of the exemption is. In my discussions with the Department of Law, magazines were supposed to be a problem. Now, whether that's an inbound problem or an outbound problem, I don't know and can't tell. I've asked for statistical information from the Department of Law. I've filed a freedom of information request to try to see what the scope of the problem is, but have heard nothing back from that. So, basically, for this amendment, there is actually no empirical data that supports the removal, much less the imposition of criminal penalties. Again, I would note that the association, as you see from my correspondence, makes every effort to work with states and work with attorney generals to deal with these problems. It is as much in their interest as it is in the consumer's to have honest business conducted so they don't get mud splashed on them.... Nothing of the kind happened here. I must say that I do not believe an effort has been made by the Department of Law to educate itself on how this business works and the impact. CHAIR BUNDE asked him to summarize. MR. FLINT summarized: The people I represent aren't the crooks and we don't think we should be made the crooks. There are significant regulations and we believe those are adequate. We do not believe the exemption should be removed. CHAIR BUNDE asked Ms. Drinkwater if he went to a magazine stand and bought a magazine with a printed solicitation for him to call in and order a magazine, would that company be in violation of HB 15 as currently written. MS. DRINKWATER replied that was a possible interpretation. An amendment could exclude that kind of situation, because the purpose of that definition, which is found in AS 45.63.100, that is not part of the bill, was to include letters, postcards, notices or other written communications to a consumer encouraging them to call. What the problem that we see is that people sometimes get postcards that have very little information on them and it will say we've been trying to reach you. Please call us at our 800 number. The consumer doesn't know what the nature of the postcard is or why someone has been trying to contact them. They call and find that it's a magazine offer that's being presented to them.... So, I think that's something that can be fixed. MS. DRINKWATER explained that magazine scams have a lot of effect on consumers in Alaska, often senior citizens. She outlined four consumer complaints from 2003. One gentleman complained that for a year he had received magazines and had been billed for them, but he had never ordered them. He spent considerable efforts over 18 months trying to resolve the problem. When he left the country to be a missionary in South Africa, his subscriptions were forwarded to his sister in California and the bills continued to arrive. Another example is a woman received a phone call offering a subscription to some magazines for a year. She told them she was on disability and could only afford payments of $29.90 per month. That amount was debited electronically from her bank account. Suddenly the company started taking out twice that amount. When she called about it, they told her it was because she had two separate accounts and they were going to continue billing her in that same fashion. A third example is of magazine renewal scams. Another gentleman complained about receiving a subscription renewal, but the information did not come from the company that had sold him the magazine, rather from a fraudulent business that somehow learned subscribers' information. A fourth complaint is from an 86-year old gentleman who did not order any magazines, but was suddenly billed for them. When the department wrote to the company with his complaint attached, the company responded that he did, in fact, make the order on tape. It appeared that he had consented over the phone to receive the magazines, but he didn't recall that phone conversation. A written contract would have provided him with the paperwork necessary to review the information. CHAIR BUNDE asked the bill's sponsor, Ms. Drinkwater and Mr. Flint to work together to address the concerns that were raised. REPRESENTATIVE FATE pointed out that language on page 3, line 18, exempts a customer who initiates a phone call from being in violation of this act. CHAIR BUNDE related a solution he used once for a long-play record club. He was sent to Germany by the military and tried to discontinue his subscription, but the company never got any of his cancellation notices. It sent "tons" of records to Germany that arrived in multiple pieces. He wrote to the company many times saying he never received the records and asked to be left alone, but they threatened to sue him. When he got married, his wife took the situation seriously and tore a piece of paper out of a spiral notebook and wrote in pencil, "My husband, he ain't workin'. We ain't got no money." They never bothered him again.