PROTECTING CONSUMERS

The Lingle-Aiona Administration has consistently spearheaded initiatives that protect Hawaii consumers against unfair business practices while strengthening the State's economic diversity and business environment.  This year, the Administration is further enhancing consumer protection laws by proposing legislation that would prohibit unscrupulous activities and target individuals who prey on our kupuna and take advantage of our most vulnerable residents.

Mortgage Industry Regulation

Recent headlines highlighting the nation's sub-prime mortgage crisis demand that we take a closer look at how Hawaii regulates professionals in the mortgage industry.  Mortgage brokers and those who work on their behalf are not currently regulated nor subject to periodic examinations in Hawaii.  Instead, members of the mortgage industry are required only to pay a licensing fee, show proof of two years experience (brokers), and renew their licenses every two years.

The Administration proposes to tighten the laws that govern mortgage brokers, lenders, and loan originators by providing greater oversight.  Provisions of the proposed legislation include requiring prelicense criminal background checks, testing, continuing education requirements, and periodic examinations. 

Additionally, the Administration's proposal authorizes the State to participate in a nationwide mortgage licensing system.  This public website will contain information about every lender, broker, and professional licensed in the state of Hawaii and provide consumers with one place to check the status of any licensee with whom he or she wants to do business.  Licensees will have a single record that will be tracked over time to ensure that unscrupulous individuals cannot escape their records by moving to another state.

Health Insurance Deceptive Acts & Practices 

The Lingle-Aiona Administration recognizes the need for members to have confidence in their health insurance plans and be certain that their enrollment will not be revoked without cause.  The Administration is proposing to increase protection for those covered under the State's prepaid health care program.

Under the Administration's legislation, health care plans would be prohibited from:

• disenrolling members due to a medical condition
• withdrawing authorization for a medical procedure once the member has received medical services
• changing the contract during its term
• disenrolling a member because the health plan does not want to provide coverage for a medical condition that the plan did not consider at the time the member enrolled for coverage
• establishing separate eligible charges for nonparticipating medical services providers different from participating providers

Protecting Our Most Vulnerable Consumers

Unscrupulous individuals often look to profit from our most vulnerable consumers by exploiting senior citizens and people suffering from chronic or terminal illnesses.  The owner of a life insurance policy may decide to sell his or her policy to a broker in return for a lump sum payment, tax write-off, or monthly installment.  This usually occurs when a person needs money because of a medical condition.  The policy is then sold to investors who each collect their share of the life insurance policy when the individual dies. 

The selling and buying of policies is legal, but individuals enticed by the benefits of selling off their policy do not often realize that they may face taxes, transaction fees, and loss of privacy of their medical records.  Because the investors do not profit until the individual dies, investors are interested in a quick death rather than recovery or extended life.  Companies even market "senior settlements" which offer interests in the death benefits of healthy seniors. 

The Administration is proposing to protect individuals from these types of unseemly transactions and provide greater oversight of this industry.  Our proposal would require any investor who is attempting to purchase another individual's insurance policy to disclose possible alternatives, tax consequences, and the rights to rescind the contract at any time.  Additionally, the Administration's proposal imposes a five-year ban on transferring life insurance benefits.  By prolonging the period until an investor may purchase an individual's policy, investors will find the transaction less attractive.

Mortgage Rescue Fraud

Homeowners facing foreclosure are susceptible to scams that promise to rescue their home.  These "foreclosure rescue" consultants charge thousands of dollars in exchange for supposedly negotiating with the homeowners' creditors, but may do little or no work.  In the most extreme cases, these consultants persuade families to deed over their house to investors while giving the impression that the homeowner can use this time to clear up their credit, refinance their property, and assume back the title free and clear.  However, often this is not the case and the family no longer legally owns the property and is eventually evicted from their home.

In light of the current mortgage climate, the Administration is proposing legislation that would enhance consumer protections by requiring that distressed property consultants provide homeowners with a written contract which lists out the services that will be provided and must give homeowners the right to cancel this contract at anytime before the services are performed.

Unlawful Contractor Activity

Consumers should be confident when they hire a contractor licensed by the State that he or she possesses the training and experience necessary to complete the projects for which the individual has been contracted.  Penalties for unlicensed individuals who perform work that requires a contractor's license and penalties assigned to contractors who work outside the scope of activities for which they are licensed have not been updated since 1990.

The Administration is proposing to increase fines for contractors who perform activities outside the scope of his or her license. 

First Offense          Current                Proposed 
                              $500                    up to $2,500

Second Offense      Current                Proposed
                              $1,000                  up to $5,000
 
Third Offense          Current               Proposed
                              $1,500-$2,000       $5,000-$10,000
    
The Administration also proposes to increase penalties for individuals who are not licensed contractors but who perform work for which a license is required.

First Offense
Current: $500 or 40% of the contract, whichever is greater
Proposed:  $2,500 or 40% of the contract, whichever is greater

Second Offense
Current: $1,000 or 40% of the contract, whichever is greater
Proposed: $3,500 or 40% of the contract, whichever is greater 

Strengthening these penalties will deter unscrupulous activity and will provide greater protection and safety to Hawaii residents who rely on contractors to remodel or assist with home improvement projects.

Identity Protection

A number of Hawaii laws require individuals to provide personal and financial information, including social security numbers, that becomes available in public records.  In order to protect personal and financial information and safeguard against identity theft, the Lingle-Aiona Administration is proposing that only the last four digits of an individual's social security number be listed when recording land titles in the Bureau of Conveyances or through the Land Court.