STAND. COM. REP. NO.610

Honolulu, Hawaii

, 2003

RE: S.B. No. 562

 

 

Honorable Robert Bunda

President of the Senate

Twenty-Second State Legislature

Regular Session of 2003

State of Hawaii

Sir:

Your Committee on Commerce, Consumer Protection and Housing, to which was referred S.B. No. 562 entitled:

"A BILL FOR AN ACT RELATING TO TERMINABLE RENTAL ADJUSTMENT CLAUSE VEHICLE LEASES,"

begs leave to report as follows:

The purpose of this measure is to clarify that a motor vehicle or trailer lease transaction does not create a sale or security interest because the lease allows or requires an adjustment in the vehicle's rental price based upon its value at the end of the lease period.

The Hawaii Bankers Association testified in support of this measure.

Terminable rental adjustment clause (TRAC) vehicle leases are utilized in the leasing of commercial fleets of motor vehicles by one business to another. Generally, a TRAC lease permits or requires an upward or downward adjustment of rent to compensate for the difference between the projected value of a vehicle and the actual value upon lease termination, thereby providing the lessee an incentive to keep the vehicle in good condition.

This measure clarifies that a TRAC vehicle lease does not create a sale or security interest, thereby giving recognition to its legal status as a true lease. This clarification will facilitate the planning and prices of TRAC leases since according to the American Automotive Leasing Association and the Equipment Leasing Association, lease rates are higher in states where the TRAC lease's legal status is uncertain. In addition, this measure will clarify a lessor's rights should a lessee enter into bankruptcy, since if a TRAC lease is deemed to be a true lease, the lessor is entitled to full rental payments and recovery of the vehicles from the trustee in bankruptcy. Finally, your Committee finds that this measure will establish greater uniformity in the treatment of TRAC vehicle leases, as forty states and the District of Columbia have enacted similar legislation.

As affirmed by the record of votes of the members of your Committee on Commerce, Consumer Protection and Housing that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 562 and recommends that it pass Third Reading.

Respectfully submitted on behalf of the members of the Committee on Commerce, Consumer Protection and Housing,

____________________________

RON MENOR, Chair