Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-Second State Legislature

Regular Session of 2003

State of Hawaii

Sir:

Your Committee on Consumer Protection and Commerce, to which was referred H.B. No. 218 entitled:

begs leave to report as follows:

The purpose of this bill is to clarify that motor vehicle fleet leasing contracts that contain terminable rental adjustment clause (TRAC) provisions are true leases which do not establish a sale of the vehicle or create a security interest in the vehicle.

The Hawaii Bankers Association submitted testimony in support of this measure

Your Committee finds that TRAC motor vehicle leases involve the leasing of commercial fleets of vehicles by one business to another. The TRAC provision permits the lease rent to be adjusted upward or downward to compensate for any difference between the projected value of a vehicle at the time of contract, and the actual value upon termination of the lease. The objective of the TRAC provision is to provide an incentive for the lessee to keep the leased vehicles in good repair.

When a TRAC lease is viewed as a true lease and not a sales or security interest, a trustee in bankruptcy pays the lessor full rental payments for the use of the vehicles, and the lessor is able to recover the vehicles from the trustee and re-lease them.

Your Committee finds that without a law like the one proposed by this bill, uncertainties exist when it comes to court recognition of the true lease status of TRAC vehicle leases. So far, 40 states and the District of Columbia have enacted legislation toward the objective of clarifying the status of a TRAC lease and minimizing unnecessary litigation.

As affirmed by the record of votes of the members of your Committee on Consumer Protection and Commerce that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 218 and recommends that it pass Third Reading.