Honorable Robert Bunda

President of the Senate

Twenty-Second State Legislature

Regular Session of 2003

State of Hawaii

Sir:

Your Committee on Transportation, Military Affairs and Government Operations, to which was referred S.B. No. 562 entitled:

begs leave to report as follows:

The purpose of this measure is to clarify that a Terminable Rental Adjustment Clause (TRAC) in a vehicle lease does not create a sale or security interest, and that leases with such provisions are to be treated as true leases for purposes of bankruptcy and tax law.

Your Committee received testimony in support of this measure from the Hawaii Bankers Association.

Your Committee finds that TRAC vehicle leases involve the leasing of commercial fleets of motor vehicles by one business to another, and that such leases permit or require an upward or downward adjustment of rent to compensate for any difference between the projected value of a vehicle and its actual value upon termination of the lease.

If the lessee enters bankruptcy, your Committee finds that it is important that a TRAC lease is viewed as a "true" lease, so that the trustee in bankruptcy must pay the lessor full rental payments for using the vehicles, and so the lessor may recover the leased vehicles from the trustee and rerelease them.

Your Committee further finds that forty states and the District of Columbia have enacted legislation similar to this measure, which will clarify this area of the law.

As affirmed by the record of votes of the members of your Committee on Transportation, Military Affairs and Government Operations 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 Second Reading and be referred to the Committee on Commerce, Consumer Protection and Housing.