Regulatory Update - Some Good News, Some news of Concern

Dear FWWS Member,

We are writing to update you on two recent Washington State Liquor Control Board (WSLCB) Rulemakings:

Some good news - “Below Cost” sales remain legal.

Earlier this summer the WSLCB heard a proposal to eliminate an existing provision of state law that allows a retailer to sell wine below their cost of acquisition for the strict and limited purpose of meeting a competitor’s price. FWWS opposed eliminating this provision. In our reasoning, this rule had little effect or purpose under the old pricing regime where pricing was uniform as to quantity and point of delivery. Now that quantity discounts and other pricing considerations are allowed, this provision is meaningful in that a retailer’s cost of acquisition may actually be higher than that of a competitor. While the floor on pricing remains the competitor’s cost of acquisition, the existing rule gives a retailer the option of meeting that competitor’s price rather than losing a customer. A majority of Liquor Board members agreed, and the rule remains in place. Our sincere thanks to those of you who submitted comments in favor of retaining the current rule.

Some news of Concern – Protections on NSF checks eliminated

The WSLCB recently adopted a change of WAC 314-13-020 as part of a larger package of rule updates to implement Initiative 1183. While minor changes to this section were necessary (such as adding the words ”spirits retail licensee” in the appropriate places) the rule change also struck two existing sections of WAC 314-13-020. This latter change, which has nothing whatsoever to do with implementing initiative 1183, removes the below highlighted sections 2) and 3) from WAC 314-13-020 which previously read as follows:

Any transaction reported as having nonsufficient funds (NSF) will be considered an extension of credit, in violation of RCW 66.28.010(1). If a transaction is reported as NSF:

(1) The retailer must pay the full amount of the transaction to the industry member by 3 p.m. on the first business day following receipt of the NSF report.
(2) If the retailer does not make payment by this time, the industry member must report the NSF transaction to the their local board enforcement office by 5 p.m. the next business day following receipt of the NSF report.

(3) The local board enforcement office will contact the retailer, who will have until 3 p.m. the next business day to pay the NSF transaction. If the retailer does not pay the industry member by this time, the board will issue an administrative violation notice to the retailer.
(4) Until the NSF transaction is paid:

(a) The industry member who received the NSF transaction will not deliver any beer or wine to the retailer; and

(b) It is the responsibility of the retailer to not receive any beer or wine from any industry member.

Since we have consistently advocated the refocusing of the LCB away from regulation of commerce and onto regulation of public safety, it might appear at first blush that the reduction in LCB enforcement is a step in the right direction. However, we believe that this constitutes a half measure and that the LCB  should either regulate private economic activity and enforce the rules as they have in the past, or they should get out of regulating the economy entirely. Under the revised rules, wineries are still prohibited from extending any credit to retailers, and remain subject to sanction for doing so. Therefore we do not believe that the unilateral elimination of specific LCB enforcement provisions for NSF checks from retailers is a balanced and positive change to the rules.

We will be contacting the WSLCB in order to determine what, if any, specific penalties still apply to those retailers issuing NSF checks and what avenues of redress remain through WSLCB enforcement for wineries receiving such checks. We will update you on what we find out.

Your FWWS Board