Legislature(2003 - 2004)
03/05/2004 08:04 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 516-BAD CHECK CHARGE Number 0285 CHAIR WEYHRAUCH announced that the first order of business was HOUSE BILL NO. 516, "An Act relating to a charge for a bad check." Number 0296 TOM WRIGHT, Staff to Representative John Harris, Alaska State Legislature, presented HB 516 on behalf of Representative Harris, sponsor. He stated that the bill simply would increase the amount for a bad check to $30. He noted that there is a companion bill that just passed the other body and "we're just trying to help move the process along a little bit." Number 0338 CHAIR WEYHRAUCH stated his understanding that "this was related somehow to the requirement ... to document costs associated with checks," and would eliminate the language regarding costs incurred, replacing it with a flat fee. MR. WRIGHT answered that's correct. He explained that this would allow businesses to recoup costs related to a bad check, without going through a lot of bookwork. CHAIR WEYHRAUCH related having unintentionally written checks when there wasn't enough money in his account and that he received fees for NSF [nonsufficient funds] and subsequently put money in his account and paid "the check." He said, "So, let's see, I get hit by the bank, and then I get hit by the merchant - sometimes - although ... sometimes if they know you they say, 'Just pay it.'" He observed, "You still get an NSF, it doesn't deal with that. And merchants still then sometimes have the discretion to charge you a $30 fee anyway; but this just gives them the legal authority to do that without question?" MR. WRIGHT answered that that's his understanding. He said he should defer further comment to Scott King, but offered his understanding that there are 22 other states that have adopted a $30 fee. Number 0451 SCOTT KING, Cornerstone Credit Services, L.L.C., testified in support of HB 516. He said that historically, in Alaska, "we" have assumed a $25 fee on NSF checks or checks that returned. The interpretation of the law has been, up to this point, that if a business can justify [charging] the $25, as an operating or business practice, then that has been allowed. He indicated that that justification is easily done. He revealed that a recent court ruling in Fairbanks has "said that it's actual cost," which would require a merchant to keep a ledger of each cost involved in [getting the money for] the check, and [that merchant] would not be allowed to collect that cost until it was incurred. Mr. King reviewed that the bill would make two simple changes to statute: First, it would remove the language regarding the actual costs incurred. Second, it would change the amount from $25 to $30. MR. KING revealed that Cornerstone Credit Services, L.L.C. represents approximately 2,000 merchants throughout Alaska. Many of the businesses rely on taking checks in order to conduct business. He offered to answer questions from the committee. Number 0562 CHAIR WEYHRAUCH declared a conflict. He explained that he has a problem with Cornerstone Credit Services, L.L.C., because that office has been repeatedly calling him regarding a bill that it says is unpaid, but which Chair Weyhrauch said has been paid for a long time. He added, "I've been quite irate with Cornerstone." He provided details. REPRESENTATIVE GRUENBERG said, "I'll object, so you have to vote. So moved." CHAIR WEYHRAUCH said he was going to ask to be excused from voting, but Representative Gruenberg had objected. He said, "That's not going to get in the way of dealing with this bill; I just wanted you to know that." MR. KING offered to discuss the issue in private with Chair Weyhrauch. Number 0660 REPRESENTATIVE HOLM asked if the changes made to the bill would theoretically take away the legal problem with "having to support that you deserve the money." MR. KING answered yes. In response to a question from Chair Weyhrauch, he said the aforementioned case in Fairbanks was resolved. He said, "We'd end up having to settle it through our E&O [errors and omissions] insurance carrier. I think it's in the process of being settled." Number 0697 REPRESENTATIVE GRUENBERG said he supports HB 516, because it would stop "all kinds of ancillary litigation." Notwithstanding that, he mentioned a problem and the title of the bill and continued as follows: Lawyers, because of the unusual canons of ethics, if a client doesn't pay a bill, they are not allowed to, in any manner, have that fact, through an agency like Cornerstone ..., reflected on the person's credit rating. And this, as you know, Mr. Chairman, is a very effective way of getting a legitimate bill paid. And what it does is it requires lawyers to sue their clients, or arbitrate, rather than just going very informally, low key, to get the bill paid. And I went to the bar association to try to get the ethical rule changed. And a number of states have gone and changed their ethical rule - some have not. And the ethics committee wouldn't do it, as I recall. I have a file and I'm going to talk over the interim with the industry. But I would be inclined to try to see if we can change that, because ... it makes it very difficult for lawyers to collect bills that are legitimately (indisc. - voice faded out). Number 0839 PEGGY GRADY, Accountant, Girl Scouts, Susitna Council ("Council"), stated support for HB 516. She told the committee that current arrangements with the Council's bank allow NSF [checks] to go directly to the collection agency. When the check writer pays the collection agency, the Council is able to recover 100 percent of the cost of each check. Prior to that agreement, she noted, NSF checks were either written off, or attempts to collect the debts were made by staff members. She said she thinks it's fair to assume that if the collection agencies with trained professionals are not able to charge a flat fee for their services on behalf of the Council, the cost to collect the debts would increase for the Council, [which is] a not-for-profit agency, or worse, the burden of collecting these debts would fall back on "our agency." Number 0920 JENNIFER YORK, Accounting Manager, Kaladi Brothers Coffee Company, stated support for HB 516. She said the bill would help streamline the collection process. She noted that, as with the previous testimony [from Ms. Grady], the company's [NSF] checks automatically go to the bank and are forwarded from there. She said the company is able to recoup 100 percent of its NSF checks. She continued as follows: And it also acts as a deterrent for those who knowingly write [bad] checks. If they know that the fee can be arbitrarily waived or $5 here, $10 there - they play the system. And it's just a straightforward fact: it's simple, it's straightforward, it cuts down on the time. That's one of the reasons why we outsource our collection, is we spend so much time trying to document how many phone calls we did, how many minutes worked doing it, going through the telephone book and going through the telephone bills and itemizing how many minutes we spend calling this person or that person. And by the time that we wrote all of our times down, more than often we had spent more than $25 in trying to collect ... a $5 check. And for those people who accidentally, erroneously [bounce a check] ... a lot of times I even override the decision and [say], "Okay, well, I'll go ahead and waive the 30 dollars - just come in and pay the check." So, we still have that option of waiving the fee. It's just [that] I use [the NSF fee] as a deterrent to stop the people from writing bad checks. ... I myself, ten years ago, wrote a bad check for $1.20 and it ended up costing me $45. I now make sure that I balance my checkbook and whatnot. It's a learning experience. Number 1032 REPRESENTATIVE HOLM noted that Ohio has a $30 fee or 10 percent of the amount of the check, whichever is greater. MS. YORK responded that the same amount of work is involved collecting the amount of a $1 check or a $5,000 check, "if a person does not want to pay the bill." REPRESENTATIVE HOLM observed that a check of a larger amount indicates that a larger purchase was made; therefore, the merchant has lost the ability to resell a larger amount of inventory. In many cases, he added, that's a huge expense. MS. YORK said, "The $25 isn't really to cover the merchandise, or whatever, it's to cover the time and effort it [takes] to collect on these checks that people don't want to pay." She noted that while one person who has written a bad check may pay immediately, another may persistently postpone payment. She indicated the law of averages and said that the $25 flat fee is to cover the cost for, basically, everyone. She added, "Everyone knows what the fee is; you don't have to worry about anything else, and they know what it is." REPRESENTATIVE HOLM suggested that a person who knows that a $5,000 bad check will cost him/her $500 will probably not do that too many times. Number 1200 JILL JAECKEL, Legal Assistant, Spenard Builders Supply, stated that "we" handle the collections for all the branch locations throughout the state. She stated support for HB 516. She stated her belief that a $5 increase in the fee is not in any way outrageous and barely covers the cost that businesses incur from habitual [bad] check writing. She said that the bank charges a fee when the checks come back and the $30 doesn't begin to cover the loss of profit that occurs in those instances, whether it be a large or small check. She suggested that clearing up the language would be beneficial for everyone. CHAIR WEYHRAUCH said he endorses what Ms. Jaeckel is saying regarding the problem of dealing with these checks. Number 1306 REPRESENTATIVE HOLM asked Ms. Jaeckel the aforementioned question regarding [the $30 fee or 10 percent of the amount of the check]. MS. JAECKEL answered as follows: As far as the fees go, when we have large checks, we tend to file suit with the civil penalties that are allowed through the Alaska Statute, and that is three times the amount of the check or $1,000, whichever is greater. And when you sue an individual with several civil penalties, you waive your NSF fee altogether. So, ... as far as a fee that would be posted for those people [who] accidentally write a [bad] check, I don't think that there would be very many vendors that would actually go out of their way to charge 10 percent of the check over the $30 .... It would cover more of the cost, but it would alienate a huge group of customers that accidentally write a bad check. Those would be the ones that you would be able to collect it from, I think. Number 1385 CHAIR WEYHRAUCH said he wants to know that it's not the intention of the bill that a merchant who receives a bad check would be bound to charge a fee. Number 1402 MR. WRIGHT stated his understanding [that that's not the intention]. CHAIR WEYHRAUCH directed the committee's attention to the language on page 2, lines 10-11, which read as follows: (2) the defendant fails to tender, before the action begins, an amount equal to [AT LEAST] the amount of the check plus $30 [COST INCURRED BY THE PLAINTIFF UP TO A MAXIMUM OF $25]. CHAIR WEYHRAUCH suggested that it could be interpreted that that fee has to be charged. He asked if that is the intent of the bill. Number 1455 MR. KING explained that the current language in the bill explains what can be charged, but is not required. He clarified, "The statute taken as a whole is something that can be enforced but is not required to be enforced." He related that he knows of many cases where merchants waive NSF fees for those who just write one bad check. MR. KING, in response to examples posed by Chair Weyhrauch, reiterated that the statute does not require [the NSF fee] to be charged; it is an option. He added, "If we go back to a language that would talk about incurred cost or talk to 'up to' a maximum, then we would be back in the same boat, and we'd be arguing again with attorneys and judges about what does it mean by 'up to.' And that's why we removed that part of the language to remove any arguments that we would face in the future." CHAIR WEYHRAUCH reiterated that he just doesn't want well- meaning people who want to get along to say that the law requires that they [have to charge the NSF fee]. He added that he may just want to clarify that when the bill ends up on the House floor. Number 1572 REPRESENTATIVE GRUENBERG stated that he could see that that's not the intent of the statute. Notwithstanding that, he said he could see that that's how the statute could be misinterpreted. He suggested a sentence could be added for purposes of clarification. CHAIR WEYHRAUCH said he may offer that when the bill is heard in the House Judiciary Standing Committee. REPRESENTATIVE GRUENBERG asked Mr. Wright if he has a list of states that charge less than $30. Number 1639 MR. WRIGHT answered that there are a number of states that charge less than $30, which is shown on a list in the committee packet. In regard to the aforementioned discussion regarding how the statute may be interpreted, he pointed out that the language uses the word "may", not "shall". Notwithstanding that, he said he thinks the sponsor would not have a problem with adding a sentence to clarify that. Number 1660 REPRESENTATIVE GRUENBERG stated his support of the bill as written, but said he sees it doing two things: First, it would eliminate the requirement for a proof of cost, which he said would be "administratively tough to do." Second, it would increase [the NSF fee] from $25 to $30. He mentioned the cost of living and said he thinks it's been awhile since the statute was enacted. MR. WRIGHT answered that is his understanding. Number 1684 CHAIR WEYHRAUCH noted that Representative Holm owns a business that deals with lots of checks. He asked Representative Holm if he would consider the $30 a fee or a surcharge. Number 1700 REPRESENTATIVE HOLM said it is a fee. On that point, he referred to previous consideration of "10 percent or whichever is greater." He indicated that might be an additional deterrent and said it piqued his interest that there may be something that "might make it have a little more teeth to it." He related that sometimes people will write a bad check and then bring back the merchandise, which is in worse condition than when it left the store. Number 1775 CHAIR WEYHRAUCH suggested a possible [Amendment 1] to page 1, line 11, which would change the language to read: "plus a $30 fee, but the defendant in its discretion may waive the collection of that fee." REPRESENTATIVE GRUENBERG said he hopes that amendment would be offered in this committee [rather than waiting to offer it in the House Judiciary Standing Committee]. Number 1794 MR. KING responded that he believes that amendment "further states the already stated intent of the statute." In response to a previous insinuation that the statute is not challenged, he noted that it is actually challenged all the time; a lot of law suits are regularly filed and the court system "battles regarding this statute." He added, "That's why this Fairbanks statute came out; there's a lot of very creative attorneys out there who are very smart and have a great way of interpreting or - in my opinion - misinterpreting what the intents are of these different statutes." He opined that simplification of the statute is imperative. CHAIR WEYHRAUCH explained he thinks the intent of the committee is to "take this and just make it sure that - boom: you write a bad check; you're paying a $30 fee; we're waiving the necessity of requiring that you prove what costs are in collection of that fee; and, by golly, if you want to waive it, that's in your discretion. We're giving that discretion to the defendant ...; this is not up to the plaintiff to decide whether they want to waive the justifications of cost or not." Number 1845 MR. KING responded that he doesn't want to end up in a situation where a debate ensues over why one defendant was discretionarily excused [from paying the fee], while another was not, and whether or not a merchant is being fair in his/her business practice. CHAIR WEYHRAUCH offered to broaden the language. MR. KING stated, "I think as soon as we allow the word discretion, we open up for discrimination." Number 1860 CHAIR WEYHRAUCH recrafted [Amendment 1] to read as follows: Page 1, line 11 Between "plus" and "$30" Insert "a" After "$30" Insert the following: "fee, but the plaintiff may waive the collection of any fee." CHAIR WEYHRAUCH reiterated that he doesn't want anyone to say he/she has to charge [the fee]. REPRESENTATIVE HOLM suggested [Mr. King] made a good point that "you then would lay yourself open for discrimination, because you may or may not." Number 1942 REPRESENTATIVE GRUENBERG, on that point, indicated that a person can always find fault with a merchant, and he said, "You can't guard against that." MR. KING added the following: We have gone to great lengths to determine what language changes ... we would make or how we would perceive this through our experience in the court systems. And the words that are in the statute currently do read, "the plaintiff may recover". That specific statement right there ensures that there is no requirement to recover those costs and, therefore, no language change would be necessary. CHAIR WEYHRAUCH noted that it doesn't say that the plaintiff may "waive it too." MR. KING noted that by simply saying that "it may not recover, it may not recover." He urged that the committee not change the language. Number 1982 REPRESENTATIVE SEATON indicated that he agreed with Chair Weyhrauch. He said he would like to see clarification that the merchant has the ability to waive the fee, which would be better than trying to interpret "where the 'may' is in this." He offered examples. Number 2055 MR. WRIGHT directed the committee's attention to [paragraph (1)], beginning on page 1, line 8, which read as follows: (1) the plaintiff makes a written demand for payment of the check at least 15 days before beginning the action; and MR. WRIGHT said that if a plaintiff decides not to send that letter, then in actuality the plaintiff is saying that he/she is waiving the fee. REPRESENTATIVE SEATON said he interprets it to mean that "you're waiving recovery of the money - of the amount of the check, as well." He indicated that his problem is that the use of the word "may" is "covering both sections and not clearly allowing the merchants to waive the fee." Number 2087 REPRESENTATIVE GRUENBERG brought attention to [page 1, line 4] and the language, "a check that is dishonored". He noted that a person could conceivably have a check that's dishonored through a fault of the bank, rather than a fault of the customer. MR. KING confirmed that that happens, but the bank absorbs the fee in many instances because it wants the consumer [to continue banking there]. [Discussion of Amendment 1 was momentarily set aside.] REPRESENTATIVE GRUENBERG turned attention to page 1, lines 9-10, where it reads "beginning the action" and "action begins". He said "beginning" an action could be subject to a different interpretation. Number 2150 REPRESENTATIVE GRUENBERG offered [Conceptual Amendment 2] as follows: Page 1, line 9 Delete "beginning" Insert "commencing" Page 1, line 10 Delete "begins" Insert "commences" REPRESENTATIVE GRUENBERG clarified that this language specifically speaks to the filing of the lawsuit. In response to a request for further clarification, he said he would leave it to the drafters whether to say on line 10 that "the action commences" or "the action is commenced". Number 2210 CHAIR WEYHRAUCH announced that there being no objection, [Conceptual Amendment 2] was adopted. Number 2234 CHAIR WEYHRAUCH moved to adopt Amendment 1 [text provided previously]. He asked if there was any objection. He told Mr. King, "By the time this gets to [the House Judiciary Standing Committee], if you have an issue, pick that up there with them - they can 'lawyer it'." [The committee treated Amendment 1 as adopted.] Number 2252 REPRESENTATIVE LYNN returned to the previous comment that sometimes banks make the error and some banks absorb [the fee in that case]. He said, "This is a case where neither the check payor or the merchant is at fault, but it's a burden on both." He asked if there is anything that can be done to mandate that the bank would absorb this charge. CHAIR WEYHRAUCH responded that he is not certain whether that would fall under the banking statutes, or where [it would be addressed]. He suggested that it may be beyond the scope of [HB 516] to get into that issue. REPRESENTATIVE GRUENBERG indicated that he would not oppose an amendment addressing the issue [of ensuring that the bank pays the fee when it is at fault]. He commented that the bill has "a ways to go." CHAIR WEYHRAUCH asked that the committee "not deal with that in this bill." REPRESENTATIVE GRUENBERG indicated that he would pursue the issue [in the House Judiciary Standing Committee]. Number 2313 REPRESENTATIVE HOLM moved to report HB 516, as amended, out of committee with individual recommendations and the accompanying zero fiscal note. There being no objection, CSHB 516(STA) was reported out of the House State Affairs Standing Committee.
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