Legislature(2001 - 2002)
02/28/2002 09:08 AM Senate FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE CS FOR CS FOR HOUSE BILL NO. 106(JUD)
"An Act relating to the authorizations for certain state
financial institutions of certain powers and limitations;
relating to confidential records of depositors and customers
of certain financial institutions; relating to the examination
of certain institutions subject to AS 06; relating to the
Alaska Banking Code, Mutual Savings Bank Act, Alaska Small
Loans Act, and Alaska Credit Union Act; relating to credit
cards; amending Rule 45, Alaska Rules of Civil Procedure,
Rules 17 and 37, Alaska Rules of Criminal Procedure, and Rule
24, Alaska Bar Rules; and providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
AT EASE 10:42 AM / 10:48 AM
Co-Chair Kelly spoke to two proposed committee substitutes, Version
"R" and Version "B". He stated Version "R" contains an "opt in"
provision, which offers more privacy protection than federal law
provides and would comply with the federal law. Version "B", he
continued, addresses the privacy issue in an "opt out" manner. He
noted both versions have omitted a provision pertaining to credit
cards that had previously raised concern.
FRANKLIN TERRY ELDER, Director, Division of Banking, Securities and
Corporations, Department of Community and Economic Development,
explained "opt out" is a procedure by which financial institutions
could share private information about an individual unless the
individual directs otherwise. He continued that the "opt in"
procedure allows financial institutions to share private
information about an individual only if permission is obtained from
that individual.
Co-Chair Kelly asked for a description of the private information
in question and an explanation of the federal Gramm-Leach-Bliley
Act.
SFC 02 # 22, Side A 10:52 AM
Mr. Elder responded that the Gramm-Leach-Bliley Act requires
financial institutions to provide customers the details of their
privacy policy, as well as "an opportunity to opt out" by mail,
telephone, Internet, etc. notification. He furthered that the
federal law also allows states the option to adopt a more
restrictive privacy policy.
Mr. Elder defined the private information as "personally
identifiable, nonpublic information." He noted that names and
addresses could be considered public information if listed in the
telephone directory. However, he qualified that a list of names and
addresses of customers created from the financial institution's
database using a "screen" or "filter" of nonpublic information is
considered private information.
Co-Chair Kelly referenced a memorandum to the Committee from the
Division of Legal and Research Services, dated 2/28/02, regarding
Version "B" [copy on file]. He cited Terri Lauterbach, drafter of
this legislation, states that this version may provide more
consumer protection than the federal act, "however, I cannot say
for sure that the federal government would reach that conclusion."
Co-Chair Kelly asked if the Division of Banking, Securities and
Corporations share this opinion.
Mr. Elder affirmed and further detailed the two-line reference to
the Gramm-Leach-Bliley Act, which pertains to disclosure of private
information. He noted that the Federal Trade Commission acts as an
arbitrator in the event there is a question of whether a state has
adopted a more restrictive privacy policy.
Co-Chair Kelly asked if the current law in Alaska is "opt in" or
"opt out".
Mr. Elder answered the banking code requirement has been "opt in"
for over 30 years. He stated, however, there is no privacy
provision in the codes governing other financial institutions. He
added that the Gramm-Leach-Bliley Act is the first federal law
addressing these privacy issues, which has resulted in this
legislation to instill privacy provisions in AS 06.01 rather than
the statute governing banking activities.
Mr. Elder added that Version "R" contains "compromise" language
reflecting agreement reached by the Division and the Alaska Bankers
Association. This language, he stated, achieves the Division's goal
to "continue the tradition of Alaska of protecting the privacy of
individuals" but also allows for the "extension of financial
services" among different financial institutions.
Co-Chair Donley clarified the Division supports Version "R".
Mr. Elder affirmed.
Senator Green asked if this legislation would impose the same
prohibitions on insurance companies that are performing banking
functions.
Mr. Elder answered it does and informed that the Gramm-Leach-Bliley
Act essentially "breaks down those walls" between different types
of financial institutions.
Senator Green understood the need to share information for
liability purposes in the insurance industry is different then the
need for information sharing in the banking industry.
Mr. Elder furthered there is no restriction on information sharing
among affiliates and that the Gramm-Leach-Bliley Act and this
legislation only apply to non-affiliates. The federal law and this
bill, he continued, pertain to information sharing for the purpose
of providing services of the financial institution or marketing
partner.
Co-Chair Donley moved to adopt SCS CS HB 106, 22-GH1026\R as a
working draft.
Senator Hoffman asked if because of the events involving the Enron
Corporation, whether more states are considering "opt out"
provisions to provide greater consumer protection.
Mr. Elder clarified the "opt in" method provides more protection
for consumers.
There was no objection and the committee substitute, Version "R",
was ADOPTED as a working draft.
LISA BELL, Executive Vice President and Chief Operating Officer,
Alaska Pacific Bank, testified on behalf of the Alaska Bankers
Association in support of the committee substitute. She opined that
Version "R" contains a "workable compromise" and that it
"modernizes the State banking code in two important ways." She
explained the committee substitute provides parody between State-
chartered and federal-chartered financial institutions operating in
Alaska, and that it allows small Alaska banks to compete
effectively with larger banks.
Ms. Bell qualified the original position of the Association
supported complete compliance with the Gramm-Leach-Bliley Act.
However, she stated a reasonable compromise was reached when the
bill was under consideration by the House of Representatives. She
emphasized the Association's goal is to allow small banks to offer
financial-related products and services to their customers and that
the committee substitute allows this.
Ms. Bell predicted rural Alaska residents would benefit most from
this legislation, as it would allow them to receive more
information on available products and services.
Senator Ward requested an analysis of the provisions in the
committee substitute that are required for conformance to the
Gramm-Leach-Bliley Act and the provisions that are not required.
Mr. Elder referred to sectional comments prepared by the Division
[copy on file]. He gave as an example, insurance activities that
are currently allowed under the Gramm-Leach-Bliley Act, but would
be prohibited under this legislation.
AT EASE 11:07 AM / 11:07 AM
Co-Chair Donley shared that he requested from the sponsor, an
opportunity to review the Version "J" committee substitute.
Co-Chair Kelly ordered the bill HELD in Committee.
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