Legislature(2003 - 2004)
03/01/2004 09:05 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 299
"An Act relating to a charge for a bad check."
This was the first hearing for this bill in the Senate Finance
Committee.
Senator Bunde, Chair of the Senate Labor & Commerce (L&C)
Committee, explained that this legislation is an attempt to address
the issue of bounced checks. He noted that current law specifies a
business could collect up to a $25 penalty fee in the case where a
person writes bad checks to a business. Continuing, he shared that,
on occasion, a business has been challenged to provide proof that
its penalty fee is warranted, and he commented that this
legislation has been drafted to address this situation because
bring required to honor the documentation request incurs additional
expenses to a business. Therefore, he summarized that this
legislation would increase the bad check penalty from $25 to $30
and would remove the legal requirement to provide cost
documentation.
Co-Chair Green noted that current statute limits the penalty fee to
$25, and she confirmed that the Court has overturned some of the
penalty fees.
JANE ALBERTS, Staff to Senator Con Bunde and Aide, Senate Labor &
Commerce Committee, noted that this bill would establish a set fee
for "a bounced or insufficient" funds check. She noted that the
bill would also make the collection process "less cumbersome" for
businesses. She mentioned that "15 percent of bad checks that are
written are by innocent customers who are unaware of their fund
level at the time," and who make good on their checks within a day
or two of notification. She pointed out that "42 percent of bad
check writers are chronic bad check writers who often take more
than 90 days" to rectify the problem. She also noted that 45
percent of all bad checks written are unrecoverable. She stated
that this legislation would be "a clear deterrent" to writing a bad
check. In addition, she noted that without relief, some businesses
might decline to accept checks as a form of payment due to the
"hassle" of the collection process. She noted that the legislation
"is widely supported" by Alaskan businesses, as witnessed by the
number of letters received regarding it. She also noted that the
fee for bad checks has not been increased in 18 years.
Co-Chair Green pointed out that a $30 bad check fee would align
with the fees charged in other states, according to the handout
titled "Service Fees for Returned Checks" [copy on file] that
Senator Bunde has provided.
Senator Olson asked whether there is any opposition to this
legislation.
Ms. Alberts responded that no one has voiced opposition.
JILL JAECKEL, Legal Assistant, Spenard Builders Supply, testified
via teleconference from an offnet site in support of the bill. She
declared that businesses suffer losses "when the profit from a cash
sale is dramatically reduced" because of a 90-day delay in payment
or is uncollectible as a result of a bad check.
Co-Chair Green asked Spenard Builders Supply's policy when a person
refuses to make restitution on a bad check.
Ms. Jaeckel shared that Spenard Builders Supply seeks civil
penalties when attempting to collect a large check and resorts to
filing small claims cases. She continued that were the business
"lucky enough to be able to locate" the individual, they seek a
court judgment and collect from the offender's Permanent Fund
Dividend (PFD) check if one is applied for. She stated that this
process "is trickier" than when dealing with someone who has filled
out a credit application because less information is available.
Co-Chair Green asked whether in current law, there is "intent
language" which might be detrimental to the collection process
because the intent language might specify that proof must be
provided to show that the offender knowingly wrote a bad check.
Ms Jaeckel responded that this might be applicable to a fraud issue
in which there is criminal intent.
Co-Chair Green asked whether, in a fraud case, a specific monetary
level must be involved.
Ms. Jaeckel responded that when Spenard Builders Supply has had to
deal with a situation in which a large check "has been clearly
written fraudulently and clearly are a criminal case," its chance
of collection "are so low," that "if there is criminal action and
if there is restitution that is awarded through those court cases,"
the business might collect "ten cents on a dollar eight years from
now."
Senator Hoffman asserted that part of the difficulty in collecting
on bad checks lies with the fact that financial institutions limit
the number of times a bad check could be presented for processing
to two times. He asked whether this is an issue.
Ms. Jaeckel affirmed that a bad check could only be presented for
payment twice. However, she noted that the check could be presented
at the originating bank and a cashier's check for the amount owed
could be gotten were funds in the account. She expressed however
that this increases the collection process expense.
Senator Hoffman asked whether addressing the number of times that a
financial institution would be required to process a check could be
considered.
Ms. Jaeckel replied that this would result in additional expenses
as financial institutes charge up to $30 each time an insufficient
fund check is submitted and the funds are not there.
Senator Hoffman declared that this expense might serve as a
disincentive to individuals to write bad checks.
Ms. Jaeckel responded that this does not seem to be "a big concern"
to individuals who knowingly write bad checks. She stated that it
would serve to get "them further in the hole, and in a worse
situation" and might make it more difficult for a business to be
able to collect. She opined that while it would not deter those who
knowingly write bad checks, it might deter those 15-percent who
unknowingly write a bad check. However, she noted that those are
the ones whose checks normally clear the bank the second time they
are submitted.
Co-Chair Green asked who is responsible for paying the insufficient
funds bank fee.
Ms. Jaeckel clarified that both the bad check writer and the
business submitting the check are charged a fee, although she noted
that the person responsible for writing the bad check is charged a
higher fee than the business.
Co-Chair Green summarized therefore that both the business and the
person writing the bad check would be penalized.
Ms. Jaeckel concurred.
SCOTT KING, Representative, Cornerstone Credit Services, LLC,
testified via teleconference from an offnet site in support of the
bill. He stressed that his company's interest in this legislation
was prompted by a recent District Court decision in Fairbanks that
specified that businesses would be required to "document and
account for all costs incurred" in their efforts to collect on a
bad check.
Mr. King continued that the current $25 fee assists businesses in
covering internal expenses associated with the collection process
including such things as merchants' bank fees, personnel costs,
letters, telephone calls, accounting documentation, and fees paid
to collection agencies. He stated that the District Court's
decision would require a business to document each of these
activities and that only the activities documented could be
included in the collection assessment fee. He communicated that
important changes in the bill include the elimination of the words
"for costs incurred" from State statutes so that a business would
not be required to document the costs incurred from collecting a
bad check and the increase of the maximum fee from $25 to $30 to
bring it more in line with other states' fees and to adjust for at
least 18 years of unadjusted inflation.
Mr. King stated that his company, which provides check verification
and check collection services, represents more than 2,000
businesses in the State who would be negatively affected by the
District Court decision.
SFC 04 # 24, Side B 09:53 AM
Mr. King spoke of the volume of business letters that have been
submitted in support of this legislation, and he urged the
Committee to support the bill.
PAM LABOLLE, President, Alaska State Chamber of Commerce, testified
to the Chamber's support of the bill. She shared that the Chamber's
members in their collection efforts have experienced costs
exceeding the currently allowed $25, and even the proposed $30 fee.
She reiterated that the District Court's ruling has necessitated
the proposed changes in this law, as it would have "great" negative
impact on businesses.
Co-Chair Green asked whether the Chamber's members have any other
bad check issues that should be addressed.
Ms. LaBolle responded in the negative.
AT EASE 9:55 AM / 9:55 AM
Ms. Alberts informed that currently bank fees charged to businesses
for processing bad checks range from $2 to $25 dollars.
Co-Chair Green asked for that information to be provided to
Members.
Senator Bunde moved to report the bill from Committee with
individual recommendations and accompanying fiscal note.
There being no objection, SB 299 was REPORTED from Committee with
zero fiscal note #1 from the Department of Administration.
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