Legislature(2001 - 2002)

02/28/2002 09:08 AM FIN

Audio Topic
* first hearing in first committee of referral
+ 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                                                            
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                                                             
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                                                            
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                                                            
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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