Legislature(2001 - 2002)
02/20/2001 01:30 PM Senate L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 66-FINANCIAL INSTITUTIONS
CHAIRMAN RANDY PHILLIPS called the Senate Labor & Commerce
Committee meeting to order at 1:30 p.m. and announced SB 66 to be
up for consideration. He announced that he intended to hold the
bill and discuss various amendments. He said there were four
amendments from the DCEC and letters of support. There was a $0
fiscal note.
MR. TERRY ELDER, Director, Division of Banking, Securities, and
Corporations, said that SB 66 has a couple of objectives. One is to
remove the differences in current statutes from state and federal
law as provided under Gramm-Leach-Bliley Act. This is a federal law
that was enacted to allow banks, insurance companies, and
securities firms to combine in offering financial services. There
are prohibitions in the banking code and certain insurance
activities that need to be deleted. The federal law also creates a
new type of holding company called a "financial holding company"
which is provided for in this bill.
MR. ELDER explained another important objective is to remove any
unnecessary burdens on the industry like the requirement for
interstate national banks to get a permit from the Division to
branch into the state. This isn't necessary since they don't have
the authority to examine those national banks. This bill simply
requires a notice.
Automated teller machines are also addressed. Under current
statute, the Department has to approve those and they propose to
change that to a notice, also.
A few sections were inserted to correct some problems with state
chartered financial institutions.
He highlighted section 3, page 2, privacy of the financial
institution's records (with a letter of proposed amendments).
Currently, the banking code has a privacy requirement saying that
customer information may not be disclosed without permission of the
customer. Gramm-Leach-Bliley is more broad than that. Institutions
are allowed to share non-public information with affiliates and to
share them with non-affiliated third parties unless the customer
opts out. However, they are not proposing to do that in Alaska, but
to keep the law as it is. Our law has an opt in provision rather
than opt out. The difference is that a customer actually has to
agree to it; the opt provision means that an institution is able to
disclose personal information unless they get specific denial of
that request from the customer.
Another issue in section 11, page 8, removes the 17 percent cap on
credit cards issued by state banks. This is for a number of
reasons: first the credit cards available in Alaska from national
banks and other banks that operate in other states can be offered
to Alaskans at any rate, not subject to the 17 percent cap. The
fact is that the only thing the 17 percent cap does is prohibit
Alaska state banks from competing in the credit card market. It
doesn't affect the interest rates on credit cards that people
already have. It's a very competitive market and the rates are best
governed in the market and not by statute.
SENATOR LEMAN said that interest rates in excess of 17 percent
don't indicate to him that the forces of competition have really
driven them down to where the consumer benefits. He asked if the
reason the rates are high is that so many of the cards are offered
and the people who are picking them up shouldn't be issued credit
cards.
MR. ELDER answered that he couldn't give him a definitive statement
about why interest rates are as high as they are, but what he
points out is true.
SENATOR LEMAN said that he gets about three to five credit card
offers per week.
Number 700
MR. ELDER said that Section 20 is the ATM section on page 11 which
changes current law from requiring approval for placing ATMs to
requiring a notice. Sections 26 - 38 cover pages 12 - 16 and deal
with branching into the state and this doesn't change any
requirements except under current law the Division issues permits
to national banks that want to branch into the state. It doesn't
make any sense, because the Division of Banking can't examine a
national bank.
Pages 20 - 24 deal with mutual savings banks and credit unions and
those changes put the trustees of mutual savings banks on the same
basis and treat credit unions the same as banks in terms of charge
cards and ATMs.
Number 1000
SENATOR TORGERSON asked if he had met with the banking community on
this.
MR. ELDER said they met early on with the state banks and credit
unions. We met recently with members of the Bankers Association.
SENATOR TORGERSON noted there were a few amendments from that
meeting and asked if those would bring them in agreement with the
bill.
MR. ELDER replied that it brought them into conformity with the
meeting they had. Based on the meeting, the Banks are still looking
at provisions and they may or may not have other wording changes.
He personally didn't believe there would be significant
disagreements with the potential exception of the privacy
provision.
SENATOR TORGERSON asked on page 2, line 15 what they were referring
to with "under supervision of a court or an administrative agency."
MR. ELDER said his Department would be one of those administrative
agencies.
SENATOR TORGERSON asked if there were others.
MR. ELDER answered the Federal Deposit Insurance Corporation (FDIC)
might be.
SENATOR TORGERSON asked what a premium finance company was (page
3).
MR. ELDER answered that it is one that finances insurance premiums.
They have to be licensed in the state to do that.
SENATOR TORGERSON asked if "small loan companies" excluded pawn
shops.
MR. ELDER answered that small loan companies are defined under the
Small Loans Act which excludes pawn shops.
Number 1150
SENATOR TOGERSON asked how many banks were being regulated in the
state.
MR. ELDER answered, "Not as many as we used to. We have three state
charted commercial banks, one state charted mutual savings banks,
two state charted credit unions, and assorted small loan
companies."
CHAIRMAN PHILLIPS asked if he could name them.
MR. ELDER replied, "First Bank of Ketchikan, North Rim, Denali
State Bank, the Mount McKinley Mutual, Credit Union One and North
Country Credit Union."
SENATOR TOGERSON said he had the same concerns as Senator Leman in
taking off the 17 percent cap since the legislature had just
required it a couple of years ago. He'd like to see more discussion
on that at a future time. He referred to page 9, and said it
appears to him that the Department is holding veto power over the
federal reserve system if a person put in an application to be a
holding company. He didn't understand that paragraph.
MR. ELDER explained that, "This paragraph is fairly friendly toward
the financial holding companies. We are simply asking someone who
is already a bank holding company and who is applying to the
Federal Reserve and the Federal Reserve makes that determination
for designation as a financial holding company - thereby getting
all the powers of a financial holding company. We're simply saying
give us a notice. Section 4 allows us 30 days after Federal Reserve
approval to deny it if there's any reason they can see. The only
basis they could have would that it would be a safety and soundness
basis or it be contrary to some other provision of state law. My
guess is that in practice it would be very rare that we would deny
it."
SENATOR TORGERSON asked if it wasn't a backwards process where the
Federal Reserve acknowledges them and the Department has 30 days to
reject that.
MR. ELDER replied that these are state entities and they were not
controlling in any way whether or not a national entity is formed
under the Federal Reserve. They want to maintain state control of
state entities.
SENATOR TORGERSON said he didn't think it really said that.
SENATOR TORGERSON asked if foreclosure would come under disposition
of property under all investments regardless of how acquired on
page 10, section 15.
MR. ELDER replied that he thought it would.
SENATOR TORGERSON said he didn't know why he would authorize them
to write it off if they had a foreclosure.
MR. TERRY LUTZ, Supervisor, Banking Section, answered this has been
in the banking code for some time. "We don't want a financial
institution to have a piece of property which they wrote off at
$100,000, they foreclosed on it and got a property worth $100,000.
It shouldn't be there for 20 years at $100,000. If it's there for
that long, it's clearly not worth $100,000. Or it's bank property
that is used for banking business in which case it needs to be
classified differently and purchased by the bank."
SENATOR TORGERSON asked if that was for reporting net worth, so it
can't be inflated by having a bunch of property on their books.
MR. LUTZ answered yes.
SENATOR TORGERSON asked on page 11, line 19 regarding ATMs and the
agreement with other institutions to pay an equitable amount for
use of the machine, if banks had exchanges where you don't pay
anything.
MR. ELDER responded that they are not changing language from
current law. This simply is talking about the machines, themselves.
They can be placed off premises, but they have to be available to
the customers of other depository institutions. "It would require
an agreement between the institutions, not the customers using it."
It doesn't mean that there has to be a charge to the customer.
Number 1500
CHAIRMAN PHILLIPS said that staff had contacted members of the
Bankers Association, the Alaska Mortgage Bankers, all 14 credit
unions, as well as the department on this issue. He said that
Credit Union One had two suggestions and he was really considering
number two, section 50, AS 06.45.060.
MR. ELDER commented that Credit Union One didn't raise that issue
when he was discussing it with them, but is raising it now. He
didn't have any particular objection. It talks about changing the
dollar limits of certain loans to directors and certain other
people in authority that have to be reviewed and approved by the
Board of Directors. On page two, they mention that would give them
parity with the federal charter credit unions. He generally agrees
that state banks and state credit unions should be on a level
playing field with federal credit unions and international banks.
SENATOR TORGERSON said they deviate from the Gramm-Leach-Bliley Act
under the confidentiality clauses.
MR. ELDER said, "Yes, it is correct, we deviated, though with
permission of Gramm-Leach-Bliley. It specifically allows states to
adopt more restrictive privacy."
Number 1600
SENATOR TORGERSON asked if there were any other areas where the
state deviates from that law.
MR. ELDER answered, "Not to my knowledge."
CHAIRMAN PHILLIPS asked if this legislation affected international
banks.
MR. ELDER answered that nothing in this proposal changes current
requirements of international banks to get permission to branch
here.
SENATOR TORGERSON asked if he had any more meetings scheduled with
the Banking Association.
MR. ELDER answered that he didn't have anything else scheduled, but
their door was always open and he had invited them to talk any
time.
MS. LISA BELL, Alaska Bankers Association, said they represent nine
banks across the state which includes both state and federally
chartered institutions. She wanted to focus today on Section 3,
page 2, the confidentiality section. "The proposed legislation
would move this provision from its current location under the
Alaska Banking Code, which is applicable only to state chartered
institutions, into the administration section where it would apply
to all financial institutions operating within the state. That is a
significant change. I want to point out that the privacy and
confidentiality of customer information is not a new concept to
banks. Banks already have internal policies and procedures that
deal with safeguarding of customer information and we believe that
the biggest asset a bank can have is integrity."
MS. BELL said that the Gramm-Leach-Bliley Act's privacy provision
contains important new disclosure requirements and other
requirements that pertain to the sharing of non-public personal
information with third parties. "The rule is quite complicated and,
in fact, the FDIC has just published on February 5 guidelines to
assist banks with complying before the mandatory date of July 1,
2001." She added that all banks are under intense regulatory
scrutiny as they work on their compliance and privacy programs. The
first round of examinations has already begun. It is a heavily
monitored process.
MS. BELL said ABA supports the intent of SB 66, but their
preliminary review of the confidentiality provisions has disclosed
some inconsistencies between the proposed state statutes and Gramm-
Leach-Bliley. There are additional restrictions in state statute
which are confusing and not necessarily in the customers' best
interest. She said that they have been talking with Mr. Elder and
Mr. Lutz and they do intend to meet with them again as soon as
their review is finished.
SENATOR TORGERSON asked when her review would be done.
MS. BELL answered in about three weeks.
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