Legislature(2003 - 2004)

02/17/2004 01:34 PM Senate L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    SB 299-BAD CHECK CHARGE                                                                                 
                                                                                                                                
CHAIR CON BUNDE  announced SB 299 to be up  for consideration and                                                               
that this  issue was brought to  his attention by the  public. He                                                               
explained that currently a fee of  $25 can be charged to a person                                                               
for writing a  bad check. The original  enabling legislation said                                                               
the fee  is for the  costs incurred  in processing the  bad check                                                               
and doing  whatever had to be  done to recoup on  it. Some people                                                               
have said  that the $25  fee needs to  be accounted for.  A whole                                                               
separate  accounting  system  would  need   to  be  created  -  a                                                               
challenge for a great many businesses.                                                                                          
                                                                                                                                
CHAIR  BUNDE  suggested clarifying  the  statute  by saying  that                                                               
separate accounting  is not needed and  that there is a  cost for                                                               
writing bad  checks and the  cost should  be borne by  the people                                                               
who write them.                                                                                                                 
                                                                                                                                
MR.   SCOTT  KING,   Cornerstone   Credit  Services,   Anchorage,                                                               
supported SB 299. He said:                                                                                                      
                                                                                                                                
     The  reason we  feel  the legislation  is necessary  is                                                                    
     because  of   a  recent  Superior  Court   decision  in                                                                    
     Fairbanks that  would require  a significant  change in                                                                    
     the way  we do business  in collecting bad  checks. The                                                                    
     decision,  which   copies,  I  think,  I   provided  to                                                                    
     everyone,  would require  that businesses  document and                                                                    
     account  for  all the  costs  incurred  when we  go  to                                                                    
     collect a bad  check. The cost incurred could  be up to                                                                    
     a maximum  of $25. Historically, this  statute has been                                                                    
     interpreted as allowing the maximum  fee to be simply a                                                                    
     $25 fee  to be  collected upon and  help repay  for the                                                                    
     costs incurred in  taking a bad check as  a business or                                                                    
     a merchant. Those costs typically  include bank fees to                                                                    
     the  merchant. When  the merchant  deposits the  check,                                                                    
     there's a  fee associated  with that -  personnel costs                                                                    
     and   making    phone   calls,    letters,   accounting                                                                    
     documentation,  fees to  pay collection  agencies, such                                                                    
     as myself, to  collect on these bad  checks. The effect                                                                    
     of  the decision  would further  require businesses  to                                                                    
     keep  track  of each  expense  incurred  prior to  them                                                                    
     mailing out  their notices. They  would have to  keep a                                                                    
     line item incurring of costs  until they reach the $25,                                                                    
     which  will   be  extremely  cumbersome   and  somewhat                                                                    
     impractical.                                                                                                               
                                                                                                                                
     SB 299  will make two  simple changes to  AS 09.68.115.                                                                    
     And  the  first,  and I  believe  the  most  important,                                                                    
     change  is  to  remove   the  language  of  'for  costs                                                                    
     incurred' and the check fee  and make it simply a check                                                                    
     penalty or fee. The second is  to raise the $25 to $30,                                                                    
     bringing  it more  in line  with other  states as  they                                                                    
     have  moved   along....  The   cost  of   business  has                                                                    
     obviously gone  up in  the last  18 years.  To increase                                                                    
     this  to $30  is something  we thought  was reasonable,                                                                    
     but not  too much. Some states  are as high as  $40 and                                                                    
     charging  interest  on the  checks  from  the date  the                                                                    
     check is written, which might be a little excessive.                                                                       
                                                                                                                                
MR. KING said Cornerstone represents over 2,000 businesses                                                                      
throughout Alaska and is very supportive of this bill.                                                                          
                                                                                                                                
CHAIR BUNDE noted that he had approximately 15 additional                                                                       
letters of support.                                                                                                             
                                                                                                                                
MR. KING said he thought more letters would be forthcoming as                                                                   
businesses become aware of the legislation.                                                                                     
                                                                                                                                
CHAIR BUNDE asked who would collect the $30 fee.                                                                                
                                                                                                                                
MR. KING replied that the merchant is the entitled entity.                                                                      
Cornerstone collects on behalf of the merchant and is                                                                           
compensated by them.                                                                                                            
                                                                                                                                
SENATOR STEVENS asked Mr. King to estimate a range of costs that                                                                
a company has to go through in a collection process.                                                                            
                                                                                                                                
MR. KING  replied that  the range  of costs  is dependent  on the                                                               
effort that  is used to  collect on the check.  Certain immediate                                                               
costs can be  assumed for noticing and bank fees  that range from                                                               
$2  or $3  to $25,  depending on  the bank,  to the  merchant who                                                               
accepted the check in return for  goods and had it bounced out of                                                               
his account.  Any mailing or  phone calls would  create personnel                                                               
time.  Expenses  can get  way  beyond  $30 very  quickly.  Thirty                                                               
dollars  is a  reasonable fee  for  what a  merchant has  already                                                               
suffered  from not  receiving compensation  for goods  delivered.                                                               
The  problem is,  if the  merchant or  his representative  has to                                                               
calculate  costs on  each check,  as soon  as the  calculation is                                                               
done, more  than $25 or $30  worth of value has  already added up                                                               
in  personnel costs.  That  is  why he  is  suggesting setting  a                                                               
standard fee so the merchant isn't harmed.                                                                                      
                                                                                                                                
SENATOR FRENCH asked for the  spectrum between people who write a                                                               
bad check  by mistake  and make  good on the  check the  next day                                                               
(low end) to people who  just steal other people's checkbooks and                                                               
write bad checks  and have no intention of paying  the debt (high                                                               
end).                                                                                                                           
                                                                                                                                
MR. KING said  his experience indicates that 10 to  15 percent of                                                               
bad checks  will be collected with  one notice or phone  call; 30                                                               
to  40 percent  of  the checks  will be  paid  with a  reasonable                                                               
amount  of effort  - multiple  phone calls,  letters etc.;  and a                                                               
high percentage of checks are never collected.                                                                                  
                                                                                                                                
SENATOR  FRENCH  asked  if the  middle  percentage  would  settle                                                               
within 30 days.                                                                                                                 
                                                                                                                                
MR. KING replied that typically payment takes up to 90 days.                                                                    
                                                                                                                                
SENATOR FRENCH  asked at  what point does  the collector  cut his                                                               
losses.                                                                                                                         
                                                                                                                                
MR.  KING replied  that  he  doesn't stop  until  the statute  of                                                               
limitations runs out.                                                                                                           
                                                                                                                                
MR. ERNEST  MADSEN, Director, Williams Express  Stores, supported                                                               
SB 299.  His businesses receive  several thousand checks  per day                                                               
and most  of them are good,  but collecting on the  ones that are                                                               
bad is  really difficult. He also  thought the fee for  bad check                                                               
writing should go up to $30.                                                                                                    
                                                                                                                                
CHAIR BUNDE asked how much bad checks cost his company.                                                                         
                                                                                                                                
MR.  MADSEN replied  that he  didn't  have an  exact amount,  but                                                               
right off  the bat, the commodity  that was sold is  lost as well                                                               
as the amount  that is spent on collections. He  also pointed out                                                               
that there  is a cost for  in-store devices to screen  for people                                                               
who write bad checks.                                                                                                           
                                                                                                                                
CHAIR BUNDE  asked if he had  an average purchase amount  for his                                                               
stores.                                                                                                                         
                                                                                                                                
MR. MADSEN replied that the average check is around $20 to $25.                                                                 
                                                                                                                                
MR. DAVID GARDNER, Vice President,  Member and Employee Services,                                                               
Golden  Valley  Electric  Association,   supported  SB  299.  The                                                               
Association does  not feel  its members  should have  to shoulder                                                               
the burden of collecting bad checks written by the very few.                                                                    
                                                                                                                                
CHAIR BUNDE asked him if he had a monthly value for bad checks.                                                                 
                                                                                                                                
MR. GARDNER replied that the Association  has a bad debt ratio of                                                               
about .05  percent, but  he didn't know  what percentage  was bad                                                               
checks as opposed to default  on payment. They quit keeping track                                                               
of expenses once the $25 threshold is reached.                                                                                  
                                                                                                                                
MS.  PAM LABOLLE,  President, Alaska  State Chamber  of Commerce,                                                               
supported  SB 299.  She related  how recently  the State  Chamber                                                               
received a bad  check for about $100 and worked  with the bank to                                                               
monitor the account daily for a month until the check was paid.                                                                 
                                                                                                                                
TAPE 04-11, SIDE B                                                                                                            
                                                                                                                                
MS. LABOLLE  concluded that calculating  costs for  recovering on                                                               
bad checks is a burden on  businesses and that is why the Chamber                                                               
supports the bill.                                                                                                              
                                                                                                                                
MS. THYES  SHAUB, National  Federation of  Independent Businesses                                                               
(NFIB), supported  SB 299.  She added that  because of  bed check                                                               
writing, some businesses  have decided not to  accept checks, but                                                               
to  only accept  cash or  VISA  cards. This  is inconvenient  for                                                               
customers  and detrimental  to consumers  who  don't have  credit                                                               
cards. Ease  of collecting on bad  checks is a factor  in whether                                                               
businesses continue to accept them as a form of payment.                                                                        
                                                                                                                                
SENATOR FRENCH said he thinks SB 299  is a good bill, but he is a                                                               
little  concerned about  raising the  fee  from $25  to $30.  His                                                               
reasoning  is that  26 states  charge $25  or less  currently and                                                               
eliminating the accounting frees  the collection agencies to know                                                               
they are going to get the  $25 every single time. Keeping the fee                                                               
at $25 would avoid "price creep"  and be fair. He moved to change                                                               
the fee back to $25.                                                                                                            
                                                                                                                                
SENATOR  STEVENS  maintained  that  the  potential  loss  to  the                                                               
merchant  can be  far beyond  the $30  and he  sees no  reason to                                                               
change that.                                                                                                                    
                                                                                                                                
SENATOR SEEKINS  commented that if  someone accidentally  wrote a                                                               
bad  check, it  just  takes a  phone  call to  get  some kind  of                                                               
resolution; but  he doesn't have  that much sympathy  for someone                                                               
who writes bad checks deliberately.                                                                                             
                                                                                                                                
CHAIR BUNDE  asked for the  roll to be called.  Senators Stevens,                                                               
Seekins and Chair Bunde voted  nay; Senator French voted yea; and                                                               
amendment 1 failed to be adopted.                                                                                               
                                                                                                                                
SENATOR  STEVENS moved  to pass  SB 299  from committee  with the                                                               
attached  fiscal note  and  individual recommendations.  Senators                                                               
Seekins, Stevens,  French and Chair  Bunde voted yea; and  SB 299                                                               
moved from  committee. There  being no  further business  to come                                                               
before the committee, he adjourned the meeting at 2:30 p.m.                                                                     

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