Legislature(2003 - 2004)
05/06/2004 03:40 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
May 06, 2004
3:40 P.M.
TAPE HFC 04 - 109, Side A
TAPE HFC 04 - 109, Side B
CALL TO ORDER
Vice-Chair Meyer called the House Finance Committee meeting
to order at 3:40 P.M.
MEMBERS PRESENT
Representative John Harris, Co-Chair
Representative Kevin Meyer, Vice-Chair
Representative Mike Chenault
Representative Eric Croft
Representative Hugh Fate
Representative Richard Foster
Representative Mike Hawker
Representative Reggie Joule
Representative Carl Moses
Representative Bill Stoltze
MEMBERS ABSENT
Representative Bill Williams, Co-Chair
ALSO PRESENT
Richard Schmitz, Staff to Senator John Cowdery; Jacqueline
Tupou, Staff to Senator Green; Chip Wagoner, Catholic
Conference; Pat Luby, Advocacy Director, American
Association of Retired Persons
PRESENT VIA TELECONFERENCE
Steve Cleary, Executive Director, Alaska Public Interest
Research Group (AKPirg); Deborah Fink, Cash Alaska; Mark
Davis, Director, Division of Banking, Securities, and
Corporations, Department of Community & Economic Development
SUMMARY
CS SB 272(FIN) An Act relating to certain monetary advances
in which the deposit or other negotiation of
checks to pay the advances is delayed until a
later date; and providing for an effective
date.
CSSB 272(FIN) was REPORTED out of Committee
with individual recommendations and an
amended fiscal impact note.
CS SB 288(JUD) An Act relating to temporary custody
hearings, and to certain determinations
concerning placement of a child in child-in-
need-of-aid proceedings; and providing for an
effective date.
CSSB 288(JUD) was REPORTED out of Committee
with individual recommendations and one
previously published fiscal impact note.
CS FOR SENATE BILL NO. 288(JUD)
An Act relating to temporary custody hearings, and to
certain determinations concerning placement of a child
in child-in-need-of-aid proceedings; and providing for
an effective date.
JACQUELINE TUPOU, STAFF TO SENATOR LYDA GREEN, explained
that the bill is a housekeeping measure. Current state law
provides that the courts determine within 48 hours of
removing a child whether or not it is "contrary to the
welfare of the child to remain in the home of the parent."
Varying language is used to express this, but if the judge
does not say it is "contrary to the welfare of the child"
the child would not be eligible for Title IV-E funding for
the duration of the child's life in the system. She said
that this is true even if the child is later removed from
the home and gains adoption subsidies.
Ms. Tupou said that because the language is so critical, the
bill sponsor decided to put in statute that it is "contrary
to the welfare of the child to remain in the home of the
parent." She pointed out on the fiscal note the estimated
federal receipts of $500 thousand for FY 05.
Co-Chair Harris commented that it is a big fiscal note. Ms.
Tupou explained that the four words ["contrary to the
welfare"] are needed in order to receive the Title IV-E
funding. About 5% of the statewide cases under review did
not use that language in the initial hearing and did not
receive the funding. About 26% of cases in Anchorage did not
qualify, even though the judges had received training. Ms.
Tupou concluded that it is very important for the State to
take advantage of the federal dollars for these children who
have been removed from their homes.
Representative Joule asked the estimated loss of funds. Ms.
Tupou replied that the fiscal note reflects about half a
million dollars of federal funding lost last year.
Representative Foster MOVED to report SB 288 out of
Committee with individual recommendations and the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
CSSB 288(JUD) was REPORTED out of Committee with individual
recommendations and one previously published fiscal impact
note.
CS FOR SENATE BILL NO. 272(FIN)
An Act relating to certain monetary advances in which
the deposit or other negotiation of checks to pay the
advances is delayed until a later date; and providing
for an effective date.
RICHARD SCHMITZ, STAFF TO SENATOR JOHN COWDERY, explained
that SB 272 regulates payday lenders, which are businesses
doing short-term loans, from payday to payday, for a fee.
These lenders had been unregulated. The bill sets out a
maximum loan amount of $500, limits roll-overs that renew
the loan to two, and limits the fees. The Department of Law
crafted and supports the bill. By limiting it to two roll-
overs, the bill's main value is to prevent people from
taking out a loan that they forever roll over.
Co-Chair Harris asked why the AARP is opposed to the bill.
Mr. Schmitz was unable to answer.
AT EASE: 3:49 P.M.
RECONVENE: 3:50 P.M.
CHIP WAGONER, CATHOLIC CONFERENCE, stated that the industry
feels the changes that would cut the interest rate 400%,
plus the annual percentage interest rate down to a lower
figure, and cut the minimum term from a 14-day to a 30-day
loan period would put out them of business. The Catholic
Conference hopes that the Committee will adopt the amendment
that would add reporting requirements on the amount of fees
collected from customers, how many payment plans are
offered, the number of recipients whose debts are sent over
to third-party collection agencies, and the income from
court actions. This information would allow the State to
evaluate the industry. He said that after one or two years
of hard data, the State could better balance the competing
factors of regulating the industry and protecting the
consumer.
Mr. Wagoner explained the three amendments. Amendment #1
would provide reporting requirements to gain industry
information. Amendment #2 would change the allowed roll-
overs from two to one to avoid increasing the consumer's
debt. Amendment #3 would make the bill close to revenue
neutral so that if the State regulates the industry, it
would receive enough licensing fees to cover the costs. Mr.
Wagoner said that the amendments would not hurt the industry
and would improve the bill, which the Catholic Conference
doesn't entirely support.
PAT LUBY, ADVOCACY DIRECTOR, AMERICAN ASSOCIATION OF RETIRED
PERSONS (AARP), explained that the AARP is participating in
a lawsuit filed by Alaska Legal Services (ALS). The AARP
attorneys agree with ALS that payday loans should be subject
to the Small Loans Act and these businesses should not have
any loans outstanding for more than 36%. The current rate
for a payday loan is 391% [$15 per $100 loan], and the AARP
feels that is "usurious" and that these lenders should be
subject to the same requirements of all financial lending
institutions.
Mr. Luby continued, stating that the interest rates are too
high and payday lenders should allow people to make partial
repayments. These borrowers are not financially savvy and
many have to roll over the loans. Currently there are
unlimited roll-overs. The industry is asking the State to
regulate it, and he questioned why it would. The AARP fears
the industry will do "touch and go loans," and probably
allow unlimited roll-overs again. The bill presumes 20
payday lenders with 30 more in the next five years. The AARP
opposes the additional lenders but without them, he noted
that the revenue stream would not pay for the staff on the
fiscal note. The AARP supports the amendments. The cost for
licensing ought to be high enough that the State would not
be subsidizing these "predatory lenders." The industry needs
to be regulated.
STEVE CLEARY, EXECUTIVE DIRECTOR, ALASKA PUBLIC INTEREST
RESEARCH GROUP (AKpirg), explained that the AKPirg has been
involved in consumer advocacy and education since 1974. It
is currently starting a program to help people begin savings
accounts so that they would not have to choose payday loans.
He said that the AKPirg believes that interest rates are too
high, and this bill would legalize rates sometimes in excess
of 400%. The organization has looked for ways to compromise,
considering the General Usury statute interest rate cap at
10-1/4% and the Small Loan Act rate cap at 36%. The AKpirg
believes a drastic jump to 400% is unreasonable and it
opposes the bill.
Mr. Cleary suggested a change extending the time period of
the loan from a minimum of 14 days to a minimum of 30 days
to repay the loan without defaulting. If the loan period is
not extended, he suggested deleting the language mandating
lenders to disclose the APR (Annual Percentage Rate) for 30
days, which would only confuse the consumer. He noted that
Senator Bunde raised the license fee to $5000 but the change
was not adopted in the Senate, and he hoped that the House
would rectify this to ensure that the industry is paying for
its own regulation. He summarized that the AKPirg would like
to see roll-overs reduced to one, the time period extended
to 30 days, and the license fee increased to $5000.
Representative Fate asked if a need exists for this type of
lending. Mr. Schmitz asserted that these loans are a good
alternative and are not designed for people who want long-
term loans. He said that consumers like these loans with a
set rate and fee. The intent of the bill is to institute
some regulations and limit the roll-overs to two.
Representative Fate asked if the amendment reducing the
roll-overs would be a regulatory or a punitive change. Mr.
Schmitz replied that the one roll-over is designed to hurt
the industry and takes choice away from the consumer. A
consumer can lower the amount through a roll-over, and can
set up a payment plan before the case is sent to court. Two
roll-overs give the consumer an option.
Representative Fate repeated his question.
DEBORAH FINK, CASH ALASKA, replied that the change from two
to one roll-over is punitive to the customer who can't pay
off the entire debt, and do a "roll down." A roll down
involves paying off a portion and taking out a new loan for
a lesser amount. It is not unusual for a customer to do two
roll-overs instead of letting the check go into default. She
said that from the industry standpoint, two roll-overs are
far superior to one.
Representative Croft asked where the language states that a
consumer can proportionately reduce the amount owed. Ms.
Fink replied that a customer could essentially roll over the
entire amount if they don't have the money when the loan is
due. If the customer could make a partial payment, the
customer would roll over the remaining balance.
In response to a question by Representative Croft, Ms. Fink
explained that the fees are approved at the time the loan is
taken out.
Representative Croft clarified that the Catholic Conference
proposed the three amendments and he added them to the bill
packets.
Representative Fate MOVED to ADOPT Amendment #1. Vice-Chair
Meyer OBJECTED.
Representative Fate explained that Amendment #1 would add to
the existing reporting requirements to build up a good data
base.
Vice-Chair Meyer asked about AS 06.50. Representative Fate
stated that it's in the body of the bill.
Representative Hawker felt that Amendment #1 is not a
technical amendment, and unless the Committee passed
Amendment #3 with a substantive change addressing the issue
of balancing the fiscal note, he would not be inclined to
support Amendment #1. He proposed addressing Amendment #3
first and then returning to Amendment #1.
Representative Fate WITHDREW his motion to MOVE Amendment
#1. There being NO OBJECTION, it was so ordered.
Representative Hawker MOVED Amendment #3. Representative
Fate OBJECTED for purposes of discussion.
Amendment #3 reads:
Page 4, line 4
Delete [$3,000]
Insert $5,000
Representative Hawker explained that Amendment #3 addresses
the fiscal note which, as written, indicates that the
revenues generated through the service charges would never
meet the costs incurred by the legislation. He asked if
both the Financial Institution Examiner I and Administrative
Clerk III positions are needed and where to find partial
persons [1-1/2 positions].
Mr. Schmitz indicated that it is the sponsor's wish that the
nonrefundable application fee remain at $3000. Increasing
the fee to $5000 would remove all but the major lenders.
Representative Hawker asked what the Department would do
with two ¾-time persons.
MARK DAVIS, DIRECTOR, DIVISION OF BANKING, SECURITIES, AND
CORPORATIONS, DEPARTMENT OF COMMUNITY & ECONOMIC DEVELOPMENT
(DCED), VIA TELECONFERENCE, stated that the Department is
unsure what would be required to regulate the industry, but
thought that it would take 75% of one examiner's time. The
DCED is behind schedule on examinations of companies that
lend substantial amounts of money to pay insurance premiums.
The Department would utilize the staff person to stay
current on the premium finance companies that have not been
examined in the past.
Representative Hawker questioned the $35 thousand in
Contractual that increases to $70 thousand in FY 2010. Mr.
Davis replied that it reflects the anticipated services from
the Department of Law to revoke licenses, which will go to
hearings. The DCED is uncertain how many license
applications it will receive, and he said that these could
be contractual expenses.
Representative Hawker pointed out that it's not a receipt
supported service. Mr. Davis agreed, but stated that the
Department would pay as much as possible through receipts,
not knowing how the industry would grow.
Representative Hawker noted that it is a technical rather
than a substantive problem. He opposed passing out the bill
with a deficit fiscal note when it isn't really the case.
Representative Chenault asked if it would generate a
significant number of consumer complaints if put into
regulation. Mr. Davis thought so, and said that the
Department has jurisdiction in this matter. It would use
its current staff for these investigations.
Representative Chenault discussed the examination costs
estimated on page 2 of the fiscal note, expressing that it
did not appear to warrant two full-time positions. Mr. Davis
reiterated that it is an estimate. While the Department is
almost current in the exams, seven of the eight small loan
companies are licensees of Wells Fargo Bank, which require a
different type of examination.
Representative Chenault expressed concern that the numbers
appear a little high.
Representative Hawker WITHDREW Amendment #3.
Representative Hawker MOVED a conceptual Amendment to revise
Fiscal Note #2, DCED, Component 1233 dated 4/28/04 to make
it a net zero for each fiscal year under Contractual. Vice-
Chair Meyer OBJECTED for purposes of discussion, and asked
if a specific number is needed.
Representative Hawker repeated that his amendment would zero
out the contractual line to yield a net zero fiscal note,
from FY 2005 through FY 2010.
Vice-Chair Meyer WITHDREW his OBJECTION. The conceptual
Amendment was ADOPTED.
Representative Fate MOVED to ADOPT Amendment #1. Vice-Chair
Meyer OBJECTED for purposes of discussion.
Amendment #1 reads:
Page 7, line 24:
Insert the following and renumber accordingly:
(11) the total amount of fees received per AS 06.50.460;
(12) the total amount of fees, costs, and other income
received per AS 06.50.550;
(13) the total number of recipients offered a payment plan;
(14) the average length of the payment plans;
(15) the total number of recipients whose payment
obligation was assigned to a third party for collection;
(16) the total number of recipients that had a court action
initiated against them;
Representative Fate explained that Amendment #1 adds to the
reporting requirements in the bill.
Representative Hawker reiterated that in the interest of
expediency, he could support a substantive change but not
this amendment. He felt that the existing language is
adequate on page 7, line 24: "(11) any other information the
Department determines is required to conduct its review."
Representative Croft spoke to the merits of the amendment
proposed by the Catholic Conference, noting that it is
uncertain what the bureaucracy would require to regulate the
industry.
TAPE HFC 04 - 109, Side B
Representative Croft continued speaking in support of
Amendment #1 and felt that there was time to improve the
bill in Committee.
Representative Hawker spoke against imposing the level of
detail on small businesses that is inherent in Amendment #1.
Vice-Chair Meyer noted that the amendment is more specific
than the language in the bill.
Representative Fate expressed support for the data that
would be generated by the last two parts in the amendment,
(15) and (16). He reiterated that reporting mechanisms are
important in establishing a data bank.
Representative Fate MOVED to AMEND Amendment #1 to exclude
(11) and (12), and to include (13) through (16).
Mr. Davis clarified that this amendment addresses Section
06.50.310, reports to the Department by the licensee. The
DCED would gather a lot of this information during the exam,
and he questioned whether it needed to be in the form of a
report. In response to a question by Vice-Chair Meyer, Mr.
Davis said that lines 13-16 are unnecessary in Amendment #1.
The Department would ensure that licensees adhere to the
statute.
Representative Fate commented that it is not a problem when
the licensee knows the statute, but there can be information
gaps when the requirements are in regulation.
Representative Fate MOVED to ADOPT the Amended Amendment #1.
Vice-Chair Meyer OBJECTED.
A roll call vote was taken on the motion.
IN FAVOR: Croft, Fate, Joule, Moses
OPPOSED: Chenault, Foster, Hawker, Meyer, Stoltze
Representatives Harris and Williams were absent.
The MOTION FAILED (4-5). The Amended Amendment #1 was not
adopted.
Representative Croft MOVED to ADOPT Amendment #2. Vice-
Chair Meyer OBJECTED for purposes of discussion.
Amendment #2 reads:
Page 10, line 28:
Delete [TWO CONSECUTIVE TIMES]
Insert once
Representative Croft explained that the AARP, AKPirg and the
Catholic Conference recommended the amendment, which reduces
the number of times that someone can roll over the loan. He
expressed that the loan ceases to be a useful financial tool
and becomes damaging when it is rolled over multiple times.
Mr. Schmitz reiterated that the bill limits to two roll-
overs, which seems reasonable. The problem with consumers is
with unlimited roll-overs.
Ms. Fink commented that she didn't favor the roll-over
amendment because it removes consumer choice and penalizes
the consumer.
Representative Stoltze asked what happens after the last
roll-over. Ms. Fink explained that the customer's check
would be in default and would go into collections. A series
of notifications would ensue, offering the customer a payoff
plan over six months. If the customer opted for the payoff
plan, there would be no other cost except the bad check fee.
Vice-Chair Meyer agreed with Representative Stoltze that two
consecutive times appears to the advantage of the consumer
rather than the industry.
Representative Croft argued that it's not to the benefit of
the consumer because repeated roll-overs put the consumer
into a cycle of debt.
Mr. Schmitz repeated that it's not another loan or unlimited
roll-overs.
A roll call vote was taken on the motion to adopt Amendment
#2.
IN FAVOR: Croft, Joule, Moses
Opposed: Fate, Foster, Hawker, Meyer, Stoltze, Chenault
Representatives Williams and Harris were absent.
The MOTION FAILED (3-6). Amendment #2 was not adopted.
Representative Foster MOVED to report SB 272 out of
Committee with individual recommendations and the
accompanying amended fiscal note. Representative Croft
OBJECTED.
Representative Croft commented that to establish a 400%
interest rate and call it a consumer protection bill is
improper. He felt that the bill does not do what it
purports. He regretted that the Committee rejected the
advice of the Catholic Conference and the AARP. He said
that he could not support the legislation in its present
form.
Representative Hawker commented that his constituents hold a
misconception that the bill would legalize "something that
was previously illegal."
Representative Croft noted that 10 states ban these loans
for good reason because the loans can often be fit under
traditional lending practice at a much lower interest rate.
A roll call vote was taken on the motion to move the bill
from committee.
IN FAVOR: Fate, Foster, Hawker, Meyer, Moses, Stoltze,
Chenault, Harris
OPPOSED: Croft
Representatives Joule and Williams were absent.
The MOTION PASSED (8-1).
CSSB 272(FIN) was REPORTED out of Committee with individual
recommendations and an amended fiscal impact note.
ADJOURNMENT
The meeting was adjourned at 4:48 P.M.
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