Legislature(1995 - 1996)
01/31/1996 03:10 PM House L&C
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
January 31, 1996
3:10 p.m.
MEMBERS PRESENT
Representative Pete Kott, Chairman
Representative Norman Rokeberg, Vice Chairman
Representative Beverly Masek
Representative Jerry Sanders
Representative Brian Porter
Representative Kim Elton
Representative Gene Kubina
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE CONCURRENT RESOLUTION NO. 24
Relating to student loan default rates at vocational education
schools.
- PASSED CSHCR 24(L&C) OUT OF COMMITTEE
HOUSE BILL NO. 319
"An Act relating to the regulation of small loan and retail
installment transactions."
- PASSED CSHB 319(L&C) OUT OF COMMITTEE
SENATE BILL NO. 160 am
"An Act excluding certain employment by students from the
definition of 'employment' in the state employment security laws."
- PASSED SB 160 AM OUT OF COMMITTEE
HOUSE BILL NO. 414
"An Act requiring conciliation panel review in a civil action
against an architect, engineer, or land surveyor; and providing for
an effective date."
- SCHEDULED BUT NOT HEARD
HOUSE BILL NO. 187
"An Act relating to deregulation of public utilities furnishing
collection and disposal service of waste material."
- BILL HEARING CANCELLED
SENATE BILL NO. 131
"An Act relating to investments by fiduciaries."
- POSTPONED UNTIL FEBRUARY 7, 1996
PREVIOUS ACTION
BILL: HCR 24
SHORT TITLE: VOCATIONAL SCHOOL DEFAULT RATE REGULATION
SPONSOR(S): LABOR & COMMERCE
JRN-DATE JRN-PG ACTION
01/26/96 2540 (H) READ THE FIRST TIME - REFERRAL(S)
01/26/96 2540 (H) LABOR & COMMERCE
01/31/96 (H) L&C AT 03:00 PM CAPITOL 17
BILL: HB 319
SHORT TITLE: SMALL LOANS & RETAIL INSTALLMENT SALES
SPONSOR(S): LABOR & COMMERCE BY REQUEST
JRN-DATE JRN-PG ACTION
04/22/95 1451 (H) READ THE FIRST TIME - REFERRAL(S)
04/22/95 1452 (H) LABOR & COMMERCE, FINANCE
01/24/96 (H) L&C AT 03:00 PM CAPITOL 17
01/24/96 (H) MINUTE(L&C)
01/31/96 (H) L&C AT 03:00 PM CAPITOL 17
BILL: SB 160 AM
SHORT TITLE: EXCLUSIONS FROM UNEMPLOYMENT COVERAGE
SPONSOR(S): SENATOR(S) TORGERSON, Halford
JRN-DATE JRN-PG ACTION
04/20/95 1106 (S) READ THE FIRST TIME - REFERRAL(S)
04/20/95 1106 (S) LABOR & COMMERCE
05/02/95 1416 (S) L&C RPT 3DP 2NR
05/02/95 1416 (S) ZERO FISCAL NOTE (LABOR)
05/02/95 (S) L&C AT 01:30 PM FAHRENKAMP RM 203
05/02/95 (S) MINUTE(L&C)
05/02/95 (S) RLS AT 11:55 PM FAHRENKAMP ROOM 203
05/02/95 (S) MINUTE(RLS)
05/05/95 1526 (S) RULES RPT 3CAL 2DNC 5/5/95
05/05/95 1528 (S) READ THE SECOND TIME
05/05/95 1528 (S) AM NO 1 ADOPTED UNAN CONSENT
05/05/95 1528 (S) ADVANCE TO THIRD READING FLD Y12 N7 E1
05/05/95 1528 (S) THIRD READING 5/7 CALENDAR
05/07/95 1596 (S) READ THE THIRD TIME SB 160 AM
05/07/95 1596 (S) PASSED Y14 N5 E1
05/07/95 1596 (S) DUNCAN NOTICE OF RECONSIDERATION
05/08/95 1665 (S) RECONSIDERATION NOT TAKEN UP
05/08/95 1666 (S) TRANSMITTED TO (H)
05/09/95 2037 (H) READ THE FIRST TIME - REFERRAL(S)
05/09/95 2037 (H) LABOR & COMMERCE
01/29/96 (H) L&C AT 03:00 PM CAPITOL 17
01/29/96 (H) MINUTE(L&C)
01/31/96 (H) L&C AT 03:00 PM CAPITOL 17
WITNESS REGISTER
GEORGE DOZIER, Committee Aide
House Labor and Commerce Committee
Alaska State Legislature
Capitol Building, Room 432
Juneau, Alaska 99801
Telephone: (907) 465- 3306
POSITION STATEMENT: Gave sponsor statement for HCR 24 and HB 319.
DIANE BARRANS, Executive Director
Alaska Postsecondary Education Commission;
and Executive Officer, Alaska Student
Loan Corporation
Department of Education
3030 Vintage Boulevard
Juneau, Alaska 99801-7109
Telephone: (907) 465-6740
POSITION STATEMENT: Answered questions relating to HCR 24.
JENNIFER DEITZ, Owner
Career Academy; President, State
Association of Private Career Schools
1415 East Tudor Road
Anchorage, Alaska 99501
Telephone: (907) 563-7575
POSITION STATEMENT: Testified on HCR 24.
MILTON BIRD, President
Charter College; Member, Alaska
Postsecondary Education Commission
221 East Northern Lights Boulevard
Anchorage, Alaska 99503
Telephone: (907) 272-8585
POSITION STATEMENT: Commented on the Alaska Postsecondary
Education Commission.
SARA EDDINGS, Owner
New Concepts Beauty School
3677 College Road, Number 4
Fairbanks, Alaska 99709
Telephone: (907) 452-4684
POSITION STATEMENT: Commented on the Alaska Postsecondary
Education Commission.
ANN ADASIAK ANDREW
SST Travel Schools of Alaska
221 East Northern Lights Boulevard
Anchorage, Alaska 99503
Telephone: (907) 272-8585
POSITION STATEMENT: Commented on the Alaska Postsecondary
Education Commission.
MITCH GRAVO, Lobbyist
170 Botanical Circle
Anchorage, Alaska 99515
Telephone: (907) 244-2406
POSITION STATEMENT: Testified in support of HCR 24.
JOHN HIGGINS, General Manager
Northland Credit Corporation
3031 Brookview Street
Anchorage, Alaska 99504
Telephone: (907) 562-0266
POSITION STATEMENT: Testified in support of CSHB 319(L&C).
WILLIS F. KIRKPATRICK, Director
Division of Banking, Securities
and Corporations
Department of Commerce and Economic Development
P.O. Box 110807
Juneau, Alaska 99811-0907
Telephone: (907) 465-2521
POSITION STATEMENT: Testified on CSHB 319(L&C).
JERRY REINWAND, Lobbyist
Sears, JC Penney, Safeway
and Fred Meyer
2 Marine Way, Number 219
Juneau, Alaska 99801
Telephone: (907) 586-8966
POSITION STATEMENT: Testified in support of CSHB 319(L&C).
MARY JACKSON, Legislative Staff
to Senator John Torgerson
Alaska State Legislature
Capitol Building, Room 427
Juneau, Alaska 99801
POSITION STATEMENT: Gave sponsor statement for SB 160 AM.
DWIGHT PERKINS, Special Assistant
Department of Labor
P.O. Box 21149
Juneau, Alaska
POSITION STATEMENT: Testified in opposition to SB 160 AM.
ACTION NARRATIVE
TAPE 96-4, SIDE A
Number 001
The House Labor and Commerce Standing Committee was called to order
by Chairman Pete Kott at 3:10 p.m. Members present at the call to
order were Representatives Kott, Rokeberg, Masek, Sanders, Elton
and Kubina.
HCR 24 - VOCATIONAL SCHOOL DEFAULT RATE REGULATION
Number 091
CHAIRMAN PETE KOTT announced the first order of business would be
HCR 24, Relating to student loan default rates at vocational
education schools. He noted at a meeting the previous week the
committee members were given a proposed draft of the resolution
based on the work session the previous week. Changes were
incorporated into the resolution as a result of discussions.
GEORGE DOZIER, Committee Aide, House Labor and Commerce Committee
Alaska State Legislature, said HCR 24 is a resolution which
contains nothing that was not discussed at the previous meeting.
It urges the Governor to request that the Alaska Postsecondary
Education Commission (APEC) to immediately cease implementation of
the 150 percent regulation. It also urges the Governor to take
whatever steps are necessary to rescind this particular regulation,
20 AAC 15.925. The resolution also urges the Governor to request
that the APEC work and consult with those individuals who are
involved with the issue.
Number 223
REPRESENTATIVE BEVERLY MASEK referred to the suggested amendments
from the previous meeting on the measure and asked if they were
added into the resolution.
CHAIRMAN KOTT indicated they were. He asked Mr. Dozier to review
the amendments.
MR. DOZIER informed the committee he didn't have his notes from the
last meeting, but from what he could remember, the major
substantive change was to add verbiage to the second resolved
section which is the last paragraph of the resolution. The words
added were, "and to craft a more equitable loan default
regulation." Mr. Dozier noted stylistic changes were made. The
draft resolution that was circulated referred to the commissioner
of Postsecondary Education. He said there isn't a commissioner.
It is a commission.
CHAIRMAN KOTT referred to the second "Resolved" section and said
the way it was drafted and submitted by the subcommittee, it had a
"Further Resolved" section that said, "The Governor is respectfully
requested to request". It was changed to "urged".
Number 335
REPRESENTATIVE MASEK referred to page 1, line 17, and said she
believes a representative had brought up the issue about changing
the wording, "has no authority to conduct credit checks on
potential borrower;". She asked if this wasn't discussed at the
previous meeting.
CHAIRMAN KOTT said he believes that wording wasn't changed.
Number 401
REPRESENTATIVE KIM ELTON said he believes the only question that
come up was that the committee wanted to make sure that this wasn't
encouraging the commission to establish a credit check. He said
the only concern he has about the resolution is that he is assuming
that this is just one element of the final solution to this
problem. He said he would like a brief understanding of what is
going to happen to SB 123. Representative Elton said he is
somewhat concerned that the committee doesn't just say that we've
dealt with the issue. This is done. That has done nothing to
raising the loan limits or anything else.
CHAIRMAN KOTT said he can't speak directly to that, but he said he
would like to submit that what will happen with SB 123 once HCR 24
is passed, is there is no reason to believe the Governor will take
any action. If in fact the Governor goes along with the
resolution, he would suspect that SB 123 will then be a vehicle
that could be used for change. Chairman Kott said if you recall
from the previous session, a Free Conference Committee was
appointed by the House for SB 123. There were no appointees made
by the Senate President. He said he understands they are currently
in that process or have already appointed members to that
conference committee with free powers. His understanding of the
rules, at that point, is that we have free liberty to do anything
to that bill, including maybe incorporating some of the problem
areas. If the details could be worked out in the conference
committee, a large part of the problem could be solved.
Number 555
REPRESENTATIVE NORMAN ROKEBERG referred to the fiscal note and said
he finds it disturbing. It claims there is a $445 thousand
potential loss because of the resolution. He again stated he finds
that somewhat disturbing because he was under the impression that
even the APEC was willing to suspend it if there were negotiations.
REPRESENTATIVE KOTT said the passage of this resolution does not
incur any fiscal obligation. We don't know what the Governor will
or will not do, but there would be no fiscal obligation whatsoever.
He said he is also curious there isn't a step too many as far as
the fiscal impact.
Number 665
DIANE BARRANS, Executive Director, Alaska Postsecondary Education
Commission, Department of Education; and Executive Officer, Alaska
Student Loan Corporation, came before the committee. She said she
has some comments on HCR 24 that she would submit in writing. Ms.
Barrans said she also has written comments from Eric Forrer, the
current chair of the commission. Ms. Barrans stated there are
issues of accuracy with the statements in the resolution. The
members of the committee, having entertained testimony, will
probably be considered the resident experts in the House on the
resolution. She said she would offer the corrective data if the
committee would like to incorporate it into the resolution.
Specifically, she said she would like to reference page 1, lines 5
through 8. It indicates some percentages reflecting default
activity at particular sectors of postsecondary education in
Alaska. They are not reflective of what the commission has found
in studying the period of 1986 through the end of last year, which
showed that about 30 percent of the dollars in default were made to
attend for profit schools in Alaska, whereas approximately 34
percent was from the loans made to the University of Alaska. She
said there are several points that will be included in her
testimony that the committee may want to consider. Ms. Barrans
said she would like to add, to the record, that if there is any
criticism of the regulation that has been promulgated, the members
of the commission serve in very good faith. They have listened to
public testimony and deliberated on the regulation at length. They
did approve the implementation plan. If there is any criticism to
be issued on this point, she believes it would be more
appropriately directed to staff. She said she would not want to
see public servants, serving without compensation, criticized on
that point.
CHAIRMAN KOTT said he thinks the accuracy of the resolution should
be there. He indicated he doesn't want to suggest inaccurate
information. Chairman Kott asked Ms. Barrans to comment on the
numbers on page 1, lines 5 through 8.
MS. BARRANS stated that has been addressed specifically in her
written comments. The period that the commission looked at, which
was fiscal year (FY) 87 through FY95, approximately $60 million was
loaned to for profit schools. Almost $20 million of that is in
default. Of the $130 million that was loaned to Alaska public
postsecondary schools, approximately $21.7 million of that is in
default. She noted she has the associated percentages. It doesn't
jive quite with what is in the resolution. She indicated that the
numbers were drawn from a document which compared some of the
commission's loan data base files to the data base at the
Department of Labor (DOL). The numbers have been taken somewhat
out of context and don't accurately portray the percentages that
the resolution reflects.
CHAIRMAN KOTT asked Ms. Barrans if she had the percentages
available. MS. BARRANS said she could get the percentages to the
committee.
Number 974
REPRESENTATIVE JERRY SANDERS asked Ms. Barrans if there is a
possibility of tightening the time frame up as he understands there
were a lot of abuses earlier in which some of them might have been
cleared up. He asked if there was a chance of getting something
for the last three years and if that would give a better picture.
MS. BARRANS said it would give a better picture of the last three
years. She said they attempted to create a situation where they
could compare apples to apples. Since the Alaska Student Loan
Program default rate is cumulative for the entire period of the
loan, they tried, to some extent, duplicate that. What they found
in looking at the data was loans made prior to 1986, had gone
through two separate computer conversions and had been flattened
over that process. In order to associate those borrowers with the
schools they attended it would require someone sitting down and
looking them up individually. What they did was they took it
beginning the year that the statute went into place, 1987 and 1987
forward. Ms. Barrans explained the commission approved an
implementation plan that could be reconsidered. That is probably
getting to the meat of the issue, which is not the regulation which
is simply setting out what is in the numerator and the denominator
of the default rate calculation, but rather the time frame that the
calculation will be applied to. She said the commission would
revisit that. The short answer is, "Yes."
Number 1246
REPRESENTATIVE GENE KUBINA asked Ms. Barrans if her goal is to do
away with the schools receiving the funds. MS. BARRANS said
absolutely not. There are two major issues. One is the financial
strength of the loan program. When you can point to a particular
sector, this is consistent with what has happened nationwide, which
has a much higher default rate, that raises the issue of, "Is the
consumer getting what they're paying for?" If they aren't, "Who is
sharing in that risk?" Currently, the student and the loan program
share in that risk.
REPRESENTATIVE KUBINA referred to the work session where Gillian
Hays testified and said he thought it was real clear how punitive
that the regulation was at that time and how it doesn't give a one
year grace period to bring it down. It doesn't do anything that is
common sense. He said here we are spending hours during a short
period of legislative time. Representative Kubina said he is real
disappointed. It seems like the commission should have come to the
legislature with a way to solve this problem without the committee
having to write the resolution. He asked if it doesn't seem that
the resolution, in retrospect, is not a very good way to deal with
this problem.
MS. BARRANS said she believes this whole conversation began when
Dr. McCormick was the executive director of the commission. She
said she thinks the way he would have chosen to deal with the high
risk schools would be to reduce the risk through lower loan
maximums. He worked to support SB 123 that would have done just
that and would have made the current conversation, to some extent,
go away. Ms. Barrans said the concern the commission has is that
the money they loan to the borrowers no longer is just the money of
the state of Alaska. It belongs to the private sector, the bond
holders. She said they are truly obligated to repay them, even if
means ceasing to make new loans. Ms. Barrans said the input they
have had from their insurer, AMBACK who underwrites all but two of
the bond issues of the corporation, has grown increasingly
concerned over the last two or three years because the commission
has resisted to make large loans to students where their data shows
that they are less likely to succeed and be able to repay their
loan. Within that context, she thinks the commission and Dr.
McCormick felt that some action that had an immediate benefit to
loan fund was called for. That is the position that the commission
took when they adopted the regulation.
REPRESENTATIVE KUBINA pointed out Dr. McCormick was no longer with
the commission and asked how long he has been gone. MS. BARRANS
said he left in August.
REPRESENTATIVE KUBINA asked if the commission members and staff
have talked amongst themselves and thought if this is still the
best way to address that issue. MS. BARRANS said they have had
that conversation on the staff level. The commission heard
testimony, in December, on this and didn't change the
implementation plan at that point. There was an open invitation by
the chairman at that point that is on the record soliciting input
from the schools asking them to advise the commission on what might
be reasonable cause to exempt certain students from the calculation
and what might be issues having to do with the appeal process for
a school that wished to appeal a high institutional default rate.
She said to date, they have received nothing in writing in response
to Commissioner Forrer's request. She again noted that is on
record.
Number 1313
CHAIRMAN KOTT said he can appreciate the work Dr. McCormick did on
SB 123, but it seems like we've somewhat gone in opposite
directions. We do have an obligation to the bonding authorities.
Put aside percentages of students and look at just total dollars.
He asked if it isn't a fact that 80 percent, or better, of the
total dollars in default are represented by students attending
universities and colleges. He asked if that doesn't come into
play. Because of the liberal mechanism that we have, that
essentially transfers a check to a student through the registrar's
office or however they do it, the person has cash in hand.
Representative Kott said he remembers two years his son said, "Dad,
I'm gonna get a student loan because I need a new car." Chairman
Kott responded to his son, "No, you're not."
MS. BARRANS said she believes that number is inflated. It is not
80 percent of the loans in default. She said in the period between
1986 and 1995, of the $40 some million in default, $20 million went
to for profit schools and $21.7 went to the public universities.
She said she would have to defer an absolute answer to the question
and get that information to him. She said she doesn't believe it
is an 80/20 split.
CHAIRMAN KOTT said he recalls an earlier discussion he had with
someone and it may have been that it went back to FY85 or FY86 and
worked forward, but it seems like if our whole intent is to reduce
default rates and reduce that pool of money that is in default, SB
123 basically increases the amount available to those traditional
students attending universities and colleges, while at the same
time, it reduces the money that is available to the vocational and
technical students.
MS. BARRANS said it is actually somewhat consistent with how they
administer loans for traditional colleges and universities. A
student who signs up for a loan program for single semester does
not qualify for a maximum loan amount. They qualify for a prorata
amount. They can receive only $2,750 rather than $5,500. That is
for a 3 1/2 month period. So, to some extent, SB 123 approach is
quite consistent with what they are already doing with traditional
college or university students.
Number 1460
CHAIRMAN KOTT asked if it is also true that for profit schools can
also include private universities. MS. BARRANS said it absolutely
can. She noted one of the clarifications in her written testimony
is that this is not targeted at vocational educational
institutions. It is targeted at for profit institutions. She said
when the commission releases data next month, there are some
schools that are junior colleges that offer associate degrees
generally, but there are some baccalaureate that are included in
the for profit pool. It is just that overwhelmingly, that sector
is vocational education.
Number 1506
JENNIFER DEITZ, Owner, Career Academy; and President, State
Association of Private Career Schools, testified via teleconference
from Anchorage. She said she is encouraged because she has been
trying to encourage the legislature and the commission to bring
proprietary to the table to find resolution. Ms. Deitz referred to
attending a number of meetings since she was in Juneau the previous
week and said she sees some progress being made towards finding a
resolution and making a good default manager program. She stated
she supports the resolution and is very interested in receiving
comments on her response to the technical changes to HCR 24.
Number 1574
MILTON BIRD, President, Charter College; and Member, Alaska
Postsecondary Education Commission, testified via teleconference
from Anchorage. He noted Charter College is a two year degree
granting private institution. Mr. Bird said he would like to
share, with the committee, the sense that he detected when the
commission took the action addressed in the resolution. The
commission was told that they were dealing with a statute that had
been adopted eight years earlier. The commission felt they had no
choice but to develop regulations to accommodate the statute. Mr.
Bird said he didn't know how many of the commission members were
displeased with what they had to take action on, but he certainly
was. The commission had done some very good work over the years.
The commission has also done some work that might be called
negligent with reference to collections. Mr. Bird said the
commission has provided some excellent framework for regulating
institutions and protecting students. He said the commission's
staff, for whatever reason, has not done a good job of collections.
Over the past few years, actions are being taken to improve that
condition. The computer programs are being upgraded, good
additional staff has been added. Mr. Bird said he believes there
is a record, during the resent past, of improvement in collections.
Part of the problem is attributable to the inadequacy of the
commission in its collection activities. Mr. Bird said that ends
his testimony.
CHAIRMAN KOTT said it is his understanding that in recent months,
there has been a stepped up effort to go after those students who
aren't paying their debt.
Number 1700
SARA EDDINGS, Owner, New Concepts Beauty School, testified via
teleconference from Fairbanks. Ms. Eddings said she believes that
the commission is certainly trying to do their best at resolving
this problem. She said she believes that many of the private
vocational school sectors are asking to be included in the default
management program and not to eliminate them, at this point in
time, by eliminating their process or participation in the loan
program. She thanked the committee for listening to her.
MR. BIRD said he would like to make one additional comment. He
said the reality is that the people who don't pay loans don't have
the money to pay loans. Poor people don't repay their loans. Mr.
Bird said we know there are some people who can afford to repay
their loans at all levels and don't. He referred to vocational
schools and said they serve those who come from the lower socio
economic sector of the society. Many of them are (indisc.) who had
difficulty with education in the past. Many of them face
hardships. They come to vocational education as a way to solve
their problem. Many do, many succeed, some don't. Some, for
whatever reason, drop out before they complete programs. It is
also true that students from that segment of society attend
universities and many of them fail and don't pay their loans. Mr.
Bird referred to those who don't repay loans, no matter if they go
to vocational, for profit, non for profit, universities or junior
colleges, the people who have difficulty, the people who drop out,
the people who come from lower socio economic sectors of the
society do not repay loans. Mr. Bird said he thinks the committee
would find that those who go the universities, who don't repay
loans, come from that same sector. He stated that issue needs to
be addressed by the society. The vocational schools, he believes,
do an excellent job. He said he gives credit to the commission for
its regulatory procedures. They do an excellent job in serving
many students. Many of those institutions have high placement
rates for their graduates. He thanked the committee.
Number 1845
ANN ADASIAK ANDREW, SST Travel Schools of Alaska, was next to
testify via teleconference from Anchorage. She referred to the
Alaska Postsecondary Education Commission meeting held in December,
1995, and said she doesn't feel that organizations like hers, as
members of the public, were allowed adequate time for giving
testimony. As she recalls, the resolution was discussed and passed
by the members of the commission before several organizations had
the opportunity to give public comment. Ms. Andrew said she
believes that at other meetings, members of the public weren't
allowed to give their input before a decision was made. She said
she is now looking forward to the opportunity to work with the new
subcommittee, continue communications and to participate in some
sort of solution. Ms. Andrew said she doesn't feel that the
default rate or whether or not students default is an adequate way
of measuring the success of a school and their quality of training.
There are people who graduate and have jobs, but for whatever
reason, they don't feel obligated to pay back the loan. Ms. Andrew
said despite programs in relation to loan counseling, entrance and
exiting interviews, if a student decides not to pay a loan, it is
very difficult to understand why a school should be penalized for
a students negligence. The school has done their part in
adequately training and placing individuals. She thanked the
committee for listening to her.
Number 1938
MITCH GRAVO, Lobbyist, came before the committee to testify. He
stated he represents the private career school educators. Mr.
Gravo said on behalf of the association, he has had several
conversations with the new chairman of the corporation and at least
one meeting with the new chairman and executive director of the
corporation. He noted he has also had at least one conversation
with the Governor. Mr. Gravo said it is clear to him that there is
a new focus by the staff and commission. This focus is that, "We
have a problem, we have a default rate problem. We're gonna solve
that problem. We're gonna put together a global solution and you,
the private school sector, have to part of that solution, but we're
also gonna make everyone else part of that solution. And we're
gonna put a, with 123 and with the passage of this resolution, a
default management program together. And we're all gonna work
together to solve this program. We're not just gonna put the
burden on the private school sector to solve itself." Mr. Gravo
said he believes the resolution is necessary and it sends a strong
message. He said he thinks it will be well received by the
Governor as he is very interested in this issue. Mr. Gravo said he
sees some positive progress being made in conversations he had with
the commission, the staff and the Administration.
Number 2070
CHAIRMAN KOTT called Ms. Barrans to the table. He said there was
a comment made by Mr. Bird where he said we ought to look at the
social economics of the issues. Chairman Kott said he doesn't
believe Mr. Bird was advocating that we don't provide loans for
poor people.
CHAIRMAN KOTT asked Ms. Barrans if there is a study that looks at
the socio economic condition of students. He said it would appear
to him that those who attend vocational schools would be typically
be those that if they did not succeed or find a job in that
vocation, would probably remain in the state of Alaska. Therefore,
because we're doing things with permanent fund dividends, it seems
it would seemingly be easier to make collections against those
people.
Representative Porter arrived at 3:45 p.m.
MS. BARRANS said over the past year, they collected about $6
million in permanent fund dividend garnishment. It is a tool and
is one way the defaulted loan balance, short of having people begin
to repay their loans, is being eaten away at as far as the older
defaulted loans. Of course, there are new people going into
default on a daily basis.
CHAIRMAN KOTT asked how those default rates are affected by those
students who end up having their permanent fund or wages garnished.
He also asked if those are still reflected in the percentages.
MS. BARRANS said as long as they're in default, which means they
have a payment that is 120 days or more past due, the defaulted
balance continues to be calculated in the program default rate.
CHAIRMAN KOTT said if someone is in default in June, and the
permanent fund dividend check is released in October, at which
point the state gets their hands on their portion of it, are they
still part of that default percentage or since they are now paid in
full, they're taken out of that pool. MS. BARRANS informed the
committee that any account that is either paid current, as in no
payments currently due, or an account that is paid in full, leaves
the default calculation. It is no longer considered to be in
default if it has been zeroed out or there are no payments
outstanding.
CHAIRMAN KOTT referred to page 1, lines 5 through 8, which talks
about percentages and said it seems like those numbers would be
ever shifting. He said he would think that on a daily basis, there
are students going into default and students coming out of default.
MS. BARRANS said that is correct. She referred to the snapshot
they did in order to implement the calculation in regulation and
said it was done December 31, 1995. Ms. Barrans said they issue a
program default rate once a year that is published in the official
statement of the corporation. She said when we look at trends of
the default rate over years, that is generally the number they
take. An official statement from three or four years ago showed a
program default rate of close to 27 percent. Today, after the
commission has finished reviewing numbers, they expect to see a
program default rate that is less than 18 percent. She said what
we're seeing is the effect of the commission aggressively using the
tools that the legislature has made available to them and increased
collection activities on the part of staff.
CHAIRMAN KOTT said he would suggest that the latter is probably
having a greater effect in increased collection activities.
Number 2190
REPRESENTATIVE ELTON said a lot of the fixes that are being talking
about, whether it is revisiting the number of weeks that a school
has to teach before they're eligible for the program, whether it's
the 150 percent formula or whether it's a profile of risky students
that would help the lenders, he doesn't believe anything would be
fixed through HCR 24. That is the fixed through the vehicle of SB
123, for example. Another observation is that he is glad to hear,
perhaps as a result of what the House Labor and Commerce Committee
has done, there now seems to be a dialogue where there wasn't
before. He said he thinks part of the problem was that somebody
had one position and somebody else had another position and they
were defining each other as winners and losers. Representative
Elton suggested that the problem may not be the 150 percent
regulation. He believes part of the problem is the commission
didn't ever define how they were going to implement the regulation
and how it was going to affect individuals with different cases.
He said you could have had a new owner two years ago that had a
loan default rate of 10 percent that would be out of the program,
whereas you would have an existing school that might have a default
rate of 28 percent, fall under the 150 percent rate, and they'd
stay in the program. That just doesn't make sense. He said he
believes part of the problem is how the 150 percent rule is
implemented. Representative Kott said he would rather have the
proprietary schools, the for profit schools, not for profit schools
and the universities work with the commission on coming up with
something that works for everybody. He said we need to figure out
how it will be done before we start moving on SB 123.
CHAIRMAN KOTT said he believes Representative Elton is correct in
his assessment. He said HCR 24 will provide perhaps a stay of
execution for those vocational schools.
Number 2293
REPRESENTATIVE SANDERS said he doesn't believe that there is any
question by any of the committee members that there are problems
and there needs to be some regulations to fix these problems.
There has been a lot of progress made. He said he would like to
encourage those kinds of improvements. Representative Sanders said
he believes that the committee has found that the action by the
APEC was kind of discriminatory against certain schools and certain
students. He said he didn't feel that was the right thing to do.
We're making a lot of progress and this thing is beginning to roll
together. Representative Sanders said he believes HCR 24 should be
passed.
REPRESENTATIVE SANDERS referred to the numbers on page 1, lines 5
through 8, and said the way he understood this was the commission
has about $40 million worth of bad loans.
MS. BARRANS said the time frame they are looking at to apply the
regulation for the period of 1986 through the present. She said
she believes the numbers in the resolution were extracted from a
"white paper" that the commission produced called, "Long-Term Debt
for Short-Term Training." Those numbers were for a different
single period and didn't reflect the entire life of the program.
She said if she had been aware that the committee was looking for
these numbers, she could have produced them. Ms. Barrans informed
the committee she believes the numbers used were loans advanced and
not dollars in default. She said she believes the numbers were the
principal loan advance and not the amount of loans currently in
default. That would skew the numbers because often people don't
default on their entire loan. They actually repay some portion of
it then default. It is only the amount that is in default that the
commission is concerned with. If a portion of the money has been
paid back, they don't consider the entire amount to be in default.
REPRESENTATIVE SANDERS said if the numbers are wrong in the
resolution, he would be open to inserting the correct numbers.
MS. BARRANS noted there are more dollars in default from students
that went to the college and university sectors. The main point is
that if you want to address the default problem with the loan
program, it has to be across the board. If the statute that the
regulation implements allowed them to apply it across the board,
they would be doing just that. She said SB 123 may be a vehicle
that resolves the issue of discriminating against one sector of
schools, but it is not being applied across all sectors that
participate in the program.
Number 2459
REPRESENTATIVE SANDERS moved to delete the second "Whereas" clause.
CHAIRMAN KOTT said there is a motion to delete the wording on page
1, lines 5 through 8. He said it would be a conceptual amendment,
Amendment 1. He asked if there was any discussion.
TAPE 96-4, SIDE B
Number 001
CHAIRMAN KOTT asked if there was an objection to Representative
Sanders' amendment. Hearing none, the amendment was adopted.
Number 021
REPRESENTATIVE BRIAN PORTER informed the committee he had the
opportunity to speak with Ms. Barrans on the issue. He said, for
the record, he really appreciates the attitude Ms. Barrans and the
rest of the division has about the resolution. Representative
Porter said his intent, within the resolution, is to just point out
that the legislature thinks there should be a timeout in the
implementation of a particular regulation and to see if a few
things could be done for the group of affected institutions.
Namely, provide the institutions with some assistance in setting up
how the commission is going to be holding them accountable for
these rates. Give them some assistance in dealing with the ability
to have an influence on their rates and some time to deal with
that. He said he is wondering if the committee is spending more
time on this, at this point, then they need to.
CHAIRMAN KOTT asked Ms. Barrans to explain the fiscal note.
MS. BARRANS informed the committee the fiscal note shows a loss to
the corporation's financial statement in FY97 of $445,000. This
number was arrived at by looking at the initial institutional
default rate calculations that have been made. They looked at
those that would be above the 150 percent threshold and determined
what level of borrowing those schools typically experience in a
fiscal year. She said assuming that rescinding the regulation and
putting something else in place would take six to nine months,
during that period $3.7 million in new loans will be made to those
schools that are currently above the 150 percent threshold. Based
on their historical default rate of that collective group, 33
percent of that would go in default. That is approximately $1.2
million. General accepted accounting principles (GAAP) require
that the corporation reserve as actual losses about 12 percent of
the entire amount made which is the $3.7 million. Ms. Barrans said
even though a higher number goes into default, they continue to
collect on those loans, but ultimately lose about 12 percent over
all. The 12 percent of that amount is the $443,000, reflected in
the fiscal note that they would have to report on their financial
statement for FY97.
MS. BARRANS said as a committee member indicated, this is just a
resolution. All of the assumptions in the fiscal note are that the
resolution is received well by the Governor, who then directs the
commission to rescind the regulation. They would then start
another period of dialogue that within six to nine months would
replace this with another implementation plan.
Number 195
There being no further testimony, REPRESENTATIVE KUBINA moved that
HCR 24, as amended, be passed out of committee with a zero fiscal
note. CHAIRMAN KOTT asked if there was an objection. Hearing
none, CSHCR 24(L&C) was passed out of the House Labor and Commerce
Committee.
HB 319 - SMALL LOANS & RETAIL INSTALLMENT SALES
CHAIRMAN KOTT announced the next order of business would be HB 319,
"An Act relating to the regulation of small loan and retail
installment transactions."
GEORGE DOZIER, Committee Aide, House Labor and Commerce Committee,
Alaska State Legislature, explained HB 319 was introduced by the
House Labor and Commerce Committee and addresses two distinct
statutory schemes. The first one is the Small Loan Act which makes
up the bulk of the bill. The Alaska Retail Installment Sales Act
is also addressed in the bill. Mr. Dozier explained the Small Loan
Act pertains to the commercial loans of money, credit, goods or
things of action where the amount loaned is $25,000 or less. The
Retail Installment Sales Act pertains to credit transactions
entered into between retail merchants and retail customers.
MR. DOZIER explained HB 319, in its original form, adjusts the
application fee of the Small Loan Act from $400 to $1,000. It
adjusts upward the annual license fee from $200 for a single
license to $2,000 for a multiple office license. It also adjusts
upward the amount of liquid assets that are required of licensees,
under the Small Loan Act, from $20,000 to $25,000, and requires
that where a licensee has multiple offices that that amount be
available for each and every office which is listed under the
license. Mr. Dozier said it also adjusts upward from $5,000 to
$25,000 the amount of bond required for a licensee under the Small
Loan Act.
MR. DOZIER said the bill also makes it clear that a licensee,
unlike the present law, may have one license which pertains to up
to ten different places of business. It creates a multiple office
license. The Small Loans Act is also modified to the extent that
under this bill, licensees don't have to maintain separate books
and accounting records where another type of business is operated
out of the same office. Mr. Dozier said as he understands the law,
the state would have the ultimate discretion as to whether a
different type of business can be operated or a different business
can be operated out of the licensee's office. When that discretion
has been granted in the affirmative, then it is no longer required
for the licensee to maintain separate books. However, there must
be some system in place so as to permit the state to monitor the
records and make sure that the provisions of the (indisc.) statutes
are complied with.
MR. DOZIER explained Section 8 of the bill, also pertaining to the
Small Loan Act, provides that in making repayments under the
various loans that are granted that individuals can make irregular
payments as opposed to monthly regular payments. That would
pertain to seasonal workers, fishermen or people that don't have
regular incomes throughout the years.
MR. DOZIER said the bill also adjusts and broadens the scope of
permissible fees that may be charged under the Small Loans Act.
Such fees could include a fee for insurance premiums instead of
perfecting security interests. Also for loans over $10,000, the
lender can charge reasonable costs and fees for appraisals. That
would be appraisals of property that is offered in security or for
surveys, title insurance reports and credit reports of the
borrower.
MR. DOZIER said also under the Small Loan Act, the late payment fee
is adjusted upward. Currently, the statutes allow for a late
payment (indisc.) fee of 10 percent or $15, whichever is the lesser
amount. He said HB 319 would adjust that upward to 10 percent or
$25, whichever is the lesser amount. Other fees and costs that are
adjusted by the bill are on dishonored checks. The bill specifies
a fee may be charged for that. The fee would be set by normal
commercial charges that would be imposed. Mr. Dozier said HB 319
would also allow reasonable attorney fees and actual expenses and
costs that are incurred in collection of delinquent loans or loans
in default, but only when outside attorneys are employed to do this
collection. This would not pertain to in house collection
activities by corporate counsel. Also, this would only pertain to
where the balance is over $5,000.
MR. DOZIER said starting in Section 10 of HB 319, the emphasis is
shifted to the Retail Installment Sales Act and that particular
section would permit the charging of delinquency collection and
dishonored check charges, attorney fees charges, court costs and
disbursements where the contract or the agreement between the
parties so permit.
MR. DOZIER referred to Section 11 and said the amount of service
charge that is permitted under the Retail Installment Sales Act is
adjusted upward to 1.5 percent, per month, for the unpaid balance.
MR. DOZIER said that is a sketch of the original bill. There is a
draft CS on the table. Much of the CS is the same as the original
bill with some exceptions. One exception is the draft CS
specifies, under the Small Loans Act, that if a office or a
licensee has more than one office, it's a multiple office license,
then only one bond is required. Another change is under the
original bill, referring to the Small Loan Act, in order to be able
to charge for appraisals, surveys, title insurance and reports,
charges of that nature, the loan would have to be for in excess of
$10,000. The draft CS modifies that to the extent that these
charges may be imposed when the loan is less than $10,000 if the
loan is secured by real property - real estate.
MR. DOZIER explained another change pertains to the interest rate
that is permitted under the Retail Installment Sales Act. He said
HB 319, in its current form, allows a service charge in the amount
of 1.5 percent per month. The change made in the proposed CS would
eliminate that ceiling and set interest as agreed by the parties.
So essentially, the market would determine the interest rate.
MR. DOZIER pointed out that the proposed CS is identical to a
corresponding bill in the Senate, CSSB 157(L&C). He said there are
two small exceptions. On page 7, line 8 of the proposed CS,
Section 13 reads, "If authority to do so is contained in the
contract or agreement, the". He explained the Senate version of
the bill has a couple of words inserted after "agreement." Those
words are, "and agreed to by the parties." Mr. Dozier said it
appears this language is redundant in that there is no contract or
agreement that can exist, as he sees it, without an agreement of
the parties. Consequently, those words were deleted as excessive.
The other change is a stylistic change made on page 7, line 18,
where the House draft CS reads, "revolving charge agreement, or
other retail charge agreement must". The Senate version reads,
"shall".
MR. DOZIER said that concludes his presentation. There are experts
present at the meeting who will be able to provide the details.
Number 742
REPRESENTATIVE PORTER moved that the committee adopt CSHB 319(L&C),
Version C, dated 1/16/96. There being no objection, it was so
ordered.
Number 773
JOHN HIGGINS, General Manager, Northland Credit Corporation, came
forward to testify on CSHB 319(L&C). He said the bill really came
to be where it is today with the consensus of the industry along
with working hard with the Administration. Mr. Higgins said he not
only is speaking for Northland Credit Corporation, but other
industry members that can't be present.
MR. HIGGINS explained what the bill does in the consumer finance
industry, which consists of himself, Norwest Financial, AFCO
Financial, Affordable Loan, Superior Financial. They are the ones
that currently hold a license under the Alaska Small Loan Act.
What the bill does for the consumer finance industry is it helps to
bring up to date, from the 1950s standards, a lot of antiquated
statutes which currently exist that revolve around this. Mr.
Higgins said the Act was originally written in the 1950s and hasn't
been modified much since then. He said there are things that have
to do with joint loan provisions where currently, you really can't
give a loan out to a spouse or a husband and wife. That would be
changed to where you can have one open account with each person if
they so desire. The could each have their own loan if they want
to. Currently, they have to be under the same loan. There is also
fee enhancements that would be brought up the 1990 standards. Mr.
Higgins said under the statute, they are looking to do multiple
office licenses. Currently, each office has to be individually
licensed. Another portion previously mentioned, was the part of
the bill about payment restructuring. Currently, a customer can
only pay back on a 30 day payment cycle. They have to have a
payment in the office every month. He said they want to adjust
that so they can accommodate a seasonal worker and have a repayment
schedule that might be 90 days or 6 months later. That is not
allowed under the current statutes.
MR. HIGGINS said what they are looking for is market deregulation
to put them on a more competitive playing field with rate
importation which comes in to Alaska from outside the state, which
effects their market when they try and finance mainly household
good type items at retail dealerships. That rate importation puts
them on an uneven playing field to the point where they really are
at a disadvantage to be licensed and located in Alaska. They can't
currently do the same rate structures that business outside the
state can.
Number 984
CHAIRMAN KOTT asked Mr. Higgins how that particular section of the
bill would play out.
MR. HIGGINS said currently, the programs that are the most
attractive for a consumer are the 90 day, same as cash, and the 12
month interest free programs that are advertised for household
goods, furniture, appliances and electronics. Mr. Higgins
continued, "I'll use a big screen T.V. as an example. If you go to
buy a big screen T.V., whether it is here in the city of Juneau
with Alaska Audio Video or you're up at Anchorage buying one at
Pyramid Electronics or Magnum Electrics, that $4,000 T.V. that you
go in buy, because you wanted to get it on a special program which
was 12 months interest free and 12 months no payments, and that's
what brought you into this store. Currently, I offer those
programs, but currently they do not use our financing and nor are
they relatively using the financing of Norwest Financial who also
offers those programs in state. What happens is Mitsubishi Bank,
excuse me, Monogram Bank -- no it's Mitsubishi - Mitsubishi big
screen T.V., what they do is because they can offer a rate
structure on the other end that is 21 percent or 21.8 percent, and
our rate structure is about 13.9 percent right now -- and this
would be the rate that the consumer would pay after their special
program is over - after their 12 month interest free program period
is over, if they don't pay it off in that period, the rate they
would pay me is about 13.9 and the rate they would pay outside the
state is 21. Now how that works back to the retailer is the
retailer right now, I would have to charge them basically 10
percent to run that same interest free program, for the cost of
that money it's basically interest free for that year period. The
place outside the state, such as Monogram Bank of Georgia, or that
they finance the Mitsubishi card, they charge the retailer nothing
at that point. And they charge the retailer nothing because, once
again, they make it up on the other end with the consumer at 21
percent. So, basically what happens on a $4,000 purchase, lets
say, Monogram Bank of Georgia will cut a check back to the retailer
for approximately $4,000. We'll cut a check to the dealer for
about $3,600."
MR. HIGGINS gave the committee information which were the rate
ceilings for the entire U.S. He said what they are looking for is
a deregulated or competitive market rate playing field to deal with
the people that do rate importation from outside the state. He
said they would like to keep the Alaska consumer here if they can.
It's good business for Alaska. It gives him the ability to provide
more jobs. The paperwork is kept in Alaska and doesn't go to
Georgia or Denver. Also, if a consumer ever does have a complaint
or comment on their financing, they can come and discuss it with
them directly. He pointed out that many retailers use cards that
are sponsored outside the state because they don't charge what the
instate users have to charge - the instate issuers of credit.
CHAIRMAN KOTT asked if it is a fair assessment to say, for
instance, Mr. Higgins' credit corporation would not be pushed
within one of the retail establishments because of the payback at
the end.
MR. HIGGINS said he could provide a clear example. He chose
Pyramid Electronics and Shimicks Audio and Video in Anchorage. "We
used to be a sole financing source for both those places, and
including Magnum Electronics, which has a lot of paper that they
finance, and we no longer really do hardly any business with those
places anymore. As we sit here now, now a year ago I did, and what
has changed between then and now is the Sony card has come on
board, the Toshiba card has come on board, and the Mitsubishi card
has come on board, and they're all cards that are sponsored outside
the state. And why have they come on board and why does the
retailer use them? Well the retailer uses them because they don't
charge what the instate users have to charge, I mean the instate
issuers of credit. Being myself, it deals in this market --
Norwest Financial or AFCO primarily. And so with that in mind,
that user retailer would probably make the same decision at some
point too. It becomes a monetary decision. You'd like to use
someone in state, but they can't cut you the same deal that the guy
outside the state can. And so that's how it rolls down to today
that we are are - as you stated - are we even on the counter? No,
we're not on the counter. Our applications are under the counter
at this time. The retailer doesn't want you to know about us
because if you say, `Oh no, I'd rather go through them, they're
offering the same program anyway.' The retailer doesn't want you
to have that in you hands because he is going to have to pay more.
He will lose money on that particular T.V. that goes out the door.
He will not receive $4,000. He'll only get $3,500 because we have
to discount that paper."
Number 1316
REPRESENTATIVE KUBINA clarified how it works. Mr. Higgins is
allowed to charge 18 percent on the first $1,000, but anything over
that, he is only allowed to charge 10 1/4 percent. MR. HIGGINS
answered in the affirmative. Representative Kubina asked if this
is on an installment loan or if it is a credit card. Mr. Higgins
said it looks like a credit card program. It's not like a Visa
Mastercard or anything, but it's merchant specific.
REPRESENTATIVE KUBINA a bank that issues a credit card doesn't have
that restriction. MR. HIGGINS said that is right. He noted that
is a separate set of laws that governs those interest rates.
REPRESENTATIVE KUBINA referred to JC Penney and said their rate
could be higher. He asked if this is the law that they're under.
MR. HIGGINS said it is not because at this time they're not a
member of any national bank and they have offices in Alaska. They
have to abide by Alaska statutes under this Act. Representative
Kubina said JC Penney is restricted to anything over $1,000, they
charge 10 1/4 also. Mr. Higgins said exactly. He referred to
information before the committee and said what the committee
member's see on the paper is what they charge on their card at this
time.
REPRESENTATIVE KUBINA said he assumes the reason that was there in
the first place would be because this is a good deal for our
residents because we're holding the interest rate down. But in
fact, it's not really a good deal because all the people from
outside can charge our residents more anyways and then they can
give the businesses more of a deal to get them to use their card at
the disadvantage to a local business. MR. HIGGINS said that is
accurate. He referred to Sears and said they are in Alaska and are
operating in the same retail environment as JC Penney. Sears
doesn't have to abide by these rates because about 90 to 120 days
ago, they purchased a national bank and they now issue their card
through the national bank. They can now use the deregulated rate
structures. It depends on where the card is issued. He noted
Nordstrom bought a national bank in Oregon last year and they now
issue their card through that bank.
Number 1551
REPRESENTATIVE ROKEBERG asked if there is a limit or ceiling on
bank credit cards like VISA or Mastercharge in the state. MR.
HIGGINS said there is a limit and it depends on if you're a
national or a state chartered bank. The set of statutes you would
be under depends on how you issue your card. He noted he isn't
familiar as to what the cut offs are on those.
MR. HIGGINS said he would like to say something else about rate
caps. He referred to the list he gave the committee and said
Wisconsin is currently passing themselves into the top of the
section which would be a deregulated or a competitive market rate.
Even though they're at 18 percent on all money lent, they've found
out that is not even effective in their state because, once again,
they still have rate importation which steels so much of their
business.
MR. HIGGINS said he has some studies if the committee would like a
copy of them, that had to do with the deregulation of retail
revolving credit and what it does. The University of Wisconsin,
for Wisconsin state, did the most recent studies last year. When
you do deregulate, you cause more competition. The rates do come
down.
Number 1848
CHAIRMAN KOTT said as a business in a lending capacity, such as Mr.
Higgin's, it would certainly be beneficial from Mr. Higgins
perspective. MR. HIGGINS said the bottom line is, "Do you want
people churning paper in Georgia for Alaskan consumers or do you
want them churning the paper here if they're going to be borrowing
money?" Mr. Higgins said his vote is to have them here. There
would be some job growth.
CHAIRMAN KOTT noted the committee members had letter in support of
the bill from AFCO Financial and JC Penney.
Number 1999
WILLIS F. KIRKPATRICK, Director, Division of Banking, Securities
and Corporations, Department of Commerce and Economic Development,
said he will limit his comments to the provisions addressing the
Small Loan Act. He said he wants to go on record of really
appreciating the assistance, the help and the understanding that
the industry did in working on this piece of legislation. Mr.
Kirkpatrick said his staff has been in contact with the industry
and the debates have been minimal. Most of the amendments are
beneficial to the consumer, it brings the act up to date and
provides for a little more sense in operation. The provision, for
example, allows them to commingle accounts on computers which makes
sense. Why keep hand posted or separate records just for the small
loan portion of the business if they can segregate those out by
sorting their computer data and provide it to the department's
examiners. Mr. Kirkpatrick said he feels it is a very good piece
of legislation and he doesn't find any fault with it.
MR. KIRKPATRICK referred to the Retail Installment Sales Act and
said he doesn't have any comments, but is available for questions.
CHAIRMAN KOTT referred to the increase in fees for applications for
a licensor and asked if that is agreeable to him as far as the
amount that is needed to cover associated costs. MR. KIRKPATRICK
said most of their applications for financial institutions, such as
bank branches or different types of service facilities that they
apply for, falls right in line with that. In this type of a
provision, this gives $1,000 for the department and partial payment
for the application. If it's a complicated application, under AS
06.01, if there are additional costs the state can recover those
additional costs. He said they have found that this is in line
with other types of investigations of similar types.
CHAIRMAN KOTT said he assumes that is the reason for the zero
fiscal note. MR. KIRKPATRICK said that is correct.
CHAIRMAN KOTT asked how many applications the division processes.
MR. KIRKPATRICK informed the committee that in the early 1970s,
there were two major companies in Alaska, Beneficial and Household.
Both of them had offices throughout the state. In the mid 1980s,
it dropped down to maybe three Household offices. That has now
begun to increase. He said it provides a credit service for
constituents who cannot otherwise obtain credit from traditional
financial institutions. Mr. Kirkpatrick said we have actually
encouraged them to come to the outlying areas of the state. Over
the last two years, the department has been very active in those
applications but they do not have an application currently on file.
CHAIRMAN KOTT referred to the requirement to have $25,000 in liquid
assets and asked if that is comparable with other states. MR.
KIRKPATRICK said it is probably the lowest in the nation. He
explained what they look at in addressing that is if they don't
have $25,000 to lend out the first most expensive loan, they should
probably look at some other endeavor. That has never been a
question. Those who do apply usually have substantial money or
cash available to lend out.
Number 2380
REPRESENTATIVE ROKEBERG asked Mr. Kirkpatrick to clarify the
question on the bank card ceiling. MR. KIRKPATRICK explained there
is a credit card statute that is more or less defined as a bank
card in AS 06.05, the Alaska Banking Code. He said he believes it
is 17 percent. Representative Rokeberg asked if other outside
banks are allowed to do business in the state and charge higher
rates. Mr. Kirkpatrick said that is correct. Representative
Rokeberg referred to the retail installment section and asked if
that includes the lack of a ceiling cap in Section 11. Mr.
Kirkpatrick said that is correct. [End of tape...]
TAPE 95-5, SIDE A
Number 001
MR. KIRKPATRICK said as an employee of the Executive Branch has no
opinion as the consumer impact on this.
REPRESENTATIVE KUBINA said, "Could you sit there as a private
citizen and, because of your expertise, just give us a little bit
of a feeling that you have privately, and we realize this has
nothing to do with being an official."
MR. KIRKPATRICK said what he is about to tell the committee is what
he has advised them that has been his position or comments in the
past as a private citizen. He explained in the early 1980s, we
used to have a federal regulation called "Regulation Q."
Regulation Q said financial institutions and insurer depository
financial institutions could not charge more than 5 1/4 percentage
interest on savings. Savings and loan got a 1/4 percent of a
preferential and they could charge 5 1/2 percent. What happened is
that in the 1980s, that part of the balance sheet was deregulated.
He said he has always felt that if you're going to deregulate one
side of the balance sheet, why not deregulate the other side of the
balance sheet. In other words, why say that you can go out and be
competitive in one side in relations to interest paid, but are
under usury limitations on the other side of the balance sheet on
(indisc.) you can charge for loans. Things have changed a great
deal. Since Regulation Q went away, we saw that South Dakota and
Delaware made their states interest rate exporters. They gave
great benefits to financial institutions to set up financial
institution credit card exporting businesses in those states just
to do what the committee is talking about. They've done that with
great success. Mr. Kirkpatrick said he thinks there was a recent
court challenge against a bank in South Dakota, but he believes it
failed on the basis of you can't impede commerce across state
lines. He said one of the things were seeing is that he has a
close friend who wanted to buy a $4,000 computer. He bought a
$4,000 computer on his Visa Seattle First credit card, he received
his Alaska Airlines points. He then received some mail saying he
could have a loan for six months at 5 percent, so he applied for
that, paid off his Seattle First loan. Then before the six months
was up, City Corp said he could have one for 6 1/2 percent until
March. Mr. Kirkpatrick said those are leaders. If you take a look
at the rate after that period of time, the first one was 18 percent
and the one his good friend currently has will soon be 21 percent,
but by then he'll have his computer paid off.
MR. KIRKPATRICK said people are wise as to what the interest rates
are and they can take advantage of them. It is competitive now.
One of the things we seem to do is under the pseudo effect of
protecting the public, the public is not being protected if we're
to do that because they're buying their products that are available
to them at "easy payments," or "no payment until..." The local
people who are trying to finance the Alaska people are
discriminated against. It is a market place. Mr. Kirkpatrick said
he has known John Bly in the state of Washington, Cecil in Oregon,
Gaven Gee in Idaho, who are all his counterparts. He said all
three of those states have no interest rate limitation. Mr.
Kirkpatrick said he has urged them to introduce legislation to
repeal that and they thought he was crazy. Everything else is in
the market, why shouldn't that be. Mr. Kirkpatrick said we do
understand that there are consumer groups that feel they need to be
protected and heard.
CHAIRMAN KOTT thanked Mr. Kirkpatrick for his testimony.
Number 477
JERRY REINWAND, Lobbyist, Sears, JC Penney, Safeway and Fred Meyer,
said he supports the bill. He noted there should be some
information in the committee members packet that JC Penney has
provided. He said the legislation is overdue and is something his
companies support. Mr. Reinwand urged the committee to move the
bill.
REPRESENTATIVE KUBINA asked if any of the consumer groups were
negative toward the bill. CHAIRMAN KOTT said he hasn't seen
anything negative towards the bill.
Number 557
REPRESENTATIVE PORTER made a motion to move CSHB 319(L&C) out of
committee with individual recommendations and a zero fiscal note.
Hearing no objection, CSHB 319(L&C) was moved out of the House
Labor and Commerce Committee.
SB 160 - EXCLUSIONS FROM UNEMPLOYMENT COVERAGE
CHAIRMAN KOTT announced the next order of business was SB 160 am,
"An Act excluding certain employment by students from the
definition of 'employment' in the state employment security laws."
MARY JACKSON, Legislative Staff to Senator John Torgerson, sponsor
of SB 160 am, informed the committee members they have a zero
fiscal note in their committee packet. She also noted that
included in the packet is the sponsor statement, sectional
analysis, etc. The history of the bill is straight forward. A
constituent in Senator Torgerson's district called him after having
written a letter to the Department of Labor regarding unemployment
insurance for their college age daughters. The constituent's
concerns were that their college age children were in school nine
months out of every year, they work seasonally in their "mom and
pop" business. They are required to pay unemployment taxes but
they are not eligible to receive unemployment. From their point of
view, it is an unfair tax and Senator Torgerson agreed. The
constituent then wrote a follow-up to the department and received
a response from the commissioner, the gist of which was, "Yes, a
full-time employee pays a potential of $119 and some odd cents per
year." If they are a part-time student, they pay even less. She
said he recognized that if you pay anything towards what you don't
get a benefit from, it's not fair, but he said there is a benefit.
Ms. Jackson said there is not. The regulations are very specific.
It is in the Alaska Employment Security Act which says, "However,
and uninsured worker who has been pursuing an academic education
for at least one school term and who was working at least 30 hours
a week during a significant portion of the time that the worker was
pursuing an academic education, would not be disqualified for the
unemployment insurance if the worker's academic schedule does not
preclude or prevent full-time work in the worker's occupation and
if the worker of student became unemployed because the worker was
laid off." Ms. Jackson said the constituent asked how many full-
time students do you know that could possibly fit under that
scenario. Senator Torgerson's response was none. The constituent
then noted that the real issue, in their opinion, was whether or
not the student is supporting themselves. If they're full-time
employees, they obviously are supporting themselves. If they have
full-time student status and only part-time with a seasonal
adjustment, they're not supporting themselves. Mom and dad are.
MS. JACKSON pointed out that the statute exempts service that is
performed by an individual in the employ of the individual's son,
daughter, spouse and service performed by the child under the age
of 18 and in the employ of the child's mother and father. What SB
160 does is it expands that to service performed in the employ of
the parent or legal guardian for 21 or under who are also full-time
students. Ms. Jackson said she doesn't know what the department's
position is on the amended bill.
Number 849
DWIGHT PERKINS, Special Assistant, Department of Labor, came before
the committee. He informed the committee that in the amended
version of SB 160, page 1, line 7, is different in that it starts
off by saying, "parent or legal guardian if the individual was
under the age of 21 years and full-time student during the eight of
the last 12 months and intends to resume full-time student status
within the next four months;". In the original version of SB 160
it says, "if the individual was a full-time student during eight of
the last 12 months and intends to resume full-time student status
within the next four months;".
CHAIRMAN KOTT asked if there was a title change. MR. PERKINS
indicated there wasn't.
CHAIRMAN KOTT asked Ms. Jackson if a title change was considered.
MS. JACKSON indicated there wasn't any discussion regarding a title
change, and in fact it still conforms because the statute was for
full-time students, but now they're under the age of 21.
MR. PERKINS stated the Department of Labor opposes SB 160 am, for
the following reasons:
"The Employment Security Act already goes far enough in excluding
employment of children by their parents and excluding employment of
students by educational institutions. Coverage of student workers
should not be further eroded.
"The terms of the exclusion are vague, and there is no feasible way
to base tax liability on a worker's `intention' to remain in
school.
"The bill has a disparate impact on one subset of workers on the
basis of family relationship, exempting these workers from
contributing to unemployment insurance, but also denying these
workers from collecting benefits should they quit school or become
eligible for receiving benefits while in school.
"The existing tax burden on affected students is minimal. As Mary
stated, a full-time employee working the entire calendar year, you
and I, pays a maximum of $119.50 in unemployment insurance
contributions. A student employed only between school terms would
pay substantially less.
"The unemployment insurance system is just that, it's an insurance
system. Coverage and payment of contributions is no more based on
the likelihood of collecting benefits than payment of automobile
insurance premiums under the state mandatory insurance law is based
on the expectation of getting in an accident in any given year. A
chipping away at the inclusiveness of the system by exempting
employers or employees who don't want to pay into the system will
ultimately damage the viability of the program and the health of
the UI Trust Fund."
MR. PERKINS asked what will be the next category to be exempted.
He thanked the committee for listening to him.
Number 1168
CHAIRMAN KOTT asked how many people would fall within this
category. MR. PERKINS explained he didn't have that information.
He said he didn't want the committee to think he is speaking for a
silent majority of people out there. He said he could get the
numbers for the committee.
REPRESENTATIVE PORTER asked if it would be a reasonable statement
to say very few people that fit into this category really would
have the benefit of coverage. MR. PERKINS said he would hesitate
to give a number only because he doesn't know. The department's
concern would be that to keep exempting groups of people because
they simply don't want to pay is maybe a wrong direction to go. Is
there another group out there? He said he doesn't know. Mr.
Perkins said he is sure there is a lot of constituencies out there
that would not want to pay the mandatory insurance either, but they
do. That doesn't mean they're going to run out and get in an
accident so they can claim on that either.
Number 1358
MS. JACKSON pointed out that the fiscal note from the Department of
Labor is zero.
CHAIRMAN KOTT pointed out that the bill was introduced last year
and questioned if the problem still exists. MS. JACKSON indicated
it does.
Number 1445
REPRESENTATIVE PORTER made a motion to move SB 160 am, out of the
House Labor and Commerce Committee with individual recommendations
and a zero fiscal note.
REPRESENTATIVE SANDERS objected. He said he doesn't feel
comfortable moving the bill. It is a very small number of people
and a minimal amount of money. He said he would love to support
his senator, but he doesn't think it is right to move the bill.
REPRESENTATIVE ROKEBERG said he would probably vote to move the
bill. He noted he isn't too worried about any other "tom cats
coming out of the bag."
REPRESENTATIVE PORTER said he doesn't look at the bill as being a
bill that would result in a tweaking of the unemployment insurance
fund because there is a zero fiscal note. He said he thinks it
fits within the stated public policy of the statute which says
there are exemptions for these kinds of things. Representative
Porter said he doesn't think, considering the zero fiscal note, the
bill is a raid on the unemployment account.
REPRESENTATIVE ROKEBERG referred to the $119.50 collected over the
entire year and said the act of having to fill out the forms could,
in certain areas of time evaluation, be more costly than the actual
payment for a small business person.
CHAIRMAN KOTT said he believes the purpose of unemployment
insurance is to provide that bridge of a person leaving a job and
seeking another. It probably does not apply or is not applicable
to college students.
REPRESENTATIVE ROKEBERG said these people are paying in but can't
collect. He asked if that is right.
REPRESENTATIVE SANDERS said if that situation should change, they
could collect. We all know it changes often, they go to school one
year and don't go the next. He said you pay in, but you're
collecting off of a total pool for the state.
Number 1712
REPRESENTATIVE SANDERS said he might change his mind, but if he
ever sees another bill similar to SB 160, he is not voting for it.
Representative Sander withdrew his objection.
CHAIRMAN KOTT said he generally isn't supportive of a measure that
is directed toward a specific small group. He said this could be
a lot larger group than he is envisioning. This takes care of a
single person. It is correcting an inequity dealing with one
family and one son or daughter.
Number 1755
CHAIRMAN KOTT said since Representative Sanders withdrew his
objection, there is a motion to move the bill out of committee.
Hearing no further objection, SB 160 am was moved out of the House
Labor and Commerce Committee.
ADJOURNMENT
Number 1776
CHAIRMAN KOTT adjourned the House Labor and Commerce meeting at
5:20 p.m.
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