Legislature(1995 - 1996)
01/31/1996 03:10 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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.