Legislature(2017 - 2018)BARNES 124

05/08/2017 03:15 PM LABOR & COMMERCE

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Audio Topic
03:18:16 PM Start
03:18:42 PM HB180
03:48:05 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 180 MONEY SERVICES BUSINESS: REQS; LICENSING; TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
          HOUSE LABOR AND COMMERCE STANDING COMMITTEE                                                                         
                          May 8, 2017                                                                                           
                           3:18 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Sam Kito, Chair                                                                                                  
Representative Andy Josephson                                                                                                   
Representative Chris Birch                                                                                                      
Representative Gary Knopp                                                                                                       
Representative Colleen Sullivan-Leonard                                                                                         
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Adam Wool, Vice Chair                                                                                            
Representative Louise Stutes                                                                                                    
Representative Mike Chenault (alternate)                                                                                        
Representative Bryce Edgmon (alternate)                                                                                         
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 180                                                                                                              
"An  Act relating  to money  transmission  and currency  exchange                                                               
businesses; relating  to transmitting value that  substitutes for                                                               
money;  relating  to   licensing  requirements  and  registration                                                               
through the Nationwide Multistate  Licensing System and Registry;                                                               
relating  to  surety  bonding requirements;  authorizing  certain                                                               
licensees to contract to use  subdelegates for reloading funds on                                                               
certain  stored-value   cards;  relating  to   record  retention,                                                               
reporting requirements,  and enforcement provisions;  relating to                                                               
exemptions;  relating  to  money  services  Internet  activities;                                                               
relating to  transmitting value and  currency; and  providing for                                                               
an effective date."                                                                                                             
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 180                                                                                                                  
SHORT TITLE: MONEY SERVICES BUSINESS: REQS; LICENSING;                                                                          
SPONSOR(s): REPRESENTATIVE(s) FANSLER                                                                                           
                                                                                                                                
03/14/17       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/14/17       (H)       L&C, JUD                                                                                               
05/08/17       (H)       L&C AT 3:15 PM BARNES 124                                                                              
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
MARY SCHLOSSER, Staff                                                                                                           
Representative Zach Fansler                                                                                                     
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION   STATEMENT:      Presented   HB  180   on   behalf   of                                                             
Representative Fansler, prime sponsor.                                                                                          
                                                                                                                                
PATRICE WALSH, Examinations Chief                                                                                               
Division of Banking and Securities                                                                                              
Department   of  Commerce,   Community  &   Economic  Development                                                               
(DCC&ED)                                                                                                                        
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Answered questions  during the hearing on HB                                                             
180.                                                                                                                            
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
3:18:16 PM                                                                                                                    
                                                                                                                                
CHAIR  SAM KITO  called  the House  Labor  and Commerce  Standing                                                             
Committee meeting  to order at  3:18 p.m.  Representatives Knopp,                                                               
Birch, Kito,  and Josephson  were present at  the call  to order.                                                               
Representative  Sullivan-Leonard arrived  as the  meeting was  in                                                               
progress.                                                                                                                       
                                                                                                                                
        HB 180-MONEY SERVICES BUSINESS: REQS; LICENSING;                                                                    
                                                                                                                                
3:18:42 PM                                                                                                                    
                                                                                                                                
CHAIR KITO  announced that  the only order  of business  would be                                                               
HOUSE BILL  NO. 180, "An  Act relating to money  transmission and                                                               
currency  exchange  businesses;  relating to  transmitting  value                                                               
that substitutes  for money;  relating to  licensing requirements                                                               
and  registration  through  the Nationwide  Multistate  Licensing                                                               
System  and Registry;  relating to  surety bonding  requirements;                                                               
authorizing  certain licensees  to contract  to use  subdelegates                                                               
for reloading  funds on certain  stored-value cards;  relating to                                                               
record   retention,  reporting   requirements,  and   enforcement                                                               
provisions; relating  to exemptions;  relating to  money services                                                               
Internet   activities;  relating   to   transmitting  value   and                                                               
currency; and providing for an effective date."                                                                                 
                                                                                                                                
3:19:19 PM                                                                                                                    
                                                                                                                                
MARY SCHLOSSER, Staff, Representative  Zach Fansler, Alaska State                                                               
Legislature,  presented  HB  180   on  behalf  of  Representative                                                               
Fansler,  prime   sponsor.    With   the  aid  of   a  PowerPoint                                                               
presentation  [hardcopy included  in the  committee packet],  she                                                               
said  HB 180  would amend  the Alaska  Money Services  Act, which                                                               
provides  legal   framework  for  currency  exchange   and  money                                                               
transmission functions, including transfer  of money, and loading                                                               
and  reloading of  payment instruments  -  including store  value                                                               
cards.  She  explained that when the Act was  passed in 2007, the                                                               
legislature  did not  contemplate virtual  or "crypto"  currency,                                                               
such  as "Bitcoin"  or "Venmo,"  or  the rate  of money  services                                                               
business expansion.                                                                                                             
                                                                                                                                
MS.  SCHLOSSER  stated  that  HB   180  would  update  licensing,                                                               
recordkeeping, and  enforcement provisions designed to  support a                                                               
"legal  marketplace" and  ensure legal  behavior.   She said  the                                                               
proposed changes better support  rural Alaska-based money service                                                               
businesses by removing the licensing  discount for Outside firms;                                                               
current  law  allows  applicants  from  other  states  to  submit                                                               
minimal information and  pay a fee of $500, which  is half of the                                                               
fee that instate money service businesses pay.                                                                                  
                                                                                                                                
MS.  SCHLOSSER  relayed  that HB  180  would  encourage  business                                                               
expansion,  replacing  a  $25,000 net-worth  requirement  with  a                                                               
surety bond for  the same amount "up to $1  million."  The surety                                                               
bond coverage  would add greater  consumer protection,  she said.                                                               
The   proposed  bill   would  also   assist  rural   Alaskans  by                                                               
simplifying  the process  for a  license to  contract with  other                                                               
licensees  to  reload  rural-issued  prepaid  cards.    She  drew                                                               
attention  to  the penultimate  slide  of  the PowerPoint,  which                                                               
shows  the current  treatment of  subdelegates and  how contracts                                                               
must  be made  individually with  entities, such  as Fred  Meyer,                                                               
Walgreens,  and  Safeway.   The  last  slide shows  the  proposed                                                               
treatment  of  subdelegates, which  would  be  streamlined.   She                                                               
indicated  this  would  provide   "a  greater  access  for  rural                                                               
Alaskans coming into Anchorage, in particular."                                                                                 
                                                                                                                                
MS. SCHLOSSER said  HB 180 would broaden the  definition of money                                                               
services  to include  the new  virtual currency  transactions, as                                                               
well as  "other methods of  moving or transferring money."   This                                                               
will better protect  Alaskans against fraud, she  said.  Further,                                                               
the bill  would add a  criminal background check for  all control                                                               
persons;  require   licensees  to   comply  with   federal  laws,                                                               
including those related to  suspicious activity reports; increase                                                               
records  retention   from  three   to  five  years   for  greater                                                               
transparency;   update   enforcement   provisions   by   allowing                                                               
increased  orders;  require  report  sales  for  calculations  of                                                               
license fees and  assessments to ensure state  costs are covered;                                                               
and require  registration in the Nationwide  Multistate Licensing                                                               
System and Registry  (NMLS) for filing documents  and paying fees                                                               
- a  system used by over  90 percent of money  service businesses                                                               
in other states.                                                                                                                
                                                                                                                                
MS. SCHLOSSER  reported that Alaska  currently has  87 registered                                                               
money service businesses, and the  number is expected to increase                                                               
over the next few  years.  She said 3 of  the 87 are Alaska-grown                                                               
companies.  Ms. Schlosser concluded  her presentation by offering                                                               
to answer questions.                                                                                                            
                                                                                                                                
3:23:44 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE BIRCH  asked for clarification as  to what problem                                                               
HB 180 is attempting to solve.                                                                                                  
                                                                                                                                
MS.  SCHLOSSER responded  that  HB  180 is  "kind  of a  clean-up                                                               
bill."   She  said it  would increase  consumer protection,  both                                                               
with  the   surety  bond  and  with   regulations  that  increase                                                               
transparency.  She said by using  a system that 90 percent of the                                                               
businesses  in  other  states currently  use,  Alaska  businesses                                                               
would  be able  to "get  their  information more  readily."   She                                                               
reiterated that  the bill  would expand  the definition  of money                                                               
services to include virtual money transfer businesses.                                                                          
                                                                                                                                
3:25:00 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   KNOPP  asked   who  contracts   with  multistate                                                               
agencies and whether there is any cost to the state.                                                                            
                                                                                                                                
MS.  SCHLOSSER answered  that money  service businesses  contract                                                               
with each other.  She offered  a hypothetical example such that a                                                               
contract made under the provisions  of the proposed bill would be                                                               
valid with  subdelegates.  People with  reloadable [stored-value]                                                               
cards  would have  greater access  to  goods and  services.   She                                                               
said, "It's  not setting up  an entire banking service,  but it's                                                               
getting them  a little  bit closer,  since there's  not a  lot of                                                               
banks set up in rural Alaska."                                                                                                  
                                                                                                                                
REPRESENTATIVE  KNOPP offered  his  understanding that  currently                                                               
"the cards  are not used  in the national  company."  He  said he                                                               
tries to be  cautious about "forcing money  service businesses to                                                               
contract with  a nationwide  company in order  to do  business in                                                               
our state."   He said  it appears  that the current  situation is                                                               
working  wherein   businesses  contract  individually   with  the                                                               
stores,  and under  HB  180,  they would  have  to  go through  a                                                               
national  firm.   He  asked if  [HB 180]  is  being requested  to                                                               
facilitate  the  monitoring of  consumer  protection  or for  the                                                               
benefit of the nationwide company.   He asked, "Who's pushing the                                                               
agenda?"                                                                                                                        
                                                                                                                                
MS. SCHLOSSER offered her understanding  that [HB 180] is "driven                                                               
by Alaska business folks," as  well as by "an outdated regulatory                                                               
system around  money services."   She reiterated  the streamlined                                                               
process  [previously   described  in   the  last  slide   of  the                                                               
PowerPoint].                                                                                                                    
                                                                                                                                
REPRESENTATIVE KNOPP  surmised that the committee  would have the                                                               
opportunity to hear from some businesses.                                                                                       
                                                                                                                                
3:29:02 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE BIRCH  asked for  clarification about  the current                                                               
manner by which a cash card can be used.                                                                                        
                                                                                                                                
MS.  SCHLOSSER answered  that currently  the business  owner [who                                                               
sells the card] can contract  with whomever he/she desires; it is                                                               
beneficial to have as many contracts  as possible.  Under HB 180,                                                               
the process  of contracting would  be streamlined  using national                                                               
organizations, making it no longer  necessary to contract through                                                               
individual  stores; the  card would  be useable  at any  business                                                               
that uses the national business.                                                                                                
                                                                                                                                
3:31:07 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   BIRCH   offered   his   understanding   that   a                                                               
significant  percentage of  cash cards  do  not get  used at  100                                                               
percent.  He asked who ends up receiving the unused balance.                                                                    
                                                                                                                                
3:31:56 PM                                                                                                                    
                                                                                                                                
MS. SCHLOSSER offered  her understanding that it  is the business                                                               
owner that originally issued the card.                                                                                          
                                                                                                                                
3:32:16 PM                                                                                                                    
                                                                                                                                
PATRICE  WALSH,  Examinations  Chief,  Division  of  Banking  and                                                               
Securities,   Department  of   Commerce,  Community   &  Economic                                                               
Development  (DCC&ED), stated  that  prepaid cards  are a  little                                                               
different from gift  cards.  She explained that  while gift cards                                                               
are issued  for use  at specific stores,  prepaid cards  are good                                                               
for any point of sale (POS),  "so, the money stays on that card."                                                               
She  continued, "The  business owner  is  responsible for  making                                                               
sure  that money  stays  on  the card.    So,  there's never  any                                                               
expiration;  there's never  any  balance that  doesn't get  used;                                                               
it's always  available."  She  emphasized that prepaid  cards are                                                               
different from a gift card, "which does have those fees."                                                                       
                                                                                                                                
REPRESENTATIVE BIRCH  asked how  [a prepaid  card] compares  to a                                                               
credit card.                                                                                                                    
                                                                                                                                
MS.  WALSH clarified  that [prepaid  cards] are  not like  credit                                                               
cards.   She  explained  that a  prepaid card  is  loaded with  a                                                               
certain  amount of  money, and  the person  who owns  the prepaid                                                               
card "would have  that amount available at these  point of sales"                                                               
- but no more than that amount.                                                                                                 
                                                                                                                                
3:35:32 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KNOPP mentioned currency  exchange sites, which he                                                               
said  he has  observed when  traveling outside  the country.   He                                                               
asked what would be regulated under HB 180.                                                                                     
                                                                                                                                
MS. WALSH answered  that HB 180 includes  currency exchange, "but                                                               
not  at the  same level  as  the money  transmission."   Currency                                                               
exchange swaps one country's currency  for another.  She said the                                                               
department  does   license  currency  exchangers  that   are  not                                                               
affiliated  with a  bank,  but  there are  very  few licensed  in                                                               
Alaska.   She said,  "Our main  volume of  our licensees  are the                                                               
traditional money  transmitters."   She stated  that [businesses]                                                               
that want to  transfer money from one person  to another, outside                                                               
of a bank,  must hold a money transmitter license.   She said the                                                               
industry has  changed a  lot; it now  offers services  beyond the                                                               
traditional  money  transfer,  including prepaid  cards,  virtual                                                               
currency, and  cards used  to make payroll.   She  expressed that                                                               
the proposed legislation  is "trying to keep up  with the changes                                                               
in the industry and the technology that's available."                                                                           
                                                                                                                                
3:38:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SULLIVAN-LEONARD noted  that the sponsor statement                                                               
[included in the  committee packet] states that  the NMLS "allows                                                               
states  to  share  information   about  licensed  money  services                                                               
businesses  activity."   She asked,  "Who would  be sharing  that                                                               
information, and where would it go?"                                                                                            
                                                                                                                                
MS. WALSH answered  that NMLS is a licensing tool  to which state                                                               
regulators from all 50 states have  access.  She explained that a                                                               
company  that wants  to  be licensed  would  send an  application                                                               
electronically to  NMLS; the division,  as regulator  for Alaska,                                                               
would get  the notice and  communicate through NMLS.   The system                                                               
allows other  regulators to see  if the applicant is  licensed in                                                               
other  states or  if there  have  been any  ramifications to  the                                                               
applicant's  license   that  could  indicate   regulatory  issues                                                               
related to consumer protection.                                                                                                 
                                                                                                                                
REPRESENTATIVE SULLIVAN-LEONARD noted that  Sections 41-44, of HB                                                               
180,   address  penalties   that  may   be  incurred   for  those                                                               
subdelegates that may not be in  compliance.  She asked Ms. Walsh                                                               
to expound on that issue.                                                                                                       
                                                                                                                                
3:41:03 PM                                                                                                                    
                                                                                                                                
MS. WALSH replied  that those sections were added  to include the                                                               
subdelegate language,  so [subdelegates out of  compliance] would                                                               
be liable  if there  are any  problems with  the money  that they                                                               
have  collected  from  a  consumer "not  getting  to  where  it's                                                               
supposed to go."                                                                                                                
                                                                                                                                
REPRESENTATIVE SULLIVAN-LEONARD  asked for an example  of why and                                                               
how a penalty would be applied.                                                                                                 
                                                                                                                                
MS.  WALSH  responded, "We  are  not  anticipating problems  with                                                               
that, but it does help to  protect the consumers."  She offered a                                                               
hypothetical situation, as follows:                                                                                             
                                                                                                                                
     Let's  say a  person goes  up and  wants $100  put onto                                                                    
     their prepaid  card - and  this is a subdelegate  - and                                                                    
     they go  to use  the card  and the  money's not  on the                                                                    
     card.  And  so, they need to find out  why that money's                                                                    
     not  accessible.     So,  this   helps  to   make  that                                                                    
     subdelegate accountable,  and then  they would  be able                                                                    
     to go  and contact who  they purchased their  card from                                                                    
     and try to find out where that money is.                                                                                   
                                                                                                                                
REPRESENTATIVE SULLIVAN-LEONARD said, "Pretty simple."                                                                          
                                                                                                                                
3:43:21 PM                                                                                                                    
                                                                                                                                
CHAIR  KITO  asked  whether  the  state of  Alaska  has  any  law                                                               
restricting or capping  the fee that can be  charged on [prepaid]                                                               
cards.                                                                                                                          
                                                                                                                                
MS. WALSH answered  that those fees are all  regulated by federal                                                               
law; there  is nothing  in state law  that would  counteract what                                                               
that  federal law  has  in place.   In  response  to a  follow-up                                                               
question,  she   noted  that  the  division   had  provided  some                                                               
information  to Representative  Fansler's office  regarding "card                                                               
fees at  the federal level."   She said there are  separate rules                                                               
for gift cards and prepaid cards,  and she said she does not have                                                               
that information at her fingertips.                                                                                             
                                                                                                                                
CHAIR  KITO  indicated he  may  ask  the  bill sponsor  for  that                                                               
information.                                                                                                                    
                                                                                                                                
3:44:58 PM                                                                                                                    
                                                                                                                                
MS.  SCHLOSSER  relayed  that  there is  a  plethora  of  complex                                                               
information "out there."  She  said the fees currently don't have                                                               
much federal regulation.  She  indicated that the regulation that                                                               
does exist is broad, and there  have been efforts made to tighten                                                               
the  regulations; however,  last month,  when those  changes were                                                               
slated  to commence,  the federal  Consumer Financial  Protection                                                               
Bureau decided  to postpone the  new rules for prepaid  cards for                                                               
six months -  to start April 1,  2018.  She said,  "It seems like                                                               
... [the] money services business is  able to write ... [its] own                                                               
rules,  as  far   as  fees  go."    She  said   consumers  pay  a                                                               
[considerable amount] of hidden fees.   She stated, "The proposed                                                               
regulation change would make it  more transparent by putting them                                                               
there on the  web site, having a grace period,  and not targeting                                                               
low-income consumers -  that kind of thing - but  that's been put                                                               
on  hold, ...  according  to the  administration,  to give  those                                                               
money services more time to comply."                                                                                            
                                                                                                                                
CHAIR  KITO  encouraged  Ms. Schlosser  to  conduct  research  to                                                               
determine what Alaska  can do as a state "to  have some impact on                                                               
that realm."  He expressed  concern regarding the issue of hidden                                                               
fees.                                                                                                                           
                                                                                                                                
3:47:31 PM                                                                                                                    
                                                                                                                                
CHAIR KITO announced that HB 180 would be held over.                                                                            
                                                                                                                                
3:48:05 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Labor and  Commerce Standing Committee  meeting was  adjourned at                                                               
3:48 p.m.                                                                                                                       

Document Name Date/Time Subjects
HB180 ver. A 5.2.17.PDF HL&C 5/8/2017 3:15:00 PM
HB 180
HB180 Sponsor Statement 5.2.17.pdf HL&C 5/8/2017 3:15:00 PM
HB 180
HB180 Sectional Analysis 5.2.17.pdf HL&C 5/8/2017 3:15:00 PM
HB 180
HB180 Fiscal note DCCED-DBS 5.8.17.pdf HL&C 5/8/2017 3:15:00 PM
HB 180
HB180 Support Document Money Services Act Powerpoint 5.8.17.pdf HL&C 5/8/2017 3:15:00 PM
HB 180