Legislature(2001 - 2002)
03/19/2001 03:25 PM House L&C
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
March 19, 2001
3:25 p.m.
MEMBERS PRESENT
Representative Lisa Murkowski, Chair
Representative Kevin Meyer
Representative Pete Kott
Representative Norman Rokeberg
Representative Harry Crawford
Representative Joe Hayes
MEMBERS ABSENT
Representative Andrew Halcro, Vice Chair
COMMITTEE CALENDAR
HOUSE BILL NO. 106
"An Act relating to the authorizations for state financial
institutions; relating to confidential financial records of
depositors and customers of certain financial institutions;
relating to the Alaska Banking Code, Mutual Savings Bank Act,
Alaska Small Loans Act, and Alaska Credit Union Act; and
providing for an effective date."
- HEARD AND HELD
PREVIOUS ACTION
BILL: HB 106
SHORT TITLE:FINANCIAL INSTITUTIONS
SPONSOR(S): RLS BY REQUEST OF THE GOVERNOR
Jrn-Date Jrn-Page Action
02/05/01 0236 (H) READ THE FIRST TIME -
REFERRALS
02/05/01 0236 (H) L&C
02/05/01 0237 (H) FN1: ZERO(CED)
02/05/01 0237 (H) GOVERNOR'S TRANSMITTAL LETTER
03/14/01 (H) L&C AT 3:15 PM CAPITOL 17
03/14/01 (H) Bill Postponed
03/19/01 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
TERRY ELDER, Director
Division of Banking, Securities and Corporations
Department of Community and Economic Development (DCED)
P.O. Box 11807
Juneau, Alaska 99811-0807
POSITION STATEMENT: Testified on HB 106.
TERRY LUTZ, Bank Supervisor
Division of Banking, Securities and Corporations
Department of Community and Economic Development (DCED)
P.O. Box 11807
Juneau, Alaska 99811-0807
POSITION STATEMENT: Testified on HB 106.
VINCE USERA, Securities Supervisor
Division of Banking, Securities and Corporations
Department of Community and Economic Development (DCED)
P.O. Box 11807
Juneau, Alaska 99811-0807
POSITION STATEMENT: Testified on HB 106.
LISA BELL, Senior Vice President and Chief Executive Officer
Alaska Pacific Bank
2094 Jordan Avenue
Juneau, Alaska 99801
POSITION STATEMENT: Testified on HB 106 for the Alaska Bankers
Association.
DAVID LAWER
Alaska Bankers Association;
First National Bank
P.O. Box 720
Anchorage, Alaska 99501
POSITION STATEMENT: Testified on HB 106.
JERRY WEAVER, Senior Vice President and Manager
Commercial Banking Group;
National Bank of Alaska;
Alaska Bankers Association
P.O. Box 100600
Anchorage, Alaska 99510
POSITION STATEMENT: Testified on HB 106.
ACTION NARRATIVE
TAPE 01-35, SIDE A
Number 0001
CHAIR LISA MURKOWSKI called the House Labor and Commerce
Standing Committee meeting to order at 3:25 p.m.
Representatives present at the call to order included
Representatives Murkowski, Crawford, and Hayes. Representatives
Kott, Meyer, and Rokeberg arrived as the meeting was in
progress.
HB 106-FINANCIAL INSTITUTIONS
[Contains discussion pertaining to SB 66, the companion bill in
the Senate.]
Number 0070
CHAIR MURKOWSKI announced that the committee would take up HOUSE
BILL NO. 106, "An Act relating to the authorizations for state
financial institutions; relating to confidential financial
records of depositors and customers of certain financial
institutions; relating to the Alaska Banking Code, Mutual
Savings Bank Act, Alaska Small Loans Act, and Alaska Credit
Union Act; and providing for an effective date."
CHAIR MURKOWSKI declared a conflict of interest because she is
on the board of directors of a state bank.
Number 0167
TERRY ELDER, Director, Division of Banking, Securities and
Corporations, Department of Community and Economic Development
(DCED), said HB 106 and the companion bill on the Senate side,
SB 66, are bills relating to the regulation of financial
institutions, mostly state banks. He said most of the
provisions would affect either state banks or state credit
unions. Mr. Elder gave an overview, generally discussing some
of the changes in the bill, and then used the bill packet to
highlight sections in the bill. The following discussion
ensued.
MR. ELDER explained that there are a couple of provisions that
affect national banks and national credit unions, too, but most
of these provisions deal with the state-chartered institutions.
He explained the reason for the bill. When the Gramm-Leach-
Bliley Act (GLBA) passed Congress, it removed the restrictions
on bank affiliations put in place after the Depression, which
prohibited banks from affiliating in certain ways with insurance
companies and securities firms.
Number 0347
MR. ELDER relayed that in [Alaska's] banking code there have
been certain restrictions against insurance activities. There
was a need to look through [Alaska's] code and remove conflicts
between the affiliations and the kinds of activities allowed
under the banking code and under the federal banking laws. In
addition, [the division] talked to some [Alaskan] state banks
and credit unions to see if there were changes and problems that
could be identified in the law. Several suggestions were
received and were included in the bill. Finally, the third
group of changes are ones that the division felt were
appropriate improvements to the banking code or to the other
chapters within Title 6.
Number 0420
MR. ELDER gave some examples. [Alaska] has a state-chartered
mutual savings [bank], and currently the chapter in Title 6 that
deals with mutual-savings banks treats the trustees, who are
equivalent to directors of a commercial bank, differently from
the way that directors are treated for commercial banks; there
are different restrictions with respect to transactions among
the director, the trustees, and the institution, and with
respect to [their varying] lending limits. The mutual-savings
bank had asked that [the division] put the trustees on an equal
footing with directors of commercial banks.
CHAIR MURKOWSKI asked for background information on why the
trustees would not have been treated similarly to directors.
MR. ELDER said he wasn't sure and deferred the question to Terry
Lutz, Bank Supervisor.
TERRY LUTZ, Bank Supervisor, Division of Banking, Securities and
Corporations, Department of Community and Economic Development
(DCED), replied that he didn't know the history. He said there
was no reference made to the banking code when [Alaska's]
Savings Bank Act was initiated. Later on, reference was put in
to give commercial banks powers in the banking code that didn't
conflict with those of savings banks - so now [the two] are very
[similar].
Number 0581
MR. ELDER said he thought it was the "nature of the beast,"
being a mutual versus a stock-type of ownership. It probably
comes from the attitude that the owners are really the
depositors and so forth; if that is the case, it is from a "time
gone by." It is more appropriate that protections be put in, if
there are "arms-length" transactions, he said, so there
shouldn't be any problems having dealings with the bank that
differ from a director's having dealings with a commercial bank.
MR. ELDER noted a couple of ideas [the division] had for the
bill. He explained that there are two kinds of banks,
nationally chartered banks and state-chartered banks. [The
division] regulates and examines state-charted banks; however,
there are some sections of the code that relate to national
banks.
Number 0724
MR. ELDER said one of the areas that does include national banks
is interstate branching, and there is a provision in the banking
code that requires a national bank coming into Alaska and buying
another bank to get a permit from [the division]. For example,
Wells Fargo came in and acquired National Bank of Alaska (NBA);
both are national banks that the division doesn't regulate or
examine, but under [Alaska's] statutory provisions [Wells Fargo]
had to apply to the division for a permit. He said [the
division] doesn't think that makes much sense. [The division]
is proposing a change so [a company would just have to notify
the division]. He clarified that [the division] is going to
keep the permitting provision for state banks because [the
division] examines them.
MR. ELDER explained that if a person were going to put an
automated teller machine (ATM) off-premises, under current law
that [institution] would have to get the approval from the
division. [The division] is suggesting that this is not
necessary and that all a person has to do is to notify [the
division], explaining where the banking services are. Again, he
said, it is to reduce unnecessary regulatory burden.
MR. ELDER explained that the current statute lists limitations
on staff in terms of where banking can be done; a change
occurred in 1983 or 1984 saying that [division staff] couldn't
bank at any bank regulated and examined [by the division]; it
also [dictated] where [the division] could issue permits and
certificates of authority. If enough national banks branch into
the state and buy enough state banks, he said, and [the
division] issues them permits, that would mean that the
division's staff couldn't bank anywhere in Alaska. For this
reason, [the division is] proposing to change it back to what it
was before 1993, prohibiting staff to bank with banks [that the
division] examines, so the state-chartered institutions are
examined. Clearly, there is a conflict of interest, he
remarked.
Number 0830
MR. ELDER explained that this is not a trivial issue because
under Title 6, if anyone violates that provision of banking,
there is immediate termination, so [the division] wants to fix
it.
MR. ELDER referred to the GLBA and said there are provisions in
the bill that will eliminate the restriction on insurance
activities, and allow the affiliations that GLBA [allows].
There are probably only two areas that are most controversial:
Section 3, dealing with privacy, and Section 11, where "we" are
proposing to remove the current 17 percent cap on credit card
interest rates, allowing [companies] to [put in place] whatever
is agreed upon between the customer and the issuing institution.
Number 1022
MR. ELDER said the natural knee-jerk reaction to that is to say
that rates would be allowed to go "sky high," which is not the
actual impact; the only impact of the current cap is to prevent
state-charted banks from getting into that business and offering
that service to customers.
MR. ELDER referred to Section 2, page 1 [of the bill]. It is a
"wild card section" that allows [the division] to respond to
requests from banks entering into certain activities; under
current law it is required to do that only through regulation.
[The division] is proposing to change that to allow the division
to issue orders, so it will be more responsive to the requesting
organization. In addition, it is cheaper. To do regulations,
the division has to publish notices, which can be very
expensive. He said [the division] doesn't have provisions in
its budget for more than just a couple of notices a year, so the
regulation activity has to be grouped together to get the most
"bang for the buck." And it would make it difficult to keep the
state-charted banks competitive with national banks.
Number 1143
CHAIR MURKOWSKI asked if any consumer protection is lost in not
going through the public process.
Number 1170
MR. ELDER stated that it is a risk that's run. [The division]
would have no objection if the legislature wanted to say that
the orders could be temporary. He said the major objective is
to make state-chartered institutions competitive with national
institutions. Usually what [the division] is dealing with is a
state-chartered institution that wants to do something, such as
provide a certain service or product that is allowed under the
federal code. It would depend on the institution's rating on a
safety-and-soundness scale, he said, and unless it has an impact
on that, [the division is] going to allow the state-chartered
banks to compete with the national charters.
Number 1280
MR. ELDER referred to Section 3, the privacy provision. He said
there are some amendments that have been offered by [the
division]. Right now in the banking code, AS 06.05, there is a
privacy provision at AS 06.05.175 that says that information
shall not be made public except under certain circumstances,
such as issuing court orders and so forth, without the approval
of one of the items on the list, "without the approval of the
customer". Getting the customer to sign something approving
that is called "opt in." One of the issues in GLBA and the
privacy provisions in various states is that GLBA has provisions
for "opt out" rather than "opt in." Under GLBA the "opt out"
really refers to sharing non-public information, not just public
information like name, address, and so forth. It allows the
sharing of non-public information with non-affiliated third
parties, unless the customer opts out.
Number 1495
MR. ELDER said GLBA also allows states to adopt more restrictive
privacy provisions, and if there is a conflict in terms of
whether something applies or not, the Federal Trade Commission
(FTC) [makes the decision]. Either interested party could bring
it to the FTC, he said. For example, right now North Dakota is
asking the FTC for a ruling on whether its privacy provision is
more protective than GLBA.
CHAIR MURKOWSKI asked for clarification that states can be more
restrictive but can't be less restrictive [than GLBA].
MR. ELDER answered affirmatively. When asked why [North Dakota]
would have to go before the FTC to make sure there is no
conflict between its privacy provisions and the GLBA, Mr. Elder
responded that his understanding is that [the FTC] also looks
for inconsistencies.
Number 1583
CHAIR MURKOWSKI asked if [Alaska's privacy provisions] would go
before the FTC if the committee adopted HB 106.
MR. ELDER said someone has to bring it to the FTC; however, any
interested party can do that. He said whether information is
shared among affiliates, how that happens, and whether it is
"opt in" or "opt out" are major issues. He reiterated that GLBA
provides "opt out." He added that for the past 30 years
[Alaska's] law has been "opt in."
CHAIR MURKOWSKI said it is "opt in" for state banks, as stated
in Chapter 5 of the banking code. She asked whether moving this
privacy provision from Chapter 5 to Chapter 1 means that the
"opt in" provision will be applicable to all financial
institutions.
Number 1601
MR. ELDER responded that most of what Chair Murkowski had said
was correct. He said AS 06.05 [the banking code] just says
"banks", not "state banks", so [the division's] view is that the
privacy protection currently applies to both national and state
banks. There are some provisions in AS 06.05 that deal with
national banks, he said, and interstate branching is one
example. He said in applying AS 06.01 to financial
institutions, it would apply to the various financial
institutions in Title 6, including credit unions, small loan
companies, premium finance companies, and trust companies.
MR. ELDER said [the division] is trying to find a privacy policy
and consistently apply it across various financial institutions
in Title 6. Privacy is more important now that GLBA has passed,
he remarked, allowing the banks to form affiliations with
security firms and insurance companies.
Number 1688
MR. ELDER referred to Section 7, which allows state banks to
publish [reports] electronically. He said currently information
has to be published in the newspaper, which is very expensive.
CHAIR MURKOWSKI referred back to Section 5, which provides a
definition of a state financial institution. She said she
understood through Mr. Elder's letter that the bill removes the
Alaska Commercial Fishing and Agriculture Bank (CFAB) [AS 44.81]
and [Alaska's] Business and Industrial Development Company
(BIDCO) [AS 10.13] from the definition of a state financial
institution. She said last year legislation was adopted that
expanded the authority of CFAB beyond the traditional
agriculture and fishing loans, and it was [left] "wide open," in
her opinion. She had [previously] relied on the audits and
understood that this amendment would [remove the requirement]
that subjects [CFAB and BIDCO] to a state audit. She asked if
that was correct.
Number 1777
MR. ELDER replied that this is not the case. He explained that
it was discussed with CFAB, and its title and chapter were
looked at; there is already a similar privacy provision in AS
44.81. Since [CFAB and BIDCO] weren't called financial
institutions in Title 6, it has no impact on the fact that [the
division] does an audit.
MR. ELDER, in further response, clarified that [BIDCO and CFAB]
are not in Title 6 now; originally [the division] had proposed
to put them in the definition of a state financial institution,
because of the desire to cover them under the privacy provision;
however, they have their own privacy provision in their own
chapter, so [the division] decided to take them out; that is
why, in the letter to [the committee], CFAB was dropped entirely
and BIDCO was put into the privacy section.
Number 1850
MR. ELDER referred to Section 8 of the bill, which deals with
employees. It would limit business activities between
[employees] and state financial institutions; currently, it is
any institution that [the division] issues a permit or
certificate to. He clarified that "employee" refers not only to
the examining staff, but also to the director of the division
and the commissioner.
MR. ELDER, referring to Section 10, said it brings [Alaska's]
credit-lending limits for state institutions in line with
federal lending limits. Responding to a question about the
reason for including "dairy cattle" in Alaska's statutes, Mr.
Elder referred to subsection (10), page 8, of the bill; he
remarked that it is there to mirror the federal law.
MR. ELDER said Section 11 removes the 17 percent cap on credit
cards issued by state banks. He explained that the cap only
applies to state-chartered institutions, [not] to nationally
[chartered institutions]. And he surmised that people almost
completely have credit cards from national banks. [These
national companies] can import any rate in any state under
current laws, so [these companies] are not restricted by
[Alaska's] 17 percent cap. All a cap ever really does is make
it unattractive for anyone to be in that business. He added
that about half the state-chartered institutions currently issue
credit cards.
Number 2046
MR. ELDER explained that there are six state-chartered
institutions in Alaska, including four banks and two credit
unions: First Bank, Northrim Bank, Denali State Bank, Mount
McKinley Mutual Savings Bank, North Country Credit Union, and
Credit Union One.
MR. ELDER explained that [the division] tries to not prevent
state-chartered institutions from being able to compete on a
level playing field with their national counterparts. If there
is a cap on these rates, it makes that unattractive; this is why
half the institutions issue credit cards and half don't.
Furthermore, the ones that do issue them don't "push" them, but
probably do it to be a full-service institution or to offer
overdraft protection to a checking account. It is certainly not
a profitable source of business for a state institution.
MR. ELDER explained that back in 1996 the legislature looked at
the Retail Installment Sales Act, AS 45.10, which also had caps
on it. The legislature removed those and replaced the language
with whatever was agreed upon between the customer and the
institution, he said, which is all that [the division] is asking
for here. He said there could be a 17 percent cap, but that an
institution can't be forced to offer the credit card to its
customers. He said it doesn't make any sense to continue to
keep the state-chartered institutions out of that business.
Number 2188
CHAIR MURKOWSKI said she thought there was paranoia that if the
cap were removed, it would be bad for the consumer. She said
she doesn't see how anything is really being taken "off the
table," because most people nowadays get credit cards based on
air miles [offered as a bonus].
MR. ELDER responded that "we" don't know how many credit cards
have been issued but do know that there are three [state banks]
that have issued them. He said he didn't think it would affect
many people; second, even if the interest-rate cap were removed,
it is still a competitive business. He said this might increase
competition in Alaska because it would open it up to Alaskan-
chartered institutions.
CHAIR MURKOWSKI added that the bank she is associated with was
offering credit cards at a lower rate than a person would
probably pay though Bank America or Bank One; however, it
couldn't attract customers because it wasn't providing air
miles.
MR. ELDER said if [the division] thought there would be a
negative impact on consumers, it wouldn't even be proposed.
Number 2370
MR. ELDER referred to Section 14 and said this is a GLBA
provision that allows the creation of financial holding
companies; this is a new term created with GLBA to allow the
various institutions to get into "financial holding companies."
He said this is being added to allow [Alaskan institutions] the
same thing.
CHAIR MURKOWSKI, referring to Section 15, said there is new
[language] regarding property that the bank acquires and needs
to get rid of. She said it is prefaced by saying "all
investments and real and personal property". She was thrown off
by the addition of "investments in the property", she remarked,
and asked what purpose this serves.
Number 2443
MR. ELDER said the changes were related to reverse mortgages.
MR. LUTZ responded that when reverse mortgages were taken care
of a couple of years ago in Title 45, the banking code wasn't
addressed. In order for [Alaska's] banks to be able to take
advantage of that program, our statutes would also need to be
changed.
MR. ELDER, referring to Section 16, said it allows state banks
the [opportunity] to invest in subsidiaries like national banks
can do. He said Section 20 deals with ATMs, removing the
requirement that [the division] approve the ATM [location] by
simply having the bank give notice [that an ATM is being put
in].
TAPE 01-35, SIDE B
Number 2481
MR. ELDER said various sections from 26 to 38 deal with
branching. In his introductory remarks, he had explained that
national banks have to get a permit to branch into the state.
[The division] is not changing the branching provisions, he
said. For example, there is a prohibition against branching
into the state with a newly formed bank, which has to be done by
buying an existing bank. [The division] is proposing to limit
its involvement in permitting to state banks.
Number 2437
CHAIR MURKOWSKI referred to comments on Sections 34 to 38. The
old law provided that an interstate national bank is subject to
all of Title 6, she said, and then within Section 34 through 38
there is some clarification of what reporting requirements the
interstate national bank is subject to. The statute is changing
from saying that an interstate national bank is subject to all
of this in Title 6 to a "laundry list." She asked if there is
anything that [interstate national banks] are no longer subject
to as a consequence of this.
MR. ELDER replied in the negative. He said many of these are
small amendments, for example, just sticking in the word "state
bank" and so forth to clarify what is being talked about in
those sections. The interstate national banks in the past
required a permit, so this makes a clear distinction between the
interstate national banks and interstate state banks.
Number 2363
MR. ELDER explained that Section 46 is the mutual savings bank
section that allows "arms-length" dealing between a mutual
savings bank and its trustees. And Section 47 allows the
trustees to borrow on the same basis as a bank director.
Section 48, he explained, clarifies that the Small Loans Act
applies even if one is exempt from licensing. He pointed out
that banks are currently exempt from licensing under the Small
Loans Act, and some state banks have been used as a way to get
around the restrictions; therefore, the bill is making it clear
that one can't do that.
Number 2293
MR. ELDER, referring to Sections 49 and 50, said these are
changes dealing with credit unions, basically to bring them on a
par with federal credit unions. Sections 52 and 53 also deal
with credit unions, giving them authority to issue credit cards
and giving them the same authority for ATMs that banks have.
These provisions allow the credit unions to compete more
effectively with banking institutions.
CHAIR MURKOWSKI said regarding the [ATM] for credit unions in
the proposed amendments, [the division] has inserted language
that would make [ATMs] available for depositors of depository
institutions. She asked if this section needed to conform to
that for banks.
MR. ELDER replied, "Maybe," noting that [credit unions] are
depository institutions. He noted that it needed to be done in
the Credit Union Act, too, and he thanked Chair Murkowski for
noticing it. When [the division] met with members of the
banking industry, he said, they wanted [the division] to make it
clear that ATMs were to be used by depositors of these
institutions, even though in current law it just says "to be
used by the institution". He said it [having it] put in the
Credit Union Act is an improvement.
Number 2203
CHAIR MURKOWSKI asked what the effect of repealing the
individual statutes from Section 54 would be.
MR. ELDER replied that most of the repeals in AS 06.05.175 - the
privacy provision - are being replaced. However, [the one in
Section 54] should be eliminated. He explained that AS
06.05.005(4) survived from an older draft. He pointed out that
in AS [06.05.005], there are an (a)(4) and a (b)(4), but there
is no "(4)"; [the division] doesn't want to delete either [of
them] now, so it should be eliminated.
MR. LUTZ continued with Section 54, page 25. He said AS
06.05.272(d) addresses investments for banks and prohibitions
against insurance power. In addition, AS 06.05.990(18) is a new
definition of financial institutions. Furthermore, AS
06.20.330(a) is the old exemption contained in the Small Loans
Act, stating that the chapter doesn't apply to a person doing
business under and as permitted by any law of the state or [or
of the United States relating to banks, savings banks, trust
companies, building and loan or credit unions]. The new section
exempts banks from the department's licensing; otherwise, there
would be a conflict.
Number 2055
MR. ELDER explained his letter of March 16, 2001 [in packets],
in which the division provided a number of proposed amendments
initiated from the hearings in the [Senate on SB 66] and from
discussions with the industry and CFAB. [The letter noted that
it was to replace the letter of March 5, 2001.]
Number 1976
MR. ELDER explained the first amendment proposed in the letter,
which read:
1. (Section 3, page 2, lines 10-12) Replace language
in lines 10-12 of the new section AS 06.01.028(a) with
the following language:
The records of financial institutions pertaining to
their depositors and customers are confidential and
may not be disclosed except when…
This amendment replaces the sentence in the proposed
AS 06.01.028 with essentially similar language in the
current privacy provision at AS 06.05.175. The main
area of concern expressed by industry was to make it
clear that these records are records of the financial
institution. We agree with that position. This
amendment will make that clear.
MR. ELDER explained that this is the new privacy provision, and
the current proposal is to move banking code AS 06.05.175 to AS
06.01.028. The intention was to keep it very similar; however,
in rewording it and talking with the industry, "they" are
concerned about the current wording, "The financial records of
depositors and customers of financial institutions are
confidential". Alaska Statute 06.05.175 talks about bank
records, he added, and "they" were concerned that rewording this
changes the legal status of the information, from records that
belong to the institution, to records that belong to the
customers and depositors. What [the division is] proposing is
to modestly change the current language, from "bank records" to
"financial institutions", so it clearly reads, "the records of
financial institutions pertaining to the depositors".
Number 1900
REPRESENTATIVE ROKEBERG referred to three pages of proposed
amendments from the Alaska Bankers Association. He asked if
[the association members] are aware of this letter [from the
division] and whether there is communication between them.
CHAIR MURKOWSKI stated that Ms. Bell, Gerry Weaver, and David
Lohr had all spoken from the Alaska Bankers Association. She
asked if she was correct in surmising that most of the
[division's proposed amendments] had resulted from conversations
between the Alaska Bankers Association and the division.
Number 1833
MR. ELDER replied affirmatively. He said these proposed
amendments resulted from an early discussion with [the Alaska
Bankers Association]; they would prefer a different privacy
provision, and if passed, the language doesn't necessarily need
to be changed in [the division's] privacy provision; however, if
[the legislature] doesn't replace it, then both the association
and [the division] agree with this language change.
Number 1745
MR. ELDER drew attention to the second amendment in the letter,
which read:
2. (Section 3, page 3, lines 3-7) Replace the sentence
beginning "However, notification…" with the following
sentence:
However, notification either before or after
disclosure may not be made if disclosure is made under
a process included (a)(1) of this section and the
document requiring disclosure on its face requires the
financial institution not to notify the depositor or
customer.
This amendment covers more accurately the processes
provided for in (a)(1) of the section, and also
clarifies that the financial institution shall not
notify the customer if the order, subpoena, or similar
document states on its face that the customer is not
to be notified.
MR. ELDER explained that the second amendment replaces the
following language from the original bill:
However, notification either before or after
disclosure may not be made if disclosure is made under
a subpoena, subpoena duces tecum, search warrant
issued by a court, or under a court order or subpoena
issued at the request of a grand jury, if the document
requiring disclosure by one of [these] processes on
its face requires confidentiality.
MR. ELDER discussed how the meaning of the word
"confidentiality" is confusing. "We" are really talking about
not telling the "target" of the investigation. [The division]
thought it would clarify this by just referring to (a)(1),
because all of those processes are in that part of the bill.
Number 1695
CHAIR MURKOWSKI pointed out that the search warrant is not in
(a)(1) of the bill.
MR. ELDER said he thought the search warrant was under a court
order. He said a search warrant is another process under the
supervision of a court, which is why [the division] thought it
wasn't necessary. Everything in that "laundry list" is a
process described in (a)(1), which is why the new wording would
be "notification either before or after disclosure may not be
made if disclosure is made under a process included in (a)(1) of
this section". He said the document requiring disclosure "on
its face" requires the financial institution not to notify the
depositor or customer. The provision is there because if a
criminal-investigating agency is investigating a scheme on
securities or money laundering, one doesn't necessarily want to
alert the target and have that money disappear.
MR. ELDER drew attention to the third proposed amendment in the
letter, which read:
3. (Section 3, page 3, lines 8-11) Replace (c) with
new language as follows:
(c) When disclosure of financial institution records
is compelled under (a)(1) of this section, the
document shall provide for the reimbursement of the
financial institution for the reasonable costs
incurred in complying with the order.
This amendment provides for reimbursement of
reasonable costs for compliance with any process under
(a)(1), whereas the current language only references
court actions.
Number 1591
MR. ELDER said if a subpoena is received from an administrative
agency, obviously there should be reimbursement. He explained
that if [the division] seeks the court order, it would be up to
"us" to reimburse [the financial institution].
Number 1526
VINCE USERA, Securities Supervisor, Division of Banking,
Securities and Corporations, Department of Community and
Economic Development (DCED), replied to a question about whether
a rule change would be required. He said he went over this
section with one of the attorneys from the Department of Law,
and it was concluded that there is no conflict with any of those
provisions. He explained that Civil Rule 45 doesn't address
reimbursement at all; it simply talks about the circumstances
under which a subpoena can be issued.
CHAIR MURKOWSKI suggested that if it doesn't provide for
reimbursement, and yet [the bill] is saying that the document
shall provide for the reimbursement of the financial institution
for the reasonable cost incurred, the rule is being added to.
MR. USERA said it doesn't add to the rule. There is no
prohibition in Rule 45 against reimbursement of costs. The
costs are provided for under the administrative rules and one
other, but those are costs associated with trials and hearings.
He said there is nothing in there that prohibits costs being
afforded to an institution; it just adds a [twist] that affects
those processes that [DCED] handles.
Number 1403
MR. ELDER drew attention to the fourth proposed amendment in the
letter, which read:
4. (Section 3, page 3, lines 12-15) Replace the first
sentence in the new section AS 06.01.028(d) beginning
on line 12 with the following sentence:
A financial institution or any other person is liable
to their depositor or customer for intentional
violations of this section in an amount equal to
actual damages caused by the disclosure of the
confidential records of the financial institution
pertaining to their depositor or customer.
This amendment removes the $1,000 minimum liability
and leaves it set at actual damages. We agreed with
members of the banking industry that the minimum could
make financial institutions subject to frivolous
claims.
MR. ELDER commented that there is agreement that the rule
changes weren't necessary. He explained that this adds
liability to the banks if they disclose non-public information,
contrary to the law. He said in the current provision it states
"the greater of $1,000 or actual damages". Industry people felt
that putting a floor of $1,000 meant that they would get a lot
of "nuisance-type" complaints with everybody asking for $1,000,
and it would be cheaper to "cave in" rather than to litigate for
$1,000. He said saying "actual damages" requires the person to
show damage, and it would have to be substantial enough for him
or her to seek litigation.
MR. ELDER referred to the fifth proposed amendment in the
letter, which read:
5. (Section 3, page 3, line 18) Insert new
subsections, AS 06.01.028(e) and (f):
(e) Nothing in (a)-(d) of this section prohibits a
financial institution from disclosing information to a
person necessary to provide the essential services of
the financial institution to a depositor or customer,
if the person receiving the information has a written
agreement with the financial institution to be bound
by the requirements of (a)-(d) of this section.
(f) This section applies to a financial institution
subject to the regulation of the department under this
title and to entities organized under AS 10.13 (Alaska
BIDCO Act).
Proposed (e) is based on our discussion with members
of the banking industry, and allows institutions to
share information necessary to provide services such
as printing monthly statements. Proposed (f) is based
on our discussions with staff at the Alaska Commercial
Fishing and Agriculture Bank (CFAB). Since CFAB
currently has a similar privacy provision in its
statute, we agreed that reference to CFAB should be
removed from this bill. This amendment also extends
the privacy provision of AS 06.01.028 to Alaska's
BIDCOs (Business and Industrial Development Companies)
that currently have no such provision in statute (AS
10.13), but we have no reason to subject BIDCOs to
other provisions of Title 6. This amendment will
limit the application of Title 6 regarding BIDCOs to
the privacy provision only.
MR. ELDER explained that this would provide Alaskans with a
private right of action against the institution that disclosed
non-public information illegally. An institution might
outsource its statement printing, for example, which would be
disclosing a certain amount of information to a third party. He
said "we" don't intend to prohibit that activity, so this
section makes it clear that the financial institutions can share
information, and doesn't distinguish between an affiliated or
non-affiliated person who provides the essential services of
that financial institution. All [the financial institution] has
to do is have a contractual relationship that binds that party
to non-disclosure also.
Number 1266
MR. ELDER said the only reason the Alaska BIDCO was included
under the definition of a state financial institution in
subsection (f) was so it would be included in the privacy
provision. It was more efficient to put [BIDCO] in a subsection
within the privacy section and take it out of the definition of
state financial institutions.
Number 1189
MR. ELDER referred to the sixth proposed amendment, which read:
6. Amend AS 06.01.040 by inserting a new section (at
page 3, line 18, and renumber subsequent sections) to
read:
Sec. 06.01.040. Examination policy. It shall be the
policy of the department to conduct, whenever
reasonably possible, joint examinations with the
Federal Deposit Insurance Corporation or with the
National Credit Union Administration of those
institutions subject to this title whose accounts are
insured through [THAT CORPORATION] these agencies.
This amendment adds reference to the National Credit
Union Administration (NCUA) to the department's
examination policy, and reflects current practice of
the department.
MR. ELDER explained that currently in AS 06.01.040 there is a
policy that says the "department [is] to conduct joint
examinations with the FDIC". There is no reason the National
Credit Union Administration (NCUA) shouldn't also be included.
MR. LUTZ, responding to a question about [the frequency] of
examination, explained that [these institutions] are [examined]
annually.
MR. ELDER pointed out that [these institutions] are [examined]
more often than banks. It is [common] practice to coordinate
examinations with both the FDIC and the NCUA, he remarked.
Number 1112
REPRESENTATIVE ROKEBERG asked if this is done annually now or if
a fiscal note is needed [to pay for this].
MR. ELDER replied that this is done anyway.
MR. ELDER went on to the seventh proposed amendment, which read:
7. (Section 5, page 3, lines 25-27) Amend the new
paragraph to read:
(4) "state financial institution" means a financial
institution that is organized under this title, or
that is subject to examination by the department under
this title.
This amendment removes reference to entities organized
under AS 10.13 (Alaska BIDCO Act) and AS 44.81 (CFAB).
The privacy provision was discussed above, other
provisions of Title 6 are not relevant to a BIDCO or
CFAB, and so it is appropriate to delete reference to
AS 10.13 and 44.81 from the definition of "state
financial institution."
MR. ELDER added that it changes the definition of a state
financial institution by removing BIDCO and CFAB.
MR. ELDER referred to the eighth proposed amendment, which read:
8. (Section 20, page 11, lines 16-20) Replace the
sentence starting on line 16 with the following
sentence:
An automated teller machine operated off bank premises
shall be made available on a nondiscriminatory basis
for use by depositors of other depository institutions
[BANKS] authorized to do business in the state [AND
THEIR CUSTOMERS], upon the agreement of the other
depository institutions [BANKS] to pay a fair and
equitable amount for the use of the machine.
MR. ELDER explained that the sentence that starts with "An
automated teller machine" is being replaced by adding "for use
by depositors of". The current language in statute says an
automated teller machine operating from a premise shall be made
available on a nondiscriminatory basis for use by other banks.
Therefore, ["banks"] is being changed to "depository
institutions". He answered affirmatively when asked if this
would be [changed] for credit unions as well.
Number 1011
MR. ELDER drew attention to the ninth and tenth proposed
amendments, which read:
9. (Section 44, page 18, lines 29-31) Replace
language with the following:
(24) "state financial institution" means a financial
institution that is organized under this title, or
that is subject to examination by the department under
this title.
This amendment keeps the definition of "state
financial institution" in AS 06.05 consistent with the
definition in AS 06.01. For the same reasons
described earlier, this amendment removes reference to
AS 10.13 and 44.81.
In addition to the above requested amendments to HB
106, we have reviewed the request for amendments
outlined in a letter from Ms. Leslie Ellis, President
of Credit Union 1, dated February 16, 2001, addressed
to Senator Randy Phillips, (copy attached) and have no
problem with her request concerning AS
06.45.060(5)(A)(iv) to achieve parity with federally
chartered credit unions. In addition, although her
letter does not mention the following paragraph, it,
too, should be amended to be consistent with the
change in (iv).
These could be accomplished by amending Section 50 to
include the following changes in addition to those
indicated in the bill:
10. (Section 50, pages 21-22, lines 31-8) Amend (iv)
and (v) as follows:
(iv) a loan or aggregate of loans to a director or
member of the supervisory or credit committee of the
credit union making the loan which exceeds [$5,000]
$20,000 plus pledged shares shall be approved by the
board of directors;
(v) loans to other members for which directors or
members of the supervisory or credit committee act as
guarantor or endorser shall be approved by the board
of directors when the loans standing alone or when
added to an outstanding loan or loans of the guarantor
or endorser exceed [$5,000] $20,000;
MR. ELDER referred to the ninth proposed amendment and stated
that it takes the definition of a state financial institution
from AS 06.05 and makes it consistent with the previous state
financial institution definition from AS 06.01.
MR. ELDER explained that the tenth proposed amendment is a
request from Credit Union One, which sent in a letter of support
for the bill with a couple of requests. One request was for the
GLBA's "opt out" approach to privacy, which [the division]
didn't agree with; the other request which [the division] agreed
with, referred to Section 50, pages 21-22, starting with line 31
of the bill. There are two times when the number $5,000
appears, he said, and this amendment would change both of those
to $20,000. The current federal limit is $20,000, he pointed
out, rather than $5,000.
Number 0890
REPRESENTATIVE HAYES asked why [Alaska's] privacy criteria are
so strict when compared to the Lower 48's.
MR. ELDER clarified that for the last 30 years [Alaska] has had
"opt in." It is [the division's] understanding from the
Association of Bank Regulators, Conference of State Bank
Supervisors (CSBS), that there are about six states that have
fairly restrictive privacy provisions. He said "folks" [in
Alaska] like privacy, plus there is a constitutional provision
for privacy probably not present in other states.
Number 0723
LISA BELL, Senior Vice President and Chief Executive Officer,
Alaska Pacific Bank (a small community bank based in Juneau with
offices around Southeast Alaska) testified on behalf of the
Alaska Bankers Association, representing nine financial
institutions around the state, both state-chartered and
federally chartered institutions. She said this bill crosses
the line between state-chartered and federally chartered
institutions.
MS. BELL said the [Alaska Bankers Association] generally
supports this bill, which has a lot of cleanup language; the
intent to bring the old banking code into a more modern light
and make it more parallel with the GLBA is "excellent," allowing
financial institutions to compete with other types of financial
intermediaries now in the marketplace. Brokerages, insurance
companies, and so forth have broader powers than [banks] and in
many cases have been able to offer products similar to "ours"
while "we" haven't been able to offer products similar to
theirs. She remarked that it hasn't felt like a level playing
field.
MS. BELL commented that GLBA breaks down barriers and provides
free commerce with better choices for consumers.
Number 0606
MS. BELL explained that GLBA was "sweeping financial
modernization," and Title 5, the privacy provision, is one
important piece that is supposed to create some parity among
financial institutions across the country, allowing banks and
other financial institutions to have the same rights of
information sharing, regardless of whether they are state-
chartered or federally chartered. One important focus is on
allowing more parity among states so banking institutions with
banks in more than one state can apply the same rules, provide
customers with the same disclosures, and have the same products
and services without a lot of confusion.
Number 0477
MS. BELL noted that GLBA only governs the sharing of non-public
financial information, information sharing among third parties,
non-affiliated companies are what GLBA legislates, she
explained. Information sharing of the same type among
affiliated companies or companies within the same parent company
has been governed by the Fair Credit Reporting Act (FCRA) since
the 1970s and is governed under current federal legislation.
MS. BELL explained that GLBA sets affiliates aside and just
talks about non-affiliated third parties. Once on the topic,
there is a differential between those non-affiliated third
parties necessary to complete the transaction for the customer;
that would include title and check-printing companies, and even
a marketing company that allows marketing of financial products
to customers. This would fall within the exceptions to GLBA and
would be considered a normal part of the traditional banking
services.
Number 0352
MS. BELL explained that GLBA also addresses the "not-quite-as
traditional, non-affiliated third parties"; it sets forth a
comprehensive set of conditions and protections for customer
privacy dealing with non-affiliated third parties. In February,
the FDIC issued a handbook to all state-chartered and federally
chartered banks, which talks about GLBA Title 5 privacy -
explaining what it means in plain language and how to comply.
She said "we" are required to provide disclosures to all
customers beginning July 1. When a person walks through the
door of a bank for the first time as a new customer, he or she
will receive a privacy disclosure from that bank telling what
its privacy and information-sharing practices are. If [banks]
share information beyond the exceptions in GLBA, they are
required to give customers an opportunity to "opt out" the first
time they walk through the door.
Number 0166
MS. BELL said after that, [the opportunity would be provided]
annually. And anytime a bank changes its practice, it has to
send out a new set of disclosures to customers; this, she said,
allows customers to compare policies between banks.
Number 0144
MS. BELL said a person could tell how complex a banking
institution is by its disclosure [statement], also known as the
"opt out" provision.
MS. BELL stated that the FCRA governs the sharing of information
among affiliates. She said the FCRA also has "opt out"
provisions that were built in so customers have the opportunity
to prevent affiliates from sharing information among themselves.
Generally, that type of information might be credit information
shared to cross-market products in the same family of companies;
however, a person still has the opportunity to opt out.
Number 0078
MS. BELL pointed out that it appears that the existing and
proposed statutes may be in conflict with the FCRA if sharing
information with affiliates is not allowed under state law, and
added that the FCRA forbids state preemption of that portion
until 2004. She said it needs to be closely looked at with the
Division of Banking to understand whether it would be
meaningful.
TAPE 01-36, SIDE A
Number 0049
MS. BELL said the Alaska Bankers Association and its various
members, along with Mr. Elder and Mr. Lutz, have an ongoing,
open dialog. She said "we" also met with Jeff Bush, Deputy
Commissioner, Department of Community and Economic Development
(DCED). She said she thought there was an "open door" for
working with them. She expressed the hope of finding the holes
where improper information may leak out and plugging them.
MS. BELL referred to the amendments submitted by the Alaska
Bankers Association that were included in the committee packet.
The first amendment would completely replace Section 3, rather
than doing it piece by piece. It read:
1. Delete p.2, line 10 through p.3, line 17, and
replace that material with
Sec. 06.01.028. Depositor and customer
records confidential. (a) The records of a financial
institution pertaining to its depositors and customers
and the information contained in such records are
confidential. Such records and information may not be
disclosed by the financial institution to another
person or a government except when, and only to the
extent that, the disclosure is
(1) authorized in writing by the
depositor or customer;
(2) required by federal or state
statute or regulation or by a subpoena, search warrant
or other order directed to the financial institution
issued by a court or administrative agency having
jurisdiction of the financial institution;
or
(3) made in compliance with sections
501-509 of P.L. 106-102 (15 U.S.C. (Sections) 6801-
6809) and regulations promulgated thereunder.
(b) A financial institution is authorized, but is
not required, to comply with a subpoena, search
warrant or other order issued by a court or
administrative agency of this state that does not
provide for the reimbursement of the financial
institution's reasonable cost of complying with the
order.
(c) When disclosure is required or permitted
under (a)(2), (a)(3), or (b) of this section by a
subpoena, search warrant or other order of a court or
administrative agency, the financial institution shall
mail a copy of the order to the depositor or customer
within three business days after its receipt of the
order unless the order is, or is accompanied by, a
court order that expressly directs the financial
institution not to notify or inform the depositor or
customer.
(d) In this section, "government" means the
United States; a state, commonwealth, district or
territory of the United States; a municipality or
other political subdivision of a state, commonwealth,
district or territory of the United States; a foreign
state; or a department, agency, instrumentality,
officer, employee or agent of any of the foregoing.
MS. BELL explained that the real "meat" of this amendment is a
direct reference back to GLBA for what information can be
shared, and whether it is "opt in" or "opt out." There are
other pieces in the amendment that are slightly different from
what the Division of Banking proposed. She said "we" can work
out those differences and come to an agreement on the language.
Number 0172
MS. BELL referred to number 1, subsection (a). [See inserted
Alaska Bankers Association first proposed amendment above].
"We" wanted to ensure that the customer records are actually the
property of the financial institution, she said, to alleviate
any type of legal battle in the future if someone decides
otherwise. She remarked that "our" language may differ slightly
but the intent is the same.
MS. BELL referred back to the discussion about when a financial
institution provides information under a subpoena, court order,
or search warrant. It doesn't sound as if it is a big deal, but
it can be, she explained, both the reimbursement part and
providing clarity about when the customer needs to be notified.
She said that is why there is new language proposed from both
the Alaska Bankers Association and the division.
Number 0290
CHAIR MURKOWSKI asked about the reimbursement component,
referring to the Alaska Bankers Association's proposed amendment
number 1, subsection (b) [from above insert]. She said she
would think that not complying with a subpoena [would be
possible] for other legitimate legal grounds, but not because of
a reimbursement issue.
Number 0399
MS. BELL replied that her financial institution was recently
served with a search warrant, and a huge volume of information
was being requested; it would cost the institution over $10,000
to get all of that information. "We" are a little bank, and
this is just one search warrant. The search warrant itself
didn't say anything about reimbursement, nor did it say whether
the customer could be told, so it crossed over into both of
those issues.
MS. BELL stated that "we" think it is entirely fair and within
the law to require reimbursement, and yet a law enforcement
agency could say, "We are not required to reimburse you for that
$10,000."
Number 0477
MS. BELL, referring to the customer disclosure, said [financial
institutions] have an obligation to let customers know when
someone is seeking their private information. She said this is
definitely a privacy issue. In the case of that search warrant
served, it didn't say anything about disclosure. So the law
enforcement agent was notified that unless something is provided
that says that "we" can't, "we" are going to tell our customer,
because that is our duty under the law. She said "we" forced
them to go back to the judge and get an order that requires
silence for a couple of months. The position of the state law
enforcement agency, in looking at Criminal Rule 37, was that
search warrants could be sealed for up to four years.
Number 0549
MS. BELL explained that there is no reference to this in state
statute. So how would a person know to go to Criminal Rule 37,
she asked, when a person is just trying to comply with a request
for information?
MS. BELL, referring to the Alaska Bankers Association's proposed
amendment, stated that from number 1, subsection (d) and beyond,
it provides definitions for terms used within the statute, which
are details that can be worked on with the division. The second
and third amendments read:
2. Delete p.3, lines 18-28 and replace that material
with
*Sec. 4. AS 06.01.050 is amended to read:
Sec. 06.01.050. Definitions. In this title
[CHAPTER], unless the context otherwise requires,
(1) "commissioner" means the commissioner of
community and economic development;
(2) "department" means the Department of
Community and Economic Development;
(3) "financial institution" means a person [AN
INSTITUTION] subject to the regulation of the
department under this title;
(4) "person" means an individual, a corporation,
a general, limited or limited liability company, or
any other association or organization accorded status
or capacity by law; and
(5) "state financial institution" means a
financial institution that is organized under this
title, AS 10.13, or AS 44.81.
3. At page 25, add a new section to read as follows
*Sec. 59. COURT RULE CHANGES. To the extent that
it requires court orders compelling disclosure to
provide for reimbursement of a financial institution's
cost of compliance, AS 06.01.028(b) has the effect of
amending Rule[s]45_______________of the Alaska Rules
of Civil Procedure, Rule[s]__________of the Alaska
Rules of Criminal Procedure, and Rule[s]_____________,
Alaska Rules of Administrative Procedure.
Number 0641
MS. BELL said the current state law is an "opt in" situation and
requires that before customer information can be released,
unless something has already been signed by the customer or the
institution is compelled to comply because of a court order and
so forth, one has to go out and seek an affirmative response
from the customer before that can be shared; however, when
talking on a larger-scale-type of product offering or marketing
opportunity, it is a much more complex issue. In this
situation, "opt in" becomes cumbersome, expensive, and not
necessarily to the customer's advantage; this, she said, "we"
consider a big issue.
MS. BELL emphasized that protecting customer privacy is a big
deal and that integrity and reputation are at stake if
[customer] privacy isn't protected, so "we" are not at odds with
the Division of Banking or the Office of the Governor about
where "we" want to be. "We" want to make sure that everyone is
educated on the existing privacy provisions under federal law so
something isn't created that is already there, and so we are not
unduly restricted from participating in the new era of
"enlightenment" in the financial services industry.
Number 0741
MS. BELL explained that the best-case scenario would be to make
a direct referral in Section 3 back to GLBA, so that if one is
in compliance with the GLBA privacy provisions, then one is in
compliance with state law. That would be the easiest cleanest
way to do it, she said; however, "we" are also willing to work
with other parties on trouble spots, for specific issues where
maybe Alaska is different and "we" want to reserve the right to
specifically restrict something. We" would like to be like
every other bank in the nation and be subject to GLBA, she told
members, which is already quite complicated to comply with. And
"we" need to know what our marching orders are so we can comply
with them by July 1 [2001]; "we" feel that the current state
statute would impose something contrary and far more
restrictive. At this point, she said, the puzzle pieces don't
fit together.
Number 0846
REPRESENTATIVE HAYES asked what the downside is to having a more
restrictive policy than the federal law.
MS. BELL replied that although the privacy provisions may have
been on the books for 30 years, not all banks in the state have
been subject to them. As a federally chartered institution,
[Alaska Pacific Bank] was never notified that it was governed by
Section 6 of the banking code, and was under the impression that
only state-chartered, state-examined banks were subject to the
existing law. "We" have complied with the intent of the Alaska
statute; however, "we" have never considered all banks legally
subject to it. It is old and outdated and doesn't allow
affiliates within the same family of companies to share
information.
Number 0979
MS. BELL stated that the hope is that this doesn't have to be
revisited every year to keep making changes to it. She
explained that their vision is to offer a broader array of
financial services, a broader mix of things that are all part of
the package that consumers are looking for.
MS. BELL said the "opt out" provision provides the customer an
opportunity to have something already in their hands, such as a
new privacy notice that gives them a vehicle "right then and
there" to choose. It places the control for the release of
information in the hands of the customer.
Number 1057
REPRESENTATIVE HAYES asked whether [a financial institution]
could give the policy to the customer when he or she walks into
the bank, and the person could make the decision right there.
MS. BELL responded that it would have to be studied to see if
that would work, but she mentioned that one problem is that
there are actually "road maps" for these disclosures and
notices. Depending on how complex a financial institution is,
she said, there is kind of an A, B, and C. The wording is set
up to be "opt out" and would take some reengineering to turn
those into "opt in" instead. She deferred the question to some
of her colleagues.
REPRESENTATIVE CRAWFORD asked what type of information would be
shared with an affiliate, or non-affiliated entity.
MS. BELL explained that the type of information normally shared
with affiliates is credit experience: how a person had paid on
a mortgage loan, and how that relates to how well he or she
would make this type of payment. Credit application information
can be shared among affiliates under the FCRA, and there is
personal information on the credit application; however, account
numbers can't be shared. Demographic information might be
shared, allowing an affiliate to make a determination as to
whether a product or service would be something that a person
would want to have.
Number 1206
REPRESENTATIVE CRAWFORD said the customer makes the
determination to "opt out" for the first time while in the bank,
and the next year receives this "thing" in the mail to "opt
out"; he remarked that [the financial institution] is counting
on a person not sending that in. He then asked if postage would
be provided or if the individual would have to pay to send it
back in.
MS. BELL said she couldn't answer that because she hasn't seen
it addressed in law; however, she surmised that [whether or not
to provide postage] would be left to the individual institution.
She said she believes there is a 30-day window after the notice
has been provided to a customer before that information can be
shared. Ms. Bell pointed out, "The instances within Alaska of
sharing information outside of affiliates, outside of the normal
third parties, who are exceptions under the law, is not ... a
great amount."
Number 1350
MS. BELL surmised that banks don't want to be prevented from
doing what other banks across the country can do; if [banks]
have an opportunity to jointly market something or create a new
product, they want to make sure it can be done without a
significant amount of red tape and expense, and be able to
present that to the broadest number of people across the state.
DAVID LAWER, Alaska Bankers Association; First National Bank,
via teleconference, said he is familiar with the privacy
legislation as well as the current federal legislation still "in
the making." He said the customer under federal law is given
the opportunity to "opt out" at the time a transaction is
initiated, and also annually. The bank must give the customer
reasonable means of exercising that option, which includes the
opportunity to make a phone call or [send an] e-mail.
Number 1515
MR. LAWER, switching gears, explained that when a court order is
received or a subpoena [issued], that person is given the
opportunity to object, and could object on the grounds that it
is "unduly burdensome"; limits can be set on either the time or
the money expended. He said he hasn't encountered a lawyer
issuing a subpoena who has litigated the issue in court;
however, it would be helpful to [clarify what] the circumstances
are [through this legislation].
MR. LAWER responding to the question of what the purpose of the
legislation is, said over the last 30 years it has been used as
a shield by banks, and otherwise ignored. In its current form,
it is very (indisc.), not certain to whom it applies, and
doesn't answer many of the questions posed on a quarterly basis;
for example, one thing routinely disclosed from customer records
is the customer's identity, such as when an account is opened
with a bank and checks are issued. The bank doesn't prepare
those checks; someone is hired to print those and put a
customer's name on them. When [financial institutions] disclose
[a customer's] name to be printed on those checks, that is
disclosing a customer record. This is contrary to the statute
in its current form, he stated, and the same is true with the
amount of a transaction, a loan on the security of real estate.
"We" disclose who the borrow is and the amount of the loan to
the title company closing the transaction, which under current
legislation is prohibited, but it is done by all.
Number 1688
MR. LAWER said the existing law is so poorly drawn that it is
used when it suits a purpose, and is ignore when it doesn't.
Simply taking that from one section of the statute and moving it
to another with minor variations doesn't improve that
circumstance, he said, and only serves to "muddy the waters" in
some areas and provide limited clarification in others.
MR. LAWER explained that the Alaska Bankers Association offered
a substitute for that section that parallels the state and
federal laws and is advantageous to the banks and customers
because the federal law is evolving. There isn't comprehensive
regulation of federal law for privacy now, he remarked.
Number 1739
MR. LAWER referred to an article that quoted him as saying, "The
current law ... [doesn't have] any significant impact on the
bank." He said it was cited in support of the proposition that
the more restrictive law is not harmful to banks, insofar as
costs and other matters are concerned. He said the statements
in the article were accurate quotations but weren't taken with
the rest of the remarks that he made during that interview. He
said those things were largely in response to the question:
Given the state law, what impact will GLB [Act] have?
And the answer was: It doesn't impact the state law
currently. And when asked how we were living under
the more restrictive law, I gave the same response
that I gave to you today, and that is, the law is not
more restrictive; it's poorly drawn, it doesn't work.
We use it when we can, [and] ... ignore it when it
doesn't serve our purposes; it hasn't been an
impediment.
MR. LAWER commented that "they" chose not to publish those
remarks in the article.
Number 1861
REPRESENTATIVE ROKEBERG asked Mr. Lawer whether he recommended
the "opt in" and "opt out" language in Section 3 or that in AS
06.01.028.
MR. LAWER responded that the Alaska Bankers Association proposed
AS 06.01.028, an alternative that directly parallels federal law
and would make state and federal law "opt out." He went on to
explain that the definitions were taken from elsewhere in the
statutes because none were provided [in this section].
REPRESENTATIVE ROKEBERG said he understood that the Division of
Banking, Securities and Corporations in Alaska had no
jurisdiction over a national bank or one that the controller
currency authorized. Apparently there is some change here, he
asked, because of the federal law.
Number 1935
MR. LAWER replied that there is no proposed change. Responding
to a question about whether [the Division of Banking, Securities
and Corporations] has an impact on the institution that Mr.
Lawer works for or other interstate banks, he replied, "Not the
institution that I work for, no"; however, there are provisions
concerning multi-state branching and banks doing business in
more than one state that will bring them within the (indisc.) of
those who are subject to regulation by the [commissioner] in the
state.
REPRESENTATIVE ROKEBERG asked if he was correct in surmising
that the state authorities have the right under statute to have
requirements on branching and establishing [institutions] in the
state.
MR. LAWER responded affirmatively, and added [in those states
that have multiple banks].
REPRESENTATIVE ROKEBERG said 25 years ago he represented "CIBC"
when it endeavored to enter the Alaskan market unsuccessfully.
He asked if that had changed.
MR. LAWER responded affirmatively.
Number 2017
REPRESENTATIVE ROKEBERG said he is not familiar with whether
"opt in" or "opt out" would affect Mr. Lawer's operations or
those of Wells Fargo.
MR. LAWER replied that as far as the First National Bank of
Anchorage is concerned, operations wouldn't be affected because
it doesn't disclose customer information at all, except at the
request of the customer or as required by law.
REPRESENTATIVE ROKEBERG asked if that was what Mr. Elder was
referring to as the state's default policy.
MR. LAWER responded in the negative. He said his point was that
insofar as other banks are concerned, particularly larger
institutions in more than one state, they make some disclosures
among their affiliates and it is not necessarily prohibited by
federal law; under the proposed HB 106, that isn't barred
either, he said, and is not subject to the "opt in" or "opt out"
provision in either event. What is being sought is the
disclosure of non-public information for non-affiliated third
parties, largely involving the sale of customer information.
MR. LAWER explained that "we" don't engage in that practice,
Wells Fargo doesn't, nor do any of the other banks doing
business in the state.
Number 2139
REPRESENTATIVE ROKEBERG asked if this is for the large holding
company with affiliated organizations that want to cross-market
[products and services].
MR. LAWER answered affirmatively. He said the "opt in, opt out"
[provision] doesn't pertain to that because those (indisc.),
with various exceptions, are affiliated institutions. He said
the GLBA is the law that for the first time sets up definitions
of affiliated institutions.
Number 2181
REPRESENTATIVE ROKEBERG asked for clarification that under the
new definitions in the FCRA, affiliated organizations under a
holding company trade could share "that" information.
MR. LAWER responded affirmatively.
CHAIR MURKOWSKI said it would be helpful to have a chart
explaining to whom and how the GLBA and the FCRA apply. And she
said it would be helpful to see if there were other federal Acts
relating to privacy that banks have to comply with.
Number 2235
MR. LAWER said the FCRA has privacy aspects relating exclusively
to credit reports, and imposes some restriction on disclosure.
He said in terms of privacy, what is being talked about is GLBA.
One problem in producing that chart, he said, is that the law is
evolving, and there are routinely new interpretations; when
financial institutions are trying to deal with that, adding
legislation at the state level, with the consistency unknown,
may not be something that "we" necessarily want to do. "We" are
talking about proposed legislation intended to make state
financial institutions competitive with federal financial
institutions.
Number 2302
MR. LAWER suggested that if a state financial institution has a
different set of requirements than those that apply to others
who are nonetheless in a position to do business here, [that
institution] is being put at a competitive disadvantage.
REPRESENTATIVE ROKEBERG replied that this is because the
Division of Banking, Securities, and Corporations has no
jurisdiction over most controller-currency-type banks.
MR. LAWER responded, "State and other types of financial
institutions." He said the biggest competitors for all banks
and credit unions are security brokers, which are governed by
federal legislation but wouldn't be governed by any of the
proposed state legislation that has to do with privacy.
MR. LAWER explained that "financial institution" includes
commercial banks, savings banks, credit unions, premium finance
companies, small loan companies, bank holding companies,
financial holding companies, trust companies, and savings and
loan institutions. Security brokers and dealers are omitted
from that list.
REPRESENTATIVE ROKEBERG asked about Mr. Lawer's definition under
AS 10.13 and AS 44.81.
MR. LAWER stated that "they" would be, but not under the
banker's proposal either. The virtue of the banker's proposal,
he said, is that it requires no more or less of financial
institutions than what is required by the federal law.
REPRESENTATIVE ROKEBERG asked Mr. Elder if broker-dealers are
regulated by [the division].
MR. ELDER answered affirmatively.
Number 2434
MR. LAWER explained that the proposal is that a financial
institution under that title doesn't include security brokers
and dealers.
Number 2460
JERRY WEAVER, Senior Vice President and Manager, Commercial
Banking Group; National Bank of Alaska; Alaska Bankers
Association, testified via teleconference.
TAPE 01-36, SIDE B
Number 2459
MR. WEAVER mentioned the "opt out" position under GLBA. He said
20 state legislatures this year have considered some sort of
"opt in" proposal or modification to GLBA, and none have passed
it. If Alaska wants to stick with this restrictive "opt in," it
would be one of only six states. Furthermore, some of those six
states have run into severe problems. For example, some years
back Vermont adopted a rigid "opt in," and because it is an
isolated state with a small population, Vermont was excluded by
most of the national marketing programs. There is a good chance
that that could occur in Alaska, too, he said, if [Alaska] goes
outside the federal guidelines.
Number 2421
MR. WEAVER said, too, that those federal guidelines are evolving
quickly and will be formulated under a new regulation "P" once
complete. The guidelines put out by the Federal Deposit
Insurance Corporation (FDIC) in its privacy rule handbook are 12
pages long. These are comprehensive guidelines that will evolve
more as time goes on; most states have decided to give the
federal GLBA and regulators a chance to see how well it works
before [moving forward].
Number 2392
MR. WEAVER pointed out that Alaska might want to consider this
before getting in there. Finally, he said, GLBA concerns more
than just the institutions that have been discussed; there is
another bill that is starting to move through the legislature on
the insurance industry as well. He said all of these types of
institutions do essentially the same things today: they handle
deposits, provide financial services, and counsel customers, and
it is important that a lot of these are "cross-fed" to provide
rapidly evolving benefits at a reasonable cost to customers.
"We" don't want a restrictive policy, he said, and it would be
good if "we" could get rid of the existing one.
MR. WEAVER remarked that GLBA provides an opportunity to reach a
practical compromise.
CHAIR MURKOWSKI asked - recognizing that the National Bank of
Alaska is now Wells Fargo, and that Wells Fargo is operating in
many different states - if Alaska has a stricter policy
regarding privacy, does a bank that is in various states handles
the "opt in" provision, considering that California, for
example, may have an "opt out" provision.
MR. WEAVER said the banks could do it two or three ways. With
[Alaska] being such a small market, "they" would have the option
to just exclude Alaska, because Wells Fargo happens to own most
of its affiliates and is part of a family of companies. He said
that information could probably be exchanged anyway and probably
would be in Alaska, and marketing would just continue. The ones
that would be harmed by the bill are the very same state banks
that [this legislation] is trying to [help].
MR. WEAVER used North Rim [Bank] as an example and said it has a
significant holding in a residential mortgage company, but
doesn't own it free and clear. If it wanted to make referrals
similar to those "we" can to our "mortgage arm" on competitive
customer offers, the "opt in" provision would be a major
handicap.
MR. WEAVER explained that this is one of the other reasons why
"we" want to keep it fairly open; however, the legislature would
want to consider being more restrictive than the federal laws if
an abuse were found or if it wasn't working for Alaskans.
Number 2256
REPRESENTATIVE ROKEBERG asked for clarification that there is a
deadline to make sure [Alaskan] state banks are on equal footing
with national banks. From a competitive standpoint, he asked,
is there an [option] to do nothing before the July 1 deadline
and do it later?
MR. LAWER answered affirmatively. The privacy portion of this
could be separated out, he explained, and the current law could
be left as it is; the rest of the proposed legislation could be
enacted to provide all of the competitive advantages to state
banks that were intended by the administration.
MR. LAWER, upon being asked if there is a "sunset" for the
privacy provisions after a few years, responded that there is no
time limit.
REPRESENTATIVE ROKEBERG clarified that Mr. Lawer wasn't sure
what those regulation are going to be. [The legislature] is
being asked to pass something that would mirror something,
although legislators don't know what it is going to be.
MR. LAWER remarked, "Exactly so." That would be the proposal;
it is intended to take into account all of the exceptions in the
federal law and bring them to bear in the case of state
institutions so that competition can be on an equal footing.
The other alternative is to leave the privacy provision that is
in the state law as it is.
REPRESENTATIVE ROKEBERG said that from Mr. Weaver's testimony,
it would have a negative effect on the economic competitive
position of state institutions.
MR. WEAVER replied that after working with it for about 18
years, that is his professional opinion. He pointed out that he
didn't say it was the preferred alternative, but "the"
alternative. The state of Colorado, after considering this very
carefully, decided that it would just stand back, use the GLBA
provisions that will become regulation "P," and monitor it for a
couple of years to see how it impacts the residents of
California and the business climate. If [it is favorable
California] can let it go forward and not legislate anything,
and if not, the legislature can decided to go back and correct
any errors it felt existed. He pointed out that the Alaska
legislature could do the same thing.
REPRESENTATIVE ROKEBERG wondered if [the legislature] could put
a sunset on that provision to review it in case the legislature
"bungled" the job. There is some urgency, he remarked, for the
state-chartered institutions.
MR. WEAVER stated that as far as the rest of the bill is
concerned, all the bankers, regulators, and everyone who has
looked at it [think] it is quite good, specifically with the
fine technical revisions proposed today. Section 3 - privacy -
he said, seems to be the only area of major discussion by any of
the professionals in the financial industry.
Number 2109
REPRESENTATIVE ROKEBERG, referring to the Alaska Bankers
Association's proposed amendments, asked Mr. Lawer if he was the
author of the first amendment [text provided previously],
subsection (b), referring to deleting page 2, line 10 through
page 3, line 17 of the bill.
MR. LAWER replied that he had a hand in it. He said "they"
could propose an alternative that would simply [mirror] federal
law and regulations in [Alaska's] state law.
CHAIR MURKOWSKI announced that HB 106 would be held over because
work needs to be done on Section 3.
REPRESENTATIVE ROKEBERG expressed concern that if people
perceive this as a step backwards in terms of privacy [in
Alaska], it would be problematic.
CHAIR MURKOWSKI noted her appreciation of the [Alaska Bankers
Association] and hoped it would continue to work with the
[division] director on the remaining issues.
[HB 106 was held over.]
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
6:00 p.m.
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