Legislature(1995 - 1996)
05/04/1995 01:45 PM Senate L&C
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
SENATE LABOR AND COMMERCE COMMITTEE
May 4, 1995
1:45 P.M.
MEMBERS PRESENT
Senator Tim Kelly, Chairman
Senator John Torgerson, Vice Chairman
Senator Judy Salo
MEMBERS ABSENT
Senator Mike Miller
Senator Jim Duncan
COMMITTEE CALENDAR
SENATE BILL NO. 157
"An Act relating to the regulation of small loan and retail
installment transactions."
PREVIOUS SENATE COMMITTEE ACTION
SB 157 - No previous action to record.
WITNESS REGISTER
John Higgins, General Manager
Northland Credit
3030 Denali, Ste. 11
Anchorage, AK 99503
POSITION STATEMENT: Supported SB 157.
Mark Hamlin
Norwest Financial
POSITION STATEMENT: Supported SB 157.
John Andrew, Senior Council
Government Relations
J.C. Penny
Sacramento, CA
POSITION STATEMENT: Supported SB 157.
Lee Rawell, Vice President
AVCO Financial Services
Urbine, CA
POSITION STATEMENT: Supported SB 157.
ACTION NARRATIVE
TAPE 95-21, SIDE A
Number 001
SB 157 SMALL LOANS & RETAIL INSTALLMENT SALES
CHAIRMAN KELLY called the Senate Labor and Commerce Committee
meeting to order at 1:45 p.m. and said the committee would take
testimony on SB 157 and continue to work on it over the interim.
JOHN HIGGINS, General Manager, Northland Credit, clarified that he
was working from CSSB 157(L&C) and the purpose of it was to
modernize the Alaska Small Loan Act which hasn't been worked on in
about 40 years. A lot of laws currently on the books are archaic,
he said. License fees and bonding requirements have been increased
as requested by the administration. It helps create a basis for a
regular payment which is not allowed right now on loans for
seasonal workers and fishermen. The final portion of the bill
deals with ARISA which includes appropriate fees and costs that can
be included in contracts. He said that Alaska is currently ranked
49th out of 50 states on interest rate ceilings. He said he hoped
they could open up smaller markets they can't even look at right
now, because of restrictions.
SENATOR KELLY remarked when they originally approached the idea of
this bill was because of the 14% interest rate restriction that
wouldn't allow Alaskan companies to compete with the outside firms
in terms of offering loans - for example Sadler's Furniture Store.
MR. HIGGINS agreed.
MARK HAMLIN, Norwest Financial, said currently he does all the
financing for Sadler's Home Furnishings. His company is based out
of Des Moines, Iowa, although they have offices in the state of
Alaska. To do financing for Sadler's Home Furnishings, he has to
charge the dealer a 1% discount to buy the contract in order to get
his margins where they have to be to make a profit. Out-of-state
lenders, such as General Electric Credit Corporation and Whirlpool,
can charge a higher interest rate due to the fact that they are
out-of-state and they usually are bank-chartered so they can import
their rate into the State of Alaska. Sears has just changed their
rate structure and have gone to a 21% interest rate. The reason
the rates are going up is so they can offer special programs to the
dealers, such as 90-day same as cash, no payments/no interest for
six months, etc. If they can get a higher interest rate so they
can make some money after the customer starts making payments on a
contract, they can afford to offer those services to the dealers in
Alaska to promote sales. Out-of-state lenders are currently doing
this with no discount to the dealers.
MR. HAMLIN said that the states of Montana and Washington are
deregulated and they can charge the 21% or 18% interest rate to the
dealers and offer a lot of these special programs and compete with
some of the out-of-state and in-state companies.
Currently Norwest Financial has six offices in the State of Alaska.
He said that a lot of out-of-state companies do not understand what
happened in Alaska during the mid-80's crash when there were a lot
of bankruptcies and a lot of them will turn down these customers.
Due to the fact Norwest Financial has been in the state, they
understand the economic conditions and will grant credit to people
with bankruptcies and foreclosures on their credit report.
Number 234
SENATOR KELLY asked who their competition up here was. MR. HAMLIN
answered Northland Credit, AVCO, and the credit unions.
SENATOR KELLY asked why anyone would go to them when they could go
to a credit union. MR. HAMLIN said the biggest reason is that
dealers choose to use them is because of their numerous services
and to have convenient in-house financing. Credit unions are set
up for customers who come into their business and apply for credit
which takes time. In-house financing is an advantage, or a service,
a dealer offers a customer and it also concludes the sale
immediately.
JOHN ANDREW, Senior Government Relations Council, J.C. Penny, said
they are one of the largest retailers in Alaska. They have their
own credit program and, therefore, are subject to the terms of
Alaska Retail Sales Act. He supported specifically sections 10
and 11, the fee and service charge sections. It is a good step in
updating a 33-year old law, he said. In Alaska, the delinquent fee
is prevented on revolving credit. This means the extra costs are
spread among all their retail credit customers, including the great
majority who pay on time.
The 18% across-the-board service charge is a good step in the right
direction. On the other hand, he supported deregulation which has
been enacted in close to half the states now, they think, to the
benefit of the retailers and the customers.
Number 332
LEE RAWELL, Vice President, Government Affairs, AVCO Financial
Services, said they are currently located in 43 states and Puerto
Rico, the Virgin Islands, and six foreign countries, and have
approximately 950 branches. He said they are new in Alaska and
have an office in Anchorage for less than one year. They feel this
bill is a good step forward in updating the Alaska Small Loan Act
and the Retail Installment Sales Act. They feel this bill would be
an incentive for companies to expand within Alaska.
If SB 157 does allow deregulation, the rate would be set by
competition.
Number 373
SENATOR KELLY asked why Alaska was all-of-a-sudden becoming an
attractive market for small loan companies, when for years and
years we were avoided. MR. ANDREWS said it was a market they were
sorry they had missed for the past six or seven years. MR. RAWELL
said he thought modern technology, like faxes and computers, made
it easier and more economically feasible to conduct long distance
business in Alaska.
SENATOR SALO asked if there was anything about our economic
demographics that makes the market more attractive here right now.
MR. HAMLIN said when they bought out Household Finance in 1986, the
reason they left the state was because of high bad debt at the time
and there were more people moving out of the state than moving in.
The cost factor of doing business in Alaska was quite high, for
airlines tickets, for instance. He explained that it takes nine
offices to form a district in his company, so someone could
actually live here to oversee operations. That is why he currently
flies between Washington, Montana, and Alaska. MR. HAMLIN said the
incomes are a lot higher up here and people, when they come to
Alaska, normally don't bring all their household furnishings with
them. They need to buy new things when they get up here and that
is good for businesses like Sadler's. And that' what attracted
them to the State of Alaska.
SENATOR KELLY thanked them for their participation and said he
would work on this issue during the interim or at the beginning of
next session.
SENATOR KELLY adjourned the meeting at 2:20 p.m.
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