Legislature(2007 - 2008)BELTZ 211
03/27/2007 01:30 PM Senate LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB116 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 116 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE LABOR AND COMMERCE STANDING COMMITTEE
March 27, 2007
1:32 p.m.
MEMBERS PRESENT
Senator Johnny Ellis, Chair
Senator Gary Stevens, Vice Chair
Senator Bettye Davis
Senator Con Bunde
MEMBERS ABSENT
Senator Lyman Hoffman
COMMITTEE CALENDAR
SENATE BILL NO. 116
"An Act relating to the Uniform Money Services Act, to money
transmission services, and to currency exchange services; and
providing for an effective date."
HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 116
SHORT TITLE: UNIFORM MONEY SERVICES ACT
SPONSOR(s): SENATOR(s) ELTON
03/14/07 (S) READ THE FIRST TIME - REFERRALS
03/14/07 (S) L&C, FIN
03/27/07 (S) L&C AT 1:30 PM BELTZ 211
WITNESS REGISTER
SENATOR KIM ELTON
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Sponsor of SB 116.
MARK DAVIS, Director
Division of Banking and Securities
Department of Commerce, Community & Economic Development (DCCED)
Juneau AK
POSITION STATEMENT: Supported SB 116.
DAVID LANDSMAN, Director
National Money Transmitters Association
POSITION STATEMENT: Supported SB 116.
EZRA LEVINE, Partner
Howery Law Firm
Money Services Round Table
Washington D.C.,
POSITION STATEMENT: Supported SB 116.
MR. ALLEN MOORE, Manager and Owner
Cemerlang Financial Services
Juneau AK
POSITION STATEMENT: Supported SB 116.
ACTION NARRATIVE
CHAIR JOHNNY ELLIS called the Senate Labor and Commerce Standing
Committee meeting to order at 1:32:04 PM. Present at the call to
order were Senators Stevens, Davis, Bunde and Ellis.
SB 116-UNIFORM MONEY SERVICES ACT
1:33:24 PM
CHAIR ELLIS announced SB 116 to be up for consideration and that
it had a CS.
1:33:32 PM
SENATOR KIM ELTON, sponsor of SB 116, said he wanted to make a
few points. One is that the bill has support from both large and
small money transmitting companies, the Association, the
Department of Commerce, Community & Economic Development
(DCCED), and from consumer advocates. It has implications for
the industry, the consumer and homeland security.
SENATOR ELTON apologized for bringing a 28-page bill to them,
but said it is based on model legislation that has been used
elsewhere. It insures the safety and soundness in the financial
institutions used by Alaskans who don't use banks. Most of the
bill is taken up with the mechanics of regulation like licensing
background checks, investigations, and filing reports. As with
any business regulation, it is going to be self-supported by the
businesses. This does not have a cost to the general fund.
SENATOR ELTON said SB 116 addresses two industries that pose a
risk for money laundering - money transmission and currency
exchange. Money transmission also poses a risk for terrorist
financing.
1:36:27 PM
The only difference between this bill and the model legislation
is that the model also covers check cashing, which is another
industry with its own dynamics. He left it out because it
doesn't impact homeland security and can be dealt with later if
people want.
He said the federal government encourages states to work with it
on these businesses by licensing money service businesses (MSB).
In fact, the Federal Bank Security Act that was updated after
9/11 makes it a federal felony to transmit money without a
license in states that require one. So if this passes,
violations will be federal felonies.
SENATOR ELTON said several Alaskan businesses do transmit money
now, but are not registered with the federal Financial Crimes
Enforcement Network (FINCEN). State licensure will require money
transmitters to get registered so they don't run afoul of the
federal government. It ensures law enforcement coordination to
make sure these businesses aren't abused by people who avoid
banks because they don't want the scrutiny of bank examiners.
The bill insures safety and soundness for consumers through its
bonding and net worth requirements.
1:38:07 PM
SENATOR ELTON described how Juneau is familiar with money
transmitting companies because a typical user might be someone
who is on one of the foreign flagged tour ships who wants to
wire money to their home country and their families.
1:38:49 PM
SENATOR BUNDE mentioned that illegal aliens doing money
laundering has been in the news lately and he asked if this bill
impacted those situations.
SENATOR ELTON replied that he didn't think his bill affected
that issue, but he encouraged him to ask the people who are in
the business. It's possible that it might concern how banks deal
with money transmitters and bank accounts for them. Now, the
federal government requires banks to know about, not just the
person that has the account, but the people that are doing
business with the account-holder. So, there are some issues
around the banks that are not addressed in the bill.
1:41:02 PM
SENATOR STEVENS said the Kodiak Western Union has seen a lot of
money transfers by foreign nationals who work in Kodiak
canneries who send money home and he asked if they would lose
that business.
SENATOR ELTON replied that Western Union would speak to that
later on, but the only concern they had is that there is no cap
on the fee service. He explained that all of the state's
regulatory boards have fees that have to fully support the
activities of the board. Western Union would prefer to see just
a flat fee instead of one that could slide up or down depending
on what the expenses of the board were. But they had worked
through that and supported the bill.
1:42:43 PM
MARK DAVIS, Director, Division of Banking and Securities,
Department of Commerce, Community & Economic Development
(DCCED), supported SB 116 and testified that it provides for
efficient regulation. It doesn't require companies that are
licensed in other states to apply for licensure in Alaska; so it
doesn't require duplication of licensing and allows them to work
through their affiliates in the state. The larger company would
become responsible for the actions of the affiliate.
He said this system allows two essential things. It lets the
Division of Banking and Securities monitor compliance with
various laws and it also has some consumer protection issues
that are not in the uniform act. A provision requires each
licensee to state, up front, to the customer what charges they
make when using the service. Currently, Alaska does not have any
regulations on any of these businesses and this would be a first
step.
MR. DAVIS supported the idea of making sure each business is
following the various federal and/or state laws that apply to
their services. The Act allows for the division to do
examinations and to do an examination upon receiving a
complaint. It would not be too burdensome; a bank examiner would
have to look at the records that are being kept by the
particular company. Money transmitters are already registered
with the IRS and should be registered with the Department of
Treasury. However, as Senator Elton noted, not all are so
registered in the State of Alaska. "So this bill would clean up
that situation, which would be very positive," he said and that
currently Alaska does not have any regulations and this is a
first step.
1:47:03 PM
SENATOR STEVENS asked what the charges would be to send money
from Kodiak to Philippines.
MR. DAVIS replied that the fee is a percentage of the
transaction and the currency exchange rate, which changes from
day to day because of currency fluctuations. The idea in this
bill is that everyone would have to post their charges up front
so people know upfront what they are.
SENATOR STEVENS asked if he understood correctly that the cost
of the transaction won't change, but the rates will be posted.
This should create competition and allow consumer choice.
MR. DAVIS replied that was correct.
SENATOR STEVENS asked what "no cap for financial services"
means.
MR. DAVIS answered that the department's fiscal note indicates
it needs half of an investigator, which is how they are working
with payday lending right now, which is a similar type industry.
He thought the cost of the regulation to the division would be
equal to the fees and they can be adjusted by regulation so that
would be monitored.
1:49:03 PM
SENATOR BUNDE asked what problem this legislation solves and if
there has been abuse.
MR. DAVIS replied that he hadn't heard of abuse with the charges
and he has not had that many complaints. He has a predatory
lending hotline, but hadn't received many calls on money
transmitters. But he knows from the pay lending bill that the
posting of the charges has led to competition and he thought
that would occur here. The other thing he noted is the federal
Money Laundering Suppression Act of 1194 urged the states to
enact uniform laws to license and regulate money transmitters
and currency exchange businesses and this uniform act in SB 116
would conform to that. "There is a definite advantage to money
laundering suppression by this bill."
SENATOR STEVENS asked how this would protect a consumer from a
company going into bankruptcy.
MR. DAVIS replied that SB 116 has a bond provision that would
provide some protection. Second, the division could also make
sure that the companies that are applying for the licensing have
the business acumen and financial ability to be in this
business.
SENATOR BUNDE asked if he said only a handful of people do this
business in Alaska.
MR. DAVIS replied that he thought this would affect about 30
companies. Western Union is here, but that would be licensed
through its national affiliate. It's good to have as many
companies as possible.
1:52:00 PM
SENATOR BUNDE mentioned the $80,000 fiscal note. He asked if
that would be passed on to the customer.
MR. DAVIS replied yes.
1:52:51 PM
SENATOR ELTON said four people do this business in Juneau plus
Western Union and the fiscal note was predicated on 40 companies
around the state, if he recalled correctly.
MR. DAVIS added that it should be based on 30 - 40 statewide
based on the division's informal survey.
1:53:38 PM
DAVID LANDSMAN, Director, National Money Transmitters
Association, said it was founded in 1999 to defend the concerns
of state license remittance companies. That is the only
requirement they have for membership - to be state licensed -
except in the case of Mr. Allen Moore who is not licensed
because he operates in Alaska.
He explained that Mr. Moore was very interested in getting this
license bill passed because of the banking problem. And that's
the main problem the Association wants to solve right now,
"because it's a matter of survival."
MR. LANDSMAN said the question has been raised - what is the
linkage between the licensing bill and the banking problem. The
linkage is that the professionalization of this industry is a
prerequisite to them getting the kind of recognition and respect
that would help them get their bank accounts back. He explained
there are no such things as a right to a bank account in this
country and a bank has the right to choose who to do business
with and who not to. The only trouble is they have chosen not to
do business with any money service businesses. This has led to
real distortions in the market that impact the consumer, not to
mention the existence of above-board money transmitters.
This issue has a lot of implications for national security and
our country's anti-money laundering (AML) laws. He thought it
was the first prerequisite for keeping track of these
transactions. The federal government made a conscious decision
to leave it up to the states; very few states are not doing it
right now. In the states that are licensing people there is
still the problem of getting shut out of the bank accounts. "So,
this is really just the first step on the road to getting our
industry professionalized both in substance and in public
perception."
The banks are not the villains in this, he said, and if there is
a villain, it can be said to be overzealous regulators. He
recognized that the problem is coming from the federal level.
The state banking charter is at issue here. These banks are
examined by the state, but it is also examined by the FDIC,
which is one of the five federal banking regulators is one of
the prime culprits. In their execution of their job, there is a
lot of anecdotal evidence to say a false standard is being
applied. The standard they say should be applied is that a bank
can have as many MSB customers as they want as long as they have
systems that are adequate to handle the AML risk. In fact, what
is happening is that is not the only standard. Banks are being
told to close MSB accounts because they have too many of them.
Unfortunately that concept of concentration of risk is being
transplanted from credit to compliance and it's being
misapplied, he said. Further, most banks have made the decision
these days not to do business with MSBs because it's just not
worth it.
MR. LANDSMAN said he understands this might not be the correct
forum for this kind of discussion and he appreciated the
committee's forbearance in listening.
1:58:24 PM
He believed the need for licensing is not gauged by the number
of consumer complaints alone. Hawaii did a study looking at
whether or not there were sufficient consumer complaints to pass
its bill and it concluded there weren't enough. Yet, a couple of
months later its bill passed. It's for the reason of being able
to at least identify who is doing these kinds of businesses and
fulfilling the state's role. Unfortunately it can be looked at
as an unfunded mandate, but this is the role the federal
government was hoping the states would pick up. An entire
industry is getting denied banking accounts.
MR. LANDSMAN said he represents mostly small to medium sized
money transmitters who are honest and hard working who serve a
real important need in society.
2:00:21 PM
EZRA LEVINE, Partner, Howery Law Firm, Washington D.C.,
represents the Money Services Round Table, which is composed of
the large national non-bank money transmitters. They include
American Express, Western Union, Money-Gram, and others that are
licensed in all of the states and under the 47 states that now
have laws similar to SB 116.
MR. LEVINE said he helped write the National Conference of
Commissioners on Uniform State Laws (NCCUSL) model and testified
in favor or it as well as the competing model of the Money
Transmitter Regulators' Association, which are amazingly
similar. He said they were the only ones who are complying with
the anti-money laundering record keeping and reporting
regulations under the U.S. Bank Secrecy Act. The have both a
soundness and safety focus and make sure that the companies are
complying with the Bank Secrecy Act as it was enhanced in 2001
by the Patriot Act.
2:03:28 PM
MR. LEVINE explained that consumer protections in bankruptcy are
not just a bond, but the principal protection is that every
money transmitter includes not only folks that transmit funds
but those who issue transmission instruments, like travelers'
checks and money orders, as well. He said that grocery stores
also issue money orders and anybody who is licensed has to have
a pool of eligible securities - like cash and government bonds -
equal to all the outstanding customer obligations of the
licensee. A statutory trust is imposed on those assets to deal
with bankruptcy issues. Not only is the bond available, but the
permissible investments and failure to have permissible
investments or to lie about it is a felony under the state law.
"So, it's a very, very, good protection." Further, he said, the
new disclosure provision for receipts and fees and for the FX
rates are a marvelous tool for the consumers. He said that
Hawaii has the very same law that is being proposed for Alaska
and the costs of regulation have not increased costs to the
consumer.
2:05:34 PM
SENATOR STEVENS asked how much more it would cost to send $1,000
to the Philippines if this law passed.
MR. LEVINE suspected the costs would be fairly deminimis because
all the companies in all the states pool their costs.
SENATOR STEVENS reiterated that it didn't seem that the consumer
would get much protection out of this bill.
MR. LEVINE replied that the theory is that the state government
is insuring to the maximum extent practicable that a system is
in place to insure that when someone buys a money order, which
is just piece of paper with "money order" written on it, that it
is good, even in the face of bankruptcy. Virtually all the
states are doing it now.
2:08:36 PM
SENATOR BUNDE asked if Mark Davis supported this bill.
MR. DAVIS replied yes.
2:09:49 PM
MR. ALLEN MOORE, Manager and Owner, Cemerlang Financial
Services, LLC, said he transfers money exclusively for crewmen
on the tour ships and supported SB 116. It would be advantageous
to the industry and the people he servers if money transmitters
were regulated by the state. It would put a license on the wall
and give customers confidence that a body of law is behind it.
As part of the licensing he would become bonded or he would
purchase a CD and pledge it to the state.
CHAIR ELLIS asked him who he represents.
MR. MOORE replied that Cemerlang represents a company out of New
York for the Philippines. His network is for Indonesia and he
didn't anticipate a fee increase.
2:12:50 PM
SENATOR BUNDE asked what the banking problem is.
MR. MOORE replied that Cemerlang was banking for over eight
years with Key Corp, but Key Corp decided it didn't want to
service MSBs and other banks have made that same decision.
People in the industry can't get accounts; it's a real problem.
Money can't be sent home.
SENATOR STEVENS asked if he gets bonded, would he have to bond
himself or would the larger firm's bond cover him.
MR. MOORE replied that he is his own company and registered with
the federal Financial Crimes Enforcement Network (FINCEN) as a
money transmission company. No bond is required and he doesn't
have one; rather he has a stock portfolio that he keeps in the
corporate name.
SENATOR STEVENS asked if he would have to purchase a bond if
this passed.
MR. MOORE replied yes, or a CD and pledge it to the state.
2:16:05 PM
CHAIR ELLIS mentioned the Alaska Public Interest Research
Group's (AKPIRG) letter from Steve Cleary in support of SB 116.
2:16:30 PM
SENATOR ELTON commented that he thought the most important thing
is what this bill does for the consumer. They are getting the
knowledge that they are dealing with a State of Alaska licensed
company that has to follow rules and that is not a fly-by-night
business. That, along with the bond or CD, gives a certain
amount of comfort when you're handing over a substantial amount
of money.
2:18:10 PM
CHAIR ELLIS said the bill would be held for a further hearing.
There being no further business to come before the committee, he
adjourned the meeting at 2:18:57 PM.
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