03/30/2006 01:30 PM Senate LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB241 | |
| SB307 | |
| SB272 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | SB 241 | TELECONFERENCED | |
| += | SB 307 | TELECONFERENCED | |
| += | SB 309 | TELECONFERENCED | |
| += | SB 272 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE LABOR AND COMMERCE STANDING COMMITTEE
March 30, 2006
1:31 p.m.
MEMBERS PRESENT
Senator Con Bunde, Chair
Senator Ralph Seekins, Vice Chair
Senator Ben Stevens
Senator Johnny Ellis
Senator Bettye Davis
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
SENATE BILL NO. 241
"An Act relating to modifying the qualifications required for
workers' compensation self-insurance and permitting employers in
the same trade or industry to form an employer association for
self-insured workers' compensation coverage; and providing for
an effective date."
HEARD AND HELD
SENATE BILL NO. 307
"An Act relating to a fee provided for in the rental agreement
for late payment of rent under the Uniform Residential Landlord
and Tenant Act."
MOVED SB 307 FROM COMMITTEE
SENATE BILL NO. 272
"An Act relating to mortgage lenders and persons who engage in
activities relating to mortgage lending; and providing for an
effective date."
HEARD AND HELD
SENATE BILL NO. 309
"An Act establishing a construction trades training grant
program for award by the Department of Labor and Workforce
Development, providing for special employee unemployment
contributions to fund the program and an offsetting credit
against the employees' general unemployment contribution, and
providing for an expiration date for the program, contributions,
and credit; and providing for an effective date."
POSTPONED
PREVIOUS COMMITTEE ACTION
BILL: SB 241
SHORT TITLE: JOINT INSURANCE ARRANGEMENTS
SPONSOR(s): SENATOR(s) COWDERY
01/18/06 (S) READ THE FIRST TIME - REFERRALS
01/18/06 (S) L&C, FIN
03/28/06 (S) L&C AT 1:30 PM BELTZ 211
03/28/06 (S) Scheduled But Not Heard
03/30/06 (S) L&C AT 1:30 PM BELTZ 211
BILL: SB 307
SHORT TITLE: LANDLORD REMEDIES; LATE FEE
SPONSOR(s): LABOR & COMMERCE
02/23/06 (S) READ THE FIRST TIME - REFERRALS
02/23/06 (S) L&C, JUD
03/09/06 (S) L&C AT 1:30 PM BELTZ 211
03/09/06 (S) Heard & Held
03/09/06 (S) MINUTE(L&C)
03/16/06 (S) L&C AT 1:30 PM BELTZ 211
03/16/06 (S) Scheduled But Not Heard
03/28/06 (S) L&C AT 1:30 PM BELTZ 211
03/28/06 (S) Heard & Held
03/28/06 (S) MINUTE(L&C)
03/30/06 (S) L&C AT 1:30 PM BELTZ 211
BILL: SB 272
SHORT TITLE: MORTGAGE LENDING
SPONSOR(s): SENATOR(s) WAGONER
02/08/06 (S) READ THE FIRST TIME - REFERRALS
02/08/06 (S) L&C, FIN
03/02/06 (S) L&C AT 2:00 PM BELTZ 211
03/02/06 (S) -- Meeting Canceled --
03/07/06 (S) L&C AT 1:30 PM BELTZ 211
03/07/06 (S) Heard & Held
03/07/06 (S) MINUTE(L&C)
03/16/06 (S) L&C AT 1:30 PM BELTZ 211
03/16/06 (S) Scheduled But Not Heard
03/30/06 (S) L&C AT 1:30 PM BELTZ 211
WITNESS REGISTER
RYAN MAKINSTER
Staff to Senator Cowdery
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Commented on SB 241 for the sponsor.
LINDA HALL, Director
Division of Insurance
Department of Labor & Workforce
Development
PO Box 21149
Juneau, AK 99802-1149
POSITION STATEMENT: Opposed CSSB 241(L&C), Version G.
PAUL LISANKIE, Director
Division of Workers' Compensation
Department of Labor & Workforce
Development
PO Box 21149
Juneau, AK 99802-1149
POSITION STATEMENT: Opposed CSSB 241(L&C), Version G.
TOM SMITH, President
Alaska State Homebuilding Association
MatSu, Alaska
POSITION STATEMENT: Supported SB 241.
ROBERT VOGEL
ProGroup Management
No address provided
Nevada
POSITION STATEMENT: Supported SB 241.
LARRY PARTUSCH
Anchorage Homebuilders' Association
Anchorage AK
POSITION STATEMENT: Supported SB 241.
KENTON BRINE
Property Casualty Insurers Association of America
No address provided
POSITION STATEMENT: Had concerns with SB 241.
MICHAEL BELL, Director
Alaska Trucking Association
Anchorage AK
POSITION STATEMENT: Supported SB 241.
AMY SEITZ
Staff to Senator Wagoner
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Reviewed CSSB 272(L&C), Version C, for the
sponsor.
MARK DAVIS, Division of Banking and Securities
Department of Commerce, Community & Economic Development
PO Box 110800
Juneau, AK 99811-0800
POSITION STATEMENT: Answered questions on SB 272.
KEVIN BREELAND, President
Alaska Mortgage Bankers Association
Anchorage AK
POSITION STATEMENT: Supported SB 272.
JOHN CARMAN, Chair
Legislative Committee
Alaska Mortgage Bankers Association
Anchorage AK
POSITION STATEMENT: Supported SB 272.
DOUG ISAACSON
President, Gold Coast Mortgage
President, Alaska Association of Mortgage Brokers
Fairbanks AK
POSITION STATEMENT: Opposed SB 272.
LAURIE HOLTE
Officer of Residential Lending Mortgage Operations
Alaska Housing Finance Corporation (AHFC)
Anchorage AK
POSITION STATEMENT: Supported the concept of SB 272, but it
needed more work.
BARBARA WORLEY
Director of Lending
Anchorage Neighborhood Housing Services
Anchorage AK
POSITION STATEMENT: Supported the concept of SB 272, but it
needed more work.
KEN GAIN, Secretary Treasurer, Legislative Chairman
Independent Lenders of Alaska
No address provided
POSITION STATEMENT: Supported SB 272.
JOHN MARTIN
Alaska Mortgage Solutions
Anchorage AK
POSITION STATEMENT: Wanted time to read the CS to SB 272.
ACTION NARRATIVE
CHAIR CON BUNDE called the Senate Labor and Commerce Standing
Committee meeting to order at 1:31:03 PM. All members were
present at the call to order.
SB 241-JOINT INSURANCE ARRANGEMENTS
CHAIR CON BUNDE announced SB 241 to be up for consideration.
RYAN MACKINSTER, staff to Senator Cowdery, sponsor of SB 241,
explained that it creates in statute the ability to have self-
insured workers' compensation groups. Currently individual
companies can be self-insured in Alaska and this allows
companies within the same industry to get together and form a
group to be self-insured like the individual companies if they
meet all the other requirements. Several other states allow this
now.
MR. MAKINSTER said that a minimum of five or more employers
would be needed to form a group, but different types of
companies could not form a group. He said the CS before the
committee was much larger than the original bill and that Linda
Hall, director of the Division on Insurance was concerned it
left a lot of the ideas in regulation rather than putting them
in statute so the boundaries would be clearer.
1:34:32 PM
SENATOR RALPH SEEKINS moved to adopt CSSB 241, version G, as the
working document. There were no objections and it was so
ordered.
MR. MAKINSTER explained that one of the first issues was to make
sure there were adequate funds for expenses to maintain the
program and to pay for claims. He said that Section 21.77.200 on
page 12 requires the association to adopt a plan that is
approved by the director that includes an advance payment of 15
percent with the balance to be paid in monthly or quarterly
installments. The assessments must be based on actuarial
projections that include appropriate reserves and the costs
associated with the plan. Appropriate reserves, he said, is
defined on page 12 in Section 21.77.210. They cover actual
claims, claims that have occurred but are not reported, and
reserves for uncollected debts based on experience.
1:36:55 PM
Furthermore, Mr. MAKINSTER said, the group is required to
deposit at least 65 percent of the money collected in an account
to pay claims or expenses related to those claims. The remaining
35 percent would go to paying for operating costs. He said that
workers' compensation costs are determined by AS 23.30, the
workers' compensation statute.
MR. MAKINSTER said that what happens when not enough money is
collected was a concern and page 12 also addresses that in
Section 21.77.230. It requires the group to collect an
additional assessment to make up any shortfall. It gives the
director the power to decide what additional assessments are
needed if the group fails to initiate that on its own. He
reminded the committee that the original intent of workers'
compensation was to insure that workers would be paid for lost
wages, injuries and expenses incurred if an accident happened in
exchange for not suing the employer for those costs.
He said another section provides that dividends can be paid back
to the members, which is a provision used in other states. On
page 11, Section 21.77.190 requires the approval of the director
before those dividends are paid. The idea behind the dividend is
that if the group works together to implement a safety plan that
will lower risk over time for both the system and the workers,
it would not have to pay out claims and there is some reward for
that.
1:38:53 PM
MR. MAKINSTER said if one member of the group goes bankrupt,
they are bound together through a joint and several liability
clauses to insure that claims are paid and bankruptcy does not
remove the liability to pay claims. Beyond that, there is a
surety bond payable to the state in the amount required by the
director to ensure that claims are paid.
CHAIR BUNDE asked if he had an estimate of what would be saved
if this were to become law.
MR. MAKINSTER replied that he didn't have a number.
1:40:29 PM
LINDA HALL, Director, Division of Insurance, directed her
comments to the CS. She said the bill requires the legislature
to make a public policy decision and she wanted to make sure all
the potential pieces were put before it before that decision was
made. Also, she said she wasn't particularly comfortable coming
before them with what they would perceive as an extremely
negative position on the bill; she didn't do it lightly.
MS. HALL said she still wasn't convinced that the bill provided
protections even though she worked with the sponsor group to do
that. She said she would talk about three areas - financial
oversight, regulatory oversight, and fiscal impact - and then
what she saw as a different solution.
1:42:03 PM
MS. HALL said that one of the basic principles of insurance
regulation is financial oversight to insure that claims get paid
and while the CS had detailed requirements, she was still
concerned that it had no liquidity requirements. It also had a
narrow tangible net worth requirement.
1:42:41 PM
CHAIR BUNDE asked what amount she was talking about for a
liquidity requirement.
MS. HALL replied that this bill was modeled after some Nevada
statutes and with Oregon statutes that required specific working
capital in sufficient amounts to establish the strength and
liquidity of the business. She didn't favor setting a specific
limit, but thought it could vary from group to group depending
upon their financial statements. She said that currently, there
is no requirement for individual members and suggested that
higher risk occupations have greater need for more liquidity.
1:44:01 PM
MS. HALL said another concern she had was that there is no
requirement for individual members to have audited financial
statements, but the association is required to have one. She
explained that there is a difference in general accounting
principals (GAP), which this bill is predicated on, and
insurance that is regulated based on statutory accounting;
assets are valued differently. She said the National Association
of Insurance Commissioners has an office called the SVO that
strictly does asset valuation. A great deal of attention is
given to the quality of assets in an insurance company, which is
important; and she said there are other assets besides liquidity
that make up net worth and the department needs to know that
there is a real method of evaluating those.
She said financial responsibility rests with the association and
it needs to have a tie-in with its members, but the joint and
several liability agreements in this bill do not include the
association. They do in the Nevada bill and she thought that was
very important.
MS. HALL said Section 21.77.230 deals with insufficient assets
and when an association is insolvent, it allows the director to
withdraw the certificate of approval, but doesn't say what
happens then. Current insurance statutes have provisions for the
Division of Insurance, namely the director, to become either a
supervisor or the association can go into receivership. This
bill does not give her authority to take over any assets.
1:46:30 PM
Under regulatory authority to penalize for violations, she
explained that the largest insurance company in the world was
penalized $1.6 billion to resolve allegations of deceptive
accounting practices. Prior to that, she had one subsidiary of
that company as an Alaska domestic and had done a financial exam
and found some accounting irregularities, which she didn't think
were intentionally deceptive, but nevertheless were not in
accordance with the state's standard accounting practices. The
company was fined $400,000. Recently, the division fined the
same company $65,000 for not getting its financial statements in
on time. She emphasized, "There needs to be a penalty!"
MS. HALL said that regulatory oversight is not part of this bill
even though a lot of financial requirements had been added and
it specifically says it's not insurance and nothing else applied
except Chapter 77, which was created for self-insured groups.
Chapter 36 of the Insurance Title provides the controlling
language for trade practices and frauds. It includes oversight
of marketing, misrepresentation, false advertising, unfair
discrimination, unfair claims practices, etc., and those could
not be applied to a self-insured group. She thought those were
consumer protections and asserted that claimants are consumers
and they need to be protected in some instances.
MS. HALL said that the division is currently conducting a market
conduct review of a claims adjusting company because of
complaints. The adjusting company is a licensee and she has the
authority to look at its files and determine what they are doing
and, as a result, has found a substantial number of statutory
violations. This kind of regulatory oversight is not present in
CSSB 241.
1:49:05 PM
MS. HALL went on to explain that all licensees have to pay a
license fee and a continuation fee. The division operates in an
arena where those who are regulated pay for it and not by
choice. The bill provides for a license fee only and she wanted
a continuation fee as well. However, the greater issue for the
legislature to deliberate is the premium tax since the entities
would no longer pay a premium and therefore no premium tax. This
tax is a major source of revenue to the general fund. In 2004
premium tax was the second largest source of revenue to the
general fund.
She said that probably one group self-insured association not
paying tax wouldn't have an impact, but the more of that you
get, the more the impact it has on the general fund.
1:50:40 PM
MS. HALL strongly felt the indemnity agreement should include
the association. Nevada statutes require annual assessments -
the premium the association would pay to an insurance company -
of at least $300,000 or an amount, which the director determines
to be satisfactory based on annual review of actuarial solvency.
Each member must have a tangible net worth of at least $250,000,
not just an aggregate and an insurance premium of at least
$10,000. It also provides that the director would approve an
annual assessment much as rate filings are approved today. This
means she would review the actuarial projections and reserving.
She said that Nevada also has provisions to assess other self-
insured associations for the claims obligations of an insolvent
association. In addition to the joint and several liability of
the group, if they became insolvent, all of the members would be
assessed although she didn't know if Alaska had enough bodies to
make that work.
She said that Oregon also has good ideas like specific
requirements for excess insurance and working capital -
requirements that are likely to improve accident prevention and
claims handling. It also requires irrevocable letters of credit
for deposits.
The last concern Ms. Hall mentioned was in current statutes. AS
21.75 allows for the formation of reciprocals, she explained,
that are entities that are kind of like insurance companies, but
they are limited to trade associations. Alaska has two that are
operating very successfully today - the timber exchange and
ARECA (Alaska Rural Electric Cooperative Association). They
operate under the division's oversight much as an insurance
company, but with lower requirements - $1.5 million to
capitalize, which she thought wasn't a lot of money for paying
workers' compensation claims that have the potential of being
expensive and long-tailed. She knew of an insurance company that
had a reserve of $7 million.
MS. HALL said she has yet to hear any reason that a reciprocal
would not be a viable entity for the trade associations to join
together and set its own rates, do its own safety programs and
admit its own members. She emphasized that she has not seen any
reason that this already statutorily-created entity could not
serve the same purposes and it comes under the division's
regulatory and financial oversight.
1:54:30 PM
MS. HALL closed saying she was very sensitive to the high cost
of workers' compensation today and she didn't want to take
people out of the system without first looking at improving it.
She said that Director Lisankie provided her with a report from
California that said after its reforms between July 1, 2003 and
January 1, 2006, premiums had gone down by 46 percent. She
emphasized that there are other ways to help employers reduce
costs than by taking them out of the system and reducing the
mass in which to spread the risk. She urged the committee to
work within the current system to deal with escalating costs, 67
percent of which are medical. However that is funded, she said,
those costs won't change and she didn't feel she had seen
evidence indicating that premium would be reduced.
1:57:10 PM
PAUL LISANKIE, Director, Division of Workers' Compensation,
Department of Labor and Workforce Development (DOLWD), offered
background on the scope of the current self-insurance program.
Only individual employers can be self-insured and he has the
authority for granting or denying applications lodged with the
Workers' Compensation Board. The program is up to 31 approved
employers. He said approximately 26 percent of all employed
Alaskans are working for an employer that self-insures its
workers' compensation liability. That means there is no guaranty
fund the way there is for insurance companies. If a self-insured
becomes insolvent, the only recourse for injured workers who are
getting benefits is bankruptcy court. He suggested that the
committee consider that in addition to the large self-insureds
under his supervision, which he thought were barely adequately
capitalized, that this legislation would be opening the doors to
an unlimited and unknown number of small employers to self-
insure through the trade associations.
MR. LISANKIE repeated that the current program is barely
adequate - partly because it is operating under regulations that
are 23 years old, but he is the process of revising those
regulations right now. Currently there is a minimum requirement
of $5 million in tangible assets to even qualify for
consideration as a self-insurer; with inflation, that would be
about $10 million in today's dollars and that is probably where
the regulations are going. Current regulations for security
provide for a minimum of $300,000 or 125 percent of actual
liabilities; so, that $300,000 would double to around $600,000.
2:01:38 PM
MR. LISANKIE closed by saying when one looks at the opinions of
people who talk about the best practices of workers'
compensation, essentially they suggest having three guarantee
funds. The first is a fund for the insurance companies, which
Alaska has had for many years, the second is a fund for making
up benefits of employees who are injured while they are working
for employers who are illegally uninsured (Alaska has this since
last year), and a last fund to guarantee self-insurers because
of the importance of the benefits. Alaska doesn't have this in
its current program and that absence is reflected in the current
bill, which would be specific to group self-insurers.
2:02:45 PM
He underscored Director Hall's comment that if you look at the
Nevada statute as a template, it does have a guaranty fund both
for the individual self-insured employers and the group self-
insurers - the groups that would be covered under this bill.
2:03:11 PM
CHAIR BUNDE asked if the state could be looked at as the
guarantor if there would be some catastrophe under this bill.
MR. LISANKIE replied that he didn't know.
CHAIR BUNDE said he also wanted to know what a guaranty fund
would look like as far as amounts and costs to the individuals
that would be part of the group.
2:04:09 PM
SENATOR SEEKINS asked Mr. Lisankie to explain the guaranty fund
for self-insured companies.
MR. LISANKIE replied that the fund would be in place for a
failure of a self-insured. Now there is no recourse outside of
the federal bankruptcy system. He said the assessment would
presumably be made every year and go into a backup fund that
would be accessed to pay benefits that could not be covered by
one of the members of the group going insolvent.
CHAIR BUNDE said the state has something like that for insurance
companies.
MR. LISANKIE affirmed that and added that fund had to be
adjusted in 2004 because of the large loss from a few insolvent
insurers. He said:
Frankly, that's part of the reason why I'm as
concerned about this as I am right now - because we
have this current system in place without a guaranty
fund and having sat through that testimony and lived
through that period, it's one of the things that keeps
me awake at night when I'm regulating along with the
panel of the Workers' Compensation Board - these 31
entities that are self-insured as we speak.
2:06:03 PM
TOM SMITH, President, Alaska State Homebuilding Association,
supported SB 241, because it would provide one more option to
any trade group, but specifically to homebuilders, to help with
the escalating costs of workers' compensation insurance. He said
he realized that rates wouldn't be that different, but they
would have more control over safety by being part of a smaller
group and members could possibly retain some of the premiums.
ROBERT VOGEL, ProGroup Management, said his is an administration
company and he had worked with the sponsors of this bill to help
them to understand self-insured groups. He said that ProGroup
has managed four different self-insured groups for over 10
years; one of the groups consists of homebuilders.
2:09:12 PM
MR. VOGEL clarified that this law is intended to allow a group
of individual employers to finance their projected losses in the
same manner a single self-insured entity has done under those
same provisions. Employers within the same industry would form
an unincorporated, non-profit association that would be owned by
its members collectively for the purpose of self-insuring its
workers' compensation liability, thereby obtaining the same
status as a singly self-insured employer. This self-insured
group is a separate distinct legal entity and is not part of the
common trade association. The tie-in to the common trade
association is it helps strengthen the commonality of the risk.
You don't want a restaurant joining a builders association
because of the different risks involved. He stated that SIGs
(self insured groups) are viable alternatives for employers to
improve their risk management procedures, worker safety and
care; they have been authorized in 39 states, mostly recently in
Texas. They have been in existence for over 40 years using the
basic tenants outlined in this bill, which stresses solvency,
owner accountability and responsibility.
He said one of the requirements to qualify to become a SIG is to
have a minimum of $5 million in tangible net worth. He noted
that Director Lisankie said that the minimum tangible net worth
for individual self-insureds in Alaska is $10 million, so this
would be $10 million also. Whatever the self-insured law is,
that is what these groups would follow.
MR. VOGEL explained that tangible net worth is the net worth of
a company less its intangible assets. The employers sign a joint
and several liability agreements binding them to pay all of the
claims of this group. That is measured through GAP, the most
common method of measuring net worth across the country. But the
law backs away from intangible assets because the idea is to
have assets that can be sold. He explained that the group would
most likely have a $350,000 to $750,000 deductible. After that,
even if there were a $7 million claim, an excess insurance
company would pay the rest. That is why they have to make sure
they use "A" rated companies providing that the group would pay
for. He said the group would be subject to paying claims under
AS 23.30.
He said this law does not require each member to have audited
financials, but from a liquidity standpoint, the group should
have GAP audited financials. Annual CPA audits are required as
well as adequacy audits by an independent actuary who has joint
and several liability agreements that support the liquidity.
Each member has annual payroll audits to assure correct
reporting of collections and the director of the Division of
Insurance can audit those records as necessary to insure
compliance and solvency.
2:17:09 PM
He opined that a group self-insured becomes a better alternative
to a single self-insured because if one company goes bankrupt,
others are there to cover the claims. If a member leaves the
group, he still remains bound to it by its joint and several
agreements.
MR. VOGEL said that Nevada passed its law in 1990 and 2,400
businesses have formed 13 groups there. He said that the number
of groups is generally a function of the number of businesses
the state has. He thought possibly only a dozen groups would
form in Alaska.
2:23:17 PM
He concluded saying this is not insurance, it is self-insurance
and people should not be afraid of it. It may cost a little more
in the first year to start a group, but over a 10-year period,
savings can be generated. Improved care of the employees is the
first and foremost goal of programs like this and he reported
that his homebuilders group has saved about 20 percent on its
premiums since 1999 compared to the standard carrier market.
Return-to-work times and medical costs were generally cut in
half. The auto dealers retail and transportation group
experienced much the same results after 10 years. The groups
have built up reserves and have continued to thrive and grow.
CHAIR BUNDE thanked Mr. Vogel for his comments and said that
committee time was limited and asked testifiers to summarize
their testimony.
2:25:40 PM
LARRY PARTUSCH, Anchorage Homebuilders' Association, supported
SB 241 saying it provides another option for funding workers'
compensation. He said that having companies in the same industry
in one group encourages them to police their own industry. His
experience was that he couldn't get benefits from the use of
safety practices when he was in a big group.
KENTON BRINE, Property Casualty Insurers Association of America,
said his is a trade association representing about 1,000 member
insurance companies across the country including some of the
leading workers' compensation insurance writers. He understood
this legislation is an option that is being sought by
homebuilders, in particular, and his concern stems from what he
heard from the directors of the Division of Insurance and the
Division of Workers' Compensation that there are not adequate
regulatory oversights and from the perspective of an injured
worker, if an entity becomes insolvent, it will look a lot like
a bankrupt insurance company and the question is how do you get
your bills paid. He said:
It isn't that we are in opposition to the formation of
this option; it is rather that we are concerned that
the way it is being formulated it is going to lead to
a great deal of risk to injured workers, to the
employers that joined these groups and to the broader
insurance marketplace.
He supported continuing the department's efforts of addressing
the cost drivers to workers' compensation rather than creating
other options using the same cost structure. He also pointed out
that the system that these groups would be departing would
suffer as well. Legislators and administrators might eventually
have to pick up the pieces of a decimated insurance system that
is the result of weak regulatory oversight as a result of this
legislation.
2:30:12 PM
MICHAEL BELL, Alaska Trucking Association, supported SB 241. He
testified that workers' compensation is one of the largest
concerns for trucking companies in Alaska that are faced with
increasing rates that can only be attributed to market
increases. Customer service has been replaced by "Pay it or find
it elsewhere" attitude. He mentioned that small companies have
to cut corners, operate without coverage, sell off portions of
their assets, or close their doors. A change is needed now he
said, as some of his members' rates exceed $36 per $100 of
payroll.
CHAIR BUNDE said the committee shared his concerns about the
costs of workers' compensation and wanted to do what it could to
help. He then set SB 241 aside.
SB 307-LANDLORD REMEDIES; LATE FEE
2:31:38 PM
CHAIR CON BUNDE announced SB 307 to be up for consideration.
SENATOR RALPH SEEKINS said he could address his concerns in the
Judiciary Committee if the Chair wanted to move the bill.
CHAIR BUNDE noted there were no questions or amendments.
SENATOR SEEKINS moved to report SB 307 from committee with
individual recommendations and attached fiscal notes. Senators
Davis, Ben Stevens, Seekins and Bunde voted yea; Senator Ellis
voted nay; and SB 307 moved from committee.
SB 272-MORTGAGE LENDING
CHAIR CON BUNDE announced SB 272 to be up for consideration.
SENATOR RALPH SEEKINS moved to adopt CSSB 272, version C, as the
working document. There were no objections and it was so
ordered.
AMY SEITZ, staff to Senator Wagoner, sponsor of SB 272, reviewed
changes in the CSSB 272, version C, at length. She said that
page 1 had a new Section 1 that added mortgage lenders and
mortgage brokers into the definition of financial institution
and that licensing requirement language was added on page 2
clarifying that this covered persons doing business from out of
state. Section 06.60.020. Exemptions, exempts a person from
getting a license for six or fewer loans every 12 months,
although he is not exempt from the business duties and
restrictions under this chapter. Language was moved from
subsection 3 into subsection 2 that subjects a person to general
supervision, regulations and examination. References to audit
were deleted in both subsections. The word "kickback" on page 3
in subsection 7 was deleted. Subsections 10 and 11 under
exemptions were deleted, but their ideas were put into new
Section 06.60.025 that deals with employees and independent
contractors and clarifies that even though they are not required
to get their own separate licenses, they are still required to
follow the rules under this chapter. The licensee would be
responsible for any breaking of the rules.
MS. SEITZ said on page 4 new language was inserted in Section
06.60.030 (6) that clarifies what other information the
department may be requiring for the application and in Section
06.60.040. Investigation: "license" was changed to "application
fee". On page 5, Section 06.60.050, language was changed to say
that persons applying for a dual license didn't have to pay a
dual fee. Section 06.60.060. Bonding: language was changed in
subsection (b) to say that either the department or a person
could collect fees. Section 06.60.070 (a) language clarified
that a complete application, the required bond, any fees or
assessments had to be turned into the department before a
license was granted or denied. "Disapproved" was changed to
"deny an applicant to license" in subsection (b) on page 6 and
several places throughout the bill.
MS. SEITZ continued saying that "approved" was changed to
"granting" in Section 06.60.080 and that subsection (1) now
included investigative costs so the applicant would have to pay
all the required fees and the investigative costs. Subsection
(2) added "or other principals" to the list of what the
financial responsibility would be. Subsection (3) changed
language from "disapprove" to "deny". Also on page 6, in Section
06.60.090 "disapprove" was changed to "denial". On page 7, she
said the language was changed in Section 06.60.110 on how long
the license would be in effect.
2:41:10 PM
CHAIR BUNDE interrupted to ask if everyone had received the CS.
MS. SEITZ replied that she had sent a copy to everyone she had a
fax number for. She continued saying that language was clarified
saying the department could not accept a transfer without the
provisions in subsection (b) of Section 06.60.110. Section
06.60.210 changed an "application fee" to an "annual license
fee" because the license is being discussed, not the
application. Section 06.60.240 conformed with previous language
to include "control of licensee" in the title. The change has to
be written notice and 30 days instead of 10 days. This section
also has a new subsection (b).
She said that Section 06.60.250. Records of licensee: had
significant changes and added subsections (b) through (e).
Section 06.60.260 (2) was rewritten to read more smoothly with
the reference to the statute at the beginning instead of the
end. Section 06.60.270. Disqualified persons added a member and
a sole proprietor to the list of people who this paragraph deals
with. In subsection (c) language was changed from "an officer,
director, or other person" to "a person". Under (1) - what a
disqualified person means - was changed to just reference "if a
person is convicted of" because the Department of Law felt that
would cover a better variety of people than previous language.
It also added a new subsection, (c).
MS. SEITZ continued her review saying on page 10, Section
06.60.280 on minimum net worth had inadvertently been left in
and that was deleted completely.
2:45:05 PM at ease 2:45:47 PM
CHAIR BUNDE announced that he needed to go to another meeting
and he would turned the gavel to Vice Chair Seekins who would
continue going through the new CS, but because of the new
information, the bill would not move today.
MS. SEITZ continued her explanation of the CS saying on page 12,
Section 06.60.340. Revocation and suspension of a license: had
clarifying language in the beginning paragraph (A) and (C). It
now reads "Investigation and examination." instead of
"Examination of licensee." Subsection (a) also had some
clarifying language, although the content wasn't changed.
Going to page 13, Ms. Seitz said, subsection (b) was added to
Section 06.60.350, the false information section. On page 14,
Subsection (6) was added under compliance with federal
requirements in Section 06.60.410 that states "any other federal
law or regulation" to cover everyone. On page 17, Section
06.60.500. Cease and desist orders: was shortened to one
sentence. The old Section 06.60.510 was deleted and renumbered.
Section 06.60.520. Responsibility of licensee for violations:
and Section 06.60.540. Civil penalty for violations: were new.
On the same page under "additional enforcement provisions,
actions, and rights," subsection (c) was added. Section
06.60.600, Authorization of program administration fee: was new
and dealt with which applications would apply to the $10-dollar
application fee; the old Section 06.60.600 became Section
06.60.610. Section 06.60.700. Application to Internet
activities: clarifies that this chapter also applies to Internet
businesses. On page 22, new Section 4 added a new subsection to
AS 45.50.481. She concluded saying those were all the changes.
2:51:16 PM
SENATOR SEEKINS said he had a question about page 19 on Section
06.60.610 that said the department can contract with an agent to
collect a fee, but it appeared to him (b) said if the agent
collects the fee and doesn't turn them in, the effect is the
same as if they hadn't been collected.
2:52:23 PM
MARK DAVIS, Division of Banking and Securities, Department of
Commerce, Community & Economic Development (DCCED), explained
that the state didn't want to be liable if an agent didn't turn
in the fees and the sovereign immunity of the state could be
used in this instance.
SENATOR SEEKINS said he thought it violated the age-old
principal of "I am responsible for my agent." He said he would
feel more comfortable having the state collect the fees, itself.
MR. DAVIS agreed with his concern in a regular business context,
but explained that this is the same process used by the Alaska
Department of Fish and Game (ADF&G) that collects fees by using
agents.
SENATOR SEEKINS remarked that maybe they would have to go back
and fix that, too.
MR. DAVIS said if he had a complaint that someone was not
collecting fees, the bill is worded so that the department would
investigate that complaint and then it would move to cease and
desist on the license immediately.
SENATOR SEEKINS asked if he had any other comments.
MR. DAVIS replied first by thanking all the staff who had worked
on the legislation. He thought it was the same bill in spirit,
but now it was tightened up. He said it still allows for a
variety of mortgage companies and supports the inclusion of
mortgage companies as financial institutions, to make sure all
the banking authority that his division has could be applied if
necessary to these companies. Because Alaska has never regulated
mortgage companies, there would be a bit of a learning curve, as
it had with payday lending last year. He said that Alaska is the
last state to not have any regulation and this gives it the
ability to enforce federal law, a positive aspect. The
exemptions are there because of federal law and regulation.
However, if he found a violation from an exempt institution that
was supervised by the office that controlled the currency, once
the bill passes, he would be able to make a complaint to the
Office of the Comptroller of the Currency (OCC) and right now he
does not have that authority.
SENATOR SEEKINS asked if he didn't have the ability to forward a
complaint now.
MR. DAVIS replied that he routinely forwards complaints to the
OCC, but he couldn't say someone was in violation of any state
law. The Government Accountability Office (GAO) this week issued
a report saying the OCC consumer complaint process was
improving, but more was needed. The GAO wanted to see more
cooperation between the OCC and state banks and commissioners;
he was assuming that would occur and this bill would help.
2:57:15 PM
SENATOR SEEKINS said he heard that Mr. Davis received around 20
complaints a year on mortgage lending and he asked if that was
correct.
MR. DAVIS replied that the numbers were a little larger than
that and they concerned national banks, independent mortgage
companies and some state chartered institutions.
SENATOR SEEKINS looked at Section 06.60.020. Exemptions: on page
2 and asked how many exceptions had been the subject of
complaints.
MR. DAVIS said he couldn't really guess, but he thought a
substantial portion had complaints. He was not trying to endorse
the exemptions. He explained that he and the Attorney General
signed the amicus briefs opposing the OCC regulations in the
Wachovia Connecticut case, but that lost in court.
SENATOR SEEKINS said he was worried about how many people would
slip through the loopholes in this bill.
MR. DAVIS added that his division has a lack of direct
supervision over a national bank that would run a mortgage
company as a subsidiary or is an affiliate of a national bank
holding company. However, once the bill is in place, if he
received a legitimate complaint against such an entity, he could
say it violates this law and that could be forwarded to the OCC.
SENATOR SEEKINS said he looked back to 2004 when Household
Finance settled with 48 different state attorneys general for
close to $500 million and in January 2006, when Ameriquest
settled with 49 state attorneys general for around $3.25
million.
MR. DAVIS added that he participated in that last settlement,
but it was difficult because Alaska doesn't have a mortgage
statute.
SENATOR SEEKINS asked if Alaska participated in the Household
Finance lawsuit.
MR. DAVIS replied that he didn't know.
SENATOR SEEKINS asked if these companies have independent
contractors working with them.
MR. DAVIS replied that some companies operate by using
independent contractors; a change he was pleased to see in the
imputed liability section declares that once you are a licensee
subject to this bill, you are talking about contractor licensing
on page 4 and you would agree to have that employer or
contractor accept liability for his actions much in the same way
that a lawyer is responsible for the actions of a paralegal in
his or her office.
SENATOR SEEKINS asked if those independent contractors could
slip through the exemption statute.
MR. DAVIS replied that he didn't think they would, but that
might be litigated.
SENATOR SEEKINS thanked him for his testimony and said he would
hear further testimony from offnet.
3:01:42 PM
KEVIN BREELAND, President, Alaska Mortgage Bankers Association
(AMBA), said he is a minority partner in Residential Mortgage in
Anchorage. He said AMBA supported SB 272, but he noted that he
was not working from the CS and AMBA had expressed the same
concerns regarding the exceptions. The bill was not perfect, but
it was a good start.
3:04:00 PM
JOHN CARMAN, Chair, Legislative Committee, Alaska Mortgage
Bankers Association, said he is also a partner in Home State
Mortgage. He believed that this bill was a very positive first
step and was very needed in the mortgage industry. He prepared
his first mortgage loan in Alaska in 1972 and he had seen the
landscape change dramatically from one where 90 percent of the
loans were done by regulated banks to one where 90 percent of
the loans are prepared by unregulated entities.
He also pointed out that Alaska now has no mortgage statute. The
strongest point of this bill is having some enforcement agency,
in this case the Division of Banking, that will have the
authority to look at lenders where 90 percent of the loans are
done. His biggest fear for the bill is that it will be delayed
and it was needed years ago, not years from now.
3:07:20 PM
DOUG ISAACSON, President, Gold Coast Mortgage, said he is also
President of the Alaska Association of Mortgage Brokers, and
that he appreciated the amount of work that had gone into the
rewriting of this bill, but he still has issues. He shared
exemption concerns with the chair and Mr. Breeland. He thought
some had identified this bill as a positive first step, but that
was misleading if it wasn't done right. As the last state to
take up licensing, Alaska has plenty of models to look at to see
how they have performed in other states. If the statute is not
done right the first time, he was concerned that the small
brokers would be put out of business because of the costs
incurred in the bill. For instance, a small broker like himself
who closes under 10 loans a month still must pay the cost for
the division to come to an outlying area such as Fairbanks and
that can become very expensive.
He also took exception with the idea that 90 percent of the
loans are done by unregulated agencies. In the Lower 48, his
information states that it's only 70 percent, but in Alaska, the
number is reversed and "It's the regulated agencies that do most
of the loans in Alaska." They need to make sure there is
opportunity for redress by the public.
MR. ISAACSON said the Alaska Association of Mortgage Brokers has
been in favor of reasonable licensing that protects the public,
provides proper oversight, and enhances professionalism of the
industry. However, certain questions still arise; for example,
when a small segment in Alaska is penalized with a $10-fee. In
Fairbanks most loans are closed through financially regulated
institutions and they would not be charged this fee, but the
small broker would be. That difference could be used by other
realtors as a reason to not use his company.
MR. ISAACSON also pointed out that government loans do comprise
a bulk of the mortgage process and it has restrictions on what
fees can be paid for by the buyer. He wondered if there should
be a discussion with the government agencies to see if that
would even be allowed. If it's not allowed, he asked if that
would remove that loan option from some borrowers putting them
in a discriminatory situation - contradicting the purpose of
this bill, which is to protect the public.
He asked why appraisers are elevated and others, like title
companies, are third parties or why home inspectors and
surveyors are disregarded and he asked why the state is becoming
the collecting agent. He actually suggested deleting the fee
collection section.
MR. ISAACSON also asked what happens if the appraiser doesn't
provide a competent report and a new one has to be ordered and
why would it take 90 days for the division to make a
determination if a background check, including FBI records,
could be made on the Internet in 72 hours. He thought 30 days
was a more reasonable timeframe.
3:14:21 PM
One last issue Mr. Isaacson questioned was what authority the
state has to monitor compliance with federal regulations and if
it has the authority, would it need more than the projected two
to three people the division is saying it needs. Would it have
to supply proper training, supervision and competency for
monitoring the federal requirements. So, he was concerned that
this bill was not truly revenue neutral. He concluded that this
bill was going in the right direction, but he asked the
committee to consider it along with his testimony.
3:16:03 PM
LAURIE HOLTE, officer of Residential Lending Mortgage
Operations, Alaska Housing Finance Corporation (AHFC), supported
the concept of the proposed legislation. She said that AHFC is
not a direct source of residential loans, but it offers a
variety of loan programs that are aimed at increasing home
ownership primarily for low-to-moderate income individuals and
families. The programs are made available to Alaskan residents
through 19 approved lenders statewide. She said:
Alaska is the only remaining state in the Union that
does not require licensing of the mortgage lending
community. A recent review of the deed of trust
recording statistics indicate that not counting the
many recognized lenders that do operate under
supervision, regulation, or examination by state or
federal regulatory body or agency, over 125 lenders
representing over $1.4 billion in loan activity for
calendar year '05 are operating in the state without
supervision. A significant number are Internet
lenders. The $1.4 billion is considered substantial in
comparison to total estimated activity of
approximately $4.4 billion. AHFC applauds the efforts
of the mortgage lending community in its efforts to
provide needed protection for Alaska's home-buying
public and regulatory oversight of its lenders. Thank
you very much; that ends my comments.
3:18:22 PM
BARBARA WORLEY, Director of Lending, Anchorage Neighborhood
Housing Services (ANHS), said it is a private non-profit
organization that provides outreach services to the underserved
public - to people who most likely would not be able to realize
home ownership without its assistance. She said the trend is for
non-profits to be highly scrutinized especially under the
Sarbanes-Oxley Act that requires better accounting and control
for non-profits. Because of its funding sources, ANHS is already
subject to monitoring and audits by the Department of Treasury,
HUD, Alaska Housing, Neighbor Works America, the IRS, the
Municipality of Anchorage, and it is required to have an annual
independent audit and single audits on federal and state grants.
She felt that ANHS is already regulated enough as its financials
are also open to public scrutiny based on public funding sources
and certifications it holds as a non-profit. She informed them
that ANHS is also sits on the "Don't Borrow Trouble Alaska Anti-
Predatory Lending Campaign" board, which is seeing a steady
increase in complaints about out-of-state and a few local
lenders.
MS. WORLEY said she was concerned about the exemptions section
(b) on page 2 that states a qualified individual means an
individual whose income is 60 percent or less of the median
income in the United State, who is over 60 years of age, or who
has a disability. But she said ANHS also serves Alaskans who are
more than 60 percent up to 115 percent of the area's median
income and Native Corporations or housing authorities serve
Native folks who are eligible to receive their Native housing
funds. She was concerned about that 60 percent. In closing she
stated:
I am in favor of responsible legislation that would
require mortgage licensing without limiting the access
to affordable loan programs to the underserved segment
of the public and feel that we're already regulated
and by adding an additional layer of regulation, it
would cause less services to be provided with more
funding spent on regulation and which could result in
an additional barrier to affordable housing.
3:24:07 PM
KEN GAIN, Secretary Treasurer and Legislative Chairman,
Independent Lenders of Alaska, said he is also president of Cash
Now Financial. He said he has already testified and sent a
lengthy letter to the committee responding to some of the issues
raised. He wanted to be available for questions to that letter
and to make some minor points. He believed that Doug Isaacson
was incorrect in how the $10 application fee would be applied
and said he thought the fee would be charged on all residential
loans whether or not the entity was licensed.
MR. GAIN said in his letter of March 15 that he was a small
company that had experienced examinations by the division and
felt if your records are in reasonable order and you're not
committing fraud, it doesn't take them very long to do one. He
calculated the license fee, bond, and the loss of one or two
days per year for an examination would cost about $1,500 a year
and he didn't think that was excessive. He said no one has
testified that there shouldn't be a bill. This is a good bill
and it is supported by several of the organizations that will be
regulated by it, as well as the Division of Banking and
Securities that will have to administer it. People keep raising
questions, and while they may be well-meaning, it may have the
effect of delaying the bill so there won't be any tools to
address the problem for several years.
3:27:45 PM
JOHN MARTIN, Alaska Mortgage Solutions, Anchorage, said he is a
small lender and broker and was a member of several other
mortgage organizations. He said he just got the recent changes
to the bill and he wanted the chance to review them and come
back to the committee with his comments.
3:29:25 PM
SENATOR SEEKINS thanked him for his comments and indicated that
there was no further testimony and that SB 272 would be held in
committee. There being no further business to come before the
committee, he adjourned the meeting at 3:31:07 PM.
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