SENATE CS FOR CS FOR HOUSE BILL NO. 106(JUD) "An Act relating to the authorizations for certain state financial institutions of certain powers and limitations; relating to confidential records of depositors and customers of certain financial institutions; relating to the examination of certain institutions subject to AS 06; relating to the Alaska Banking Code, Mutual Savings Bank Act, Alaska Small Loans Act, and Alaska Credit Union Act; relating to credit cards; amending Rule 45, Alaska Rules of Civil Procedure, Rules 17 and 37, Alaska Rules of Criminal Procedure, and Rule 24, Alaska Bar Rules; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. AT EASE 10:42 AM / 10:48 AM Co-Chair Kelly spoke to two proposed committee substitutes, Version "R" and Version "B". He stated Version "R" contains an "opt in" provision, which offers more privacy protection than federal law provides and would comply with the federal law. Version "B", he continued, addresses the privacy issue in an "opt out" manner. He noted both versions have omitted a provision pertaining to credit cards that had previously raised concern. FRANKLIN TERRY ELDER, Director, Division of Banking, Securities and Corporations, Department of Community and Economic Development, explained "opt out" is a procedure by which financial institutions could share private information about an individual unless the individual directs otherwise. He continued that the "opt in" procedure allows financial institutions to share private information about an individual only if permission is obtained from that individual. Co-Chair Kelly asked for a description of the private information in question and an explanation of the federal Gramm-Leach-Bliley Act. SFC 02 # 22, Side A 10:52 AM Mr. Elder responded that the Gramm-Leach-Bliley Act requires financial institutions to provide customers the details of their privacy policy, as well as "an opportunity to opt out" by mail, telephone, Internet, etc. notification. He furthered that the federal law also allows states the option to adopt a more restrictive privacy policy. Mr. Elder defined the private information as "personally identifiable, nonpublic information." He noted that names and addresses could be considered public information if listed in the telephone directory. However, he qualified that a list of names and addresses of customers created from the financial institution's database using a "screen" or "filter" of nonpublic information is considered private information. Co-Chair Kelly referenced a memorandum to the Committee from the Division of Legal and Research Services, dated 2/28/02, regarding Version "B" [copy on file]. He cited Terri Lauterbach, drafter of this legislation, states that this version may provide more consumer protection than the federal act, "however, I cannot say for sure that the federal government would reach that conclusion." Co-Chair Kelly asked if the Division of Banking, Securities and Corporations share this opinion. Mr. Elder affirmed and further detailed the two-line reference to the Gramm-Leach-Bliley Act, which pertains to disclosure of private information. He noted that the Federal Trade Commission acts as an arbitrator in the event there is a question of whether a state has adopted a more restrictive privacy policy. Co-Chair Kelly asked if the current law in Alaska is "opt in" or "opt out". Mr. Elder answered the banking code requirement has been "opt in" for over 30 years. He stated, however, there is no privacy provision in the codes governing other financial institutions. He added that the Gramm-Leach-Bliley Act is the first federal law addressing these privacy issues, which has resulted in this legislation to instill privacy provisions in AS 06.01 rather than the statute governing banking activities. Mr. Elder added that Version "R" contains "compromise" language reflecting agreement reached by the Division and the Alaska Bankers Association. This language, he stated, achieves the Division's goal to "continue the tradition of Alaska of protecting the privacy of individuals" but also allows for the "extension of financial services" among different financial institutions. Co-Chair Donley clarified the Division supports Version "R". Mr. Elder affirmed. Senator Green asked if this legislation would impose the same prohibitions on insurance companies that are performing banking functions. Mr. Elder answered it does and informed that the Gramm-Leach-Bliley Act essentially "breaks down those walls" between different types of financial institutions. Senator Green understood the need to share information for liability purposes in the insurance industry is different then the need for information sharing in the banking industry. Mr. Elder furthered there is no restriction on information sharing among affiliates and that the Gramm-Leach-Bliley Act and this legislation only apply to non-affiliates. The federal law and this bill, he continued, pertain to information sharing for the purpose of providing services of the financial institution or marketing partner. Co-Chair Donley moved to adopt SCS CS HB 106, 22-GH1026\R as a working draft. Senator Hoffman asked if because of the events involving the Enron Corporation, whether more states are considering "opt out" provisions to provide greater consumer protection. Mr. Elder clarified the "opt in" method provides more protection for consumers. There was no objection and the committee substitute, Version "R", was ADOPTED as a working draft. LISA BELL, Executive Vice President and Chief Operating Officer, Alaska Pacific Bank, testified on behalf of the Alaska Bankers Association in support of the committee substitute. She opined that Version "R" contains a "workable compromise" and that it "modernizes the State banking code in two important ways." She explained the committee substitute provides parody between State- chartered and federal-chartered financial institutions operating in Alaska, and that it allows small Alaska banks to compete effectively with larger banks. Ms. Bell qualified the original position of the Association supported complete compliance with the Gramm-Leach-Bliley Act. However, she stated a reasonable compromise was reached when the bill was under consideration by the House of Representatives. She emphasized the Association's goal is to allow small banks to offer financial-related products and services to their customers and that the committee substitute allows this. Ms. Bell predicted rural Alaska residents would benefit most from this legislation, as it would allow them to receive more information on available products and services. Senator Ward requested an analysis of the provisions in the committee substitute that are required for conformance to the Gramm-Leach-Bliley Act and the provisions that are not required. Mr. Elder referred to sectional comments prepared by the Division [copy on file]. He gave as an example, insurance activities that are currently allowed under the Gramm-Leach-Bliley Act, but would be prohibited under this legislation. AT EASE 11:07 AM / 11:07 AM Co-Chair Donley shared that he requested from the sponsor, an opportunity to review the Version "J" committee substitute. Co-Chair Kelly ordered the bill HELD in Committee.