SB 272: "An Act relating to certain monetary advances in which the deposit or other negotiation of certain instruments to pay the advances is delayed until a later date; and providing for an effective date."

00 SENATE BILL NO. 272 01 "An Act relating to certain monetary advances in which the deposit or other negotiation 02 of certain instruments to pay the advances is delayed until a later date; and providing 03 for an effective date." 04 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 05 * Section 1. The uncodified law of the State of Alaska is amended by adding a new section 06 to read: 07 PURPOSES. The purposes of this Act are to 08 (1) protect the consuming public and to define and codify for the state the 09 practice where a business pays money in exchange for a check or other instrument but agrees 10 to delay depositing or otherwise negotiating the check or instrument; 11 (2) give the Department of Community and Economic Development 12 additional licensing and regulatory authority over persons who make these deferred deposit 13 advances; 14 (3) give recipients of these advances the right to rescind the advance without

01 cost before the end of the following business day; 02 (4) prohibit onerous collection practices by both deferred deposit advance 03 licensees and licensees' third-party collectors, including the threat of criminal charges; 04 (5) prohibit the acceptance of collateral other than a check or other instrument 05 in these situations; and 06 (6) define the additional disclosures that persons who make these advances 07 must make to clearly describe the advances and their uses for the persons receiving the 08 advances. 09 * Sec. 2. AS 06 is amended by adding a new chapter to read: 10 Chapter 50. Deferred Deposit Advances. 11 Sec. 06.50.010. License required. A person may not engage in the business 12 of making deferred deposit advances or offer to make a deferred deposit advance 13 without having a license under this chapter. A separate license is required for each 14 location from which the person conducts the business. 15 Sec. 06.50.020. Qualifications for license. (a) To qualify for a license, an 16 applicant shall 17 (1) have liquid assets of at least $100,000, as determined under 18 generally accepted accounting principles, except that an applicant who wants to 19 engage in the business of making advances at more than one location in the state shall 20 have liquid assets of at least an additional $50,000 for each additional location in the 21 state up to a maximum of $275,000 for all locations in the state; 22 (2) demonstrate the financial responsibility, financial condition, 23 business experience, character, and general fitness that reasonably warrant the 24 department's belief that the applicant's business will be conducted lawfully and fairly; 25 when determining whether this qualification has been met, and for the purpose of 26 investigating compliance with this chapter, the department may review 27 (A) the relevant business records of the applicant and the 28 adequacy of the capital of the applicant; 29 (B) the competence, experience, integrity, and financial ability 30 of the applicant, and, if the applicant is an entity, of any person who is a 31 member, partner, director, senior officer, or owner of 25 percent or more of the

01 equity of the applicant; and 02 (C) a record of conviction, on the part of the applicant or a 03 person described in (B) of this paragraph, of 04 (i) criminal activity, fraud, or other act of personal 05 dishonesty; 06 (ii) an act, omission, or practice that constitutes a 07 breach of a fiduciary duty; or 08 (iii) a suspension, revocation, removal, or an 09 administrative act by an agency or department of the United States or a 10 state from participation in the conduct of a business; 11 (3) have a physical business location in the state; and 12 (4) have a current business license issued under AS 43.70. 13 (b) The requirements in (a) of this section are continuing in nature and may be 14 reviewed periodically by the department. 15 Sec. 06.50.030. Application, duration, and renewal of license. (a) An 16 application for a license must be in writing and under oath, in a form prescribed by the 17 department by regulation, and include at least 18 (1) the legal name, residence, and business address of the applicant 19 and, if the applicant is not a natural person, of each member, partner, director, senior 20 officer, or owner of 25 percent or more of the equity of the applicant; 21 (2) the address and physical location of the principal place of business 22 named in the application; and 23 (3) other information the department may require with respect to the 24 applicant and, if the applicant is not a natural person, about the applicant's members, 25 partners, directors, senior officers, or owners of 25 percent or more of the equity of the 26 applicant. 27 (b) The applicant shall submit with the application an investigation fee in an 28 amount established by the department by regulation. The department may not refund 29 the fee. 30 (c) An applicant shall pay the fee established under (b) of this section for each 31 location where the applicant will be conducting business.

01 (d) Within 60 days after an applicant files an application, the department shall 02 investigate whether the applicant satisfies the qualifications of AS 06.50.020(a). If the 03 department finds that the applicant satisfies the qualifications and approves the 04 application, the department shall issue the applicant a license to engage in the business 05 of making advances. 06 (e) A license issued under this section remains in force through the remainder 07 of the calendar year in which the license was issued unless surrendered, suspended, or 08 revoked under this chapter. 09 (f) A license issued under this section shall be renewed on or before the date 10 set by the department by submitting to the department a completed renewal 11 application on a form established by the department and paying the renewal fee 12 established by the department. 13 Sec. 06.50.040. Denial of license or renewal. (a) If the department 14 determines that an applicant is not qualified to receive a license or a license renewal, 15 the department shall notify the applicant in writing that the application has been 16 denied and state the basis for the denial. 17 (b) If the department denies an application for a license or a license renewal, 18 or if the department fails to act on an application within 60 days after the applicant 19 files a properly completed application, the applicant may request a hearing on the 20 question of whether the license should be granted or renewed. The request for a 21 hearing shall be made in writing and may not be made more than 15 days after the 22 department has mailed a notice to the applicant under (a) of this section. At a hearing, 23 the department shall reconsider the application and issue a written order granting or 24 denying the application. 25 Sec. 06.50.050. Nontransferability. Except for the transfer of a license to a 26 new location under AS 06.50.070, a licensee may not transfer or assign the licensee's 27 license. 28 Sec. 06.50.060. Change in control. The prior written approval of the 29 department is required for the continued operation of a licensee's deferred deposit 30 advance business when a change in control of the licensee is proposed. The 31 department may require the information it considers necessary to determine whether a

01 new application is required. The licensee requesting approval of the change in control 02 shall pay any costs up to $5,000 incurred by the department to investigate the request 03 for approval. 04 Sec. 06.50.070. Change in location or name. A licensee shall notify the 05 department in writing at least 15 days before any proposed change in the licensee's 06 business location or name, and shall provide the department with 07 (1) the information described in AS 06.50.030(a)(1) if the licensee is 08 changing its name; and 09 (2) the address and physical location of the new business location if the 10 licensee is changing the business location. 11 Sec. 06.50.080. Suspension or revocation of license. (a) The department 12 may, after notice and a hearing, suspend or revoke a license if the department finds 13 that the licensee has 14 (1) knowingly or through the lack of due care failed to pay the annual 15 fee or other fees imposed by this chapter; 16 (2) committed fraud, engaged in dishonest activities, or made 17 misrepresentations in its business activities; 18 (3) violated a provision of this chapter or a regulation or order lawfully 19 made under this chapter or violated another law while acting as a licensee; 20 (4) made a materially false statement in the application for the license 21 or failed to give a true reply to a question in the application; or 22 (5) demonstrated incompetence or untrustworthiness to act as a 23 licensee. 24 (b) If the reason for suspension or revocation of a licensee's license at one 25 location applies generally to all locations operated by the licensee, the department may 26 suspend or revoke all licenses issued to the licensee. 27 Sec. 06.50.090. Reports to department. (a) On or before May 31 of each 28 year, a licensee shall file with the department a composite annual report for the 29 preceding calendar year in the form prescribed by the department relating to all 30 advances made by the licensee. The report must include the total number of advances 31 made, the total dollar amount of the advances made, the average length of the

01 advances made, and the rate of default. 02 (b) Within 15 days after the occurrence of any of the following events, a 03 licensee shall file a written report with the department describing the event and its 04 expected effect on the activities of the licensee in the state: 05 (1) filing for bankruptcy or reorganization by the licensee; 06 (2) institution of suspension or revocation proceedings against the 07 licensee by a state or other governmental authority; 08 (3) a felony indictment of the licensee and, if the licensee is not a 09 natural person, of a member, partner, director, senior officer, or holder of 25 percent or 10 more of the licensee's equity; 11 (4) a felony conviction of the licensee and, if the licensee is not a 12 natural person, of a member, partner, director, senior officer, or holder of 25 percent or 13 more of the licensee's equity; and 14 (5) other events that the department determines and identifies by 15 regulation. 16 Sec. 06.50.100. Records. A licensee shall maintain records in conformity 17 with generally accepted accounting principles and practices in a manner that will 18 enable the department to determine whether the licensee is complying with the 19 provisions of this chapter. The record-keeping system of a licensee is sufficient if the 20 licensee makes the required information reasonably available. The licensee's records 21 are not required to be kept at the place of business where advances are made if the 22 department is given unrestricted access to the records where the records are located. 23 The licensee is not required to preserve records relating to an advance for more than 24 two years after the advance is scheduled to be paid back. 25 Sec. 06.50.110. Examinations and investigations. (a) The department shall 26 examine the advances and business records of a licensee at intervals the department 27 considers appropriate. In addition, for the purpose of discovering violations of this 28 chapter or securing information lawfully required, the department may, at any time, 29 investigate the advances, business transactions, and records of a licensee. For these 30 purposes, the licensee shall provide the department with reasonable access to the 31 offices, places of business, and records of the licensee. The licensee shall pay the

01 department the cost of examination at a rate of $75 an hour within 30 days after the 02 department requests payment. Before each state fiscal year, the department shall 03 establish the daily cost of an examination made under this section for that fiscal year. 04 (b) If the licensee's records are located outside this state, the licensee shall 05 make those records available to the department at a convenient location within this 06 state or pay the reasonable and necessary expenses for the department or the 07 department's representative to examine the records where they are maintained. The 08 department may designate representatives, including comparable officials of the state 09 in which the records are located, to inspect them on the department's behalf. 10 (c) For the purposes of this section, the department may administer oaths or 11 affirmations and, upon its own motion or upon request of a party, may subpoena 12 witnesses, compel the attendance of witnesses, take evidence, and require the 13 production of material that is relevant to the investigation, including the existence, 14 description, nature, custody, condition, and location of books, documents, and other 15 tangible items, and the identity and location of persons having knowledge of relevant 16 facts, or other material reasonably calculated to lead to the discovery of admissible 17 evidence. 18 (d) Upon failure without lawful excuse to obey a subpoena or to give 19 testimony, and upon reasonable notice to all persons affected by the failure, the 20 department may apply to the superior court for an order compelling compliance. 21 Sec. 06.50.120. Application of Administrative Procedure Act. Except 22 where this chapter establishes procedures different from those in AS 44.62 23 (Administrative Procedure Act), AS 44.62 applies to and governs administrative 24 action taken by the department under this chapter. 25 Sec. 06.50.130. Requirements, terms, and procedures. (a) An advance 26 shall be documented in a written agreement signed by the advance recipient. The 27 agreement must include the name of the licensee, the loan date, the principal amount 28 of the advance, a statement of the total amount of fees charged as a condition of 29 making the advance, expressed both as a dollar amount and as an annual percentage 30 rate, and any other item required to be disclosed under federal law. 31 (b) An advance recipient may not be a corporation, a partnership, or another

01 type of organization. 02 (c) The maximum principal amount of an advance is $1,000. 03 (d) A licensee may charge an origination fee for each advance. The 04 origination fee is considered fully earned as of the date of the transaction and is not 05 considered interest for any purpose of law. A licensee may not charge or collect 06 another fee or charge for the advance except as specifically allowed under this chapter. 07 (e) A licensee shall conspicuously post a notice of the fees in each licensed 08 location, expressed as a dollar amount for each $100, that the licensee charges for 09 advances. Notwithstanding any other provision of law and except where otherwise 10 provided by federal law, a licensee may charge up to $15 for each $100 that the 11 licensee charges for an advance. 12 (f) An advance recipient may rescind the advance without cost not later than 13 the end of the next business day following the day on which the licensee makes the 14 advance. 15 (g) Before disbursing funds under an advance, a licensee shall provide written 16 notice to the advance recipient indicating 17 (1) that the advance is intended to address short-term, not long-term, 18 financial needs; 19 (2) whether the advance recipient will be required to pay additional 20 fees if the advance is renewed rather than paid in full when due; and 21 (3) that the advance recipient may rescind the advance without cost not 22 later than the end of the next business day following the day on which the licensee 23 makes the advance. 24 (h) In a transaction allowed under this chapter, a licensee may not accept more 25 than one instrument as security for each advance. Before the licensee may deposit or 26 otherwise negotiate an instrument for payment, the instrument must be endorsed with 27 the actual name under which the licensee is doing business. The advance recipient 28 may redeem the instrument from the licensee at any time before the deposit or other 29 negotiation of the instrument by making payment to the licensee of the full amount of 30 the instrument in cash or immediately available funds. 31 (i) A licensee may pay to the advance recipient the amount paid to the

01 recipient by the licensee in an advance in cash, the licensee's business check, a money 02 order, an electronic funds transfer to the recipient's account, or another reasonable 03 electronic payment mechanism, except that the licensee may not charge an additional 04 fee to the recipient to access the proceeds of the advance. 05 (j) A licensee may charge an advance recipient an additional fee if the advance 06 is renewed rather than paid in full when due. 07 (k) An advance recipient may repay an advance 08 (1) in cash; 09 (2) by negotiation of the recipient's instrument that secures the 10 advance; or 11 (3) with the agreement of the licensee, a debit card, a cashier's check, 12 an electronic funds transfer from the recipient's bank account, or another reasonable 13 electronic payment mechanism to which the parties agree. 14 (l) A licensee may not accept property other than an instrument from an 15 advance recipient when making a deferred deposit advance. 16 Sec. 06.50.140. Business practices. (a) A licensee or a person under 17 common control with a licensee may not have outstanding at any time to a single 18 advance recipient advances with an aggregate principal balance that exceeds $1,000, 19 plus fees allowed under this chapter. 20 (b) In addition to the damages, fees, and costs allowed under AS 09.68.115, if 21 an instrument from an advance recipient is returned unpaid to a licensee from a payor 22 financial institution, the licensee may collect the fees allowed by this chapter if the 23 fees are disclosed in the advance agreement. If the obligation is assigned to a third 24 party for collection, the provisions of this section apply to the third-party collector. 25 (c) A licensee may not threaten an advance recipient with criminal action as a 26 result of a payment deficit. 27 (d) A licensee may not renew an advance for a fee greater than the initial 28 origination fee or for more than four consecutive times, after which the licensee shall 29 require the advance recipient to repay the advance in full. A person who receives an 30 advance may enter into a new loan transaction with the licensee at any time after the 31 advance recipient pays off a previous advance to the licensee. An advance secured by

01 a recipient's instrument is paid off when the instrument is deposited or otherwise 02 negotiated by the licensee or redeemed by the recipient under AS 06.50.130(h). 03 (e) A licensee may not accept property, title to property, or other evidence of 04 ownership as collateral for an advance, except for an instrument from the advance 05 recipient. 06 (f) A licensee may conduct other business at a location where it engages in 07 making advances unless it carries on the other business for the purpose of evading or 08 violating the provisions of this chapter. 09 (g) A person who receives an advance may rescind an advance without cost at 10 any time before the close of business on the business day following the day on which 11 the advance was made by paying the principal amount of the advance to the licensee in 12 cash or other immediately available funds. 13 (h) A licensee may not make an advance on behalf of another person. 14 Sec. 06.50.150. Regulations. The department may adopt regulations under 15 AS 44.62 (Administrative Procedure Act) to implement this chapter. 16 Sec. 06.50.160. Relationship to federal law. If a provision of this chapter is 17 preempted by or conflicts with federal law in a particular situation, the provision does 18 not apply to the situation to the extent of the preemption or conflict. 19 Sec. 06.50.190. Definitions. In this chapter, unless the context requires 20 otherwise, 21 (1) "advance" means a deferred deposit advance; 22 (2) "advance recipient" means a person to whom an advance is made; 23 (3) "control," in the case of a person who is not a natural person, 24 means direct or indirect ownership, the right to vote or otherwise control 25 percent or 25 more of the governance interests of the entity, or the ability of a person to elect a 26 majority of the directors; 27 (4) "deferred deposit advance" means a transaction in which a person 28 (A) accepts a dated instrument from a person seeking an 29 advance; 30 (B) agrees to hold the instrument for a specified period of time 31 before depositing or otherwise negotiating the instrument; and

01 (C) pays to the advance recipient, credits to the account of the 02 advance recipient, or pays to another person on behalf of the advance recipient 03 the amount of the instrument less the charges allowed under this chapter; 04 (5) "department" means the Department of Community and Economic 05 Development; 06 (6) "instrument" means a personal check or other authorization to 07 transfer or withdraw money from an account; 08 (7) "license" means a license issued under this chapter; 09 (8) "licensee" means a person to whom a license has been issued under 10 this chapter. 11 * Sec. 3. AS 44.62.330(a) is amended by adding a new paragraph to read: 12 (61) Department of Community and Economic Development relating 13 to the licensing and regulation of persons making deferred deposit advances under 14 AS 06.50. 15 * Sec. 4. The uncodified law of the State of Alaska is amended by adding a new section to 16 read: 17 TRANSITIONAL PROVISIONS. Notwithstanding AS 06.50.020(a)(1), enacted by 18 sec. 2 of this Act, and in addition to the other requirements of AS 06.50.020, enacted by sec. 2 19 of this Act, in order to qualify for a license under AS 06.50.020 during the first 180 days after 20 the effective date of this Act, an applicant shall have liquid assets of at least $30,000, as 21 determined under generally accepted accounting principles, except that an applicant who 22 wants to engage in the business of making deferred deposit advances at more than one 23 location in the state shall have liquid assets of at least an additional $5,000 for each additional 24 location in the state up to a maximum of $75,000 for all locations in the state. In this section, 25 "deferred deposit advance" has the meaning given in AS 06.50.190, enacted by sec. 2 of this 26 Act. 27 * Sec. 5. This Act takes effect January 1, 2005.