Legislature(2023 - 2024)ADAMS 519
02/23/2024 08:30 AM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB83 | |
| HB145 | |
| HB174 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 83 | TELECONFERENCED | |
| + | HB 145 | TELECONFERENCED | |
| *+ | HB 174 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 145
"An Act relating to loans in an amount of $25,000 or
less; relating to deferred deposit advances; and
providing for an effective date."
9:09:05 AM
Co-Chair Foster invited the sponsor and his staff to the
table.
REPRESENTATIVE STANLEY WRIGHT, SPONSOR, introduced the bill
with prepared remarks.
Payday loans with astronomical interest rates of up to
521.4 percent, rates that turn a lifeline into a
chain, were not legal in Alaska until 2004. Despite
dire warnings from consumer protection groups back
then, exemptions for payday lenders were made. Twenty
years down the road, we have seen the worst
consequences from this oversight come to fruition,
harming the most vulnerable members of our population.
Payday loans, marketed as an instant solution to a
short-term emergency, are structured as a debt trap by
design. HB 145 removes the exemptions that have
allowed such predatory practices to flourish
unchecked. This legislation will align the interest
rates and fees of payday loans with those charged by
traditional banks, restoring fairness and equity to
our lending laws. Today, we have a chance to right
that wrong and ensure that no Alaskan has to suffer
under the burden of predatory interest rates ever
again.
9:10:58 AM
RACHAEL GUNN, STAFF, REPRESENTATIVE STANLEY WRIGHT,
discussed the legislation with prepared remarks:
The stark reality is that more than half of Alaskans
live paycheck to paycheck. For many, the margin
between managing daily expenses and a financial
catastrophe is razor thin.
Ms. Gunn shared that her background was in tourism, sales,
mining, and fishing. She detailed that her first paid sick
day was working for the legislature the previous session.
She continued with prepared remarks:
And when life inevitably happens, as it does every
year thousands of residents in our community, folks
turn to payday loans.
Interest rates for these payday loans average 421
percent. This is because the rate is not set by the
friendly competition of the market, but by an
exemption for these payday lenders crafted in Alaska
statute in 2004. At that time, consumer protections
groups warned us of the consequences of this
exemption. It's a rate so astronomical that it's hard
to fathom - but if you paid that interest rate on a
$300,000 house, you'd be paying $1.6 million yearly
for the 30-year term of the loan.
You don't need a credit history to access a payday
loan, you just show up with a paystub and your bank
account details. The average payday loan taken out in
Alaska is $440. If the average person taking out a
payday loan doesn't have the money saved to cover the
expense in the first place, it is unlikely they will
have the money to pay the loan back in two weeks they
might not even be able to cover the exorbitant
interest that is due in that time. The average time it
takes the average Alaskan to pay off this loan is five
months, and these folks access payday loans five times
a year.
Payday loans target folks locked out of the regular
consumer borrowing markets - perhaps due to poor
credit history or no credit history at all - they can
borrow the money they need to avoid the immediate
crisis and default at incredibly high rates. Payday
loans cost Alaskans $29 million a year. 68 percent of
these payday loans are taken out online, and the
majority of brick and mortar payday loan shops, which
are concentrated in economically depressed parts of
our cities, are not incorporated in our state.
20 states have capped interest rates for these kinds
of loans at 36 percent. Active duty military members
and their dependents are federally protected from
predatory rates. Once the member separates, they no
longer enjoy that protection. One Texas study shows
that while less than one in ten people in the general
population took out a payday loan to cover expenses,
that rate jumped to half of the veteran population.
9:13:34 AM
Ms. Gunn relayed that one of the big players that devised
the loophole for interest rates in 2004 no longer operated
in Alaska, but the company left a legacy in CourtView and
small claims court of 18,809 cases. She stated that
Alaska's Permanent Fund Dividend (PFD) was a lifeline for
its most vulnerable populations and when the state was able
to garnish the PFD to pay the predatory lenders, it was
removing the most basic lifeline that people relied on. She
concluded her prepared remarks:
HB 145 removes the exemptions for these payday lenders
under the small loans act, and it flattens the
interest rates for these types of loans at 36 percent.
It creates an anti-evasion provision so that predatory
online lenders can't use rent-a-bank schemes posing as
financial institutions in states with lax banking
regulations to utilize loopholes to target Alaskans.
9:14:44 AM
Representative Wright added that many individuals were
being affected across the state and it was hurting the
state's economy. He explained that the funds collected [by
the payday lenders] did not remain in Alaska. He remarked
that nine times out of ten the money was going to another
unnamed state. The situation hurt the most vulnerable
Alaskans and the state's economy.
Co-Chair Foster noted that the bill was currently in its
first hearing and there would be no public testimony or
fiscal note review during the present meeting.
Representative Ortiz thanked the sponsor for bringing the
bill forward. He stated the $29 million per year cost to
Alaskans from payday loans was an astounding statistic. He
asked how the number had been calculated.
Ms. Gunn replied that there was a good amount of data
available. She deferred the question to Jen Griffis with
the Alaska Children's Trust.
JEN GRIFFIS, VICE PRESIDENT OF POLICY AND ADVOCACY, ALASKA
CHILDREN'S TRUST (via teleconference), asked for a
restatement of the question.
Representative Ortiz restated his above question.
9:17:46 AM
Ms. Griffis replied that she would provide an answer in
writing.
Co-Chair Foster listed additional testifiers available for
questions.
Representative Coulombe thanked the sponsor for bringing
the bill forward. She asked if the legislation put a cap on
the interest rate.
Representative Wright replied that the cap was 36 percent.
Representative Coulombe asked why veterans were more
vulnerable than others to the situation. She observed
veterans' numbers were double that of others.
Ms. Gunn responded that many individuals joining the
military were young and once their service was complete
they were starting over without much oversight or family
guidance. She stated that younger individuals, older
individuals on a fixed income, and recently separated
military members were all seeking out the loans. She stated
that the loans were targeted to the most vulnerable, low
income members of the population.
Representative Coulombe asked if there was a sense that the
companies located themselves outside of military
installations. She asked if there was evidence the
companies were targeting military members.
Representative Wright replied affirmatively. There were
companies located outside the base in his district. He
stated it was astonishing to know the companies preyed on
certain groups. He stated it was where the clientele was.
9:20:56 AM
Co-Chair Johnson remarked that there was a place for many
types of things in the market. She asked if the bill would
reduce the amount of money available for people to borrow.
She recalled when she was young and unable to pay for
things out of pocket and the need for quick access to
funds. She stated that she would have been much more likely
to use something like payday loans than something she knew
she could pay off. She understood what the bill sponsor was
saying about the cycle of lending, but she also recognized
that people could make their own decisions.
Ms. Gunn responded that 68 percent of all payday loans were
being taken out online. She relayed there were credit
unions offering small loans products with reasonable terms,
providing more access to small loans than ever. Much of
what was seen with the [payday loan] locations were the
convenience and education in the areas. She added that 20
states had capped the interest rate at 36 percent for
payday lenders. She stated that the small loan market was
alive and well in those states.
Co-Chair Johnson asked if any businesses would be put out
of business as a result of the bill.
Ms. Gunn answered that the sponsor did not anticipate any
businesses incorporated in Alaska would be put out of
business as a result of the bill. She could not answer
whether any out of state incorporated businesses would
continue to do business. She explained that for the payday
lenders currently operating in Alaska, payday loans
accounted for 10 to 15 percent of their business. The
lenders were primarily pawn shops with other products. The
sponsor did not anticipate that reducing the "astronomical
interest rates" down to 36 percent would put any of the
businesses out of business.
Co-Chair Johnson asked if it was an interest rate or an
advance fee.
Ms. Gunn responded that the exemption for payday lenders
was brought about from SB 272 in 2004. She stated there had
been warnings from AARP, AKPRIG [Alaska Public Interest
Research Group], and Catholic charities about what the
exemption could cause in Alaska. She stated that the
average interest rate was 421 percent up to a maximum
exceeding 500 percent. She stated that the businesses were
charging the maximum allowed under the statutory exemption.
She stated it was not an interest rate set by the market.
9:24:17 AM
Co-Chair Johnson asked if it was actually an interest rate.
She thought it seemed like a cash advance fee as opposed to
an interest rate.
Ms. Gunn referenced others available to answer questions.
She referenced a provision related to the Small Loans
Reform Act in the legislation and explained that setting
the interest rate at 36 percent was for transparency.
Currently, the interest rate was compounding and customers
were charged for the interest on the loan and the principal
and balance. She stated it is an interest rate. She
deferred additional details to the Division of Banking and
Securities.
Co-Chair Johnson relayed that she could ask further
questions offline.
Representative Tomaszewski referenced the statement that
payday loans could be done online. He asked if the bill
would prevent online companies out of state [from providing
the loans in Alaska]. He asked how it would be regulated in
order to prevent individuals from using the same service
online that was currently offered in brick and mortar
stores.
9:26:43 AM
Ms. Gunn answered there was an anti-evasion provision in
the bill that would create a safe harbor. She explained
that lenders charging an Alaskan an interest rate above 36
percent had to play by Alaska's rules. There was no
regulation if a business was charging under 36 percent.
Representative Stapp looked at the analysis in the packet
and noted that currently there were licensing fees for 19
Deferred Deposit Advance (DDA) lenders. He asked if the out
of state lenders paid the licensing fees.
Ms. Gunn deferred the question to the Division of Banking
and Securities.
Representative Stapp stated that the [licensing] fee was
currently $3,000. He suggested that the state licensing fee
could be increased to $100,000, which would likely make
businesses change their behavioral practices. He asked to
hear from the department.
9:28:23 AM
TRACY RENO, FINANCIAL EXAMINER, DIVISION OF BANKING AND
SECURITIES, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC
DEVELOPMENT (via teleconference), answered that everyone
currently paid a licensing fee. She stated that because the
bill removed the exemption for payday lenders or deferred
deposit advances, they would try to mesh the loan into the
Small Loan Company Act, which would require amendments to
make it work. She explained that companies would pay the
annual renewal fees though the online nationwide multistate
licensing system as all small loan companies currently did.
She noted there were 12 current licensed locations with 7
approved companies all out of state. Three of the companies
had branches in Alaska and there was one website and one
mobile app. The fees paid were annual renewals and would be
done just like the small loan companies if the bill went
through and removed the Deferred Deposit Advance Act.
Representative Stapp asked for verification there was a
separate licensing fee. He stated his understanding that if
the bill moved forward the companies would be rolled under
the existing license fee. He considered that there were 19
businesses engaged in the activity under a separate license
fee. He asked if increasing the renewal fee from $3,000 to
$100,000 per year would net revenue for the state and
change behavior.
Ms. Reno answered that the maximum loan amount was $500 or
less with a 14-day advance maximum. She assumed that the
fee would put the businesses out of business. She stated
that the businesses could not make enough money on a $500
loan to stay in business with a $100,000 annual fee.
Representative Stapp asked for verification that the
[payday lender] businesses would have a different license
if the bill passed.
Ms. Reno responded affirmatively.
9:31:12 AM
Representative Hannan pointed out that the fiscal notes
indicated that some businesses may choose to move to the
new type of licensure. She asked if there would still be a
remaining licensure the businesses could operate under. She
referenced the language in the fiscal note specifying that
some DDA licenses may choose to apply for licensure under
the Alaska Small Loans Act, which was where the cap of 36
percent was located. She remarked it was the loophole the
bill was trying to close, but the language in the fiscal
note seemed to indicate businesses would still have the
ability to operate under their current licensure.
Ms. Reno responded that it was her understanding that the
bill would completely repeal the Deferred Deposit Advance
Act (the payday lending act); that current license type
would go away completely. The businesses would be able to
apply for a small loan company license, which would allow
them to lend $25,000 or less under usury. She explained
that if a business chose to go over usury (around 10.5
percent depending on the day), it would be required to get
a small loan company license. She stated it depended on the
type of business a company was doing. She elaborated that
if a business chose to apply for a small loan company act
license in Alaska with restrictions on the interest rate,
the rate would decrease from around 400 percent (depending
on the specific program) to 36 percent.
Representative Hannan asked what the legal structure would
be to prevent someone from going online and using a non-
licensed Alaska predatory loan company.
Ms. Reno answered that the department was normally alerted
when someone had a complaint. She explained that
occasionally when someone had a problem the division was
able to investigate and do searches online when it had the
capacity. Additionally, the division was alerted by other
states. She relayed it was typically word of mouth until
someone brought an issue to the division's attention.
Representative Hannan asked for verification that the
division had investigatory staff to look into and shut down
predatory lending by non-licensed providers in Alaska if
the legislation became law.
Ms. Reno agreed. She deferred the question to the director
for additional detail.
9:34:41 AM
ROB SCHMIDT, DIRECTOR, DIVISION OF BANKING AND SECURITIES,
DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT
(via teleconference), answered that unlicensed activity in
any of the division's program areas was a fact of life and
the division routinely took action against people engaging
in unlicensed activity. He assured committee members that
if the bill passed and the division discovered someone was
providing loans at an annualized interest rate over 500
percent, the department would pursue and enforce the
matter.
Representative Hannan stated she was supportive of the
bill, and she wanted to ensure the legislature was closing
any online loopholes.
Co-Chair Foster thanked the sponsor for the presentation.
HB 145 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 174 .VerB.SectionalAnalysis.5.3.23.pdf |
HFIN 2/23/2024 8:30:00 AM |
HB 174 |
| HB 174 .VerB.SponsorStatement.5.3.23.pdf |
HFIN 2/23/2024 8:30:00 AM |
HB 174 |
| HB 174 Public Testimony rec'd by 021624.pdf |
HFIN 2/23/2024 8:30:00 AM |
HB 174 |
| HB 145 Sponsor Statement.pdf |
HFIN 2/23/2024 8:30:00 AM |
HB 145 |
| HB 145 Ver R Sectional Analysis 2.21.24.pdf |
HFIN 2/23/2024 8:30:00 AM |
HB 145 |
| HB 145 -Supporting Document- Payday Jubilee Report- 2.21.24.pdf |
HFIN 2/23/2024 8:30:00 AM |
HB 145 |
| HB 145 Supporting Document - AKPIRG Fact Sheet.pdf |
HFIN 2/23/2024 8:30:00 AM |
HB 145 |
| HB 145 Supporting Document - Definitions & Rate Board Picture.pdf |
HFIN 2/23/2024 8:30:00 AM |
HB 145 |
| HB 145 Letters of Support as of 2.21.24.pdf |
HFIN 2/23/2024 8:30:00 AM |
HB 145 |
| HB 145 ACT Response HFIN 022624.pdf |
HFIN 2/23/2024 8:30:00 AM |
HB 145 |