Legislature(2001 - 2002)
04/27/2001 01:48 PM Senate JUD
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
SB 66-FINANCIAL INSTITUTIONS
CHAIRMAN TAYLOR announced SB 66 to be up for consideration.
MR. TERRY ELDER, director of the Division of Banking, Securities
and Corporations, noted that HB 106, the companion bill to SB 66,
just passed out of the House Labor and Commerce Committee. He
hoped it would be scheduled for a floor vote shortly. He said the
main issue surrounding SB 66 seems to be privacy but the bill makes
other changes that are non-controversial. He explained:
Right now, in current law there's a requirement for banks
to publish their quarterly statements of condition in
newspapers. There's a provision in this bill that will
allow them to also publish that electronically as an
alternative. It's much cheaper; they'll still make the
same information available to customers on request
instead of just in newspapers.
For mutual savings banks, right now in current chapter,
the directors, whom they call trustees, are treated
different from directors of banks in terms of arms length
dealing that they would have with the mutual savings
banks and in borrowing from the mutual savings bank.
That's making it much more difficult for the mutual
savings bank to find people who are willing to be
trustees and who are knowledgeable in business
activities. So, there's provisions in this bill that
would essentially put the trustees of a mutual savings
bank on the same level as the directors of the commercial
banks.
There's also currently a requirement for the automatic
teller machines to be approved by our division. And what
we're putting in here is a provision that will allow a
notice filing rather than approval so we'll know where
the services are. We don't feel that there's any public
benefit from our making an approval of whether or not an
ATM is placed on one corner versus another corner.
Also, in the credit union chapter, there's no provision
for ATMs. So, this includes a provision there. It also
equalizes the legal lending limits in Alaska with the
federal limits. It, therefore, removes a barrier for
institutions to decide to take the state charter rather
than the national charter.
Those are all things we think are good for the industry.
It also makes sense from a regulatory standpoint, but of
course they get overshadowed by the big policy issue on
policy.
SENATOR ELLIS asked if there was language that affects the
legislature's future ability to cap fees in any way.
MR. ELDER replied no; it only applies to location. He added from
the division's standpoint, current law (changed in 1994) limits
where staff can borrow money. Previously, it said they couldn't
borrow from state chartered institutions, obviously because they
examine them. In 1994, that was changed to any institution that
receives a certificate of authority. Mr. Elder noted:
The problem with that is that we currently also issue
permits and certificates to national banks that branch
into Alaska. So, if you had enough branching and enough
purchasing of state charter banks, our staff would have
difficulty banking anywhere in Alaska. This also takes us
back to the original language that we had before us
saying that our staff can't borrow from state chartered
institutions.
MR. ELDER explained further:
Obviously, the big issue is privacy. Everyone knows, but
I'll state it briefly, what the issue is and that is
Gramm-Leach-Blighly, a federal law, passed and allows -
the term is sharing, but it also covers selling of
information with non-affiliated third parties which is
anybody who is not an affiliate. So, it's a lot of folks.
That requires them to offer the public the ability to opt
out of that kind of sharing. We have been on record and
very forcefully so in both the Senate and the House that
we don't think opt out is sufficient. We have opt in in
the current banking code and we were proposing in SB 66
that the opt in be maintained. The opt in was maintained
in the House Labor and Commerce Committee, but not in the
Senate.
So, therefore, when it came over here, we sent you a
letter, Mr. Chairman, that indicated our desire for you
to delete the reference to Gramm-Leach-Blighly that would
remove the opt out language and would make it, therefore,
opt in.
CHAIRMAN TAYLOR said he had an amendment prepared to do that.
MR. ELDER said that was good to hear. He believes that as long as
the dialogue between his division and industry was about sharing
everything in one's file with everybody in the world, the two would
always be at each end of the spectrum. There would be no compromise
and it would be the legislature's call for one of the extremes. He
thought there was still some middle ground but said, "We just had
to find it."
He said they met with representatives of the banker's association
and developed reasonable compromise language that retains the opt
in requirement, generally speaking. So, the bankers have gone all
the way from wanting to opt out for everything to agreeing to opt
in. Mr. Elder commented:
However, we've included a section (d) in AS 06.01.028,
the proposed privacy section, which allows financial
institutions to share information with other firms who
provide their own services. For example, if they have
checks printed and statements printed and things like
that, they can do that and the compromise language that
we came up with allows them to enter into joint marketing
agreements for financially related services.
TAPE 01-24, SIDE B
MR. ELDER continued:
Where those marketing partners would sign an agreement to
also be bound by the privacy provision of our code, the
opt in, we view that as a reasonable compromise on the
basis that generally we are still at opt in. However, we
also have to remember that the sharing of information
among affiliates is not restricted. The Fair Credit
Reporting Act on the federal level allows the financial
institution to share information among affiliates and
prohibits states from restricting that kind of sharing of
information until January 1, 2004. After that date, in
fact, states can adopt more restrictive privacy
provisions covering affiliates, but they have to pass the
law after that date and specifically reference the Fair
Credit Reporting Act to do that.
MR. ELDER said further:
In the meantime banks and other institutions that have a
large affiliate structure can share the information
without restriction. That puts smaller banks that are
largely but, not only state chartered institutions that
don't have an affiliate structure at a significant
competitive disadvantage. We don't think that's healthy
for state chartered institutions. We don't think it's
healthy for smaller banks. So, what we're trying to do in
section (d) is to level the playing field between the
banks that have the larger affiliate structure with the
banks that have the smaller or no affiliate structure.
MR. ELDER explained that this information sharing is limited to
what is necessary to do these things, "So, it's not all the
information in a file."
It is limited only to financial related products, limited to joint
marketing efforts and to partners that are willing to subject
themselves, even though they don't have to otherwise, to the Alaska
Privacy Code. Mr. Elder noted, "With those kinds of limitations,
it's sufficiently tight enough for us to feel comfortable even
though we have made it very clear we have been and remain extremely
concerned and supportive of more restrictive privacy provisions."
He said that the small neighborhood banks are going to have
difficulty competing and staying independent unless regulators make
some reasonable accommodations for privacy of information. He
thought it was still a significant action on the part of the
legislature to continue the higher privacy provisions that we have
had for the last 30 years in Alaska and yet still make reasonable
accommodations to smaller banks to operate.
CHAIRMAN TAYLOR noted that Mr. Elder's comments were on a proposed
amendment to SB 66.
MR. ELDER said that is correct and that he was addressing section
(d) that was currently in the committee substitute before them. He
was also discussing the differences between HB 106 and SB 66.
CHAIRMAN TAYLOR asked if they used his list of differences as an
amendment, if the examination policy on page 2 was in the bill.
MR. ELDER answered that it was not. He said it was in HB 106,
though. "We discussed it in Senate Labor and Commerce, but frankly,
I think it was an oversight."
CHAIRMAN TAYLOR asked if he was changing "depositors of" to "other
depository institutions in the following sections" in item 4, page
2.
MR. ELDER said yes because currently there is no language in the
credit union chapter for ATMs. Language for that section was taken
from the banking section.
CHAIRMAN TAYLOR asked if the remainder of the amendment pertains to
automatic teller machine provisions for credit unions.
MR. ELDER responded that language was taken from HB 106. The only
thing that was not in HB 106 was, "Once you put in the words
'depositors of' which the House Labor and Commerce Committee did,
you can remove 'and their customers' because that's redundant."
CHAIRMAN TAYLOR offered Mr. Elder's list of changes as an
amendment. SENATOR ELLIS objected.
CHAIRMAN TAYLOR said he wanted to change page 2 (e) to delete "in
an amount equal to the actual damage" and insert "for" so that
damages sought for violation of this section would not be limited
to just actual damages, but to all damages that may be incurred.
There were no objections.
SENATOR ELLIS said he thought they should divide the amendment and
that the section that changes the opt in section gives him pause.
He complimented the work that had gone into it, but he was more
comfortable with the traditional wording.
CHAIRMAN TAYLOR said he had an amendment that deletes on page 2,
lines 25 - 26, the reference to Gramm-Leach-Bliley.
SENATOR COWDERY said he understands that the large institutions
have less need of this than the smaller ones that aren't in the
marketing or loan business. He asked if this would allow them to be
brokers.
MR. ELDER said that is correct as long as it was a financially
related service.
SENATOR COWDERY asked if he had a number in his head of small
banks.
MR. ELDER replied that the state currently has four state chartered
banks and two state chartered credit unions. The Alaska Pacific
Bank, which is a federal charter, also doesn't have an affiliate
structure and is equally concerned.
CHAIRMAN TAYLOR asked if there were any further objections to
adopting amendment 1. SENATOR ELLIS objected. CHAIRMAN TAYLOR
called for a roll call vote. SENATORS COWDERY, THERRIAULT, and
TAYLOR voted yea; SENATOR THERRIAULT voted no; so amendment 1
passed 3 to 1.
CHAIRMAN TAYLOR offered amendment 2 and asked Mr. Reinwand to
explain it.
Number 1620
MR. JERRY REINWAND, Alaska Peddler Gift Shops, said he does a lot
of business via credit card and as time goes on, they have noticed
more credit card usage. A percentage of the sales, 2 to 4, pays for
the system. He has no problem with that, but in Juneau and other
places with sales taxes or purchase taxes, the banks are taking
their percentage out of the total purchase, including the tax.
"This means less money in my pocket at the end of the day."
MR. REINWAND said it isn't fair and once this law is passed, credit
card companies could offer it as an incentive for merchants to use
their cards.
SENATOR COWDERY asked how that works in communities that accept
credit cards for the payment of taxes.
MR. REINWAND replied that generally the IRS tacks on a fee of 2.5
percent to credit card payments so, "You're better off to write a
check."
CHAIRMAN TAYLOR said his concern is that what's really happening in
this transaction is that Mr. Reinwand is not collecting the legal
amount of sales tax. He thought discounting on the credit cards
actually put him in a difficult position of having to collect it
and he didn't think it would be insignificant over a large volume
of sales.
SENATOR THERRIAULT asked how this would trigger competition.
MR. REINWAND explained that there is a lot of competition between
credit card companies and they might be able to structure a
contract where it's an added incentive. He hadn't thought it
through, but a small business is at a real disadvantage in dealing
with the credit card companies. He was talking to a staff person in
Washington, D.C. when they were hearing a bankruptcy bill and there
was total silence on the other end when someone figured out the
total amount of money involved nationwide. "It's a huge amount of
money."
CHAIRMAN TAYLOR asked if there were any objections to adopting
amendment 2. There were no objections and it was adopted.
MR. JOE SCHIERHORN, Sr. Vice President, Northrim Bank, said he was
testifying on behalf of the Alaska Bankers Association as well.
They support the amendment and appreciate the efforts of Mr. Elder
and the Division of Banking in working with them on this
compromise. "I think it's very important to go forward with this to
insure that there's a level playing field between nationally
regulated banks and state regulated banks for the very reasons Mr.
Elder brought forth."
CHAIRMAN TAYLOR thanked him for his testimony and said they would
hold SB 66 to await the companion bill.
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