05/04/1995 01:45 PM Senate L&C

         SB 157 SMALL LOANS & RETAIL INSTALLMENT SALES                        
                                                                              
 CHAIRMAN KELLY called the Senate Labor and Commerce Committee                 
 meeting to order at 1:45 p.m. and said the committee would take               
 testimony on SB 157 and continue to work on it over the interim.              
                                                                               
 JOHN HIGGINS, General Manager, Northland Credit, clarified that he            
 was working from CSSB 157(L&C) and the purpose of it was to                   
 modernize the Alaska Small Loan Act which hasn't been worked on in            
 about 40 years.  A lot of laws currently on the books are archaic,            
 he said.  License fees and bonding requirements have been increased           
 as requested by the administration.  It helps create a basis for a            
 regular payment which is not allowed right now on loans for                   
 seasonal workers and fishermen.  The final portion of the bill                
 deals with ARISA which includes appropriate fees and costs that can           
 be included in contracts.  He said that Alaska is currently ranked            
 49th out of 50 states on interest rate ceilings.  He said he hoped            
 they could open up smaller markets they can't even look at right              
 now, because of restrictions.                                                 
                                                                               
 SENATOR KELLY remarked when they originally approached the idea of            
 this bill was because of the 14% interest rate restriction that               
 wouldn't allow Alaskan companies to compete with the outside firms            
 in terms of offering loans - for example Sadler's Furniture Store.            
 MR. HIGGINS agreed.                                                           
                                                                               
 MARK HAMLIN, Norwest Financial, said currently he does all the                
 financing for Sadler's Home Furnishings.  His company is based out            
 of Des Moines, Iowa, although they have offices in the state of               
 Alaska.  To do financing for Sadler's Home Furnishings, he has to             
 charge the dealer a 1% discount to buy the contract in order to get           
 his margins where they have to be to make a profit.  Out-of-state             
 lenders, such as General Electric Credit Corporation and Whirlpool,           
 can charge a higher interest rate due to the fact that they are               
 out-of-state and they usually are bank-chartered so they can import           
 their rate into the State of Alaska.  Sears has just changed their            
 rate structure and have gone to a 21% interest rate.  The reason              
 the rates are going up is so they can offer special programs to the           
 dealers, such as 90-day same as cash, no payments/no interest for             
 six months, etc.  If they can get a higher interest rate so they              
 can make some money after the customer starts making payments on a            
 contract, they can afford to offer those services to the dealers in           
 Alaska to promote sales.  Out-of-state lenders are currently doing            
 this with no discount to the dealers.                                         
                                                                               
 MR. HAMLIN said that the states of Montana and Washington are                 
 deregulated and they can charge the 21% or 18% interest rate to the           
 dealers and offer a lot of these special programs and compete with            
 some of the out-of-state and in-state companies.                              
                                                                               
 Currently Norwest Financial has six offices in the State of Alaska.           
 He said that a lot of out-of-state companies do not understand what           
 happened in Alaska during the mid-80's crash when there were a lot            
 of bankruptcies and a lot of them will turn down these customers.             
 Due to the fact Norwest Financial has been in the state, they                 
 understand the economic conditions and will grant credit to people            
 with bankruptcies and foreclosures on their credit report.                    
                                                                               
 Number 234                                                                    
                                                                               
 SENATOR KELLY asked who their competition up here was.  MR. HAMLIN            
 answered Northland Credit, AVCO, and the credit unions.                       
                                                                               
 SENATOR KELLY asked why anyone would go to them when they could go            
 to a credit union.  MR. HAMLIN said the biggest reason is that                
 dealers choose to use them is because of their numerous services              
 and to have convenient in-house financing.  Credit unions are set             
 up for customers who come into their business and apply for credit            
 which takes time. In-house financing is an advantage, or a service,           
 a dealer offers a customer and it also concludes the sale                     
 immediately.                                                                  
                                                                               
 JOHN ANDREW, Senior Government Relations Council, J.C. Penny, said            
 they are one of the largest retailers in Alaska.  They have their             
 own credit program and, therefore, are subject to the terms of                
 Alaska Retail Sales Act.  He supported specifically  sections 10              
 and 11, the fee and service charge sections.  It is a good step in            
 updating a 33-year old law, he said.  In Alaska, the delinquent fee           
 is prevented on revolving credit.  This means the extra costs are             
 spread among all their retail credit customers, including the great           
 majority who pay on time.                                                     
                                                                               
 The 18% across-the-board service charge is a good step in the right           
 direction.  On the other hand, he supported deregulation which has            
 been enacted in close to half the states now, they think, to the              
 benefit of the retailers and the customers.                                   
                                                                               
 Number 332                                                                    
                                                                               
 LEE RAWELL, Vice President, Government Affairs, AVCO Financial                
 Services,  said they are currently located in 43 states and Puerto            
 Rico, the Virgin Islands, and six foreign countries, and have                 
 approximately 950 branches.  He said they are new in Alaska and               
 have an office in Anchorage for less than one year.  They feel this           
 bill is a good step forward in updating the Alaska Small Loan Act             
 and the Retail Installment Sales Act.  They feel this bill would be           
 an incentive for companies to expand within Alaska.                           
                                                                               
 If SB 157 does allow deregulation, the rate would be set by                   
 competition.                                                                  
                                                                               
 Number 373                                                                    
 SENATOR KELLY asked why Alaska was all-of-a-sudden becoming an                
 attractive market for small loan companies, when for years and                
 years we were avoided.  MR. ANDREWS said it was a market they were            
 sorry they had missed for the past six or seven years.  MR. RAWELL            
 said he thought modern technology, like faxes and computers, made             
 it easier and more economically feasible to conduct long distance             
 business in Alaska.                                                           
                                                                               
 SENATOR SALO asked if there was anything about our economic                   
 demographics that makes the market more attractive here right now.            
 MR. HAMLIN said when they bought out Household Finance in 1986, the           
 reason they left the state was because of high bad debt at the time           
 and there were more people moving out of the state than moving in.            
 The cost factor of doing business in Alaska was quite high, for               
 airlines tickets, for instance.  He explained that it takes nine              
 offices to form a district in his company, so someone could                   
 actually live here to oversee operations.  That is why he currently           
 flies between Washington, Montana, and Alaska.  MR. HAMLIN said the           
 incomes are a lot higher up here and people, when they come to                
 Alaska, normally don't bring all their household furnishings with             
 them.  They need to buy new things when they get up here and that             
 is good for businesses like Sadler's.  And that' what attracted               
 them to the State of Alaska.                                                  
                                                                               
 SENATOR KELLY thanked them for their participation and said he                
 would work on this issue during the interim or at the beginning of            
 next session.