04/30/2024 01:30 PM Senate COMMUNITY & REGIONAL AFFAIRS

            SB 264-LOANS UNDER $25,000; PAYDAY LOANS                                                                        
                                                                                                                                
1:55:04 PM                                                                                                                    
CHAIR   DUNBAR   reconvened   the  meeting   and   announced   the                                                              
consideration  of SENATE BILL  NO. 264 "An  Act relating  to loans                                                              
in  an amount  of  $25,000 or  less;  relating  to the  Nationwide                                                              
Multistate  Licensing System  and Registry;  relating to  deferred                                                              
deposit advances; and providing for an effective date."                                                                         
                                                                                                                                
CHAIR DUNBAR  said this is the  introductory hearing of  SB 264 in                                                              
the  Senate Community  and  Regional Affairs  Standing  Committee.                                                              
The  House companion  bill is  HB 145.  He invited  Ms. Wiggin  to                                                              
introduce the bill and present the sectional analysis.                                                                          
                                                                                                                                
1:55:26 PM                                                                                                                    
ARIELLE  WIGGIN,  Staff,  Senator  Forrest  Dunbar,  Alaska  State                                                              
Legislature, Juneau,  Alaska, introduced  SB 264 on behalf  of the                                                              
Senate Community  and Regional Affairs Committee,  Senator Dunbar,                                                              
Chair, and  paraphrased the  sectional analysis.  She stated  that                                                              
invited testimony  would address the impact of  payday loans. Each                                                              
year, approximately  15,000 Alaskans take out payday  loans, which                                                              
have  significant  effects.  SB  264  aims  to  remove  a  special                                                              
exception  and  hold  all  lenders  to  the  same  standards  when                                                              
issuing loan  contracts. General  lending institutions  are capped                                                              
at a  36 percent annual  percentage rate  (APR), but  payday loans                                                              
are  exempt,  drawing  vulnerable  individuals  into  a  cycle  of                                                              
financial hardship. She described the 16 sections of SB 264:                                                                    
                                                                                                                                
Section  1:  Simplifies   bill  wording  for   clarity,  replacing                                                              
several phrases with the word "on."                                                                                             
                                                                                                                                
Section 2: Modifies  AS 06.01.050(3) to eliminate  mentions of the                                                              
Deferred Deposit Advances Act in definitions.                                                                                   
                                                                                                                                
Section  3: Broadens  the definition  of lenders  in AS  06.20.010                                                              
for loans  up to  $25,000 insuring  it includes various  financial                                                              
arrangements  and  practices. It  states  that  a loan  occurs  in                                                              
Alaska if it is completed in Alaska by a resident of Alaska.                                                                    
This is  an issue because several  of these organizations  are out                                                              
of state.                                                                                                                       
                                                                                                                                
Section 4: Amends  AS 06.20.025. It integrates  Alaska's licensing                                                              
system  with a  nationwide multistate  licensing system  registry.                                                              
This employes many administrative processes.                                                                                    
                                                                                                                                
Section 5:  Allows the  collection of  investigation fees  through                                                              
the new system. This amends AS 06.20.030(a).                                                                                    
                                                                                                                                
Section  6: Amends  [AS  06.20.030(b)]  to collect  the  licensing                                                              
fees  through the  new  system,  adjust the  licensing  structures                                                              
without increasing costs for the licensees.                                                                                     
                                                                                                                                
Section  7:  Repeals  and reenacts  AS  06.02.090  updating  these                                                              
requirements  for small loan  business licenses  to match  current                                                              
regulator  standards.  It was  partially  a  cleanup made  in  the                                                              
other body.                                                                                                                     
                                                                                                                                
Section  8:  Eliminates   AS  06.20.170  changing   the  mandatory                                                              
inspection period  for small loan  businesses from  fixed 18-month                                                              
intervals to as needed for regulatory compliance.                                                                               
                                                                                                                                
Section 9: Revises  AS 06.20.230 to standardize  the interest rate                                                              
at 3 percent per  month for loans up to $25,000,  whether they are                                                              
closed  or  open ended  to  make  this  loan rate  simplified  and                                                              
consistent.                                                                                                                     
                                                                                                                                
Section  10:  Adds  AS  06.20.310  and  introduces  rules  against                                                              
interest rate evasion on small loans.                                                                                           
                                                                                                                                
Section   11:  Introduces   AS   06.20.325   and  prevents   small                                                              
businesses  from  threatening criminal  action  against  borrowers                                                              
who are in default.                                                                                                             
                                                                                                                                
Section 12:  Amends AS  06.20.900 specify  and define  registry as                                                              
the   previously  mentioned   nationwide   multi-state   licensing                                                              
systems and registry.                                                                                                           
                                                                                                                                
Section  13: Adjust  AS  08.76.500 to  no  longer exempt  deferred                                                              
deposit  advanced  licensees  from  certain  regulations  applying                                                              
consistent standards across similar institutions.                                                                               
                                                                                                                                
Section  14:  Amends  AS  45.45.020 to  ensure  that  all  service                                                              
charges are included in the interest rate calculations.                                                                         
                                                                                                                                
Section 15:  Removes multiple sections  within the section  of law                                                              
to clean up financial regulations.                                                                                              
                                                                                                                                
Section 16: The bill will take effect July 1, 2024.                                                                             
                                                                                                                                
2:00:26 PM                                                                                                                    
CHAIR DUNBAR announced invited testimony on SB 264.                                                                             
                                                                                                                                
2:00:57 PM                                                                                                                    
JEN  GRIFFIS,  Vice  President  of  Policy  and  Advocacy,  Alaska                                                              
Children's Trust,  Anchorage, Alaska,  testified by  invitation in                                                              
support of  SB 264,  which aims  to establish reasonable  consumer                                                              
protections   for  payday   lending  practices   in  Alaska.   She                                                              
emphasized  that  economic  hardship   and  poverty  significantly                                                              
increased  the  risk of  child  abuse  and neglect,  as  financial                                                              
strain amplifies  household stress, anxiety, and  frustration. She                                                              
explained  that payday  loans, while  offering  quick cash,  often                                                              
trap   Alaskans   in  cycles   of   debt  and   poverty,   further                                                              
exacerbating family  instability. She noted that  in 2020, neglect                                                              
and  medical neglect  accounted  for 75  percent of  substantiated                                                              
child maltreatment  cases in  Alaska, highlighting the  connection                                                              
between  economic  hardship  and  child  welfare,  and  urged  the                                                              
passage of  SB 264  to ensure rational  safeguards for  low-income                                                              
families.                                                                                                                       
                                                                                                                                
2:04:11 PM                                                                                                                    
GRAHAM  DOWNEY, Economic  Justice League,  Alaska Public  Interest                                                              
Research   Group  (AKPIRG),   Anchorage,   Alaska,  testified   by                                                              
invitation  in  support  of  SB 264  and  answered  questions.  He                                                              
stated  that  SB 264  had  three  core  aspects. First,  the  bill                                                              
updated  the Small  Loans Act  (AS 06.20)  with requested  changes                                                              
from  the  Division  of Banking  and  Securities,  which  strongly                                                              
supported  the   bill.  Second,  it  simplified   Alaska's  tiered                                                              
interest  rate structure  by implementing  a flat  36 percent  cap                                                              
for loans under  $25,000 while maintaining the  default usury rate                                                              
for  loans  above that  amount.  Third,  it established  an  anti-                                                              
evasion provision  modeled after laws  in New Mexico and  Maine to                                                              
ensure  online, out-of-state  lenders  complied  with Alaska  law,                                                              
while also  providing a  safe harbor  for lenders operating  below                                                              
the 36 percent cap, which had received broad industry support.                                                                  
                                                                                                                                
2:06:45 PM                                                                                                                    
CHAIR DUNBAR  asked about  the origin  of the  36 percent  cap and                                                              
whether  the  3  percent  per month  mentioned  in  the  Sectional                                                              
Analysis was related to it.                                                                                                     
                                                                                                                                
2:07:03 PM                                                                                                                    
MR. DOWNEY confirmed  that the 3 percent per month  equated to the                                                              
36 percent  cap. He stated  that the 36  percent rate  aligns with                                                              
the  Military Lending  Act,  which protects  active-duty  military                                                              
but does  not cover veterans or  other citizens. He noted  that 36                                                              
percent  is a  national  standard,  with approximately  20  states                                                              
adopting similar rate caps.                                                                                                     
                                                                                                                                
CHAIR DUNBAR stated  that he believed protections  already existed                                                              
for active-duty  military members. He  noted his experience  as an                                                              
officer   interacting   with   junior   enlisted   personnel   and                                                              
recognized  efforts  to  exploit  service members  as  they  moved                                                              
between states.  He asked  if there was  information on  how these                                                              
laws had  been used to protect  service members. He  also inquired                                                              
about the  origin of the  36 percent cap  and whether there  was a                                                              
specific policy rationale behind that figure.                                                                                   
                                                                                                                                
MR.  DOWNEY  stated   that  the  36  percent  cap   emerged  as  a                                                              
compromise between  consumer groups,  like Alaska Public  Interest                                                              
Research  Group (AKPIRG)  and mainstream  financial  institutions.                                                              
He explained  that 36  percent was considered  the upper  limit of                                                              
reasonable   credit,  with   anything   higher   seen  as   wealth                                                              
extraction rather  than access  to credit. He  noted that  the cap                                                              
had  broad public  and bipartisan  support,  with most  opposition                                                              
arguing  it was  too high  rather than  too low.  He described  36                                                              
percent as  a balanced  upper limit,  acknowledging that  an ideal                                                              
rate might be lower but emphasizing its role as a compromise.                                                                   
                                                                                                                                
2:09:25 PM                                                                                                                    
DAWN  HANNASCH,  Operations  Manager,   Division  of  Banking  and                                                              
Securities, Juneau,  Alaska, stated that SB 264,  a companion bill                                                              
to HB 145, has  a simple fiscal note. She explained  that the bill                                                              
would  eliminate  Alaska's  19   Deferred  Deposit  Advance  (DDA)                                                              
licenses,  though those  licensees could  apply for  a Small  Loan                                                              
Act license  instead. She noted that  for the 19 DDA  licenses the                                                              
Division receives  a $3,000 biannual renewal fee.  She estimated a                                                              
fiscal  year revenue  loss  of  approximately $28,000,  which  she                                                              
described as not a significant change.                                                                                          
                                                                                                                                
2:11:13 PM                                                                                                                    
CHAIR DUNBAR opened  public testimony on SB 264;  finding none, he                                                              
closed public testimony.                                                                                                        
                                                                                                                                
CHAIR DUNBAR held SB 264 in committee.