Legislature(2003 - 2004)
02/17/2004 01:34 PM Senate L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 299-BAD CHECK CHARGE
CHAIR CON BUNDE announced SB 299 to be up for consideration and
that this issue was brought to his attention by the public. He
explained that currently a fee of $25 can be charged to a person
for writing a bad check. The original enabling legislation said
the fee is for the costs incurred in processing the bad check
and doing whatever had to be done to recoup on it. Some people
have said that the $25 fee needs to be accounted for. A whole
separate accounting system would need to be created - a
challenge for a great many businesses.
CHAIR BUNDE suggested clarifying the statute by saying that
separate accounting is not needed and that there is a cost for
writing bad checks and the cost should be borne by the people
who write them.
MR. SCOTT KING, Cornerstone Credit Services, Anchorage,
supported SB 299. He said:
The reason we feel the legislation is necessary is
because of a recent Superior Court decision in
Fairbanks that would require a significant change in
the way we do business in collecting bad checks. The
decision, which copies, I think, I provided to
everyone, would require that businesses document and
account for all the costs incurred when we go to
collect a bad check. The cost incurred could be up to
a maximum of $25. Historically, this statute has been
interpreted as allowing the maximum fee to be simply a
$25 fee to be collected upon and help repay for the
costs incurred in taking a bad check as a business or
a merchant. Those costs typically include bank fees to
the merchant. When the merchant deposits the check,
there's a fee associated with that - personnel costs
and making phone calls, letters, accounting
documentation, fees to pay collection agencies, such
as myself, to collect on these bad checks. The effect
of the decision would further require businesses to
keep track of each expense incurred prior to them
mailing out their notices. They would have to keep a
line item incurring of costs until they reach the $25,
which will be extremely cumbersome and somewhat
impractical.
SB 299 will make two simple changes to AS 09.68.115.
And the first, and I believe the most important,
change is to remove the language of 'for costs
incurred' and the check fee and make it simply a check
penalty or fee. The second is to raise the $25 to $30,
bringing it more in line with other states as they
have moved along.... The cost of business has
obviously gone up in the last 18 years. To increase
this to $30 is something we thought was reasonable,
but not too much. Some states are as high as $40 and
charging interest on the checks from the date the
check is written, which might be a little excessive.
MR. KING said Cornerstone represents over 2,000 businesses
throughout Alaska and is very supportive of this bill.
CHAIR BUNDE noted that he had approximately 15 additional
letters of support.
MR. KING said he thought more letters would be forthcoming as
businesses become aware of the legislation.
CHAIR BUNDE asked who would collect the $30 fee.
MR. KING replied that the merchant is the entitled entity.
Cornerstone collects on behalf of the merchant and is
compensated by them.
SENATOR STEVENS asked Mr. King to estimate a range of costs that
a company has to go through in a collection process.
MR. KING replied that the range of costs is dependent on the
effort that is used to collect on the check. Certain immediate
costs can be assumed for noticing and bank fees that range from
$2 or $3 to $25, depending on the bank, to the merchant who
accepted the check in return for goods and had it bounced out of
his account. Any mailing or phone calls would create personnel
time. Expenses can get way beyond $30 very quickly. Thirty
dollars is a reasonable fee for what a merchant has already
suffered from not receiving compensation for goods delivered.
The problem is, if the merchant or his representative has to
calculate costs on each check, as soon as the calculation is
done, more than $25 or $30 worth of value has already added up
in personnel costs. That is why he is suggesting setting a
standard fee so the merchant isn't harmed.
SENATOR FRENCH asked for the spectrum between people who write a
bad check by mistake and make good on the check the next day
(low end) to people who just steal other people's checkbooks and
write bad checks and have no intention of paying the debt (high
end).
MR. KING said his experience indicates that 10 to 15 percent of
bad checks will be collected with one notice or phone call; 30
to 40 percent of the checks will be paid with a reasonable
amount of effort - multiple phone calls, letters etc.; and a
high percentage of checks are never collected.
SENATOR FRENCH asked if the middle percentage would settle
within 30 days.
MR. KING replied that typically payment takes up to 90 days.
SENATOR FRENCH asked at what point does the collector cut his
losses.
MR. KING replied that he doesn't stop until the statute of
limitations runs out.
MR. ERNEST MADSEN, Director, Williams Express Stores, supported
SB 299. His businesses receive several thousand checks per day
and most of them are good, but collecting on the ones that are
bad is really difficult. He also thought the fee for bad check
writing should go up to $30.
CHAIR BUNDE asked how much bad checks cost his company.
MR. MADSEN replied that he didn't have an exact amount, but
right off the bat, the commodity that was sold is lost as well
as the amount that is spent on collections. He also pointed out
that there is a cost for in-store devices to screen for people
who write bad checks.
CHAIR BUNDE asked if he had an average purchase amount for his
stores.
MR. MADSEN replied that the average check is around $20 to $25.
MR. DAVID GARDNER, Vice President, Member and Employee Services,
Golden Valley Electric Association, supported SB 299. The
Association does not feel its members should have to shoulder
the burden of collecting bad checks written by the very few.
CHAIR BUNDE asked him if he had a monthly value for bad checks.
MR. GARDNER replied that the Association has a bad debt ratio of
about .05 percent, but he didn't know what percentage was bad
checks as opposed to default on payment. They quit keeping track
of expenses once the $25 threshold is reached.
MS. PAM LABOLLE, President, Alaska State Chamber of Commerce,
supported SB 299. She related how recently the State Chamber
received a bad check for about $100 and worked with the bank to
monitor the account daily for a month until the check was paid.
TAPE 04-11, SIDE B
MS. LABOLLE concluded that calculating costs for recovering on
bad checks is a burden on businesses and that is why the Chamber
supports the bill.
MS. THYES SHAUB, National Federation of Independent Businesses
(NFIB), supported SB 299. She added that because of bed check
writing, some businesses have decided not to accept checks, but
to only accept cash or VISA cards. This is inconvenient for
customers and detrimental to consumers who don't have credit
cards. Ease of collecting on bad checks is a factor in whether
businesses continue to accept them as a form of payment.
SENATOR FRENCH said he thinks SB 299 is a good bill, but he is a
little concerned about raising the fee from $25 to $30. His
reasoning is that 26 states charge $25 or less currently and
eliminating the accounting frees the collection agencies to know
they are going to get the $25 every single time. Keeping the fee
at $25 would avoid "price creep" and be fair. He moved to change
the fee back to $25.
SENATOR STEVENS maintained that the potential loss to the
merchant can be far beyond the $30 and he sees no reason to
change that.
SENATOR SEEKINS commented that if someone accidentally wrote a
bad check, it just takes a phone call to get some kind of
resolution; but he doesn't have that much sympathy for someone
who writes bad checks deliberately.
CHAIR BUNDE asked for the roll to be called. Senators Stevens,
Seekins and Chair Bunde voted nay; Senator French voted yea; and
amendment 1 failed to be adopted.
SENATOR STEVENS moved to pass SB 299 from committee with the
attached fiscal note and individual recommendations. Senators
Seekins, Stevens, French and Chair Bunde voted yea; and SB 299
moved from committee. There being no further business to come
before the committee, he adjourned the meeting at 2:30 p.m.
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