Legislature(2005 - 2006)CAPITOL 17
04/13/2005 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB226 | |
| HB213 | |
| HB227 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 213 | TELECONFERENCED | |
| *+ | HB 226 | TELECONFERENCED | |
| = | HB 227 | ||
HB 227-ALASKA SMALL LOANS ACT CHAIR ANDERSON announced that the final order of business would be HOUSE BILL NO. 227, "An Act relating to the Alaska Small Loans Act; and providing for an effective date." JON BITTNER, Staff to Representative Anderson, Alaska State Legislature, presented HB 227 on behalf of the House Labor and Commerce Standing Committee, sponsor. Mr. Bittner paraphrased from the following written sponsor statement [original punctuation provided]: The last significant revision of the Alaska Small Loans Act (ASLA) occurred between 1995 and 1996. The bill (then numbered House Bill 319) was signed into law in July 1996 and brought this section of statute up-to-date with the changing market demands. There have been several changes to the market in the last decade, and more importantly, there has been many more changes in technology. As computer systems become more and more adept at taking, storing, sorting, and retrieving information, our laws must reflect the most efficient use of those innovations. House Bill 227, the latest revision of AS 06.020, takes into account not only the market-driven or technological changes, but also the changes in the value of money. Put simply, goods cost more today than they did twenty, ten, or even five years ago. For example, it is not unheard of to pay between $7,500 and $10,000 for an ATV or snowmachine. Also, manufacturer's list prices for new automobiles can start as high as $40 - $50,000. Clearly the definition of what constitutes a small loan needs some adjustment. HB 227 improves the business environment by encouraging industry competition, which ultimately should decrease loan prices as well as providing consumers additional products and services to choose from. HB 227 will also update the Small Loans Act to reflect current technology. As written today, the law does not recognize automated or centralized process utilized by most companies today. We worked with both members of financial community and with the Division of Banking and Securities to find language balancing the parties' wish lists and consumer protection. HB 227 updates the ASLA to make the law reflective of current industry practices and raises the limit of a small loan from $25,000 to $50,000 broadening the Department's regulatory oversight. Additionally, it doubles the liquid assets and bond requirements from $25,000 to $50,000 for businesses writing small loans. REPRESENTATIVE ROKEBERG inquired as to who requested this legislation. MR. BITTNER related his understanding that both members of the banking community and the Division of Banking & Securities requested introduction of HB 227. In further response to Representative Rokeberg, Mr. Bittner said that he was fairly certain Wells Fargo Financial Corporation was involved. However, he deferred to Mr. Davis regarding the number of entities that fall under this provision of law. MARK DAVIS, Director, Division of Banking & Securities, Department of Commerce, Community, & Economic Development (DCCED), clarified that currently there are eight licensees, of which seven are licensees of Wells Fargo bank and the one remaining is an independent licensee. Therefore, there are two different entities. 4:25:36 PM MR. DAVIS noted that although the division generally supports the legislation as written, he has provided the committee with written remarks regarding some issues with which the division is concerned. He agreed that the legislation, as reform legislation, is necessary. This legislation basically raises the lending limit for a small loan from $25,000 to $50,000 and caps [the interest rate of] most loans to a maximum of 24 percent. Currently, licensees are able to do business as "other business" over $25,000 at any rate wished. Furthermore, currently loans over $10,000 can be made at any rate the [lending institution] wishes. Therefore, this reform would lower rates. 4:26:19 PM MR. DAVIS expressed concern with the exemption for sellers of insurance under AS 06.20.010(b)(5), and related that the Division of Banking & Securities and the Division of Insurance oppose that. He explained that the divisions believe that although an entity may sell insurance, it shouldn't be in the lending business. Furthermore, Mr. Davis suggested including a requirement in AS 06.20.060 of a physical location. He noted that in 1996, the language "accessibility and convenience for borrowers of money was put in the Act, the type of language which the division supports. He then turned attention to Section 13, AS 06.20.070(b), regarding web sites and related that the division would prefer to follow the practice that was included in the Deferred Deposit Loan Act of last year, which requires a license for anyone attempting to operate [on the Internet]. Mr. Davis said the division has concerns with AS 06.20.120 because the current language of HB 227 doesn't allow the division the ability to revoke a multiple location license for a violation in a singular location. He expressed the need for the division to have the right to revoke a multiple location license if a singular location seems to be operating at the behest of the central office. He indicated that committee staff had been given language to address the aforementioned. Mr. Davis moved on to the surrendering of licenses at the end of operations, which is found in AS 06.20.130(c). The current language specifies a difference between non-corporate entities and corporate entities, but the division doesn't see a reason for that. Again, committee staff have been provided language that specifies that an entity would have to ensure that all loans are transferred before it can stop doing business in order to avoid harming consumers. Furthermore, the language provided specifies that the entity would have to notify the division because the division can't enforce the provision unless it knows the entity is going out of business. He then moved on to AS 06.20.160(c), which specifies that the division can only have access to a licensees books and records during an examination. However, the division believes that to be too restrictive. Obviously, a complaint to the division may not occur during the time of an examination, and therefore the division should have the right to examine for that complaint. 4:29:18 PM MR. DAVIS noted the division's concern with regard to the legislation's handling of business licensing, which is located in AS 06.20.130(c). Currently, the legislation provides an exemption for business licenses. After talking with the Division of Occupational Licensing, he said he understands that the Division of Occupational Licensing requests that the exemption be eliminated and require these small loan companies to acquire a simple business license. Mr. Davis related the preference for the fee, specified as $75 an hour in the legislation, to actually follow what is specified in the Deferred Deposit Loan Act, which is $75 per staff hour. Furthermore, the fees in HB 227 are excessive, he opined. For example, up to $500 can be charged for an origination fee. He noted that committee staff has been given the division's proposed fee schedule. CHAIR ANDERSON announced his intention to hold HB 227 and hold open public testimony on it. 4:30:46 PM MARK HAMBLEN, Wells Fargo Financial, noted support for HB 227, although he said there are some small changes that Wells Fargo would want as well. He concluded by thanking the Division of Banking & Securities for coming to Wells Fargo for input on the legislation. He said he would contact the division regarding the small changes. 4:31:38 PM RICHARD BLOCK, Mellen Investment Company, LLC, informed the committee that his interest in this is limited because of what Mellen Investment Company, LLC, does. He explained that Mellen Investment Company, LLC, only make loans secured by interest in real property. However, the company's portfolio does include some loans that are between $25,000 and $50,000. Mr. Block informed the committee that he has provided the committee with written testimony. Mr. Block said that his analysis of HB 227, as it relates to the activities in which Mellen Investment Company, LLC, engages, will drive it out of business. "In other words, the volume of business we do will not justify paying the fees, putting up the bonds, and going through the administrative challenges that this bill would put up for us," he related. If Mellen Investment Company, LLC, and other similarly situated companies are out of the market, then a monopoly for certain large banking institutions has been created. He emphasized that Mellen Investment Company, LLC, and others have been providing a service, particularly to those in rural areas, that have equity in real estate for business purposes but don't qualify for bank lending. Mr. Block related that he was greatly dismayed to discover that his bank is sponsoring HB 227, which will put Mellen Investment Company, LLC, out of business. In conclusion, Mr. Block said that he would hope the committee would adopt the amendment he has proposed at the end of his [written] testimony to exclude loans secured by interest in real estate from HB 227. 4:34:26 PM SHANE OSOWSKI, Equity Investors, Inc., informed the committee that Equity Investors, Inc., is a private lender that performs small real estate backed equity loans beyond $25,000. Mr. Osowski related that he objects to HB 227 because it mischaracterizes $50,000 obligations as small loans. He opined that $50,000 is not a small amount, impulse item, that justifies the level of bureaucracy and barriers to competition provided in the legislation. Mr. Osowski pointed out that 50 years after the enactment of the Alaska Small Loans Act, there are only two licensees in Alaska. Therefore, he said he didn't believe that one could claim that adding additional restrictions in the $50,000 market would invite new business and further a competitive lending environment. Mr. Osowski then turned attention to the two credit studies submitted to support HB 227, which actually lean against the bill. The first credit report notes that restrictions ration high-risk consumers out of the market, and also tend to ration out consumers seeking small amounts of credit, which is classified as $50,000 in HB 227. Both reports conclude that the best way to protect high-risk borrowers is to ensure alternative sources of financing from which to choose and facilitate unrestricted entry of new competitors into the market. However, this legislation proposes to do the exact opposite. 4:37:00 PM MR. OSOWSKI concluded by charging that HB 227 treats borrowers of $40,000 loans as unsophisticated borrowers, which isn't the case. Furthermore, federal law already protects homeowners with a three-day cooling off period. Moreover, individuals have the ability to shop nationwide for alternatives via the Internet, but this precludes that and forces individuals to go with the two licensees in Alaska. Mr. Osowski stressed that Alaska has unique property needs and HB 227 impacts those with impaired credit as well as nonconforming properties in rural areas. He also stressed that HB 227 doesn't ensure competition but rather does the opposite. He urged the committee to consider the aforementioned when considering to vote against HB 227 or eliminating Section 1 from it. JIM JOHNSON, Affordable Loan Company, explained that the Affordable Loan Company basically operates buying paper under the Alaska Retail Installment Sales Act, which doesn't limit the fee or the interest charged to the consumer. Mr. Johnson surmised that HB 227 suggests a fee that has been reduced to the consumer for delinquency. He said that he didn't find the 24 percent objectionable today, but sometimes a law causes problem in the future and it takes years for the legislature to make changes to address the problem. Mr. Johnson opined that the administration of the Division of Banking & Securities is helpful. KENNETH GAIN, President, Cash Now Financial, informed the committee that his company is a small private real estate lender as described by Mr. Block. Mr. Gain said that some of the most valuable testimony heard today was on HB 226 regarding the problems with errors in credit reports and stolen information. With modern technology, most institutional lenders are highly driven by credit scores. Many people have good credit, but because of a mistake in their credit report are denied credit. Cash Now Financial serves that market of people who don't meet the credit standards of the institutional lenders. More importantly, companies such as Cash Now Financial serve A credit borrowers with properties against which the major institutional loaners won't loan. While limiting this to $50,000 wouldn't put him out of business, he said it would severely limit the company. He said that he would either have to raise the interest rates by 4 percent to comply with the law and the company's current loan volume or not make loans under $50,000. As written, HB 227 is anti-competitive and restricts credit. At a minimum, he suggested deleting Section 1 of HB 227. PEGGY ANNE MCCONNOCHIE, Alaska Association of Realtors, noted that she submitted a letter to the committee. Ms. McConnochie opined that HB 227 is a restraint of trade, will allow less choice for consumers, and push those borrowers with problems with income from the marketplace. She urged the committee, at a minimum, to eliminate Section 1 of HB 227. CHAIR ANDERSON announced that HB 227 would be held over.
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