Legislature(1995 - 1996)
02/20/1996 08:02 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 363 - INTEREST ON MORTGAGE ESCROW ACCTS The next order of business to come before the House State Affairs Committee was the proposed CSHB 363(STA). CHAIR JAMES called on the sponsor of the proposed CSHB 363(STA), Representative Con Bunde. Number 1320 REPRESENTATIVE CON BUNDE said the proposed CSHB 363(STA) shed more sunshine on the escrow business without disrupting the financial mortgage services in Alaska. He stated the proposed CSHB 363(STA) incorporated three changes. He referred the committee members to page 1, line 6, and explained the word "assessments," was added because mortgage money was often used for repairs. He also referred the committee members to page 1, line 9, which stated the "The rate of interest paid on that money shall equal three percent..." He further referred the committee members to page 1, line 14, section (c), which required lending institutions to produce a year-end report that included: the cost to administer the account, the amount in the account on the last day of each month, the amount of interest earned on that account, and a schedule of payments made by the bank from the account. He stated this information gave the consumer choices. He said lending institutions advertized their interest rates as part of the service provided and the information would allow for more competition. Number 1546 REPRESENTATIVE ROBINSON wondered about the increase in the interest rate from 2 percent to 3 percent. Number 1560 REPRESENTATIVE BUNDE said it was actually a decrease. The original bill stated 2 percent below prime and 3 percent was passbook savings. He said the prime was too much of a burden to calculate. Number 1575 REPRESENTATIVE PORTER said Section 1 created a state sanction for a violation of a federal law, and wondered what the federal sanction was for violating the federal law. Number 1602 REPRESENTATIVE BUNDE replied that was a good question. He was not sure what the sanction was for a violation of a federal law. Number 1633 REPRESENTATIVE PORTER said a federal law was usually enforced by the feds and it was ironic that a state should enforce it. Number 1662 REPRESENTATIVE BUNDE said Representative Porter had a valid point, however, the Real Estate Settlement Procedures Act (RESPA) was not high on the category of crimes according to the federal government. Number 1674 REPRESENTATIVE PORTER wondered if the reporting requirements in Section 1, subsection (c) were obtainable because the banks co- mingled funds. Number 1717 REPRESENTATIVE BUNDE said the banking institutions co-mingled funds, and the escrows ended-up in an account, and interest was paid per dollar. Number 1722 REPRESENTATIVE PORTER commented the interest the account earned was a moving target. REPRESENTATIVE BUNDE said it was the average interest at the end of the month that was being looked at. He said the amount of interest earned varied daily, and the bill required the amount earned for the month. Number 1770 CHAIR JAMES said an interest daily calculation was required because the balance in the account would vary. REPRESENTATIVE BUNDE said this was done electronically and any institution making a profit was well aware of what was happening daily to shift funds. He said this would not be an onerous burden. Number 1835 REPRESENTATIVE ROBINSON said, in response to Representative Porter's question, the sanctions would probably fall under a regulation that was not being followed. Number 1868 CHAIR JAMES said she assumed the bank examiners would determine if a bank was not following the law and act accordingly. She further stated there was no evidence within Alaska that the banks were not following the RESPA law. Number 1938 REPRESENTATIVE BUNDE said testimony indicated banks were having problems meeting RESPA limitations and were moving rapidly into compliance. He said there was a bank regulating portion of the state government that would be aware of when an institution broke the RESPA rules whereby the 3 percent interest would kick-in. Number 2000 CHAIR JAMES said the cost of the information required at the end of each year would be born by the consumer. Number 2038 REPRESENTATIVE BUNDE said banks calculated interest rates daily now so it would probably amount to printing three more lines, for example, on their annual report. CHAIR JAMES called on the next witness via teleconference in Fairbanks, Craig Ingham. CRAIG INGHAM, President and Chief Executive Officer, Mt McKinley Bank, said the cost of the added disclosure according the Representative Bunde was untrue. The amount of revenue and expense for each loan was constant. The cost to service a $50 thousand mortgage was the same as servicing a $250 thousand mortgage, but the revenue received was greater on the $250 thousand mortgage. He stated, if there was a problem disclosing proper information to the consumer, the federal government was better equipped to properly inform the borrowers under the disclosure rules that were in effect right now. He said he really did not see the purpose of the bill. It was changed to a penalty driven piece of legislation. He said, if the banks failed to follow the federal regulations that went into effect the first of this year, it faced a civil penalty. The banks, he asserted, would not be foolish enough to violate those penalties. He questioned if an additional law was needed. He said he saw no purpose in the piece of legislation except to create an added burden on banks. He said the consumer would not benefit. He said the balance and account activity was already provided under federal regulations, and a penalty would be more than paying 3 percent interest on the amount over RESPA regulations required in this bill. Number 2392 REPRESENTATIVE BUNDE asked Mr. Ingham if the federal regulations required all the calculations the bill required. Number 2411 MR. INGHAM replied, "no." He said the cost to the bank would require an analysis at a great cost to the bank with no benefit to the consumer at all. He said he was not sure if it could be done accurately. He said it was possible on an aggregate basis, but did not see how it could be done on an individual basis, accurately, even with the technology. He further said the account balance on the last day of each month would be zero, and questioned the need for a data base field for a zero balance. He also stated a schedule of payments made by the bank was required under federal law. He said Section 1, subsection (c) was a duplication of federal regulations. He said this legislation did not protect the consumer, but created a burden on the banks. TAPE 96-21, SIDE A Number 174 REPRESENTATIVE BUNDE respectfully disagreed with Mr. Ingham regarding the sharing of the information. Mr. Ingham said it would be burdensome to share that with the consumer. Number 205 CHAIR JAMES said Mr. Ingham indicated the cost to the bank of administering the account was the same for each mortgage. Therefore, the information would be easy to obtain by dividing the number of accounts by the cost. The amount that was in the account on the last day of each month was already provided, therefore, that was not a problem. The amount of interest earned on the account each month was a problem, however. A schedule of payments made by the bank from the account was already provided, therefore, that was a problem as well. Number 348 MR. INGHAM replied, the cost to the bank of administering the account was not as simple as Chair James indicated, because each loan was different. He said a loan might have a private mortgage insurance on it, for example. He said it would be very cumbersome to calculate on an individual account basis. He further reiterated items 2-4 were properly addressed under federal regulations. Number 428 CHAIR JAMES asked Mr. Ingham if this bill was a duplicate of federal regulation enforcement? Number 453 MR. INGHAM replied, "absolutely." He said the regulations were relatively new, but by the end of the year the institutions would be complying or pay the heavy civil penalty. He further said right now there was a program that did not allow a bank to have more than a $50 overage in the account. Therefore, automatically the system did not allow a bank to hold an excess amount because of the risk of penalties. He said the banks were doing what needed to be done, and following the federal regulations. He said he wished the state would not make it any tougher to the detriment of the consumer. Number 558 REPRESENTATIVE GREEN commented there was interest paid on his checking and saving accounts daily, and wondered why it would be burdensome to a bank to calculate an escrow account. Number 612 MR. INGHAM said if the law mandated a 3 percent interest paid on the escrow account it would not be a problem, but the bill required reporting disclosure and a penalty based on an excess. He wondered again if a state law was necessary when a federal law existed. Number 693 REPRESENTATIVE GREEN said testimony indicated banks were not following the federal law, and yet Mr. Ingham indicated there was heavy civil penalty for a bank that did not follow the federal law, and wondered which scenario was true. Number 710 CHAIR JAMES reiterated there was no information available that Alaskan banks were violating the federal laws. Number 728 REPRESENTATIVE PORTER said the regulations were more recent. Number 756 REPRESENTATIVE BUNDE said the original RESPA put into place in the 1980's was not obeyed. It was tighten-up this year, and asserted it was disingenuous to state institutions had been following the law. He further said, if they followed the federal law, this law should not be of great concern. Number 789 CHAIR JAMES replied the 3 percent interested was not a problem. She said she was concerned the cost to the bank of administering the account was a nightmare based on personal experience as an accountant. The amount of interest earned on the account each month could be done, she said, but saw no real need and it was difficult to obtain. Number 886 REPRESENTATIVE BUNDE asked, if the amount of interest earned on the account each month could be calculated daily, or at the end of each month? CHAIR JAMES said it depended where the money was invested. Number 900 REPRESENTATIVE BUNDE wondered if it would be less burdensome to say the amount of interest earned that year. Number 920 CHAIR JAMES replied she was certain the banks had the number earned on the accumulated balance of the escrow accounts, but unless it was calculated daily, it would not be accurate. Number 959 REPRESENTATIVE BUNDE stated a bank would have to know the cost and how much it made or it was not a good business entity, and wondered why there was such a resistance to provide that information to the consumer. Number 1005 REPRESENTATIVE OGAN said this should be more of a policy call for a bank. He cited, if it was advantageous or there was a consumer demand, then a bank should do it. He said he agreed with Representative Porter that the bill was enforcing a federal mandate. He also said the issue had been belabored enough. Number 1066 REPRESENTATIVE GREEN moved to accept the proposed CSHB 363(STA) for consideration. Hearing no objection, it was so accepted. REPRESENTATIVE ROBINSON said she appreciated the sponsor and the bill, but was concerned about implementing a state law when there was a federal law in place. She also believed this was an issue for the House Labor and Commerce Committee and would support moving the bill forward to that committee. CHAIR JAMES said she supported moving the bill to the next committee of referral because she did not want to see it anymore. Number 1108 REPRESENTATIVE GREEN moved that CSHB 363(STA) move from committee with individual recommendations and attached fiscal note. Representative Ogan objected, so a roll call vote was taken. Representatives James, Green, Ivan, Robinson, and Willis voted in favor of moving the bill. Representatives Ogan and Porter voted against moving the bill. So CSHB 363(STA) moved from the House State Affairs Committee.
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