Legislature(2003 - 2004)
04/06/2004 02:04 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 272-DEFERRED DEPOSIT ADVANCES (PAYDAY LOANS)
CHAIR CON BUNDE announced SB 272 to be up for consideration.
SENATOR RALPH SEEKINS moved to adopt CSSB 272(L&C), version /D,
as the working document. There were no objections and it was so
ordered.
MR. RICHARD SCHMITZ, staff to Senator John Cowdery, said the CS
puts the bill in alignment with the House version.
MS. MARIE DARLIN, Coordinator, Capital City Task Force, AARP
Alaska, noted its letter in the committee packet that lays out
their concerns. She explained that the task force has worked in
partnership with The Consumer Federation of America, the
Consumer's Union, and the National Consumer Law Center over
several years and has developed a model bill, which was sent to
the committee.
That is more of what we would like to see in the bill.
Among our recommendations are that we [indisc.] no
less than two weeks for each $50 owed on the loan. And
a consumer shall be permitted to make partial payments
in amounts equal to no less than $5 increments on the
loan at any time without charge. The maximum amount of
the deferred deposit loan shall not exceed $300. I
realize right now they have a limit of $500 and the
bill wants to increase it to $1,000, which we
definitely object to. We are sure the committee is
concerned with consumer protection, as we are and that
is our main concern.... If the term of the loan is no
less than two weeks per $50, consumers will have a
better chance of paying off the loan rather than
defaulting and possibly taking court action or having
to renew the loan again at exorbitant rates. We
understand that the new version of the bill retains
the maximum amount of $500 rather than increasing
available loan to $1,000, but we believe Alaska should
reduce the available amount from $500 to $300. These
are monies paid out of someone's pocket. So it is
interest. If you and I do not pay off our credit
cards, we pay interest. If I take out a payday loan
and pay an exorbitant fee, much higher than interest
on a credit card, it's still money and a significant
amount of money and out of my pocket.
When credit card companies can make a handsome profit
on interest rates of 18% to 23%, why cannot a payday
loan outfit make a profit with an interest rate or fee
that does not go beyond 36%? Our model law also allows
for an administrative fee of no more than $5 per loan,
no matter how much the loan is for. Some states have
determined that payday lenders should not be allowed
to exist in their state. AARP does not argue that they
should be banned; we only argue that the interest rate
should be no more than 36% APR. The available loan
amount should not be more than $300 and the borrower
should be allowed to make partial repayment. If the
consumer has more than $300 in outstanding payday
loans from one or more lenders, they should be
prohibited from taking out any additional loans from
any payday lending organization. This is consumer
interest to us, but we believe this is in everybody's
best interest.
MR. MARK DAVIS, Director, Banking and Securities and
Corporations, Department of Community & Economic Development
(DCED), said he is ready to take over regulation of this
industry that is currently unregulated. Forty-four states do
regulate it. "We're basically in favor of regulation in terms of
making sure that some rules are followed."
MR. DAVIS said there is a fiscal note for one more banking
examiner. He supported a $500 limit; any greater amount would
make it incompatible with the current Small Loan Act.
CHAIR BUNDE asked how he could make this issue revenue neutral.
MR. DAVIS replied that industry has told him that there are 10
companies doing business in the state; he found 30 locations
between Anchorage and Fairbanks that would have to be checked.
Basically, another examiner would be needed to do that. He added
that the current four examiners work now to stay on schedule
with the state charter banks and credit union.
CHAIR BUNDE clarified that he wasn't suggesting doing without
another staff person, but was looking for revenues with which to
pay him.
MR. DAVIS answered that he has asked for a registration fee and
an hourly rate for the examiners. "We would at least break
even."
CHAIR BUNDE asked if he would break even under the existing CS.
MR. DAVIS replied that he wanted to charge $75 per examiner hour
on location to make the bill revenue neutral.
SENATOR FRENCH said the charge on the loan would be expressed as
a specific value - $15 per $100.
MR. DAVIS said he was only trying to make consumers aware of how
much it cost them to borrow money.
MR. ED SNIFFEN, Assistant Attorney General, Department of Law
(DOL), said he and Cindy Drinkwater, DOL, worked with the Mr.
Davis and the payday lenders to craft the CS. A section in the
bill already requires that APRs be disclosed to consumers in the
form of a placard in a payday lenders shop that identifies the
cost per $100. It is also expressed in the form of an annual
percentage rate, which is required under the Truth in Lending
Act. Another provision says that other federal requirements
impose other disclosure obligations on a payday lender, as well.
Payday lenders are not currently regulated and this bill goes a
long way to removing the problems with these kinds of
transactions. He agreed with Mr. Davis that reducing the loan
amount to $300 from $500 would be more trouble than it's worth
to be consistent with the Small Loan Act. He noted that the bill
has a limit of $15 and a $5 origination fee or 15 percent of the
amount loaned. "We put a 15 percent limit in there so if someone
wanted to borrow $150, they wouldn't get charged for the $200
cash advance fee. It would be something in between - maybe
$22.50."
MR. SNIFFEN warned that this is still a fairly significant
interest rate. Some states allow more, some less; this bill is
in the middle of what is allowed in other states.
It's been our experience that what gets consumers in
trouble with these kinds of transactions is not the
interest rate. It's not the $15 per $100 that creates
the problem. The problem comes in poor financial
management from the get-go, which brings consumers to
these types of lenders in the first place. So, I don't
know that undue emphasis needs to be directed toward
the interest rate as a percentage or even as a raw
dollar figure.... The problem, of course, is a lot
deeper than that....
He did not object to allowing partial payments and language
could be inserted to that effect, but he wanted to hear from the
payday lenders on whether or not that would be problematic.
CHAIR BUNDE said he was running out of time today and asked him
to work with the bill's sponsor to address that question, along
with the issue of trying to make this revenue neutral.
MS. ANGELA LISTON, Alaska Catholic Conference, supported
regulating the payday loan industry.
The Catholic Church, of course, has had a long history
of opposing exorbitant interest rates and we're
concerned that this type of lending, which was once
considered a social problem, is really skyrocketing,
not just here in Alaska, but nationally. The people
who use these loans are the working poor. If someone
was not desperate, they wouldn't pay $15 to borrowers
$100 for two weeks. These borrowers are people that
don't have other options. In most states, payday
lenders make their money on the renewals or what is
commonly called rollovers. In California, borrowers
average 11 loans a year. In Illinois, they average 13
loans a year.
This trend doesn't suggest a consumer service, but it
does suggest that the industry moves people into
increasing chronic and hopeless debt and every two
weeks they're incurring another $15 fee for that same
$100 loan. Happily, in Alaska, we learned from an
industry representative at a hearing in the House that
that's not the trend here. In fact, out of 26,000
loans, one industry rep says that there's 24,000
customers, which is an average closer to one loan per
person. If that's the case, to make this, a bad
situation, better, we would like to propose that we
extend the term of the loan. Right now, it's a two
weeks term and we would propose that it become a 30-
day term, giving people one extra option for another
paycheck to get that loan paid off and we also
absolutely support the idea of partial payment.... For
the industry it would result in fewer defaults and it
would have no impact on the industry since, in fact,
they have 24,000 people who are getting these loans.
If the industry is making its money off the rollovers,
then we do have problems, again, because we have to
admit that these constant rollovers and these fees
exploit the working poor.
MS. JOELLE HALL, Eagle River resident, said she is a military
wife and served in the Army from 1983 - 1989; her husband has
many years of military service, as well. She wanted to relate
the military applications of this bill. "These payday lenders
tend to ring around military installations and from my years
moving around, I know this to be the case." Her husband is a
Sergeant-Major at Fort Richardson and she thought at first to
make these places off limits if they were operating without the
CS.
I feel it's very important to regulate these
organizations. If we can't make this kind of lending
illegal, then we have to regulate it as best as we
can. My hope is that we can make this bill work better
for the military clients who I know consume an
inordinate number of these payday loans.
The 30-day limit that was mentioned earlier would be a
great benefit. Soldiers and airmen have the option of
getting paid every 15 days, but some of them only get
paid every 30 days. So, extending it to a 30-day limit
would greatly allow those soldiers and airmen to make
their payments on time. In addition, the partial
payment question seems to be one of just decency. You
should be able to pay a part of your principle any
time you take out a loan. It's the way we do business
in America with virtually every other kind of lending.
I read in the minutes that industry believes they are
providing a service to poor people by providing these
loans and I would just urge this committee to remember
that some of the people who are procuring these loans
are actually performing a real service for their
country and we should be thinking about them. If the
industry is really interested in providing a service,
the least they can do is make these loans a little bit
more compatible for their clients who wear a uniform.
CHAIR BUNDE responded that he remembered being a GI who had
fellow GIs who wanted to borrow $10 for a $20 pay back. If they
are limited commercially, their creativity would remain the
same.
MS. HALL responded, "I believe legalized and illegal are
different things."
CHAIR BUNDE thanked her for her testimony. He wanted the sponsor
and industry to address the amendments. There being no further
business to come before the committee, he adjourned the meeting
at 3:28 p.m.
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