Legislature(2001 - 2002)

02/20/2001 01:30 PM Senate L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                     ALASKA STATE LEGISLATURE                                                                                   
                 SENATE LABOR & COMMERCE COMMITTEE                                                                            
                         February 20, 2001                                                                                      
                             1:30 p.m.                                                                                          
MEMBERS PRESENT                                                                                                               
Senator Randy Phillips, Chair                                                                                                   
Senator Alan Austerman                                                                                                          
Senator Loren Leman                                                                                                             
Senator John Torgerson                                                                                                          
Senator Bettye Davis                                                                                                            
MEMBERS ABSENT                                                                                                                
All Members Present                                                                                                             
COMMITTEE CALENDAR                                                                                                            
SENATE BILL NO. 66                                                                                                              
"An  Act  relating   to  the  authorizations  for  state   financial                                                            
institutions;   relating  to  confidential   financial  records   of                                                            
depositors   and  customers  of  certain   financial  institutions;                                                             
relating  to the  Alaska  Banking  Code,  Mutual Savings  Bank  Act,                                                            
Alaska Small Loans  Act, and Alaska Credit Union Act;  and providing                                                            
for an effective date."                                                                                                         
     HEARD AND HELD                                                                                                             
PREVIOUS COMMITTEE ACTION                                                                                                     
SB 66 - No previous action to consider.                                                                                         
WITNESS REGISTER                                                                                                              
Mr. Terry Elder, Director                                                                                                       
Division of Banking, Securities, and Corporations                                                                               
Department of Commerce and Community Development                                                                                
P.O. Box 110807                                                                                                                 
Juneau AK 99811-0807                                                                                                            
POSITION STATEMENT: Commented on SB 66.                                                                                       
Mr. Terry Lutz, Supervisor                                                                                                      
Banking Section                                                                                                                 
Division of Banking, Securities and Corporations                                                                                
Department of Commerce and Community Development                                                                                
P.O. Box 110807                                                                                                                 
Juneau AK 99811                                                                                                                 
POSITION STATEMENT: Commented on SB 66.                                                                                       
Ms. Lisa Bell, Sr. Vice President                                                                                               
Chief Operating Officer of Alaska Pacific Bank                                                                                  
Alaska Bankers Association                                                                                                      
9359 Turn St.                                                                                                                   
Juneau AK 99801                                                                                                                 
POSITION STATEMENT:  Commented on SB 66.                                                                                      
ACTION NARRATIVE                                                                                                              
TAPE 01-6, SIDE A                                                                                                             
Number 001                                                                                                                      
                   SB  66-FINANCIAL INSTITUTIONS                                                                            
CHAIRMAN  RANDY   PHILLIPS  called  the  Senate  Labor   &  Commerce                                                          
Committee meeting  to order at 1:30  p.m. and announced SB  66 to be                                                            
up for  consideration.  He announced  that he intended  to hold  the                                                            
bill  and  discuss  various  amendments.  He said  there  were  four                                                            
amendments  from the DCEC  and letters  of support.  There was  a $0                                                            
fiscal note.                                                                                                                    
MR. TERRY  ELDER,  Director, Division  of Banking,  Securities,  and                                                            
Corporations, said that  SB 66 has a couple of objectives. One is to                                                            
remove the  differences in current  statutes from state and  federal                                                            
law as provided under Gramm-Leach-Bliley  Act. This is a federal law                                                            
that  was   enacted  to  allow  banks,   insurance  companies,   and                                                            
securities  firms to combine in offering  financial services.  There                                                            
are  prohibitions   in  the  banking  code  and  certain   insurance                                                            
activities that  need to be deleted. The federal law  also creates a                                                            
new type  of holding company  called a  "financial holding  company"                                                            
which is provided for in this bill.                                                                                             
MR. ELDER  explained another  important objective  is to remove  any                                                            
unnecessary  burdens  on  the  industry  like  the  requirement  for                                                            
interstate  national  banks to  get a permit  from  the Division  to                                                            
branch into  the state. This isn't  necessary since they  don't have                                                            
the authority  to  examine those  national banks.  This bill  simply                                                            
requires a notice.                                                                                                              
Automated  teller   machines  are  also  addressed.   Under  current                                                            
statute,  the Department has  to approve those  and they propose  to                                                            
change that to a notice, also.                                                                                                  
A few sections  were inserted  to correct  some problems with  state                                                            
chartered financial institutions.                                                                                               
He  highlighted  section   3, page   2, privacy   of  the  financial                                                            
institution's  records  (with  a  letter  of proposed  amendments).                                                             
Currently,  the banking code has a  privacy requirement saying  that                                                            
customer information may  not be disclosed without permission of the                                                            
customer. Gramm-Leach-Bliley  is more broad than that.  Institutions                                                            
are allowed to  share non-public information with  affiliates and to                                                            
share them  with non-affiliated  third parties  unless the  customer                                                            
opts out. However, they  are not proposing to do that in Alaska, but                                                            
to keep  the law as it  is. Our law has  an opt in provision  rather                                                            
than opt  out. The  difference is  that a customer  actually  has to                                                            
agree to it; the opt provision  means that an institution is able to                                                            
disclose  personal information  unless they  get specific denial  of                                                            
that request from the customer.                                                                                                 
Another issue  in section 11, page 8, removes the  17 percent cap on                                                            
credit  cards  issued  by state  banks.  This  is  for a  number  of                                                            
reasons: first  the credit cards available  in Alaska from  national                                                            
banks and other  banks that operate  in other states can  be offered                                                            
to Alaskans  at any  rate, not subject  to the  17 percent cap.  The                                                            
fact is  that the only  thing the  17 percent  cap does is  prohibit                                                            
Alaska  state banks  from competing  in the credit  card market.  It                                                            
doesn't  affect  the interest  rates  on  credit cards  that  people                                                            
already have. It's a very  competitive market and the rates are best                                                            
governed in the market and not by statute.                                                                                      
SENATOR  LEMAN said  that interest  rates  in excess  of 17  percent                                                            
don't indicate  to him that  the forces of  competition have  really                                                            
driven them  down to where  the consumer benefits.  He asked  if the                                                            
reason the rates  are high is that so many of the  cards are offered                                                            
and the people  who are picking them  up shouldn't be issued  credit                                                            
MR. ELDER answered that  he couldn't give him a definitive statement                                                            
about  why interest  rates  are as  high as  they are,  but what  he                                                            
points out is true.                                                                                                             
SENATOR  LEMAN said that  he gets  about three  to five credit  card                                                            
offers per week.                                                                                                                
Number 700                                                                                                                      
MR. ELDER said  that Section 20 is the ATM section  on page 11 which                                                            
changes  current law  from requiring  approval for  placing ATMs  to                                                            
requiring a  notice. Sections 26 -  38 cover pages 12 - 16  and deal                                                            
with  branching   into  the  state  and  this  doesn't   change  any                                                            
requirements  except under current  law the Division issues  permits                                                            
to national  banks that want  to branch into  the state. It  doesn't                                                            
make any  sense, because  the Division  of Banking  can't examine  a                                                            
national bank.                                                                                                                  
Pages 20 - 24  deal with mutual savings banks and  credit unions and                                                            
those changes  put the trustees of mutual savings  banks on the same                                                            
basis and treat  credit unions the same as banks in  terms of charge                                                            
cards and ATMs.                                                                                                                 
Number 1000                                                                                                                     
SENATOR TORGERSON asked  if he had met with the banking community on                                                            
MR. ELDER  said they met  early on with the  state banks and  credit                                                            
unions. We met recently with members of the Bankers Association.                                                                
SENATOR  TORGERSON  noted  there were  a  few amendments  from  that                                                            
meeting and  asked if those would  bring them in agreement  with the                                                            
MR. ELDER  replied that  it brought  them into  conformity with  the                                                            
meeting they had. Based  on the meeting, the Banks are still looking                                                            
at provisions  and they may or may  not have other wording  changes.                                                            
He   personally   didn't  believe   there   would   be  significant                                                             
disagreements   with  the   potential  exception   of  the   privacy                                                            
SENATOR TORGERSON asked  on page 2, line 15 what they were referring                                                            
to with "under supervision  of a court or an administrative agency."                                                            
MR. ELDER said  his Department would be one of those  administrative                                                            
SENATOR TORGERSON asked if there were others.                                                                                   
MR. ELDER answered the  Federal Deposit Insurance Corporation (FDIC)                                                            
might be.                                                                                                                       
SENATOR TORGERSON  asked what  a premium  finance company was  (page                                                            
MR. ELDER answered that  it is one that finances insurance premiums.                                                            
They have to be licensed in the state to do that.                                                                               
SENATOR  TORGERSON asked  if "small  loan companies"  excluded  pawn                                                            
MR. ELDER answered  that small loan companies are  defined under the                                                            
Small Loans Act which excludes pawn shops.                                                                                      
Number 1150                                                                                                                     
SENATOR TOGERSON  asked how many banks  were being regulated  in the                                                            
MR. ELDER answered, "Not  as many as we used to. We have three state                                                            
charted commercial  banks, one state  charted mutual savings  banks,                                                            
two  state   charted  credit   unions,  and   assorted  small   loan                                                            
CHAIRMAN PHILLIPS asked if he could name them.                                                                                  
MR.  ELDER replied,  "First  Bank of  Ketchikan,  North Rim,  Denali                                                            
State Bank,  the Mount McKinley Mutual,  Credit Union One  and North                                                            
Country Credit Union."                                                                                                          
SENATOR TOGERSON  said he had the same concerns as  Senator Leman in                                                            
taking  off  the 17  percent  cap  since the  legislature  had  just                                                            
required it a couple of  years ago. He'd like to see more discussion                                                            
on  that at  a future  time.  He referred  to  page 9,  and said  it                                                            
appears to him  that  the Department is holding veto  power over the                                                            
federal reserve  system if  a person put in  an application  to be a                                                            
holding company. He didn't understand that paragraph.                                                                           
MR. ELDER explained that,  "This paragraph is fairly friendly toward                                                            
the financial  holding companies.  We are simply asking someone  who                                                            
is  already a  bank  holding  company and  who  is applying  to  the                                                            
Federal  Reserve and the  Federal Reserve  makes that determination                                                             
for designation  as a financial  holding  company - thereby  getting                                                            
all the powers  of a financial holding company. We're  simply saying                                                            
give us a notice. Section  4 allows us 30 days after Federal Reserve                                                            
approval  to deny it if there's  any reason  they can see.  The only                                                            
basis they could have would  that it would be a safety and soundness                                                            
basis or  it be contrary  to some other provision  of state  law. My                                                            
guess is that  in practice it would be very rare that  we would deny                                                            
SENATOR TORGERSON  asked if it wasn't a backwards  process where the                                                            
Federal Reserve acknowledges  them and the Department has 30 days to                                                            
reject that.                                                                                                                    
MR. ELDER replied  that these are  state entities and they  were not                                                            
controlling  in any way whether or  not a national entity  is formed                                                            
under the Federal  Reserve. They want  to maintain state  control of                                                            
state entities.                                                                                                                 
SENATOR TORGERSON said he didn't think it really said that.                                                                     
SENATOR TORGERSON asked  if foreclosure would come under disposition                                                            
of property  under  all investments  regardless of  how acquired  on                                                            
page 10, section 15.                                                                                                            
MR. ELDER replied that he thought it would.                                                                                     
SENATOR TORGERSON  said he didn't  know why he would authorize  them                                                            
to write it off if they had a foreclosure.                                                                                      
MR. TERRY LUTZ, Supervisor,  Banking Section, answered this has been                                                            
in  the banking  code for  some  time. "We  don't  want a  financial                                                            
institution  to have a  piece of  property which  they wrote  off at                                                            
$100,000, they  foreclosed on it and got a property  worth $100,000.                                                            
It shouldn't  be there for 20 years  at $100,000. If it's  there for                                                            
that long,  it's clearly not worth  $100,000. Or it's bank  property                                                            
that is  used for  banking business  in  which case  it needs  to be                                                            
classified differently and purchased by the bank."                                                                              
SENATOR TORGERSON  asked if that was for reporting  net worth, so it                                                            
can't be inflated by having a bunch of property on their books.                                                                 
MR. LUTZ answered yes.                                                                                                          
SENATOR TORGERSON  asked on page 11, line 19 regarding  ATMs and the                                                            
agreement  with other institutions  to pay  an equitable amount  for                                                            
use of  the machine,  if  banks had  exchanges where  you don't  pay                                                            
MR.  ELDER  responded  that  they are  not  changing  language  from                                                            
current law. This simply  is talking about the machines, themselves.                                                            
They can be  placed off premises,  but they have to be available  to                                                            
the customers  of other depository  institutions. "It would  require                                                            
an agreement between the  institutions, not the customers using it."                                                            
It doesn't mean that there has to be a charge to the customer.                                                                  
Number 1500                                                                                                                     
CHAIRMAN  PHILLIPS  said that  staff had  contacted  members of  the                                                            
Bankers  Association, the  Alaska  Mortgage Bankers,  all 14  credit                                                            
unions,  as well  as the  department  on this  issue.  He said  that                                                            
Credit Union One  had two suggestions and he was really  considering                                                            
number two, section 50, AS 06.45.060.                                                                                           
MR. ELDER commented  that Credit Union  One didn't raise  that issue                                                            
when he  was discussing  it  with them,  but is raising  it now.  He                                                            
didn't have  any particular objection.  It talks about changing  the                                                            
dollar  limits  of certain  loans  to directors  and  certain  other                                                            
people in  authority that  have to be reviewed  and approved  by the                                                            
Board of Directors.  On page two, they mention that  would give them                                                            
parity with the  federal charter credit unions. He  generally agrees                                                            
that  state banks  and  state credit  unions  should be  on a  level                                                            
playing field  with federal credit  unions and international  banks.                                                            
SENATOR TORGERSON said  they deviate from the Gramm-Leach-Bliley Act                                                            
under the confidentiality clauses.                                                                                              
MR.  ELDER said,  "Yes,  it is  correct,  we deviated,  though  with                                                            
permission of  Gramm-Leach-Bliley. It specifically  allows states to                                                            
adopt more restrictive privacy."                                                                                                
Number 1600                                                                                                                     
SENATOR  TORGERSON asked  if there  were any other  areas where  the                                                            
state deviates from that law.                                                                                                   
MR. ELDER answered, "Not to my knowledge."                                                                                      
CHAIRMAN PHILLIPS  asked if this legislation affected  international                                                            
MR. ELDER  answered that  nothing in this  proposal changes  current                                                            
requirements  of international  banks  to get  permission to  branch                                                            
SENATOR TORGERSON  asked if he had any more meetings  scheduled with                                                            
the Banking Association.                                                                                                        
MR. ELDER answered that  he didn't have anything else scheduled, but                                                            
their  door was always  open  and he had  invited them  to talk  any                                                            
MS. LISA BELL, Alaska Bankers  Association, said they represent nine                                                            
banks  across the  state which  includes  both state  and  federally                                                            
chartered  institutions.  She wanted  to focus today  on Section  3,                                                            
page  2, the  confidentiality  section.  "The  proposed legislation                                                             
would  move this  provision  from  its current  location  under  the                                                            
Alaska Banking  Code, which  is applicable  only to state  chartered                                                            
institutions,  into the administration section where  it would apply                                                            
to all financial institutions  operating within the state. That is a                                                            
significant  change.  I  want to  point  out  that the  privacy  and                                                            
confidentiality  of customer  information  is not  a new concept  to                                                            
banks.  Banks already  have internal  policies  and procedures  that                                                            
deal with safeguarding  of customer information and  we believe that                                                            
the biggest asset a bank can have is integrity."                                                                                
MS. BELL said  that the Gramm-Leach-Bliley  Act's privacy  provision                                                            
contains   important   new   disclosure   requirements   and   other                                                            
requirements  that pertain  to the  sharing of  non-public  personal                                                            
information with third  parties. "The rule is quite complicated and,                                                            
in fact,  the FDIC has  just published on  February 5 guidelines  to                                                            
assist banks  with complying  before the mandatory  date of  July 1,                                                            
2001."  She  added  that all  banks  are  under  intense  regulatory                                                            
scrutiny as they work on  their compliance and privacy programs. The                                                            
first  round of  examinations  has already  begun. It  is a  heavily                                                            
monitored process.                                                                                                              
MS.  BELL  said  ABA  supports  the  intent  of  SB  66,  but  their                                                            
preliminary review  of the confidentiality provisions  has disclosed                                                            
some inconsistencies between  the proposed state statutes and Gramm-                                                            
Leach-Bliley.  There are  additional restrictions  in state  statute                                                            
which  are confusing  and  not necessarily  in the  customers'  best                                                            
interest. She  said that they have  been talking with Mr.  Elder and                                                            
Mr. Lutz  and they  do intend  to meet  with them  again as soon  as                                                            
their review is finished.                                                                                                       
SENATOR TORGERSON asked when her review would be done.                                                                          
MS. BELL answered in about three weeks.                                                                                         
CHAIRMAN  PHILLIPS  thanked  everyone for  their  participation  and                                                            
adjourned the meeting at 2:10 p.m.                                                                                              

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