Legislature(2001 - 2002)

03/29/2001 01:35 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                                                                            
                          March 29, 2001                                                                                        
                              1:35 pm                                                                                           
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 - See Labor and Commerce minutes dated 2/20/01 and                                                                        
WITNESS REGISTER                                                                                                              
Mr. Joe Schierhorn, Sr. Vice President                                                                                          
Northrim Bank                                                                                                                   
Alaska Bankers Association                                                                                                      
3111 C Street                                                                                                                   
Anchorage AK 99503                                                                                                              
POSITION STATEMENT:  Supported general provisions of SB 66.                                                                   
Ms. Julie Bailey, Assistant Vice President                                                                                      
Northrim Bank                                                                                                                   
3111 C Street                                                                                                                   
Anchorage AK 99503                                                                                                              
POSITION STATEMENT: Supported SB 66.                                                                                          
Mr. David Lawer, Sr. Vice President and General Counsel                                                                         
First National Bank of Anchorage                                                                                                
101 W. 36th                                                                                                                     
Anchorage AK 99503                                                                                                              
POSITION STATEMENT:  Supported SB 66.                                                                                         
Mr. Jerry Weaver, Sr. Vice President                                                                                            
National Bank of Alaska                                                                                                         
Secretary, Alaska Bankers Association                                                                                           
305 Northern Lights Blvd.                                                                                                       
Anchorage AK 99510                                                                                                              
POSITION STATEMENT: Supported SB 66.                                                                                          
Ms. Renee Devereaux, Sr. Vice President                                                                                         
Residential Mortgage                                                                                                            
President, Alaska Mortgage Bankers Association                                                                                  
1400 W. Benson Blvd, #200                                                                                                       
Anchorage AK 99503                                                                                                              
POSITION STATEMENT: Supported SB 66.                                                                                          
Ms. Lisa Bell, Sr. Vice President & COO                                                                                         
Alaska Pacific Bank                                                                                                             
Alaska Bankers Association                                                                                                      
POSITION STATEMENT: Supported CSSB 66.                                                                                        
Mr. Terry Elder, Director                                                                                                       
Division of Banking, Securities and Corporations                                                                                
Department of Community and Economic Development                                                                                
P.O. Box 110807                                                                                                                 
Juneau AK 99811                                                                                                                 
POSITION STATEMENT: Commented on SB 66                                                                                        
ACTION NARRATIVE                                                                                                              
TAPE 01-14, SIDE A                                                                                                            
Number 001                                                                                                                      
                   SB  66-FINANCIAL INSTITUTIONS                                                                            
CHAIRMAN RANDY PHILLIPS called the Senate Labor & Commerce                                                                    
Committee meeting to order at 1:35 pm and announced SB 66 to be up                                                              
for consideration.                                                                                                              
MR. JOE SCHIERHORN, Senior Vice President, Northrim Bank,                                                                       
representing the Alaska Bankers Association, supported the primary                                                              
provisions of SB 66. He said:                                                                                                   
     The idea behind  the Bankers amended language  is a desire                                                                 
     to have  state laws nearer the  privacy requirements  that                                                                 
     have been passed at the  national level by congress in the                                                                 
     Gramm-Leach-Bliley   (GLBA)  bill.  The  issue  revolving                                                                  
     around  this is  the banks'  desire to  share information                                                                  
     about  products  and  services  that they  feel  would  be                                                                 
     beneficial  to  their  customers.  The regulatory  scheme                                                                  
     proposed by  the State Division of Banking is  contrary to                                                                 
     that  in GLBA. Alaska  banks will  be treated differently                                                                  
     than  other financial  institutions  located  outside  the                                                                 
     state that  may choose to do business in the state.  Banks                                                                 
     will   also  be   treated   differently   than  insurance                                                                  
MR. SCHIERHORN said  that the proposed regulatory scheme  would                                                                 
treat  smaller  banks   without  affiliates  differently   than                                                                 
Alaskan banks with affiliates. This is  because the Fair Credit                                                                 
Reporting Act preempts state law as it  pertains to information                                                                 
sharing  among affiliates.  They feel it  is unequal treatment                                                                  
and not a level playing field. They, therefore,  firmly support                                                                 
language in the committee substitute.                                                                                           
CHAIRMAN PHILLIPS  asked him if he  was referring to the  F version,                                                            
3/29/01. Mr. Schierhorn  indicated that was correct, in particularly                                                            
since it adopts the privacy provisions in GLBA.                                                                                 
MS. JULIE BAILEY,  Vice President,  said that GLBA already  requires                                                            
banks to protect  their customers while providing  them with choices                                                            
that  they want  and expect.  All  banks are  required  to send  out                                                            
privacy notices  to their existing  customers annually. The  notices                                                            
have to include  the categories of  information a bank collects  and                                                            
discloses,  categories   of affiliates   and  non-affiliates,    and                                                            
categories  of non-public  personal  information  if  the bank  does                                                            
that.  It has to  include information  sharing  practices  including                                                            
categories  of service providers or  joint marketing exceptions  and                                                            
it has provide  the consumer with the right to opt-out.  The notices                                                            
must include  any disclosures the  bank makes under the Fair  Credit                                                            
Reporting   Act  and  confidentiality   and  security  of   customer                                                            
information at the particular  institution and how they ensure that.                                                            
At any point,  if any information  sharing practices should  change,                                                            
they are required to send  out a new notice and give the customers a                                                            
choice of what they want to do.                                                                                                 
SENATOR  LEMAN asked  if the GLBA  provisions  require that  notices                                                            
contain identification of who the affiliates are?                                                                               
MS. BAILEY answered yes.                                                                                                        
MR. DAVID LAWER, Sr. Vice  President, First National Bank, supported                                                            
the  SB  66, but  Section  4  includes  Subsection  (b),  which  the                                                            
Bankers'   Association  doesn't   object  to,   but  thinks   it  is                                                            
MR. JERRY WEAVER, Sr. Vice  President and Manager Commercial Banking                                                            
Group,  National  Bank  of  Alaska  and  Secretary,  Alaska  Bankers                                                            
Association, said they support the draft version of SB 66.                                                                      
MS.   RENEE   DEVEREAUX,   President,   Alaska    Mortgage   Bankers                                                            
Association,  and  Sr. Vice  President  Residential  Mortgage,  said                                                            
their main concern was  that the opt-in feature was out of the bill,                                                            
because that would affect their ability to sell services.                                                                       
MS. LISA BELL,  Sr. Vice President,  Alaska Pacific Bank,  supported                                                            
the committee substitute  to SB 66. However, she thought language on                                                            
page 3,  line 2,  "when disclosure  is required  or permitted  under                                                            
(a)(2) or (3)",  (the exceptions to when it is allowable  to release                                                            
information)  was superfluous,  since (a)(3)  is a direct  reference                                                            
back  to  GLBA. If  institutions  are  working  towards  an  opt-out                                                            
situation,  they wouldn't want to  be notifying the customer  within                                                            
three days that they have  just sent them a mailing. It doesn't make                                                            
sense," she said.                                                                                                               
Number 1100                                                                                                                     
MR.  TERRY ELDER,  Director,  Division  of Banking,  Securities  and                                                            
Corporations,  said  he  had  just  received   the  draft  committee                                                            
substitute  and  there  wasn't  sufficient  time  to look  it  over,                                                            
although a number  of areas look fine. He said the  only significant                                                            
difference they  had with the Bankers Association  is on the privacy                                                            
provision.  The other  differences  were primarily  wording and  not                                                            
substantive.   Page 2,  line 26,  includes a reference  to GLBA  and                                                            
provides   an  opt-out   for  sharing  of   non-public,   personally                                                            
identifiable information with non-affiliated third parties.                                                                     
     We continue to take the  position that that should be opt-                                                                 
     in. GLBA does  allow, under Section 524, states  to have a                                                                 
     more  stringent privacy  policy  and given  the fact  that                                                                 
     we've had for over 30 years,  that kind of protection with                                                                 
     Alaska  depositors  and given the  fact that  we have  the                                                                 
     provision  in the state constitution  that we have,  those                                                                 
     two reasons  are reasons enough,  in this case, not  to be                                                                 
     national in scope, but to  be Alaskan in scope and protect                                                                 
     more  than the  GLBA  provides  for. Ordinarily,  in  many                                                                 
     cases,   whether   we're  talking   here   about  banking                                                                  
     regulations or securities  regulations, the division takes                                                                 
     the position quite often  that we want to be as uniform as                                                                 
     we can  and we want  to be as like  the federal law as  we                                                                 
     can.  So this  is a different  position  for the division                                                                  
     than it usually takes. The  fact that current banking code                                                                 
     has  that provision  and the state  constitution has  that                                                                 
     provision, we think it's called for in this case.                                                                          
     The  other thing  I'll  point out  in the  documents  that                                                                 
     we've  provided the  committee that  I've referenced  this                                                                 
     afternoon,  whether it's opt-in or opt-out, they  are just                                                                 
     mechanisms. Regardless of  how, every institution is going                                                                 
     to have to  have two lists of customers, an okay  to share                                                                 
     list and a  not okay list. So opt-in and opt-out  are just                                                                 
     the mechanisms  by which their customers are going  to get                                                                 
     themselves  on one of those lists. It's not like,  whether                                                                 
     you pick opt-out or opt-in,  the institutions can share or                                                                 
     not   share  the  information.   There   is  actually   no                                                                 
     restriction  on the sharing of that information.  The only                                                                 
     thing  we're really talking about  here is the mechanism.                                                                  
     We  understand   and  probably  agree  with  the  Bankers                                                                  
     Association  that opt-in is more  expensive than opt-out,                                                                  
     because people  who don't respond, if you want  to require                                                                 
     them to make a choice, you're  going to have to go back to                                                                 
     those people more often  in an opt-in situation than in an                                                                 
     opt-out  situation.  In an  opt-out situation,  you  never                                                                 
     have  to contact  them  again, until  the next  year  when                                                                 
     you're required  to. In an opt-in, of course,  if you want                                                                 
     them to be in, you are going  to have to do that. However,                                                                 
     under both scenarios, the  institution is going to have to                                                                 
     maintain  two  separate lists  and  make sure  they  don't                                                                 
     share information for people who have opted out.                                                                           
MR.  ELDER   concluded  saying  that   the  legislature   would                                                                 
ultimately   have  to  make  the   policy  decision.  He   also                                                                 
recommended  deleting  "having jurisdiction  of  the financial                                                                  
institution;"  on page 2, line 25.  He explained that language                                                                  
could  be interpreted  to require  his agency  to issue orders                                                                  
even when it's not the division doing the investigation.                                                                        
MR. LAWER responded  that language  was suggested because  all banks                                                            
very  often  receive process  issued  by  courts  that do  not  have                                                            
jurisdiction over the bank from whom records are being sought.                                                                  
Number 1600                                                                                                                     
MS. BELL agreed with Mr. Lawer's comments.                                                                                      
MR. ELDER responded  that as Mr. Lawer  stated, the banks  routinely                                                            
resist doing those  kinds of things, so he didn't  think it would be                                                            
a problem  to delete  it. He  said that  (a)(3) on  page 3, line  2,                                                            
needs to be deleted  and recommended leaving section  (d) on page 3,                                                            
line 8, in. Comments  from Anchorage suggested that  was superfluous                                                            
because  of (a)(3),  which  references  GLBA,  but (d)  provides  an                                                            
exception to the  disclosure and approval requirement  for financial                                                            
institutions'  disclosure   to  any  person.  They  are  not  saying                                                            
"affiliated"  or "non-affiliated"  person; they are saying  both. It                                                            
obviates  the problem  that  under opt-in,  you might  have  smaller                                                            
institutions  that  couldn't compete.  Section  (d)  allows them  to                                                            
disclose  information  that's necessary  for providing  services  to                                                            
customers. This includes  things like printing statements and checks                                                            
and to the  extent of marketing services.  He thought this  would be                                                            
an advantage to an institution without a lot of affiliates.                                                                     
MR. LAWER responded that  these matters are covered by GLBA and this                                                            
language is an  unnecessary complication. There are  two concepts in                                                            
(d)(1);  disclosure  must  be  necessary.  He  questioned,  "How  is                                                            
anybody to reckon necessity  with respect to disclosure?" and asked,                                                            
"What are the  essential services of a financial institution?  Every                                                            
bank in  the state offers  a different array  of financial  services                                                            
and no two of them are alike."                                                                                                  
MR. ELDER responded  that he wouldn't  object to the elimination  of                                                            
the  word "essential",  if  they kept  "services".  GLBA only  talks                                                            
about  sharing with  non-affiliated  third  parties.  It's the  Fair                                                            
Credit Reporting Act that  deals with the affiliates. Language in SB
66 doesn't make  the distinction and he thought it  was important to                                                            
do that.                                                                                                                        
CHAIRMAN  PHILLIPS  asked  Mr.  Lawer if  he  objected  to  deleting                                                            
MR.  LAWER reiterated  that  he thought  it brought  on unnecessary                                                             
complications.  The Bankers will not oppose it, if  it includes this                                                            
MS. BAILEY commented  that this would be covered under  GLBA and she                                                            
didn't know why it was listed again.                                                                                            
MR. ELDER said he noticed  on page 2 that (a) has (1)(2) and (3) and                                                            
he wasn't sure of the purpose,  since banks would continue to verify                                                            
sufficient funds.  "Perhaps they'll say it is covered  under (a)(3),                                                            
but my  recollection on GLBA  is that it  does not cover  commercial                                                            
accounts, for  example, and agricultural accounts.  So GLBA does not                                                            
cover all  account and I'm  not sure there's  any value to  dropping                                                            
the current provisions of (a)(4) and (5).                                                                                       
CHAIRMAN PHILLIPS  said he intended to work on the  bill further and                                                            
move it  out of committee  on Tuesday and  adjourned the meeting  at                                                            
2:13 pm.                                                                                                                        

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