SB 79-PAYMENT OF WAGES; PAYROLL CARD ACCOUNT  [Contains discussion of HB 171.] 3:34:04 PM CO-CHAIR FIELDS announced that the first order of business would be SENATE BILL NO. 79, "An Act relating to wage payments." [Before the committee, adopted as a working document on 5/9/25, was HCS SB79(L&C), Version 34-LS0494\N, A. Radford, 3/19/25, "Version N".] 3:34:19 PM CO-CHAIR FIELDS opened public testimony on SB 79 (L&C). 3:34:43 PM SCOTT TALBOT, EDTA Member, Electronic Transactions Association, testified in opposition to SB 79 (L&C). He stated that his company was concerned that SB 79 (L&C), as amended, would harm Alaska's economy, small businesses, and financial institutions. He stated that the payments industry charges a small fee to provide rewards, retailer loyalty programs, innovation and fraud protection for small businesses. He asserted that, were SB 79 (L&C) to become law, would threaten those benefits. He asserted that the cost to implement a new system under SB 79 (L&C) would cost a small business a "couple thousand dollars He said that taxes and gratuities may need to be processed separately under SB 79 (L&C). He referred to the federal court in the northern district of Illinois which ruled that a similar law in Illinois is likely preempted by the National Bank Acts, and as a result, national and out-of-state banks in Illinois were excluded from the legislation. He stated that [were SB 79 (L&C) found to be preempted by federal law] 99.6 percent of transactions would be excluded in Alaska. He asserted that only state chartered credit unions and financial institutions would be subject to the provisions of SB 79 (L&C), while national competitors would still be able to collect interchange fees. He concluded by suggesting that there would be costly and lengthy litigation were SB 79 (L&C) to become law. 3:37:25 PM JOSHUA BRODA, Owner, Multiple Restaurants, He stated that a reduction in interchange fees would allow him to put more money back into his business and his employees, by hiring new employees or paying his current employees higher wages. He stated that he is not concerned about the "perceived" costs of implementing the proposed legislation and offered his understanding that it is the credit card company's responsibility to update their software. He asserted that SB 79 (L&C) would help the economy by allowing Alaska's small business owners to keep more money in their businesses. 3:39:53 PM AMBER GLASSER, Director of Operations, Matsu Resort, testified in support of the amendment for SB 79 (L&C). She stated that her small business is veteran and locally owned. She noted that her restaurants profit margins are currently one to two percent and noted that her restaurant could use the extra support. She thanked the committee members for their time. 3:40:55 PM JACK MANNING, representing self, testified in support of SB 79 (L&C). He stated that he owned a small business. He stated that, in tax collection for the city, he loses a percentage to the credit card companies. He noted that the alcohol tax in Juneau, Alaska is eight percent, upon which additional fees are paid. He asserted that SB 79 (L&C) was an opportunity for fairness, and it would support municipalities and prevent small businesses from paying taxes on money that they do not collect. He thanked the committee members. 3:42:49 PM SARAH OATES HARLOW, President, Alaska CHARR, gave a prepared statement [included in the committee file] in support of SB 79 (L&C), which read as follows [original punctuation provided]: I have served as President & CEO of the Alaska Cabaret, Hotel, Restaurant, and Retailers Association (commonly known as Alaska CHARR) since 2018. Alaska CHARR is based in Anchorage but has over 750 members across Alaska communities and represents over 2,000 hospitality establishments that employ over 41,000 workers around the state. I am proud to write to you today in support of House CS for Senate Bill No. 79(L&C) [HCS SB 79 (L&C)(L&C)]. Hospitality and food service is Alaska's most diverse industry and represents over $3 billion in labor income and $5 billion in economic impact to Alaska. This is driven largely by our friends and neighbors who are small business owners, with 9 out of 10 of Alaska restaurants and hospitality establishments being small businesses. In 2024, restaurant and hospitality businesses collected and remitted over $900 million in taxes on behalf of all levels of government. However, this service for the government comes at a significant cost for the business owner, because credit card networks require businesses to pay interchange fees (also known as "swipe fees") on the taxes they collect. The same is true for tips left by credit card for servers and bartenders. In both cases, the operator collects the money, but 100% of the amount is passed on to either the government or hospitality employees. But the swipe fees (averaging 2-4% per transaction) must still be paid on the total check amount, so those fees are coming out of businesses' margins. Because of the power of the credit card companies, our small businesses in Alaska have no ability to negotiate these fees. You have heard from small businesses that the money they could save on not having to pay these fees on money they don't get to keep would enable them to increase employee wages or hire additional employees. Large corporations from New York are threatening removal or reduction of credit cards rewards programs. These are baseless threats that were also made in Europe, yet rewards programs exist there with much lower rates. Regarding concerns about the administrative burden on small businesses, you've heard that the bill would be two-fold: it would prohibit the networks from applying the interchange fees in the first place so they would have to update their software on their end, and it provides a secondary back up option for businesses to recoup those fees in the event that those large companies aren't able to get their software updated in time. Those reporting capabilities already exist in most POS systems, so there would not be an added administrative burden on small businesses. HCS SB 79 (L&C)(L&C) will help thousands of Alaskan- owned establishments around the state that collect and remit sales or other taxes on behalf of the government. This legislation would keep millions of dollars in Alaska rather than sending them to massive corporations in New York, meanwhile supporting small and Alaskan-owned businesses, increasing employment opportunities for Alaskan workers, and further contributing to Alaska's economy. I urge your support of HCS SB 79 (L&C)(L&C). 3:45:45 PM ELAINE KROLL, Executive Vice President, First National Bank of Alaska ("First National"), testified in opposition to SB 79 (L&C). She stated that First National, headquartered in Anchorage, has been serving Alaska for over 100 years. She asserted that SB 79 (L&C) would harmfully impact First National and its customers. She reported that debit and credit cards are faster, more efficient, less expensive, and relatively safer than cash. She reported that cash transactions represent approximately 16 percent of all in-person transactions. She stated that her banks, after paying Mastercard, interchange revenue makes up 1.6 percent of total revenue, which she stated was not a major profit center. She reported that interchange revenue goes towards paying employees, investing in Automated Teller Machines (ATMs) and card networks, and fraud prevention for debit and credit cards. She reported that 63 percent of United States (U.S.) credit card holders have been victimized by fraud. She additionally reported that debit and credit card fraud in the U.S. exceeded $10 billion in 2024. She additionally reported that First National had $350,000 in credit and debit card loss related to fraud in 2024 and $88,000 through March 2025. She asserted that they are not a "mega-bank." She asserted that SB 79 (L&C) would limit First National's ability to pay for fraud mitigation services and fraud losses and additionally limit First National's ability to provide rewards. Additionally, she asserted that SB 79 (L&C) would impact First National's ability to compete with mega-banks and reiterated that her bank was strongly against the proposed legislation. She thanked the committee members. 3:48:11 PM STEFEN SALDANHA, Senior Vice President, General Council, Northrim Bank, testified in opposition to SB 79 (L&C). He stated that Northrim Bank is Alaska's largest state-chartered bank with 20 branches and additionally stated that Northrim Bank issues debit and credit cards and provides merchant services for businesses and non-profits. He argued that SB 79 (L&C) would pose "significant economic and operational risks" to Northrim's financial framework and businesses across the state. He explained that Northrim... He stated that Northrim customers range from Alaska Native Corporations to small businesses and non-profits who rely on "[Northrim's] cost-effective payment, fraud protection, accounting ... banking solutions." 3:50:48 PM MICHAEL CERVANTES, Owner, The Banks Alehouse, testified in support of SB 79 (L&C). He stated that he has 47 employees. He reported that he pays $81,480 in 2024 and noted that... $23,280 in alcohol tax remittance to Fairbanks, Alaska. 3:52:48 PM TIM SULLIVAN, President, Alaska Credit Union League, He stated that in the past decade, legislation similar to SB 79 (L&C) had been introduced many times in dozens of states, and only passed in Illinois, where it was now facing a "multi-million dollar lawsuit." He further proposed that SB 79 (L&C) could violate a section of the National Bank Act and would not apply to federally chartered institutions. He noted that the judge on the Illinois legislation is expected to make a ruling on the validity of the law within the next couple of weeks to months. 3:55:40 PM STEVE RAUSCHENBERGER, State Governmental Affairs, Electronic Payment Coalition, He noted that SB 79 (L&C) could put use of international and U.S. federally chartered debit and credit cards at-risk in Alaska. He further noted that Alaska could not...He urged committee members to wait on the final decision of the lawsuit in Illinois. 3:58:26 PM MARK BURGESS, President & CEO, Credit Union One, He stated that Credit Union One was Alaska's only state-charted credit institution and served over 90,000 individuals in Alaska. He asserted that the proposed legislation was being pushed by companies such as Walmart and Amazon and said that the enactment of SB 79 (L&C) would give national banks a "free pass." He opined that SB 79 (L&C) would threaten credit card rewards, increase the risk of fraud, and mandate tips are only given in cash. 4:00:15 PM CO-CHAIR FIELDS, after ascertaining that there was no one else who wished to testify, closed public testimony on SB 79 (L&C). 4:00:26 PM REPRESENTATIVE COULOMBE requested an explanation on the purported connection between interchange fees and credit card reward programs. 4:01:00 PM MR. TALBOT replied that the fees collected during card transactions are given to all companies involved with the transaction including the banks, processors, and networks. He noted that the card issuers take the largest portion of the fee, called the interchange fee, because the card issuers take on risk of default. He stated that interchange fees are used by card issuers for a number of different services, such as fraud prevention, reward programs usually provided in partnerships with companies such as airlines, and innovations, such as tap pay. REPRESENTATIVE COULOMBE asked Mr. Talbot if he agreed with the assertion that smaller banks would be harmed under SB 79 (L&C). MR. TALBOT replied yes. He stated that, in Illinois, a federal judge granted an injunction noted that the law is likely preempted by the National Bank Act, which states that a state shall not pass a law that substantially interferes with the business of national banks. 4:05:03 PM CO-CHAIR FIELDS moved to adopt Amendment [1] to SB 79 (L&C), Version "N", labeled 34-LS0494\N.4, A. Radford, 5/14/25, which read as follows: Page 1, lines 6 - 7: Delete "An issuer, payment card network, acquirer bank, or processor may not receive" Insert "A payment card network may not establish, receive," Page 1, lines 9 - 10: Delete "acquirer bank or the acquirer bank's designee" Insert "payment card network" Page 1, lines 12 - 13: Delete "an acquirer bank or an acquirer bank's designee" Insert "a payment card network" Page 1, line 14, through page 2, line 1: Delete "acquirer bank or the acquirer bank's designee" Insert "payment card network" Page 2, line 3: Delete "issuer" Insert "payment card network" Page 2, lines 7 - 8: Delete "acquirer bank or the acquirer bank's designee" Insert "payment card network" Page 2, line 14: Delete "An issuer, payment card network, acquirer bank, or processor" Insert "A payment card network" Page 2, lines 17 - 18: Delete "the fee the issuer, payment card network, acquirer bank, or processor does not receive from fees derived from" Insert "interchange fee amounts not collected on" Page 2, lines 19 - 20: Delete "An issuer, payment card network, acquirer bank, processor, or other designated entity" Insert "A payment card network" Page 2, line 21: Delete "An issuer" Insert "A payment card network" CO-CHAIR HALL objected for the purposes of discussion. CO-CHAIR FIELDS said that he had no intention to only burden local banks. He shared his expectation that there would be litigation to the proposed legislation. 4:05:56 PM REPRESENTATIVE SADDLER requested more details on the effect of Amendment [1]. 4:06:17 PM EVAN ANDERSON, Staff, Representative Zack Fields, explained that the amendment applies the provisions of the proposed bill to payment card networks. He noted that their original request was to apply all provisions of the bill only to payment card networks. CO-CHAIR FIELDS asserted that the amendment would reduce vulnerability to challenge under the National Banking Act. 4:07:50 PM REPRESENTATIVE COULOMBE referred to page 3, citing "an entity through directly provides propriety services and opined that banks already performed the functions that the proposed legislation was aiming to address. CO-CHAIR FIELDS replied that the proposed amendment was mainly designed to have strongest possible legislative intent if credit card companies were to litigate, which the state should expect that they would. REPRESENTATIVE COULOMBE asked if the amendment would protect state-chartered banks. CO-CHAIR FIELDS stated that it was his intention to make the proposed legislation applicable to national banks. REPRESENTATIVE COULOMBE remarked that the proposed legislation would certainly be challenged in courts and asked for confirmation that Amendment [1] would strengthen SB 79 (L&C) in court. CO-CHAIR FIELDS confirmed that was correct. 4:10:11 PM REPRESENTATIVE CARRICK asked about an equal protection issue regarding the carving out" of state-chartered banks in the proposed legislation and said that she was not necessarily opposed to the proposed amendment. MX. ANDERSON explained that the proposed amendment was attempting to address the issue of state chartered credit unions and spoke to the issues that arose from equal protection clauses. CO-CHAIR FIELDS stated that his office would do further research on Representative Carrick's question. 4:11:55 PM CO-CHAIR HALL removed her objection. REPRESENTATIVE COULOMBE objected. A roll call vote was taken. Representatives Burke, Carrick, Hall, and Fields voted in favor of the motion to adopt Amendment [1] to SB 79 (L&C), Version N. Representatives Nelson and Coulombe and Saddler voted against it. Therefore, Amendment [1] was adopted by a vote of 4-3. 4:12:46 PM REPRESENTATIVE NELSON asked whether there was an updated fiscal note. 4:13:09 PM The committee took a brief at-ease at 4:13 p.m. 4:13:23 PM CO-CHAIR FIELDS requested Mr. Schmidt to speak to the fiscal note. 4:13:39 PM ROBERT SCHMIDT, Director, Division of Banking & Securities, Department of Commerce, Community & Economic Development (DCCED), He referenced a bill similar to the proposed legislation that had been enacted in Illinois and said that state banks would have to be federally charted to seek the safe harbor through preemption as the proposed legislation was attempting to enact. 4:14:46 PM REPRESENTATIVE NELSON requested a copy of the fiscal note. CO-CHAIR FIELDS remarked that, ultimately, he did not want to advance a bill that would only affect state-chartered banks. He stated that he would distribute a copy of the fiscal note once it was received from [DCCED]. REPRESENTATIVE SADDLER commented that SB 79 (L&C) had changed significantly in committee and would like to see an updated fiscal note before acting on the proposed legislation. 4:15:43 PM SENATOR JESSE BJORKMAN, Alaska State Legislature, stated that the original fiscal note was zero but offered his understanding that there could be legitimate fiscal ramifications. He opined that Alaska needed to stand up to outside interests like financial institutions and big banks seeking to interfere with purchases of firearms. 4:20:42 PM REPRESENTATIVE COULOMBE stated that she has continuously advocated for small businesses, but she was troubled by the implications for credit unions. 4:22:01 PM REPRESENTATIVE NELSON stated that he would like to see a fiscal note before acting on SB 79 (L&C). CO-CHAIR FIELDS opined that it was normal for state departments to add fiscal notes throughout a legislative process. 4:22:49 PM The committee took brief at-ease at 4:22 p.m. 4:23:06 PM CO-CHAIR HALL moved to report SB 79 (L&C), Version 34-LS0494\N, A. Radford, 3/19/25, as amended, out of committee with individual recommendations and the accompanying fiscal notes. REPRESENTATIVE SADDLER objected. REPRESENTATIVE SADDLER stated that he would have liked to consider the two elements of the proposed legislation separately. He offered his agreement that small businesses should not be paying fees and said that he was "not comfortable" in not understanding the impact of the proposed legislation. REPRESENTATIVE SADDLER maintained his objection. A roll call vote was taken. Representatives Burke, Carrick, Hall, and Fields voted in favor of the motion to report SB 79 (L&C), Version N, as amended, out of committee. Representatives Saddler, Nelson, and Coulombe voted against it. Therefore, HCS SB 79 (L&C)(L&C) was reported out of the House Labor and Commerce Standing Committee by a vote of 4-3.