SENATE BILL NO. 299 "An Act relating to a charge for a bad check." This was the first hearing for this bill in the Senate Finance Committee. Senator Bunde, Chair of the Senate Labor & Commerce (L&C) Committee, explained that this legislation is an attempt to address the issue of bounced checks. He noted that current law specifies a business could collect up to a $25 penalty fee in the case where a person writes bad checks to a business. Continuing, he shared that, on occasion, a business has been challenged to provide proof that its penalty fee is warranted, and he commented that this legislation has been drafted to address this situation because bring required to honor the documentation request incurs additional expenses to a business. Therefore, he summarized that this legislation would increase the bad check penalty from $25 to $30 and would remove the legal requirement to provide cost documentation. Co-Chair Green noted that current statute limits the penalty fee to $25, and she confirmed that the Court has overturned some of the penalty fees. JANE ALBERTS, Staff to Senator Con Bunde and Aide, Senate Labor & Commerce Committee, noted that this bill would establish a set fee for "a bounced or insufficient" funds check. She noted that the bill would also make the collection process "less cumbersome" for businesses. She mentioned that "15 percent of bad checks that are written are by innocent customers who are unaware of their fund level at the time," and who make good on their checks within a day or two of notification. She pointed out that "42 percent of bad check writers are chronic bad check writers who often take more than 90 days" to rectify the problem. She also noted that 45 percent of all bad checks written are unrecoverable. She stated that this legislation would be "a clear deterrent" to writing a bad check. In addition, she noted that without relief, some businesses might decline to accept checks as a form of payment due to the "hassle" of the collection process. She noted that the legislation "is widely supported" by Alaskan businesses, as witnessed by the number of letters received regarding it. She also noted that the fee for bad checks has not been increased in 18 years. Co-Chair Green pointed out that a $30 bad check fee would align with the fees charged in other states, according to the handout titled "Service Fees for Returned Checks" [copy on file] that Senator Bunde has provided. Senator Olson asked whether there is any opposition to this legislation. Ms. Alberts responded that no one has voiced opposition. JILL JAECKEL, Legal Assistant, Spenard Builders Supply, testified via teleconference from an offnet site in support of the bill. She declared that businesses suffer losses "when the profit from a cash sale is dramatically reduced" because of a 90-day delay in payment or is uncollectible as a result of a bad check. Co-Chair Green asked Spenard Builders Supply's policy when a person refuses to make restitution on a bad check. Ms. Jaeckel shared that Spenard Builders Supply seeks civil penalties when attempting to collect a large check and resorts to filing small claims cases. She continued that were the business "lucky enough to be able to locate" the individual, they seek a court judgment and collect from the offender's Permanent Fund Dividend (PFD) check if one is applied for. She stated that this process "is trickier" than when dealing with someone who has filled out a credit application because less information is available. Co-Chair Green asked whether in current law, there is "intent language" which might be detrimental to the collection process because the intent language might specify that proof must be provided to show that the offender knowingly wrote a bad check. Ms Jaeckel responded that this might be applicable to a fraud issue in which there is criminal intent. Co-Chair Green asked whether, in a fraud case, a specific monetary level must be involved. Ms. Jaeckel responded that when Spenard Builders Supply has had to deal with a situation in which a large check "has been clearly written fraudulently and clearly are a criminal case," its chance of collection "are so low," that "if there is criminal action and if there is restitution that is awarded through those court cases," the business might collect "ten cents on a dollar eight years from now." Senator Hoffman asserted that part of the difficulty in collecting on bad checks lies with the fact that financial institutions limit the number of times a bad check could be presented for processing to two times. He asked whether this is an issue. Ms. Jaeckel affirmed that a bad check could only be presented for payment twice. However, she noted that the check could be presented at the originating bank and a cashier's check for the amount owed could be gotten were funds in the account. She expressed however that this increases the collection process expense. Senator Hoffman asked whether addressing the number of times that a financial institution would be required to process a check could be considered. Ms. Jaeckel replied that this would result in additional expenses as financial institutes charge up to $30 each time an insufficient fund check is submitted and the funds are not there. Senator Hoffman declared that this expense might serve as a disincentive to individuals to write bad checks. Ms. Jaeckel responded that this does not seem to be "a big concern" to individuals who knowingly write bad checks. She stated that it would serve to get "them further in the hole, and in a worse situation" and might make it more difficult for a business to be able to collect. She opined that while it would not deter those who knowingly write bad checks, it might deter those 15-percent who unknowingly write a bad check. However, she noted that those are the ones whose checks normally clear the bank the second time they are submitted. Co-Chair Green asked who is responsible for paying the insufficient funds bank fee. Ms. Jaeckel clarified that both the bad check writer and the business submitting the check are charged a fee, although she noted that the person responsible for writing the bad check is charged a higher fee than the business. Co-Chair Green summarized therefore that both the business and the person writing the bad check would be penalized. Ms. Jaeckel concurred. SCOTT KING, Representative, Cornerstone Credit Services, LLC, testified via teleconference from an offnet site in support of the bill. He stressed that his company's interest in this legislation was prompted by a recent District Court decision in Fairbanks that specified that businesses would be required to "document and account for all costs incurred" in their efforts to collect on a bad check. Mr. King continued that the current $25 fee assists businesses in covering internal expenses associated with the collection process including such things as merchants' bank fees, personnel costs, letters, telephone calls, accounting documentation, and fees paid to collection agencies. He stated that the District Court's decision would require a business to document each of these activities and that only the activities documented could be included in the collection assessment fee. He communicated that important changes in the bill include the elimination of the words "for costs incurred" from State statutes so that a business would not be required to document the costs incurred from collecting a bad check and the increase of the maximum fee from $25 to $30 to bring it more in line with other states' fees and to adjust for at least 18 years of unadjusted inflation. Mr. King stated that his company, which provides check verification and check collection services, represents more than 2,000 businesses in the State who would be negatively affected by the District Court decision. SFC 04 # 24, Side B 09:53 AM Mr. King spoke of the volume of business letters that have been submitted in support of this legislation, and he urged the Committee to support the bill. PAM LABOLLE, President, Alaska State Chamber of Commerce, testified to the Chamber's support of the bill. She shared that the Chamber's members in their collection efforts have experienced costs exceeding the currently allowed $25, and even the proposed $30 fee. She reiterated that the District Court's ruling has necessitated the proposed changes in this law, as it would have "great" negative impact on businesses. Co-Chair Green asked whether the Chamber's members have any other bad check issues that should be addressed. Ms. LaBolle responded in the negative. AT EASE 9:55 AM / 9:55 AM Ms. Alberts informed that currently bank fees charged to businesses for processing bad checks range from $2 to $25 dollars. Co-Chair Green asked for that information to be provided to Members. Senator Bunde moved to report the bill from Committee with individual recommendations and accompanying fiscal note. There being no objection, SB 299 was REPORTED from Committee with zero fiscal note #1 from the Department of Administration.