SB 299-BAD CHECK CHARGE  CHAIR CON BUNDE announced SB 299 to be up for consideration and that this issue was brought to his attention by the public. He explained that currently a fee of $25 can be charged to a person for writing a bad check. The original enabling legislation said the fee is for the costs incurred in processing the bad check and doing whatever had to be done to recoup on it. Some people have said that the $25 fee needs to be accounted for. A whole separate accounting system would need to be created - a challenge for a great many businesses. CHAIR BUNDE suggested clarifying the statute by saying that separate accounting is not needed and that there is a cost for writing bad checks and the cost should be borne by the people who write them. MR. SCOTT KING, Cornerstone Credit Services, Anchorage, supported SB 299. He said: The reason we feel the legislation is necessary is because of a recent Superior Court decision in Fairbanks that would require a significant change in the way we do business in collecting bad checks. The decision, which copies, I think, I provided to everyone, would require that businesses document and account for all the costs incurred when we go to collect a bad check. The cost incurred could be up to a maximum of $25. Historically, this statute has been interpreted as allowing the maximum fee to be simply a $25 fee to be collected upon and help repay for the costs incurred in taking a bad check as a business or a merchant. Those costs typically include bank fees to the merchant. When the merchant deposits the check, there's a fee associated with that - personnel costs and making phone calls, letters, accounting documentation, fees to pay collection agencies, such as myself, to collect on these bad checks. The effect of the decision would further require businesses to keep track of each expense incurred prior to them mailing out their notices. They would have to keep a line item incurring of costs until they reach the $25, which will be extremely cumbersome and somewhat impractical. SB 299 will make two simple changes to AS 09.68.115. And the first, and I believe the most important, change is to remove the language of 'for costs incurred' and the check fee and make it simply a check penalty or fee. The second is to raise the $25 to $30, bringing it more in line with other states as they have moved along.... The cost of business has obviously gone up in the last 18 years. To increase this to $30 is something we thought was reasonable, but not too much. Some states are as high as $40 and charging interest on the checks from the date the check is written, which might be a little excessive. MR. KING said Cornerstone represents over 2,000 businesses throughout Alaska and is very supportive of this bill. CHAIR BUNDE noted that he had approximately 15 additional letters of support. MR. KING said he thought more letters would be forthcoming as businesses become aware of the legislation. CHAIR BUNDE asked who would collect the $30 fee. MR. KING replied that the merchant is the entitled entity. Cornerstone collects on behalf of the merchant and is compensated by them. SENATOR STEVENS asked Mr. King to estimate a range of costs that a company has to go through in a collection process. MR. KING replied that the range of costs is dependent on the effort that is used to collect on the check. Certain immediate costs can be assumed for noticing and bank fees that range from $2 or $3 to $25, depending on the bank, to the merchant who accepted the check in return for goods and had it bounced out of his account. Any mailing or phone calls would create personnel time. Expenses can get way beyond $30 very quickly. Thirty dollars is a reasonable fee for what a merchant has already suffered from not receiving compensation for goods delivered. The problem is, if the merchant or his representative has to calculate costs on each check, as soon as the calculation is done, more than $25 or $30 worth of value has already added up in personnel costs. That is why he is suggesting setting a standard fee so the merchant isn't harmed. SENATOR FRENCH asked for the spectrum between people who write a bad check by mistake and make good on the check the next day (low end) to people who just steal other people's checkbooks and write bad checks and have no intention of paying the debt (high end). MR. KING said his experience indicates that 10 to 15 percent of bad checks will be collected with one notice or phone call; 30 to 40 percent of the checks will be paid with a reasonable amount of effort - multiple phone calls, letters etc.; and a high percentage of checks are never collected. SENATOR FRENCH asked if the middle percentage would settle within 30 days. MR. KING replied that typically payment takes up to 90 days. SENATOR FRENCH asked at what point does the collector cut his losses. MR. KING replied that he doesn't stop until the statute of limitations runs out. MR. ERNEST MADSEN, Director, Williams Express Stores, supported SB 299. His businesses receive several thousand checks per day and most of them are good, but collecting on the ones that are bad is really difficult. He also thought the fee for bad check writing should go up to $30. CHAIR BUNDE asked how much bad checks cost his company. MR. MADSEN replied that he didn't have an exact amount, but right off the bat, the commodity that was sold is lost as well as the amount that is spent on collections. He also pointed out that there is a cost for in-store devices to screen for people who write bad checks. CHAIR BUNDE asked if he had an average purchase amount for his stores. MR. MADSEN replied that the average check is around $20 to $25. MR. DAVID GARDNER, Vice President, Member and Employee Services, Golden Valley Electric Association, supported SB 299. The Association does not feel its members should have to shoulder the burden of collecting bad checks written by the very few. CHAIR BUNDE asked him if he had a monthly value for bad checks. MR. GARDNER replied that the Association has a bad debt ratio of about .05 percent, but he didn't know what percentage was bad checks as opposed to default on payment. They quit keeping track of expenses once the $25 threshold is reached. MS. PAM LABOLLE, President, Alaska State Chamber of Commerce, supported SB 299. She related how recently the State Chamber received a bad check for about $100 and worked with the bank to monitor the account daily for a month until the check was paid. TAPE 04-11, SIDE B  MS. LABOLLE concluded that calculating costs for recovering on bad checks is a burden on businesses and that is why the Chamber supports the bill. MS. THYES SHAUB, National Federation of Independent Businesses (NFIB), supported SB 299. She added that because of bed check writing, some businesses have decided not to accept checks, but to only accept cash or VISA cards. This is inconvenient for customers and detrimental to consumers who don't have credit cards. Ease of collecting on bad checks is a factor in whether businesses continue to accept them as a form of payment. SENATOR FRENCH said he thinks SB 299 is a good bill, but he is a little concerned about raising the fee from $25 to $30. His reasoning is that 26 states charge $25 or less currently and eliminating the accounting frees the collection agencies to know they are going to get the $25 every single time. Keeping the fee at $25 would avoid "price creep" and be fair. He moved to change the fee back to $25. SENATOR STEVENS maintained that the potential loss to the merchant can be far beyond the $30 and he sees no reason to change that. SENATOR SEEKINS commented that if someone accidentally wrote a bad check, it just takes a phone call to get some kind of resolution; but he doesn't have that much sympathy for someone who writes bad checks deliberately. CHAIR BUNDE asked for the roll to be called. Senators Stevens, Seekins and Chair Bunde voted nay; Senator French voted yea; and amendment 1 failed to be adopted. SENATOR STEVENS moved to pass SB 299 from committee with the attached fiscal note and individual recommendations. Senators Seekins, Stevens, French and Chair Bunde voted yea; and SB 299 moved from committee. There being no further business to come before the committee, he adjourned the meeting at 2:30 p.m.